Thursday, October 2, 2008

Home Prices in 20 U.S. Cities Declined 16.3% in July

Home Prices in 20 U.S. Cities Declined 16.3% in July

By Bob Willis

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House prices in 20 U.S. cities declined in July at the fastest pace on record, signaling the worst housing recession in a generation had yet to trough even before this month's credit crisis.

The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The housing slump is at the center of the meltdown in financial markets as declining demand pushes down property values and causes foreclosures to mount. Banks will probably stiffen lending rules even more in coming months to limit losses, indicating residential real estate will keep contracting and consumer spending will continue to falter.

‘‘The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well,'' said Derek Holt, an economist at Scotia Capital Inc. in Toronto.

Home prices decreased 0.9 percent in July from the prior month after declining 0.5 percent in June, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.

More Cities Down

Prices dropped in 13 cities month-over-month, compared with 11 in June. Las Vegas saw values fall 2.8 percent in July, the largest decline.

Economists forecast the 20-city index would fall 16 percent from a year earlier, according to the median of 23 estimates in a Bloomberg News survey. Projections ranged from declines of 14.5 percent to 16.5 percent.

Compared with a year earlier, all 20 areas showed a decrease in prices in July, led by a 30 percent drop in Las Vegas and a 29 percent decline in Phoenix.

‘‘While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround,'' David Blitzer, chairman of the index committee at S&P, said in a statement.

Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.

Other Measures

Other reports show price declines continue. The National Association of Realtors said Sept. 24 that the median price of an existing home fell 9.5 percent in August from a year earlier, compared with an 8 percent drop in July. The following day, the Commerce Department said the median price of new homes fell 6.2 percent in August from a year earlier, following a 4.6 percent drop the prior month.

Sales of previously owned homes fell 2.2 percent in August from the prior month and were 32 percent below their historic high reached in September 2005. Declining home construction has subtracted from growth since the first quarter of 2006, pushing the economy to the brink of a downturn.

U.S. homebuilders, buffeted by at least $19 billion in losses since 2006, will ask lawmakers to pass a $15,000 tax credit for all homebuyers, replacing a $7,500 incentive enacted earlier this year that they contend failed to stimulate demand.

‘‘Our members are really hurting,'' Jerry Howard, the chief executive officer of the National Association of Home Builders, said in an interview yesterday. ‘‘The tax credit passed in July seems to have failed to have sparked interest.''

Manufacturing shrinks to lowest level since 2001

Manufacturing shrinks to lowest level since 2001

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A measure of U.S. manufacturing activity contracted more than expected last month, hitting the lowest level since the aftermath of the Sept. 11 attacks, as new orders slowed dramatically.

The Institute for Supply Management on Wednesday released a September reading of 43.5, the lowest level since October 2001. The reading dropped from 49.9 in August, the largest one-month decline since January, 1984, when it fell to 60.5 from 69.9.

A reading above 50 signals growth.

"The headline ISM has plunged into recession territory," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Wall Street economists had predicted a much stronger reading of 49.5, according to the consensus estimate of those surveyed by Thomson/IFR. The index has been hovering on what economists call "the boom-bust" line for most of the year.

Meanwhile, stocks fell in late-morning trading as investors prepared for a possible Senate vote on the government's proposed $700 billion financial sector bailout.

The survey of purchasing managers found new orders fell to 38.8 in September from a reading of 48.3 in August. Employment, deliveries, inventories and manufacturers' order backlogs also fell.

Industries reporting contraction included apparel, furniture, machinery, transportation equipment and electrical appliances.

Tony Crescenzi, an analyst at Miller Tabak & Co., said the poor reading raised the chances the Federal Reserve would make an emergency, between-meeting cut in its target short-term interest rates. The Fed's next scheduled meeting is on Oct. 28 and Oct. 29.

High prices for commodities, along with tight credit conditions, have begun to squeeze companies. Pilgrim's Pride Corp., the nation's largest chicken producer, said last week it expected a "significant" fiscal fourth-quarter loss. Industrial automation and control company Rockwell Automation Inc. said Wednesday it would cut 600 sales and administrative jobs "in light of current and anticipated market conditions."

Tony Guzzi, president and chief operating officer of construction company EMCOR Group Inc., said it's important to separate the slump some industries had been experiencing over the summer from the "hysteria" of the last two weeks.

When everyone realizes "this isn't the apocalypse," projects will move forward, he said.

Separately, the Commerce Department on Wednesday said construction activity was flat in August, better than the 0.5 percent fall economists expected. The big surprise was a 0.3 percent rise in residential activity, the first increase in the housing area since March 2007.

Still, the government revised July activity to show a much bigger drop of 1.4 percent, compared to the 0.6 percent decline initially reported.

U.S. dealership closures to increase into '09: study

U.S. dealership closures to increase into '09: study

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The number of U.S. car dealerships closing is expected to increase into 2009 with as many as 3,800 dealerships at risk of closure because of dwindling sales and tighter credit, according to a newly released study by Grant Thornton LLP on Wednesday.

With U.S. light vehicle sales predicted to drop to the 13.7-million-unit range in 2009, the study said that about 18 percent of the total number of U.S. car dealerships would need to close to maintain sales per dealer at last year's level of about 750 units.

"An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines," said Paul Melville, a partner with Grant Thornton LLP.

"In addition, the domestic automakers who badly need retail consolidation are not spending much of their scarce capital on the problem because the economy is doing it for them," he said.

Bill Heard Enterprises Inc, one of the biggest General Motors Corp Chevrolet dealerships, filed for bankruptcy on Sunday, citing operating losses, decreased demand for vehicles and lack of credit.

At its peak, Alabama-based Heard's revenue was about $2.5 billion per year, according to the bankruptcy filing.

U.S. vehicle sales are expected to be flat next year with any recovery in demand expected only in 2010, as consumers struggle with tight credit, high gasoline prices and a housing market slump.

The drop in demand has been particularly hard for Detroit-based automakers GM, Ford Motor Co and Chrysler LLC. GM's sales were down 18.5 percent in the first eight months of 2008 while Ford's sales declined 16 percent and sales at Chrysler, controlled by Cerberus Capital Management, dropped 24 percent.

Thornton said apart from new car sales, other sources of revenue for dealers, such as used car sales and financing profits, are also falling.

All three U.S. automakers are in the midst of shrinking their U.S. dealer network as they cut labor costs and slower-selling models in the face of slack sales and declining market share.

Analysts have said that U.S. carmakers need to cut U.S. dealerships -- particularly in crowded city markets -- in order to drive more sales through remaining stores and free up funds for advertising and new investment.

GM cut some 260 affiliated dealers last year, which took its U.S. dealer count to about 6,750 outlets at the start of 2008.

Unrealistically high price demands by sellers has slowed voluntary consolidation, however, according to Grant Thornton.

The deal-making environment is expected to improve in the early part of 2009, the study said

"Prices will come down as the weak market continues to erode franchise values, and as liquidity returns, we see more consolidation deals proceeding," Melville said.

He added that if franchise values were to fall 20 percent, it could stimulate mergers and acquisitions activity.

AutoNation Inc Chief Executive Mike Jackson, whose company is the largest U.S. public dealership group, said last month that he expects the U.S. auto franchise sector to undergo a continued shakeout over the next couple of years.

Ford sales were down 33.8%-Ford, 22.5%-Lincoln, 43.2%-Mercury, 51.8%-Volvo

Volvo sales down 51.8%

BY SARAH A. WEBSTER

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Ford Motor Co.’s U.S. vehicle sales plummeted a breathtaking 33.8% in September, as the nation spiraled into an economic crisis that has stifled consumer lending for cars, homes and other large purchases.

Other automakers are slated to report their auto sales later in the day, and dismal results are expected all around.

Among Ford’s brands, sales were down 33.8% at Ford, 22.5% at Lincoln, 43.2% at Mercury and 51.8% at Volvo.

One of the few vehicles in Ford’s lineup to post a sales gain was the Ford Focus compact car, which is built by about 3,000 workers at the Wayne Assembly Plant in Michigan. Focus sales rose 4.7% compared with last September to 10,346.

Despite that, sales of cars fell 19.4% in September compared to the same month a year ago. They were also down 30.2% for crossovers, 57.0% for SUVs, and 38.8% for trucks and SUVs.

McCain urges Bush to bypass Congress

McCain urges Bush to bypass Congress

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Senator John McCain has urged the Bush administration to bypass Congress and spend a whopping one trillion dollars on bad mortgages.

In three interviews on Tuesday, the Republican presidential nominee called on the US Treasury Department to address the economic crisis independently and without congressional approval.

The House of Representatives on Monday rejected a $700-billion White House plan allegedly directed at reviving the US economy, raising the drama on Wall Street and Capitol Hill.

President George W. Bush was 'very disappointed' over his failure to ease anxiety over mounting losses tied to toxic assets.

Republican and Democratic presidential candidates Senators John McCain and Barack Obama accused each other of causing a partisan rancor that led to the House rejection of the proposed financial bailout plan.

In a Tuesday interview with CNN, Senator McCain said another reason the plan failed to gain approval was that the nation remains skeptical about White House intentions.

"We haven't convinced people that this is a rescue effort not just for Wall Street but for Main Street America," he explained on his campaign trail in Des Moines, Iowa.

He then proposed that President Bush exercise his executive privileges and unilaterally spend $1 trillion to purchase home mortgages.

"The Treasury has the ability to buy up a trillion dollars worth of mortgages. We should move forward on that," McCain said.

The 72-year-old senator, who suspended his campaign last week to insert himself into the bailout plan, has tied himself far more tightly to the bill than his Democratic rival, Barack Obama.

With his latest remarks, McCain seeks to maneuver himself out of a political dead end, which he was forced into with the failure of the bailout plan.

Human costs of food crisis

Human costs of food crisis

In Sri Lanka, dramatic increases in the price of food have caused malnutrition rates to soar

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Kasthuri, an eight-year-old Sri Lankan girl, dropped out of school in May after food prices nearly doubled in just a few months. Her parents, who worked on a tea estate, were already spending more than half their meagre incomes feeding their three children and had to choose between her education or the family's food. They chose to leave the estate to find better paid work in Colombo, the capital, and Kasthuri now lives with her grandmother.

Families in debt, children withdrawn from schools, parents forgoing food for their children and people migrating to cities are just a few of the human costs of the food crisis that has engulfed the poor across south-east Asia in 2008. In parts of Sri Lanka, where there is already conflict and extreme poverty, malnutrition rates are soaring.

The economics are stark. The cost of Asian staple foods like rice and wheat rose by 75% - 100% between Christmas and May. Sri Lanka already had the highest inflation rate in south-east Asia, and food price increases there were made worse by a poor harvest. The government has had to spend more than $400m extra on food imports, the World Food programme had to cut back on humanitarian food aid, school feeding programmes have been cut and the poor have been badly hurt.

Prices start to fall

In the past few weeks, prices have started to fall, but no one believes the crisis is over. One in every three Sri Lankan children are now considered malnourished. Government figures show 14% of children under five suffer from acute malnutrition. In conflict areas, like Trincomalee and Batticaloa, the situation is catastrophic, with rates of 30% or more. "The crisis has barely started," says Rajkumar Selwyndas, programme director for World Vision in Sri Lanka. "The full effects of food prices rising so much will only really be felt in the next 6-12 months. Most people have some coping mechanisms but these will not last. It's going to be very hard for people to get through next year."

The crisis has moved the millennium development goal posts for countries, says Selwyndas. "The millennium goals were a reality a few years ago. Now it's all changed. My guess is that there are 10% more people hungry - and that means millions. Poverty is increasing and the goals all appear more unattainable."

"Poor consumers are still hurting, with domestic prices across Asia remaining high," says the International Rice Research Institute, based in the Philippines. Cyclone Nargis devastated the Irrawaddy delta in Burma in May, causing a 1.2m tonne drop in production. Most countries imposed export bans and civil unrest broke out in many places.

The one positive development of the food crisis is that countries have started reinvesting in agricultural research and development. It has taken record prices to get the message about food security across, but the Philippines, Indonesia and Malaysia have all allocated nearly £500m each to boost rice production by subsidising fertilizers and introducing new high-yielding rice varieties.

"In virtually every country, there's a recognition that they've got to increase investments in agriculture," says Robert Zeigler, director general of the International Rice Research Institute.

No "Bailout" for The World's Poorest

No "Bailout" for The World's Poorest

by Thalif Deen

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As a spreading financial crisis threatens to deepen the economic recession in the United States, the news of an unprecedented 700-billion-dollar bailout package reverberated through the corridors of the United Nations last week as over 100 world leaders gathered in New York for the annual talk-fest: the 63rd session of the General Assembly.

At a time when the United Nations is seeking increased financial assistance from rich nations to help developing countries meet the faltering Millennium Development Goals (MDGs), including a 50-percent reduction on extreme poverty and hunger by 2015, the current U.S. economic crisis and its predictably negative fallout overseas is expected to be a major setback.

Addressing delegates last week, U.N. Secretary-General Ban Ki-moon warned that the current gloomy outlook threatens the well-being of billions of people, "none more so than the poorest of the poor."

"This only compounds the damage [already] being caused by much higher prices for food and fuel", he added.

Ban has called for 72 billion dollars per year in additional external financing to achieve the MDGs by 2015.

As one Asian delegate put it: "The 72 billion is peanuts compared to the 700 billion the White House wants to dish out to save some of the Wall Street firms from going belly up."

"And the urgent needs of developing nations will now be the least of the priorities of the United States and other Western donors," he predicted.

Father Miguel d'Escoto Brockman of Nicaragua, the newly-elected president of the General Assembly, warned that the current financial crisis will have "very serious consequences" that will impede the significant progress, "if indeed any progress is made", towards the targets established by the MDGs, "which are themselves insufficient".

"It is always the poor who pay the price for the unbridled greed and irresponsibility of the powerful," he said, taking a passing shot at the staggering 700-billion-dollar bailout proposed by the administration of President George W. Bush to save the high-stakes investment banks of New York from bankruptcy and collapse.

Norwegian Prime Minister Jens Stoltenberg told delegates that "money doesn't seem to be a problem, when the problem is money".

"Let us look for a moment at what is happening on Wall Street and in financial markets around the world. There, unsound investment threatens the homes and jobs of the middle class," he added.

There is something fundamentally wrong, he argued, "when money seems to be abundant, but funds for investment in people seem so short in supply".

Jamaican Prime Minister Bruce Golding told the General Assembly that the crisis currently rocking the world's financial markets reflects the inadequacy of the regulatory structures that are essential to the effective functioning of any market.

But it is more than that. It represents the failure on the part of the international financial system to facilitate the flow of resources into areas where they can produce real wealth -- not paper wealth, he added.

Golding said the world is not short of capital: "What it lacks are the mechanisms to ensure the efficient utilisation of that capital."

As the economic meltdown in the United States continues, the casualties are piling up both among commercial and investment banks: Bear Stearns, Lehman Brothers and Washington Mutual (allowed to collapse with no government bailout); American International Group, Goldman Sachs and Morgan Stanley (allowed to survive with emergency financial assistance, including some from the government); Merrill Lynch has been folded into Bank of America and Citigroup has taken over Wachovia Bank.

The outrage against Wall Street, described as the world's financial capital, is also directed at the high salaried chief executive officers and the middle rung bosses who make multi-million-dollar salaries, with stock options and perks that set them up in a privileged class by themselves.

According to one report, the lowest salary on Wall Street was around 280,000 dollars a year in a country where the average low or middle class employee would go home with a pay packet of 50,000 or 75,000 dollars per year.

In 2007, the chief executive officer (CEO) of Goldman Sachs, Lloyd Blankfein, was paid 68.7 million dollars -- described as "the most ever for a Wall Street CEO."

As the entire U.S. economic edifice is in danger of collapsing, the White House has been called upon to save some of the biggest financial institutions in the country and, at the same time, redress the excesses of Wall Street business tycoons who earned multi-million-dollar salaries and extravagant bonuses.

The greed factor in the crisis is that these same tycoons, who are responsible for mismanaging their companies, still insist on continuing with their same lavish lifestyles and lofty salaries even after the massive taxpayer-funded bailout.

But these salaries and bonuses are likely to be curbed as part a return for the bailout package.

Addressing the 192-member General Assembly last week, the President of Brazil Luiz Inacio Lula da Silva said the economy of any country is "too serious an undertaking to be left in the hands of speculators".

Ethics must also apply to the economy, he said. But, unfortunately, in the race for profits, the ethical factor has ceased to exist.

The president quoted the Brazilian economist Celso Furtado who once said: "We must not allow speculators' profits always to be privatised, while their losses are invariably socialised."

And as a postscript, the Brazilian president added: "We must not allow the burden of the boundless greed of a few to be shouldered by all."

In the 1987 Hollywood movie 'Wall Street,' Oscar-winning actor Michael Douglas plays the role of a ruthless corporate raider, Gordon Gekko, who forsakes all business ethics to climb to the highest echelons of the business world.

His speech to a meeting of stock traders is still considered a classic on Wall Street: "The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works."

"Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind."

Douglas, who is the U.N.'s goodwill ambassador for disarmament and a "messenger for peace", was at the United Nations last week to participate in the International Day of Peace.

Responding to a reporter who asked him: "Are you saying, Gordon, that greed is not good?," a visibly annoyed Douglas shot back: ""I am not saying that. And my name is not Gordon. He's a character I played 20 years ago."

Capital Crisis Will Wreck Both Parties

Capital Crisis Will Wreck Both Parties

Glen Ford

"The Democratic and Republican Parties, creatures of capital, are decomposing in full view."

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In their role as mercenaries in service of finance capital, three-fifths of Democrats joined one-third of Republicans in a (temporarily) failed heist of $700 billion of the people's funds - a nest-egg the public needs to hold onto to weather the unfolding collapse of the Lords of Capital. In the aftermath of Monday's bloody siege, it was difficult to tell who Wall Street guns-for-hire John McCain and Barack Obama hated most: each other, or the citizens who despite their outraged confusion had the presence of mind to bar the doors to the national treasury.

Understandably disoriented from having had to charge backwards - pretending to lead the people while simultaneously assaulting them - Obama peered across the field at the hastily-erected barricades that had broken Hank Paulson's Charge. "I'm confident we're going to get there," said the frustrated thief-enabler, "but it's going to be rocky."

To paraphrase Oscar Brown, Jr., "What you mean WE, Obama-man?" The Illinois senator and his pretend-opponents in the other business party just had their colluding asses kicked by the most motley, disorganized crew imaginable: the American public, who bombarded their legislators with threats of retaliation in November if they bowed to Wall Street's extortionist demands.

Never has Republican-Democratic co-subservience to finance capital been on such naked display. But then, "We the People" have never before been witness to the terminal unraveling of late-stage global finance capital. (See BAR, "Death Rattles of a Criminal Class," September 24.) When the New York Times features no less than three articles declaring the nation's investment bankers ready for burial, as did last Sunday's paper, it is time for the Democrats, especially, to find another paymaster.

Black Caucus Split

Obama's party is wedded to Wall Street. At the local level the Democrats have long been the party of "developers" - the money bags who shape urban policy to fit the needs of corporations. These gentrifiers are the "Renaissance Men" that insist Black politicians earn their campaign and graft payments by helping to expel their own constituents from the cities, so as to make them more congenial to business. Betrayal starts at home. So it's not surprising to find Rep. Charles Rangel (NY), the corporate-loving Chairman of the House Ways and Means Committee, among the 18 members of the Congressional Black Caucus (CBC) to vote with the Bush-McCain-Obama Wall Street Axis. Edolphus Towns (NY), Gregory Meeks (NY), and Artur Davis (AL) are also in their element, reeking as they do of corporate excretions. However, it is strange - and sad - to see Maxine Waters (CA), Gwen Moore (WI) and other relatively progressive members aligned with the rump end of the Black Caucus.

Among the slim, 21-member majority of the CBC that defied Speaker Nancy Pelosi's edicts, one finds more curious company. Voting alongside usually reliable progressives such as Barbara Lee (CA), John Conyers (MI), Donna Edwards (MD) and Bobby Scott (VA), are some of the Caucus's most rightwing members: William "Dollar Bill" Jefferson (LA) and David Scott (GA), once described as the "Worst Black Congressman" in the House. Panic makes strange bedfellows.

Virginia Rep. Bobby Scott summed up the "No" position: "There's no point in spending all this money on worthless assets" such as toxic mortgages. Detroit's Carolyn Cheeks Kilpatrick said of the Obama-McCain-Bush-Paulson plan, "This helps the banks in their book of mortgages. It doesn't help the little person who needs it."

"It is strange - and sad - to see Maxine Waters (CA), Gwen Moore (WI) and other relatively progressive members aligned with the rump end of the Black Caucus."

These are eminently good reasons to resist the bipartisan, flag-waving, hyper-ventilating and increasingly ill-looking Wall Street mob, now regrouping for another bum-rush of the Congress. However, the anxious thieves are only a 12-vote switch away from consummating the Greatest Theft Ever. Pelosi's wing of the Business Party is confident they can assemble the blandishments and threats to do the trick.

The Last Hold-up

The criminal-minded and mortally wounded Lords of Capital believed, as Pam Martens has written, that they could "loot and collapse a 200-year old financial system and...be rewarded with a fresh $700 billion of public money to disperse among your cronies who aided and abetted in the collapse."

Or, as Mike Whitney puts it:

"...the $700 billion is just part of a massive ‘pump and dump' scheme engineered with the tacit approval of the US Treasury and the Federal Reserve. Once the banksters have offloaded their fraudulent securities and crappy paper on Uncle Sam, they will do whatever they need to do to pad the bottom line and drive their stocks up. That means they will shovel capital into hard assets, foreign currencies, gold, interest rate swaps, carry trade swindles, and Swiss bank accounts. The notion that they will recapitalize so they can provide loans to US consumers and businesses in a slumping economy is a pipedream."

Treasury Secretary Henry Paulson and his designated wrecking crew have but one objective: theft. Their own world is doomed - "The system is de-leveraging and nothing can stop it," says Whitney - so they are pulling off one last, mega-heist before it sinks beneath the waves.

The rest of us must fashion new institutions to perform the societal tasks that were purportedly the domain of the now-extinct investment bankers: to gather large amounts of capital for projects of social value - for example, a Marshall-type Plan for the cities, a nationwide infrastructure makeover, and fulfillment of the 70-year old federal commitment to provide truly affordable housing for everyone. And of course, jobs, jobs, jobs.

"We must fashion new institutions to perform the societal tasks that were purportedly the domain of the now-extinct investment bankers."

We have many other uses for that $700 billion - what Barack Obama called "our last bullet," although intending to make it a gift to mega-thieves - for instance, to provide relief to current and future homeowner (and rental) victims of the housing bubble that will take years to fully deflate, as prices (and rents) decrease to levels consistent with wages and other social factors.

In a perverse way, Henry Paulson and his co-conspirators have done the public a great favor. He has told us that, Yes, the federal government can come up with $700-plus billion, in an instant, if the health of the nation demands it. He has expanded the fiscal scope of the domestic political conversation, so that it may encompass projects of transformational size. Never again can the corporate class speak of socially valuable projects being so large as to "break the bank" or the budget. Popular forces are now free to think large, too, without being ridiculed from the corporate Right.

The demise of finance capital's premiere institutions, and the brutal arrogance with which their servants moved to strip the commonweal of every squeezable drop of cash, has alerted vast sectors of the citizenry to the reality of capitalism-in-crisis in ways that no amount of Left agitation could have accomplished.

Technical public "ownership" of previously "private" institutions has been thrust upon us by the capitalists, themselves. But this is merely an opening for the great debates and struggles that must follow. Power does not devolve to "the people" by simple virtue of majority shares in failing institutions or even outright nationalization. And "the people" have no need of institutions that serve no purpose but as creatures of capital.

The second casualty of the current crisis, after the collapse of the financial sector, is surely the twin-party game of musical chairs that served to legitimize the rule of capital. The obscenity of a Democrat-Republican syndicate arrayed against the roaring, raging sentiments of citizens of all self-described political persuasions, cannot be erased from the collective national memory - even if congressional party leaders succeed in whipping their members into line, later this week.

"The second casualty of the current crisis is the twin-party game of musical chairs."

When catastrophe hits, radicals must be ready. Recent events have proven Cynthia McKinney and Rosa Clemente to be amazingly prescient in their belief that the Green Party can be - I emphasize can be - a vehicle for presenting and popularizing a truly transformational program for social change. (See McKinney "The Financial Crisis: Seize the Time!" BAR September 24.) McKinney and Clemente always intended that the Green Party become a nexus for the roiling social currents set in motion by the inexorable decomposition of ruling class institutions. The Democratic and Republican Parties, creatures of capital, are decomposing in full view, as witnessed by the events of this week. Too fragile to weather real political storms, they will not survive the larger, unfolding crisis of capital as twin hegemons. As the crisis deepens, the parties will crack - at a pace dictated by the increasing frequency of convulsions.

When we are confronted with the surreal spectacle of John McCain and Barack Obama attempting to destroy each other even as they rush to deliver nearly a trillion dollars to the same master, while the people scream at both of them to "Stop!" - we know that "change" is coming. But not the kind the Democrats or Republicans anticipate.

Bailing Out The Oil Market

Bailing Out The Oil Market

By William Pentland

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While everyone knows the U.S. government is looking to bail Wall Street banks, few people realize that it's also bailing out speculative oil and commodities traders in the process, fueling a sharp rise in energy prices. Lehman Brothers (nyse: LEH - news - people ) and AIG (nyse: AIG - news - people ) held enormous trading positions in commodities markets. If those positions had been liquidated suddenly, the price of everything from wheat to oil would have collapsed. The Commodity Futures Trading Commission, the main regulator of U.S. commodity markets, allowed Wall Street's investment banks and trading companies to take control of massive positions in commodities markets called swaps held by Lehman Brothers and AIG.

The result: Oil prices spiked by a whopping $16 per barrel on Monday, the largest single-day rise in oil prices ever.

"If speculators were forced to liquidate their positions, oil would easily be $65 to $75 per barrel by the time the liquidation was complete," said Michael Masters, the founder of Atlanta-based hedge fund Masters Capital Management. Tuesday, oil was trading at $108.74 in midday trading in New York.

For all the talk of OPEC, the biggest threat to high oil prices in the short term might be the implosion of Morgan Stanley (nyse: MS - news - people ) or Goldman Sachs (nyse: GS - news - people ), which would trigger a massive number of low-priced oil-futures contracts to flood the market all at once in search of buyers to liquidate those contracts.

"If either of these entities were to collapse, we believe the downside for commodities would be tremendous as these companies unwind positions," Valerie Wood, president and owner of Energy Solutions, told Platts on Monday. "In particular, we know Goldman Sachs has large investments in crude oil and natural gas commodities because its own Goldman Sachs Commodity Index fund [comprises] about 39% crude oil commodities and about 6% natural gas commodities. A liquidation of GSCI shares would directly result in the selling of these commodities, and selling pushes prices lower."

Ironically, the biggest losers turned out to be the traders who bet that at least one of the victims from this month's financial chaos would be forced to liquidate a major long position in oil prices. When they avoided that fate, the race to unwind those bets that oil prices would fall before the end of the trading month caused a massive rally in oil prices.

The market meltdown has revealed the full extent of Wall Street's influence on commodities prices and, especially, their role in energy markets. More than $40 billion in cash has poured into commodity markets since the start of 2008, according to a report by Standard & Poor's. The total amount of investments in commodity indexes is estimated at between $150 billion and $270 billion. In other words, new investments in the market have climbed by 15% to 25% in less than a year.

In 2006, the U.S. Senate's Subcommittee for Permanent Investigations had already reported "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices." The trouble is that so much of the trading happens in so-called "dark markets," unregulated over-the-counter electronic exchanges where trading companies buy and sell energy derivatives, that this role is hard to document.

Investment banks make money off commodities speculation, but are just conduits for hedge funds and institutional investors that have taken large positions in commodities markets as a long-term investment.

"The market dynamics induced more and more financial players to move into commodities markets," said Fadel Gheit, a senior oil analyst at Oppenheimer & Co. "It was a perfect storm. The Federal Reserve was cutting interest rates and people were running away from the dollar as it lost value. Hedge funds, pension funds and mutual funds started pumping money into commodities because they were the safest place and the safest of them all was crude oil. There were too many dollars chasing too few physical assets. That's the bottom line."

Wall Street and the Return of the Repressed

Wall Street and the Return of the Repressed

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Think of this as the month when Fannie and Freddie entered everyday speech as something other than friendly names, when Americans realized that WaMu wasn't an over-performing Orca at SeaWorld but a massive failing savings bank, and that Wachovia wasn't a watch brand, but a finance group, as well as the fourth largest bank holding company in the U.S.

And the faster we learned those names, the faster they disappeared into the dustbin of history. First, Bear Stearns hit the skids, then Lehman Brothers vanished into the ether just as Fannie Mae and Freddie Mac were being absorbed by the U.S. government. Merrill Lynch headed directly down the gullet of Bank of America. Just behind was a desperate American International Group (A.I.G.), the world's largest insurer, in a state of financial collapse, only to be bailed out by the Bush administration. Next, Washington Mutual (or WaMu) fell into the clutches of JP Morgan Chase, and Wachovia into the embrace of Citigroup, just as five big banks in Europe were being "rescued" and two of them essentially nationalized. Meanwhile, other banks in the U.S., Europe, Russia, and East Asia, as well as brokerage houses, and even hedge funds seemed to be stumbling like so many zombies to the brink of catastrophe, teetering over the abyss of… well, we really don't yet know what.

As the stock market began its trip south, the Bush administration made one of its typical grabs for unparalleled executive power (to be vested in the person of the Secretary of the Treasury). Unfortunately -- for its top officials -- they had a tad of a "credibility gap" problem and, after an outpouring of popular anger at the thought of bailing out the rich and improvident, a revolt in the House of Representatives by anxious Democrats and a horde of angry conservative Republicans got the administration's plan voted down. Politicians across the political spectrum, especially those up for election in competitive districts, surely feared being labeled supporters of the "bailout party," especially when the bailout was to be run by the gang that couldn't shoot straight in Iraq, Afghanistan, Pakistan, or New Orleans.

This was also a month of financial feeding frenzy, of "creative destruction" in which, as Americans watched in amazement, survivors of the roiling economic carnage swooped onto the battlefield to bloat themselves on the tastiest corpses around (with a helping hand from the federal government). Already in this process, strange, monstrous, jigsaw-puzzle versions of more familiar financial outfits are emerging. Giant creatures like Bank-of-America-Merrill-Lynch, or JPMorgan-Chase-Bear-Stearns-WaMu or Citigroup-Wachovia (whatever they may officially call themselves) now exist, however provisionally. The creative destruction engendered by a faltering American capitalism may prove advantageous to specific companies when the dust clears, but it will surely crush untold numbers of ordinary Americans who simply find themselves in the way.

Of course, even in the "good times," there were feeding frenzies that crushed the many and sated the few. There was Enron, after all; and as the bad times began, when all those subprime mortgages started to go bad, there was still hedge-fund manager John Paulson of Paulson & Co. to haul in a nifty $3.7 billion in a single year. Mainly he did so, according to the Wall Street Journal, "by shorting, or betting against, subprime mortgage securities and collateralized debt obligations." In other words, he made his money by betting on the pure misery of others.

If there's a bright side to any of this, then maybe it's that, after more than 50 years of relative immunity from criticism, Wall Street is again the street Americans love to hate; so Steve Fraser, TomDispatch's (and, right now, everyone else's) expert on Wall Street's grim history and author of the indispensable book, Wall Street: America's Dream Palace, tells us in vivid detail below.

Meanwhile, perhaps it's time to remember the catastrophic Argentinean national collapse and bankruptcy of 2001-2002, and to try to imagine what in the world any faintly similar set of events might mean when transposed to the world's "sole superpower." Here's one change to expect from the present financial chaos: When the next president of the United States looks "over the horizon," he's likely to see a world without a reigning superpower and, when he thinks about "the next war" (as they like to say in the Pentagon), the good news is that he may not have the money to pay for it. Tom

The Specter of Wall Street

Wall Street's Comeback as the Place Americans Love to Hate
By Steve Fraser

Wall Street sits at the eye of a political hurricane. Its enemies converge from every point on the compass. What a stunning turn of events.

For well more than half a century Wall Street has enjoyed a remarkable political immunity, but matters were not always like that. Now, with history marching forward in seven league boots, we are about to revisit a time when the Street functioned as the country's lightning rod, attracting its deepest animosities and most passionate desires for economic justice and democracy.

For the better part of a century, from the 1870s through the tumultuous years of the Great Depression and the New Deal, the specter of Wall Street haunted the popular political imagination. For Populists it was the "Great Satan," its stranglehold over the country's credit system being held responsible for driving the family farmer to the edge of extinction and beyond.

For legions mobilized in the anti-monopoly movement, Wall Street was the prime engine house of monopoly capitalism, leaving behind it a trail of victimized businesses, consumers, captive municipalities, and crushed workers. For Progressive reformers around the turn of the twentieth century, Wall Street's "money trust" was the mother of all trusts, its tentacles -- and the octopus was indeed a popular image of the time -- choking off economic opportunity for all but a favored few. Its political power in Congress, in presidential cabinets, in statehouses, in both major political parties was seen as so overwhelming as to threaten to suffocate democracy itself.

All the periodic panics and depressions -- 1873, 1884, 1893, 1907, and 1913 -- that, with numbing regularity, punctuated economic life until the Crash of '29 and the Great Depression brought the house down seemed to begin on the Street. And whether they actually began there or not, all the misery that followed in their wake -- the homelessness, the armies of tramps and hobos, the starvation, the bankruptcies, the broken families, the crushing sense of dispossession -- was regularly laid at the feet of the Street.

Despite the hot-tempered invective directed its way, the "Great Satan" didn't face its comeuppance until the New Deal in the 1930s. Then, all its transgressions -- its speculative greed, its felonious insider-dealing, its cynical manipulation of popular credulity, its extravagant incompetence and seemingly limitless capacity for self-delusion -- left Wall Street truly vulnerable. Its reputation had struck bottom.

Wall Street's Invisible Decades

Just like our Wall Street heroes of the recent past, so, too, back in the 1920s the savants of the Street claimed credit for the rickety prosperity of the Jazz Age. With the Crash they took the blame for the disaster, just as they had taken the credit for the prosperity, and were despised for their hypocrisy as well. Just as seems to be starting to happen today, Congressmen, some of whom had spent their careers genuflecting before the titans of Wall Street, suddenly hauled them before investigating committees, there to be defrocked, treated to a withering storm of biblically-inspired injunctions and Shakespearean curses, and indicted in the court of public opinion. Wall Street was, as it now seems about to be again, excommunicated.

Suddenly weak beyond compare, the Street was powerless to resist Franklin D. Roosevelt's regulatory state. In rapid succession came the Glass-Steagall banking act and the Federal Deposit Insurance Corporation, the two securities acts of 1933 and 1934, the creation of the Securities and Exchange Commission (SEC), the Public Utility Holding Company Act, and much more. When, in 1936, the President summoned the people to battle against the "economic royalists" everyone knew just who he was talking about.

It's long been said that FDR's New Deal saved capitalism from itself. That is true. One ironic consequence of that fateful turn of events was, politically speaking, to cloak Wall Street in invisibility. After all the shouting was over, after the installation of legislative reforms had further chastened an already cowed Street and constrained its penchant for financial wilding, it ceased to function as the magnetic north for all those troubled by the inequities, injustices, and deformations of capitalism.

During the long prosperity of the post-war years from 1945 to 1970, when the income and wealth inequalities that had always been associated with Wall Street narrowed dramatically -- economic historians know this as "the great compression" -- news of the Street retreated to the business pages and remained there. Except for an occasional act of street theater, even in the tumultuous 1960s, the Street remained largely exempt from sustained political criticism. Once the bĂȘte noire of all those who found themselves in opposition to the ravages of laissez-faire capitalism, Wall Street had been neutered.

Just as remarkable is how long that immunity from criticism lasted. After all, Wall Street's record over the past quarter century is nothing to boast about -- unless, that is, you happened to have made your living on it or in its environs.

Beginning in the 1980s, the Street supervised and profited handsomely from the de-industrialization of America. "Lean and mean" capitalism, the watchword of the Reagan era, added up to the systematic dismantling of the core of American industry. This was done in the interests of "shareholder value," as well, of course, as the bounteous short-term returns offered by the merger, acquisition, and junk-bond mania of those years. Did the rise of a speculative economy of virtual wealth and the fall of an economy that had once employed millions productively at decent wages disturb the political equanimity of American public life? Barely.

When the financial regulatory apparatus of the New Deal was weakened, piece by piece, or simply eliminated by a triumphant conservatism, the economy began to re-experience the cycles of bubble and bust so familiar to previous generations of Americans. In 1987, the stock market briefly collapsed. Then, during the late 1980s, a large-scale savings and loan bailout was accompanied by the rescue of banks caught short holding shaky Latin American debt. Not long after that came the savaging of the "Asian tiger" economies by Thomas Friedman's "electronic herd" of speculators, and the government-arranged bailout of that period's biggest hedge fund, Long-Term Capital Management.

Before the country could catch its breath, matters got really serious with the popping of the dot.com bubble, Enronization, and finally, of course, our current catastrophe. Through all of this -- until now -- the political fallout was virtually nil. Sarbanes-Oxely, the act passed by Congress in 2002 in response to an avalanche of Wall Street and corporate scandals that began with Enron, was a remarkably tepid piece of reformist legislation, given the scale of the debauch; yet, within moments of its passage, howls of protest could be heard from our offended friends on the Street, grievous complaints treated with all due seriousness by the media, somehow still infatuated with Wall Street's rain-makers.

The Return of the Repressed

No longer. There is a new agenda in America and it calls for re-regulation, recovery, and retribution. It is enough to make one gasp in disbelief, but nowadays there is practically universal agreement that the financial sector must be more or less rigorously reined in and regulated. (Hedge fund managers and some other hold-outs demur, of course.) Yet mere weeks ago, "government regulation" was still a phrase to be avoided like the plague, ranking right up there with "liberal" in the vocabulary of political obloquy.

It's hard not to be reminded of just how quickly the political chemistry of the country changed at the end of the 1920s. The presiding figure who had loomed over that decade was Secretary of the Treasury Andrew Mellon -- then considered the greatest Treasury secretary since Hamilton. His insane faith in the free market led him to suggest to President Herbert Hoover that the way out of the Depression was to do nothing, except "liquidate stocks, liquidate labor, liquidate the farmer, liquidate real estate." That thought earned him the enmity of a once admiring country. So, too, laissez-faire has suddenly become much too French for Americans who, but moments ago, treated it like the Holy Grail. We are all regulators today.

Of course, the devil, as every politician on television now makes sure to say, will lie in the details of just what re-regulation consists of. If all it involves is transparency, that won't be nearly enough. After all, that is precisely what Sarbanes-Oxley promised when it required financial institutions to make full disclosure of their activities. When it comes to circumventing the rules of information sharing so as to leave the insiders in the know and the rest of us out in the cold, where there's a will, there will always be a way. The new regulatory regime must have powers that extend beyond umpiring. New rules need to be invented whose purpose is as much to assure economic recovery and equity as it is to police the borders of illegality.

Indeed, popular anger fueling the regulatory crusade now seems to be coupled with a deep-running fear of a coming depression and an urge to reverse course. This, too, is symptomatic of a shift in the axis of political debate, in the zeitgeist, if you will.

The meltdown of the financial system has called into question American economic behavior over the last generation. Wall Street has come to stand for a paper economy that produces nothing useful, nothing tangible the way it once did. It has frittered away resources on embarrassingly grotesque forms of conspicuous consumption and patently non-productive forms of investment. It has left the real economy underdeveloped, its infrastructure rotting away in plain sight, its wealth fractured by unprecedented inequalities, dependent on sweated labor, and its industries, across a broad spectrum, technologically second-rate. It has left the country lost in a sea of debt and headed for an abyss of unemployment, bankruptcy, and evictions. Somehow regulation -- although not all by itself -- must address this, or so, for the first time in a long while, large numbers of Americans hope and desire.

People are now looking to the government -- that ogre of the dying old order -- as the only power resourceful and strong enough to direct the flow of capital where it's needed rather than where the discredited overlords of the financial system think may be most profitable. Conservatives, especially those who rightly balk at the mega-bailout now in the works as unfair to the American taxpayer, decry what they call financial socialism. But what then?

The Meaning of Retribution

As it did in 1929, the free market has failed beyond tolerance. Overwhelming popular sentiment (which each new poll registers with added vehemence) may, sooner or later, bring not only a full recognition of just how wrong-headed the country has been for how long, but how much in need it is of fresh institutions. New forms of public authority, closely overseen by the mechanisms of democracy rather than turned over to some autocrat on leave from his day job as an investment banker, might have a chance of doing what was once unthinkable: de-sanctifying private property and compelling it to perform in the general interest when its private misuse has placed us all in peril. The New Deal ventured in that direction. We need to venture further.

Here's a first principle: Refuse to reward those institutions that have done us no service. If that entails their liquidation (to borrow a word from Andrew Mellon), so be it. The world won't end, only the world as they have known it.

Let's use what's left of their grossly inflated assets to re-start the engines of real economic development. Compel investment in the re-industrialization of the country along lines that reward labor not parasitism, end the reign of the sweatshop, rescue the country from environmental suicide, revise the division of wealth and income so we can all live free of the indecencies of lavish piggery, and insist that social responsibility takes precedence over the bottom line.

Many will seek retribution as well, just as Americans used to do in the decades before the Great Depression. How could they not? That's what happens when simple rage turns into moral outrage, when people are finally called to account for the damage they've done. The emotion fuels a chemical reaction even now at work in our cultural innards. It may prove the catalyst for an intellectual and emotional explosion that someday will add up to a genuine break with the past. It did so back in 1929.

However justifiable, cutting CEOs loose from the life-support systems they've used to drain corporate treasuries for decades is small potatoes. Do it, but let's hope the instinct for retribution will be turned to better purposes -- to, in fact, reintroducing into our political life and our economic behavior an ethos of social solidarity. Let's see where that might take us. We could do much worse.

Steve Fraser is the co-director of the American Empire Project at Metropolitan Books and the author, most recently, of Wall Street: America's Dream Palace (Yale University Press).

College Campuses Now a Hotbed for Developing Frightening New Weapons

PSU's weapons research tests the limits

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by Bryan Farrell

When it comes to replicating war, films like Saving Private Ryan or even the video game Call of Duty have nothing on a football game at Beaver Stadium. Underscoring George Carlin's famous rant describing the sport as a "20th century new-world-order paramilitary power struggle," fans at last spring's Blue-White Game were treated to more than just the typical combat metaphors of "blitz" and "aerial assault." At halftime, attendees were asked to applaud the choice to join the military during a mock swearing-in ceremony held at midfield for high school students who had recently enlisted.

This encroaching militarization of American culture conjured scant resistance. The lone voice of dissent to appear in the area newspapers came from a class of '83 alumnus who attended the game. His fellow letter-to-the-editor writers—most of whom were students—roundly dismissed his questioning of "whether participating in the military is still the right thing to do" when "our leaders ignore international law, national and world opinion."

There was a time, however, when college campuses were the epicenter of anti-war sentiment. In 1972—around the same time Carlin debuted his football bit, not coincidentally—thousands of Penn State students protested the Vietnam War by sealing off the entire State College business district for a day and then surrounding the Applied Research Laboratory on campus—a major Department of Defense contractor—forcing it to shut down for three days.

The campus climate in 2008, on the other hand, is much less volatile. The major reason is, no doubt, the absence of a draft, but with more than five years of war in Iraq and Afghanistan, the prospect of another war in Iran and a slew of domestic issues directly affecting the nation's youth—namely debt, inflation, access to health care and a faltering climate—it's surprising that the weekly peace vigils at the Allen Street gates remain modest in number.

"Very few students have participated in the Iraq-era actions," said State College Borough Council member and Peace Center Treasurer Peter Morris. "Some show up at the big ones, like the fifth anniversary."

But when "big" only amounts to 150 participants—of which a dozen or so are students, by Morris' estimate—the difference on campus between now and previous war times is "night and day."

Perhaps this silence is a result of how little Penn State students know about the deep-seated and influential military culture that has taken hold of the university, particularly at their expense.

Since 2000, universities have seen defense-related research contracts increase 900 percent, from $4.4 billion in 2000 to $46.7 billion in 2006. As recently as 2003, Penn State ranked 48th on the Department of Defense's Research Development Technology and Expenditure Top 100 list, pulling in nearly $63 million in contract awards. But when all forms of Defense Department funding get added in—for a number of obscure or untraceable projects—the grand total is slightly more than $75 million.

Given that more than 50 percent of income tax dollars goes to the Pentagon, students and their parents are, in effect, helping to pay this bill. And with tuition rising another 5.9 percent this coming school year—the 41st consecutive tuition increase at Penn State—it's no wonder two-thirds of the student body are in debt.

Meanwhile, the university pulled in $1.6 billion in endowment funds last year, a 20 percent increase over the previous year, making it the 46th wealthiest university in the country. Not surprisingly, such corporate gifts come from defense contractors like Lockheed Martin and Exxon Mobil, which, in exchange, get the privilege of recruiting students to work for the war machine.

Since Penn State is home to one of the U.S. Navy's top civilian research facilities, the aforementioned Applied Research Laboratories, science and engineering students are a prized commodity to the ever-expanding defense industry. ARL, which was founded in 1945, has also become the university's single largest research unit, with well over 1,000 employees and students working under its umbrella.

Penn State taps the "nonlethal" weapons market

Aside from the labs' longstanding work on traditional combat technologies—such as hydrodynamics, propulsors and torpedo defense—ARL has branched out into a field that's being touted by many military experts as the future of warfare, known best as nonlethal weapons.

Initially funded by a $42.5 million five-year contract with the U.S. Marine Corps in 1998, ARL's Institute for Non-Lethal Defense Technologies continues to pull in millions more every year for what INLDT Director Andy Mazzara calls "a tremendously altruistic endeavor."

While the fundamental purpose of these weapons is to resolve a conflict without anyone getting killed—a far superior objective to typical combat or law enforcement—the benevolence Mazzara describes comes with several caveats.

First is the issue of effectiveness. Although there are no actual rules governing nonlethal weapons, most experts agree that for a weapon to be a weapon, it must produce the same results on everyone. And for a weapon to be truly nonlethal, it must not cause serious harm or injury.

That simply has not been the case with Tasers, perhaps the most well-known nonlethal weapon. According to Amnesty International, there have been more than 290 Taser-related deaths since 2001. Some have even been ruled homicides, as with the 21-year-old Louisiana man who was shot nine times with a Taser while in handcuffs last January.

"Whenever a nonlethal weapon or technology causes a serious injury or death, there is always concern," said Mazzara, whose researchers at the INLDT routinely test Tasers. "But the incidence of serious injury and/or death seems to be extremely remote when compared against the actual numbers of employment."

That might be somewhat reassuring if the overall use of Tasers weren't on the rise. In 2002, there were roughly 2,000 law enforcement agencies using Tasers. By 2007, that number had risen to 11,500, encompassing two-thirds of all U.S. police departments. The U.S. military has also recently deployed Taser-mounted robots in Iraq.

Another device being tested by the INLDT is the Light Emitting Diode Incapacitator, which was developed by a company in California. It produces a bright and pulsating light that temporarily blinds and disorients its subject so authorities can safely subdue the person. But according to the developers and the Department of Homeland Security, which has called the device a "puke ray," the LED Incapacitator also causes dizziness, vertigo and nausea.

Mazzara insists those reports are purely anecdotal and that there is no evidence of any nonlethal weapon causing any such sickness, as it would not be an effective technique, given that some people are more prone to nausea than others.

Even so, Danger Room, Wired Magazine's blog on defense technologies, reported in December that the INLDT was developing a device that combined "aversive noises with light to produce some special debilitating effects." Reporter Sharon Weinberger called it "another potential 'puke ray.'" But if you ask the INLDT, it is more like a "PA system on steroids."

Named the Distributed Sound and Light Array Debilitator, its aim is "to be used on land at security checkpoints to stop vehicles and onboard ships or helicopters to hail approaching small watercrafts," Mazzara said. Beaver Stadium was one of the test sites this summer, and Mazzara has bragged the device could be heard more than a mile away.

Whether or not it also produces that undesirable effect of nausea—something Weinberger concedes is based on purely anecdotal evidence—the long-term effects of nonlethal weapons need more consideration. For instance, when it comes to acoustic devices like the DSLAD, very little is known, and may not be known until the damage is done.

In reporting on another acoustic device being developed by INLDT—nicknamed "sonic blaster" by Danger Room—Weinberger noted, "There isn't really any reliable data on the effects on humans as you move up the decibel range." But due to current safety standards, human testing can only be conducted up to a certain decibel level, a level the INLDT has called "far too conservative."

Although Mazzara could not comment on "specific protocols under consideration" by Penn State's institutional review board, the committee that governs all research involving humans, the INLDT has reportedly sought approval to conduct testing at 130 decibels to see if sound can force "behavior modification." But according to Weinberger, "The problem with making this into a weapon is that it is hard, perhaps even impossible, to develop a device that can really deter an aggressor without damaging their hearing."

Winning friends and influencing people

This issue highlights the dilemma facing the developing field of nonlethal weapons. If the objective is to usher in an age where the children of the world perceive U.S. soldiers as peacekeepers—a declared objective in the INLDT's work—then, clearly, nonlethal weapons need to be far less horrifying and injurious than current models.

Even if that were somehow achievable—which goes against the very nature of weaponry—the idea of U.S. forces being received with open arms based solely on the use of less-deadly weapons completely belies the intentions of U.S. foreign policy, which former U.S. Attorney General Ramsey Clark once called "the greatest crime since World War II."

It's not hard to see why. U.S. military force has been used 45 times in nearly 30 countries since 1947, involving the overthrow of democratically elected leaders, the installation of brutal dictators and the deaths of millions of civilians. Not only do those involved in the development of nonlethal weapons see no stop to interventions of this sort, they expect their products to be of great import.

On its Web site, the INLDT says, "The roles of the U.S. military and the nature of the threat to our forces have significantly changed over the past two decades as illustrated by U.S. interventions in Panama, Somalia, Haiti and Bosnia. These engagements, unlike those anticipated during the Cold War era, were against small units that were armed with inferior, yet effective, weapons and that often used the civilian populace as a shield."

While that may be an accurate assessment, it says nothing about what those interventions were about and why insurgencies sprung up. One big reason is that the United States had been a longtime supporter of hated dictatorships in Panama, Somalia and Haiti. So it seems doubtful that nonlethal weapons can overcome years of aggressive foreign policy—a rather foreboding prospect given the historically lethal role the United States has played in the Middle East, for example.

If nonlethal weapons fail in their effort to foster fewer enemies, then they will surely fail in their other objective, which is to generate positive PR on the home front. As the percentage of civilian deaths increases with each new war—up to 90 percent of total deaths in Iraq and Afghanistan, as opposed to 70 percent in Vietnam and 50 percent in World War II—so does the level of dissent by the American people.

Given that scenario, it seems more likely that nonlethal weapons will be used on protest lines than on the front lines abroad. In preparing for this year's Republican National Convention, the St. Paul Police Department ordered enough Tasers to equip every officer—a precaution that's clearly aimed at preventing a repeat of the 2004 RNC in New York City, where more than 1,800 individuals were arrested.

There's also the microwave-like "pain ray," called the Active Denial System, which causes a serious burning sensation on the skin. (Our INLDT didn't get to test this one.) It's very close to being deployed in Iraq, but not before—as Pentagon officials have suggested—it is first used on "American citizens in crowd-control situations." 60 Minutes ran a segment in March on this device in which military personnel posing as peaceful protestors—carrying signs that read "Love for All" and "World Peace"—got zapped by the pain ray and quickly retreated.

With more supposedly nonlethal weapons entering the market—essentially offering police the excuse of an easy and less messy way to solve a problem—displays of First Amendment rights will likely become even more infrequent. This serves to show that the military's idea of altruism is just another form of repression.

Demilitarizing college campuses

It's important that Americans realize that the biggest deterrent to war and violence is not the creation of less lethal fighting instruments, but rather citizens promoting a worldview that questions the motives of those who say war and violence are needed in the first place. And what better place is there to develop and promote such a worldview than in the classrooms and on campuses in our own country?

Sen. J. William Fulbright, namesake of the Fulbright Scholar Program, warned that "in lending itself too much to the purposes of government, a university fails its higher purposes."

Those tied to what Fulbright called the "military-industrial-academic complex" may argue that schools would suffer and whole fields of study would be crippled without funding from the Defense Department. But according to Nick Turse, a defense expert and author of the book The Complex: How the Military Invades Our Everyday Lives, "No one ever explains why all this federal money (to universities) needs to flow through the organization charged with war-making."

"There isn't any compelling reason why the Pentagon has to be the top federal agency to fund fields of high-tech research or be the major federal funder of electrical engineering," he said. "I imagine that if, say, the Environmental Protection Agency was the major funder, research thrusts would be radically different and would not, likely, end up furthering lethal technologies or war-making capabilities."

That may seem like a tough proposition for a school that's staked its reputation on a strong defense—both in football and academics—but it's something for students to think about while they pay their taxes and tuition and pay off their loans before entering a faltering job market. Perhaps the next time they're crammed into the stands at Beaver Stadium and asked to applaud the choice to join the military, they'll realize that they've already been enlisted.

Bryan Farrell graduated from Penn State in 2004 and has since become a New York–based journalist and activist. His work has appeared in many publications, including The Nation and In These Times. He can be contacted at http://bryanfarrell.com.

Stocks decline on 7 year high unemployment, factory reports

Stocks decline on unemployment, factory reports

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Stocks tumbled and credit markets remained tight Thursday after plunging factor orders and a seven-year high in jobless claims stoked fears that the government's financial rescue plan might not be enough to ward off a recession. The Dow Jones industrials fell more than 270 points.

Investors appeared to be pulling more money out of the market and settling in for a prolonged economic winter. The main concern is that the $700 billion bailout plan won't be enough to stimulate growth, and the latest economic reports delivered on Tuesday demonstrate that the economy continues to struggle.

The government said the number of people seeking unemployment benefits rose last week and that demand at the nation's factories has fallen by the largest amount in nearly two years. The market is interpreting the Commerce Department report on factories as a sign that tight credit conditions are hitting manufacturers.

"The economy is what's driving this weakness," said Subodh Kumar, global investment strategist at Toronto-based Subodh Kumar & Associates. "I think now what's going on is a focus on the economic weakness in a whole bunch of areas."

He also said "the next couple of days are going to be pretty intense politically" as Wall Street girds for another vote on the financial bailout plan.

The bill that passed the Senate late Wednesday will be sent to the House as soon as Friday. The latest version of the bill adds $100 billion in tax breaks for businesses and the middle class and raises the limit on federal deposit insurance to $250,000 from $100,000.

Supporters are hoping the sweetened bill will be more palatable to some of the 133 House Republicans who rejected the measure in a vote Monday that took Wall Street, and many on Capitol Hill, by surprise.

Those in favor of the plan to let the government buy billions of dollars in bad mortgage debt and other now-soured assets say it will help unclog the world's ailing credit markets. Banks are fearful of making loans, even to each other, because of worries they won't be repaid. That, in turn, is weighing on the economy, making borrowing more difficult and expensive for businesses and consumers alike.

The credit markets showed some increased strain Thursday. The yield on the 3-month T-bill, the safest type of investment, rose to 0.80 percent from 0.79 percent late Wednesday. The historically low yields indicate investors are willing to accept the smallest of returns to safeguard their money.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.68 percent from 3.74 percent late Wednesday.

The Dow fell 274.39, or 2.53 percent, to 10,556.68 after earlier falling more than 300. The blue chips plunged nearly 778 points Monday, logged a partial rebound Tuesday and finished modestly lower Wednesday; still the Dow has had triple-digit swings every day this week.

Broader stock indicators also fell sharply Thursday. The Standard & Poor's 500 index fell 36.43, or 3.14 percent, to 1,124.63, and the Nasdaq composite index fell 68.27, or 3.30 percent, to 2,001.13.

Light, sweet crude fell $3.71 to $94.82 a barrel on the New York Mercantile Exchange. The dollar rose against most currencies, while gold prices fell.

Analysts believe that investors remain anxious that backers of the government plan might not have enough support. Passage of the bill would, at the very least, provide some relief amid some recent signs that the economy is slowing faster than expected.

Billionaire investor Warren Buffett said the U.S. has been hit with an "economic Pearl Harbor," and the government must respond quickly. "That sounds melodramatic, but I've never used that phrase before. And this really is one," Buffett said in an appearance on the "The Charlie Rose Show" that aired Wednesday night on PBS stations.

Investors might get another grim reading about the economy on Friday when the Labor Department releases its September jobs report, one of the most closely watched indicators. The September non-farm payrolls report from the Labor Department is expected to show a loss of 100,000 jobs, according to a median estimate from economists. That would be the ninth straight month that the economy has lost jobs.

The Labor Department's report that initial claims for unemployment benefits rose by 1,000 last week to a seasonally adjusted 497,000 unnerved investors worried about not only about strains in the financial market but also the effect on the broader economy. Analysts had been expecting unemployment claims would fall to 475,000; instead, the level of jobless claims is the highest seen since the immediate aftermath of the Sept. 11, 2001, terrorist attacks.

Beyond employment, orders for manufactured goods fell by 4 percent in August from July. Economists had expected a 2.5 percent decline. It is the biggest drop since a 4.8 percent decline in October 2006.

The dollar was higher against other major currencies, particularly the euro, even after the European Central Bank left interest rates unchanged. Higher interest rates in Europe generally make the euro more attractive to investors than the dollar.

Shares of General Electric Co., one of the 30 stocks that comprise the Dow industrials, fell $2.26, or 9.24 percent, to $22.24 after the conglomerate said it was pricing an offering of 547.8 million shares at $22.25 apiece. The offering price is 9 percent below where the stock ended Wednesday.

The company said it would sell the shares Wednesday as it announced that Buffett's Berkshire Hathaway Inc. would buy $3 billion worth of GE preferred shares. GE, which draws nearly half its profits from its finance business, is reducing how much money it draws from the commercial paper market _ the now largely frozen well where many companies turn to raise money for day-to-day expenses.

Wall Street found some room for optimism, however, after Swiss bank UBS said Thursday it expects to turn a "a small profit" in the third quarter after a string of losses. The forecast from the company, which has taken billions of dollars in mortgage-related write-downs, stirred hopes that some banks' troubles could be on the mend. UBS rose 24 cents to $19.19.

Declining issues led advancers by a 3 to 1 margin on the New York Stock Exchange, where volume came to 711.9 million shares.

Overseas, Japan's Nikkei stock average fell 1.88 percent. In afternoon trading, Britain's FTSE 100 fell 1.12 percent, Germany's DAX index fell 2.40 percent, and France's CAC-40 lost 1.77 percent.

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