Sunday, August 10, 2008

Credit Crisis Triggers Unprecedented Response

Credit Crisis Triggers Unprecedented Response

Worst debt turmoil since Depression sparks government action

By David Cho and Neil Irwin

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Since the credit crisis erupted a year ago, the Bush administration has presided over one of the broadest expansions of the government into private lending in U.S. history, risking public money to prop up financial firms both large and small.

The administration has transformed federal agencies into dominant players in such diverse realms as student lending and mortgage finance while exposing itself to trillions of dollars in loans.

The scope of these commitments demonstrates the unprecedented nature of the challenge facing the nation. Not since the Great Depression have so many debt markets been in turmoil at the same time, financial historians say. During the savings and loan crisis of the late 1980s and early 1990s, for example, the financial upheaval was largely contained to banks and thrifts, though the real estate market also felt the impact.

Now, the contagion has rapidly spread from mortgages to bonds and exotic securities, student and corporate lending, credit cards and home equity loans, and residential and commercial real estate. The disruption has buffeted investment and commercial banks, mortgage finance agencies, and insurance firms of different stripes.

"We have a banking crisis and an agency crisis and a mortgage crisis and a coming credit card crisis. We've never seen anything like that before. And it all seems to be coming home to roost at the same time. That's never happened either," said Charles Geisst, professor of finance at Manhattan College. He said the Great Depression was the last time financial markets were hammered by such a variety of factors. "But we did not even have credit cards in the 1930s; there were no such thing as student loans," he added.

The breadth and speed of events have sent federal officials scrambling to plug leaks in the financial system. In the process, the government has bound taxpayers to the fate of a wide variety of banks and borrowers and could ultimately be responsible for losses in the tens of billions of dollars or more, according to estimates by congressional reports and interviews with regulators.

But the government may also end up paying nothing at all, largely because it received collateral in return for backing much of these debts and could recoup some money if borrowers stop making their interest payments. No one knows for sure because much of the government's response involved novel programs designed to contain an unpredictable crisis.

As the credit crisis worsened, Treasury Secretary Henry M. Paulson Jr., a strong proponent of free markets and the architect of much of the administration's response, began to push initiatives that enlarged the government's involvement on Wall Street and in the housing industry.

"What I've said is that I'm playing the hand that was dealt and that my responsibility is to protect the U.S. economy and the American people," Paulson said in an interview.

The pace of these interventions accelerated as the credit crisis spread across the capital markets.

At first, the administration avoided programs that exposed taxpayers to potentially large losses. The Federal Housing Administration, for instance, offered struggling mortgage holders a chance to refinance into low-cost loans backed by the government with any losses borne by the agency's insurance fund. Last summer, Paulson also pressed private mortgage lenders to form an alliance called Hope Now to rework mortgages. The initiative did not require public funds, except to set up a hotline, and it may have prevented lawmakers at that time from pursuing more expensive initiatives, he said.

Within months, however, Paulson was directing more significant intrusions into the markets. In March, he strongly endorsed the Fed leaders' decision to put $29 billion in public money on the line to facilitate the takeover of the crippled investment firm Bear Stearns by Wall Street bank J.P. Morgan Chase.

In April, Paulson helped the Department of Education set up emergency programs to ensure students could get loans as private lenders fled the business because of trouble in the credit markets. Education officials ramped up their direct lending, which some analysts say could reach $75 billion, and got new authority from Congress to buy loans outright from lenders.

Then, last month, Paulson pushed for new authority to lend or invest in mortgage giants, Fannie Mae and Freddie Mac, which the Congressional Budget Office said could impose a wide range of costs to taxpayers, from nothing to more than $100 billion.

Along the way, the Fed was injecting money into the banking system, including through several new, unusual programs.

At times, Paulson acted by interpreting Treasury's powers broadly and encouraging other agencies he worked with to expand their authorities. In other cases, such as the rescue plan for Fannie Mae and Freddie Mac, he needed congressional approval.

That forced him to reluctantly accept a major Democratic proposal that authorized FHA to spend up to $300 billion to help homeowners who, because of falling prices, owe more than their homes are worth. The expected cost to taxpayers of this program is $1.7 billion, the Congressional Budget Office said. "There were parts of this legislation that just got passed that a number of us found objectionable, unnecessary, extraneous, too much government involvement," Paulson said.

Even helping the mortgage finance companies, was "an unpleasant task," he said. "But I found it a simple decision to do so because there was no other good alternative," he added.

Martin Neil Baily, who chaired the Council of Economic Advisers in the Clinton administration and now is at the Brookings Institution, said he found the administration's actions "very ironic."

"Paulson and his colleagues philosophically are free market people. But when things go wrong you just don't have a lot of choice," he said. "There has been a change in perception, that the government needs to play a more active role when we get into a financial crisis. . . . The question is to what degree do you say we won't do this again."

Paulson raised similar concerns in an interview. He warned that if the government always tries to bail out failing banks and companies, they will be motivated to take excessive risks. Others won't push themselves to succeed because they can rely on the government to bail them out.

Yet despite these convictions, Paulson said his hand was forced after the markets fell dangerously "out of balance" due to the credit crisis. Backing Fannie and Freddie, the country's two largest and most important financiers of mortgages, was the only way to keep the housing market from falling into turmoil, he said. Allowing Bear Stearns to fail could have led to a string of collapses at other huge Wall Street firms.

In negotiations over the Bear Stearns rescue, the Fed agreed to back $30 billion worth of risky mortgage assets but persuaded J.P. Morgan to absorb the first $1 billion of any losses. At the end of July, the portfolio was worth $29.1 billion, according to the central bank. Because the Fed can be patient and sell the assets gradually over time, officials believe taxpayers are highly unlikely to lose more than a couple billion dollars and the central bank may ultimately make some money.

The Fed has also made extensive efforts to inject cash into the financial system, and at the end of July had $167 billion in loans extended to banks. But those debts are unlikely to incur losses since the Fed requires borrowers to put up collateral.

Taxpayers face more risk from novel Fed initiatives to help investment banks weather the financial crisis. In one program, the Fed lets investment firms swap highly rated mortgage-backed securities for Treasury securities.

Meanwhile, the Education Department may end up taking on far more loans than it ever has in its history. Last year it issued $14 billion in federally guaranteed loans directly to students. It has the ability to double that capacity in the coming academic year, according to the officials, though outside analysts predict it may have lend out $35 billion or more with the help of contractors.

The department may also be forced to take over much of the market that consolidates federally guaranteed loans for post-graduates, according to Mark Kantrowitz of, a Web site that provides financial information for students. This $47.4 billion business allows borrowers to combine all of their student loans into one package with a single, relatively low rate.

Education Department Under Secretary Sara Martinez Tucker, who oversees higher education, said as early as April the department "began to get nervous" about whether enough loans would be available to students in the fall. Department officials met with President Bush on April 19. "We told him we think we need to have an intervention," she said. The president agreed.

Some programs are not expected to cost taxpayers significantly, regulators said. Since last summer, the initiative called FHA Secure has helped 290,000 homeowners who hold $46.8 billion of mortgages. But taxpayers won't have to bear the cost if these homeowners default, unless the agency's $18.6 billion insurance fund is depleted.

"It's a good example of what government should be doing," FHA Commissioner Brian Montgomery said.

Why the Drug War is a Crime against Humanity Explained

Why the Drug War is a Crime against Humanity Explained

By Carmen Yarrusso

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Like the Iraq war and the “war on terror”, the so-called “drug war” is a government contrived “war” based on lies that generates massive profits for a few while causing massive suffering for many.

The drug war is futile by design (and thus never-ending) because it doesn’t “fight” drugs—quite the contrary—it strongly encourages production and distribution of prohibited drugs by guaranteeing extremely high profits.

But the most insidious and evil aspect of the drug war is it manufactures its own enemies by criminalizing the most basic of human rights—the right of sovereignty over your own body. The drug war could not exist without first inventing a bogus crime.

Our government wastes billions of tax dollars each year harassing and jailing millions of decent, productive Americans for a government-invented “crime”. The use of drugs (even dangerous drugs like alcohol and nicotine) simply doesn’t meet any reasonable definition of “crime”.

Real crime requires action that harms another. Real crime requires both a victim and a perpetrator. For example, robbery harms another and has both a victim and a perpetrator. Only a corrupt, depraved government could invent a crime you commit against yourself.

If you use certain drugs, our government claims you’re both a criminal and a victim at the same time. Since the perpetrator can't be separated from the victim, the victim is further punished for the “crime”. This pathetic perversion of justice is vigorously championed by our government for selfish political reasons.

More than 50 government agencies share billions of your tax dollars each year “fighting” a government-created crime. Of the millions of illegal drug users, the vast majority use marijuana. If marijuana were legal like alcohol, these government agencies would suddenly lose billions of dollars because millions of former “criminals” would suddenly be granted sovereignty over their own bodies. The vast army amassed to fight the drug war would need to be dissolved at great cost.

That’s why our government strongly opposes even honest debate about marijuana legalization because this massive money-making scam would soon end.

Ingesting nicotine, alcohol, fatty foods, or certain drugs may be unwise. But why is it a crime? If a drug user or a non-drug user harms another they should be treated equally. But the bogus “crime” of drug use doesn't require harming anyone. Nor does it require a victim and a perpetrator. It only requires a government-invented, bogus criminal/victim, a drug user.

By using lies and deception our government convinces gullible Americans that simply putting something into your own body is a serious crime. But evidence clearly shows that nearly all the harm associated with drug use is caused by creating the bogus crime, not from the actual drug use. There are millions of drug users, but relatively few are harmed by their drug use. These few should be patients, not criminals.

But it’s not just the millions arrested for drug use who suffer from this gross injustice. We gullible Americans have allowed our government to invent a bogus crime that causes massive misery worldwide while costing the taxpayers billions.

Consider the following list of easily avoidable human tragedies that are the direct result of a government-invented, bogus crime: A tax-free, unregulated, multi-billion-dollar drug industry necessarily run by violent criminals; a giant law enforcement bureaucracy wasting billions in a futile attempt to curtail this drug industry, which, in fact, guarantees its extreme profitability; a deteriorating public education system robbed of billions to support this law enforcement bureaucracy; courts and prisons overflowing with non-violent "criminals" while murderers, rapists and real criminals go free; tens of thousands of children enduring the suffering and stigma of having one or both parents in jail for a bogus "crime”; the gradual erosion of our Constitution as more and more civil liberties are sacrificed to fight a crime "made in USA."; rampant corruption of foreign governments (like Mexico and Columbia), so driven by US drug profits that life and human rights are secondary; thousands of adults and children infected and dying from HIV because distributing clean needles is a “crime”; violent street gangs with little incentive for education or legitimate jobs reaping huge drug profits made possible by a bogus crime; a growing death toll from police breaking down doors to catch people using substances less dangerous than tobacco, alcohol or fatty foods; a growing cynicism and disrespect for all laws and authority fueled by the knowledge our government can arbitrarily invent a bogus crime…

This sordid list goes on and on.

We're appalled when Islamic regimes invent bogus crimes against reading certain books, or listening to certain music. Using certain drugs is our government's version of the same thing. But the worldwide consequences of US drug prohibition are far more serious and severe. All of these "crimes" lack the moral basis of real crime. All are clear cases of a repressive government dictating the private personal behavior of its citizens.

If real crime is knowingly causing harm to others, then the real crime here is not drug use, but making drug use a “crime”. And the real criminals are not drug users, but ordinary people like us, who sit back and condone a ruthless scam that has been exported and exploited around the world leaving massive human suffering in its wake.

The mask of altruism disguising a colonial war

The mask of altruism disguising a colonial war

Oil will be the driving factor for military intervention in Sudan

By John Laughland

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If proof were needed that Tony Blair is off the hook over Iraq, it came not during the Commons debate on the Butler report on July 21, but rather at his monthly press conference the following morning. Asked about the crisis in Sudan, Mr Blair replied: "I believe we have a moral responsibility to deal with this and to deal with it by any means that we can." This last phrase means that troops might be sent - as General Sir Mike Jackson, the chief of the general staff, immediately confirmed - and yet the reaction from the usual anti-war campaigners was silence.

Mr Blair has invoked moral necessity for every one of the five wars he has fought in this, surely one of the most bellicose premierships in history. The bombing campaign against Iraq in December 1998, the 74-day bombardment of Yugoslavia in 1999, the intervention in Sierra Leone in the spring of 2000, the attack on Afghanistan in October 2001, and the Iraq war last March were all justified with the bright certainties which shone from the prime minister's eyes. Blair even defended Bill Clinton's attack on the al-Shifa pharmaceuticals factory in Sudan in August 1998, on the entirely bogus grounds that it was really manufacturing anthrax instead of aspirin.

Although in each case the pretext for war has been proved false or the war aims have been unfulfilled, a stubborn belief persists in the morality and the effectiveness of attacking other countries. The Milosevic trial has shown that genocide never occurred in Kosovo - although Blair told us that the events there were worse than anything that had happened since the second world war, even the political activists who staff the prosecutor's office at the international criminal tribunal in The Hague never included genocide in their Kosovo indictment. And two years of prosecution have failed to produce one single witness to testify that the former Yugoslav president ordered any attacks on Albanian civilians in the province. Indeed, army documents produced from Belgrade show the contrary.

Like the Kosovo genocide, weapons of mass destruction in Iraq, as we now know, existed only in the fevered imaginings of spooks and politicians in London and Washington. But Downing Street was also recently forced to admit that even Blair's claims about mass graves in Iraq were false. The prime minister has repeatedly said that 300,000 or 400,000 bodies have been found there, but the truth is that almost no bodies have been exhumed in Iraq, and consequently the total number of such bodies, still less the cause of their deaths, is simply unknown.

In 2001, we attacked Afghanistan to capture Osama bin Laden and to prevent the Taliban from allegedly flooding the world with heroin. Yet Bin Laden remains free, while the heroin ban imposed by the Taliban has been replaced by its very opposite, a surge in opium production, fostered by the warlords who rule the country. As for Sierra Leone, the United Nations human development report for 2004, published on July 15, which measures overall living standards around the world, puts that beneficiary of western intervention in 177th place out of 177, an august position it has continued to occupy ever since our boys went in: Sierra Leone is literally the most miserable place on earth. So much for Blair's promise of a "new era for Africa".

The absence of anti-war scepticism about the prospect of sending troops into Sudan is especially odd in view of the fact that Darfur has oil. For two years, campaigners have chanted that there should be "no blood for oil" in Iraq, yet they seem not to have noticed that there are huge untapped reserves in both southern Sudan and southern Darfur. As oil pipelines continue to be blown up in Iraq, the west not only has a clear motive for establishing control over alternative sources of energy, it has also officially adopted the policy that our armies should be used to do precisely this. Oddly enough, the oil concession in southern Darfur is currently in the hands of the China National Petroleum Company. China is Sudan's biggest foreign investor.

We ought, therefore, to treat with scepticism the US Congress declaration of genocide in the region. No one, not even the government of Sudan, questions that there is a civil war in Darfur, or that it has caused an immense number of refugees. Even the government admits that nearly a million people have left for camps outside Darfur's main towns to escape marauding paramilitary groups. The country is awash with guns, thanks to the various wars going on in Sudan's neighbouring countries. Tensions have risen between nomads and herders, as the former are forced south in search of new pastures by the expansion of the Sahara desert. Paramilitary groups have practised widespread highway robbery, and each tribe has its own private army. That is why the government of Sudan imposed a state of emergency in 1999.

But our media have taken this complex picture and projected on to it a simple morality tale of ethnic cleansing and genocide. They gloss over the fact that the Janjaweed militia come from the same ethnic group and religion as the people they are allegedly persecuting - everyone in Darfur is black, African, Arabic-speaking and Muslim. Campaigners for intervention have accused the Sudanese government of supporting this group, without mentioning that the Sudanese defence minister condemned the Janjaweed as "bandits" in a speech to the country's parliament in March. On July 19, moreover, a court in Khartoum sentenced six Janjaweed soldiers to horrible punishments, including the amputation of their hands and legs. And why do we never hear about the rebel groups which the Janjaweed are fighting, or about any atrocities that they may have committed?

It is far from clear that the sudden media attention devoted to Sudan has been provoked by any real escalation of the crisis - a peace agreement was signed with the rebels in April, and it is holding. The pictures on our TV screens could have been shown last year. And we should treat with scepticism the claims made for the numbers of deaths - 30,000 or 50,000 are the figures being bandied about - when we know that similar statistics proved very wrong in Kosovo and Iraq. The Sudanese government says that the death toll in Darfur, since the beginning of the conflict in 2003, is not greater than 1,200 on all sides. And why is such attention devoted to Sudan when, in neighbouring Congo, the death rate from the war there is estimated to be some 2 or 3 million, a tragedy equalled only by the silence with which it is treated in our media?

We are shown starving babies now, but no TV station will show the limbless or the dead that we cause if we attack Sudan. Humanitarian aid should be what the Red Cross always said it must be - politically neutral. Anything else is just an old-fashioned colonial war - the reality of killing, and the escalation of violence, disguised with the hypocritical mask of altruism. If Iraq has not taught us that, then we are incapable of ever learning anything.

Prices for drugs skyrocket

Prices for drugs skyrocket

By Julie Appleby

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Drug companies are quietly pushing through price hikes of 100% — or even more than 1,000% — for a very small but growing number of prescription drugs, helping to drive up costs for insurers, patients and government programs.

The number of brand-name drugs with increases of 100% or more could double this year from four years ago, researchers from the University of Minnesota say. Many of the drugs are older products that treat fairly rare, but often serious or even life-threatening, conditions.

Among the examples: Questcor Pharmaceuticals last August raised the wholesale price on Acthar, which treats spasms in babies, from about $1,650 a vial to more than $23,000. Ovation raised the cost of Cosmegen, which treats a type of tumor, from $16.79 to $593.75 in January 2006.

The average wholesale price of 26 brand-name drugs jumped 100% or more in a single cost adjustment last year, up from 15 in 2004, the university study found. In the first half of this year, 17 drugs made the list.

"This does drive up the price of health care," says Alan Goldbloom, president of Children's Hospitals and Clinics of Minnesota. "Hospitals are either eating the cost or passing it along to insurers, so you and I are paying it in increased premiums."

Some of the drugs are administered in hospitals, which bill insurers, patients or government programs for them. Insured patients pay either a flat dollar amount, such as $20, or a percentage of the drug's cost.

Last year, prices rose about 7.4% on average for 1,344 brand-name drugs, according to Express Scripts, which manages drug benefits for large employers and insurers.

Reasons for the larger increases are varied, researchers say.

"There's no simple explanation," says Stephen Schondelmeyer, director of the PRIME Institute at the University of Minnesota, which studies drug industry economics. "Some companies seem to figure no one is watching so they can get away with it."

The price increases are drawing legal and political scrutiny:

• In a decision awaiting approval by the 9th U.S. Circuit Court of Appeals, drugmaker Abbott agreed last week to pay up to $27.5 million to settle a lawsuit over a 400% price increase on its HIV/AIDS drug Norvir. The price did not change.

• Sen. Amy Klobuchar, D-Minn., and Sen. Charles Schumer, D-N.Y., asked the Government Accountability Office last week to investigate large price hikes. Klobuchar asked the Federal Trade Commission in April to investigate Ovation Pharmaceuticals, which raised prices on four drugs in 2006 by up to 3,437%.

Drug companies say the price hikes cover the costs of keeping the drugs on the market. They say the drugs are often less costly than alternative treatments, such as surgery or newer, high-tech medicines.

Questcor says on its website that it had to raise Acthar's price after struggling for years to "keep (it) financially viable."

Ovation says it needed to cover its 2005 purchase of the drugs and facility upgrades. "We feel we made an important investment in keeping these older products alive," says spokeswoman Sally Benjamin Young.

Bullet shortage affects police

Bullet shortage affects police

Law enforcement agencies change how they operate as demand rises


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A nationwide spike in demand for small-arms ammunition and the skyrocketing cost of raw materials to make the bullets have forced some law enforcement agencies in Washington state to plan their orders further in advance.

On average, the cost of ammunition has increased by 67 percent between 2004 and this year, according to the state General Administration office, which negotiates contracts with suppliers for state and local agencies.

The woes in Washington are part of a shortage that has strained law enforcement nationwide.

Last year, The Associated Press found that law enforcement agencies across the country reported delays or reductions in training.

Here, the increase in prices doesn't mean that law enforcement agencies will run out of bullets, but like others, police and sheriff's officers across the state may have to plan more carefully when ordering new rounds.

Or, as an official from a bullet manufacturing company recommended, consider changing training methods.

For many departments, the largest amount of ammunition used is during training sessions. For example, the State Patrol ordered more than 14,000 boxes of rounds for training and 1,213 for duty in 2007, according to trooper Dan Coon, an agency spokesman.

Shipments of bullets now take six months or so, instead of 30 days as in previous years, Coon added.

"It's expected to get worse," he said.

Contributing to the ammunition price increase are skyrocketing prices for copper and lead, prompted in part by higher demand for those materials from China, a country building its infrastructure at a frenzied pace.

Another factor is the federal government's demand for ammunition to use in Iraq and Afghanistan, said Steve Valandra, a spokesman for the state General Administration office.

The Associated Press reported last year that soldiers in Afghanistan and Iraq use more than 1 billion bullets a year.

Valandra added that copper prices have increased by 200 percent, and lead by 400 percent in the past few years.

Brian Cullin of Minneapolis-based ATK, an aerospace and defense company that supplies munitions, said Friday that a nationwide increase in training time for police officers has contributed to the ammunition shortage.

Since Sept. 11, Cullin said police departments across the country have upped training requirements, part of heightened security measures prompted by the terrorist attacks.

His company – one of the largest manufacturers of bullets in the world – has increased its output of individual rounds from 400,000 a few years ago to more than 1.4 billion last year, Cullin said.

Cullin said some departments are switching to training methods where bullets are not used, thus saving on ammunition.

In Washington, the largest police forces have not been affected other than seeing longer waiting periods for ammunition orders.

The King County Sheriff's Office and Seattle police both said they're operating normally.

Coon added that the State Patrol is adapting by better planning its orders.

"Firearms training is still a priority, you will not see any decrease in the amount of training or funding for training," Coon said. "We're not going to sacrifice public safety."

Georgia Declares 'State of War' as Russian Bombs Fall

Russia Stages Bombing Raids as Ossetia Conflict Escalates

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Tblisi - Russian warplanes on Saturday carried out bombing raids across Georgia, reportedly leaving scores dead, as a conflict over control of South Ossetia widened well beyond the breakaway region.

Georgia's president declared "a state of war" and the United States led international calls for Russia to halt its military assault. But Russia's President Dmitry Medvedev said his country would "force the Georgian side into peace" and accused Georgia of causing thousands of "victims".

Russia backs the separatist government in South Ossetia and sent in tanks and troops on Friday in response to pro-Western Georgia's military campaign to take back the province which broke away in the early 1990s.

Georgia said a Russian air raid had "completely devastated" the Black Sea port of Poti in attacks that the country's UN ambassador likened to "a full-scale military invasion".

This was followed up with air raids on Gori, the main Georgian city closest to South Ossetia and another near the Baku-Tbilisi-Ceyhan (BTC) oil pipeline -- the world's second longest -- which Prime Minister Lado Gurgenidze told Georgian television was "miraculously" not damaged.

Russian planes carried out at least three attacks on Gori and the surrounding area, a defence ministry spokeswoman told AFP.

She said the attacks targeted a bridge and military bases, but also struck apartment blocks which were left in flames and witnesses told AFP that scores of people had been killed. Cars and buses loaded with people fled the city.

Georgia, a close US ally, said it would withdraw its 2,000 troops backing US forces in Iraq and the army faced new pressure when the Russian-backed separatist administration in another region, Abkhazia, said they had begun a military operation against Georgian troops.

Abkhazia's self-styled foreign minister Sergei Shamba said the attacks on Georgian troops were in the Upper Kodori Gorge, a Georgian-controlled part of the region.

Georgian President Mikheil Saakashvili said the army had repelled the attacks.

He spoke shortly after declaring a state of war, a form of martial law, which was later approved by parliament.

"I have signed a decree on a state of war. Georgia is under a state of total military aggression by the Russian navy, air force, large-scale ground operations," Saakashvili said.

Saakashvili urged his Russian counterpart Medvedev to stop the "this madness immediatley" and call a truce.

Russian Prime Minister Vladimir Putin meanwhile arrived in Vladikavkaz, close to Russia's border with Georgia, Russian news agencies said.

A Putin spokesman said he was in Vladikavkaz to deal with an influx of refugees from South Ossetia.

Georgian and South Ossetian forces made rival claims to control Tskhinvali but Russia said it had "liberated" South Ossetia's main city after airlifting paratroopers.

"Tactical battalions have completely liberated Tskhinvali from Georgian military forces," General Vladimir Boldyrev, head of Russia's ground forces, told Russian news agencies.

The death toll from the first two days of fighting was disputed.

South Osettia's government said 1,600 people had been killed. Saakashvili dismissed the figure as a "truly Soviet-style disinformation campaign".

A top Georgian security official said 10 Russian aircraft had been shot down and 30 Russian tanks destroyed. Film of the body of one pilot was shown on Georgian television along with the identity card of another who the report said was shot down and captured.

Russia has said only that 15 of its soldiers had been killed and 150 wounded.

In the streets of Tskhinvali, home to an estimated 20,000 people, tanks burned and women and children ran for cover. An AFP reporter in South Ossetia saw women, children and elderly riding buses toward the Russian border.

Georgia has caused thousands of victims by its "barbaric" actions in South Ossetia, the Russian leader told US President George W. Bush in comments reported by the Kremlin after their talks.

Russia also accused Ukraine of "encouraging" Georgia to launch its military offensive in South Ossetia.

The United States and the European Union prepared a joint delegation to seek a ceasefire. Bush cut into his engagements during a visit to Beijing to call for an end to Russian bombing.

"We have urged an immediate halt to the violence and a stand-down by all troops," Bush told reporters. "We call for an end to the Russian bombings."

The UN Security Council was to meet again Saturday to agree on a call for an immediate ceasefire after talks failed Friday. Poland called for an emergency EU summit on the crisis.

South Ossetia broke from Georgia in the early 1990s. It has been a constant source of friction between Georgia and Russia, which opposes Tbilisi's aspirations of joining NATO and has supported the separatists without recognising their independence.

F.B.I. Improperly Obtained Reporters’ Phone Records

F.B.I. Says It Obtained Reporters’ Phone Records

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The Federal Bureau of Investigation said Friday that it had improperly obtained the phone records of reporters for The New York Times and The Washington Post in the newspapers’ Indonesia bureaus in 2004.

Robert S. Mueller III, director of the F.B.I., disclosed the episode in a phone call to Bill Keller, the executive editor of The Times, and apologized for it. He also spoke with Leonard Downie Jr., the executive editor of The Washington Post, to apologize.

F.B.I. officials said the incident came to light as part of the continuing review by the Justice Department inspector general’s office into the bureau’s improper collection of telephone records through “emergency” records demands issued to phone providers.

The records were apparently sought as part of a terrorism investigation, but the F.B.I. did not explain what was being investigated or why the reporters’ phone records were considered relevant.

The Justice Department places a high bar on the collection of reporters’ records in investigations because of First Amendment concerns, and obtaining such records requires the approval of the deputy attorney general. That requirement was not followed when the F.B.I. obtained the records of two reporters for The Times in Indonesia, Raymond Bonner and Jane Perlez, as well as two reporters there for The Post, Ellen Nakashima and Natasha Tampubolon, officials said.

“The F.B.I. is committed to protecting the news media consistent with the First Amendment and Department of Justice policies, and we very much regret that this situation occurred,” Valerie Caproni, general counsel for the bureau, wrote in a letter to Mr. Keller faxed Friday.

Ms. Caproni said the telephone records, which list the numbers that were called but do not show the calls’ content, had been purged from the F.B.I.’s databases. She also said the records were not used as part of any investigation.

But Mr. Downie said it was not clear to him why the F.B.I. was interested in his reporters’ records in the first place.

“I want to find more about what this is about,” he said. “We will be asking our general counsel to advise us on what more we should be doing about this.”

Mr. Keller said: “I told the director that it was gracious of him to apologize. Of course, we’d still like to know more about how this happened and how the bureau is securing against similar violations in the future.”

An initial report by the inspector general last year found that the F.B.I. had violated its own policies in tens of thousands of cases by obtaining phone records in terrorism investigations through what are known as national security letters, without first getting needed approval or meeting other standards. In some cases, the F.B.I. used a whole new class of demands — emergency or “exigent” letters — that are not authorized by law. The emergency records were used in the Indonesian episode.

The inspector general’s findings have prompted outrage in Congress, with leading lawmakers calling for greater checks on the F.B.I.’s ability to gather private information in terrorism investigations. But bureau officials say they have instituted internal reforms to solve the problem.

Big Business Is Making Sure It Wins the Presidency

Candidates for Sale

What do Obama and McCain have in common? The same big donors, who will expect to have their way no matter who wins

By Matt Taibbi
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Remember the total, hideous, inexcusable absence of oversight that has been the great hallmark of George Bush's America for almost eight years now? Well, now we're getting to see that same regulatory malfeasance applied to yet another cornerstone of our political system. The Federal Election Commission -- the body that supposedly enforces campaign-finance laws in this country -- has been out of business for more than six months. That's because Congress was dragging its feet over confirmation hearings for new FEC commissioners, leaving the agency without a quorum. The commission just started work again for the first time on July 10th under its new chairman, Donald McGahn, a classic Republican Party yahoo whose chief qualifications include representing Tom DeLay, the corrupt ex-speaker of the House, in matters of campaign finance.

Apart from the obvious absurdity of not having a functioning election-policing mechanism in an election year in the world's richest democracy, the late start by the FEC makes it almost impossible for the agency to do its job. The commission has a long-standing reluctance to take action in the last months before a vote, a policy designed to help prevent federal regulators from influencing election outcomes. Normally, the FEC tries to root out infractions and loopholes -- fining campaigns for incomplete reporting, or for taking shortcuts around spending limits -- in the early months of a campaign season. But that ship sailed way too long ago to take the stink off the 2008 race.

"The time for setting the ground rules was earlier," says Craig Holman, a lobbyist with the watchdog group Public Citizen. "There isn't time to do much now."

That's especially true given the magnitude of what we're dealing with here: the biggest pile of political contributions in the history of free elections, nearly a billion dollars given to presidential candidates in this season alone. Because the FEC has been dead in the water for so long, it's likely that we'll still be in the dark about a large chunk of this record manure pile of campaign contributions when we go to vote in November.

But that doesn't mean that a little sifting through campaign records doesn't tell us quite a lot about who's backing whom in these races. The truth is that the campaigns of both Barack Obama and John McCain are being inundated with cash from more or less exactly the same gorgons of the corporate scene. From Wall Street to the Big Oil powerhouses to the military-industrial complex, America's fat-cat business leaders know that the Animal House-style party of the last eight years that made almost all of them rich with bonuses, government contracts and bubble profits is about to come to an end, and someone is going to have to pay to clean up the mess. They want that someone to be you, not them, and they've spared no expense to make sure both presidential candidates will be there to bail them out next year.

They're succeeding. Both would-be presidents have already sold us out. They've taken the money and run -- completing the cyclical transformation of the American political narrative from one of monopolistic Republican iniquity to an even more depressing tale about the overweening power of corporate money and the essentially fictitious nature of our two-party system.

In layman's terms, we've gone from being screwed to being fucked. Who knows -- maybe Barack Obama will surprise us if he wins the election. But if you look at the money, it doesn't look good.

Thanks in part to the dormant FEC, corporate America has had even easier access to the candidates than usual in its effort to buy off the next government before the crash. In fact, this election has seen some excellent new innovations in the area of campaign-fundraising atrocities. Chief among them is the rise of so-called "joint committees."

It used to be that campaigns could raise a maximum of $2,300 from each individual. Now, both candidates -- but especially McCain, who far outstrips Obama in this area -- routinely hold fundraisers in which individuals can give far more to a joint committee. Technically, the candidate still pockets only $2,300 in contributions. The bulk of the money raised -- in McCain's case, a whopping $70,100, or 30 times the previous limit -- goes to the state and national arms of the candidate's party, which can then spend the unprecedented haul on behalf of the candidate. "This allows CEOs to walk in the door and drop $70,100," says Holman. "It basically allows campaigns to exceed the spending limits."

McCain has raised more than $63 million via these joint committees, thanks to more than 1,000 "megadonors" who have each given at least $25,000 to his campaign effort. Obama, by contrast, has some 471 megadonors -- and a close examination of their backgrounds underscores some of the differences in corporate America's attitudes toward the two candidates.

One of McCain's chief sources of corporate money is the private-equity firm Kohlberg Kravis Roberts, memorialized for its takeover of RJR Nabisco in the movie Barbarians at the Gate. Through the pretext of joint committees, 10 KKR executives have given McCain $285,000, and it's not hard to figure out why. Two of McCain's key campaign proposals -- lowering the corporate tax rate to 25 percent and making purchases of industrial equipment fully deductible -- would save a single KKR subsidiary, Energy Future Holdings, $49 million.

"Just in his tax policies alone, McCain is saving corporate America $175 billion a year," says James Kvaal, who analyzed McCain's tax policy for the nonprofit Center for American Progress.

McCain has also raked in big contributions from two other giants of the buyout world: the Carlyle Group (famous for its close ties to the Bush administration) and the Blackstone Group (whose co-founder, Pete Peterson, wrote a $28,500 check to McCain after he took home almost $1.8 billion from a public offering last year). McCain has also received monstrous sums from hedge-fund managers, attracted by his pledge to keep the tax rate on their earnings at only 15 percent. Executives and family members in a single hedge fund, Knott Partners, have contributed some $225,700 to McCain's campaign.

Then there's the predictable influx of cash from would-be military contractors. John Lehman, a former secretary of the Navy whose firm builds the Superferry transport vessel, not only donated $28,500 of his own money, but bundled at least $250,000 for McCain from other donors. Donald Bollinger, who is a contractor on the controversial Littoral Combat Ship, gave $27,300 and bundled a whopping $500,000. Anyone want to bet on a decrease in Naval appropriations in a McCain presidency?

McCain has also received big money from telecommunications magnates. The senator has always been a friend to the industry: Back in 2003, just four days after AT&T sent him a check for $10,500, he sponsored a bill to ban state and local taxes on Internet service. Since 2007, McCain has taken in some $1.3 million from the communications industry. Just four members of the McCaw family, which owns the telecommunications firm Eagle River, have kicked in $123,200. McCain's campaign manager, Rick Davis, was a former lobbyist for BellSouth, Verizon and SBC Communications. His deputy campaign manager, Christian Ferry, was a partner to Davis at Verizon. One of his chief advisers, Charlie Black, is the head of the lobbying firm BKSH and Associates, which represents AT&T. His Senate chief of staff, Mark Buse, worked for AT&T Wireless. All told, of 66 current and former lobbyists working for McCain, some 23 come from the telecommunications industry.

Given McCain's telecom backing, it's not surprising that the senator has had one of his characteristic changes of heart. As recently as last November, McCain was staunchly opposed to retroactive immunity for telecommunication companies that took part in Bush's illegal spying on American consumers, saying their actions "undermine our respect for the law." Now, jammed to the gills with telecom cash, McCain calls himself an "unqualified" supporter of immunity, praising the telecom industry's warrantless wiretapping as "constitutional and appropriate."

All the same, plenty of other evidence suggests that much of Wall Street is betting on an Obama win. In fact, some observers believe that KKR announced a multibillion-dollar public offering this summer because it expects McCain to lose. "They're doing the public offering now so that the compensation can be taxed at the lower rate while Bush is still in office," says a strategist for a major labor union. "They're betting Obama is going to win, and they're getting their money while they can."

Other companies are getting in on the ground floor with the new chief by stuffing money in his ears. Overall, Obama is flat-out kicking McCain's ass when it comes to Wall Street contributions, raking in nearly $9 million from securities and investment executives, compared to $6.2 million for McCain. Obama has received more contributions from Goldman Sachs than from any other employer -- more than $627,000 at this writing -- not to mention $398,021 from JP Morgan Chase, $353,922 from Lehman Brothers and $291,388 from Morgan Stanley. Even among hedge-fund executives, who have an unequivocal interest in electing McCain, Obama is whipping the Republican, collecting $500,000 more than McCain. All of which begs the question: Why would corporate giants like these throw so much weight behind a man who promises to strip them of billions in tax breaks?

Sadly, the answer to that question increasingly appears to be that Obama is, well, full of shit. He has made no bones about his plans to raise income by soaking the rich, promising to roll back the Bush tax cuts for people making over $250,000, increase the top tax rate on capital gains to 25 percent and raise the top rate on qualified dividends. He has also pledged to deliver a real stomach punch to hedge-fund managers, raising the tax rate on most of their income from 15 percent to 35 percent.

These populist pledges sound good, but many business moguls appear to be betting that the tax policies, like Obama himself, are only that: something that sounds good. "I think we don't want to make too much of his promises on taxes," says Robert Pollin, professor of economics at the University of Massachusetts. "Not all of these things will happen." Noting the overwhelming amount of Wall Street money pouring into Obama's campaign, even elitist fuckwad David Brooks was recently moved to write, "Once the Republicans are vanquished, I wouldn't hold your breath waiting for that capital-gains tax hike."

Those worried that Obama might be all talk when it comes to needed reform had a real scare in July, when the senator failed to show up to vote for the Stop Excessive Speculation Act, a bill designed to curb rampant oil speculation. Oil speculators provide the perfect microcosm of what happened to the economy under Bush. Back in 2001, investment banks like Goldman Sachs and JP Morgan got together and created an online exchange called the ICE for trading energy commodities. The ICE ended up buying the British-regulated International Petroleum Exchange; it then opened trading windows in the U.S., allowing Wall Street investment banks to make oil-futures trades on American soil, on their very own commodities exchange, without any federal regulation whatsoever.

"In financial terms, they were playing blackjack at tables where they themselves were the dealers, in casinos they themselves owned," says Warren Gunnels, a senior policy adviser to Sen. Bernie Sanders. "It was crazy." Trading on the ICE had a massive impact on U.S. gasoline prices, and more than one legislator wondered if energy speculators were manipulating the market, as energy traders like Enron had been before. The speculation bill was designed to regulate the ICE and place limits on trades. But on the day before Obama returned from his eight-day, eight-country, megadazzling international photo op, Democrats failed by a vote of 50-43 to force a vote on the bill, as heavy lobbying by investment banks like Goldman Sachs torpedoed the effort.

Not only did Obama not show up to vote, he appeared at a public forum three days later flanked by Jon Corzine and Robert Rubin, two former Goldman executives, to discuss how to revive the economy. Here you have the basic formula of campaign contributions in a nutshell: Powerful investment bank gives big money to candidate, needed reform requires candidate to cross said investment bank, candidate pussies out and finds way to be gone at the moment of truth, candidate resurfaces later in arms of aforementioned investment bankers.

Obama's absence on oil speculation was eerily reminiscent of his previous decision to change his mind about giving retroactive immunity to telecom companies for spying on Americans. Obama withdrew his pledge to filibuster the immunity bill right around the time the Democrats announced that AT&T would be sponsoring the Democratic convention. So no filibuster on retroactive immunity from the top Democrat -- but conventiongoers in Denver will get tote bags emblazoned with the AT&T logo. So that's something.

Look, we all knew this was coming. Once Obama vanquished Hillary Clinton, it was inevitable that his campaign would start roping in the Clinton moneymen for the fall confrontation with McCain. Among those snagged by Obama were Iranian millionaire and former Democratic Senatorial Campaign Committee chairman Hassan Nemazee, venture capitalist Alan Patricof and the touchingly plugged-in Wall Street power couple Maureen White (First Boston) and Steven Rattner (Morgan Stanley). Rattner and White, the former chief fundraiser for the DNC, are longtime friends of the Clintons; she quit the DNC in 2006 to build Hillary's war chest, while he backed Joe Lieberman against Ned Lamont and flirted with a Mike Bloomberg presidential run. Such are the people who are now whispering in Obama's ear.

Over the summer, the Obama camp has relentlessly pushed the notion that its record fundraising is mainly the result of small online donations. The first presidential candidate to raise so much money that he could afford to eschew the spending limits that would be imposed if he accepted federal matching funds, Obama claims that he opted out of public funding so that he could have a campaign "truly funded by the American people." And indeed, he has a record number of small donors, with some 45 percent of his campaign cash coming from contributions smaller than $200.

Which is a great percentage -- but it's only eight points better than John Kerry in 2004 and only 14 points better than George Bush that same year. In truth, Obama is still raising tons of money from big corporate donors. In June alone, as Obama was raking in more than $30 million from small donors, he also bagged $6 million in a single fundraiser at Ethel Kennedy's home in Virginia and another $5 million at an event in Hollywood. But time and time again, you see Obama aides boasting about how the day of the big-dollar donor is over. "More people are involved, and I think that necessarily dilutes the impact of any individual -- which is probably a good thing," one prominent Obama supporter recently declared. This staunch champion of the small donor happened to be none other than James Rubin, son of former Goldman Sachs co-chairman Bob Rubin.

Obama's decision to embrace Clinton's moneymen coincided with his decision to attend a public forum on economic policy with an A list of Clinton-era economic advisors, including Rubin and Corzine. "The message is that he's going to be a friend to Wall Street, just as Bill Clinton was a friend to Wall Street," says Pollin. "Wall Street will want to be at the head of the table."

By now it should be clear what type of service Wall Street will demand. The financial disaster dumped on us by eight years of Bush's mismanagement has left America with the prospect of short-term solutions in the form of massive government bailouts, and long-term solutions in the form of reform and regulation. A big chunk of the $1 billion in cash that will be spent on the presidential race this year represents Wall Street's desire to make sure that both candidates can be counted on to make the short-term bailouts large and passionate, and the reforms gentle and halfhearted. "They want to make sure there's socialism when they need it -- bailouts -- and capitalism when they need that," says Pollin.

Both candidates are already falling all over themselves to signal their business-friendly approach to the economy. McCain entered this election with a reputation as a strict Goldwater conservative. "I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly," he declared. McCain also sounded off in the past about troubled quasi-governmental lenders Freddie Mac and Fannie Mae, pledging to "make them go away" and to strip them of their right to lobby.

But this year, McCain -- perhaps emboldened by the $238,100 he got from seven JP Morgan Chase executives or the $500,000 bundled for him by Chase executive James Lee Jr. -- caved in and supported Chase's outrageous government-backed acquisition of Bear Stearns. He also backed the recent bailout of Freddie Mac and Fannie Mae -- no surprise given that former Fannie Mae lobbyists are serving as his chief of staff and the head of his vice presidential vetting panel.

Obama also supported the Freddie Mac-Fannie Mae rescue, and that, too, is no surprise, given that he hired one former chairman of Fannie Mae to chair his vice presidential vetting panel and hired another former Fannie Mae chairman to serve as his consultant on housing issues. Most of us will never get within a hundred miles of a single Fannie Mae chairman, but Obama has already hired two -- and he isn't even president yet.

This, folks, is the way of the world. Forget all the promises to make the rich pay their fair share. As the candidates get closer to office, the actual paying customers move to the front of the line.

Sadly, both candidates have an extensive history of being dependable pals of campaign contributors. Back in 2000, when Obama was a state senator in Illinois, an entrepreneur named Robert Blackwell Jr. hired him to be his lawyer, paying him a monthly retainer of $8,000 -- big money for a part-time legislator with an annual salary of just $58,000. A few months later, Obama sent a letter urging state tourism officials to give a grant to one of Blackwell's companies, the amusingly named Killerspin, to fund a table-tennis tournament. Killerspin received $320,000 in public funds; Obama pocketed $112,000 in fees from Blackwell.

So far this year, Blackwell has bundled more than $100,000 for Obama's campaign. Looks like there's going to be a shitload of table-tennis tournaments all across America next year.

McCain also likes to write letters for big contributors. In 1998, four months after BellSouth contributed $16,750 to the senator, he sent a letter to the FCC asking it to give "serious consideration" to the company's request to enter the long-distance market. He later wrote letters on behalf of Paxson Communications, which donated $20,000 and let him use their company jet, as well as Ameritech and SBC Communications, which raised $120,000 for McCain at a time when they were seeking permission to merge.

McCain's still sticking by that gang. Former Ameritech chairman Richard Notebaert bundled more than $100,000 for him this year, and two of McCain's key fundraisers, Peter Madigan and Tim McKone, hail from SBC. The point is that politicians are intensely loyal to the people who give them money -- and not anywhere near as loyal to the promises they've made to suckers like us. No matter who's in the White House, the direction of the government has remained remarkably stable. Clinton's treasury secretary, Rubin, was a Goldman Sachs man; Henry Paulson, the current secretary under Bush, is also a Goldman Sachs man. It'll probably be a Goldman man again next year. Meet the new boss, same as the old boss. In sickness or in health, the faces may change, but the money remains. "It's not an accident that both administrations picked for leading economic advisers people from Goldman Sachs," says Pollin.

The really distressing thing about all of this is the signal it sends to Americans. Goldman Sachs posted a record profit of $11 billion last year, much of it from betting against the subprime mortgage market they themselves helped to fuck up. That little energy exchange Goldman set up, the ICE, made a profit of $240 million last year, as gas prices skyrocketed. It may suck to be you right now, but all that pain isn't so bad if you are a big oil speculator.

When you live in million-dollar Manhattan townhouses and make billions in profits betting on the pain of the ordinary foreclosed homeowner, you shouldn't get to run around on TV with the prospective president on your arm. You should be hung by your balls. But that's not the way it works, and despite what you might have heard about "change," it probably never will be.

For all the excitement that Barack Obama has garnered, and all the talk about a new day in Washington, it would be tragic if the real legacy of his election victory was to finally expose the essentially unchanging, oligarchic nature of our political system. It's the same old story: Money talks, and bullshit walks. And don't be surprised if we're the ones still walking after November.

Kucinich does the right thing, again.

Kucinich enters Iraqi oil fray

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The Oil for Iraq Liberation bill, introduced by Congressman Dennis Kucinich, D-Ohio, will prevent U.S. based oil companies from development of and investment in petroleum resources of Iraq.

"Recently we have seen evidence of a concerted effort to pressure the Iraqi government into privatizing Iraqi oil fields against the will of its citizens. We have also heard that certain high level architects of the Iraq war stand to gain financially. This bill will ensure that the Iraqi oil money stays out of the hands of U.S. oil companies who would otherwise benefit from the US attack on and occupation of Iraq."

Despite intense U.S. pressure, Iraqi legislators Sunday failed to reach an agreement to solve an increasingly bitter dispute over the oil-rich northern city of Kirkuk, Leila Fadel and Sahar Issa write for McClatchy.

Kirkuk sits on Iraq's northern oil fields and also on a fault line between the Sunni Muslim Kurds who dominate most of northern Iraq and the Sunni Arabs who occupy the center of the country.

The parliament's inability to resolve the dispute over the city mirrors Iraqi political leaders' inability to make progress on other fronts, including constitutional amendments and the passage of a law governing the distribution of the country's oil revenues, despite the recent improvements in security.

Iraq is inviting bids from contractors to drill seven new oil wells and complete work on four natural gas wells.

The Oil Ministry says contractors have until Sept 15 to submit bids to drill in the East Baghdad oil field.

Today's statement says bids to complete four gas wells in the Akkas gas field in western Iraq will be accepted until September 30, the UAE's The National reports.

UAE-based Dana Gas and its partner and shareholder Crescent Petroleum announced on 29 July that a 462mn cu. ft. site has been allocated for its planned Kurdistan Gas City.

However, the success of the project, which will cost $3bn to build and generate planned foreign investment of over $40bn, like other Kurdistan Regional Government (KRG) energy initiatives, will likely depend on the resolution of the dispute over what powers the federal Ministry of Oil wields in regions such as the KRG, the Tehran Times said.

The UK/Dutch Shell Group hopes to sign short-term technical service agreements in Iraq shortly, in addition to a gas deal, but has failed to give a definitive timeline for either.

"In Iraq, subject to the security situation, we are keen to make progress," says Jeroen van der Veer, chief executive officer at Shell, writes Perry Williams for the Middle East Business Intelligence.

Iraq's daily oil production is at its highest level since the March 2003 U.S. invasion, in large part thanks to improved security, according to a Pentagon audit.

"Iraqi oil production set new records this quarter, with output reaching 2.43 million barrels per day, the highest quarterly average since the invasion," Stuart Bowen, the Defense Department's inspector general for Iraq reconstruction, wrote in his 18th quarterly report to Congress on the expenditure of $50 billion in U.S. economic aid. Production fell to 1.3 million barrels a day during 2003, Bloomberg's Tony Capaccio reported.

Who's Really Running Iraq?

Who's Really Running Iraq?

By Patrick Cockburn
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American politicians and journalists have repeatedly made the same mistake in Iraq over the past five years. This is to assume that the United States is far more in control of events in the country than has ever truly been the case. This was true after the fall of Saddam Hussein when President Bush and his viceroy in Baghdad, Paul Bremer, believed that what Iraqis thought and did could safely be ignored. Within months, guerrilla war against American forces was raging across central Iraq.

The ability of America to make unilateral decisions in Iraq is diminishing by the month, but the White House was still horrified to hear Iraqi Prime Minister Nouri al-Maliki appearing to endorse Barack Obama's plan for the withdrawal of American combat troops over 16 months. This cut the ground from under the feet of John McCain, who has repeatedly declared that "victory" is at last within America's grasp because of the great achievements of "the Surge," the American reinforcements sent to Iraq in 2007 to regain control of Baghdad.

The success of "the Surge" is becoming almost received wisdom in the United States. This is strange, because if the U.S. strategy did win such an important victory, why do American generals need more soldiers, currently 147,000 of them, in Iraq than they did before "the Surge" started? But belief in this so-called victory is in keeping with the American tradition of seeing everything that happens in Iraq as being the result of actions by the United States alone. The complex political landscape of Iraq is ignored. U.S. commentators have never quite taken on board that there are not one but three wars being fought out in the country since 2003: The first is the war of resistance against the American occupation by insurgents from the Sunni Arab community; the second is the battle between the Sunni and Shia communities as to who should rule the Iraqi state in succession to Saddam Hussein; the third is a proxy war between the United States and Iran to decide who should be the predominant foreign power in Iraq. The real, though exaggerated, fall in violence in Iraq over the last year is a consequence of developments in all three of these wars, but they do not necessarily have much to do with "the Surge."

The reduction in violence is in any case only in comparison to the bloodbath of 2005-'07, when Baghdad and central Iraq were ravaged by a sectarian civil war. There were 554 Iraqis killed in the fighting in June 2008, which is only a third of the figure for the same month a year earlier. This is progress, but it still makes Baghdad the most dangerous city in the world. Asked on television about the security situation, Iraqis often respond that "things are getting better," and so they undoubtedly are, but people usually mean that things are better than the terror of two years ago. Foreign television correspondents laud the improved security in the Iraqi capital and are pictured apparently strolling down a peaceful and busy street. What the television viewer does not see are the armed guards standing behind the cameraman, without whom the correspondents would not dare set foot outside their heavily guarded offices.

I do drive around Baghdad without armed guards and have always done so. But I sit in the back of a car with an Arabic newspaper and a jacket or shirt on a hanger masking the window next to me. I have a second car behind me in contact with us by field radios to make sure that we are not being followed. It is true that security is better, but this can be overstated. Each district in Baghdad is sealed off by concrete walls. There are checkpoints every few hundred yards. Sunni and Shia do not visit each other's areas unless they have to. The best barometer for the real state of security in Baghdad is the attitude of Iraqi refugees, particularly the 2.4 million people who fled to Jordan and Syria. Though often living in miserable conditions and with their money running out, the refugees are generally not coming home to Iraq, and when they do, they seldom return to houses from which they had been forced to flee. If they do try to do so, the results are often fatal. Baghdad has few mixed areas left and today is a 75 to 80 percent Shia city. The demographic balance in the capital has shifted against the Sunni, and this is unlikely to change. The battle for Baghdad was won by the Shia and was ending even before "the Surge" began in February 2007.

It was the outcome of the struggle for the capital that caused a large part of the anti-American resistance to make a dramatic change of sides, switching suddenly from fighting to supporting U.S. troops. The attempt by al Qaeda in Iraq to take over the whole of the anti-occupation resistance in late 2006 was important in forcing other insurgent groups to ally themselves with the United States as al-Sahwa, or the Awakening movement. But perhaps a more important reason for the rise of al-Sahwa was that there was no point in the Sunni insurgents attacking the Americans if they were being driven from Iraq by the Shia. There are now some 90,000 former Sunni resistance fighters on the American payroll, but they happily express open hatred and contempt for the Iraqi government. Sectarian divisions in the country remain very deep. In the Fallujah area, for instance, it is very dangerous for either the Sunni chief of police or the al-Sahwa commander (they are brothers) to enter Baghdad. This is because Abu Ghraib, at the entrance to the city, is controlled by the much-feared and heavily Shia al-Muthana Brigade, who might kill either of them on sight.

Another reason why violence has fallen in Iraq over the last 18 months has little to do with "the Surge," but is the consequence of the Shia militiamen of the Mehdi Army being stood down by their leader, Muqtada al-Sadr. The one constant theme in his strategy, ever since he fought the U.S. Marines in Najaf in 2004, has been to avoid direct military conflict with the U.S. armed forces or his Shia rivals when backed by U.S. firepower. This was true at the start of "the Surge" in February 2007, and al-Sadr has sought truces and cease-fires ever since. He did so after fighting with the Iraqi police in Kerbala in August 2007, and he renewed the truce six months later. In March this year the Iraqi army launched a military offensive to take Basra from the Mehdi Army, an attack that at first failed to make headway until backed by U.S. airpower. But in Basra and later in Sadr City in Baghdad, al-Sadr agreed to ceasefires that allowed his former bastions to be taken over by the Iraqi army. Al-Sadr did not fight because he knew his men would lose at the end of the day. For a military confrontation with the Iraqi army and the United States, he would have needed the support of Iran, and this was not forthcoming.

McCain and other American politicians who believe that "the Surge" has brought them close to victory seldom understand the role Iran has played in Iraq in the last two years. Paradoxically, Iran and the United States together are the two main supporters of the present Iraqi government. For Iran, al-Maliki in power in Baghdad leading a coalition of Shia religious parties allied to the Kurds is as good as it is going to get. The Iranians may vie with the United States for influence over this government, but both want it to stay in power. "People fail to realize that the success of 'the Surge' was the result of a tacit agreement between the U.S. and Iran," one Iraqi leader told me. "There really is an Iranian-American condominium ruling Iraq these days," said another.

If McCain is elected president in November and acts as if the United States is the only decision-maker in Iraq, then he will face a renewed war. Iraqis will not accept the occupation continuing indefinitely, and Iran will not allow itself to be marginalized. If McCain were to try to win a military victory in Iraq, he could find the supposed achievements of "the Surge" rapidly evaporating.

Corporate America Prepares for Battle Against Worker Campaign to Roll Back Assault on the Middle Class

Corporate America Prepares for Battle Against Worker Campaign to Roll Back Assault on the Middle Class

By Joshua Holland
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There is nothing more terrifying to corporate America than the prospect of dealing with its workforce on an even playing field, and, along with allies on the Right, it's pulling out all the stops to keep that from happening. At stake is much more than the usual tax breaks, trade deals and relentless deregulation; corporations are gearing up for a fight to preserve a status quo in which the largest share of America's national income goes to profits and the smallest share to wages since the Great Depression -- in fact, since the government started tracking those figures.

There will be many heated legislative battles if 2008 shakes out with larger Congressional majorities for Democrats and an Obama White House -- fights over war and peace, energy policy, health care reform and immigration. But it may be a bill that many Americans have never heard of that sparks the most pitched battle Washington has seen since the Civil Rights Act. It's called the Employee Free Choice Act (EFCA) -- a measure that would go a long way toward guaranteeing working people the right to join a union if they so choose -- and it has the potential to reverse more than three decades of painful stagflation, with prices rising and paychecks flat, for America's middle class and working poor.

The Chamber of Commerce, D.C. lobbyists, firms that rely on cheap labor and a host of "astroturf" front groups are building a war chest that could reach hundreds of millions of dollars in an effort to build a firewall against EFCA and other efforts to put a check on corporate power and rebuild a declining middle class. A recent report on the front page of the Wall Street Journal about how Wal-Mart -- the nation's largest employer -- is "mobilizing its store managers and department supervisors" in an effort to discourage its workers from voting Democratic this fall generated quite a bit of controversy. According to a report in the National Journal that received less attention, "several business-backed groups ... (including) two fledgling coalitions fighting labor-supported legislation and the conservative political group Freedom's Watch are trying to raise $100 million for issue advocacy and get-out-the-vote efforts to benefit about 10 GOP Senate races."

It's the EFCA -- the idea that working people who want to join a union can -- that has corporate America quaking in its collective boots. The bill passed the House easily in 2007 -- by 56 votes -- and had majority support in the Senate. But it didn't reach the 60 votes required to kill a GOP-led filibuster, and that massive war chest being amassed by the corporate Right is, in part, an attempt to maintain a firewall of at least 41 anti-union senators -- mostly Republicans joined by a few corporatist Dems -- to kill the bill in the 2009 Congress. President Bush threatened to veto the legislation if it had passed in 2007, but this time around, they fear that a Democrat will be sitting in the White House. Obama was a co-sponsor of the 2007 legislation; McCain opposed it.

The prospect of a filibuster-proof majority that's sympathetic to the needs of ordinary working Americans, according to the National Journal, is making "business groups jittery." Polls show that the economy is Americans' number one concern going into this fall's election; fully 75 percent of Americans believe the country is on the wrong track, and these well-funded groups are intent on keeping it firmly on that track.

American Wages and the Law of Supply and Demand

At the heart of the bloody cage match that's likely to come is this: In economic terms, the wages of many -- probably most -- Americans represent a "market failure" of massive proportions. Even the most devout of free-marketeers -- economists like Alan Greenspan and the late Milton Friedman -- agree that it's appropriate and necessary for government to intervene in the case of those failures (they believe it's the only time that such "meddling" is appropriate). But the corporate Right, which claims to have an almost religious reverence for the power of "free" and functional markets, has gotten fat off of this particular market failure, and it's dead-set on continuing to game the system for its own enrichment.

About 1 in 4 Americans has at least a four-year college degree, and many of those degrees are even worth something in the labor market (sorry, art history majors). Others -- Derek Jeter, Bill Gates, a gifted artist or a writer who can turn a decent phrase -- have specialized skills that allow them to command an income that's as high as the market for their scarce talents will bear. There are also people with more common skills who have the scratch (and/or connections) and fortitude to establish their own businesses -- think George W. Bush or a really great mechanic who owns his or her own shop.

That leaves a lot of people (about 80 percent of working America) who are hourly workers -- "wage slaves" in the traditional sense. There's no doubt that their salaries are heavily influenced by the laws of supply and demand. We saw that clearly in the latter half of the 1990s, when, under Bill Clinton, the Fed allowed the economy to grow at a fast clip, unemployment dropped below 4 percent, and for a brief period, a three-decade spiral in inequality was reversed as wages grew for people in every income bracket.

But a common fallacy is that wages are determined by market forces. They're not, for a variety of reasons that require more explanation than space permits. I'll focus on two: what economists call "information asymmetries" and coercion. Both are anathema to a functional free market, and both exist today, in abundance, in the American workplace.

To understand these failures of the free market, one has to go back, briefly, to basic economic theory. In order for a free market transaction to work, both the buyer and the seller need to have a good grasp of what the product being sold -- in this case, people's sweat -- is worth elsewhere, who else is buying and selling, etc. In other words, they have to have more or less equal access to information. There can be no misrepresentation by either the buyer or the seller in a free market transaction. And both parties have to enter into the transaction freely, without being coerced; neither side can exercise power or undue influence over the other, whether implicitly or explicitly, through threats or other means.

Now let's look at how that theoretical construct plays out in the real world of the American workplace. When an individual worker negotiates a price for their time, effort and dedication with any business bigger than a mom-and-pop operation, there's quite a bit of explicit coercion (much of it in violation of our labor laws), which I'll get to shortly. But there's always an element of inherent coercion when an individual negotiates with a company alone, because of the power differential: a company that's shorthanded by one person will continue to function, while a person without a job is up a creek with no paddle, unable to put a roof over his or her head or food on the table.

The "information asymmetries" in such a negotiation are immense -- they're actually more like process asymmetries. Companies spend millions of dollars on human resource experts, consultants, labor lawyers, etc., and they know both the conditions of the market and the ins and outs of the labor laws in intimate detail. While working people with rarified skills are often members of trade associations or guilds, read trade journals and have a pretty good sense of what the market will bear, many low- and semi-skilled workers don't know their rights under the labor laws, don't know how to assert them and (rightfully) fear reprisals when they do. They often have little knowledge of the financial health -- or illness, as the case may be -- of the company to which they're applying for a job, how profitable it is, how much similar workers in other regions or firms earn, etc.

What Would a Free Market Transaction Look Like?

For the majority of Americans who lack scarce talents or a high level of education, negotiating a price for one's time with a firm on an individual basis is anything but a free market transaction. And that's where collective bargaining comes in -- when workers bargain as a group, they do so on a level playing field with employers, and the resulting wages (and benefits) are as high as the market can bear, but no higher.

Unions, like corporations, have a great deal of information about the market. They know how a firm is doing, how profitable it is and where it is relative to the larger industry in which it operates. They know what deals workers at other plants have negotiated. They have attorneys who are just as familiar with the American labor laws as their counterparts in management.

And while an individual has very little leverage in negotiations -- again, most companies can do with one less worker -- collectively, an entire work force has the ability to shut down or at least slow down a company's operations if management chooses not to negotiate in good faith (as is often the case).

It's not difficult to quantify the difference between what most hourly employees take home and what the free market would dictate. Economists Lawrence Mishel and Matthew Walters estimate the "union wage premium" -- the amount of additional pay a unionized worker receives compared with a similar worker who isn't a member of a union -- at around 20 percent (that's in keeping with other studies, using different methodologies, which put the premium in a range between 15 and 25 percent). If one includes benefits -- health care, paid vacations, etc. -- union members make almost 30 percent more than their nonunion counterparts.

Another way of looking at it is this: Millions of American families are scraping by on below-market wages, and if that weren't the case, there wouldn't be such a large group of American families among the "working poor." In economic theory, it's a given that a producer can't sell his or her wares below the cost of production. The equivalent to the cost of producing a gizmo, when we're talking about the sale of someone's working hours, is the cost of providing basic necessities -- nutritious food, safe housing and decent medical care. These are out of reach for the almost 3 million American families who work full-time and live beneath the poverty level. According to the Working Poor Families Project, half of the working poor have no health insurance.

It's important to understand that unionization doesn't just boost the incomes of union members. When an industry has a certain threshold of unionization, all workers, whether unionized or nonunionized, end up with a fairer share of the pie. Mishel and Matthew point out that a high school graduate who doesn't belong to a union but who works in an industry that has a rate of union membership of 25 percent or higher brings home 5 percent more in wages than a similar worker in a less unionized industry.

Unions, Coercion and the Long Decline

Those are the tangibles, but there are intangibles as well. When enough workers are organized, and can speak with one voice, they represent a powerful influence on the political establishment -- one that is largely absent in America today. Inequality, stagnant wages, out-of-reach health care costs, rising prices for food and energy, dwindling opportunities to get an affordable, high-quality education and a host of other issues that have a real impact on most American families are all issues that a healthy labor movement can force politicians to address.

Union members are more likely to vote their economic interests than be dazzled by culture war issues. In 2004, while Bush won the votes of 78 percent of white Evangelical Christians, John Kerry won a slim majority among those who also belonged to union households.

There's a substantial body of research that shows a clear correlation between falling unionization rates, stagnating wages and increases in inequality and poverty. That's true in all countries; data from the Organization for Economic Cooperation and Development (OECD) -- the "rich countries' club" -- shows that "countries with high levels of union density or collective bargaining coverage are much more equal than countries with low union density, but perform no worse in terms of creating jobs."

The OECD finds that gaps between higher-paid and lower-paid workers are lowest where union density is high, and bargaining is either centralized or closely coordinated. For example, the top 10% of male full-time workers earn at least 4.6 times as much as the bottom 10% in the U.S., compared to 3.7 times as much in Canada, 2.9 times as much in Germany, and just 2.3 times as much in Sweden. High union density also narrows pay gaps between women and men, and between younger and older workers. By narrowing pay gaps, unions counter poverty and make family incomes much more equal than would otherwise be the case.

The United States has seen a precipitous decline in the labor movement over the past three decades or so, and that decline has correlated with painful economic stagnation for all but the top of the economic food chain. Consider the following graph, via the Economic Policy Institute:

Click for larger version
(click for larger version)

(Those rates include government employees -- the private-sector numbers are lower.)

As economists Lawrence Mishel and Ross Eisenbrey wrote, "Wage inequality began to grow at the same time" that the decline in unionization gathered steam in the late 1970s.

Economists Emmanuel Saez and Thomas Piketty showed that when you lop off those in the top 10 percent of the economic food chain, inflation-adjusted earnings for the overwhelming majority of Americans increased by less than $1,000 dollars over the 28-year period between 1977 and 2005 -- $35 in growth per year -- despite slow but steady economic expansion overall (Excel file).

During this period, the distribution of America's total income has become highly concentrated at the top. In 1977, the top 1 percent of Americans grabbed just under 8 percent of the nation's earnings. By 2005 that number had more than doubled, to almost 18 percent of the pie. These numbers don't include investment income -- just income from working. The top 10 percent grabbed about a third of the nation's income in 1977, and almost 45 percent by 2005.

This was also a period in which economic mobility in the United States essentially became a thing of the past -- true only in American lore; we now live in one of the least upwardly mobile economies in the wealthy world. A good union job was once a ladder up from poverty to the middle class.

None of this is by accident. Union-busting has reached a high art form in the United States. Companies no longer need thugs and gun-toting Pinkertons to keep workers from exercising their legal rights to organize; now they have high-priced, Armani-wearing lawyers to do the job.

The tactics are as subtle as they are insidious. A study by Cornell University labor scholar Kate Bronfenbrenner found that: 9 in 10 employers facing a union campaign force employees to attend closed-door meetings to hear anti-union propaganda; 80 percent train supervisors on how to attack unions and require them to deliver anti-union messages to workers they oversee; half of employers threaten to shut down the plant if workers organize; and 3 out of 4 hire outside consultants to run anti-union campaigns, "often based on mass psychology and distorting the law."

Increasingly, cunning forms of intimidation are often enough to produce a "no" vote. If organizers manage to get and win a vote among workers to unionize, management is able to dispute the outcome, and the case can drag on, often for years. While it's pending, pro-union workers lose their jobs: A study published (PDF) by economists John Schmitt and Ben Zipperer found that "almost one in five union organizers or activists can expect to be fired as a result of their activities in a union election campaign."

That's illegal, but since the Reagan administration, U.S. labor protections have been thoroughly gutted, and companies that cross the line pay only modest penalties that can be written off as part of the cost of remaining union-free. Harvard economist Richard Freeman surveyed a number of studies of working people's attitudes in 2005, and found that more American workers want to join a union than ever before -- 53 percent. It's their right -- guaranteed by the U.S. Constitution -- but even as the number who want to bargain collectively with their bosses has increased, the labor movement has continued its deep decline.

That's a result of coercion, plain and simple, and when there is coercion present in a transaction, that's a rigged market, not a free one.

The Employee Free Choice Act (EFCA) is simple: It beefs up penalties for employers who violate workers' rights under the law, creates a mediation and arbitration system for disputes, and allows workers to form a union if a majority simply sign a card saying they want representation. This bill alone won't reverse the long decline of American labor -- union organizers say more is needed to create a truly level playing field -- but it would be a huge step in the right direction.

Fighting to Maintain a Gamed System

In addition to flooding the airwaves with attack ads in states and districts where business-friendly candidates are on the bubble, we can expect millions of dollars from that corporate war chest to go into "issue" ads, part of a concerted effort of anti-union propaganda designed to convince working people that organized labor will cost them wages and jobs, and that union organizers are corrupt and self-serving.

As the AFL-CIO notes, the legislation is under attack by an "anti-union network (that) includes discredited groups such as the Center for Union Facts, led by lobbyist Richard Berman, who is infamous for fighting against drunken driving laws and consumer and health protections, and the National Right to Work Committee and Foundation, the country's oldest organization dedicated exclusively to destroying unions."

Berman, a hired gun who has battled Mothers Against Drunk Driving on behalf of the alcohol industry, fought smoking bans at the behest of the tobacco industry and even defended dangerous levels of mercury in fish, expects to raise $30 million for the fight, according to the National Journal.

The Center for Union Facts is positively Orwellian in its spin: In one instance, Berman cited a Department of Labor report to claim that unions had racked up "$400 million in labor racketeering fines and civil restitution in the last five years." Nate Newman, a pro-labor journalist, dug into the report, only to find that "almost all of the big money associated with the $400 million figure in labor racketeering was committed by private industry against unions, not by union officials." Newman added, "But that's how you lie with statistics." (See his whole post.)

As far as the movement to defeat EFCA, the Big Lie -- which we'll hear repeated ad nauseam from every corner of the right-wing noise machine -- is that the card-check provisions are anti-democratic. The coalition's approach is to make no mention of beefing up penalties for violating workers' rights or creating new dispute-settlement procedures; instead, they seize on a compelling talking point tailored to America's political culture: that the "card-check" provision of the EFCA does away with the secret ballots that Americans have come to expect when casting their votes.

Big Business commissioned a Zogby poll that's dangerously close to the political "push-polls" of campaign infamy. The questions were remarkably dishonest, and the results were what the pollsters and their clients were looking for.

Please tell me whether you agree or disagree with the following statement: "Every worker should continue to have the right to a federally supervised secret ballot election when deciding whether to organize a union."

Nine out of ten respondents agreed, including 87 percent of Democrats. That's to be expected; the strategy is to depict management's assault on the ability to organize as protecting "workers' rights." Seven out of 10 respondents said they'd be less likely to vote for a member of Congress "who voted in favor of taking away a worker's right to have a federally supervised secret ballot election to decide whether to organize a union."

Armed with their push-poll, the Right's noise machine has been typically disciplined; all corners of the conservative movement are on message: Big Labor wants to do away with secret ballots, and it's pulling the Democrats' strings to make it happen.

But as Stalin said, "It's not the people who vote that count. It's the people who count the votes." More importantly, it's how the votes are counted and whether voters are being coerced. The secret-ballot election process is almost impossible in today's anti-union environment, with a National Labor Relations Board -- the body that's supposed to protect workers' rights -- hopelessly stacked with anti-union appointees.

As journalist Jordan Barab noted, as a result of an elections process that disenfranchises millions of working people, "card-check campaigns -- instead of secret ballot elections -- have become labor's main tool for organizing the unorganized." According to AFL-CIO statistics cited by Barab, card checks were used to "sign up roughly 70 percent of the private-sector workers who joined unions (in 2006), compared with less than 5 percent two decades ago."

Anything to Maintain the Conservative Nanny State

In his book, The Conservative Nanny State, Dean Baker, co-founder of the Center for Economic and Policy Research, argues that progressives are way off the mark when they accuse the corporate Right of being "free-market fundamentalists." "When we say they're 'market fundamentalists,' he told me in an interview, "we're acting like they're willing to accept market outcomes." In reality, conservatives have "rigged the deck. They've made sure that certain people come out ahead, that income flows upward, and that other people are put at a disadvantage -- and these things are built into the rules of the system."

The rules of the game -- working people's right to negotiate collectively on even ground with employers -- is what will be at stake over the next year. We may well see EFCA and other progressive legislation get shot down, but if not, then there's a potential to halt the systematic dismantling of the New Deal's labor protections that we've witnessed over the past 40 years and reverse the spiraling inequality that's accompanied it.

Whatever the outcome, we're in for a bloody fight.