Thursday, August 7, 2008

Bushonomics

Bushonomics

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A new Center for American Progress report released today -- Understanding Bushonomics: How We Got Into This Mess In the First Place -- documents "the extraordinary transfer of wealth that took place between ordinary households and the extremely well-to-do and the effort by this administration to address the consequences of that problem without addressing the root cause." Senior Fellow Scott Lilly argues that while the "economy did in fact grow at a reasonably strong pace through most of the Bush presidency" and "the hourly productivity of American workers" increased by "more than 19 percent," average Americans did not reap the benefits of economic expansion. Instead, President Bush's economic policies redistributed wealth to the richest Americans and left the majority with stagnating wages and declining household incomes. The transfer "drained the American consumer of the resources needed to keep the economy humming" and led the administration to stimulate the economy by expanding credit -- an action that only weakened "our long term capacity for growth," he concludes.

WEALTH GOES TO THE RICH: The Bush administration directed its economic policies and the benefits of economic growth towards a narrow segment of the population, the wealthiest Americans. Looking at the effects of the first three Bush tax cuts, the Congressional Budget Office concluded that "the percentage by which the effective tax rate was cut for high-income families was nearly twice the rate cut for those in the middle of the income spectrum." Meanwhile, the administration's failure to raise the minimum wage coupled with its poor enforcement of federal wage and hour laws, trade agreements, and union rights further undermined the economic security of middle and lower-income Americans. Consequently, between 2000 and 2006, "those among the top 10 percent of all households on average increased their income by about 2 percent, while those in the bottom 90 percent lost more than 4 percent." The "biggest beneficiaries of U.S. economic growth that occurred between 2000 and 2006 were U.S. corporations," the report concludes. While corporate profits grew "at a little less than two-thirds the growth rate of the gross domestic product" during the second half of the 20th century, between 2000 and 2006, "corporate profits grew nearly four times as fast as GDP," increasing by an estimated 66 percent.

NO TRICKLE DOWN: The newfound prosperity of the top 10 percent of families, "which accounted for 95.3 percent of the nation's income growth between 2002 and 2006," did not trickle down the economic spectrum, and left most Americans incapable of absorbing the rising output of consumer products. Recognizing the precarious condition of the U.S. consumer, corporations retained their extra profits, invested little in new commercial structures such as factories and office buildings, bought back their own stock, and "increased dividends rather than expand capacity." High-income individuals absorbed some of the extra output by consuming luxury items, but most of their "increased income went to savings rather than consumption," Lilly writes.

A POOR FIX FOR DEMAND: With families unable to absorb the extra production, the Bush administration tried to keep the economy growing by ordering the Federal Reserve to drastically lower the Reserve's Discount Rate, "the interest rate charged by the Federal Reserve to member institutions for short-term lending." By 2002, the Fed Reserve Discount Rate dropped to 0.75 percent and "the dramatic reduction in the cost of money to member banks began a frenzy of economic activity." The biggest effect was in-home mortgage refinancing. "Extremely low interest rates...made it possible for hard-pressed consumers to maintain and even improve their living standards by taking equity out of their homes," Lilly notes. But "the dramatic expansion of credit created excessive debt and distorted the price of housing. It also weakened the dollar, pushing up oil prices."

McCain Adopts Cheney's Energy Plan

McCain Adopts Cheney's Energy Plan

Now echoing those views, McCain declares repeatedly, “We need to drill here and we need to drill now.” Beyond opening up large tracts of protected coastal waters for oil exploration, McCain has called for a massive expansion of nuclear power.

"If I am elected president, I will set this nation on a course to building 45 new reactors by the year 2030, with the ultimate goal of 100 new plants to power the homes and factories and cities of America," McCain said during a campaign stop at a nuclear power plant in Michigan on Tuesday.

McCain’s current positions on offshore drilling and nuclear power dovetail with the policies of the Bush administration and mark a sharp break between major environmental groups and McCain, who previously used his environmental credentials as proof of his maverick ways.

As McCain abandoned his opposition to offshore drilling in June, Sierra Club political director Cathy Duvall said McCain “is using the environment as a way to portray himself as being different from George Bush. But the reality is that he isn’t.”

The Sierra Club, which is considered the oldest and largest environmental organization, has even begun running ads criticizing McCain and favoring Barack Obama.

With McCain's reversal on offshore drilling and his vocal support of nuclear energy, he now is pretty much in sync with Cheney’s secretive Energy Task Force of 2001, which called for more aggressive oil exploration, including in environmentally sensitive areas, and "the expansion of nuclear energy in the United States as a major component of our national energy policy."

Cheney’s energy plan, as it turned out, was largely written by executives of major energy companies, including Ken Lay and other top officials of the now defunct Enron Corp., which was particularly interested in energy price deregulation.

When Enron imploded in a wave of accounting scandals in late 2001 documents surfaced revealing the company’s behind-the-scenes role in drafting Cheney’s energy plan. It also was discovered that Enron was part of a scheme to create artificial electricity shortages in California in early 2001 to jack up rates.

The embarrassing revelations helped derail Cheney’s legislative package in Congress. But the Bush administration and the energy industry kept pressing for approval of various parts of the plan, such as expanded nuclear power by pitching it as a “green” energy option that doesn’t produce carbon dioxide.

The Nuclear Energy Institute (NEI), a powerful industry lobby, spent $680,000 during the first half of 2007 lobbying the White House, Congress, the Energy Department and other federal agencies, according to a disclosure form filed with the Senate's public records office.

Among the key lobbyists for nuclear power were the NEI’s Tom Loeffler, a former Republican congressman and Cheney's longtime friend, and Nancy Dorn, who worked as a congressional liaison for Cheney and later became a lobbyist for General Electric. The lobbying appears to have paid off as McCain is now making nuclear energy a centerpiece of his presidential campaign.

Bush’s Advisers

McCain’s shifts on energy policies also came as he brought onboard advisers who had previously helped the Bush administration craft its energy agenda.

One of McCain’s advisers on energy policy has been David Conover, the former principal deputy assistant secretary office of policy and international affairs at the Energy Department. In 2005, Conover briefed members of Congress about the Bush administration’s plan for reviving the dormant nuclear power industry.

“Concerns over... climate change suggest a larger role for nuclear power as an energy supply choice,” Conover told a Senate Commerce subcommittee. “The Nuclear Power 2010 program is working with industry to demonstrate the Nuclear Regulatory Commission`s new [streamlined] licensing process.”

NP2010 became one of Cheney’s pet energy projects, as he pressed aggressively to get the Nuclear Regulatory Commission to speed up approval and licensing for nuclear plants.

Last September, Princeton-based NRG Energy Inc., having emerged from bankruptcy proceedings, became the first company in 30 years to submit an application to build two new General Electric-designed nuclear reactors at its Bay City, Texas, nuclear power plant facility.

Prior to NRG's application, there had not been a filing for a new nuclear power plant in the United States since before the Three Mile Island nuclear reactor meltdown three decades ago. Government records showed that NRG's former president, David Peterson, traveled to Washington on two occasions in 2001 to work with Cheney's Energy Task Force.

Last October, the Tennessee Valley Authority, the nation's largest public power provider, also filed an application with the NRC for a license to construct and operate two new nuclear power reactors in northern Alabama using General Electric's Westinghouse AP1000 reactor units.

The application was filed under the banner of NuStart Energy LLC, a consortium of electric utilities that joined together in 2004 to test the NRC's streamlined nuclear reactor licensing program. The licensing costs were paid for by the federal government under the Cheney-backed NP2010 program.

Members of the NuStart consortium include: Constellation Energy; Duke Energy; EDF International North America, the U.S. subsidiary of the French electric utility; Entergy Nuclear; Exelon Generation; Florida Power & Light Company; Progress Energy; South Carolina Electric & Gas; Southern Company; and Tennessee Valley Authority, Knoxville, Tennessee.

With the exception of Progress Energy, South Carolina Electric Gas & Light, and EDF International, all of these companies participated in meetings with Cheney's Energy Task Force and advised the Vice President on energy policy.

Additionally, these corporations have said publicly they intend to file applications for nuclear reactor licenses before the end of 2008, the deadline to receive billions of dollars in federal subsidies and tax credits. The NRC says it expects to receive as many as 21 applications to build 32 new reactors before the end of 2008, with most, if not all, expected to go online in 2015.

Nuclear Doubts

However, economists and scientists continue to question both the economic viability of nuclear power and the hazards from nuclear waste, which remains lethal for 100,000 years or more.

A 2003 study by the Massachusetts Institute of Technology said that even with volatile natural gas prices, the cost of producing electricity from nuclear power plants is still 20 percent higher than electricity produced from gas-fired power plants, and 60 percent more expensive than electricity produced from a coal-fired power plant.

Jon Block, nuclear energy and climate change project manager for the Union of Concerned Scientists, said one of the continuing problems with constructing new nuclear facilities is how to dispose of nuclear waste.

"In over 50 years of operating experience, the nuclear industry still has not managed to solve the problems of safety, security, and disposal of highly dangerous radioactive waste," Block said. "Until that happens, we're much better off investing in safer, cleaner energy sources such as renewable wind, geothermal, tidal, and solar projects."

The Energy Department, the agency largely responsible for monitoring nuclear waste, submitted an application to the NRC to build a repository at Yucca Mountain, the site of a former nuclear testing ground in Nevada, where the agency has proposed burying the waste deep underground.

McCain supports the idea of storing waste in Yucca Mountain, a plan opposed by a majority of Nevadans, which could cost the Arizona Republican politically in a critical swing state.

Presumptive Democratic presidential nominee Sen. Barack Obama is more cautious about nuclear power.

Although Obama said he supports nuclear power as part of an overall package of U.S. energy plans, he said Tuesday the nation must find "safer ways to use nuclear power and store nuclear waste." Until that happens, Obama said he would not support licensing new nuclear power plants.

Salim Hamdan Gets Mixed Verdict in First Military Commission Trial

Salim Hamdan Gets Mixed Verdict in First Military Commission Trial

By Andy Worthington

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A military jury's verdict on Wednesday in the first U.S. war crimes trial since World War II -- that Yemeni Guantanamo prisoner Salim Hamdan is guilty of material support for terrorism, but not guilty of terrorism itself -- was the culmination of two weeks of proceedings that provided some extraordinary insights into the United States' so-called "War on Terror." And yet, as Jonathan Mahler recently wrote in the New York Times, the lofty ideals of the Nuremberg Trials, which opened with Chief Prosecutor Robert Jackson declaring, "That four great nations, flushed with victory and stung with injury, stay the hand of vengeance and voluntarily submit their captive enemies to the judgment of the law is one of the most significant tributes that power has ever paid to reason," were not in evidence during the Hamdan trial. Nor have they been manifested in the verdict.

Instead, the limited number of outside observers attending the military commission trial of Hamdan, a driver for Osama bin Laden, witnessed presiding judge Keith Allred -- a principled man in an unenviable position -- struggling to turn a novel legal system unconnected to the laws on which the United States were founded into something resembling a fair trial, one to be respected in legal circles, both in the United States and the wider world. The events of the last two weeks revealed this to be a Herculean task.

Today's military commissions are a modified version of a system conceived in the wake of the 9/11 attacks by Vice President Dick Cheney and his chief counsel, David Addington, and ruled illegal and unconstitutional by the Supreme Court in June 2006. The commissions' many critics have remained unconvinced that they can provide an adequate substitute for either U.S. law as practiced on the mainland or the military's own well-established judicial processes. Little, if anything, that has emerged in the last fortnight has helped assuage their doubts. Instead of vindicating Cheney and Addington's belief that a new legal system was required to try "terror suspects," Hamdan's trial revealed a litany of dubious practices masquerading as justice, including a disgraceful use of propaganda, misplaced prosecutorial zeal, the shameful use of hearsay as evidence, abuse of the Fifth Amendment protection against self-incrimination, and woefully blurred distinctions between valid testimony and coerced testimony. The proceedings also provided observers with piercing insights into the interrogation techniques used in the "War on Terror," which have served only to confirm the supremacy of the agencies that favor kindness and psychological maneuvering over those that favor coercion and brutality.

Two episodes toward the end of the proceedings underscored the commission's failings. In the first, defense testimony from government employees was delivered to a closed court, undermining the essential transparency of the process and tilting perceptions of the trial in favor of the prosecution, whose entire case was conducted in the open. In the second, senior al Qaeda operative Khalid Sheikh Mohammed, though not present in person, delivered a statement dismissing Hamdan as nothing more than a "primitive" man, unequipped to be involved in the planning or execution of terrorist attacks. His statement also managed to further undermine the trial through some acute insights into what he described as fundamental failures of the U.S. intelligence agencies.

A Historic Trial, But Is Anyone Watching?

Despite the supposed significance of the Hamdan case, Mahler noted in the Times that the proceedings "hardly have the feel of history in the making."

They haven't merited much discussion in the presidential campaign; nor are we (as) a nation riveted by the trial of the first defendant. … Instead of a landmark case, one that serves as a resonant reminder of the gulf separating us from our enemies, we have detachment and ambiguity -- not just about the extent of Hamdan's guilt but also about the wisdom of the entire tribunal process as well as many other aspects of the prosecution of the war on terror.

These are valid points, and although the detachment Mahler refers to can partly be explained by a general hollowing-out of political awareness (in which a prurient obsession with the peccadilloes of celebrities has taken root instead), part of people's detachment -- and the ambiguity -- can be explained by the disconnect between the supposed importance of the trial and the reality of the figure at its heart.

Although Salim Hamdan was a driver for Osama bin Laden, he and his defense team have always maintained that the Yemeni father of two, who has only a fourth-grade education, was nothing more than a hired worker -- one of seven drivers in total. According to his attorney, he was not privy to the inner secrets of al Qaeda and had no knowledge of or involvement in the attacks -- on the U.S. embassies in Africa in 1998, on the USS Cole in 2000, and on the U.S. mainland in 2001 -- that are the purported justification for the entire military commission system.

Even the prosecution did not attempt to insist that Hamdan was a major player. "We never put a rank on him," Col. Lawrence Morris, the commission's chief prosecutor, explained to reporters. "We never suggested he was in the top 17 or the top any-teen of al Qaeda. I don't want … to have anybody have us appear to be asserting that he's more responsible than he is or that he's higher-ranking than he is." Morris' opinions were supported by the testimony of various agents over the course of the two-week hearing. FBI agent Craig Donnachie, for example, explained that Hamdan told him that he "had no interest in fighting after completing his time" at a training camp in Afghanistan, and when defense lawyers asked Donnachie if Hamdan had committed "to engage in terrorist acts," the agent replied, "He did not."

Thus, as a landmark case, Hamdan's trial lacked the punch required to grab the attention of the nation, and is, at some level, equivalent to trying Adolf Hitler's driver in the Nuremberg Trials in the absence of the Fuehrer himself. And the entire setup becomes even murkier upon a close examination of the reasons for putting Hamdan forward at all.

Testing the System and Concealing Torture

While the commission's most significant defendants -- Khalid Sheikh Mohammed (KSM) and four other prisoners accused of direct involvement in the 9/11 attacks -- wait in the wings, it's clear that Hamdan was put forward first for two very specific reasons, neither of which cast a good light on the process.

The first is that he is being used as a guinea pig to test whether the system actually works. The second is that he is presumed to be relatively "clean" -- in other words, that he has not been subjected to the torture inflicted on the "high-value detainees," including KSM and his alleged co-conspirators. The administration not only denies that it has been involved in torture, but also denies that waterboarding (the now notorious technique to which KSM and others were subjected, as admitted by CIA director Gen. Michael Hayden), is actually torture. When it comes to putting these men on trial, however, the government's refusal to start the proceedings with KSM and his fellow defendants serves only to confirm that legally (if not morally), they are aware that they are on shaky ground.

Neither approach was entirely successful in Hamdan's case. Observers understand that, along with Hamdan, the entire system is on trial, as William Glaberson of the New York Times described on July 29. "Mr. Hamdan's trial is, in a sense, two trials," he wrote. "Mr. Hamdan is being tried on accusations of conspiracy and material support of terrorism. And the Bush administration's military commission system itself is on trial."

Nor did the second ploy -- denying torture -- proceed smoothly. Only one of the 20 prisoners so far put forward for trial by military commission, an Afghan called Mohammed Hashim, has resisted mentioning that he was subjected to either torture or coercion, but he appears to be nothing more than a deluded fantasist who should never be on trial at all.

Voluntary vs. Coerced Testimony: Blurring the Lines

Allegations of severe mistreatment have dogged the Hamdan case since his pre-trial proceedings, during which his defense counsel hired an expert to examine his mental state. The conclusion was that prolonged isolation had led to a situation whereby he "met diagnostic criteria for Post Traumatic Stress Disorder and Major Depression," including "nightmares, intrusive thoughts, memories and images, amnesia for details of traumatic events, lack of future orientation, anxiety, irritability, insomnia, poor concentration and memory, exaggerated startle responses and hypervigilance." Recent weeks revealed that he was subjected to sexual humiliation during interrogations and a systematic policy of sleep deprivation, in which he was repeatedly moved from cell to cell and prevented from sleeping for a period of 50 days.

As the trial began, Allred was required to interpret the horribly blurred distinctions between voluntary and coerced testimony that were written into the Military Commissions Act (the legislation that revived the commissions after the Supreme Court struck them down in June 2006). The MCA permits coerced evidence and hearsay, as long as a judge considers them to be "reliable" and "probative." Allred confirmed that Hamdan had indeed been subjected to legally dubious treatment and ruled out the use of any testimony obtained by authorities while he was held in Afghanistan following his capture, both at the U.S.-run prison at Bagram, and, as had never previously been disclosed, at an Afghan prison in the Panjshir Valley, north of Kabul. The Panjshir prison was one of several prisons in which, as revealed in The Guantanamo Files, numerous "ghost prisoners" who ended up in Bagram were subjected to what one of the prison's captives, a Libyan who escaped from Bagram in July 2005, later described as "hard torture."

In response to Hamdan's complaints that, at Bagram, he was "kept in isolation 24 hours a day with his hands and feet restrained, and armed soldiers prompted him to talk by kneeing him in the back," and his additional complaints that, in the Panjshir prison, his captors "repeatedly tied him up, put a bag over his head and knocked him to the ground," Allred ruled out the use of statements obtained from the interrogations because of the "highly coercive environments and conditions under which they were made."

This was not a good start for the prosecution. But while it underscored how vague the parameters are for acceptable evidence (making the judge the sole arbiter of the matter), Allred added that he saw no problem admitting other statements that Hamdan had made while he was held in other locations in Afghanistan and throughout his imprisonment at Guantanamo. Even so, the prosecution complained. "We need to evaluate … to what extent it has an impact on our ability to fully portray his criminality in this case, but also what it might set out for future cases," Morris explained.

Shredding the Fifth Amendment

In the meantime, Hamdan's defense team took the offensive. Michael Berrigan, the deputy chief defense counsel, described the judge's decision as "a very significant ruling" because the prosecutions "are built to make full advantage of statements obtained from detainees." The defense team immediately asked Allred to throw out all of Hamdan's interrogations, arguing that, while at Guantanamo, he had incriminated himself under abusive conditions, including prolonged sleep deprivation and solitary confinement, and that any statements he had made were an infringement of his Fifth Amendment rights.

The appeal was denied by Allred, who declared that constitutional protections against self-incrimination do not apply to "enemy combatants." This led the case into different, contentious territory, in which Guantanamo's purpose as an interrogation camp was explicitly revealed (in contravention of the Geneva Conventions, which prohibit the interrogation of prisoners seized in wartime, whether coercively or not), and the administration was obliged to reveal far more than it might have wished about the nature of its interrogations.

"Guantanamo Bay Is an Intelligence Collection Point"

This part of the trial kicked off with an explosive revelation by the former FBI interrogator and "al Qaeda expert" Ali Soufan, who explained on the second day that Guantanamo, as the Associated Press described it, "is the only place in the world where he has not informed suspects of a right against self-incrimination." "The way it was explained to us," Soufan said, "is Guantanamo Bay is an intelligence collection point."

This was an enormously significant statement, as the prison's true -- and illegal -- purpose is officially, as once described by Donald Rumsfeld, to keep "committed terrorists … off the street and out of the airlines and out of nuclear power plants and out of ports across this country and across other countries." Defenders of the so-called "War on Terror" argue that the flight from domestic and international law is necessary to fight the greatest threat the world has ever known -- hence the rather inflated Nuremberg analogies. But in reality, the administration's behavior has not only undermined the reputation of the United States; it has also, as Hamdan's self-incrimination specifically shows, led to a surreal situation in which those who cooperate with their interrogators are punished for their cooperation.

As the Los Angeles Times explained, "A parade of intelligence witnesses" described Hamdan as "cooperative, cordial and a source of reliable information about the terrorist hierarchy," who "drew maps to al Qaeda training camps and compounds for his captors," and "guided FBI and military intelligence agents to bin Laden's private residences and guest houses and identified photos of terrorist kingpins still at large" while in custody in Afghanistan. At Guantanamo, moreover, he reportedly provided "vital information" about "key perpetrators" of the terrorist attacks in 1998, 2000 and 2001. Ammar Y. Barghouty, an FBI agent, explained that Hamdan's identification of the Saudi "high-value detainee" Abdul Rahim al-Nashiri, who is accused of directing the attack on the USS Cole, together with "his willingness to testify against him," provided the government with "a solid basis to prosecute the Saudi."

Revelations About Interrogation Techniques

As these revelations were rolled out, Hamdan's treatment -- and by extension the treatment of "enemy combatants" in general -- inadvertently came under close scrutiny. Of particular interest was the testimony of FBI special agent George Crouch, who interrogated Hamdan at Guantanamo for 13 days in June 2002. Favoring the old-school approach to interrogation that focused on rapport-building rather than brute force, Crouch explained how he "built a trusting relationship with Hamdan during the marathon interrogation, bringing him special snacks and working to ease his 'concerns.'"

"Mr. Hamdan commented that he liked McDonald's fries, and we brought fries in," Crouch said. Complaining, as Reuters put it, that Hamdan "grew upset and uncooperative when he was put in solitary confinement amid a series of interrogations, prompting a heated complaint by Crouch to military guards," the FBI agent then explained that, on another occasion, "Hamdan's mood lifted when he was allowed to call and tell his wife that he was alive." "Mr. Hamdan cried quite a bit," Crouch said. "He was very grateful for the opportunity to speak to his wife. A burden had been lifted from him. At least his wife knew he was alive."

In contrast to Crouch's approach to interrogations, other agencies favored harsher methods, although no evidence was provided that they were more effective. Disturbingly, the activities of the CIA were declared off-limits during the trial, as were the CIA's interrogations in Afghanistan. Although Crouch said he successfully prevented Hamdan from being kept in solitary confinement between his visits, the Los Angeles Times reported that he was "unaware … that during the night Hamdan was also brought to interrogators of another U.S. agency," whose identity was not revealed, under what was described, with some accuracy, as the court's "secrecy practices."

Like other witnesses, Crouch admitted that Hamdan was not protected by the Fifth Amendment, although he maintained that he was not happy about it. ("I would have read him his rights," he said.) He insisted, however, that although Hamdan played only a small supporting role in al Qaeda, it was still significant. "Without people like Mr. Hamdan, bin Laden would enjoy no support, he would not enjoy protection, and he probably would not have been able to elude capture up to this point," he said. Even so, Crouch reserved one last gesture of kindness toward Hamdan, admitting, "I don't know if I ever thanked him."

What went largely undiscussed, however, was the impact of Hamdan's self-incrimination. Harry Schneider, one of Hamdan's lawyers, asked Crouch during cross-examination, "Did anyone ever say, 'You've got to understand, somebody can use this against you?'" but Crouch said he "did not remember," and it was left to the defense to point out to both the jury and the agents the absurd situation whereby, in contrast to the case that a cooperative Hamdan had built up against himself, "the head of bin Laden's bodyguards -- Hamdan's boss -- and an al Qaeda errand boy arrested along with Hamdan," who had "refused to cooperate with U.S. interrogators during their time at Guantanamo … were eventually released without being charged." As Ben Wizer, a staff attorney with the American Civil Liberties Union, explained, "It's perverse that the only person who agreed to cooperate is being hung with his own words, while those who stayed silent are home and free."

In addition, no one mentioned a disturbing corollary: that, by prosecuting a witness who has been so cooperative, the administration very possibly fatally undermined its intelligence agencies' ability to secure the services of former insiders in terrorist organizations who are prepared to reveal all they know in exchange for protection.

Jack Cloonan, a former FBI special agent who worked closely with former al Qaeda insider Jamal al-Fadi in the years before 9/11, appreciated that brutality ("all that alpha-male shit," in fellow agent Dan Coleman's words) was useless in building a sustained and useful relationship with prisoners possessing genuinely significant intelligence. "You think all of this stuff about torture is going to make people want to come to us?" he asked. "That's why I get upset when I hear people talking about stress positions, loud music and dogs."

Shameless Propaganda

During the first week's proceedings, as Julia Hall of Human Rights Watch reported for Salon.com, the prosecution showed two videos taken shortly after Hamdan's capture in Afghanistan, which were "harrowing both for what they depict and for the fact that they were admitted into evidence at all." Hall wrote that they "show Hamdan slumped on the floor, hooded and shackled, as he is badgered by his Arabic-speaking military interrogator in a dark room with one dim light bulb overhead. An armed soldier is behind Hamdan, the interrogator in front." She added, "There is a sickening sense in watching that Hamdan -- visibly scared -- is searching for the right words to appease the interrogator, trying out ideas as they occur to him in an attempt to avoid more abuse."

While Hall noted that Allred had overruled the defense team's objection to the tapes being shown, deciding that they were "in the interests of justice," she also pointed out that the Pentagon was not prepared to release the tapes to the general public, citing a Pentagon source who said that they were being withheld out of an "abundance of caution." "Perhaps," she mused, "the DoD fears that the American public will know a coercive interrogation when it sees one."

At the start of the trial's second week, as if to compensate for the mixed messages in the "capture tapes," the prosecution returned with a slice of pure propaganda: "The Al-Qaeda Plan," a film modeled on "The Nazi Plan," produced for the Nuremberg Trials, and which was written, produced and narrated by "international terrorism consultant" Evan F. Kohlmann. (Kohlmann was paid $20,000 to produce the film, and another $25,000 to appear as an "expert witness.") The film was described by the Los Angeles Times as "a graphic 90-minute film chronicling the history of al Qaeda," including "footage of mangled corpses in the rubble of the 1998 U.S. Embassy bombing in Kenya." Despite Allred's assertion to the jury that it was being screened in order "to provide an understanding of al Qaeda operations" and that Hamdan was "not alleged to have been involved in any of these attacks," the film caused an uproar in the courtroom. Defense attorney Charles Swift complained vociferously, describing the film as "extraordinarily prejudicial" and accusing the prosecution of "trying to terrorize" the jury. Morris responded, bizarrely, by claiming, "It is prejudicial, which is why we show it," adding, "I think people think prejudicial is somehow wrong." The showing of the film was clearly nothing more than a propaganda exercise, much like the irrelevant footage of Osama bin Laden shown last summer at the propaganda-fueled trial of U.S. "enemy combatant" Jose Padilla.

A Tainted Confession

The next few days demonstrated yet again that the commission judges have, to some extent, been empowered to invent the rules as they go along. Allred decided to penalize the prosecution as they finished presenting evidence, by preventing them from using what was described as "the most complete summary of evidence against Hamdan," compiled by Ali Soufan and Robert McFadden of the Naval Criminal Investigation Service (NCIS) in May 2003. This denial was a penalty for the prosecution's delay in handing over 1,200 pages of documents relating to Hamdan's interrogations to the defense team. (Despite repeated requests for the documents, the prosecution had waited until the night before the trial began to release them, leaving little opportunity to search through the records for evidence of Hamdan's abuse.) But the next day, vacillating yet again, Allred allowed the prosecution to present its evidence after all, while insisting that he would use a "higher standard" to evaluate it and saying that the prosecutors would have to provide "clear and convincing evidence" that Hamdan's statements were not obtained through coercion. Whether the judge remained true to his word or not is a moot point; When McFadden took the stand, he declared that Hamdan had told him that he had sworn bayat (pledged an oath of loyalty) to bin Laden, even though no other interrogator had managed to secure such a confession.

Hamdan, upon taking the stand, denied that he had said any such thing. According to the Los Angeles Times, "he insisted that he had spoken only with Soufan during the more-than-nine-hour interview and that despite Soufan's persistent questioning on the subject, he had never told him about swearing allegiance." Hoping to capitalize on what appeared to be a key piece of evidence, lead prosecutor John Murphy then told the judge that allegations of coercion had "cast a black cloud over these agents and those who work with the detainees" and suggested that McFadden's testimony would "dispel that taint." This prompted defense lawyer Michael Berrigan to call the day's proceedings "a farce," saying that the true "black cloud" was "the government's own creation," which it had manufactured through the use of coercion.

Silencing the Defense

When the defense team finally got the chance to present its case, Brian Glyn Williams, a professor of Islamic history, attempted to explain Afghanistan's history to the jury, focusing on the differences between what he described as "two largely separate al Qaeda missions: supporting Islamic warriors and committing terrorist acts against enemy foreign states." Echoing the words of FBI agent Donnachie, Williams said Hamdan was recruited for a support role "because he lacked the will for carrying out attacks," and, moreover, was incapable of assuming a role as an international terrorist. "I don't see him being that quality of material," he said.

After this intriguing start, most of the rest of the defense's case took place behind closed doors. This included testimony from Lt. Col. G. John Taylor and Col. L. Morgan Banks III, the senior psychologist in the military's SERE (Survival, Evasion, Resistance, Escape) program, which subjects soldiers to torture in order to train them to resist interrogation by enemy agents (and which is widely regarded as the model for the brutality and humiliation to which "War on Terror" prisoners have been subjected). The secrecy was, naturally, criticized by the defense team. "It is not the defense that has requested this closed session, but it is necessary, according to the government, to protect the information," said Lt. Cmdr. Brian Mizer, Hamdan's military lawyer, who added pointedly, "It is my hope that the American public will someday hear Mr. Hamdan's defense."

Exactly what kind of state secrets Taylor and Banks were supposed to be protecting is, of course, unknown, but a defense statement revealed that they were called to testify because they had served with U.S. Special Forces when Hamdan arrived at Bagram on Dec. 28, 2001. This suggests that the court was closed because their testimony would include evidence that revealed the "coercion" that Allred was responsible for monitoring throughout the trial.

In fact, this imposition of secrecy interfered with much of the defense's case. For example, when Hamdan's lawyers appealed to Allred for McFadden's testimony to be excluded, citing references to Hamdan's abuse at the time, almost all of the judge's ruling (in McFadden's favor) was blacked out. But the most ludicrous example of censorship occurred during the cross-examination of McFadden, when attorney Harry Schneider Jr. wanted to ask the agent a question based on a book that he held up in the courtroom. After some discussions with the prosecution, Schneider admitted, "I'm told it's classified, so I can't ask you," even though the book was the best-seller, The 9/11 Commission Report.

"No court, civilian or military, has credibility when it listens to secret evidence in a closed courtroom," Lou Fisher, the author of a book about the 1942 military trial of eight alleged Nazi saboteurs, told the Washington Post. And Stacy Sullivan of Human Rights Watch, who was excluded from the courtroom during the secret testimony, declared, "The reason closed sessions are so troubling at Guantanamo is because the government has so frequently claimed things have had to be classified to cover up abuse and torture. In addition, trials of this magnitude should have a public record. If a significant amount of evidence and witness testimony is classified, it will be very hard to trust any verdict."

The Damaging Testimony of Khalid Sheikh Mohammed

The Hamdan trial ended, as it had begun, controversially. In a 16-page written submission, Khalid Sheikh Mohammed, who confessed during his administrative tribunal at Guantanamo last year that he was "responsible for the 9/11 operation, from A to Z," delivered a defense of Hamdan that managed to be both patronizing to Hamdan himself and witheringly critical of the U.S. administration's pursuit of his prosecution.

Describing himself as "the executive director of 9/11," KSM wrote, "He did not play any role. He was not a soldier, he was a driver. His nature was more primitive (Bedouin) person and far from civilization. He was not fit to plan or execute."

While this description corresponded with the defense team's analysis of Hamdan's role, it was unclear if the jury would be prepared to accept KSM's opinions, especially as, elsewhere in his statement, he railed against the administration as a whole. "We are not gangs," he wrote. "As the American Army (we) have drivers, cooks, crewmen and legal personnel. We also are human beings. … We have interests in life. Our people have wives and children and schools. … You can not understand terrorism and al Qaeda from 9/11 operation."

Addressing the question of how far culpability for al Qaeda's terrorist attacks could extend beyond the core leadership, KSM added: "One of the reasons for the success of the outside operations is the secrecy of the operations. So many of (bin Laden's) inner circles have no knowledge of what he was planning, and so many of al Qaeda's members and even the trainers at the military camps do not have any knowledge of the works of the outside cells. That includes the civilian employees." Anyone who thinks that everyone involved in al Qaeda was also involved in terror attacks, he said, "is a fool."

The Impossibility of Escape

With that -- and following muted testimony from Walid bin Attash, another "high-value detainee" who maintained that Hamdan "did not play any part in any planning" -- the trial came to an end. As the jury retired to consider its verdict, the last of many "black clouds" to hang over the trial concerned Salim Hamdan's fate, regardless of whether he was found guilty or not.

Guantanamo's new commander, Rear Adm. Dave Thomas, admitted that he had not yet worked out what would happen if Hamdan were found guilty. Under the commission rules, those convicted are required to be held separately from the rest of the prison's population, raising the prospect that Hamdan could be held in complete isolation for the rest of his life. "Asked how Hamdan could be separated but not isolated," as Reuters described it, Thomas admitted, blithely, "It's a great question. I'm not faced with it yet. We've thought that through, and we have plans to accommodate, but I'll cross that bridge when I come to it."

Just as disturbing, however, is what would have happened had Hamdan been found innocent. As Rumsfeld explained in March 2002, even if an "enemy combatant" is acquitted after a trial by military commission, "the United States would be irresponsible not to continue to detain them until the conflict is over." What is particularly distressing about this, of course, is not just that the administration believes that the "War on Terror" may last for generations, but that it can so brazenly state that it can hold men forever, even if they are found innocent after a trial.

As Berrigan explained, the mere possibility that the administration will hold men forever, even after their acquittal, reveals that the commissions are nothing more than "show trials," as their critics have long maintained. Speaking to the Associated Press, Berrigan said, "What's the purpose here? Mr. Hamdan is going to be held until the government wants to release him. It really has no connection to the underlying reality."

Or, he could have added, to any notions of justice.

Andy Worthington is a writer and historian, and the author of The Guantanamo Files.

Are Contractors in War Zones Above the Law?

Are Contractors in War Zones Above the Law?

Former Halliburton Subsidiary KBR Insists It Is Not Liable for GI's Death

By Daphne Eviatar

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Baghdad, Iraq (army.mil)

In January of 2008, Staff Sgt. Ryan Maseth, 24, was electrocuted while showering in his Baghdad barracks. His death prompted last week's congressional report concluding that defense contractor KBR, (until a year ago a subsidiary of the oil services giant Halliburton) was well aware that the electrical system in Maseth's complex was faulty. An accident like this, the report found, was bound to happen. But this report also now raises a larger and thornier question about military defense contractors: can they be held legally liable for their actions -- or inactions? Will anyone be held responsible for Maseth's death?

This is an increasingly important question as the U.S. government hires ever more military contractors to do work that used to be done by U.S. soldiers. The war in Iraq has already involved more outsourcing of military functions than any previous war in American history. An estimated 180,000 civilian contractors now work in Iraq and Afghanistan to support the U.S. government there. They do everything from guard U.S. officials and dignitaries to truck fuel, food and other supplies to military bases -- all jobs that used to be done by soldiers.

Private contractors operating in Iraq are not subject to U.S. military authority, or to U.S. or Iraqi law. Their employees are not subject to the rigors of Army basic training; and their superiors are not held to the strict rules and ethics that apply to the U.S. military. As a result, notes Peter W. Singer, a senior fellow at the Brookings Institution, in his book, "Corporate Warriors: The Rise of the Privatized Military Industry," "When the means of security are privatized, certain mechanisms of moral hazard and adverse selection might lead firms astray. Just as in the rest of commerce, war is business where nice firms do not always finish first."

Indeed, whistle-blowers at these companies run the risk of being fired. In 2007, shortly after one KBR electrician reported to a defense contracting agency official that logs were being created to make it appear that nonexistent electrical safety systems at the base were working properly, he lost his job, according to The New York Times. Another employee "said his KBR bosses mocked him for raising safety issues."

Yet, the Pentagon inspector general's interim report provided to the House Oversight Committee on July 28 said it "has not found any credible evidence that representatives from KBR were aware of imminent, life-threatening hazards" in Maseth's complex prior to his death. This is despite that fact that the Army itself had issued an urgent bulletin (pdf) in 2004 warning soldiers of the threat.

Of course, the Pentagon may have an interest in protecting its contractors. The Defense Dept. indicated, in a 2006 review, that it intends to increase its reliance on private military companies and other outsourced support services. Its handling of the death of Maseth certainly suggests that the Pentagon is defensive on the subject: the soldier's mother, Cheryl Maseth, was originally told that her son had carried an electrical appliance into the shower.

As of January, more than 1,000 private civilian contractors -- including 110 KBR employees -- had been killed in Iraq, and another 13,000 wounded. Deaths of American soldiers in battle, meanwhile, have climbed to more than 4,100. So what happens when the military contracting companies themselves are to blame for the deaths? For years now, KBR and other military contractors have argued that as a matter of law, regardless of the circumstances, they are not responsible. As government contractors, they say, just like the military, they're immune from legal suits. That's been KBR's defense in a series of cases over the past few years when the company has been accused of knowingly sending unarmed civilian employees into active combat zones -- sometimes to their deaths.

In a case I wrote about in January for The American Lawyer, KBR denied responsibility for sending an unarmed convoy of trucks down a dangerous road under active insurgent attack. In what's come to be known as the Good Friday Massacre, in April 2004, six KBR drivers were killed and 14 were wounded. One driver is still officially missing, and presumed dead.

Now KBR could be facing many such claims. According to the Defense Dept.'s own inspector general, as of July 10, there have been 16 deaths due to faulty electrical wiring on U.S. military bases that KBR was supposed to be maintaining. Companies like KBR rely on a range of legal defenses when accused of wrongdoing, but the gist is always the same: working for the U.S. military means they're beyond the authority of the U.S. courts -- therefore immune from U.S. law.

That's exactly the tack KBR appears to be taking in the case of Maseth, whose mother has sued KBR, claiming that the company knew of the danger and was responsible for fixing it, but didn't. In other words, KBR, she asserts, could have prevented her son's death.

KBR, which has received $20 billion in Iraq war contracts since 2003, vehemently denies this. KBR's actions "were not the cause of any of these terrible accidents," company executive Thomas Bruni told the House Oversight and Government Reform Committee on Wednesday. An interim DOD inspector general report, obtained by The Associated Press last Tuesday, reached the same conclusion.

But at least some evidence suggests otherwise. Under KBR's multi-billion-dollar contract with the Army, the company was responsible for maintaining U.S. military bases and facilities in Iraq. According to documents produced to the Oversight Committee, KBR had inspected and found problems with the building's electrical infrastructure at least four times in the months prior to Maseth's death. Documents show, for example, that another soldier in the complex had experienced electrical shocks while showering and submitted a work order (pdf) to KBR on July 8, 2007, stating: "Pipes have voltage, get shocked in the shower." A KBR electrician that day found a faulty pressure switch and noted: "Plumber needs to repair." On July 9, 2007, after KBR workers replaced the pressure switch and the water pump, the work order was stamped "finished".

Still, on Jan, 2, 2008, when Maseth turned on the shower, an ungrounded water pump short-circuited and electrified the water pipes. The current traveled through the pipes, the shower head and the water itself, electrocuting Maseth. He was dead within seconds. The congressional report concludes, based on the evidence, that KBR had installed the water pump that malfunctioned and caused the death.

Whether a court will hold the company liable, however, may depend less on the facts than whether a judge accepts KBR's claim of immunity. According to KBR's legal papers, even if the company knew of the problem and failed to fix it, KBR will claim that it's not legally liable because it was working for the U.S. government. In its motion to remove the case from state to federal court, KBR's lawyers wrote that they plan to invoke the "government contractor defense" - meaning the government approved the work so it is not responsible; the "official immunity doctrine" - that, as a government contractor, it's entitled to the same immunity as the U.S. military itself, and the "political question" doctrine -- a KBR favorite on which it's won several cases before. Under this, KBR argues that the court should dismiss the case because it would require the court to judge the actions of the U.S. military -- province of the president and Congress, not the federal courts.

KBR has relied on this same "political question" defense to win at least two previous cases involving the death of U.S. soldiers or of its own employees. But the courts are now starting to question the legitimacy of those defenses.

In the case of the Good Friday Massacre, the traditionally conservative Fifth Circuit Court of Appeals last May reversed a Texas district court's order that had dismissed the case under the political question doctrine. The three-judge panel noted that, contrary to KBR's argument, it may well be possible to resolve the cases without engaging in a "constitutionally impermissible review of wartime decision-making." Though the court cannot judge the military decisions of the Defense Dept., the court acknowledged, that doesn't shield every action taken by a military contractor. Judge Leslie Southwick wrote, "these tort-based claims of civilian employees against their civilian employers can be separated from the political questions that loom so large in the background."

The same reasoning likely applies to the electrocutions. Whether the political question doctrine applies "is partly determined by how closely intertwined the contractor is with the government officials," said Laura Dickinson, an expert on military contractor law at the University of Connecticut Law School. "One of the interesting things that I think we're seeing is that courts are not willing to throw these cases out when the contractor has a fair degree of discretion."

In this case, either KBR was responsible for repairing the electrical problems at the military base, or it wasn't. That is a factual dispute that would emerge as the lawyers gather evidence. It is not a legal matter that warrants dismissal of the case.

Unless carefully applied, contractor immunity defenses preclude a real investigation into what happened and who is responsible. If, as has happened over and over in this war, nobody is held responsible for the failures of military contractors, then there can be no incentive to do better next time.

The result is that, as long as something is done in a war zone, even the shoddiest work gets a pass -- regardless of the consequences.

If We Drill in the U.S., We Don't Get the Oil

If We Drill in the US, We Don't Get the Oil

By Cenk Uygur
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One thing has been driving me crazy about this drilling debate -- everyone seems to assume that if we drill for oil in the US, that we will get the oil. And hence, we won't be dependent on foreign oil anymore. But we won't get anything, Exxon-Mobil will.

The oil that comes from that drilling will not be United States property (Republicans aren't suggesting we nationalize the oil companies, are they?). It will be the property of whichever oil company got the rights to that contract. They can then sell it to whoever they like -- and they will. They will sell it on the world market, so the Chinese will have just as much access to the oil that comes out of the coast of Florida as we will.

The Democrats have done a decent job of beating back the argument that this will effect prices in the short run, or even in the long run. But no one has addressed the point above. The Republicans make it seem like we won't be dependent on foreign oil -- and that prices will go down in the US -- if we have our own oil. But it won't be ours. And it will be sold on the world market, so its effect on global oil prices will be even smaller.

When we ask the question of whether there should be drilling off the coast of Florida or in the Arctic National Wildlife Refuge, we should ask the question this way -- would you be comfortable with the Chinese or the Germans or Russians or the Saudis drilling on American land? Because for all intents and purposes, they will be.

Large multi-national firms like Exxon-Mobil are not US property. They sell to the world and their allegiance is to corporate profits. So, when they drill, they drill for the whole world, not just us. Some might find that heart-warming, but it certainly has nothing to do with the US having more oil or lower prices.

U.K. July Home Values Fall 8.8%

U.K. July Home Values Fall Most Since 1983, HBOS Says

By Jennifer Ryan and Svenja O'Donnell

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U.K. house prices declined the most in at least a quarter century in July as banks starved the housing market of credit and pessimism about the economy increased, an HBOS Plc report showed.

The average cost of a home fell 8.8 percent to 177,351 pounds ($345,825) from a year earlier, the steepest drop since the survey began in 1983, Britain's biggest mortgage lender said in a statement today. Prices fell 1.7 percent from June.

The worst housing-market slump in more than two decades is deepening as rising fuel, food and credit costs erode living standards, raising the prospect of the first U.K. recession since 1991. Bank of England policy makers will probably keep the benchmark interest rate at 5 percent today as they try to tame the fastest inflation in 11 years.

‘‘Pressure on householders' income, together with a very significant reduction in mortgage finance due to the global financial markets crisis, is constraining potential house buyers' ability to enter the market,'' Suren Thiru, an economist at HBOS, said in the statement. ‘‘This is resulting in both lower prices and activity levels.''

Home values last month fell to the level they were at in June 2006, HBOS said.

Banks have curtailed credit as the collapse of the U.S. subprime mortgage market pushed writedowns and credit losses above $493 billion. U.K. lenders approved 36,000 loans for house purchase in June, the least since comparable data began nine years ago.

Falling Confidence

U.K. consumer confidence fell the most in at least four years in July as property values fell, unemployment rose and living costs soared, Nationwide Building Society said yesterday. The British economy grew 0.1 percent in the quarter through July, the slowest pace in three years, the National Institute of Economic & Social Research said.

Prime Minister Gordon Brown is considering ways to revive the market for residential property to shore up his dwindling popularity. A survey by BPIX Ltd. showed 47 percent of respondents backing the Conservative opposition compared with 24 percent for the ruling Labour Party. BPIX surveyed 2,194 adults from July 31 to Aug. 2.

Chancellor of the Exchequer Alistair Darling, in an Aug. 5 interview on BBC Radio 4, left open the possibility of a temporary suspension of a tax on house sales to boost the housing market. The government charges homebuyers a levy of between 1 percent and 4 percent, depending on the value.

Squeeze on Incomes

Britons' incomes are getting squeezed by the fastest price gains since at least 1997. Consumer-price inflation reached 3.8 percent in June, almost double the government 2 percent target, as oil and food costs soared.

Faster inflation has sharpened the dilemma facing central bank policy makers as the economy slows to a crawl. U.K. services from banks to airlines contracted in July, according to a survey of about 700 companies, and factory production unexpectedly dropped for a fourth month in June, reports on Aug. 5 showed.

All 60 economists in a Bloomberg News survey predict the Monetary Policy Committee will keep the main rate unchanged for a fourth month. The bank will announce the decision at noon in London.

Defaults to Rise in Europe a Year After Crunch Began

Defaults to Rise in Europe a Year After Crunch Began

By John Glover

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A year after losses on U.S. subprime mortgages caused a seizure in credit markets worldwide, European companies are starting to default.

As many as 6 percent to 7 percent of corporate borrowers may fail to pay debts on time in the next year, a 10-fold increase from June, according to Dresdner Kleinwort, a unit of Germany's third-biggest bank. That would be the highest since July 2003, according to data compiled by Moody's Investors Service, straining an already faltering economy.

‘‘Companies that would have refinanced a year ago find now that they can't,'' said Andy Stoneman, managing partner at MCR Corporate Restructuring in London, the administrator for General Trading Co., the store where Prince Charles and Princess Diana had their wedding list.

Tighter credit and rising fuel and commodity prices led to Europe's biggest bankruptcy in five years last month when Spanish developer Martinsa-Fadesa SA defaulted on 5.2 billion euros ($8 billion) of debt. French vodka maker Belvedere SA sought protection from creditors last month. The number of U.K. companies facing a ‘‘critical'' funding shortage jumped eightfold in the past year, according to restructuring adviser Begbies Traynor Group Plc.

Borrowers that can get capital are paying near-record costs. Yields on high-yield, high-risk bonds sold by European companies rose to 12.72 percent, from 8.1 percent a year ago, according to Merrill Lynch & Co. index data. That compares with 11.53 percent for U.S. bonds rated below Baa3 by Moody's and lower than BBB- by Standard & Poor's.

Matter of Time'

‘‘We're only now starting to see a serious impact from the crisis in the euro-zone economy,'' said Christine Li, an economist at Moody's in London. ‘‘It's only a matter of time before larger companies feel the impact of squeezed credit conditions.''

Moody's cut the long-term credit ratings on 194 western European companies this year and raised 73. In the same period last year, it lowered 217 and increased 494.

The volume of loans to European companies is down by about 50 percent to $590 billion this year, compared with the same period of 2007, according to data compiled by Bloomberg.

The high-yield bond market is virtually shut, with one sale this year of 75 million euros by Strabag SA, the Austrian builder trying to expand into Russia and the Balkans. European borrowers issued $30.6 billion in the same period of 2007. U.S. companies have sold $60 billion this year, compared with $103 billion a year ago.

Unlimited Cash

Credit markets froze on Aug. 9, 2007, as mounting losses on securities linked to subprime mortgages led banks to restrict overnight lending. The European Central Bank took the unprecedented step that day of offering unlimited cash and Paris- based BNP Paribas SA halted withdrawals from three investment funds because it couldn't value its holdings.

A year later, the difference between the interest rate banks charge for three-month euro-denominated loans relative to the overnight indexed swap rate shows cash still isn't easy. The so- called IND' ))">Libor-OIS spread was 75 basis points today, compared with a 68 basis-point average over the past year. In the first half of 2007 the spread averaged 8 basis points, or 0.08 percentage point.

European banks and financial institutions recorded $221 billion of losses and writedowns related to subprime debt since the start of 2007, compared with $250 billion in the U.S., according to Bloomberg data.

Real Estate

Companies in countries where real estate has been the main measure of wealth are suffering the most. As Spain's 15-year property boom ended, Martinsa became Europe's biggest bankruptcy since Parmalat Finanziaria SpA, Italy's largest food company, defaulted on 5.2 billion euros of debt in 2003. A Martinsa spokesman in Madrid, who declined to be named because of company policy, wouldn't comment.

‘‘There's a strong link between the feel-good factor of a healthy housing market and consumer confidence,'' said Ed Stansfield, an economist at Capital Economics in London and a former adviser to the U.K. Treasury.

Confidence in the euro-region's economic outlook fell last month by the most since the Sept. 11 terrorist attacks, the Brussels-based European Commission said July 30. The ECB forecast in June that economic growth will slow to about 1.5 percent in 2009, from 1.8 percent this year and 2.7 percent in 2007.

In Europe, there is the potential for ‘‘things to be worse than in the U.S.,'' particularly in countries such as Ireland and Spain, said Holger Schmieding, the chief European economist at Bank of America Corp. in London.

Bad news for borrowers may become good news for investment bankers who advise creditors and companies restructuring their debt.

‘‘We're very, very busy,'' said Mark Fry, head of the London office of restructuring adviser Begbies Traynor. His working day has increased 40 percent from a year ago. ‘‘We're hiring new people and the staff are all working longer hours.''

Toyota Profit Falls Most in Five Years on U.S. Slump

Toyota Profit Falls Most in Five Years on U.S. Slump

By Naoko Fujimura

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Toyota Motor Corp., the world's second-largest carmaker, reported the biggest drop in profit in five years as U.S. sales of sport-utility vehicles and trucks plunged.

Net income fell 28 percent to 353.7 billion yen ($3.2 billion), or 112.28 yen a share, in the three months ended June from 491.5 billion yen, or 153.89 yen, a year earlier, the company said in a statement today. Sales declined 4.7 percent to 6.22 trillion yen. The result was better than the 329 billion yen median estimate by five analysts compiled by Bloomberg.

Operating profit in North America fell 57 percent as record gasolineKatsuaki Watanabe to halt U.S. production of Tundra pickups and Sequoia SUVs for three months from August. The models eroded gains from fuel-efficient vehicles that spurred an 8.1 percent increase in net income for Honda Motor Co., which doesn't make full-size trucks. prices cut demand for large vehicles, forcing President

‘‘Toyota can't escape a terrible market,'' said Fumiyasu Sato, chief executive officer of Milestone Asset Management, a Tokyo-based investment adviser. ‘‘Truck demand will keep shrinking and the shift to small cars will accelerate.''

The Tundra and Sequoia accounted for 7.6 percent of Toyota's U.S. sales through July.

GM, Ford

Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, fell 39 percent to 412.6 billion yen in the quarter, Toyota said.

A stronger yen cut profit by 200 billion yen. Watanabe, 66, based the company's earnings on 105 yen to the dollar and 163 yen per euro, compared with 121 yen and 163 yen, respectively, in 2007.

Toyota declined as much as 4 percent in German trading to 26.88 euros and traded at 27.15 euros as of 12:45 p.m. in Frankfurt. The Tokyo-traded shares fell 1.3 percent to 4,580 yen before the earnings announcement. The shares have fallen 24 percent this year compared with a 14 percent decline for the Nikkei 225 Stock Average and a 59 percent decline for General Motors Corp.

GM, the world's largest carmaker, and Ford Motor Co., both more dependent on trucks and SUVs, posted losses in the quarter as sales plunged and they wrote down the value of leased vehicles.

Corollas, Camrys

Toyota's decline in profit was limited by stronger demand for hybrids and fuel-efficient Corolla and Camry models as gasoline surpassed $4 a gallon in the U.S.

Operating profit at the company's financial services unit dropped by 21.8 billion yen, excluding a valuation gain from interest rate swaps, as Toyota had to write down the value of loans and leased vehicles.

The company increased its provision for leased vehicles by 9 billion yen compared with the previous year, Takahiko Ijichi, a senior managing director said on a conference call without giving the exact amount. The provision for possible loan defaults was increased by 30 billion yen.

‘‘A higher percentage of credit losses in the U.S. as well as the increase in reserves for bad debt and residual value losses resulting from the decline of used car prices were the main reasons for the decreased profit,'' the company said in a statement.

Toyota is the latest carmaker forced to book a drop in the residual value of vehicles previously leased by its auto- financial units. The residual value is what a vehicle is worth when a customer returns it at the end of a lease.

GM reported a quarterly loss of $15.5 billion, the third- worst in its 100-year history, as it took a $2 billion expense because of the decline in the residual values of leased vehicles. Ford posted a loss of $8.7 billion as it reconfigures truck plants to build cars and took a $2.1 billion charge for the leased vehicles.

‘Time Bomb'

‘‘Credit losses are ticking time bombs,'' said Edward Rogers, chief executive officer of Tokyo-based Rogers Investment Advisors Y.K., which advises clients on what hedge funds to invest in. ‘‘There are more lurking out there.''

Honda, Japan's No. 2 carmaker, lowered its annual operating profit forecast by 3.1 percent partly because of a 25 billion yen charge on leased vehicles including Pilot SUVs and Odyssey minivans. Nissan Motor Co., Japan's third-largest automaker, had a 43 percent drop in quarterly net income after writing down 42 billion yen for the drop in the value of leased vehicles including Titan pickups and Pathfinder SUVs.

Toyota, based in central Japan's Toyota City, cut its fiscal-year vehicle sales forecast to 8.74 million from 9.06 million. It slashed its North American forecast to 2.63 million from 2.77 million. Global sales to dealers totaled 2.19 million vehicles in the first quarter, little changed from a year earlier, Toyota said. The company scrapped its 2009 sales goal of 10.4 million vehicles and will set a new target later this month.

U.S. Decline

In the U.S., Toyota is heading for the first annual drop in sales since 1995. The price of gasoline topped $4 a gallon in June and was at $3.86 yesterday. Waning popularity for trucks and sport-utility vehicles caused Toyota's U.S. retail sales to fall 7.8 percent last quarter, led by a 20 percent drop in demand for light trucks. U.S. industrywide sales fell 12 percent in the period.

The company reiterated its fiscal-year forecasts. Net income will likely fall 27 percent to 1.25 trillion yen for the year ending March 31. Operating profit may drop 30 percent to 1.6 trillion yen, as sales may decline 4.9 percent to 25 trillion yen.

Toyota based its annual earnings forecast on an assumption of exchange rates of 105 yen to the dollar and 161 yen per euro. That compared with its May forecast that was based on 100 yen and 155 yen respectively. The currency traded at 109.5 yen to the dollar today.