Friday, July 25, 2008

Index Research: The Pentagon and Oil

Index Research: The Pentagon and Oil

by Sarah Meyer

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Nick Turse wrote, on Tom Dispatch (17.07.08): “For years, "oil" and "Iraq" couldn't make it into the same sentence in mainstream coverage of the invasion and occupation of that country. Recently, that's begun to change, but "oil" and "the Pentagon" still seldom make the news together. “

SOHBET KARBUZ has been following “Oil” and “the Pentagon” since 1999. Karbuz’ most complete article, US Military Energy Consumption- Facts and Figures, with extensive footnotes, was published in May 2007 on Energy Bulletin.

From this article, we learn that:


  • The U.S. military is the single largest consumer of energy in the world. The American GI is the most energy-consuming soldier ever seen on the field of war. In 2005, The U.S. Navy was the largest diesel fuel user in the world.


  • The DoD's total primary energy consumption in Fiscal Year 2006 was 1100 trillion Btu


  • Defense Energy Support Center (DESC) sold $13 billion of energy to DoD services in FY2006. More than half of it was to Air Force. Oil accounts for more than three-fourths of DoD's total site delivered energy consumption. In terms of fuel types, jet fuel(JP-8) accounts for more than 50% of total DoD energy consumption, and nearly 60% of its mobility fuel. In 2006 Air Force consumed around 2.6 billion gallons of jet-fuel, which is the same amount of fuel U.S. airplanes consumed during WWII (between December 1941 and August 1945).




  • Nearly three quarters of DoD site delivered energy is consumed by vehicles … Only one quarter is consumed in buildings and facilities. According to the DoD's Federal Energy Management Report for FY2006, the DoD spent approximately $3.5 billion on facility energy and $16.5 billion on energy for tactical vehicles. To this we should add 238 million spent on non-tactical vehicles. DoD consumed 97 million gasoline gallons for its non-tactical vehicles and for that it spent 238 million dollars.


  • The fixed costs of defending Persian Gulf oil amounts to $137.8 billion annually.


  • The U.S. military consumed almost 180 million barrels (or 490 thousand barrels per day) of oil in 1985 worldwide. In 2006, its oil consumption was down to 117 million barrels (or 320 thousand barrels per day),[10] despite increasing activity in Iraq and Afghanistan. The discrepancies in these facts are discussed by Karbuz in Fact 7.


  • The US spends about 150 thousand barrels abroad (“pessimist estimate”) per day.


  • Whatever the true figure, oil consumed by the U.S. military does not show up in world oil demand. For more explanation, see under item #425 in October 2004 issue of ASPO Newsletter.


  • Delivery of Fuel: Over 70 percent of the tonnage required to position today's U.S. Army into battle is fuel. The Air Force spends approximately 85 percent of its fuel budget to deliver, by airborne tankers, just 6 percent of its annual jet fuel usage." … Of the top 10 battlefield guzzlers in the U.S. Army, only 2 are combat vehicles (the Abrams tank and the Apache helicopter). The other eight carry fuel and supplies. Over half of the fuel transported to the battlefield is consumed by support vehicles, not vehicles engaged in frontline combat. … The Army has 40,000 troops involved in either the distribution or movement of energy.


  • All Air Force's future aircrafts under procurement (F-22 Raptor, F-35 as well as new aerial refueling tanker KC-X, etc) run on oil. They will remain in service at least until 2030.

From Military Oil Consumption in Afghanistan and Iraq (10.06.07), we learn that: The DLA supplied more than 2.8 billion gallons of fuel to Operation Iraqi Freedom and more than 2.2 billion gallons of fuel support to Operation Enduring Freedom as of March 2006. This makes more than 5 billion gallons, or more than 119 million barrels of oil. Today 56 000 barrels of oil per day, with a cost of at least $3 million, is consumed by military in Afghanistan and Iraq . “Unfortunately, total amount of paid and unpaid oil used by the US military in “freedom” operations in Afghanistan and Iraq, and its true cost (including delivery) are still a mystery, not helped by the fact that 'The US military bases in Iraq and Afghanistan (including the ones identified here) are not counted in the 3,748 military sites listed in the Base Structure Report for Fiscal Year 2005 of the US Department of Defense'. In Afghanistan According to the DLA facts (DLA removed link), as of March 2006 “more than 2.2 billion gallons of fuel,” which makes 52 million barrels, was supplied to Afghanistan.

  • On any given day, there are more than 300 trucks, carrying approximately three million gallons of fuel (71429 barrels), en route to military locations downrange. Interesting discussion, with map, of fuel supply lines.


  • In total, the US military consumes roughly 16 kb/d of oil in Afghanistan. Of this amount roughly 2.7 kb/d comes from Turkmenistan, 2.4 kb/d from Uzbekistan and 10.8 kb/d from Pakistan.

In Iraq According to the DLA facts (DLA removed link) as of March 2006, the US military oil consumption in Iraq was more than 2.8 billion gallons, which makes 67 million barrels. According to Colonel Rohrer, Director of Bulk Fuels, American forces in Iraq use more than 1.3 million gallons (31 kb/d) of fuel each day. According to an Atlantic Monthly article, however, it is 1.7 million gallons of fuel a day (40 kb/d). “Each of the 150,000 soldiers on the ground consumes roughly nine gallons of fuel a day. And that figure has been rising.” The number of soldiers varies, so figures can be confusing. [see footnotes]. See Fuel Consumption per US Soldier per day (20.04.08). The last news report citing this issue was here. [Military Feels Fuel-Cost Gouge in Iraq in April 2008] From US Military Oil Use Abroad (27.07.08). we see Karbuz’ estimates which include non-tactical vehicles, i.e., fleet vehicles such as trucks, passenger cars, SUVs etc.

  • Total US military oil consumption went up from 295 kbd in 2000 to 363 kbd in 2007.


  • OCONUS (oil consumed abroad) oil consumption accounted for 50% of total US military oil consumption in 2007, compared to only one-third in the year 2000. The US military oil consumption abroad was 180 kbd in 2007.

See more articles by Sohbet Karbuz: Privatization of Warfare in Iraq (01.08.07) More Fight - Less Fuel (16.02.08). Critique on Defense Science Board Report: “lacks direct and precise answers to what it was asked to deliver.” DOD and Alternatives to Conventional Oil (12.06.08) Dr. Sohbet Karbuz currently works for an energy industry association in France. A former official of the International Energy Agency, He also worked as a scientist in Germany and Austria. Sarah Meyer is a researcher living in the UK.

U.S. Foreclosures Double as House Prices Decline

U.S. Foreclosures Double as House Prices Decline

By Bob Ivry

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U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

‘‘Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. ‘‘That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

About 25 million U.S. homeowners risk owing more than the value of their homes, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. That would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

New Home Sales

The Commerce Department today reported that new home sales fell less than expected, and a Standard and Poor's measure of homebuilder stocks rose as much as 6.1 percent.

Sales of new homes fell 0.6 percent to a 530,000 pace from 533,000 in May, a reading higher than previously estimated, the Commerce Department said in Washington. The number of properties on the market dropped by the most in four decades, today's report showed, indicating builders are making some headway in clearing out inventories.

Economists had forecast sales would decline to a 503,000 pace, from a previously reported 512,000 for May, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 480,000 to 530,000. IND' ))"> The Standard and Poor's Supercomposite Homebuilding Index rose 4.2 percent at 11:14 am, lowering its loss for the past 12 months to 42 percent. Pulte Homes Inc., a builder based in Bloomfield Hills, Michigan, was the biggest gainer, climbing 80 cents, or 7.3 percent, to $11.83 at 11:16 a.m. in New York Stock Exchange composite trading. The shares have lost 43 percent of their value in the past 12 months.

Doubling Projections

Falling home values, led by states such as Nevada and California that have the biggest default rate, have prompted RealtyTrac to almost double the projected number of foreclosures this year to about 2.5 million, said Rick Sharga, executive vice president for marketing.

‘‘The big variable here is what effect the housing bill now being considered by the Senate is going to have on foreclosure activity in general,'' Sharga said in an interview. ‘‘Based on market conditions themselves, we are nowhere near the end of this trip. Best-case scenario, we're looking at another year of this.''

The housing bill aims to help 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government. The measure passed the House of Representatives and President George W. Bush has said he would sign it.

Subprime mortgages were available to borrowers with bad or incomplete credit histories and default at five times the rate of prime mortgages, according to the Mortgage Bankers Association in Washington.

Bank Seizures Rise

Bank seizures in the first half of the year increased by 154 percent to 370,179 from the same period in 2007, RealtyTrac said. Last year's second-quarter data on bank repossessions was not available, according to RealtyTrac.

Forty-eight of 50 states and 95 of the 100 largest U.S. metropolitan areas had year-over-year increases in foreclosure filings in the second quarter, RealtyTrac said.

Nevada was the state with the highest rate. One in every 43 households received a foreclosure notice in the quarter, four times the national average and an increase of 147 percent from a year earlier, according to RealtyTrac.

Foreclosure filings tripled in California, where one in every 65 households was affected, the second-highest rate among states. Arizona had the third-highest rate, with one every 70 households, a more than threefold increase from the second quarter of 2007, RealtyTrac said.

Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts and Illinois rounded out RealtyTrac's top 10.

Fewer Mortgages Available

Lenders will cut in half the number of mortgages to purchase homes in 2008 compared with two years ago, said Guy Cecala, publisher of the Bethesda, Maryland-based trade publication Inside Mortgage Finance.

Bank repossessions, or REOs -- meaning ‘‘real estate-owned'' -- accounted for 30 percent of total foreclosure activity in the second quarter, up from 24 percent of the total in the first quarter, RealtyTrac said.

Foreclosures push all home values down by an estimated 6 percent, and will contribute to national prices declining another 15 percent by the end of 2009, Ethan Harris and Michelle Meyer, Lehman Brothers Holdings Inc. economists in New York, said in a report yesterday.

Uncertainty

‘‘I believe a big part of the problem we're facing in the market right now is uncertainty,'' Sharga said. ‘‘Buyers aren't sure if this is the right time to get in, lenders aren't sure where to lend, investors aren't sure where to put their money in an environment of depreciating assets. The psychology of the market is as responsible as the financial part of the market.''

Seven of the 11 metropolitan areas with the highest rates of foreclosure filings in the second quarter were in California, according to RealtyTrac. The Stockton area, in California's Central Valley, had the highest incidence, with one in 25 households receiving filings.

In Riverside-San Bernardino, known as the Inland Empire, where the California Association of Realtors said home prices plummeted 35 percent in May compared with a year earlier, one in 32 households entered foreclosure, according to RealtyTrac.

Bakersfield, Sacramento, Oakland, Fresno and San Diego were the other California metro areas in the top 11.

The Las Vegas area, where home values fell 27 percent in May compared with a year earlier, according to the S&P/Case-Shiller Home Price Index, had the third-highest foreclosure rate, with one in every 35 households, RealtyTrac said.

Fort Lauderdale, Florida, Phoenix and Miami were the other metropolitan areas in RealtyTrac's top 11.

New York filings increased 62 percent from a year earlier to 16,025, with one in every 493 households in a stage of foreclosure, the 30th-highest rate.

New Jersey filings rose 140 percent. One in every 201 households in the state received notice, the 12th-highest rate in the U.S.

Evidence of the US Banking System Teetering on the Brink of Collapse

Evidence of the US Banking System Teetering on the Brink of Collapse

By: Mike_Shedlock

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1. Paulson appears on Face The Nation and says "Our banking system is a safe and a sound one." If the banking system was safe and sound, everyone would know it (or at least think it). There would be no need to say it.

2. Paulson says the list of troubled banks "is a very manageable situation". The reality is there are 90 banks on the list of problem banks. Indymac was not one of them until a month before it collapsed. How many other banks will magically appear on the list a month before they collapse?

3. In a Northern Rock moment, depositors at Indymac pull out their cash. Police had to be called in to ensure order.

4. Washington Mutual (WM), another troubled bank, refused to honor Indymac cashier's checks. The irony is it makes no sense for customers to pull insured deposits out of Indymac after it went into receivership. The second irony is the last place one would want to put those funds would be Washington Mutual. Eventually Washington Mutual decided it would take those checks but with an 8 week hold. Will Washington Mutual even be around 8 weeks from now?

5. Paulson asked for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae (FNM) and Freddie Mac (FRE)" just days after he said "Financial Institutions Must Be Allowed To Fail". Obviously Paulson is reporting from the 5th dimension. In some alternate universe, his statements just might make sense.

6. Former Fed Governor William Poole says "Fannie Mae, Freddie Losses Makes Them Insolvent".

7. Paulson says Fannie Mae and Freddie Mac are "essential" because they represent the only "functioning" part of the home loan market. The firms own or guarantee about half of the $12 trillion in U.S. mortgages. Is it possible to have a sound banking system when the only "functioning" part of the mortgage market is insolvent?

8. Bernanke testified before Congress on monetary policy but did not comment on either money supply or interest rates. The word "money" did not appear at all in his testimony. The only time "interest rate" appeared in his testimony was in relation to consumer credit card rates. How can you have any reasonable economic policy when the Fed chairman is scared half to death to discuss interest rates and money supply?

9. The SEC issued a protective order to protect those most responsible for naked short selling. As long as the investment banks and brokers were making money engaging in naked shorting of stocks, there was no problem. However, when the bears began using the tactic against the big financials, it became time to selectively enforce the existing regulation.

10. The Fed takes emergency actions twice during options expirations week in regards to the discount window and rate cuts.

11. The SEC takes emergency action during options expirations week regarding short sales.

12. The Fed has implemented an alphabet soup of pawn shop lending facilities whereby the Fed accepts garbage as collateral in exchange for treasuries. Those new Fed lending facilities are called the Term Auction Facility (TAF), the Term Security Lending Facility (TSLF), and the Primary Dealer Credit Facility (PDCF).

13. Citigroup (C), Lehman (LEH), Morgan Stanley(MS), Goldman Sachs (GS) and Merrill Lynch (MER) all have a huge percentage of level 3 assets. Level 3 assets are commonly known as "marked to fantasy" assets. In other words, the value of those assets is significantly if not ridiculously overvalued in comparison to what those assets would fetch on the open market. It is debatable if any of the above firms survive in their present form. Some may not survive in any form.

14. Bernanke openly solicits private equity firms to invest in banks. Is this even close to a remotely normal action for Fed chairman to take?

15. Bear Stearns was taken over by JPMorgan (JPM) days after insuring investors it had plenty of capital. Fears are high that Lehman will suffer the same fate. Worse yet, the Fed had to guarantee the shotgun marriage between Bear Stearns and JP Morgan by providing as much as $30 billion in capital. JPMorgan is responsible for only the first 1/2 billion. Taxpayers are on the hook for all the rest. Was this a legal action for the Fed to take? Does the Fed care?

16. Citigroup needed a cash injection from Abu Dhabi and a second one elsewhere. Then after announcing it would not need more capital is raising still more. The latest news is Citigroup will sell $500 billion in assets. To who? At what price?

17. Merrill Lynch raised $6.6 billion in capital from Kuwait Mizuho, announced it did not need to raise more capital, then raised more capital a few week later.

18. Morgan Stanley sold a 9.9% equity stake to China International Corp. CEO John Mack compensated by not taking his bonus. How generous. Morgan Stanley fell from $72 to $37. Did CEO John Mack deserve a paycheck at all?

19. Bank of America (BAC) agreed to take over Countywide Financial (CFC) and twice announced Countrywide will add profits to B of A. Inquiring minds were asking "How the hell can Countrywide add to Bank of America earnings?" Here's how. Bank of America just announced it will not guarantee $38.1 billion in Countrywide debt. Questions over "Fraudulent Conveyance" are now surfacing.

20. Washington Mutual agreed to a death spiral cash infusion of $7 billion accepting an offer at $8.75 when the stock was over $13 at the time. Washington Mutual has since fallen in waterfall fashion from $40 and is now trading near $5.00 after a huge rally.

21. Shares of Ambac (ABK) fell from $90 to $2.50. Shares of MBIA (MBI) fell from $70 to $5. Sadly, the top three rating agencies kept their rating on the pair at AAA nearly all the way down. No one can believe anything the government sponsored rating agencies say.

22. In a panic set of moves, the Fed slashed interest rates from 5.25% to 2%. This was the fastest, steepest drop on record. Ironically, the Fed chairman spoke of inflation concerns the entire drop down. Bernanke clearly cannot tell the truth. He does not have to. Actions speak louder than words.

23. FDIC Chairman Sheila Bair said the FDIC is looking for ways to shore up its depleted deposit fund, including charging higher premiums on riskier brokered deposits.

24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Attack of the Global Pirate Bankers

Attack of the Global Pirate Bankers

By James S. Henry

"For what is the crime of burglarizing a bank, compared with the crime of building one?" --Bertolt Brecht

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The Hearing: Last week in Washington we got a rare look inside the global private banking industry, whose high purpose it is to gather up the assets of the world's wealthiest people and many of its worst villains, and shelter them from tax collectors, prosecutors, creditors, disgruntled business associates, family members and each other.

Thursday's standing-room-only hearing on tax haven banks and tax compliance was held by the US Senate's Permanent Subcommittee on Investigations, chaired by Michigan Senator Carl Levin, a regular critic of tax havens--except when it comes to offshore leasing companies owned by US auto companies. He presented the results of his Committee's six-month investigation of two of Europe's most venerable financial institutions--LGT Group, the largest bank in Liechtenstein and the personal fiefdom of Crown Prince Hans-Adam II and the royal family, with more than $200 billion in client assets; and UBS, Switzerland's largest bank and the world's largest private wealth manager, with $1.9 trillion in client assets and nearly 84,000 employees in fifty countries, including 32,000 in the United States.

The theatrics included videotaped testimony by Heinrich Kieber, a Liechtenstein computer expert in a witness protection program with a $7 million bounty on his head, for supplying a list of at least 1, 400 LGT clients--some say more than 4,500--to tax authorities in Europe and the United States; two former American clients of LGT, who took the Fifth Amendment; Martin Liechti, head of UBS international private banking for North and South America, who'd been detained in Miami since April, and who also took the Fifth; Douglas H. Shulman, our sixth IRS commissioner in eight years, who conceded that offshore tax evasion must be a "serious, growing" problem even though the IRS has no idea how large it is; and Mark Branson, CFO of UBS's Global Wealth Management group, who apologized profusely, pledged to cooperate with the IRS (within the limits of Swiss secrecy) and surprised the Committee by announcing that UBS has decided (for the third time since 2002) to "exit" the shady business of providing new secret Swiss accounts to wealthy Americans.

There were also several other potential witnesses whose importance was underscored by their absence. Peter S. Lowy, of Beverly Hills, another former LGT client who'd been subpoenaed, is a key member of the Westfield Group, the world's largest shopping mall dynasty, which operates fifty-five US malls and 118 others around the world, is worth more than $12.4 billion, holds the lease on the World Trade Center, has many other properties in Australia and Israel, and was recently awarded a $3 billion project for the UK's largest shopping mall, in time for the 2012 Olympics. His lawyer, the renowned Washington fixer Robert S. Bennett, reported that Lowy was "out of the country" and would appear later, probably also just to take the Fifth. Perhaps he traveled to Australia, where his family is also reportedly facing an LGT-related tax audit. (Bennett's law partner, David Zornow, the head of Skadden, Arps' White Collar Crime practice, represents UBS's Liechti.) Steven Greenfield, a leading New York City toy vendor whose business had been personally recruited by the Crown Prince's brother, went AWOL and did not bother to send a lawyer. LGT Group declined to follow UBS's contrite example and also failed to appear.

Also missing from the roster were two prominent UBS executives: Robert Wolf, CEO of UBS Americas, who has bundled more than $370,850 for Barack Obama so far this year, making UBS his fifth-largest corporate donor; and former Texas Senator Phil Gramm, vice chairman of UBS Securities LLC, a leading lobbyist for UBS until March and, until recently, John McCain's senior economics adviser. While they were on the subject of offshore abuses, the Senate might also have wanted to depose former top McCain fundraiser James Courter, who also resigned last week, after it was disclosed that his telecom firm, IDT, had been fined $1.3 million by the FCC for using a haven company in the Turks and Caicos to pay bribes to former Haitian President Jean-Bertrand Aristide.

While neither of these UBS executives have been directly implicated in the tax scandal, both might reasonably be questioned about precisely what the rest of UBS in the States knew about the Swiss program, what it implies for US tax policy, and whether those who complain about UBS's knowing facilitation of tax fraud are just whining.

The Cases: This crowded docket, combined with the UBS mea culpa, almost distracted us from the sordid details of the Levin Committee's actual findings.

UBS: UBS opened its first American branch in 1939, and for all we know, has likely been facilitating tax fraud ever since, but the Senate investigation focused only on 2000 to 2007. During this period, even as UBS was sharply expanding its onshore US operations by acquiring Paine Webber, expanding in investment and retail banking, it also mounted a top-secret effort to recruit wealthy Americans, spirit their money to Switzerland and other havens and conceal their assets from the IRS.

This program, aimed at people with a net worth of $40 million to $50 million each, was staffed by fifty to eighty senior calling officers and 1,000 client advisors. Based in Zurich, Geneva, and Lugano, each officer made two to ten surreptitious trips per year to the United States, calling on thirty to forty existing clients per visit and trying to recruit new ones by attending HNW (high net worth) watering holes like Miami's Art Basel and the UBS Regatta in Newport. By 2007, this program had garnered 20,000 American clients, with offshore assets at UBS alone worth $20 billion.

To achieve these results, UBS established an elaborate formal training program, which coached bankers on how to avoid surveillance by US customs and law enforcement, falsify visas, encrypt communications, secretly move money in and out of the country and market security products even without broker/dealer licenses.

Meanwhile, back in 2001, UBS had signed a formal "qualified intermediary" agreement with the US Treasury. Under this program, it agreed either to withhold taxes against American clients who had Swiss accounts and owned US stocks, or disclose their identities. However, when UBS's American clients refused to go along with these arrangements, the bank just caved in and lied to the US government. Eventually, it concealed 19,000 such clients, partly by helping to form hundreds of offshore companies. This cost the US Treasury an estimated $200 million per year in lost taxes.

In early July 2008, a US court approved a "John Doe" subpoena for UBS, demanding the identities of these 19,000 undisclosed clients. However, as of last week's Senate hearing, UBS has refused to disclose them. While it maintains that it is no longer accepting new Swiss accounts from Americans, it is also insisting on the distinction between "tax fraud" and "tax evasion," reserving full disclosure only for cases involving criminal tax fraud, which is much harder to prove under Swiss law. This means it may be difficult to ever know whether it has kept its commitments.

Ultimately UBS got caught, not by virtue of diligent law enforcement, much less the Senate's investigation, but by sheer accident. In late June, Bradley Birkenfeld, a senior private banker who'd worked with UBS from 2001 until late 2005 out of Switzerland, and then continued to service the same clients from Miami, pleaded guilty to helping dozens of wealthy American clients launder money. His name surfaced when his largest client, Igor Olenicoff, a Russian émigré property developer from Southern California, was accidentally discovered by the IRS to be reporting much less income tax than he needed to justify his $1.6 billion measurement on the Forbes 400 list of billionaires.

With Birkenfeld's help, Olenicoff succeeded in parking several hundred million dollars' of unreported assets offshore--including millions in accounts controlled by a Bahamian company that he said had been set by former Russian Premier Boris Yeltsin. Ultimately, Olenicoff settled with the IRS for $52 million in back taxes, one of the largest tax evasion cases in Southern California history, and also agreed to repatriate $346 million from Switzerland and Liechtenstein. In theory he faced up to three years of jail time, but--following standard US practice of going easy on big-ticket tax evaders who have no "priors"--he received only two years probation and three weeks of community service.

As noted, Olenicoff also gave up his UBS private bankers, including Birkenfeld, who plead guilty in June to facilitating tax fraud and is now awaiting sentencing--the first US prosecution of a foreign private banker in history. It was Birkenfeld's revelations, in turn, that led to the disclosure of UBS' program for wealthy Americans, and at least one-half of the Senate investigation.

The most important point is that this entire program would clearly have been impossible without the knowledge and approval of the bank's most senior officials in Switzerland, and probably some senior US executives as well -- although the committee did not press this point. As former UBS CEO Peter Wuffli once said, "A company is only as ethical as its people." From this standpoint, we have reason to be concerned that UBS's behavior may repeat itself, so long as so many of these same senior executives remain in place.

LGT: For all its pretensions to nobility, Liechtenstein is well-known in the trade as the "place for money with the stains that won't come out," a flexible jurisdiction whose "trusts" and "foundations" are basic necessities for everyone from Colombian drug lords and the Saudi royals to the Suhartos, Marcoses, Russian oligarchs and Sicilian mafia.

As detailed by the Senate investigation, LGT Group has certainly lived up to this reputation in the US market. It maintained a program that was, if anything, even more sophisticated and discreet than that of UBS for large fortunes. Among its specialties: setting up conduit companies in bland places like Canada, allowing clients to transfer money without attracting attention; leaving the designation of "beneficiaries" up to corporations controlled by potential beneficiaries themselves, a neat way of avoiding "know your customer" rules; rarely visiting clients at home, let alone mailing, e-mailing or phoning them, certainly never from a Liechtenstein post office, Internet address or area code; shifting the names of trust beneficiaries to very old folks just before death to make it look like a repatriation of capital was an inheritance.

In terms of precise trade craft, indeed, LGT had it all over UBS. It only really got caught red-handed when it tried to modernize and trusted Heinrich Kieber, a fellow citizen and IT expert ,who turned out to be either a valiant whistleblower, a well-paid extortionist (he was paid $7.5 million by the German IRS alone for his DVDs), or both.

Implications: So what do we learn from all this? Many will consider these revelations shocking. After all, just as the US government is facing a $500 billion deficit, millions of Americans are fighting to save their homes, cars and college educations from the consequences of predatory lending, and inequalities of wealth and income are greater than at any time since the late 1920s, we learn that for decades, the world's largest banks have been helping wealthy Americans steal billions in tax revenues from the rest of us. At the very least, this suggests that it may be time to put the issue of big-ticket tax evasion, offshore and on, back on the front burner. But we also need historical perspective. Those who have studied this subject for decades also realize that achieving reform in this arena is not a matter of a few criminal prosecutions. It is a continuous game, requiring persistence and constant adaptations to the opponents, because we are playing against some of the world's most powerful vested interests, with huge fortunes at stake.

After all, offshore tax evasion by wealthy Americans is hardly new. For example, in May 1937, Treasury Secretary Henry Morgenthau Jr. wrote a lengthy letter to Franklin Delano Roosevelt, explaining why tax revenues had failed to meet his expectations despite a sharp rise in tax rates. Some rich folks didn't mind paying up, given the hard times so many Americans were facing during the Depression. As Edward Filene, the Boston department store magnate, famously remarked, "Why shouldn't the American people take half their money from me? I took all of it from them." However, according to Morgenthau, many other rich people busied themselves inventing new ways to dodge taxes, notably by secreting funds offshore in brand new havens like the Bahamas, Panama and... Newfoundland!

Scroll forward to the Castle Bank and Trust case of the early 1970s, when another IRS investigation of offshore banking disclosed a list of several hundred wealthy Americans who'd set up trusts in the Bahamas and Cayman Islands. Just as the investigation was picking up steam and the names were about to be publicized, a new IRS Commissioner came in and shut it down--officially because the otherwise-lawless Nixon Administration suddenly got concerned about due process. Few names on the list--a copy of which appears in my forthcoming book, Pirate Bankers, were ever investigated.

Scroll forward now to the late 1990s, when the Organization for Economic Cooperation and Development (OECD), the European Union and the US Treasury once again became excited about offshore tax havens. As the EU launched its "savings tax directive" on cross-border interest, a Cayman banker surfaced to report that more than 95 percent of his nearly 2,000 clients were Americans, and the IRS discovered 1 million to 2 million Americans using credit cards from offshore banks. Meanwhile, the OECD's favorite tool became the "blacklist." A list of thirty-five to forty "havens" was evaluated on the basis of abstract criteria like the quality of anti-money laundering programs and the willingness to negotiate information sharing agreements.

Unfortunately this "name and shame" approach didn't have much success. First, the OECD had no success against jurisdictions like Monaco, Andorra and Liechtenstein that are basically shameless. Second, the OECD's definition of "haven" was highly selective. It omitted many emerging havens like Dubai, the Malaysian island of Labuan, Estonia, Singapore and Denmark, whose importance has recently increased. As we'll see, it also ignored the role of major onshore havens like London and New York, which have been very attractive to the world's non-resident rich, especially from the developing world.

Third, blacklisting havens focused on the wrong dimension. As Senator Levin's hearing has underscored, the real problem is a global pirate banking industry that cuts across individual havens, and includes many of our largest, most influential commercial and investment banks, hedge funds, law firms and accounting firms. From their standpoint, it doesn't much matter whether a particular haven survives, so long as others turn up to take their place in providing anonymity, security and low-tax returns. Up to now, despite blacklisting, the supply of new tax-haven vehicles has been very elastic.

On the other hand, as the UBS and LGT cases show, the dominant players in global private banking are relatively stable institutions--which makes sense, given their clients' need for stable sanctuaries. This suggests that it makes more sense to focus on regulating institutions than regulating or blacklisting physical places.

Until the UBS case, this seemed to be much more difficult than, say, beating up on some tiny and distant sultry island for shady people. Even now, after the Birkenfeld case supplied the first private banker prosecution, we have yet to see the first criminal prosecution of a top-tier private bank--apart from BCCI in the early 1990s, which had already failed and was hardly top-tier.

This is not because of a shortage of despicable behavior. For example, UBS, like most of its competitors in global private banking, has a long history of engaging in perfidious behavior, apologizing for it and then turning back to the future. This includes UBS's involvement in South Africa's apartheid debt and the accounts scandals of the 1980 involving the Marcos family; Benazir Bhutto, Mobutu Sese Seko, Holocaust victims and Nigerian dictator Sani Abacha of the 1990s; the 2001 Enron bankruptcy and the Menem scandal; the 2003 Parmalat scandal; the 2004-2006 Iran/Cuba/Saddam funds transfers scandal, for which it was fined $100 million by the Federal Reserve; the 2008 Massachusetts securities fraud case; and now the Birkenfeld matter. Furthermore, as the committee report noted, UBS has a history of violating even its own policies. From this angle, unapologetic LGT is at least not hypocritical.

It is also well to remember that UBS and LGT are hardly the only global private banks involved in recruiting wealthy clients to move money offshore. The committee report indicates a long list of other banks that also provided offshore services to American clients involved in the UBS and LGT cases--including Citibank (Swiss), HSBC, Barclays (Birkenfeld's original employer), Credit Suisse, Lloyds TSB, Standard Chartered, Banque du Gotthard, Centrum, Bank Jacob Safra and Bank of Montreal. In addition, there are dozens of other non-US and US banks that are also active in the offshore US private banking market. This suggests the shortcomings of a case-by-case prosecutorial approach, and the value of designing regulations to improve behavior and provide ongoing feedback about taxpayer compliance.

In principle, one can imagine many such improvements in regulation, assuming a compliant Congress. For example, as proposed in the Stop Haven Abuses Act, introduced in 2006 and revised in February 2007 by Senators Levin, Coleman and Obama, there would be a rebuttable presumption that offshore shell corporations and trusts are owned by those who establish them. This would eliminate the "Q.I. rule" exception, which allowed hundreds of UBS clients to avoid reporting to the IRS simply by moving their assets to into shell companies.

We could also institute many other changes, including an increase in the painfully short three-year statute of limitations for investigating and proposing changes in offshore tax liabilities; tightening up on anti-money laundering legislation; levying withholding taxes against hedge funds; raising the penalties for abusive tax shelters, and requiring banks that open offshore entities for US clients to report them to the US Treasury.

Key Tasks: However, most of these proposed rule changes have the flavor of stopgaps, technical gimmicks that are still far too focused on individual taxpayers rather than the private banking industry--the advisers, enablers and systems operators. If we're right that this industry had become an unregulated, untaxed black hole--a multibillion-dollar global "bad"--we need to focus on two key tasks.

The first is to create appropriate incentives for the global private banking industry to do the right thing. We need to find ways to tax the behavior of tax-evading institutions, their CEOs, senior managers and even shareholders, to punish them for more misbehavior, and perhaps also reward them for bringing the money home with a brief one-time tax amnesty. In the short run, there have to be more Bradley Birkenfelds, more exposés, and more penalties for banks and bankers alike. Mere apologies, however heartfelt, should not be enough.

The second challenge is to organize a global alliance around this issue. This is more difficult, although steps are already being taken. Global organizations like Tax Justice International, Oxfam GB, Friends of the Earth, Global Witness and Christian Aid are converging on a new global campaign around the issue of havens and offshore tax evasion. They've been enlisting support for this effort from countries like Norway, Chile, Brazil, Spain and France, organizations like the UNDP, the World Bank and even the International Monetary Fund.

This is very exciting, but the organizers face one critical problem--the fact there are serious conflicts of interest among developed and developing countries. The fact is that the United States, the UK and other developed countries not only lose tax revenue to haven banking; they also profit from it, because their own banks are so deeply engaged in it, especially when it involves developing countries.

Back in April 1986, this author broke the story that Citibank was actually taking far more capital out of Latin America and other developing countries than it was lending to them, despite its reputation as the largest Third World lender. Indeed, the business of helping Third World elites decapitalize their own countries had become so large and lucrative that Citi's private banking group was the bank's single most profitable division.

To achieve that feat, Citigroup resorted to skullduggery and the flouting of local laws all over the planet. This included repeatedly sending teams of private bankers undercover to countries like Brazil, Argentina, and Venezuela; helping to set up thousands of shell companies and bank accounts in offshore havens and secretly transferring funds to them; teaching its clients money-laundering tricks like mis-invoicing and back-to-back loans; designing ways to communicate with clients that kept their financial secrets safe; and overall, concealing vast sums of flight capital from Third World tax authorities (and their competitors), while lobbying Congress to insure that any foreign capital that arrived in the United States enjoyed near-zero taxes and near-Swiss secrecy. For a time the resulting tax breaks and lax banking rules that applied to "nonresident aliens" from other countries made the United States, in effect, one of the world's largest tax havens.

In short, from the 1970s to the 1990s, banks like Citigroup, BankAmerica and JP Morgan Chase (and UBS, Credit Suisse, RBS, Paribas and Barclays etc.) were behaving throughout the Third World just as badly as UBS has recently been behaving here. And their very success laid the foundations for the global private-haven banking industry with which the IRS is now struggling.

At the time, it seemed that their behavior was hurtful mainly to the developing world, which wasn't strong enough to hold Senate hearings and put Citibankers in jail. But lately it has become clear that the system has grown large enough to consume its creators.

In the last thirty years, fueled by the globalization of financial services, lousy lending, capital flight and mind-boggling corruption, a relatively small number of major banks, law firms, accounting firms, asset managers, insurance companies and hedge funds have come to launder and conceal at least $10 trillion to $15 trillion of private untaxed anonymous cross-border wealth.

Rich people the world over, including tens of thousands of wealthy Americans, are now free to opt in to this sophisticated, secretive, utterly unprincipled global private banking industry. They can become, in effect, residents of nowhere for tax purposes, citizens of a brave new virtual country, which offers its inhabitants unprecedented freedom from the taxes, regulations and moral restraints that the rest of us take for granted. They wield enormous political influence even without paying taxes, merely by making contributions, threatening to withhold them--or better yet, threatening to abscond with their capital unless certain conditions are met. In a sense, this is the ultimate libertarian pipe dream: representation without taxation. But it is a nightmare for the rest of us, and we must design and organize our way around it.

James S. Henry is a New York-based investigative journalist who has written widely on the problems of tax havens, debt, and development. His most recent book, The Blood Bankers (Basic Books, 2005), examined where the money went that was loaned to eight developing nations. His forthcoming book, Pirate Bankers (2009), examines the history and structure of the global private banking industry

Ron Paul: "The Mother of All Bailouts"

"The Mother of All Bailouts"

Ron Paul talks about the bailout out of the housing industry and how it really just destroys the dollar and adds enormously to the debt.

Also, slipped into the bill, was the stipulation that ALL credit card transactions must now be reported to the IRS.



Crystal Ball Gazing: Visualize the Dow at 6,000

Crystal Ball Gazing: Visualize the Dow at 6,000

By Mike Whitney


Go To Original


Last Wednesday, at an improvised press conference, George Bush gave what may have been the most comical performance of his eight year presidency. Looking like the skipper on the flight-deck of the Hindenburg, Bush tried his best to reassure the public that "all's well" with the economy and that everyone's deposits were perfectly safe in the rapidly disintegrating US banking system. Leaning lazily on the presidential podium, Bush shrugged his shoulders and said,

“My hope is that people take a deep breath and realize that their deposits are protected by our government. We're not seeing the growth we’d like to see, but the financial system is basically sound."

Right. "Breath deep" and chill out; no need to panic. One shouldn't let the long lines of anxious depositors who are presently trying to extract what's left of their life savings from the now-defunct Indymac Bank upset one's basic equanimity. The banking system is perfectly safe, you heard it from President Trickledown himself.

At the same time Bush was offering his soothing words on all the major TV news networks, Fed chairman Ben Bernanke was on the other side of Washington giving a decidedly grimmer assessment of the economy:

"The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated."

Keep in mind, that these two events were perfectly coordinated to take place at exactly the same time; 10:20 AM Wednesday. Quite a coincidence, eh? Just another masterful public relations coup engineered by the Bush PR team, the last functioning agency in the entire bureaucracy. To no one's surprise, the collusive media managed to divert attention from the impending financial firestorm long enough to lull the American people into believing that nothing is really wrong; the economy is just hunky-dory.

Fed-chief Bernanke again:

"The economy continues to face numerous difficulties, including ongoing strains in financial markets, declining house prices, a softening labor market, and rising prices of oil, food, and some other commodities....The deteriorating performance of subprime mortgages in the United States triggered turbulence in domestic and international financial markets as investors became markedly less willing to bear credit risks of any type....Many financial markets and institutions remain under considerable stress, in part because the outlook for the economy, and thus for credit quality, remains uncertain."

As Bernanke delivered one hammer-blow after another, our engaging Commander in Chief was busy swapping funny stories and rough-housing with his pals in the Washington press corps. The media confab turned out to be a typical Bush frat-party with plenty of back-slapping and hee-haws to go around.

"You had a question, Stretch?" (Ha, ha)

And that was that. Bernanke's candid and (frankly) scary assessment of the economy was dwarfed by Bush's diversionary palavering and bravado; another stunning victory for the White House spinmeisters. Even so, the Fed chairman's testimony should be dug up and examined by anyone who is interested in knowing how bad things really are so they can prepare themselves for the hard times ahead. (Find it here: Bernanke's Semiannual Monetary Policy Report to Congress; http://www.federalreserve.gov/newsevents/testimony/bernanke20080715a.htm

Bernanke again:

"In the housing sector, activity continues to weaken...Home prices are falling, particularly in regions that experienced the largest price increases earlier this decade. The declines in home prices have contributed to the rising tide of foreclosures; by adding to the stock of vacant homes for sale, these foreclosures have, in turn, intensified the downward pressure on home prices in some areas....The declines in home prices have contributed to the rising tide of foreclosures; by adding to the stock of vacant homes for sale, these foreclosures have, in turn, intensified the downward pressure on home prices in some areas......Surveys of capital spending plans indicate that firms remain concerned about the economic and financial environment, including sharply rising costs of inputs and indications of tightening credit, and they are likely to be cautious with spending in the second half of the year."

The economic sky is quickly darkening and Bernanke made no effort to hide his concern. His testimony was as close to the truth as one gets in Washington where honesty is usually eradicated like a malignant tumor. In any event, it is worth wading through Bernanke's speech word by word even if it only reinforces one's belief that the economy is about to take a sleigh-ride through a deflationary blast-furnace which will ultimately result in the demise of Breton Woods, the disorderly replacement of the dollar as the world's reserve currency, and an end to the United States short-lived dominance as the world's lone superpower. The American Century has about run out of steam just eight years into the new mellenium. Bernanke's presentation confirms what the econo-bloggers have been saying for the past three years; the end is nigh, get your house in order.

Personal consumption is down, the labor market is softening, and food and fuel prices are soaring. Housing values are plummeting, wages have stagnated, and American households are more overextended, underpaid and stressed out than anytime in history. It's all bad. No wonder consumer confidence is at its nadir.

"THE SUMMER OF 1931"?

The next shoe to drop is the stock market. Its not that complicated either; when wholesale prices on supplies and raw materials go up, but businesses can't pass along those costs because consumers are already maxed-out, then corporate profits plummet and the stock market crashes down with the force of an avalanche.

Journalist Ambrose Evans-Pritchard summed it up like this:

"It feels like the summer of 1931. The world's two biggest financial institutions have had a heart attack. The global currency system is breaking down. The policy doctrines that got us into this mess are bankrupt. No world leader seems able to discern the problem, let alone forge a solution. The International Monetary Fund has abdicated into schizophrenia....My view is that a dollar crash will be averted as it becomes clearer that contagion has spread worldwide. But we are now at the point of maximum danger." (Ambrose Evans- Pritchard, "The Global Economy is at the point of maximum danger", UK Telegraph

"Maximum danger", indeed. Stock market mayhem is just around the corner. Visualize the Dow at 6,000 and then hang on for dear life. The indexes will tumble and Wall Street will be reduced to Dresden-type rubble, nothing left but toxic fumes and twisted iron. By the end of 2009, the last few bulls will be driven out of the exchanges and onto the streets where they'll be slaughtered one by one. It won't be pretty.

According to Bloomberg News: "Investors worldwide are betting more than $1 trillion on a collapse in stock prices".

But no matter how bad it gets, the media will still bang-out its "Sunny Jim" market-forecasts while reiterating every mangled phrase and muddled thought from our alcohol-addled Dear Leader. The lines from the shelters, pawn shops and soup kitchens may stretch from the Golden Gate to the Statue of Liberty, but the perennially upbeat predictions of a "bottom in housing" or an "economic turnaround" will continue to blast from every media bullhorn in the nation. America's financial media is an never-ending source of baseless optimism and hogwash.

It's funny; while Bush was hosting his faux-press conference, live-footage was appearing on other media of fully-armed LA policemen being dispatched to the various Indymac locations. Their task was to remind the gathering of elderly "blue-hair" women and middle-aged white guys in Tommy Bahama T-shirts that any public display of outrage would be swiftly met with Rodney King-style justice. Hmmm. So now withdrawing one's savings from the bank is not only riskier; it's tantamount to committing a felony. My, how America has changed.

Just imagine the frustration of spending $5 a gallon for gas to drive to the local Indymac branch to get whatever is left of your savings only to get roughed-up by the local constabulary. Nice touch, eh?

Going to the bank? Don't forget the protective head-gear!

The truth is the banking system is built on a foundation of pure quicksand and its only a matter of time before the Bush's truncheon-wielding Robocops start tasering old ladies and gassing portly white guys for massing in front of the boarded up doors of their local bank. Move along, now.

Market Ticker's Denniger made this insightful observation about about the present condition of the banking system. He said, "Why does Paulson keep telling us that the banking system is sound every time he gets within 200' of a microphone?
Maybe it is because the banking system is on the verge of all-out collapse, and he knows you could blow it over with a feather!" (The Market-Ticker)

It is worth noting that the demise of Indymac is expected to cost the FDIC around $8 billion of its meager $53 billion of reserves. 4 or 5 bank failures of equal size and the FDIC will be underwater, which is a serious problem since even conservative estimates expect bank failures to run into the hundreds. The Fed will be forced to monetize the debt, further weakening the dollar.

But Indymac is small potatoes compared to the liabilities of the two mortgage behemoths, Fannie Mae and Freddie Mac. Years of sketchy accounting, risky investments, abusive lending, and political cronyism have eroded the two Government Sponsored Enterprises (GSEs) balance sheets and pushed them to the brink of insolvency. If they fail, it will be disastrous for the US taxpayer who will be expected to guarantee $5.2 trillion of US residential mortgages, hundreds of billions of which was lent to borrowers who will likely default on their loans in the next few years. As the housing bubble continues to fizzle; Fannie and Freddie will face losses of $500 billion or more, forcing disgruntled foreign investors to ditch their bonds and make for the exits. When that happens, long-term interest rates will skyrocket and the ailing dollar will collapse in a heap. The Bush administration can't allow that to happen, which means that Henry Paulson will push for emergency funding from the congress (which he is doing now) so he can rebuild investor confidence and stop the hemorrhaging of foreign capital. Whether Fannie and Freddie are saved or not, it is bound to be a drain on the dollar which can only get weaker as deficits soar and confidence wanes. There's really very little chance the dollar will survive as the "international currency".

Economist Nouriel Roubini summed it up like this:

"The existence of GSEs...is a major part of the overall U.S. subsidization of housing capital that will eventually lead to the bankruptcy of the U.S. economy. For the last 70 years investment in housing –- the most unproductive form of accumulation of capital -– has been heavily subsidized in 100 different ways in the U.S.: tax benefits, tax-deductibility of interest on mortgages, use of the FHA, massive role of Fannie and Freddie, role of the Federal Home Loan Bank system, and a host of other legislative and regulatory measures.
The reality is that the U.S. has invested too much – especially in the last eight years – in building its stock of wasteful housing capital (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth. This financial crisis is a crisis of accumulation of too much debt ---by the household sector, the government and the country –- to finance the accumulation of the most useless and unproductive form of capital, housing, that provides only housing services to consumers and has zippo effect on the productivity of labor." (Seeking Alpha, "Just How Terrible is Housing as an Asset Class? Roubini Weighs In")

Fannie and Freddie made a big mistake by shifting into mortgage-backed securities (MBS) in the 1990s. From 1997 to 2007, Fannie’s portfolio of dodgy MBS jumped from $18.5 billion to $127.8 billion by the end of 2007. The numbers at Freddie were even higher. Now they're caught in the same downgrading-spiral as the investment banks, with billions of dollars of assets steadily losing value every month. It's death by a thousand cuts. The losses have left the two GSEs cash-starved and searching frantically for new sources of capital to build their cushion. Regrettably, foreign sovereign wealth funds feel like they were burned in the Citigroup bailout and are no longer in the market for destitute US investment banks.

Here's "The Economist" shedding a little more light of Fannie and Freddie's creative bookkeeping:

"The companies have also been unwilling to accept the pain of market prices in acknowledging delinquent loans. When borrowers fail to keep up payments on mortgages in the pool that supports asset-backed loans, Fannie and Freddie must buy back the loan. But that requires an immediate write-off at a time when the market prices of asset-backed loans are depressed. Instead, the twins sometimes pay the interest into the pool to keep the loans afloat. In Mr Rosner’s view, this merely pushes the losses into the future." (The Economist, "The End of Illusions")

Nice, eh? Wouldn't it be great if guys didn't have to explain to their wives why they pissed away their paycheck at the race track? Apparently, it's okay for Fannie and Freddie; just keep paying the interest on bad loans and no one's the wiser. What a racket. This is the type of sleazy Enron-type accounting that goes unchallenged in Washington where everyone fudges the numbers to hide their losses from their shareholders or taxpayers, as the case may be. That's why the namby-pamby regulators at the SEC need to be replaced with a few knuckle-dragging Abu Ghraib interrogators. There's nothing going on at Fannie and Freddie that a set of leg-irons and a few lively dunks on a waterboard wouldn't fix.

THE ROAD TO PERDITION: Paulson's Scatterbrain Capitalism

Something has gone terribly wrong with the economy, but no one wants to say what it is. This is more than just a typical downturn in the demand-cycle or a temporary "rough patch". In fact, it's not a recession at all; it is a meltdown of the financial system. And it's obvious. The "deep pocketed" Federal Reserve is currently providing hundreds of billions of dollars through its auction facilities to the most craven speculators on the planet, the investment banks. These very same banks have no ability to pay that money back. Show me their revenues; show me their assets; show me their capital cushion which is calculated mainly in terms of "Level 3 assets" and which allow the banks to assign their own value to the bad paper that's overflowing from their vaults. Have you ever heard of anything more ridiculous? One blogger called Level 3 assets "mark to fantasy". He's right, too. It's all smoke and mirrors. So why are we letting crooks decide what their assets are worth?

True, a few of the investment banks just reported "better than expected" earnings, but no one on Wall Street is fooled by that baloney. The SEC changed the rules on shorting bank stocks just days before their earnings reports were due; another gift from Uncle Sam to hide the dirty laundry. Also, some of the banks have started extending their "write downs" from 120 days to 160 days, buying themselves a little more time to deceive their shareholders about the size of their losses. It's all one big swindle following another. The whole business stinks to high heaven and the Bush administration is right there in bed with them, snuggling up close and holding their hands.

If the public grasped the significance of the Bear Stearns fiasco, they'd understand how grave the situation really is. The technical details are irrelevant; don't bother with them. What IS important is that the Fed acknowledged that the investment speculators had so polluted the financial system with their toxic, unregulated garbage,(Credit default swaps) that if the transaction with JP Morgan flopped, the entire system would have imploded. Think about that. In other words, the legitimate, "Real Economy" is now inextricably lashed to a massive $500 trillion dollar unregulated shadow banking system that operates without rules, supervision or sufficient capital. Over the counter derivatives trading is a cancer that has spread to every part of the system and is devouring it from the inside. It's only a matter of time before the patient succumbs. That's what the Bear bailout really means; the rest is bunkum.

The banking system is broke, busted, penniless; and yet the Fed and the G-7 allow this comedy to persist like nothing is wrong. When will the American people wake up?

And, will someone please explain how free markets can exist when speculators are subsidized by the state, or when the risk is removed from risky investing? That's what it means when the Fed opens its auction facilities to the investment banks and brokerage houses. It makes no sense at all. Government "safety nets" are anathema to free market capitalism. "You pays yer money and you takes yer chances". That's finance capitalism; deal with it.

What we are seeing is a hybridized version of capitalism; "Paulson's Scatterbrain Capitalism"; a hodge-podge of taxpayer bailouts, government intervention and free market mumbo jumbo. It's a toxic mix on off-balance sheets operations, over-the-counter "unregulated" derivatives, dark pool trading, opaque hedge funds, dodgy Enron-style accounting, and complex, hard-to-pronounce debt-instruments wrapped up into one, cheesy, unsustainable shell game, managed by Harvard-educated flim flam men and backed by a 100% government guarantee. That's the system we're supporting with our tax dollars and that's the system that is dragging us headlong to ruin.

It ain't capitalism, my friend. It's a crooked system run by corporate carpetbaggers and banking scalawags who shot the Golden Goose in hopes of keeping the larder at the cottage on the New Jersey coast chock-full of Dom Perignon and halibut fillets. They created this nightmare and they've doomed us all.

As long as we prop up the existing system, the economy will flounder, unemployment will rise, foreclosures will soar, banks will be shuddered, and the wobbly old greenback will continue its inexorable march towards Pesoville. It's time to clean house and we can start by firing Paulson. )

Palestine: The Structure of Oppression and Dispossession

Palestine: The Structure of Oppression and Dispossession

Review of Jeff Halper's An Israeli in Palestine Part II

By Stephen Lendman

Go To Original

According to Israeli-based author and journalist Jonathan Cook, Halper's book is "one of the most insightful analyses of the Occupation I've read. His voice cries out to be heard" on the region's longest and most intractable conflict. Part II continues the story.

Part III: The Structure of Oppression - Expanding Dispossession, The Occupation and the Matrix of Control

What 1948 left undone, 1967 completed - securing control over the entire "Holy Land" with the seizure of Gaza, the West Bank and all of Jerusalem. Nishul's fifth stage began and today includes expanding West Bank settlements and continued displacement inside Israel.

After the Six-Day War, all Palestinians came under military rule, and "a comprehensive Matrix of Control was implemented to perpetuate Israeli control forever." A problem arose, however, as international law prohibits an occupier from remaining permanently. Israel's Attorney General, Meir Shamgar, got around it in typical Israeli fashion. No "occupation" exists so Israel didn't violate Geneva or other international law. In other words, "occupation" only occurs when one sovereign state conquers another, so presto - Palestine wasn't sovereign and Israel did nothing illegal.

This has no legitimacy in international law, yet Israel gets away with it, and it's the reason it calls the West Bank (and formerly Gaza) "disputed," not "occupied." Furthermore, Shamgar's ruling affected Supreme Court decisions ever since and lets Israel expand its settlement project on annexed Palestinian land.

Immediately after the 1967 war, the Labor government began "integrating Judea, Samaria and Gaza to Israel." After Menachem Begin's 1977 election, he appointed Ariel Sharon to head a Ministerial Committee on Settlements and gave him the job to do it. He was charged with two tasks:

-- create irreversible "facts on the ground;"

-- prevent any chance of a sovereign Palestinian state; and begin implementing a formal "Matrix of Control" - an almost "invisible system...behind a facade of 'proper administration,' thus protecting Israel's" democratic image to this day.

It has four modes of control:

(1) Administrative, Bureaucracy, Planning and Law as Tools of Occupation and Control

They include rules, restrictions, procedures and sanctions under Military orders regulating everything in Occupied Palestine. For example, 72% of the West Bank was classified as "state lands" making seizure a simple administrative task. A further 400 square miles were designated as closed "military zones," and more restrictions covered zoned "nature reserves."

Military commanders also have authority to prohibit Palestinian construction for security reasons or to ensure "public order." Hundreds of other military orders forbid Palestinian building around army bases, installations, settlements, or within 200 meters on each side of main roads. This effectively closes off tens of thousands of acres from their rightful owners. At the same time, settlement expansion continues, and measures in place use every means possible to advance them.

Administrative restrictions among them like requiring Palestinians to get permits to plant crops on their own land, sell it, or have them for their own use. Opening banks and businesses are also curtailed through a process of licensing and inspections to harass the owners and harm the Palestinian economy.

Control encompasses everything. Resistance is called "terrorism," and legal gymnastics justify assassinations in the name of national security. Mass imprisonments as well. Uncharged victims held administratively. Extensive use of torture. All of it under the radar with a wink and a nod from the West.

(2) Economic Warfare

From 1967 to the Oslo process, "asymmetric containment" defined economic policy in the Territories. The idea was to keep cheap products and labor from competing advantageously with Israel and to prevent Palestinians from gaining economic strength. So constraints were placed on them:

-- preventing their opening a bank;

-- implementing tariffs and subsidies to advantage Israeli businesses;

-- various import controls disadvantaging Palestinians;

-- de-developing the Palestinian economy through lack of infrastructure development, housing and key services;

-- expropriating agricultural land;

-- preventing Palestinian produce from reaching Israeli markets; and

-- implementing internal closure policies to impede Palestinian business inside the Territories.

Israel eased off somewhat during the Oslo years, but the Paris Economic Protocol annex to Oslo II (in 1995) assured total Israeli control over the Palestinian economy. Today economic closure is total under strict Israeli measures:

-- control over industrial and commercial enterprise licensing;

-- issuance of import and export permits; and

-- a nightmarish bureaucracy controlling all facets of Palestinian commerce.

It devastated the economy. Most manufacturing is shut down, and 70% of Palestinians companies either closed or severely cut production and staff. Unemployment is staggering - 67% in Gaza and 48% in the West Bank at the time of Halper's writing. Today it's higher. Without jobs, Palestinians have no income source. Poverty levels are at 75% or higher. Most people live on $2 a day or less. External food and other aid is essential. Still 30% or more of Palestinian children under age five suffer from malnutrition. With Gaza now under siege, it's far higher there and dangerously so. It remains to be seen what effect the cease-fire will have.

Israel also controls fuel, water, electricity, phone and other services, and when available they're at higher prices than Israelis pay. The result is "profound structural imbalances in the Palestinian economy and (an) artificial dependence upon Israel." A "deliberate de-development" scheme as well is in place with international investment cut off and Gaza's airport and sea port destroyed during the second Intifada.

Conditions are so extreme that one UN official complained that he doesn't "know of another conflict area in the world" with these type problems. Nor is there one the entire world is so dismissive of or practically so.

(3) Creating "Facts on the Ground"

Israel began the process with the Six Day War still raging. Ever since, disconnected cantons were created to cement settlements and make control irreversible. Following the Gulf War, the Madrid peace conference promised hope and was the catalyst for Oslo. They established a vaguely-defined negotiating process, specified no outcome, and let Israel delay, refuse to make concessions, and continue colonizing the Territories.

In return, Palestinians got nothing for renouncing armed struggle, recognizing Israel's right to exist, and leaving major unresolved issues for indefinite later final status talks. They include an independent Palestinian state, the Right of Return, the future of Israeli settlements, borders, water rights, and status of Jerusalem as sovereign Palestinian territory and future home of its capital.

Oslo I led to Oslo II in September 1995. It called for further Israeli troop redeployments beyond Gaza and major West Bank population centers and later from all rural areas except around Israeli settlements and designated military zones. The process divided the West Bank into three parts - each with distinct borders, administrative and security controls - Areas A, B and C plus a fourth area for Greater Jerusalem:

-- Area A under Palestinian control for internal security, public order and civil affairs;

-- Area B under Palestinian civil control for 450 West Bank towns and villages with Israel having overriding authority to safeguard its settlers' security; and

-- Area C and its water resources under Israeli control; settlements as well on the West Bank's most valuable land.

The Sharm el-Sheikh Memorandum followed and was agreed to by Yasser Arafat and Ehud Barak in September 1999. It implemented Oslo II and other post-Oslo I agreements. Months later came "permanent status" talks in July 2000. Promises became betrayal, and Barak's "generous offer" was fake leaving Arafat no choice to reject it. But not without being blamed for spurning an "unprecedented" chance for peace. Barak insisted Arafat sign a "final agreement," declare an "end of conflict," and give up any legal basis for additional land in the Territories. There was no Israeli offer in writing, and no documents or maps were presented.

Barak's offer consisted of a May 2000 West Bank map dividing the area into four isolated cantons under Palestinian administration surrounded by expanding Israeli settlements and other Israeli-controlled land. They got no link to each other or to Jordan. They consisted of:

-- Jericho;

-- the southern canton to Abu Dis;

-- a northern one, including Nablus, Jenin and Tulkarm; and

-- a central one, including Ramallah. Gaza was left in limbo as a fifth canton and "resolved" when Israel "disengaged" in August and September 2005 but kept total control; the right to reenter any time for any reason; and, as it turned out, to impose a medieval siege.

Barak's deal was no deal, all take and no give, with no chance for reconciliation or resolution of the most intractable issues. Halper calls it "a subtle yet crucial tweaking of the Matrix." Rather than defend all Israeli settlements, Barak defined seven "blocs" to remain under Israeli control under any future agreement.

Overall, Israel maintains total control of the Territories and occupies most of the West Bank with expanding settlements, by-pass roads, Separation Wall, military areas and no-go zones. Palestinians are tightly confined in disconnected cantons. Checkpoints and other obstacles restrict free movement, and no possibility exists for a viable sovereign state as of now.

Halper gave a "brief tour" of Israel's settlement blocs. Below they're listed briefly:

-- the Jordan Valley as Israel's eastern "security border;" it separates Palestinians from Jordan;

-- the "Western Samaria" bloc centered around the city of Ariel; it virtually divides the West Bank;

-- the Modi'in bloc connects the Western Samaria Bloc to Jerusalem; it contains some of the West Bank's richest agricultural land;

-- the three settlement blocs of (1)Givat Ze'ev, (2) Ma'aleh Adumim and (3) Gush Etzion, Efrat-Beitar, Illit, comprise "Greater Jerusalem;" they contain 97 square miles and house 80,000 settlers; along with Israeli-controlled Jerusalem and its 240,000 settlers, it dominates the West Bank, destroys its territorial contiguity, and prevents any hope for a viable Palestinian state; and

-- the Hebron bloc in the southern West Bank.

They're all linked by 29 highways and by-pass for-Jews only roads. Finally, there's the Separation Wall. Construction began in June 2002. The World Court ruled it illegal. Israel continues building it. It's nearly complete, and when finished will be 721 kilometers in length or five times longer than the Berlin Wall and more imposing with its sensors, trenches, security roads, mine fields, checkpoints, terminals, watchtowers, surveillance cameras, electronic sensory devices and military patrols using killer dogs. It entraps 50,000 Palestinians, steals their land, and has nothing to do with purported security. It's a plain and simple land grab combined with enclosing Palestinians inside disconnected cantons.

(4) Military Controls and Military Strikes

Israel's Matrix conceals its "Iron Fist" that when unleashed is very visible and destructive. During both Intifadas, major operations were launched killing hundreds of Palestinians and wounding thousands more, mostly innocent civilians. Operations Defensive Shield (March-April 2002), Rainbow (May 2004), Summer and Autumn Rains (second half 2006) are just three among many. Israel's "Iron Wall" shows no mercy.

Concluding Dispossession: Oslo and Unilateral Separation

Oslo represented nishul's sixth stage, "a kind of occupation-by-consent," according to Halper. It's explained above with a few more comments to add. Israel's "security" is key to any peace process. So is getting Palestinian acquiescence to all Israeli demands and being willing to act as its enforcer. The process was flawed by design, collapsed under its own weight, led to the second Intifada, and awakened peace activists to be more proactive for their cause. It also inspired Halper to establish ICAHD, and he's been active in it since.

Oslo's failure got Israelis to "hunker down" and make "security" their foremost issue. It also explains their willingness to elect Ariel Sharon Prime Minister. Halper says "Everything he did had a clear focus and purpose: beating the Palestinians into submission, extending Israel's sovereignty to the Jordan River and preventing the establishment of a viable Palestinian state." He would complete the final nishul stage, and by luck he took power along with George Bush, his close friend and willing co-conspirator. They had a common agenda and 9/11 advanced it - in four decisive stages:

(1) Defeating the Palestinians Once and For All

It began with Sharon's controversial visit to the Haram/Temple Mount on September 28, 2000 before he was elected Prime Minister. It ignited the second Intifada the result of years of frustration over a "dead-end" peace process. It was also inspired by Hezbollah's forcing Israel's May 2000 South Lebanon withdrawal.

Anger and discontent built and finally erupted on September 29. Israel responded harshly. A cycle of resistance and retaliation followed, and the struggle persisted since despite its formal 2005 end. The first five days were especially bloody. Before a single Israeli soldier was targeted, the IDF unleashed over a million projectiles - bullets, shells, air-to-surface missiles, chemical weapons and more against a civilian population in clear violation of international law that classifies this as war crimes. Palestinian deaths numbered over 170. Another 7000 were wounded. It was just the beginning, and Sharon once in office unleashed it full force with Khan Yunis and its refugee camp one of his first targets.

With 60,000 residents, it's one of the most crowded places on earth. The IDF attacked it and obliterated an entire neighborhood. In April 2002, it invaded Jenin's refugee camp, home of 13,000 Palestinians in the northern West Bank. It cut it off from outside help. Jenin city as well. Hundreds of buildings were destroyed. People were buried under rubble. Power and water were cut off. Food and essentials kept out, including medical aid, and dozens of mostly civilian men, women and children were killed and many more injured and displaced.

Similar campaigns went on throughout the West Bank that took a terrible toll on the people and left all its cities "smoldering." Palestinian infrastructure was notably targeted - houses, roads and physical infrastructure. Institutional also, including government ministry data banks for Health, Education, and Higher Education. Affected were NGOs, research institutes, human rights organizations and everything a modern state needs to function.

It was the beginning of the end for Yasser Arafat. No longer a "reliable" ally, he was targeted for removal. His Ramallah headquarters was destroyed, save for a room or two where Sharon imprisoned him. Every Palestinian city, town and village was under siege as well and subjected to police state repression, curfews and midnight raids against helpless civilians. Thousands of acres of farmland and olive groves were leveled. "Security" is always the reason. Harassment explains it better - the beating of all resistance out of contained people with no outside support for help. David v. Goliath hardly defines it.

(2) Completing the Matrix of Control

The Separation Wall is the end process and is now nearly complete. Israel has all the choice land and settlements it needs, and in September 2004 unveiled a plan for Palestinian-only roads to assure they stay disconnected from Israeli ones.

(3) Getting American Approval for the Annexation of the Settlement Blocs

For this, the Road Map was announced in March 2003. George Bush was reluctant but agreed. If serious, it held promise, but that was too much to expect. From the start, it was a dead letter, and Israel's intransigence killed it although technically it's still alive. It promises a two-state solution, but not the one Israel envisions - disconnected, cantonized and no state at all for Palestinians who reject it out of hand. It can only work if imposed unilaterally and only for so long. For now, Bush is on board with Israel. Negotiations are at a dead end, and the year end Annapolis conference was a combination tragedy and travesty. It was the first time in memory the legitimate government of one side was excluded from discussions, and that alone doomed them.

(4) Implementation of the Cantonization Plan

In December 2003, Sharon launched some called "the maneuver of the century." It refers to his 2005 Gaza "disengagement" as a ploy to secure greater West Bank control and give up nothing in return. In March 2006, he suffered a stroke, became incapacitated, and Ehud Olmert took over to "nail down" Sharon's key objective - "a permanent solution, an end of the Occupation based on the notion of cantonization." It would have to be unilateral as Palestinians were offered nothing.

Olmert conceived his "Convergence Plan" to control all land Israel wants and maintain separation from Palestinians. It's the same idea as Begin's Palestinian "autonomy," Sharon's cantonization, unilateral separation, the Matrix of Control, and the Oslo process while it lasted. A Palestinian state would be offered between Israel's two eastern borders, a mere truncated territory with no potential and little sovereignty. It will be imposed unilaterally, but that contradicts the Road Map that requires negotiation. So Olmert switched his "convergence" to "realignment" - finessing a border one. Palestinians get their state but a "transitional" one with "provisional borders," according the Road Map's Phase II. The problem is no Phase III will follow to assure an "independent, democratic, and viable Palestinian state."

If Israel manages this, it wins and Palestinians lose. It can claim the Occupation's end, a two-state solution in place, and the conflict for the victor ended. So far, Palestinians want none of it. Olmert is beset with corruption problems, and final resolution remains a long way off.

Part IV: Overcoming Oppression - Redeeming Israel

Here's where things now stand. "Israel/Palestine (is) at a crossroads." Israel's political leadership believes it's won. The settlement project is in place. It "ensures permanent control over the entire Land of Israel." Palestine is cantonized. The "facts on the ground" are established. America is on board. So are Europeans. The Arab world is indifferent. A mere political act will make Occupation permanent. Israel offers no concessions, Palestinians have no say, and as of now have no chance for a fair and equitable solution - or so Israel thinks. Is it so?

Halper's view is this, and many share it: Ultimately, Israel will fail in its attempt "to transform its Matrix of Control (and permanent Occupation) into a stable, peaceful state of affairs." Oppressed people everywhere "have one source of leverage: the power to say 'no.' " And Palestinians have said it for six decades. For six more if they have to. For as long as it takes to get the justice they deserve. For all their wishes? Maybe not, but enough to matter and be able to end the most intractable conflict anywhere. Be assured - it will happen, one way or other, at some future time.

Hamas is a powerful symbol - of the future - the power to say "no," or as Halper puts it: "To hell with"......Israel, its Matrix of Control, America, the international community, the dismissive Arab world, and corrupted Fatah. We won't submit; won't play your rigged game; won't let you crush us; won't let you deny us our rights; in the end you'll come to us, and we'll prevail. If six decades of struggle doesn't prove it, what then will. We'll give you six more, and more still. Had enough? Now we'll set the terms. Think it can't happen? Read on.

One day Israel and the world community will reach an inevitable conclusion. The price of Occupation is too great - regional instability, global also, continued war, maybe nuclear, and a potential cost far too great to risk. Push will come to shove when it's too great to chance.

Palestinians like Jews and people everywhere have national rights of self-determination provided they don't impinge on others with equal rights. Ethnocracies like Israel don't work. Nor do they in the Muslim or Christian worlds. And understand the distinction. France for the French and Mexico for Mexicans aren't the same as Israel for the Jews. France like most countries have Christians, Jews, Muslims, whatever - all entitled to equal rights under law. Israel only affords them only to Jews - an untenable system doomed to fail. When it's realized, push will have come to shove, and then some.

So where are we, and what's ahead? Halper doesn't have a solution, but he offers an approach based on "indispensable" elements:

(1) National expression for the two peoples -

Jews and Palestinians both claim self-determination rights in the same country. Logically, it calls for a two-state or bi-national one-state solution.

(2) Viability -

The two-state option requires real sovereignty for Palestinians to be viable - self rule, over borders, basic resources, and so forth.

(3) Refugees -

The Right of Return is essential or something close enough to matter. Most important - Palestinians have the right to choose. International law backs them. It doesn't give Israel a pass.

(4) A regional dimension -

Adopting a regional approach opens new options. Middle East countries have a stake in what affects them.

(5) Regional Security -

Israel's only chance for peace and stability is to achieve a just peace with the Palestinians and integrate fairly in the greater region. Playing hegemon won't do it. In the end, militarism always fails.

Enormous obstacles must be overcome to achieve any meaningful settlement: locked in attitudes, decades of failure, unresponsive governments, much the same for the UN, so where does that leave things - world public opinion, people of conscience, on a global scale, from the grassroots, creating a groundswell for change. Can it happen? Not easily, but Halper offers a "reframing."

(1) Conceptualizing the conflict: how to secure mutual national rights -

Reconciling mutually opposing rights is key to a meaningful just solution.

(2) Defining the problem: security v. occupation and a proactive expansion policy -

Palestinians have been conciliatory; willing to compromise; accept a two-state solution based on pre-1967 borders (22% of historic Palestine); Israel flatly refuses; diktats, not compromise is its strategy; "security" the mantra; the outcome - win-lose.

Only a rights-based win-win solution can work; one under international law; apartheid is untenable; human rights reframing advances the de-colonization argument; why elsewhere but not in Israel.

Sum it up and here are Halper's choices:

(1) a traditional two-state solution -

A viable Palestinian state in the Occupied Territories is unrealistic given Israeli settlements with 500,000 Jews in them.

(2) An "Israel plus-Palestinian minus" two-state solution: the Israeli option -

It's a non-starter for Palestinians - a semi-sovereign, hardly viable, disconnected, South African-style apartheid system.

(3) A single-state solution: multi-national and democratic -

The best choice, but is it workable? Transforming a Jewish state into a democratic one faces enormous obstacles. Maybe one day but not soon.

(4) A regional confederation -

It's more complex, "less elegant," but for Halper the only workable choice, and he compares it to the EU - balancing national autonomy with freedom to live and/or work anywhere in the union. It neutralizes Occupation, gets Palestinians out of their trap by allowing them wider economic, social, and geographic opportunities within the region. It's fair and win-win, and he suggests a "two-stage" process:

(a) A Palestinian State alongside Israel -

Essentially what now exists for starters with "stage two" to follow; a "way out of the trap" - an international community regional confederation guarantee within, for example, a decade. That assures viability.

(b) A regional confederation leading to a wider Middle East confederation -

The international community must take charge; set the terms; get everyone on board; and begin say with Israel, Palestine, Jordan, Syria, and Lebanon. Later bring in Egypt, others and eventually all regional states - a full-blown Middle East Union, like the EU.

Settlements can stay in place; Israel needn't offer Palestinians citizenship; but nishul must stop, allow Palestinians out of their trap; and bring an end to conflict because its reason no longer exists. Details are important and must carefully be worked out, but on a fair and equitable basis to both sides and all regional states. It's no simple task, maybe one too great, but look at the possibilities:

-- ending the longest and most intractable conflict anywhere;

-- stopping it from getting worse; endangering the region; beyond it as well;

-- transforming Israel from an ethnocracy to a legitimate democratic state diplomatically recognized by its neighbors; and

-- allowing Jews and Muslims to live in peace; then both with everyone everywhere; imagine the possibilities; the alternative is hopelessness: Jews will also suffer; ethnocracy is self-destructive; the way out is justice; a little compromise for a lot of gain; win-win; Halper sees Israel going beyond peace to redemption, committed to human rights, and beginning the journey to get there.

What About Terrorism?

First off, distinguish between individual/group v. the far greater state kind. Then consider aggressors and victims, one act begetting another, an eventual vicious circle, and nations claiming the high ground when they're at fault - "worthy" victims of "unworthy" ones even when they act in self-defense.

The real issues is life. It's sacred, and taking it from non-combatants is terrorism. It's also "illegal, immoral and prohibited." Self-defense against combatants is another matter fully justified under international law as is the right to resist with arms. Israel says otherwise, blames its victims, and so far has avoided accountability. That no longer can stand, and Halper suggests a "better language" to hold all terrorist acts accountable.

It exists so let's use it - the language of human rights. It's codified in law, and it's high time it's applied universally. It's precise, inclusive and condemns all forms of terror - by individuals, groups and most importantly states. And judicial bodies exist to enforce it - the International Criminal Court (ICC) for example to prosecute individuals for genocide, crimes against humanity, war crimes, and crimes of aggression. The principle of "universal jurisdiction" also exists that requires other states to bring rights violators (including heads of state) to trial if their own nation won't do it.

Halper sees human rights and applying international law as key to genuine peace and conflict resolution. States, of course, are the obstacle. They won't police themselves, and in-place institutions have proved weak. Changing things requires people action - international civil society demanding justice; doing it proactively; marshaling enough voices to make them heard; refusing to take no for an answer. Think impossible? Think again.

Where Do We Go From Here?

Here's the problem. The Israeli-Palestinian conflict involves far more than two peoples. Far more than the region. It's global and resonates everywhere and affects everyone. For the Middle East alone, regional peace is impossible without a just settlement of the conflict. Absent that and anything is possible - all bad.

Globally, the entire world is affected. For Halper, it's brought him "full circle," a Jew, an Israeli in Palestine seeing his "own people coopted by Israel's security framing and disempowered." Disadvantaged as well considering the alternative. He's part of an effort to change things and suggests four strategic elements:

(1) A global, regional, local and personal vision

The last two decades have seen the emergence of a vibrant international civil society - thousands of peace and human rights organizations of all types together with activists, intellectuals and concerned people everywhere standing up against injustice and demanding resolution. So far, the other side outmuscles them, but who knows for how long. New tools are around like the Internet that connects people everywhere. Alternative media as well, including online choices attracting growing audiences fed up with the mainstream's mind-numbing array.

That combination against injustice has power. Omnipotent - no. Effective - why not, and in enough numbers it works. Social movements comprised of ordinary people have enormous political clout. They can win when they're of a mind to, but it's no simple task. It takes muscle-flexing, exercising "disruptive power," according to Frances Fox Piven, and look what it brought America - ending slavery, labor and civil rights and a liberating revolution from Britain. Why not one freeing Palestinians from Occupation. But it needs an effective program for action. Here's Halper's:

-- reframe the conflict; make it rights-based; include other choices also; mobilize civil society; get support within governments; UN officials; anyone from anywhere to stand up for justice.

ICAHD has "two meta-campaigns:

-- an "anti-apartheid" one involving resistance and ending the Occupation employing various tools and strategies; once an apartheid regime is in place, have planned responses to counteract it;

-- a "60 Years Later: Marking 1948" one highlighting displacement and dispossession;

-- both campaigns focus on other issues as well - home demolitions, the Separation Wall, the entire Matrix of Control, boycotts, disinvestment, sanctions, holding Israel accountable, and framing everything within a "Big Picture" meta-campaign strategy.

Redeeming Israel fits in as well. Making it an "exclusive patrimony" created a "violent nightmare....a self-defeating enterprise." The more Jews "try to Judaize Palestine, the more (they) destroy it" and themselves. The situation is untenable and begs for an alternative. Political Zionism is "exhausted." A prosperous and formidable Jewish state has failed - to achieve "accommodation, justice, peace and reconciliation" with Palestinians, the region, and international civil society.

A "New Cultural Zionism" is needed, disassociating itself from self-defeating politics and its corrupting violence. What's good for Jews is good for Arabs is good for everyone. Halper "can't argue with that." Can anyone? His book is powerful, enlightening, and important to read and act on.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.