Monday, October 27, 2008

US forces kill eight in helicopter raid on Syria

US forces kill eight in helicopter raid on Syria

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American helicopters flying from Iraq landed inside Syria yesterday and dropped special forces who killed eight people, the Damascus government said last night, as Washington admitted it had targeted "foreign fighters."

Syria warned that it held the US "wholly responsible for this act of aggression and all its repercussions".

It described the dead as Syrian civilians, five of them members of the same family. Syrian state television reported that the attack was against a farm near Abu Kamal, five miles from the Iraqi border. Doctors in nearby al-Sukkariya said another seven people were taken to hospital with bullet wounds.

The incident threatened to unleash a new wave of anti-American feeling in Syria and across the Middle East at a time when President Bashar al-Assad, already being courted by Europe, is looking forward to improved relations with Washington after the November 4 presidential election. News of the attack led bulletins across the Arab world last night - suggesting it will have wide resonance.

Syria summoned the US charge d'affaires in Damascus to explain the incident. It also called on the Iraqi government to prevent its airspace being used in this way in future.

Eyewitness accounts said eight US soldiers landed in two helicopters and that the dead were building workers. A senior Syrian source quoted by the official Sana news agency, said four helicopters violated Syrian airspace and described the target as a "civilian building under construction".

In Washington an unnamed military official told the Associated Press the raid had targeted elements of a "foreign fighter logistics network", and that, due to Syrian inaction, the US was "taking matters into our own hands". It was the first known American attack on Syrian soil.

Intriguingly, Farhan al-Mahalawi, mayor of the nearby Iraqi border town of Qaim, told the Reuters news agency that the targeted village had been surrounded by Syrian troops.

In Israel, a security official said Israel was not involved. Last year Israel destroyed an alleged nuclear site in northern Syria. Qaim has been a significant crossing point for foreign fighters, weapons and money entering Iraq to fuel the Sunni insurgency.

Only last Thursday, the commander of US forces in western Iraq told reporters American troops were redoubling efforts to secure the Syrian border. Major General John Kelly said Iraq's western borders with Saudi Arabia and Jordan were fairly tight as a result of good policing by security forces in those countries, but that Syria was a "different story".

Thabet Salem, a political analyst, told al-Jazeera TV that the US appeared to have mistaken building workers for infiltrators. "It will raise questions as to why this is happening towards the end of the current US administration," he said.

Late last year the then US commander, General David Petraeus, praised Syria's cooperation in reducing violence in Iraq. But Syria has since refused to restart intelligence sharing with the US until Washington recognises its assistance by returning an ambassador to Damascus.

Joshua Landis, an American expert on Syria, commented last night: "The Bush administration must assume that an Obama victory will force Syria to behave nicely in order to win favour with the new administration. Thus White House analysts may assume that it can have a "freebee" - taking a bit of personal revenge on Syria without the US paying a price."

The attack comes as Syria takes another step in from the cold today when its foreign minister, Walid al-Mualim, visits London to hear praise for its newly conciliatory policies in Lebanon - and to be urged to distance itself from Iran.

In recent months Syria has established diplomatic relations with Lebanon and held several rounds of indirect talks with Israel, with Turkey acting as broker. In July, President Assad was invited to an EU summit in Paris.

Warnings of deep recession as US layoffs spread coast-to-coast

Warnings of deep recession as US layoffs spread coast-to-coast

By Patrick O’Connor
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Dozens of mass layoffs have been announced by American employers, both private and public, in recent days. The impact of the downturn has begun to spread well beyond the imploding financial sector and such depressed industries as automobiles, to the economy as a whole.

The United States has now entered what analysts widely anticipate will be the worst recession in more than a quarter of a century. JPMorgan Chase economists estimated Friday that gross domestic product fell an annual rate of 0.5 percent in the third quarter this year, and forecasted a decline of 4 percent in the three months up to December. This would mark the steepest decline since the 1981-82 recession.

Unemployment is set to rapidly increase. "My view is that it will be near 8 or 8.5 percent by the end of next year," Nigel Gault, chief domestic economist at Global Insight, told the New York Times.

According to statistics collated by outplacement firm Challenger, Gray & Christmas, the top five sectors for layoffs in the nine months through September this year are: financial, with 111,200 job cuts; automotive, 94,900 layoffs; government/non-profit, 66,800 layoffs; transportation, 62,000 layoffs; and retail, with 51,300 jobs lost.

Seventeen of the US's 29 steel mill blast furnaces have shut down in response to slowing demand. This is set to accelerate the slowdown in production which saw output decline 4 percent in the month from August to September. Chicago-based steel analyst Michelle Applebaum told the Times these figures reflected "nearly instantaneous production cuts in response to declines in global steel demand as steel buyers deferred purchases in favor of living on their own inventories during this period of uncertainty."

The US auto giants have announced new rounds of job cuts nearly every day over the past fortnight. On Friday, Chrysler revealed that 25 percent of its salaried employees would be sacked before the end of the year, and that further restructuring will be seen "in the near future". The announcement affects approximately 5,000 white-collar workers and came just a day after Chrysler revealed plans to cut 1,825 other jobs. A company spokesperson said the cuts were driven by declining domestic sales and were not related to a potential merger either with General Motors (GM) or Nissan and Renault.

Auto industry experts rejected this claim. "The people they're cutting probably wouldn't go forward, with the various alternatives they're looking at," Van Conway, senior managing partner with Detroit restructuring firm Conway MacKenzie & Dunleavy, told the Wall Street Journal. "Why carry them if GM or Renault or whoever is going to take over? They're cutting things out, clearly, and they appear to be a seller. It's pretty obvious."

The layoffs are a mere foretaste of the tens of thousands of job cuts that will accompany a finalized merger involving the major auto companies.

GM last week announced it was suspending many salaried employee benefits, including matching contributions for workers' 401(k) retirement plans, and also said it planned to cut an unspecified number of jobs in its salaried and contract workforce in late 2008 and early 2009. In another indicator of the former industrial giant's rapid decline, the Journal reported Saturday that Toyota would likely supplant GM as the world's top selling auto maker for October. GM has held the leading position for more than 50 years.

The downturn across the manufacturing sector is set to exacerbate the social crisis already affecting wide layers of the working and middle classes. States dependent on industrial employment such as Michigan and Rhode Island, with official jobless rates of 8.7 and 8.8 percent respectively, have been particularly hard hit.

The job cuts have spread from coast-to-coast and affect every industry and many service employers as well. Auto-related production has been hard hit, with Diez Group announcing the closure of three Michigan metal-stamping plants, cutting 352 jobs. DMAX, a joint venture of GM and Isuzu in Moraine, Ohio, cut 300 jobs. B.F. Goodrich cut 500 jobs at its tire plant in Woodburn, Indiana. Thomas-Built cut 205 jobs at its bus plant in High Point, North Carolina.

Other industrial cuts included a combined total of 1,000 jobs at three North Carolina factories now set to close: Silver Line Building Products in Durham, UCO Fabrics in Rockingham, and IWC Direct at Elm City. ADC Telecommunications cut 190 jobs in Minnesota, and Align Technologies 111 jobs in Santa Clara, California.

Healthcare and public services are also beginning to be hit. Cambridge Health Alliance in Massachusetts cut 650 jobs, Blue Cross Blue Shield of Michigan 100, and the University of Pittsburgh Medical Center 500. Lost Angeles County gave layoff notices to 200 workers because of a budget shortfall.

Even greater public service jobs cuts are coming as the recession hits state tax receipts. One of the biggest government employers, the US Postal Service, has informed its unions that 16,000 craft employees are not covered by the no-layoff clause and could face dismissal.

The Bush administration has proposed no emergency rescue package for the millions of ordinary Americans threatened with the loss of their jobs, homes, or savings. As the recession deepens, discussion has instead centered on extending the financial sector bailout, potentially worth more than $2 trillion, to broader sections of big business.

The Wall Street Journal reported Saturday: "The Treasury Department is considering buying equity stakes in insurance companies, a sign of how the government's $700 billion rescue program could turn into a piggy bank for a range of beleaguered industries ... The Financial Services Roundtable, a Washington trade group, sent a letter Friday to Treasury asking for expansion of the government's equity injection program to include broker-dealers, insurance companies, auto makers and foreign-controlled firms."

Insurance companies are major players on the financial markets, with $1.3 trillion of corporate debt on their books. The Treasury had already planned to buy out the industry's "bad assets", and is now considering whether to inject more public money directly into the sector by purchasing equity stakes. Auto companies want to be included in the scheme so they have access to sufficient capital to proceed with merger plans. The Journal noted that the likely extension of the bailout program "could put a strain" on the sum of money initially proposed, further blowing out the federal government's budget deficit.

The overriding priority of the ruling elite is to ensure that the financial oligarchy which is responsible for the economic crisis remains unaffected by its impact by placing the full burden of the disaster on the backs of the working class. This strategy will remain unaltered in the event of a Democratic victory in the coming presidential election.

Barack Obama's senior economic advisor, Robert Rubin, granted a revealing interview to CBS's "Face the Nation" television program yesterday. Rubin, currently a director of Citigroup, was Treasury secretary during the Clinton administration and is also a former senior executive with Goldman Sachs. He stressed that additional spending under the Democrats' so-called "economic recovery" stimulus plan would be "married to a commitment to long-term fiscal discipline so that we don't risk undermining our bond market and our currency market" and "married with a long-term commitment to re-establishing sound fiscal conditions".

In other words, the agenda remains that of substantially reduced spending on social programs and infrastructure.

The Democrats' proposed $150 billion stimulus is a mere drop in the ocean compared to the bailout package for Wall Street, not to mention the real social needs of the population. But even this meager sum will be targeted towards boosting selected economic sectors, not alleviating rising social distress.

CBS presenter Bob Schieffer asked Rubin whether the stimulus package would involve "some sort of massive public works program like President Roosevelt put into effect during the Great Depression," or whether it would see people in need receiving government checks.

After chuckling in derision after the 1930s public works programs were mentioned, Rubin replied: "Bob, I would say it's neither of the two in quite the way you've described it." He explained that the money would be channeled to city and state administrations so that existing economic and social programs—which are grossly inadequate—can be maintained. He also said that additional tax rebates would be made available.

A New York Times' front-page story yesterday, "Democrats see risk and reward if party sweeps", made clear that there will be no significant shift in domestic economic and social policy even if, as appears likely, the Democrats win the presidency and large majorities in both houses of Congress. Such a victory, the Times' noted, including a 60-member majority in the senate which would break threatened filibusters, "could give Democrats extraordinary muscle to pursue an ambitious agenda on health care, taxes, union rights, energy and national security".

But the article continued: "Chastened by their years in exile, Democrats said they were determined to avoid those pitfalls [of ‘overconfidence'] should voters deliver them control of the White House and Congress... The nature of the Democratic majority, expanded partly through the election of centrists and even conservatives, would also temper Democratic zeal to pursue an overly ideological agenda, Democrats said."

Under the spurious guise of appealing to "centrists" and eschewing an "ideological agenda", Obama and his colleagues are preparing to further entrench the right-wing agenda promoted by successive Republican and Democratic administrations. These developments have exposed Obama's liberal and "left" backers, who have sought to cultivate the illusion that a Democrat election victory would mark some sort of break from Bush's reactionary program.

California Foreclosures Soar By 228%

California Foreclosures Soar By 228%

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Home foreclosures in California soared 228 percent in the past three months from a year ago, a real estate tracking firm said Thursday.

A total of 79,511 homes were lost in the quarter ending Sept. 30, compared to 24,209 in the same period last year, MDA DataQuick said.

The third quarter saw the largest number of foreclosures since the company started tracking the figures in 1988.

The flood of foreclosed homes is feeding steep plunges in home prices around the state.

A total of 63,316 homes were repossessed in the second quarter of this year ending June 30.

However, in the most recent quarter, California saw its first drop in three years in the number of mortgage default notices -- the first steps toward foreclosure -- filed against state homeowners, as a change in the state's formal foreclosure process took effect.

Default notices were down 22.5 percent from the previous quarter but up 29.9 percent from the same period last year.

If the procedural change hadn't kicked in during early September, the third-quarter default filings would have been about the same as the record 121,673 filed in the previous quarter, DataQuick said.

"A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us," said John Walsh, DataQuick president. "Or it may be that those processing the default paperwork are just maxed out."

Nouriel Roubini: I fear the worst is yet to come

Nouriel Roubini: I fear the worst is yet to come

When this man predicted a global financial crisis more than a year ago, people laughed. Not any more.

As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.

For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.

While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.

Yet all these predictions and more came true. Few are laughing now.

What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.

What happened? The next day trading was briefly stopped in New York and Moscow.

Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the "dismal science" is now the world's most in-demand economist. He reckons he is getting about four hours' sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.

Contacted in Madrid on Friday, Roubini said the world economy was "at a breaking point". He believes the stock markets are now "essentially in free fall" and "we are reaching the point of sheer panic".

For all his recent predictive success, his critics still urge calm. They charge he is a professional doom-monger who was banging on about recession for years as the economy boomed. Roubini is stung by such charges, dismissing them as "pathetic".

He takes no pleasure in bad news, he says, but he makes his standpoint clear: "Frankly I was right." A combative, complex man, he is fond of the word "frankly", which may be appropriate for someone so used to delivering bad news.

Born in Istanbul 49 years ago, he comes from a family of Iranian Jews. They moved to Tehran, then to Tel Aviv and finally to Italy, where he grew up and attended college, graduating summa cum laude in economics from Bocconi University before taking a PhD in international economics at Harvard.

Fluent in English, Italian, Hebrew, and Persian, Roubini has one of those "international man of mystery" accents: think Henry Kissinger without the bonhomie. Single, he lives in a loft in Manhattan's trendy Tribeca, an area popularised by Robert De Niro, and collects contemporary art.

Despite his slightly mad-professor look, he is at pains to make clear he is normal. "I'm not a geek," said Roubini, who sounds rather concerned that people might think he is. "I mean it frankly. I'm not a geek."

He is, however, ferociously bright. When he left Harvard, he moved quickly, holding various positions at the Treasury department, rising to become an economic adviser to Bill Clinton in the late 1990s. Then his profile seemed to plateau. His doubts about the economic outlook seemed out of tune with the times, especially when a few years ago he began predicting a meltdown in the financial markets through his blog, hosted on RGEmonitor. com, the website of his advisory company.

But it was a meeting of the International Monetary Fund (IMF) in September 2006 that earned him his nickname Dr Doom.

Roubini told an audience of fellow economists that a generational crisis was coming. A once-in-a-lifetime housing bust would lay waste to the US economy as oil prices soared, consumers stopped shopping and the country went into a deep recession.

The collapse of the mortgage market would trigger a global meltdown, as trillions of dollars of mortgage-backed securities unravelled. The shockwaves would destroy banks and other big financial institutions such as Fannie Mae and Freddie Mac, America's largest home loan lenders.

"I think perhaps we will need a stiff drink after that," the moderator said. Members of the audience laughed.

Economics is not called the dismal science for nothing. While the public might be impressed by Nostradamus-like predictions, economists want figures and equations. Anirvan Banerji, economist with the New York-based Economic Cycle Research Institute, summed up the feeling of many of those at the IMF meeting when he delivered his response to Roubini's talk.

Banerji questioned Roubini's assumptions, said they were not based on mathematical models and dismissed his hunches as those of a Cassandra. At first, indeed, it seemed Roubini was wrong. Meltdown did not happen. Even by the end of 2007, the financial and economic outlook was grim but not disastrous.

Then, in February 2008, Roubini posted an entry on his blog headlined: "The rising risk of a systemic financial meltdown: the twelve steps to financial disaster".

It detailed how the housing market collapse would lead to huge losses for the financial system, particularly in the vehicles used to securitise loans. It warned that " a national bank" might go bust, and that, as trouble deepened, investment banks and hedge funds might collapse.

Even Roubini was taken aback at how quickly this scenario unfolded. The following month the US investment bank Bear Stearns went under. Since then, the pace and scale of the disaster has accelerated and, as Roubini predicted, the banking sector has been destroyed, Freddie and Fannie have collapsed, stock markets have gone mad and the economy has entered a frightening recession.

Roubini says he was able to predict the catastrophe so accurately because of his "holistic" approach to the crisis and his ability to work outside traditional economic disciplines. A long-time student of financial crises, he looked at the history and politics of past crises as well as the economic models.

"These crises don't come out of nowhere," he said. "Usually they arrive because of a systematic increase in a variety of asset and credit bubbles, macro-economic policies and other vulnerabilities. If you combine them, you may not get the timing right but you get an indication that you are closer to a tipping point."

Others who claimed the economy would escape a recession had been swept up in "a critical euphoria and mania, an irrational exuberance", he said. And many financial pundits, he believes, were just talking up their own vested interests. "I might be right or wrong, but I have never traded, bought or sold a single security in my life. I am trying to be as objective as I can."

What does his objectivity tell him now? No end is yet in sight to the crisis.

"Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Stearns, after Fannie and Freddie, after AIG [the giant US insurer that had to be rescued], and after [the $700 billion bailout plan]. Each time they have called the bottom, and the bottom has not been reached."

Across the world, governments have taken more and more aggressive actions to stop the panic. However, Roubini believes investors appear to have lost confidence in governments' ability to sort out the mess.

The announcement of the US government's $700 billion bailout, Gordon Brown's grand bank rescue plan and the coordinated response of governments around the world has done little to calm the situation. "It's been a slaughter, day after day after day," said Roubini. "Markets are dysfunctional; they are totally unhinged." Economic fundamentals no longer apply, he believes.

"Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to be allowed to fail, even that has not helped. We are reaching a breaking point, frankly."

He believes governments will have to come up with an even bigger international rescue, and that the US is facing "multi-year economic stagnation".

Given such cataclysmic talk, some experts fear his new-found influence may be a bad thing in such troubled times. One senior Wall Street figure said: "He is clearly very bright and thoughtful when he is not shooting from the hip."

He said he found some of Roubini's comments "slapdash and silly". "Sometimes the rigour of his analysis seems to be missing," he said.

Banerji still has problems with Roubini's prescient IMF speech. "He has been very accurate in terms of what would happen," he said. But Roubini was predicting an "imminent" recession by the start of 2007 and he was wrong. "He hurt his credibility by being so pessimistic long before it was appropriate."

Banerji said on average the US economy had grown for five years before hitting a bad patch. "Roubini started predicting a recession four years ago and saying it was imminent. He kept changing his justification: first the trade deficit, the current account deficit, then the oil price spike, then the housing downturn and so on. But the recession actually did not arrive," he said.

"If you are an investor or a businessman and you took him seriously four years ago, what on earth would happen to you? You would be in a foetal position for years. This is why the timing is critical. It's not enough to know what will happen in some point in the distant future."

Roubini says the argument about content and timing is irrelevant. "People who have been totally blinded and wrong accusing me of getting the timing wrong, it's just a joke," he said. "It's a bit pathetic, frankly. I was not making generic statements. I have made very specific predictions and I have been right all along." Maybe so, but he does not sound too happy about it, frankly.

Money Central: Ten people who predicted the financial crisis

Wall Street's Trojan Horse

Wall Street's Trojan Horse

by Michel Chossudovsky

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Russia's foreign minister Sergei Lavrov has announced that Brazil, Russia, India and China will "coordinate efforts in overcoming the financial crisis". The statement suggests that the four countries will confront the dominant US-UK-EU alliance, which personifies Western banking interests, at the forthcoming Summit in Washington.

“We are going to coordinate our moves with the leading emerging economies. We are in direct contact with India, China and Brazil; we are interacting in the BRIC and RIC [Russia-India-China] formats,” he added.

Prime Minister Vladimir Putin said earlier this month the crisis had shown the BRIC nations would be “the locomotive of the world economy in coming years.” (The Hindu, October 26, 2008)

The Finance Ministers and Central Bank Governors of G-20 countries will meet in Sao Paulo in November ahead of the Summit meetings in Washington.

The crucial question: Is there a policy alternative to that proposed by Wall Street and the US Treasury, which might emanate from the BRIC and/or G-20 Summit discussions.

Does the BRIC (Brazil, Russia, India and China) constitute a "Strategic Triangle" as suggested by Moscow's official press dispatch?

It is highly unlikely that an alternative might emerge from the BRIC meetings or the G-20.

While China and Russia retain some degree of economic and financial sovereignty, monetary policy in most developing countries including India and Brazil is under the direct surveillance of Washington and Wall Street.

The Prime Minister of India, Manmohan Singh is a former World Bank official. As Finance Minister in the early 1990s, he carried out the macro-economic reforms imposed on India by the IMF, in close coordination with the Bretton Woods institutions.

The current governor of the Reserve Bank of India Dr. Duvvuri Subbarao is also a World Bank official. He was appointed at a very critical moment on September 5, 2008 at the very outset of the financial meltdown. Duvvuri Subbarao spent ten years at the World Bank in Washington.(1994-2004). Barely two weeks into his mandate as RBI Governor, the Indian stock market collapsed. Dr. Duvvuri Subbarao's inactions as head of the RBI at the height of the crisis, largely contributed to exacerbating capital flight.

The Proposed BRIC meetings

"Russia will coordinate its steps for overcoming the financial crisis with India and China" said Russia's Foreign Minister Sergei Lavrov. The BRIC meetings will be held in Sao Paulo prior to the G-20 meetings:

"Lavrov reiterated that a meeting of G-20 finance ministers would be held in Sao Paulo, Brazil, in the first half of November, during which he also planned to meet with the Chinese finance minister. Despite the fact that new centers of economic growth, financial power, and political influence have emerged, Lavrov pointed out, different countries must join efforts to seek ways of overcoming the crisis and preventing it from repeating itself in the future. He also stated that a relevant conference would be held in Washington on November 15. The conference will be extremely important, Lavrov maintained, as all the main players are expected to be there. He stressed, however, that it was vital that they didn't merely gather together, but, more importantly, that they also cooperated with each other." (RBC News, October 26, 2008)

Who will be attending these meetings? What is the relationship between these senior government officials (Central Bank Governors and Ministers of Finance) and the interests of Wall Street?

The president of Brazil's Central bank, Hector Meirelles will play a key role in the Sao Paulo BRIC and G-20 meetings as well as in the November 15th meetings in Washington.

Trojan Horse

Henrique de Campos Meirelles, appointed head of Brazil's Central Bank in 2003 by "socialist" president Luis (Lula) Ignacio da Silva, happens to be among Wall Streets' most powerful financial figures. Prior to becoming Governor of the Central Bank of Brazil, he was president of global banking and CEO of FleetBoston, the 7th largest bank in the US, which subsequently merged with Bank of America to form the World's largest financial institution.

Hector Meirelles is a Trojan Horse.

Appointing the former CEO of a Wall Street bank to head the nation's Central Bank is tantamount to "putting the fox in charge of the chicken coop".

During Henrique Meirelles' earlier mandate as CEO of BankBoston (which later merged to form FleetBoston), BankBoston was one among several Wall Street banks which speculated against the Brazilian Real in 1998-99, leading to the spectacular meltdown of the Sao Paulo stock exchange on "Black Wednesday" 13 January 1999. BankBoston is estimated to have made a 4.5 billion dollars windfall in Brazil in the course of the Real Plan, starting with an initial investment of $100 million. (Latin Finance, 6 August 1998).

In the ongoing financial meltdown, the loss of Brazil's forex reserves has been dramatic. Hector Meirelles has, in this regard, served the interests of Wall Street. In less than a month, some 22.9 billion dollars of Central Bank forex reserves have been lost in the form of capital flight. (Bloomberg, October 26, 2008) As dictated by the Washington Consensus and implemented by the Central Bank under the helm of Hector Meirelles, there are no effective foreign exchange controls in Brazil which might protect the Real from the speculative onslaught:

Sales of reserves to buy reais in the spot market totaled $3.2 billion from Oct. 8 through Oct. 20, central bank President Henrique Meirelles said in testimony before congress late yesterday. The other types of intervention, including loans and currency swaps, don't affect the level of reserves....

Brazilian policy makers were forced to draw on record reserves of more than $200 billion after risk-adverse investors pulled money out of emerging markets, causing the worst tumble in the Brazilian real since the 1999 devaluation.

The real has lost a third of its value against the dollar since reaching a nine-year high Aug. 1, causing some of the biggest companies to report more than 5 billion reais ($2.2 billion) of losses from bad currency bets. The benchmark stock index is down 32 percent in the period.

In a decree published today, President Luiz Inacio Lula da Silva authorized the central bank to engage in currency swap transactions with foreign central banks. Officials at the central bank in Brasilia weren't immediately available to comment, according to the press office. (Bloomberg, October 26, 2008)

Moreover, the Brazilian government has emulated the US Treasury in setting up a bailout for Brazilian banking institutions, most of which are in fact controlled by foreign banks (American and European).

Brazil's Finance Minister Guido Mantega will be chairing the Group of 20 (G-20) meeting.

Federal Reserve Chairman Ben Bernanke (L), U.S. Secretary of the Treasury Henry M. Paulson Jr. (2nd-L), Brazil's Finance Minister Guido Mantega (2nd-R), president of Brazil's Central Bank Henrique Meirelles (R) and U.S. President George W. Bush (3rd-R) attend the International Monetary and Financial Committee meeting at IMF Headquarters October 11, 2008 in Washington, DC. Financial ministers and financial institution heads are in Washington for the annual meetings.

The G-20 countries/union are made up of the G-8 (US, UK, France, Germany, Japan, Canada, Italy, Russia) and the G-11 (Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea, Turkey) plus the European Union. (The G-8 is the G-7 plus Russia).

Most of the G-11 countries, are heavily indebted to Western creditors. The neoliberal consensus prevails. With perhaps the exception of Australia and Saudi Arabia, these countries obey the diktats of the Bretton Woods institutions and Wall Street.

There are many World Bank and Wall Street Trojan Horses, scattered around the World in central banks and ministries of finance.

The G-20 meetings and negotiations are part of a ritual.

The creditor's cartel, Wall Street and the Bretton Woods institutions are always in on the debate and discussions behind closed doors, with their G-20 colleagues and cronies. It's "the old boys network".

It is highly unlikely that an "alternative" distinct from the Washington-Wall Street consensus will emerge from the BRIC or G-20 meetings.

Alan Greenspan: Public Enemy Number One

Alan Greenspan: Public Enemy Number One

by Stephen Lendman

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A note before beginning. This article focuses on today's financial and economic crisis. Not affairs of state, war and peace or geopolitics. No guessing who's number one under those headings. That said:

With so many good choices, it's hard just picking one. But given the gravity of today's financial crisis, one name stands out above others. The "maestro," as Bob Woodward called him in his book by that title. The "Temple of Boom" chairman, according to a New York Times book review. Standing "bestride the Fed like a colossus." Now defrocked as the "maestro" of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn't Federal and has no reserves.

It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn't have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan's 18 year irresponsible legacy.

He championed deregulation and presided over an earlier version of today's crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe.

In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that "the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever....Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment....And I see nothing to suggest that these opportunities will peter out anytime soon....Indeed many argue that the pace of innovation will continue to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena."

A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money.

He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:

"Risks in financial markets, including derivative markets, are being regulated by private parties. There is nothing involved in federal regulation per se which makes it superior to market regulation."

On October 23 before the House Government Oversight and Reform committee, he refused to accept blame for the current crisis, but softened his tone and admitted a "flaw" in his ideology. Confessed his faith in deregulation was shaken. Said he was in a "state of shocked disbelief." Unclear on what went wrong. Not sure "how significant or permanent it is," and added:

-- "We are in the midst of a once-in-a century credit tsunami (requiring) unprecedented measures;"

-- "This crisis has turned out to be much broader than anything I could have imagined;"

-- "fears of insolvency are now paramount;"

-- significant layoffs and unemployment are ahead;

-- a "marked retrenchment of consumer spending" as well;

-- containing the crisis is conditional on stabilizing home prices;

-- at best, it's "still many months in the future;"

What went wrong with policies that "worked so effectively for nearly four decades," he asked? Securitizing home mortgages. "Excess demand" for them, and failure to properly price them he answered. Unmentioned was unbridled greed. The greatest ever fraud. No oversight, and a predictable crisis only surprising in its magnitude and how it grew to unmanageable severity.

Greenspan is now softening on regulation but barely enough to matter. Too little, too late by any standard, and only to restore stability after which chastened investors "will be exceptionally cautious." In the end, in his view, "This crisis will pass, and America will reemerge with a far sounder financial system." Until another Fed chairman repeats his mistakes. Creates a crisis too big to contain. Destroys unfettered capitalism as we know it. Changes the world irrevocably as a consequence. Unless this time is the big one and does it sooner.

In March 1999, Greenspan was optimistic at the end of a robust decade (that James Petras calls "the golden age of pillage") with no worries about new millennium meltdowns. He addressed the Futures Industry Association and said it would be "a major mistake" to increase rules on how banks assess risks when they use derivatives. He added: "By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives." By a compounded 20% rate throughout the decade. Around 30% alone by banks in 1998. And, according to Greenspan, "The reason that (derivatives) growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risk....the value added of derivatives themselves derives from their ability to enhance the process of wealth creation (and) one counterparty's market loss is the (other's) gain."

Overall, they've increased the standard of living of people globally, he claimed. In fact, they contributed to global crises in the 1990s. Hot money in, and meltdowns when it exited. The problem is derivatives work well in bull markets, but are disastrous when they're down. Going up they do nothing for ordinary people, but during downturns receding tides sink all boats and all in them and aren't the zero sum game Greenspan suggested.

Worst of all are so-called credit default swaps (CDSs). The most widely traded credit derivative. In the tens of trillions of dollars. A $43 trillion market, according to PIMCO's Bill Gross. The International Swaps and Derivatives Association (ISDA) estimates it at $54.6 trillion. Down from $62 trillion at yearend 2007. Others place it higher, but key is what they are and how they're used. They resemble insurance (on risky mortgages), but, in fact, are for little more than casino-type gambling. Unregulated with no transparency in the shadow banking system that dwarfs the traditional one in size and risk.

Gross describes it this way. It "craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever." CDSs are at the center of shadow banking, and Gross and others warn about possible financial Armageddon if things begin collapsing.

A "Cheerleader for Imprudence"

That, according to James Grant, editor of Grant's Interest Rate Observer. Greenspan's "biggest mistake was inciting people to do imprudent things." He called him "marble-mouthed" for his "Greenspeak" and not simply admitting he "was as blind as those (he) pretended to lead. This sense of security that people invested in the idea of perfect control by an all-knowing brain at the top, that idea's been shattered."

In July, Grant was outspoken in a Wall Street Journal op-ed titled "Why No Outrage?" He quoted Mary Elizabeth Lease from the Populist era haranguing farmers to "raise less corn and more hell." He asked why today's financial victims aren't protesting Fed policy "of showering dollars on the (monied) people who would seem to (least) need them." Where are the "uncounted improvident?" Have they "not suffered (enough) at the hands of what used to be called The Interests? Have the stewards of other people's money not made a hash of high finance? Where is the people's wrath?" In the wake of the "greatest (ever) failure of ratings and risk management."

Greenspan's Fed cut interest rates to 1%. "House prices levitated as mortgage underwriting standards collapsed." He claimed earlier that property appreciation was a sign of prosperity and a strong economy and "while home prices do on occasion decline, large declines are rare." Most homeowners experience "a modest but persistent rise in home values that is perceived to be largely permanent."

Especially, according to Grant, at a time that "credit markets went into speculative orbit, and an idea took hold. Risk....was yesterday's problem." It led to "one of the wildest chapters in the history of lending and borrowing." As a consequence, an $8 trillion home valuation wealth bubble and an unprecedented oversupply of unsold properties. Now in even more oversupply as owners default. Are foreclosed on or simply walk away from unaffordable underwater assets. They sit empty with no one to buy them except for those able in distressed sales.

The whole episode criminal and avoidable had the Fed used its authority under the 1994 Home Ownership and Equity Protection Act. It authorized the central bank to monitor abuses and intervene, if necessary, to prevent abusive lender practices. It failed to do it.

The result was predictable. People and the economy in crisis. Greenspan orchestrated it. His successor Bernanke did nothing to curb it. Wall Street was on a roll until it crashed. Huey Long once compared JD Rockefeller to "the fat guy who ruins a good barbecue by taking too much." Wall Street thrives on it. Fed largesse enables it. The problem is their indigestion affects everyone. A stomachache spreading round the world. How bad it'll get and where it stops nobody knows. Blame it on Greenspan. Our "former clairvoyant," according to Grant.

The New York Times - Uncharacteristically Critical

Usually a "free-market" cheerleader, even The New York Times voiced criticism. In an October 8 Peter Goodman article titled "Taking Hard New Look at a Greenspan Legacy." It quoted him in 2004 saying: "Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient."

As already explained, he abhorred regulation and championed derivatives. The latter what investor George Soros won't touch "because we don't really understand how they work." What long-time investment banker Felix Rohatyn calls potential "hydrogen bombs." What Warren Buffett describes as financial "weapons of mass destruction." What Alan Greenspan thought regulating would be a huge mistake and even today his faith in these instruments remains unshaken.

Others see things differently "and the role that Mr. Greenspan played in setting up (the current) unrest." Law professor Frank Partnoy says "derivatives are a centerpiece of the crisis." Given their purchased market value in the hundreds of trillions of dollars. Up from a fraction of that years back. The fact that much of it is toxic junk, and the fear that writing enough off will bankrupt their holders and send shock waves through world economies. They're already being felt. Especially in emerging markets.

None of this should have happened. "If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman, many economists say, the current crisis might have been averted or muted. Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences."

It was argued throughout the 1990s "that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system." Even so, "Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off (suggestions of) restrictions."

As the housing bubble burst and prices began collapsing, "Mr. Greenspan's record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation's real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates."

He championed adjustable rate mortgages and ignored the clear fraud from subprime ones. In a 2004 speech, he said that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." He, in fact, endorsed the type abuses and the housing bubble they produced that Fed action should have prevented.

It will be a chapter in his legacy. Along with "the spectacular boom and calamitous bust in derivatives trading." He declined a Times interview request and referred instead to his record in his memoir, "The Age of Turbulence." In it, he stated that it's "superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade." Instead he "preached the transcendent, wealth-creating powers of the market." Not for Main Street. For Wall Street. What a friend of this writer calls "laissez-unfair."

Despite convincing evidence to the contrary, he claimed markets are best able to handle risks. Former Fed vice-chairman Alan Blinder said "Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury. I think of him as consistently cheerleading on derivatives." In congressional testimony, he claimed the potential for serious crisis "extremely remote" and dismissively suggested that "risk is part of life." He also warned that too many rules would damage Wall Street and prompt traders to do business overseas.

Until the present, every debacle under him was resolved (enough at least) and markets stabilized and advanced. He got credit for his "steady hand at the Fed," and former Senator Phil Gramm said "You will go down down as the greatest chairman in the history of the Federal Reserve Bank." That comment may go down as the greatest misstatement in the history of the Senate.

This is the same Phil Gramm behind the 1999 Gramm-Leach-Bliley Act that repealed (1933 enacted) Glass-Steagall. It let commercial and investment banks and insurance companies combine and opened the door to rampant speculation, fraud and abuse.

In addition, the 2000 Commodity Futures Modernization Act (CFMA). At Gramm's behest, it was tucked undebated into an appropriations bill near the end of Clinton's tenure. It legitimized "swap agreements" and other "hybrid instruments" at the core of today's problems. It prevented regulatory oversight of derivatives and leveraging and turned Wall Street sharks loose on unsuspecting investors. Including world sovereign ones.

It also contained the "Enron Loophole." So the company could exploit its "Enron On-Line." The first internet-based commodities transaction system. Freeing electronic energy trading from regulation by rescinding supervisory restrictions in place since 1922. It empowered Enron to do as it pleased. Ended up fleecing investors. Bankrupting the company, and costing its employees their jobs and savings in worthless Enron stock. All because CFMA sailed through the House and Senate (below the radar), and Clinton signed it into law a month before he left office.

Much to Greenspan's approval. He sweet-talked Congress and said "There is a very fundamental trade-off of what type of economy you wish to have. You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either." He added that Wall Street had tamed risk and "many of the larger (ones) are dramatically hedged." Legislators bought it or at least didn't object. The New York Times is less convinced. Better late than never but don't expect it to become a trend.

As Greenspan championed derivatives as a way of sharing risks, The Times said: "Shared risk has evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn. In recent months, the financial crisis gathered momentum." Mr. Greenspan stayed conspicuously out of sight. Until October 23.

With the crisis unfolding, he wrote an epilogue to the paperback version of his memoir. Said "Risk management can never achieve perfection. Governments and central banks could not have altered the course of the boom." He has no regrets.

His critics do, and they're coming out of the woodwork, if slowly. Economist Jeff Sachs said "To a large extent, the US crisis was actually made by the Fed, helped by the wishful thinking of the Bush administration. One main culprit was none other than Alan Greenspan."

On October 24, the Seattle Times ran a piece on "Former hero Greenspan blamed for the credit crisis." He "found himself likened to one of the great goats of baseball." Called one of "three Bill Buckners." Referring to the 1986 Red Sox first baseman who let an easy ground ball through his legs that cost Boston the World Series as it turned out.

The Financial Times ran critical responses to a Greenspan article titled "We will never have a perfect model of risk" in which he argued for the inability to anticipate "all discontinuities in financial markets." Economics professor Paul de Grauwe called it "a smokescreen to hide his own responsibility in making the financial crisis possible."

Economist Michael Hudson challenged Greenspan's logic and misuse of empirical real estate data. Specifically land values. By spring 2006, "bankers knew there was a bubble." He wrote a Harpers cover story on it. But Fed officials compounded bad policy with more of it. Hudson added that "The financial system is now at a turning point. Bankers have shown that they can't regulate themselves when they're making so much money by feeding (off Fed created) bubble(s)."

Marx Was Right

According to David Cox before today's crisis emerged. In the London Guardian on January 29, 2007. He referred to globalization "laying bare the contradictions of capitalism" but extended the argument to "unbridled economic activity." Destroying "the world's climate, water supplies, farmland, forests and fish stocks." Additionally, "mountainous trading, governmental, corporate and personal debt threaten to precipitate world-wide economic collapse....Nothing but the re-engineering of global capitalism can head off the crisis that is beginning to confront it."

Fast-forward to now and the Guardian's "Maelstrom in the markets" article (September 16). Marx again featured. "It is a moment Karl Marx would have relished. From every angle financial capitalism is taking a battering....Two pillars of the modern economic system - greed and prosperity - are trembling in a manner unseen for a very long time."

On October 15, the Guardian headlined "Booklovers turn to Karl Marx as financial crisis bites in Germany. Karl Marx is back." According to German "publishers and bookshops who say that his works are flying off the shelves." Because people "recognise that the neoliberal promises of happiness have not proved to be true," according to publisher Karl-Dietz's Jorn Schutrumpf. Even Germany's finance minister, Peer Steinbruck, was chagrined enough to admit that "certain parts of Marx's theory are really not so bad."

He's on a "winning streak" others admitted, so it's worth noting what he wrote to Friedrich Engels: "The American Crash is a delight to behold and it's far from over." He referred to the Panic of 1857. An earlier banking crisis and recession that spread to Europe, South America and Asia.

Marx condemned "free-market" capitalism as "anarchic" and ungovernable. Because it alienates the masses. Prevents the creation of a humane society. Produces class struggle between the "haves" and "have-nots." The bourgeoisie (capitalists) and proletariat (workers). The destructive contradictions of the system. Exploited masses so a few can profit.

He predicted what's clear today. Competition over time produces a handful of winners. Powerful monopolies controlling nearly all production and commerce. Finance capitalism as well. Exploitation increases. Successive crises erupt, and ultimately fed up workers react. Recognizing their collective power and bringing down the system. Replacing it with a self-managed one. Ending exploitation and alienation. In his view, an inevitable socialist revolution.

His letter to Engels wasn't wrong. Just early, and perhaps by how change will evolve. Not the outcome. Just the method. With a whimper, not a bang. Not by workers. From the system's own corrosiveness. Internal contradictions. So unworkable. Crisis-prone. Fractured by inequities. So self-destructive it can't endure. So it won't. It will crumble on its own.

A Brief Update on Spreading Indigestion

Compared to other bouts, this one is scary and hitting everywhere. In his latest update, Nouriel Roubini states that:

"markets (are) in sheer panic and becoming literally dysfunctional and unhinged." So much so that "policy makers may soon (have to) close financial markets as the panic selling accelerates. Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. (They're in) free fall as most investors are rapidly deleveraging and we are on the verge of a capitulation collapse." Flows are now everything and in one direction. For the exits in a very destabilizing game.

Just as bad, economic fundamentals "are awful as investors are finally realizing that a severe US and Eurozone and G7 and emerging markets and global recession is coming (not a full-blown depression he believes) and will be deep and protracted." Before this ends, "equity prices may have to fall another 30% based on fundamentals alone...." Add the element of panic selling that may erase even more.

After Wall Street crashed in October 1929, the Dow lost 89% of its value by its low point in July 1932. No one today is predicting that. But given the current climate. Three decades of reckless excess. The greatest ever financial fraud. Multi-trillions of bad debt. Only the brave or foolish should imagine conditions won't be painful and protracted before they stabilize and improve.

What's sure is they're already awful, worsening, spreading, affecting everyone, and when finally ended - the world no longer will be the same as when the crisis emerged. But what it will look like and where it will head is anyone's guess.

For now, emerging economies are endangered. Iceland collapsed, and others, like Hungary, may have to default on their debt. More stable countries like India and Japan are also in trouble. For the first time in 26 years, Japan recorded a trade deficit as exports to the US dropped 21.8% from a year earlier. The steepest ever monthly decline. Recall also that at yearend 1989, Japan's Nikkei peaked at 38,915. It then plunged to 7831 in April 2003. On October 27, 2008, it sunk to a shocking 7163. About 18% of its peak value nearly 19 years earlier and its lowest valuation since October 1982. In the world's second largest economy. A hint of what may await the largest.

One money manager was so shaken he said we're "going back to the stone age." Across Asia it was bloody Friday. The same again on Monday and throughout the world. The worst on Friday was avoided. Armageddon was postponed until further notice. Beyond the timeline of this article, it may arrive sooner, not later.

Because markets are crashing. Equities, commodities, currencies, bonds considered risky. Anything investors can sell to raise cash. All signs are negative. In America, a key indicator is the Mortgage Bankers Association (MBA) figures on home loan applications. Its index tracking purchasing demand and for refinancing loans plunged 17% in its latest reading. Their lowest levels since October 2001 showing housing demand remains stubbornly weak and not likely to stabilize soon.

Other signs are just as worrisome. Fitch Ratings suggest that high-yield corporate debt defaults may end up the highest number on record. Hedge funds are hemorrhaging from forced liquidations and huge losses. US automakers are on their knees and may face bankruptcy. European ones are also wobbly. Credit is still frozen as who'll lend to borrowers who can't repay. And households are so over-indebted, they can't borrow nor will lenders accommodate them.

Global deleveraging is in play as well. According to Fitch Ratings, world credit growth peaked at almost 16% in 2007. By yearend, it will be 7% and lower still at 5% in 2009. Hardest hit will be "emerging Europe but (it) will spread to all regions." World recession is setting in. Most likely to be deeper, longer and worse than most predict.

In America, credit market debt as a percent of GDP began rising in the early 1980s and peaked at 350% in 2008. Comparable to its 1930s level. Money manager Jeremy Grantham's research shows that all markets revert to their means and generally way overshoot in the process. We're currently well into a massive repricing of risk and asset values. It may take years to play out. It will affect all over-valued markets. Stocks, bonds, commodities and leveraged debt. The cost will be in the trillions. The wreckage unimaginable. The result of monetary and fiscal irresponsibility with Greenspan deserving more blame than anyone.

In 1987, he was chosen to serve financial community interests. Largely Wall and major banks. He bailed them out on October 1987's black Monday. Again in 1998 after Long Term Capital Management's collapse. He flooded the market with easy money. Kept interest rates low. He could do no wrong, and even now, says he has "no regrets on any of the Federal Reserve's policies that we initiated." An astonishing statement given the gravity of today's crisis. The result of rampant speculation and fraud made possible by easy money. With Greenspan supplying it to all takers.

The Fed's job (or what it should be) is to promote stability. Smooth out the business cycle. Maintain a steady, healthy sustainable growth rate. Create price stability. Control inflation, and grow opportunities for everyone. Instead Greenspan fueled bubbles, and all he could say was that "irrational exuberance" may have "unduly escalated asset values" in a December 1996 speech. He did nothing to curb it. Claimed bubbles are hard to identify in real time, and the Fed is unable to diffuse them. He infamously said that it's "easier to clean up the mess after an asset bubble pops than to try and deflate (one) on the way up."

In fact, the Fed's job is to spot and moderate them. Not let them get out of hand. By raising interest rates. Margin requirements. Jawboning. Reducing the money supply to cool speculation and enhance stability. "Taking away the punch bowl," as former Fed chairman William McChesney Martin put it. Available tools Greenspan eschewed that would have worked if used. They weren't, and he denied all responsibility. The result is where we are today. Greenspan still avoiding a mea culpa and only expressing "shock" and "disbelief." But no regrets, and why not. His job was to transfer wealth from the public to the rich. In that he succeeded mightily but look at the cost.

-- markets crashing;

-- the economy sinking; in secular decline;

-- record budget and current account deficits;

-- a soaring national debt and federal obligations; $5 trillion alone in one day for the Fannie and Freddie takeover; hundreds of billions more so far and trillions more to come; taxpayers on the hook for it all;

-- rising personal and corporate bankruptcies;

-- mortgage loan delinquencies and defaults in the millions before this ends; the latest Realty Trac foreclosure filings survey reported default notices up 71% from third quarter 2007 and said figures likely were underestimated;

-- an unprecedented wealth gap;

-- record household debt and debt service levels as a percent of disposable income; around 25% of annual income to credit card companies alone;

-- the greatest housing crisis since the Great Depression;

-- flat wages;

-- high prices on basic items like food, fuel and health care;

-- rising unemployment; a wave of corporate-announced layoffs; across the board in nearly all sectors; biotech as well as banking; aerospace as well as autos;

-- conditions overall the worst in decades; maybe ever as things get more dire; how economist Paul Krugman (on October 26) described them in the words of a "guy who was told, 'Cheer up - things could be worse!' So he cheered up, and sure enough, things got worse."

The result of reckless and irresponsible policy. With lots of blame to go around. But none more than to the "maestro" of misery. Now 82 and unapologetic to the end.

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

Also visit his blog site at and listen to The Global Research News Hour on on Mondays from 11AM - 1PM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs archived for easy listening.

Putting the Pentagon on the Auction Block

Putting the Pentagon on the Auction Block

Go To Original

Back in September 1989 -- almost a lifetime ago -- I published an article in The Progressive magazine under the title "Star Wars Won't Die." Star Wars was, of course, the movie-inspired nickname for Ronald Reagan's Strategic Defense Initiative (SDI), his vision of putting an "impermeable shield" against nuclear weapons in space. ("The Force is with us," he joked at the time -- and when it came to high-tech R&D weapons research he wasn't wrong.) I wrote then that SDI would never be cancelled, no matter how many of its prospective parts failed. ("The loss of any particular [weapons] system," I indicated, "can only lead to the creation of others.") And today, of course, we still have SDI's impaired progeny: the missile defense system that the Bush administration has tried so hard to install in Poland and Czechoslovakia.

More generally, nearly two decades ago, I suggested that we already had a highly militarized country "that conforms to no notions we hold of militarism… The United States… still has the look of a civilian society… In the Reagan-Bush era, the military has gone undercover in the world that we see, though not in the world that sees us. For if it is absent from our everyday culture, its influence is omnipresent in corporate America, that world beyond our politics and out of our control -- the world which, nonetheless, plans our high-tech future of work and consumption… Those who fantasize about the possible militarization of America in terms of a future military coup should not hold their breath. To the extent that any takeover may be possible, it has already taken place, hardly noticed, in the economic sphere of our lives."

I stand by every one of those words, though little did I know then what was actually coming down the pike. If you read Nick Turse's new book The Complex: How the Military Invades Our Everyday Lives, you'll find out in eye-opening detail just how far the military-industrial complex has ventured since then -- and, of course, twenty years later the military is anything but out of sight. Increasingly, it's everywhere, doing everything, and itself has been privatized and corporatized in a way I couldn't have imagined back then.

The militarization of our society is, unfortunately, a subject most Americans seem remarkably uninterested in thinking about, and so what might be involved in demilitarizing our country (which is not faintly the same as disarming it, thank you) and un-garrisoning the planet is not much discussed. That's why Turse's thoughts below about what a "Pentagon tag sale" might mean for us seem so refreshing. Tom

The Trillion Dollar Tag Sale

How the Pentagon Could Help Bail Out America
By Nick Turse

Wars, bases, and money. The three are inextricably tied together.

In the 1980s, for example, American support for jihadis like Osama bin Laden waging war on (Soviet) infidels who invaded and constructed bases in Afghanistan, a Muslim land, led to rage by many of the same jihadis at the bases (U.S.) infidels built in the Muslim holy land of Saudi Arabia in the 1990s. That, in turn, led to jihadis like bin Laden declaring war on those infidels, which, after September 11, 2001, led the Bush administration to launch, and then prosecute, a Global War on Terror, often from newly built bases in Muslim lands. Over the last seven years, the results of that war have been particularly disastrous for Iraqis and Afghans. Sizable numbers of Americans, however, are now beginning to suffer as well. After all, their hard-earned taxpayer dollars have been poured into wars without end, leaving the country deeply in debt and in a state of economic turmoil.

In his 1988 State of the Union message, President Ronald Reagan called the jihadis in Afghanistan "freedom fighters." They were, of course, fighting the Soviet Union then. He, too, pledged eternal enmity against the Soviet Union, which he termed an "evil empire." For years, conservatives have claimed that Reagan not only won his Afghan War, but by launching an all-out arms race, which the economically weaker Soviet Union couldn't match, bankrupted the Soviets and so brought their empire down.

While that version of history may be disputed, today, it is entirely possible that one of Reagan's freedom fighters, Osama bin Laden, actually returned the favor by perfecting the art of financially felling a superpower. While Reagan ran up a superpower-sized tab to outspend the Soviets, bin Laden has done it on the cheap. Essentially for the cost of box cutters and flight training, he got the Bush administration to spend itself into penury, without a superpower in sight.

Since bin Laden's supreme act of economic judo in 2001, the U.S. military has spent multi-billions of tax dollars on a string of bases in Iraq and Afghanistan, failed wars in both countries, and a failed effort to make good on George W. Bush's promise to bring in bin Laden "dead or alive." Despite this record, the Pentagon still has a success option in its back pocket that might help bail out the American people in this perilous economic moment. It could immediately begin to auction off its overseas empire posthaste. To head down this road, however, U.S. military leaders would first have to take a brutally honest look at the real costs, and the real utility, of their massively expensive weapons systems and, above all, those bases.

Today, the Pentagon acknowledges 761 active military "sites" in foreign countries -- and that's without bases in Iraq, Afghanistan, and certain other countries even being counted. This "empire of bases," as Chalmers Johnson has noted, "began as the leftover residue of World War II," later evolving into a Cold War and post-Cold War garrisoning of the planet.

With those bases came a series of costly wars in Korea in the 1950s, Vietnam in the 1960s and 1970s, and the Persian Gulf in the early 1990s. An extremely conservative estimate of their cost by the Congressional Research Service -- $1 trillion (in 2008 dollars) -- tops the present economic bailout. Add in brief cut-and-run flops like Lebanon in 1983 and Somalia, from 1992-1995, as well as now-forgotten hollow victories in places like the island of Grenada and Panama, and you tack on billions more with little to show for it.

Since 2001, the Bush administration's Global War on Terror (including the wars in Afghanistan and Iraq) has cost$3.5 billion each week. And the full bill has yet to come due. According to Noble Prize-winning economist Joseph Stiglitz and Harvard University professor Linda Bilmes, the total costs of those two wars could top out between $3 trillion and $7 trillion. taxpayers more than the recent bailout -- more than $800 billion and still climbing by at least

While squandering money, the Global War on Terror has also acted as a production line for the creation of yet more military bases in the oil heartlands of the planet. Just how many is unknown -- the Pentagon keeps exact figures under wraps -- but, in 2005, according to the Washington Post, there were 106 American bases, from macro to micro, in Iraq alone.

If you were to begin the process of disentangling Americans from this world of war and the war economy that goes with it, those bases would be a good place to start. There is no way to estimate the true costs of our empire of bases, but it's worth considering what an imperial tag sale could mean for America's financial well-being. One thing is clear: in getting rid of those bases, the United States would be able to recoup, or save, hundreds of billions of dollars, despite the costs associated with shutting them down.

Tag Sales and Savings

If the Pentagon sold off just the buildings and structures on its officially acknowledged overseas bases at their current estimated replacement value, the country would stand to gain more than $119 billion. Think of this as but a down payment on a full-scale Pentagon bailout package.

In addition, while it leases the property on which most of its bases abroad are built, the Pentagon does own some lucrative lands that could be sold off. For instance, it is the proud owner of more than 11,000 acres in Abu Dhabi, "the richest and most powerful of the seven kingdoms of the United Arab Emirates." With land values there averaging $1,100 per square meter last year, this property alone is worth an estimated $48.9 million. Add in the structures there and you're talking almost $80 million. The Pentagon also owns several thousand acres spread across Oman, Japan, South Korea, Germany, and Belgium. Selling off these lands as well would net a sizeable sum.

Without those bases, billions of dollars in other Pentagon expenses would immediately disappear. For instance, during the years of the Global War on Terror, the Overseas Cost of Living Allowance, which equalizes the "purchasing power between members [of the military] overseas and their U.S.-based counterparts," has reached about $12 billion. Over the same period, the price tag for educating the children of U.S. military personnel abroad has clocked in at around $3.5 billion. By shutting down the 127 Department of Defense schools in Europe and the Pacific (as well as the 65 scattered across the U.S. mainland, Puerto Rico, and Cuba) and sending the children to public schools, the U.S. would realize modest long-term savings. Once no longer garrisoning the globe, the Pentagon would also be able to cease paying out the $1 billion or so that goes into the routine construction of housing and other base facilities each year, not to mention the multi-billions that have gone into the construction, and continual upgrading, of bases in Iraq and Afghanistan.

And that's not the end of it either. Back in the 1990s, the Pentagon estimated that it was spending $30 billion each year on "base support activities" -- though the exact meaning of this phrase remains vague. Just take, for example, five bases being handed back to Germany: Buedingen, Gelnhausen, Darmstadt, Hanau and Turley Barracks in Mannheim. The annual cost of "operating" them is approximately $176 million. Imagine, then, what it has cost to run those 750+ bases during the Global War on Terror years.

Some recent Pentagon contracts for general operations and support functions overseas are instructive. In March, for instance, Bahrain Maritime and Mercantile International was awarded a one-year contract worth $2.8 billion to supply and distribute "food and non-food products" to "Army, Navy, Air Force, Marine Corps and other approved customers located in the Middle East countries of Bahrain, Qatar and Saudi Arabia."

In July, the French foodservices giant Sodexo received a one-year contract worth $180 million for "maintenance, repair and operations for the Korea Zone of the Pacific Region." These and other pricey support contracts for food, fuel, maintenance, transport, and other non-military expenses, paid to foreign firms, would disappear along with those U.S. garrisons, as would enormous sums spent on all sorts of military projects overseas. In 2007, for instance, the Army, Navy, and Air Force spent $2.5 billion in Germany, $1 billion in Japan, and $164 million in Qatar. And this year, the Pentagon paid a jaw-dropping $1 billion-plus for contracts carried out in South Korea alone.

Men and Materiel

With most or all of those 761 foreign bases off the books, and a much reduced global military "footprint," the U.S. could downsize its armed forces. As Andrew Bacevich notes in his book The Limits of Power, it already costs the Pentagon a bailout-sized $700 billion a year to "train, equip, and sustain the current active-duty force and to defray the costs of on-going operations." Even if current U.S. forces were simply brought home, there would still be significant savings (including, of course, the $10 billion a month going into the Iraq and Afghan wars).

The very opposite, however, is happening. Facing manpower demands on an overstretched military, the Pentagon is planning to ramp up the size of the armed forces by 92,000 over the next several years. That expansion comes with a sure-to-rise price tag of $108 billion. This step has the support of large majorities in Congress and both presidential candidates. John McCain has denounced the notion of "roll[ing] back our overseas commitments" and instead proposes "to increase the size of the Army and Marine Corps." Barack Obama agrees, but has been more specific. He has long touted plans, echoing the Pentagon's desires, to "increase the size of the Army by 65,000 troops and the Marines by 27,000 troops."

Just attracting this many recruits would cost a small fortune. This year, the Army had to spend $240 million on advertising alone to help meet its recruiting goals. On top of that, it paid out $547 million in bonuses to recruits -- a 164% increase since 2005. And this is to say nothing of how much it costs to train, equip, feed, and pay these future troops.

Capping, if not decreasing, the size of the military and bringing troops home would be the foundation for a new foreign policy based on non-aggression and fiscal responsibility. This would, of course, be a major departure for the military. In the 120 years between 1888 and 2008, according to a study by the Congressional Research Service, only seven -- using generous criteria -- were without "notable deployments of U.S. military forces overseas." Beginning in 2009, U.S. forces could aim for a complete reversal of this trend for the next 120 years, enabling the slashing of budgets for force-projection weapons systems.

Take the F-22A Raptor, a fighter plane designed to counter advanced Soviet aircraft that were never built. Pentagon budget documents released earlier this year put the estimated cost of the program, 2007 to 2013, at almost $3.7 billion. With no advanced Soviet fighters around to dogfight -- Russian aircraft had trouble enough in their recent Georgian encounters -- and no need for its "global strike" capabilities, the program could be scrapped. Such a step is not without precedent. As Wired magazine's Danger Room blog reported last month, Congress "all-but-eliminated funding for the so-called 'Blackswift' program," a prototype hypersonic aircraft for which the Pentagon had requested almost $800 million in 2009 start-up funding. If the project remains stillborn, that alone will mean billions in future savings.

This year, for example, the Air Force is spending nearly $65 billion on new weapons systems. By shutting current and future weapons programs not meant for actual defense of the United States, Americans would be looking at hundreds of billions of dollars in savings in the near term. If the Pentagon demilitarized and sold off existing equipment as well, including, for instance, some of its 120,000 Humvees, at least 280 ships, and 14,000 aircraft, you're talking about another significant infusion of cash.

Bases Gone Bust

If history suggests anything, it's that one way or another, on a long enough timeline, all imperial garrisons fall. Some, of course, go bust sooner than others. As one Army publication noted in the 1970s, "[t]he ravages of rot, jungle, and weather have left only memories of the once-mighty World War II bases of the South Pacific." The fate of many bases built since has been no less inglorious.

While it would be difficult to total up just how many firebases, camps, airbases, port facilities, and base camps the U.S. had in Indochina during the Vietnam War, or what it cost to build and upgrade them, the numbers would surely be staggering. What we do know is instructive. For instance, the U.S. Army-Vietnam headquarters complex at Long Binh, about 16 miles from Saigon, had a value of more than $100 million in 1972 -- the year the U.S. gave it away to its South Vietnamese allies. They, in turn, lost it when the Saigon regime collapsed in 1975. Today, it's an industrial park. Similarly, the U.S. poured huge sums into its naval base at Cam Ranh Bay. By 1979, the Soviet Navy was using it and, after abandoning it earlier this decade, may do so again.

Similarly, in the 1990s, the U.S. got kicked out of its massive bases in the Philippines. A volcano laid waste to Clark Air Base and the Philippine Senate rejected U.S. efforts to extend the lease on its massive installation at Subic Bay. Just moving out personnel and equipment afterwards cost billions. More recently, the same process played out on fast forward in Central Asia. As adjunct professor at the Air Force's Air Command and Staff College Stephen Schwalbe pointed out in an article in Air & Space Power Journal, after the U.S. negotiated the right to use Uzbekistan's Karshi-Khanabad Air Base in 2001, as part of its Afghan War plans, it pumped millions of dollars into the base to improve infrastructure and facilities -- from increased aircraft parking space to a movie theater. It also ponied up a $15 million fee for its use.

In 2005, however, Uzbek security forces perpetrated a massacre of domestic protesters, leading to a Bush administration demand for an investigation. In the end, all the money spent on the base was wasted. Not long after the American request, Uzbekistan gave the U.S. military 180 days to leave the base and the country -- and promptly signed friendship pacts with Russia and China.

The buildings and structures at the U.S. base at Ecuador's Manta Air Field are valued at over $176 million and are also soon to move into the Pentagon's loss column. Last year, Ecuadorian president Rafael Correa offered the following terms for continued use of Manta after 2009: "We'll renew the base on one condition: that they let us put a base in Miami -- an Ecuadorian base." The U.S. did not take him up on the proposal. Correa has since offered to lease the base to China for commercial use.

The Pentagon stands to lose billions more when it finally withdraws from Iraq and Afghanistan. The cost of manning, maintaining, and regularly upgrading the mega-bases in Iraq, in particular, is already a significant financial burden on American taxpayers, but it would be dwarfed by the losses incurred if they had to be abandoned. As such, getting out, even in today's depressed real-estate market, would be the financially prudent thing to do.

Similarly, closing down the Bush administration's notorious torture bases might yield significant financial savings (while enhancing global opinion of the U.S.). Selling off the Pentagon's facilities on the British-owned island of Diego Garcia in the Indian Ocean, for instance, where Global War on Terror "ghost prisoners" have been held (and U.S. air raids on Iraq and Afghanistan have been regularly launched), could yield $2.6 billion. Saying goodbye to the facilities at Guantanamo Bay in Cuba could net another $2.2 billion -- and some global cheers.

The Pentagon Comes Home

While we may never know if it was bin Laden's knowledge of America's "expeditionary" history that drove him to plan out the 9/11 attacks, he certainly goaded the Bush administration into a Soviet-style military spending spree, complete with a Soviet-style ruinous war in Afghanistan. With some caves for bases, he managed to sink Americans into a multi-trillion dollar financial quagmire.

If the United States had never wasted the better part of a trillion dollars fighting a war in Vietnam and, following defeat there, embarked on a scheme to saddle the Soviets with a similarly ignominious loss -- which has now led to wars with a multi-trillion dollar price tag -- the United States might not be in such dire financial straits today. And yet, despite the worst economic downturn since the Great Depression, the U.S. continues to sink money into costly wars fought from expensive bases overseas with no end in sight. The result is sheer waste in every sense of the word.

When Americans want to get serious about a long-term bailout strategy that brings genuine financial and national security, they'll look to real cost-cutting options like stopping America's string of costly wars and getting rid of the Pentagon's vast network of overseas bases. Until then, they are simply helping Ronald Reagan's freedom fighter, Osama bin Laden, be a better Reagan than Reagan ever was.

Nick Turse is the associate editor and research director of His work has appeared in many publications, including the Los Angeles Times, Le Monde Diplomatique (German edition), Adbusters, the Nation, and regularly at His first book, The Complex: How the Military Invades Our Everyday Lives, an exploration of the new military-corporate complex in America, was recently published by Metropolitan Books. His website is Nick