Thursday, September 25, 2008

The Creation of the Second Great Depression By Ron Paul

The Creation of the Second Great Depression

By Ron Paul

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Whenever a Great Bipartisan Consensus is announced, and a compliant media assures everyone that the wondrous actions of our wise leaders are being taken for our own good, you can know with absolute certainty that disaster is about to strike.

The events of the past week are no exception.

The bailout package that is about to be rammed down Congress’ throat is not just economically foolish. It is downright sinister. It makes a mockery of our Constitution, which our leaders should never again bother pretending is still in effect. It promises the American people a never-ending nightmare of ever-greater debt liabilities they will have to shoulder. Two weeks ago, financial analyst Jim Rogers said the bailout of Fannie Mae and Freddie Mac made America more communist than China! "This is welfare for the rich," he said. "This is socialism for the rich. It’s bailing out the financiers, the banks, the Wall Streeters."

That describes the current bailout package to a T. And we’re being told it’s unavoidable.

The claim that the market caused all this is so staggeringly foolish that only politicians and the media could pretend to believe it. But that has become the conventional wisdom, with the desired result that those responsible for the credit bubble and its predictable consequences – predictable, that is, to those who understand sound, Austrian economics – are being let off the hook. The Federal Reserve System is actually positioning itself as the savior, rather than the culprit, in this mess!

* The Treasury Secretary is authorized to purchase up to $700 billion in mortgage-related assets at any one time. That means $700 billion is only the very beginning of what will hit us.
* Financial institutions are "designated as financial agents of the Government." This is the New Deal to end all New Deals.
* Then there’s this: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Translation: the Secretary can buy up whatever junk debt he wants to, burden the American people with it, and be subject to no one in the process.

There goes your country.

Even some so-called free-market economists are calling all this "sadly necessary." Sad, yes. Necessary? Don’t make me laugh.

Our one-party system is complicit in yet another crime against the American people. The two major party candidates for president themselves initially indicated their strong support for bailouts of this kind – another example of the big choice we’re supposedly presented with this November: yes or yes. Now, with a backlash brewing, they’re not quite sure what their views are. A sad display, really.

Although the present bailout package is almost certainly not the end of the political atrocities we’ll witness in connection with the crisis, time is short. Congress may vote as soon as tomorrow. With a Rasmussen poll finding support for the bailout at an anemic seven percent, some members of Congress are afraid to vote for it. Call them! Let them hear from you! Tell them you will never vote for anyone who supports this atrocity.

The issue boils down to this: do we care about freedom? Do we care about responsibility and accountability? Do we care that our government and media have been bought and paid for? Do we care that average Americans are about to be looted in order to subsidize the fattest of cats on Wall Street and in government? Do we care?

When the chips are down, will we stand up and fight, even if it means standing up against every stripe of fashionable opinion in politics and the media?

Times like these have a way of telling us what kind of a people we are, and what kind of country we shall be.

Dr. Ron Paul is a Republican member of Congress from Texas.

Water Wars in America

Water Wars in America

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The headlines scream. The world goes mad. The Bush administration, which failed to fully impose its unitary executive presidency on the nation through war via a Commander-in-Chief presidency, now seems intent on doing the same in its waning days through a Treasury-Secretary-in-Chief version of the same. The following passage in the original proposed bill for the $700 billion bailout legislation now in Congress may take your breath away -- "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency…" -- but it is recognizably pure Bush.

Though that particular phrasing is now gone, administration officials are using the politics of fear and panic over the very financial mess they had a hand in creating to institutionalize a presidential power grab of startling magnitude. And then, of course, following the pattern of this administration, they will privatize that power, undoubtedly subcontracting the work of governmental buying and selling to the very financial characters involved in creating this mayhem. As a result, in the Bush years the Treasury Department, like the Pentagon, will have both expanded its power exponentially and privatized it all at once. Yes, Congress will add caveats and "oversight," but these may be little more than window dressing from a body of government which has already essentially given up the ghost (of power) along with its power of the purse. If you thought we had an imperial presidency before the present economic meltdown, what's coming may put that to shame.

Anyone who believes that an administration incapable of getting itself out of its own disasters from Kabul to Baghdad to New Orleans finally has a formula for doing so at a moment of ultimate economic debacle is surely deluded. In the meantime, Congress may turn over the checks (as in checkbooks) from those classic American governmental checks and balances to the Treasury. And as for the balances, well, you already know that story. So, a skyscraper's worth of private financial indebtedness will now be socialized on the backs of taxpayers; and yet, as Alan Snitow and Deborah Kaufman, award-winning filmmakers and experts in the privatization of water supplies and systems, indicate below, the most basic public services that once gave meaning to the government now stand in danger of going "private" not just in the developing world but in the United States.

Their post, by the way, is an adaptation of an essay they wrote for a wonderful new book on a subject that will reshape our lives for decades to come -- the redistribution of water on this planet, including the present fierce droughts in the American southeast and west. The Alternet.org book, Water Consciousness: How We All Have to Change to Protect Our Most Critical Resource, is in itself a resource of the first order. (Check out the book's website while you're at it.) Tom

Drinking at the Public Fountain

The New Corporate Threat to Our Water Supplies
By Alan Snitow and Deborah Kaufman

In the last few years, the world's largest financial institutions and pension funds, from Goldman Sachs to Australia's Macquarie Bank, have figured out that old, trustworthy utilities and infrastructure could become reliable cash cows -- supporting the financial system's speculative junk derivatives with the real concrete of highways, water utilities, airports, harbors, and transit systems.

The spiraling collapse of the financial system may only intensify the quest for private investments in what is now the public sector. This flipping of public assets could be the next big phase of privatization, and it could happen even under an Obama administration, as local and state governments, starved during Bush's two terms in office, look to bail out on public assets, employees, and responsibilities. The Republican record of neglect of basic infrastructure reads like a police blotter: levees in New Orleans, a major bridge in Minneapolis, a collapsing power grid, bursting water mains, and outdated sewage treatment plants.

Billions in private assets are now parked in "infrastructure funds" waiting for the crisis to mature and the right public assets to buy on the cheap. The first harbingers of a potential fire sale are already on the horizon. The City of Chicago has leased its major highway and Indiana its toll road. Private companies are managing major ports and bidding for control of local water systems across the country. Government jobs are also up for sale. For the first time in American history, the federal government employs more contract workers than regular employees.

This radical shift to the private sector could become one of history's largest transfers of ownership, control, and wealth from the public trust to the private till. But more is at stake. The concept of democracy itself is being challenged by multinational corporations that see Americans not as citizens, but as customers, and government not as something of, by, and for the people, but as a market to be entered for profit.

How the Water Revolt Began

And a huge market it is. About 85% of Americans receive their water from public utility departments, making water infrastructure, worth trillions of dollars, a prime target for privatization. To drive their agenda, water industry lobbyists have consistently opposed federal aid for public water agencies, hoping that federal cutbacks would drive market expansion. So far, the strategy has worked. In 1978, just before the Reagan-era starvation diet began, federal funding covered 78% of the cost for new water infrastructure. By 2007, it covered just 3%.

As a result, local and state governments are desperately trying to figure out how to make up the difference without politically unpopular rate increases. A growing number of mayors and governors, Republicans and Democrats, are turning to the industry's designated solution: privatization.

Providing clean, accessible, affordable water is not only the most basic of all government services, but throughout history, control of water has defined the power structure of societies. If we lose control of our water, what do we, as citizens, really control?

The danger is that most citizens don't even know there's a problem. Water systems are generally underground and out of sight. Most of us don't think about our water until the tap runs dry or we flush and it doesn't go away. That indifference could cost us dearly, but privatization is not yet destiny.

A citizens' water revolt has been slowly spreading across the United States. The revolt is not made up of "the usual suspects," has no focused ideology, and isn't the stuff of headlines. It often starts as a "not-in-my-backyard" movement but quickly expands to encompass issues of global economic justice.

In Lee, Massachusetts, the revolt began against potential water-plant layoffs. In Felton, California, it was initially about rate increases and local control; in Atlanta, broken pipes and sewage lines. In other communities, it focused on corruption, cover-ups, and complicity between politicians and giant corporations.

One of the epicenters of this nascent movement has been Stockton, California, in the heart of the state's agricultural San Joaquin Valley. A citizens' group there took on not only the mayor and city council, but also some of the world's largest private water corporations in a preview of the corporate water wars to come.

When private water companies case a city as a potential privatization target, they look for a "champion" in city government, someone who will take the lead in selling off the city's water services. In Stockton, they found their champion in Mayor Gary Podesto, a former "big box" grocery store owner. In his view, it was "time that Stockton city government treat its citizens as customers."

But Mayor Podesto had other reasons to privatize. Stockton was already under pressure from state and federal environmental agencies to modernize its sewage plant to reduce San Joaquin River pollution. This was an expensive project, and the mayor thought that a private company could do it cheaper, if not better.

In 2002, Podesto sought bids from private water companies to take over the city's water department. The winner of the bidding war was a consortium of two multinational giants: OMI, the water division of Colorado-based CH2M-Hill, one of the largest engineering firms in the United States, and London's water company, Thames Water, which was itself a subsidiary of German energy powerhouse RWE. For OMI and RWE/Thames, Stockton was an opportunity to show California, and the country, what a private utility could do. It would be the largest water privatization deal in the western United States--a 20-year, $600 million contract.

But Mayor Podesto and the water giants were in for a surprise.

Water's Dirty History

Although hidden from sight (and scent), even pipes have a history. In the nineteenth century, water ownership and management in the United States was largely in private hands.

But as populations grew, private water companies did not have the resources or expertise to meet the need. Citizens demanded, and eventually won, modern public water systems, financed through bonds, operated by reliable engineers and experts, and accountable to local governments. The nation built a dazzling system of community waterworks that provided clean, reasonably priced water and sewer systems that still rank among the best in the world.

But in recent years, federal disinvestment in water services has sparked a new era of privatization with contemporary players repeating promises made by nineteenth century entrepreneurs. The world's largest private water companies have quickly entered the American market: Suez and Veolia from France and Germany's RWE/Thames. Few Americans have heard of them, but the Big Three have dominated the global water business and are among the world's largest corporations. Together they control subsidiaries in more than 100 countries.

Relying on free market ideology rather than research, neither government officials nor the media have generally bothered to check the shaky record of these multinationals in cities around the world. Suez and Veolia have had a reputation for influence peddling in France that has reached right into the presidential palace. Suez's first foray in the United States was in Atlanta, which threw the company out after four years of brown water, low water pressure, and general incompetence.

The companies directly involved in the Stockton deal have also had their share of controversy. OMI was charged with falsifying water quality reports in several small American cities. RWE/Thames had been named "worst polluter" in Britain several years running.

How to Privatize an American City

If Stockton Mayor Podesto had doubts about OMI and RWE/Thames, he didn't let on, saying only that Suez's failures in Atlanta would come back to haunt them in the American market. In his view, privatization promised efficiencies of scale, as well as competitive cost cutting, lower water rates, and a business culture that would favor real-estate development.

The argument for marketplace competition should lose all traction with a monopoly service like water, but water companies still contend that the profit motive gives them an incentive to cut costs. However, such efficiencies usually turn out to come from somewhere else -- usually from service cutbacks, staff layoffs, and failures to invest in preventive maintenance.

As for rates, studies from across the country reveal that private water systems charge more -- often much more -- than public systems right next door. But private water operations make their biggest profits by expanding their service areas as cities grow. The industry's business culture makes it a natural ally of developers and an opponent of citizens' groups trying to limit growth, preserve agricultural land, or establish greenbelts.

All these political and business considerations make it easy to forget that even when water is public, it is not really our water at all. It is the planet's circulation and life force. Climate change expresses itself through water or the lack of it. Droughts are a spreading problem across the United States, making conservation of water a high priority. However, private water companies want customers to use more water, not less, in order to maximize profit for their shareholders.

It's not always easy to define the spark that ignites local rebellion. In Stockton, it was a growing distrust of local government. The Concerned Citizens Coalition of Stockton ("the coalition") had formed in 2001 to monitor and challenge what its members called they mayor's "political-control machine." For the next six years, fighting water privatization would become its defining cause.

The coalition was unified by the conviction that Mayor Podesto was out to railroad the water privatization plan through the city council without a thorough public hearing and a citywide vote. Coalition members tenaciously confronted the mayor and his allies every step of the way. When it appeared that he still wouldn't listen, they gathered 18,000 signatures to put an initiative on the ballot to require a citywide vote before privatization could take place.

Increasingly embattled, Podesto recognized that the coalition's initiative was a poison pill for privatization. He wasn't about to be outmaneuvered. In early 2003, less than two weeks before the initiative was to go to the voters, he put the proposed OMI/Thames contract on the city council. A vote by the seven-member council could preempt the 18,000 signers. Hundreds of people came out to protest. The details of the privatization deal itself had become secondary. At the electrifying two-hour meeting, the debate was over the rights of citizens, the value of the ballot, the meaning of representative democracy, and the human right to water.

In the end, Podesto himself cast the deciding vote in a 4 to 3 decision to approve the contract. Days later, Stocktonians voted overwhelmingly to approve the coalition's initiative, but their votes had been made moot by the council's action.

The coalition fought back in court. In its rush to approve the privatization, the city had failed to do an environmental impact study. The coalition's lawyers claimed that was illegal and filed suit to stop privatization.

Podesto and OMI/Thames moved quickly to implement the contract. On July 31, 2003, water department employees turned in their city badges for ones with the OMI/Thames logo. Meanwhile, the coalition's legal challenge went before superior court judge Robert McNatt, whose record indicated that it would be a hard sell. In October 2003, the judge shocked observers by throwing out privatization and giving the city 180 days to unravel the deal. McNatt wrote that the city's self-exemption from environmental law was "an abuse of discretion." But the city appealed, setting in motion a multi-year legal battle.

The coalition didn't leave the battle solely up to its lawyers as appeals continued. Each year of private control, the group issued damning report cards on OMI/Thames' performance. Mayor Podesto had, for instance, claimed that water rates would rise only 7% over the 20-year life of the contract, but the coalition analysis showed an 8.5% increase in just the first three years. In addition, leakage doubled, maintenance backlogs skyrocketed, and staff turnover was constant.

Some residents of Stockton also noticed a difference when they sniffed the air. Workers at the plant said that OMI/Thames had cut back on odor-control chemicals to save approximately $40,000 a month.

As if that weren't enough, on the Friday before a hot summer weekend in 2006, the wastewater-treatment plant spilled eight million gallons of sewage into the San Joaquin River, contaminating a mile-long stretch where people normally went swimming. It took 10 hours for managers to notice the problem and another three days to notify the public about the health danger.

In late 2006, the courts finally reaffirmed the coalition's position that the city had violated California environmental law and, in the spring of 2007, after Mayor Podesto had left office, Stockton's new city council -- dissatisfied with OMI/Thames' performance -- voted not to appeal and set March 1, 2008, for Stockton to resume full control of its water system.

Nevertheless, the city faced all kinds of problems taking its water system back from the private consortium. The water department remained understaffed with a huge backlog of maintenance, and it was estimated that it would now take millions of dollars to fix the system.

Reverberations

The events in Stockton were followed by activists around the country and reverberated through the private water industry as well. In September 2005, RWE/Thames cited growing "public resistance to privatization schemes" in its decision to get out of the water business. In leaked minutes from an executive board meeting in Essen, Germany, then CEO Henry Roels complained that the water business required too much long-term investment in plant and equipment and offered little hope for once anticipated quick profits. But there was an ominous note in the RWE minutes. An unidentified board member cited a Goldman Sachs prediction that the "water business would become the oil business of the decade from 2020 to 2030."

And so a new stage in the water privatization wars beckons as Goldman Sachs, Macquarie bank, huge pension funds, and billionaire investors hop on the infrastructure bandwagon.

Will the Democrats -- if elected -- resist the trend? Past history suggests that the Party is deeply split on the issue of privatization and that only public resistance has slowed the fire sale. No matter who is president, the fate of public services and assets is likely to be left to local citizens groups that have cut their teeth on water battles like the one in Stockton.

Those local groups have already coalesced into a national movement for a democratic and sustainable water future. The unanswered question is whether these twenty-first century water wars are merely a last stand against an inevitable corporatized future, or the beginning of a far-reaching revolt to reclaim citizenship, reassert democratic values, and redefine how we interact with our environment.

Alan Snitow and Deborah Kaufman are award-winning filmmakers whose PBS documentary "Thirst" was the first film to bring attention to the global movement against water privatization. Their book by the same name exposed how the corporate drive to control water has become a catalyst for community resistance to globalization. Their PBS films include "Secrets of Silicon Valley" and "Blacks and Jews." Snitow is on the board of Food and Water Watch. Kaufman is on the board of the Progressive Jewish Alliance. They are currently working on a film about Jewish power and identity in America. This essay was adapted from a longer version in the new book Water Consciousness: How We All Have to Change to Protect Our Most Critical Resource, edited by Tara Lohan (AlterNet Books, 2008).

Lessons of the Fall: Ike's In, Reagan's Out

Lessons of the Fall: Ike's In, Reagan's Out

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To a guy with a hammer, everything looks like a nail. But I can't help seeing this moment of combined military and financial crisis as a validation of Dwight D. Eisenhower and a repudiation of Ronald Reagan.

Eisenhower figures prominently both in my 2006 film Why We Fight and my forthcoming book The American Way of War, so I've been basically living with the guy since 2003. The Ike I've come to know is a fiscal and military conservative with a healthy skepticism toward the kind of unwarranted conflict in which we are engaged abroad and the fiscal irresponsibility we are witnessing at home. As the nation approaches November -- already beleaguered by war and now bracing itself for the brunt of this banking tsunami -- Eisenhower has much to teach us about how we lost our way and what we can do to get back.

Reagan, on the other hand, is long overdue for a rethink. At a time when we are mired in a tragic foreign conflict invented by his latter-day acolytes and digging through the wreckage of their corrupt and deregulated economy, the fullness of Reagan's vision is upon us. But if there can be any silver lining to these combined crises, it may be to inspire a shift away from America's blind obsession with Reaganism and a return to the more sober polices that once kept America secure -- militarily and fiscally.

What a difference fifty years makes.

During his presidency, Eisenhower wasn't seen as a very bright light. But today, he haunts us. First, the Iraq war fulfilled his now legendary 1961 farewell warning about the "military-industrial complex." Back then, he was all but written off as a kook for suggesting that a shadowy network of corporate and military actors could lead the country to war for profit or ideology rather than principle or necessity. Now, as we try to understand how we got into our domestic financial mess and to what extent it relates to the military mess overseas, Eisenhower grows more prescient by the minute. Perhaps, too, he can teach us something about how to respond.

As president, Eisenhower gave the lie to George Clemenceau's axiom "War is too important to be left to the generals." As his granddaughter Susan recounted to me, he was deeply shaken by his experience of World War II and sought to ensure that no such thing could happen again. As president at the height of the Cold War, he initiated his controversial "New Look" policy -- a far-reaching program of defense reduction that pitted him against an entrenched bureaucracy of military-industrial interests. Fearing not only the direct costs of war but the disfiguring indirect impact that foreign entanglement can have on the nation's financial health, Eisenhower described America's conflict with the Soviet Union as "an unbearable security burden leading to economic disaster."

Ike's career holds so many such applicable pearls of wisdom, it's best to get them right from the horse's mouth. In 1953, in one of his first addresses as President, he made the now legendary Chance for Peace speech, in which he quantified in brutally simple terms how money spent on defense is diverted from other areas of national need:

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed... The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.

As president, Ike's advocacy for military and economic restraint put him at almost constant loggerheads with the Pentagon over defense expenditures and pressure from Congress for increased overseas military engagement. While during the Bush years it has been the Republicans who critique their opponents as soft on terror, in Eisenhower's time, the party lines were reversed. As Democratic senators Henry "Scoop" Jackson and John F. Kennedy used the spurious "bomber gap" and "missile gap" charges to impugn Eisenhower's stewardship of national security, he resisted pressure by members of both parties to launch a preemptive nuclear strike against the Soviet Union.

"God help this country," the embattled President was overheard to say, "when someone sits at this desk who doesn't know as much about the military as I do."

With 20/20 hindsight, the regrettable covert activities Eisenhower approved in Iran, Guatemala, Indochina, and elsewhere, are part of the larger covert story of how Cold War America came to violate the framers' resistance to foreign entanglement. It's a tragic story of unintended consequences that leads uncomfortably to today's quagmire in Iraq. Yet, beyond his role at the dawn of such covert mischief, Eisenhower did manage to keep America largely out of conflict for eight years at the height of the Cold War without bankrupting the country.

That was then. But today's Republicans are a different breed. This was confirmed earlier this year when lifelong Republicans John and Susan Eisenhower -- Ike's son and granddaughter -- opted to break ranks with their party, no longer able to brook its abandonment of first principles. In this sense, the current combination of crises is the culmination of a long process by which the commitment to small government and isolationism that were once the hallmark of the Republican party have been replaced by Reagan's free-market fundamentalism and runaway militarism, which have directly and indirectly led to our current predicament.

Reagan's renaissance, which culminated in his near-monarchic state funeral four years ago, coincided with the rise of the neoconservatives in Washington, all of whom laud him as their political hero. The ever-shifting candidate John McCain, who appeared in "Why We Fight" and makes a characteristically fitful appearance in my book, describes Reagan as "our icon, reversing the lesson of Vietnam in his policy of military strength and support for freedom fighters around the world." Not surprisingly, McCain's straight talk express is having a bumpy ride during the current array of crises. In Tuesday's Washington Post, George Will described McCain as "behaving like a flustered rookie playing in a league too high." It's a pretty sad day in Mudville when you're trying to win the hearts of conservatives and George Will accuses you of being more socialist than FDR. To be fair to John McCain, though, the current crisis doesn't only reveal a disconnect in his thinking. It uncovers a basic dilemma over what it means today to be a Republican more broadly.

The problem, of course, is that you can't really love Reagan and love Eisenhower at the same time. Eisenhower was a fiscal conservative, military conservative, and government-bureaucracy conservative. Conversely, Reagan had a proactive, expansionist view of America's role abroad and a blank-check enthusiasm for military-industrial corporatism at home. Taken to their logical extreme, these produce entanglement abroad, economic instability at home, and now, the big-government solutions that inevitably follow. Of course, it didn't start that way. Reagan's revolution was sold on a ticket of "small government." But buyer beware. Now that Reaganomics' warranty has run out, the party of anti-Communism and small government is proposing to socialize our economy. It turns out -- and this is what Eisenhower saw so presciently - that you can't have the neocons' Reaganesque fantasies of military adventurism overseas and deregulated corporatism at home without paying a price in the long run. Suddenly, with Joseph Stiglitz assessing the Iraq war's cost at over $3 trillion and all hell breaking loose in the markets, one-time critics of big government are standing on Wall Street handing out bailouts like party favors (no pun intended).

No wonder it's hard to be John McCain these days -- or any other acolyte of Reagan -- struggling, after supporting the Iraq war and fighting for Reaganesque deregulation, to distance yourself from the inconvenient consequences of these policies. For like his party, McCain bet on the wrong horse, hitching himself not to the soldierly restraint of Eisenhower but to Reagan's radical fantasy that a society of foreign entanglement abroad and deregulated trickle-down economics at home can long endure. So what to do about it?

Well, I might encourage John McCain and, for that matter, anyone in Washington who's drunk the Gipper's free-market fundamentalist and gun-toting expansionist Kool-Aid, to spend a bit more time reading Eisenhower. In combination, a couple of striking phrases in the farewell address and in an earlier speech Ike gave upon assuming the presidency of Columbia University may hold a key to optimizing our reaction.

"Crises there will continue to be," Eisenhower declared in his farewell warning. "In meeting them, whether foreign or domestic, great or small, there is a recurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties."

It's impossible to read these words today and not see the Iraq war as a "spectacular and costly" reaction to the crisis of 9/11 and Paulson's $700 billion blank check as a "miraculous solution" to our "current difficulties."

It's too late, of course, to heed Eisenhower's warnings against militarism and avert the ravages of the Iraq war. But perhaps it's not too late to seek his economic counsel. Unlike today's profligate Republicans, under whom the deficit has increased from $6 trillion to over $9 trillion, Eisenhower achieved a balanced budget for three of his eight years in office, a feat unmatched by any president in the years since. (Not surprisingly, we saw a similar explosion of the deficit under Reagan.) Eisenhower's fiscal conservatism, though, wasn't just a function of knee-jerk penny-pinching or callous, laissez-faire free market fundamentalism. His was a deeply held vision of the precious balance between government expenditure and republican liberties. At his inauguration as President of Columbia University in 1948, he decried that "if carried to the logical extreme, the final concentration of ownership in the hands of government gives to it, in all practical effects, absolute power over our lives."

In his article critiquing McCain's response to the crisis, George Will asked a pointed question not only about the candidate but about his party: "So, is not McCain's party now conducting the most leftist administration in American history?" Will went on to question Paulson's reasoning when he responded to charges that his bailout was socialist: " this is not socialism, this is necessary." What Will to his credit is highlighting is the central problem at this moment for Republicans: how to support the audacious efforts of the White House to respond to a financial crisis born on its watch by taking over the banking industry in a way FDR never dreamt of while on the other hand trying to cling to a coherent Republican ideology. To its own horror, contemporary republicanism is in danger of becoming the new socialism, and George W. Bush a modern-day New Dealer.

In Monday's New York Times, Paul Krugman referred to Paulson's bailout bill as the"Authorization for Use of Financial Force," a joking echo of the wording of the Joint House Resolution that produced the Iraq war by conferring Congress' war-making power on the president. Beyond Krugman's jibe, though, is a very real concern that Eisenhower would overwhelmingly share - that just as the country did in the wake of 9/11 America might respond to the current crisis not with the prudence of improved oversight but with a radical doctrine of government ownership, marked by the too familiar stains of cronyism and corruption.

"We cannot mortgage the material assets of our grandchildren," Eisenhower hauntingly remarked in his closing words, "without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."

If, how, and when the current crisis will end is anyone's guess. Somehow it's always easier to dig oneself into a hole than to claw one's way back out. And broadly speaking, the question about the bailout does not seem to be whether to have it, but just what form it should take. This is a complex question -- like that which faced America after 9/11 -- that requires the time for a textured consideration. Having ignored Eisenhower's example of military restraint for the past eight years, perhaps we can cut our economic losses by heeding his example of fiscal and small-government conservatism. As the White House now demands the rubber-stamping of its sweeping blank-check bailout with the same fervor it used to sell Congress on the need to invade Iraq (with the added new twist that McCain is hinging his appearance at Friday night's debate on the achievement of a signed bailout), we must remember that Eisenhower, at the height of the Cold War, did not allow his policymaking to be bullied by those who would allow the public interest to be "held captive" by private interests.

For ultimately, Eisenhower understood that misguided national priorities that place military expansion and unchecked cronyism above other vital aspects of our national life condemn us to "destroy from within what we are trying to protect from without." Instead, he argued, crises must be met not by spectacular and costly exercises of radical governance but through a consistent commitment to "balance in and among national programs." This requires a holistic understanding of what makes a nation strong. For Eisenhower understood that an uneducated country is an undefended country, that a country without adequate health care is an undefended country, that a country that bullies its friends in the international community is an undefended country; and, above all, that a country in which corporate-political corruption has compromised its people's faith in their leaders is a country they will not fight for. Ultimately, that country - and the principles on which it was founded -- cannot long endure.

Lawmakers: Deal on Wall Street rescue reached

Lawmakers: Deal on Wall Street rescue reached

Dodd, Frank: Agreement in principle, expect passage of bill within days

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Warned that time was running short to bolster the distressed economy, congressional Republicans and Democrats reported agreement in principle Thursday on a $700 billion bailout of the financial industry, and said they would present it to the Bush administration in hopes of a vote within days.

Emerging from a two-hour negotiating session, Sen. Chris Dodd, D-Conn., said, “We are very confident that we can act expeditiously.”

“I now expect that we will indeed have a plan that can pass the House, pass the Senate (and) be signed by the president,” said Sen. Bob Bennett, R-Utah.

The bipartisan consensus on the general direction of the legislation was reported just hours before President Bush was to host presidential contenders Barack Obama and John McCain and congressional leaders at the White House for discussions on how to clear obstacles to the unpopular rescue plan.

Key lawmakers said at midday that few difficulties actually remained.

“There really isn’t much of a deadlock to break,” said Rep. Barney Frank, D-Mass, chairman of the House Financial Services Committee.

Bush told the nation in a televised address Wednesday night that passage of the package his administration has proposed is urgently needed to calm the markets and restore confidence in the reeling financial system. His top spokeswoman, Dana Perino, had told reporters earlier Thursday that “significant progress” was being made.

Financial markets were mixed in early trading; the Dow Jones industrial average rose more than 200 points on optimism about the deal but a credit market squeeze remained as doubts about the proposed plan’s effectiveness drove demand for short-term, safe-haven assets.

House Speaker Nancy Pelosi, D-Calif., said Bush’s agreement with Democrats on limiting pay for executives of bailed out financial institutions and giving taxpayers an equity stake in the companies cleared a significant hurdle.

The core of the plan envisions the government buying up sour assets of shaky financial firms in a bid to keep them from going under and to stave off a potentially severe recession.

Even as political figures haggled over the shape and price of the bailout, new economic indicators showed that orders for big-ticket manufactured goods plunged in August by the largest amount in seven months and that new applications for unemployment benefits were at their highest level in seven years.

And new home sales tumbled in August to the slowest pace in 17 years, while the average sales price fell by the largest amount on record. It served to further dramatize the problem that Washington is trying to solve.

Bush acknowledged Wednesday night that the bailout would be a “tough vote” for lawmakers. But he said failing to approve it would risk dire consequences for the economy and most Americans.

“Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold,” Bush said as he worked to resurrect the unpopular bailout package. “Our entire economy is in danger.”

Bush’s warning came soon after he invited Obama and McCain, one of whom will inherit the economic mess in four months, as well as key congressional leaders to a White House meeting Thursday to work on a compromise.

With the administration’s original proposal considered dead in Congress, House leaders said they were making progress toward revised legislation that could be approved.

Paulson and Federal Reserve Chairman Ben Bernanke have been crisscrossing Capitol Hill in recent days, shuttling between public hearings on the proposal and private meetings with lawmakers, to sell the proposal.

Obama and McCain are calling for a bipartisan effort to deal with the crisis, little more than five weeks before national elections in which the economy has emerged as the dominant theme.

“The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail,” they said in a joint statement Wednesday night. “This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe.”

Presidential politics intruded, nonetheless, when McCain said earlier Wednesday he intended to return to Washington and was asking Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown.

Obama said the debate should go ahead.

Lawmakers in both parties have objected strenuously to the rescue plan over the past two days, Republicans complaining about federal intervention in private business and Democrats pressing to tack on more conditions and help for beleaguered homeowners.

But many in both parties said they were open to legislation, although on different terms than the White House has proposed.

Banks race to profit from US bailout

Banks race to profit from US bailout

By Barry Grey
Go To Original

The announcement of a virtually open-ended government bailout of Wall Street has set off a frenzied competition among the biggest banks and financial firms to grab the lion’s share of the super profits to be reaped from the program.

Banks, brokerage houses, insurance firms, mortgage lenders, private equity companies and asset managers are furiously lobbying the Bush administration and Congress to make sure that the legislation authorizing the bailout gives them the biggest possible share in the spoils. Behind the public speech-making and posturing by administration officials, presidential candidates and congressmen, a sordid campaign of influence-peddling and vote-buying is under way, which will determine the details of the bailout law that is expected to be passed either this week or next.

Tens of billions of dollars in corporate profits and billions more in personal windfalls for senior executives and big investors are at stake. The plan drawn up by Treasury Secretary Henry Paulson not only allows the biggest financial firms to rid themselves of virtually worthless assets that are driving down their stock and slashing their profits, it provides vast opportunities for the winners in the money race to realize huge gains from the management of the program and the ultimate resale of the assets by the government.

The entire program is so rife with “conflicts of interest” that the term does not begin to capture the level of corruption and criminality it entails.

The New York Times on Monday carried an unusually frank article, which began, “Even as policy makers worked on details of a $700 billion bailout of the financial industry, Wall Street began looking for ways to profit from it.

“Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages.

“At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees.

“Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.”

The article quoted Bert Ely, a financial services industry consultant in Alexandria, Virginia, as saying, “Of course there will be fierce lobbying. The real question is, Who wouldn’t want to be included in the package?” The plan was so open-ended, Ely said, it could be interpreted to mean that the US government was open to buying “any asset, anywhere in the world.”

The Wall Street Journal on Monday quoted Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, which consists of chief executives of the nation’s most powerful banks, brokerages and insurers, who said of the industry lobbying campaign, “This is the Super Bowl and New Year’s Eve of legislation.”

Key issues in play include: Which institutions will be covered by the plan; what kinds of assets will the government buy; how much will it pay; how will the assets be valued that are palmed off to the government; which financial firms will get the franchise to manage the program and thereby cash in on fees and the eventual resale of the assets?

The Times article noted that within one day of the presentation on Saturday of the initial Treasury Department proposal, major changes had been made at the behest of big banks and Wall Street lobbying organizations. The changes dramatically widened the scope of the bailout.

Foreign-based financial firms that do business in the US, initially excluded, were given a place at the trough; the range of institutions qualifying for the program was broadened to include insurance companies, mortgage lenders and other non-banking firms; and the type of assets to be off-loaded to the government was widened from “mortgage-related assets” to include “any other financial instrument.”

As the Times article put it: “There were signs of the industry’s fingerprints on drafts of the legislation released over the weekend.... Securities firms were initially excluded but were included in a version released Sunday afternoon.”

Among the changes being called for by various industry lobby groups are:

* Pushing back the date of purchase of assets which the government will accept. The Treasury proposal released Saturday set the cut-off date at September 17 of this year. Some bankers are demanding that the date be changed to December of 2007, and, according to the Financial Times, some industry groups are lobbying for a clause that would “allow banks selling assets to the fund to account for any losses realized over a number of years.”

* Small banks are urging the government to buy loans they made to homebuilders and commercial developers.

* Some bankers are pushing for government support for municipal securities.

* The banking industry, according to the Wall Street Journal, “has gone directly to the SEC (Securities and Exchange Commission) demanding a letter changing US accounting rules that require banks to state the value of their assets at the market price.” They instead want their rotten assets to be valued at their price at the time of purchase—a change that would cost the government additional hundreds of billions in taxpayer money.

To put it bluntly, the American financial industry is preparing to deliver to the US Treasury every bad debt it accumulated over the years of reckless speculation and financial manipulation that generated super-profits and multimillion-dollar compensation packages for its top executives. And it is insuring that the American people pay super-inflated prices for their financial junk, so that they can launch a new and even bigger orgy of speculation.

The announcement of the bailout plan has set off a particularly ferocious competition for inclusion among the financial companies that are to be hired by the government to manage the operation. This plum job could, according to the Times, earn the winners $1 billion a year in fees.

Among the firms in the race is the asset management company BlackRock. Morgan Stanley, the Wall Street investment bank, is also running hard for the prize.

Another firm reportedly in the running is the private equity company Blackstone Group. It has expressed interest in buying up the assets when they are put back onto the market by the government. Blackstone made a fortune by betting against these very same assets early last year.

Bank of New York Mellon is also campaigning for a spot, as is JPMorgan Chase, the giant commercial bank that made a windfall in the rescue of Bear Stearns last March, in a takeover deal that was subsidized by the Federal Reserve Board to the tune of $29 billion.

All of these firms played major roles in creating the financial disaster from which they now seek to profit. They all are deeply involved in speculation on the assets that are to be bought by the government, and some, such as Morgan Stanley and JPMorgan Chase, have billions of such assets on their books.

Another figure who would like to be a Treasury Department asset manager is William Gross, chief investment officer at the bond management firm Pimco. The Times article noted, in passing, that Gross “is among the financial executives Mr. Paulson... has regularly consulted with since the financial crisis began.”

Gross made a cool $1.7 billion earlier this month in the government takeover of mortgage finance giants Fannie Mae and Freddie Mac, after having bet on the firms’ demise and publicly agitated for a government buyout of the companies. In recent weeks, he has been campaigning for precisely the type of government plan to buy the banks’ bad debt that is now being implemented.

Democrats signal support for Wall Street bailout at Senate hearing

Democrats signal support for Wall Street bailout at Senate hearing

By Barry Grey
Go To Original

At a hearing Tuesday, Democratic members of the Senate Banking Committee assured Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben Bernanke that they would move quickly to pass legislation authorizing the Bush administration to launch a trillion-dollar-plus bailout of Wall Street.

While a number of senators from both parties sought political cover in the face of growing popular opposition to the taxpayer-funded bailout by making populist-sounding declarations, the basic tone was set by Charles Schumer, the Democratic senator from New York who heads the Joint Economic Committee of Congress.

Insisting there was no time to consider the causes of the greatest economic crisis since the Great Depression, or investigate the bankers whose actions precipitated the financial disaster, Schumer declared, “We must look forward, not backward.”

“It’s not fair, it’s not right, but that’s the world we live in,” he said. He added, “I want to assure the markets, we will not Christmas tree the bill. We will act and act soon.”

The hearing was billed by the media as a confrontation between angry and skeptical senators and the top financial regulators in the Bush administration. But it was held in the midst of intense closed-door negotiations between the administration and congressional leaders and repeated assurances from the Democratic and Republican congressional leadership that progress is being made toward rapid passage of the bailout legislation.

On the eve of the hearing, Senate Democratic Majority Leader Harry Reid of Nevada said, “Democrats in the Senate aren’t going to drag our feet. We’ll respond with the urgency of action that this situation demands...”

Speaker of the House Nancy Pelosi, Democrat of California, after a meeting with party leaders Monday night, reiterated that she was committed to getting a bill to the president as quickly as possible.

President Bush, speaking before the United Nations on Tuesday, said he was “confident... that there will be a bipartisan bill and that the Republicans and Democrats will come together to get this piece of legislation passed.”

The five-hour hearing was an exercise in deception and double-talk on all sides. The main witnesses, Paulson and Bernanke, gave brief and perfunctory opening statements that repeated the mantras they have employed since announcing the bailout plan last Friday.

They both reiterated that the US and global economy had been brought to the brink of collapse by the bursting of the US housing and credit bubbles. They insisted that Congress had to immediately sanction their plan for the American people to subsidize the financial elite by handing over hundreds of billions in public funds in exchange for virtually worthless mortgage-backed securities and other bad debts piled up by the banks and financial institutions.

The brevity and vacuity of their remarks reflected their contempt for Congress and the democratic rights and social conditions of the American people. They provided neither an explanation for the crisis nor any details of their bailout program.

Declaring that “last week our credit markets froze,” Paulson, the multi-millionaire former Nixon administration official and CEO of Goldman Sachs, demanded that Congress “enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don’t have broad support.”

This is code for any measures to provide relief to homeowners facing foreclosure or the millions of workers who face the loss of their jobs, livelihoods and life savings as a result of the predatory policies of Wall Street, and who are being told they must foot the bill for the bailout.

In one breath Paulson said that the root cause of the crisis was the housing “correction,” (without explaining what had caused the collapse of home prices and wave of foreclosures), and in the next he made clear his opposition to any serious measures to help people stay in their homes, a precondition for stabilizing home prices. Not a single senator pointed out this contradiction.

He and Bernanke came before the Senate as the representatives of the American financial aristocracy, which is adamantly opposed to any measures that would negatively impact their bank accounts and stock portfolios. Notwithstanding their occasional grandstanding, the senators paid the expected obeisance.

Christopher Dodd of Connecticut, the Democratic chairman of the committee, made an opening statement in which he summed up, fairly accurately, the proposal that Paulson had put before congressional leaders over the weekend.

“The proposal,” he said, “is stunning and unprecedented in its scope and lack of detail. It would allow him (Paulson) to intervene in the economy by purchasing at least $700 billion of toxic assets. It would allow him to hold on to those assets for years and to pay millions of dollars to handpicked firms to manage the assets. It would do nothing to help even a single family save a home. It would do nothing to stop a single CEO from dumping billions of dollars of toxic assets on the backs of taxpayers—and walking away with a bonus and a golden parachute. And it would allow him to act with utter and absolute impunity—without review by any agency or court of law. After reading this proposal, I can only conclude that it is not just our economy that is at risk, Mr. Secretary, but our Constitution as well.”

Dodd then hastened to declare, “Nevertheless, in our efforts to restore financial security to American families and stability to our markets, this committee has a responsibility to examine this proposal carefully and in a timely manner.” He went on to praise Paulson, Bernanke and the other government witnesses as “good” and “intelligent” men.

Dodd, other Democrats and some Republicans are appealing to Paulson and the Bush administration for marginal amendments to their initial proposal, which they hope can be used to diffuse popular anger and make the bailout appear more “fair.” These include some form of oversight of the treasury secretary, “conflict of interest” provisions regarding the Wall Street firms that will manage the program, language to limit—or give the appearance of limiting—executive pay of companies that offload their financial junk to the government, a requirement that companies hand over stock or stock warrants as collateral, and some form of minimal relief for distressed homeowners.

While the Bush administration has indicated it is considering the proposals on oversight and stock warrants, and press reports suggest it might accept some token limit on executive pay, it remains adamant against relief to homeowners, including a Democratic proposal that would allow bankruptcy judges to alter the mortgage terms of people facing foreclosure. The latter has been fiercely opposed by the banking industry since the housing crisis erupted last year, and Democratic leaders have privately given assurances that they are using it merely as a bargaining chip.

In fact, the proposals being pushed by the Democrats on oversight, conflicts of interest and executive pay are utterly toothless. An amended bailout bill submitted by Dodd to Paulson on Monday makes this clear.

The supposedly independent “emergency oversight board” in the bill would be chaired by Bernanke and include the head of the Federal Deposit Insurance Corporation, the chair of the Securities and Exchange Commission, and financial “experts” appointed by the Democratic and Republican congressional leadership—that is, Wall Street figures and the government regulators who are pushing the bailout plan.

Rules on conflicts of interest would be drawn up by Paulson, as would any nominal limitations on executive pay.

In the question-and-answer period that followed the opening statements at Tuesday’s hearing, Paulson and Bernanke refused to give a straight answer to a single question, or provide any information on their bailout plan beyond the vague formulations contained in their initial proposal.

Instead, they combined dire predictions of disaster should their plan be rejected with evasions, bromides and assurances that their sole concern was the well-being of the American people.

Asked how the government would set the price on the toxic assets it bought from the banks, Paulson refused to be pinned down. He would go no further than suggest that the Treasury would use “reverse auctions” to carry out the transactions.

As some commentators have pointed out, the plan, by its very nature as a bailout of the banks, requires that the government pay premium prices for junk assets far higher than what they could fetch on the market, with the banks pocketing the difference and the people paying the cost.

Asked why the government did not demand shares of stock in the companies being bailed out, Paulson would only say that he might consider such a measure down the road, but that the success of the plan required that he have unfettered flexibility in working out the details.

He responded to a question about taxpayers being put “on the hook” by saying, “You ask me about taxpayers being on the hook? Guess what, they are already on the hook.”

Asked what provisions would be made to prevent conflicts of interest, Paulson replied, “We have procedures to mitigate conflicts.”

Asked about oversight, he said, “We will bring in experts and work through this.”

When the ranking Republican on the committee, Richard Shelby of Alabama, asked, “What’s it going to do for the homeowner?”

Paulson retorted, “Not every homeowner is going to be able to save their home.”

Asked by Republican Senator Jim Bunning of Kentucky how he knew the program’s stated cost of $700 billion would be enough, Bernanke replied, “It’s hard to know how much is enough.” (In fact, as everyone involved in the hearing knew full well, the $700 billion figure is a fiction, since Paulson’s proposal stipulates that the Treasury can hold only that amount of purchased bank assets at any one time).

The following exchange between Schumer and Paulson typified the stonewalling by Paulson and Bernanke and the refusal of the senators to challenge them:

Schumer: “How about doing this in stages, with, say, $150 billion now, and then come back in January and see how we’re doing? Could you live with less?”

Paulson: “I think that would be a grave mistake. Give us the tools we need to make this work.”

Schumer: “Why?”

Paulson: “It’s about market confidence and having the tools to do the job.”

In response to questions about requiring the banks to sell stock to the government and imposing limitations on executive pay, Bernanke warned against any measures that might “limit market participation.”

Paulson sounded the same theme, declaring, “If you impose any kind of punitive conditions, this program won’t work and we’ll all lose.”

The two fixed principles enunciated by Paulson and Bernanke were (1) the treasury secretary must be given unlimited power to place the wealth of the country at the disposal of Wall Street, and (2) the financial elite must suffer no consequences.

At about 2:20 p.m. Paulson suddenly declared, “We have to go,” and Dodd immediately wrapped up the hearing—but not before the following display of obsequiousness and hypocrisy:

“I hope our witnesses see the value of this,” Dodd bayed. “The public gets a better understanding. Your answers have been very good. Most of us understand the gravity of the situation and it’s important that we act. It’s extremely important that we work together on this. We thank you immensely for the time you’ve spent.”

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

Dirty Secret Of The Bailout: Thirty-Two Words That None Dare Utter

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A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press. Section 8 (which ironically reminds one of the popular name of the portion of the 1937 Housing Act that paved the way for subsidized affordable housing ) of this legislation is just a single sentence of thirty-two words, but it represents a significant consolidation of power and an abdication of oversight authority that's so flat-out astounding that it ought to set one's hair on fire. It reads, in its entirety:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In short, the so-called "mother of all bailouts," which will transfer $700 billion taxpayer dollars to purchase the distressed assets of several failed financial institutions, will be conducted in a manner unchallengeable by courts and ungovernable by the People's duly sworn representatives. All decision-making power will be consolidated into the Executive Branch - who, we remind you, will have the incentive to act upon this privilege as quickly as possible, before they leave office. The measure will run up the budget deficit by a significant amount, with no guarantee of recouping the outlay, and no fundamental means of holding those who fail to do so accountable.

Is this starting to sound familiar? Robert Kuttner cuts through much of the gloss in an article in today's American Prospect:

The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc. He plans to retain Wall Street firms as advisors to decide just how to cut deals to value and mop up Wall Street's dubious paper. There are to be no limits on executive compensation for the firms that get relief, and no equity share for the government in exchange for this massive infusion of capital. Both Obama and McCain have opposed the provision denying any judicial review of decisions made by Paulson -- a provision that evokes the Bush administration's suspension of normal constitutional safeguards in its conduct of foreign policy and national security. [...]


The differences between this proposed bailout and the three closest historical equivalents are immense. When the Reconstruction Finance Corporation of the 1930s pumped a total of $35 billion into U.S. corporations and financial institutions, there was close government supervision and quid pro quos at every step of the way. Much of the time, the RFC became a preferred shareholder, and often appointed board members. The Home Owners Loan Corporation, which eventually refinanced one in five mortgage loans, did not operate to bail out banks but to save homeowners. And the Resolution Trust Corporation of the 1980s, created to mop up the damage of the first speculative mortgage meltdown, the S&L collapse, did not pump in money to rescue bad investments; it sorted out good assets from bad after the fact, and made sure to purge bad executives as well as bad loans. And all three of these historic cases of public recapitalization were done without suspending judicial review.

Kuttner's opposition here is perhaps the strongest language I've seen used, pushing back on this piece of legislation, in any publication of repute, and even here, Section 8 is not cited by name or by content. McClatchy Newspapers also alludes to Section 8 with concern, citing the "unfettered authority" that Paulson would be granted, and noting that the "law also would preclude court review of steps Paulson might take, something Joshua Rosner, managing director of economic researcher Graham Fisher & Co. in New York, said could be used to mask previous illegal activity." Jack Balkin also gives the matter the sort of attention it deserves on his blog, Balkinization.

But elsewhere, the conversation is muted. The debate over whether Congress is going to pass the Paulson bailout package, or pass the Paulson bailout package really hard seems to have boiled down to a discussion of time and concessions. The White House has made it clear that they want this package passed yesterday. Congressional Democrats seem to be of different minds on the matter, with some pushing back hard, and others content to demand a small dollop of turd polish to make the package seem more aesthetically pleasing, at which point, they'll likely roll over and pass the bill. Neither candidate, John McCain or Barack Obama, seem all that amenable toward the bailout, but neither have either demonstrated that they are willing to risk their candidacies to do much more than exploit the issue for electoral purposes.

Sunday morning came and went, with Paulson traipsing dutifully from studio to studio, facing nary a question on Section 8. Front page articles in the New York Times, Washington Post, and the Wall Street Journal detail the wranglings, but make no mention of this section of the legislation. On TV, cable news networks are stuck in the fog of the ongoing presidential campaign.

Throughout the coverage, one catches a whiff of what seems like substantive pushback on this power grab, but it largely amounts to a facsimile of journalistic diligence. Most note, in general terms, that the bailout represents a set of "broad powers" that will be granted to the Department of the Treasury. Yet the coverage offsets these concerns through the constant hyping of the White House's overall message of "urgency."

But one cannot overstate this: Section 8 is a singularly transformative sentence of economic policy. It transfers a significant amount of power to the Executive Branch, while walling off any avenue for oversight, and offering no guarantees in return. And if the Democrats end up content with winning a few slight concessions, they risk not putting a stop-payment on the real "blank check" - the one in which they allow the erosion of their own powers.

Over in the Senate, Christopher Dodd has proposed a bailout legislation of his own, which critically calls for "an oversight board that not only includes the chairman of the Federal Reserve and the SEC, but congressionally appointed, non-governmental officials" and would require the President to appoint an "independent inspector general to investigate the Treasury asset program." In Dodd's legislation, Section 8 is effectively stripped from the bill.

Nevertheless, the fact that Section 8 of the Paulson plan seems to strike few as a de facto dealbreaker can and should astound. The failure of Congress to hold the line on this point would be truly embarrassing. But if we make it through this week with nobody in the press specifically informing the public about the implications of this single sentence - in the middle of a complicated bill, in the middle of a complicated time - then right there, you have the single largest media failure of this year.

VIDEO: Ron Paul Schools Bernanke on the Bailout Plan

VIDEO: Ron Paul Schools Bernanke on the Bailout Plan

China banks told to halt lending to US banks

China banks told to halt lending to US banks-SCMP

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Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

"The decree appears to be Beijing's first attempt to erect defences against the deepening U.S. financial meltdown after the mainland's major lenders reported billions of U.S. dollars in exposure to the credit crisis," the SCMP said.

U.S. New-Home Sales Declined 11.5% in August to 17-Year Lo

U.S. New-Home Sales Fell in August to 17-Year Low

By Bob Willis

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Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets.

Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said today in Washington. The median sales price dropped to a four-year low.

A financial meltdown that prompted the government this week to ask Congress for $700 billion in emergency funding to buy up troubled bank assets may continue to clog the flow of credit to homebuyers and businesses. Shrinking credit availability threatens to extend the three-year housing slump and deepen the economic downturn.

‘‘The market is looking particularly depressing,'' said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia, whose sales forecast was the closest. ‘‘Construction activity has to fall further than it has, as do prices,'' to reduce a glut of unsold homes.

Economists had forecast new-home sales would drop to a 510,000 annual pace, according to the median estimate in a Bloomberg survey of 75 economists. Forecasts ranged from 493,000 to 555,000. July sales were revised up to a 520,000 pace from a previously estimated 515,000.

Stocks rose on speculation that Congress will reach agreement on the bailout package and help avert a long recession. The Standard & Poor's 500 index was up 1.9 percent to 1208.81 as of 10:08 a.m. in New York.

Durable Goods, Claims

Other reports today showed orders for durable goods in August dropped 4.5 percent and first-time claims for unemployment benefits surged last week to the highest level in seven years as hurricanes Ike and Gustav threw thousands out of work in Texas and Louisiana.

The median price of a new home dropped 6.2 percent from a year earlier to $221,900, the lowest level since September 2004.

Sales of new homes were down 35 percent from August 2007, the Commerce report showed.

While builders cut back, they weren't able to keep pace with the slump in sales. The number of homes for sale fell to a four-year low of 408,000, down 4.4 percent from the prior month. The decline was the biggest since 1963. Still, the supply of homes at the current sales rate rose to 10.9 months' worth from 10.3 months.

Timely Indicator

While accounting for only about 10 percent of the housing market, new-home purchases are considered a timelier indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Resales decreased 2.2 percent in August to an annual pace of 4.91 million units and median prices fell 9.5 percent from a year earlier, a record decline, the National Association of Realtors said yesterday.

Inventories of new properties have been falling since July 2006 as builders have scaled back in the last two years. Ground was broken on the fewest new houses in 17 years in August, and permits, a sign of future construction, also fell, Commerce Department figures showed last week.

New-home sales dropped in three of four regions, led by a 36 percent slump in the West and a 32 percent decline in the Northeast. Purchases rose 7.2 percent in the Midwest, today's report showed.

Lennar's Loss

Lennar Corp., the second-largest U.S. homebuilder, this week reported its sixth straight quarterly loss and said the government must take measures to boost home prices that are down by nearly a fifth from their 2006 peaks.

‘‘Consensus is building that falling home prices are not only detrimental to the economy at large, but in order to repair our failing financial system we will have to stop the decline,'' Chief Executive Officer Stuart Miller said.

Stricter lending regulations and tumbling home prices make it harder for Americans to tap home equity for extra cash. Consumer spending in the third quarter will probably be the weakest since 1991, according to economists surveyed earlier this month.

‘‘The continuing decline in house prices reduces homeowners' equity and puts continuing pressure on balance sheets of financial institutions,'' Fed Chairman Ben S. Bernanke told a congressional hearing yesterday. ‘‘Stabilization of our financial system is an essential precondition for economic recovery.''

Army deploys combat unit in US for possible civil unrest

Army deploys combat unit in US for possible civil unrest

By Bill Van Auken
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For the first time ever, the US military is deploying an active duty regular Army combat unit for full-time use inside the United States to deal with emergencies, including potential civil unrest.

Beginning on October 1, the First Brigade Combat Team of the Third Division will be placed under the command of US Army North, the Army’s component of the Pentagon’s Northern Command (NorthCom), which was created in the wake of the September 11, 2001 terrorist attacks with the stated mission of defending the US “homeland” and aiding federal, state and local authorities.

The unit—known as the “Raiders”—is among the Army’s most “blooded.” It has spent nearly three out of the last five years deployed in Iraq, leading the assault on Baghdad in 2003 and carrying out house-to-house combat in the suppression of resistance in the city of Ramadi. It was the first brigade combat team to be sent to Iraq three times.

While active-duty units previously have been used in temporary assignments, such as the combat-equipped troops deployed in New Orleans, which was effectively placed under martial law in the wake of Hurricane Katrina, this marks the first time that an Army combat unit has been given a dedicated assignment in which US soil constitutes its “battle zone.”

The Pentagon’s official pronouncements have stressed the role of specialized units in a potential response to terrorist attack within the US. Gen. George Casey, the Army chief of staff, attended a training exercise last week for about 250 members of the unit at Fort Stewart, Georgia. The focus of the exercise, according to the Army’s public affairs office, was how troops “might fly search and rescue missions, extract casualties and decontaminate people following a catastrophic nuclear attack in the nation’s heartland.”

“We are at war with a global extremist network that is not going away,” Casey told the soldiers. “I hope we don’t have to use it, but we need the capability.”

However, the mission assigned to the nearly 4,000 troops of the First Brigade Combat Team does not consist merely of rescuing victims of terrorist attacks. An article that appeared earlier this month in the Army Times (“Brigade homeland tours start Oct. 1”), a publication that is widely read within the military, paints a different and far more ominous picture.

“They may be called upon to help with civil unrest and crowd control,” the paper reports. It quotes the unit’s commander, Col. Robert Cloutier, as saying that the 1st BCT’s soldiers are being trained in the use of “the first ever nonlethal package the Army has fielded.” The weapons, the paper reported, are “designed to subdue unruly or dangerous individuals without killing them.” The equipment includes beanbag bullets, shields and batons and equipment for erecting roadblocks.

It appears that as part of the training for deployment within the US, the soldiers have been ordered to test some of this non-lethal equipment on each other.

“I was the first guy in the brigade to get Tasered,” Cloutier told the Army Times. He described the effects of the electroshock weapon as “your worst muscle cramp ever—times 10 throughout your whole body.”

The colonel’s remark suggests that, in preparation for their “homefront” duties, rank-and-file troops are also being routinely Tasered. The brutalizing effect and intent of such a macabre training exercise is to inure troops against sympathy for the pain and suffering they may be called upon to inflict on the civilian population using these same “non-lethal” weapons.

According to military officials quoted by the Army Times, the deployment of regular Army troops in the US begun with the First Brigade Combat Team is to become permanent, with different units rotated into the assignment on an annual basis.

In an online interview with reporters earlier this month, NorthCom officers were asked about the implications of the new deployment for the Posse Comitatus Act, the 230-year-old legal statute that bars the use of US military forces for law enforcement purposes within the US itself.

Col. Lou Volger, NorthCom’s chief of future operations, tried to downplay any enforcement role, but added, “We will integrate with law enforcement to understand the situation and make sure we’re aware of any threats.”

Volger acknowledged the obvious, that the Brigade Combat Team is a military force, while attempting to dismiss the likelihood that it would play any military role. It “has forces for security,” he said, “but that’s really—they call them security forces, but that’s really just to establish our own footprint and make sure that we can operate and run our own bases.”

Lt. Col. James Shores, another NorthCom officer, chimed in, “Let’s say even if there was a scenario that developed into a branch of a civil disturbance—even at that point it would take a presidential directive to even get it close to anything that you’re suggesting.”

Whatever is required to trigger such an intervention, clearly Col. Cloutier and his troops are preparing for it with their hands-on training in the use of “non-lethal” means of repression.

The extreme sensitivity of the military brass on this issue notwithstanding, the reality is that the intervention of the military in domestic affairs has grown sharply over the last period under conditions in which its involvement in two colonial-style wars abroad has given it a far more prominent role in American political life.

The Bush administration has worked to tear down any barriers to the use of the military in domestic repression. Thus, in the 2007 Pentagon spending bill it inserted a measure to amend the Posse Comitatus Act to clear the way for the domestic deployment of the military in the event of natural disaster, terrorist attack or “other conditions in which the president determines that domestic violence has occurred to the extent that state officials cannot maintain public order.”

The provision granted the president sweeping new powers to impose martial law by declaring a “public emergency” for virtually any reason, allowing him to deploy troops anywhere in the US and to take control of state-based National Guard units without the consent of state governors in order to “suppress public disorder.”

The provision was subsequently repealed by Congress as part of the 2008 military appropriations legislation, but the intent remains. Given the sweeping powers claimed by the White House in the name of the “commander in chief” in a global war on terror—powers to suspend habeas corpus, carry out wholesale domestic spying and conduct torture—there is no reason to believe it would respect legal restrictions against the use of military force at home.

It is noteworthy that the deployment of US combat troops “as an on-call federal response force for natural or manmade emergencies and disasters”—in the words of the Army Times—coincides with the eruption of the greatest economic emergency and financial disaster since the Great Depression of the 1930s.

Justified as a response to terrorist threats, the real source of the growing preparations for the use of US military force within America’s borders lies not in the events of September 11, 2001 or the danger that they will be repeated. Rather, the domestic mobilization of the armed forces is a response by the US ruling establishment to the growing threat to political stability.

Under conditions of deepening economic crisis, the unprecedented social chasm separating the country’s working people from the obscenely wealthy financial elite becomes unsustainable within the existing political framework.