Friday, October 31, 2008

GDP, consumer spending contract as US plunges into recession

GDP, consumer spending contract as US plunges into recession

By Patrick O’Connor

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Gross domestic product (GDP) figures released yesterday by the Commerce Department show that the US economy shrank by 0.3 percent on an annualised basis in the three months from July to September. With economists expecting even poorer GDP figures for the fourth quarter, the latest data confirms that the economy has now entered into severe recession.

Negative GDP growth for the third quarter was driven by a 3.1 percent decline in consumer spending, the first such contraction since 1991 and the largest fall recorded since 1980.

Consumer spending, partly fuelled by personal debt, has accounted for more than two-thirds of all economic activity in the last period. But mounting layoffs, home foreclosures, credit card defaults, the rising cost of living and the declining value of retirement savings have had a devastating impact on broad layers of the population. The Commerce Department reported an extraordinary 8.7 percent third quarter decline in disposable personal income—that is, income after taxes and adjusted for inflation. This is the largest fall ever recorded since figures were first kept in 1947.

Disposable income in the second quarter had increased by 11.9 percent on an annualised basis due to tax rebates from the Bush administration's emergency economic stimulus package.

Unsurprisingly, spending has declined together with incomes. In the three months up to October, purchases of non-durable goods—smaller purchases such as food and clothing items—plunged by 6.4 percent, the biggest decline since 1950. Spending on durable goods, such as cars and furniture, declined by 14.1 percent.

Housing investment plunged 19.1 percent on an annualised basis. Also recorded in the GDP data was a decline of 1 percent in "real non-residential fixed investment," that is, business investment in capital items including machinery, vehicles, and computers. The New York Times described this as "a worrying sign of a new, potentially pernicious phase of the downturn."

The third quarter 0.3 percent GDP decline was not as severe as had been anticipated. Stock markets lifted marginally yesterday, with the Dow Jones closing 2.1 percent higher. Goldman Sachs economists, however, warned their clients that the GDP report was "weaker than implied by the initial market reaction."

The data would have been significantly worse had it not been for a narrower trade deficit caused by continuing export growth to Europe and Asia. This growth has since ceased and exports are in decline as the world economy follows the American into steep recession. Also preventing a sharper drop in third quarter GDP was federal government spending and investment, which was up 13.8 percent on an annualised basis, largely due to an 18.1 percent rise in military expenditure.

The Wall Street Journal noted that the latest data indicated that the economy probably entered into recession "before the mid-September credit freeze," and that fourth quarter GDP growth could be as low as negative 4 percent.

"The economy has taken a turn for the worse, big time," Allen Sinai, chief global economist for Decision Economics, told the New York Times. "Consumption literally caved in. It is a prelude to much worse news on the economy over the next couple of quarters. The fundamentals around the consumer are all negative, and there are no signs of any help anytime soon, from anywhere."

Paul Ashworth, of London-based Capital Economics Ltd, told Reuters he expects the US economy to shrink by 1.5 percent in 2009 and remain stagnant in 2010. "Overall, we expect the level of GDP to shrink by a total of 2.5 percent, which would make this one of the worst recessions since the Great Depression," he said.

Labor Department data showed 479,000 new jobless claims in the week ending October 25, steady from the week before. Economists generally regard a figure above 400,000 as an indicator of recession. Reuters added: "Analysts estimated so-called continued claims would be 3.74 million. It was the 27th straight week that claims were above three million in a sign that the ailing economy is making it harder for US workers to find employment."

An estimated 760,000 jobs have been slashed this year, and the rate of layoffs is accelerating.

Yesterday saw the following job cuts and corporate earnings announcements:

* Credit card giant American Express is to lay off nearly 10 percent of its workforce, or 7,000 workers, as part of a restructuring plan aimed at reducing costs by $1.8 billion by the end of 2009.

* Electronics and phone company Motorola reported a $397 million loss for the third quarter, largely due to falling mobile phone sales. It plans to sack an additional 3,000 staff.

* Computer gaming company Electronic Arts will cut 6 percent of its workforce amid falling retail sales that delivered a net loss of $310 million for the quarter.

* Photographics company Eastman Kodak released lower than expected quarterly profit figures and said it would eliminate an unspecified number of jobs in coming months.

* Broadcaster CBS recorded a $12.6 billion quarterly loss after it wrote down the value of its media assets by $14 billion.

* Paper and packaging company International Paper reported a 31 percent quarterly profit decline compared to 2007. The company laid off workers and closed plants earlier this year in Georgia, California, Ohio and Oregon, but warned that falling demand "could mean more capacity cuts."

Job losses continue to mount in the devastated auto industry. Three Michigan-based auto suppliers made layoff announcements yesterday:

* Visteon Corp., a Ford auto-parts spin-off, said yesterday it suffered a $188 million net quarterly loss. The company cut about 2,000 hourly and salaried jobs in the last three months, and plans to cut its salaried workforce by a further 800.

* TRW Automotive Holdings Corp. posted a third-quarter loss of $54 million. CEO John Plant said the company would continue to "right size" its workforce. About 1,000 salaried positions are being cut, with the majority to take effect by the end of this week.

* Citing "recessionary conditions in North America and increasing weakness in Europe," Lear Corp. reported a $98 million quarterly loss. The company said it aims to save $150 million over the next year through layoffs, but has not yet announced the number of jobs to be cut.

Layoffs in the auto sector are set to massively escalate in the aftermath of a potential government-funded merger between General Motors and Chrysler.

Kimberly Rodriguez of the accounting firm Grant Thornton LLP told the Wall Street Journal she expects such a merger to result in between 30,000 to 40,000 Chrysler job losses, with another 50,000 auto suppliers' jobs affected. The auto analyst predicted that 7 of Chrysler's 14 auto assembly plants would close and 19 of the company's 26 car models would be eliminated.

If the merger deal failed to go through, Rodriguez said, Chrysler could collapse, in turn leading to bankruptcies of auto suppliers upon which GM and Ford also depend. "What you would have is a shutdown of the auto industry," she concluded.

Broken Securities Industry Still Has $20 Billion to Pay Bonuses

Broken Securities Industry Still Has $20 Billion to Pay Bonuses

By Christine Harper and Serena Saitto

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Five straight quarters of losses and a 70 percent slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.

Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.

The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.

‘‘Critical producers and critical managers will be retained with the same bonus they had last year,'' said Robert Sloan, head of U.S. financial-services recruiting at Egon Zehnder International, a New York-based executive-search firm. ‘‘The others will see sharp cuts.''

Goldman, the biggest and most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 32 percent from $339,400 a year ago. Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.

Merrill's Compensation

The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

The bonus figures are based on estimates that about 60 percent of the compensation and benefits expenses reported by the companies will be paid in year-end bonuses, as occurred in past years. Average bonuses aren't an indication of how much any employee will receive, since payments range widely from assistants to top traders. Bonuses aren't paid until the end of the fiscal year, so firms could choose to reallocate the funds.

‘‘We are in the process of determining appropriate levels of year-end compensation, and no decisions have been made,'' said Mark Lake, a spokesman at Morgan Stanley. Ed Canaday, a spokesman for Goldman in New York, declined to comment.

Merrill spokeswoman Jessica Oppenheim said the firm's accrued bonuses aren't down as much as those at Goldman and Morgan Stanley because the firm reduced expenses last year, when it also had a loss. Compensation costs are down 18 percent this year, compared with the first nine months of 2006, Merrill's last profitable year.

‘Moratorium on Bonuses'

A worldwide economic slowdown, caused in part by the financial industry's losses, and a U.S. Treasury plan to spend $250 billion of taxpayer money buying stakes in banks, have made pay a political issue this year.

‘‘There should be a moratorium on bonuses,'' Barney Frank, chairman of the House Financial Services Committee, told reporters last week. ‘‘If nobody gave them, there wouldn't be a competitive aspect.''

In Zurich, protesters blocked UBS AG's private-banking branch on Paradeplatz last week to seek curbs on executive pay after Switzerland's largest bank was forced to ask for government aid.

$145 Billion

‘‘I'm just flabbergasted that the financial community has failed to show any sense of leadership on this issue and doesn't seem to understand how angry people are at them,'' said Nell Minow, editor of Corporate Library, a Portland, Maine-based corporate-governance research firm. ‘‘They are just a bonus away from having the villagers come after them with torches.''

New York-based Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports. That's more than the annual gross domestic product of the Philippines. Last year the firms paid out a record $39 billion.

At the end of this year, companies may decide against paying the money accrued for bonuses and instead use part of it to cover severance costs, said Rose Marie Orens, a New York-based partner at Mercer, the human resources consulting unit of Marsh & McLennan Cos., who specializes in executive compensation for financial- service companies. Goldman and Morgan Stanley end their fiscal year in November, and Merrill's ends in December.

Lehman Bankruptcy

‘‘Whether what you see is what they're going to pay, you can't tell yet,'' she said. ‘‘It's highly unlikely they'll add to those numbers and more likely they'll bring them down.''

Lehman filed for bankruptcy on Sept. 15. Merrill Lynch and Bear Stearns were rescued in emergency sales to Charlotte, North Carolina-based Bank of America and JPMorgan Chase & Co. in New York. Goldman and Morgan Stanley are each receiving $10 billion of capital from the government.

Bank of America is offering Merrill's U.S. brokers bonuses of as much as 100 percent of the revenue they generate to keep them after the deal is complete, people briefed on the plan said last week. Scott Silvestri, a spokesman for Bank of America, declined to comment.

Employees at Lehman Brothers in Europe have been promised by their new owner, Nomura Holdings Inc., that they will receive the same bonus as last year, according to two people familiar with the situation. A Nomura spokesman declined to comment.

Earnings Slump

Share prices and profits have dropped more than bonuses so far. Goldman's profit has fallen 47 percent this year, and the stock is down 53 percent. Morgan Stanley's earnings have tumbled 41 percent, and the shares have shed 69 percent of their value.

‘‘Performances have certainly not been what investors would expect,'' said Daniel Moynihan, a principal at Compensation Resources Inc., a 25-year-old company in Upper Saddle River, New Jersey that advises companies on pay practices. Still, ‘‘smart companies are going to reward those people who performed well,'' he said.

Even without bonuses, Wall Street's traders and bankers typically receive salaries that range from $80,000 to $600,000 a year. That compares with the mean annual wage for the average U.S. employee of about $40,690 and a mean for CEOs of $151,370, according to a May 2007 Bureau of Labor Statistics report.

For many on Wall Street, those salaries aren't enough. Top employees expect to receive bonuses that can be in the millions or tens of millions of dollars. Lloyd Blankfein, 54, Goldman's chief executive officer, was awarded a $67.9 million bonus last year on top of his $600,000 salary.

‘Obscene' Mindset

At Merrill Lynch, CEO John Thain, 53, received a $15 million bonus when he was hired in December. Peter Kraus, 56, who is leaving after joining Merrill last month as strategy head, may be eligible to collect on a pay package originally valued at $95 million, including stock and options that replaced a Goldman stake he had to forfeit, people familiar with the matter have said.

While some of the most senior executives may choose to forgo their bonuses, like Morgan Stanley CEO John Mack, 63, did last year, others whose compensation isn't disclosed can still take home millions, said Mercer's Orens.

At investment banks, ‘‘the largest compensation doesn't necessarily get paid to the top five executives,'' she said. ‘‘They could be zeros, but there still will be people making $28 million.''

‘‘When you work on Wall Street and you get no bonus, that is a huge shock to the system,'' said Bill Coleman, chief compensation officer at Salary.com, a software provider based in Waltham, Massachusetts. ‘‘Wall Street has created this mindset that most people find obscene, which is that it's hard to live on just half a million dollars a year.''

‘No Wall Street'

A Morgan Stanley investment banker in Europe, speaking on the condition that he wouldn't be identified, said his bonus last year was five times his salary and that he would quit if he didn't get a bonus this year, unless his salary was doubled.

‘‘There is no Wall Street without bonuses,'' said Andy Kessler, a former analyst and hedge-fund manager turned author. ‘‘The guys who know how to make money are the ones who are in demand. If you want to keep them, you have to pay them something.''

More than 148,000 financial jobs have been eliminated worldwide since the middle of 2007, according to data compiled by Bloomberg. Securities industry jobs in New York fell by 9,000, or 5 percent, through August 2008, the Federal Reserve Bank of New York said in an Oct. 23 report. The mean annual salary of securities-industry employees in 2007 was ‘‘slightly less than $400,000,'' according to the Fed report.

Goldman Cuts

Goldman Sachs plans to cut about 3,200 people, or 10 percent of its employees, a person familiar with the matter said last week. That's a reversal from Sept. 16, when Chief Financial Officer David Viniar said he expected the number of employees to grow this year. Viniar told analysts in March that compensation costs make up two-thirds of the firm's expenses and that year-end bonuses are roughly two-thirds of compensation.

More job reductions are likely, especially at Merrill and Lehman. About 10,000 Merrill employees may lose their jobs, estimates Richard Bove, an analyst at Ladenburg Thalmann & Co. Options Group, a financial services recruitment and consulting firm in New York, estimates that global banking job cuts could reach 200,000, with as many as 50,000 in New York.

‘‘The vast majority of the guys who are being let go are not going to find another job in this environment on the Street,'' said Fred Joseph, the former CEO of Drexel Burnham Lambert Inc. who's now co-head of Morgan Joseph & Co. in New York. ‘‘Middle- market firms like us are growing, but all of us won't hire enough people to dent the 10 percent of people that Goldman's going to let go.''

Hedge Funds

Barclays Plc, which is acquiring Lehman's North American investment banking and capital markets businesses, will cut about 3,000 jobs, Barclays President Robert Diamond said in an Oct. 10 Fortune magazine article. While London-based Barclays has a $2.5 billion pool of money to pay severance and other compensation, it hasn't promised former Lehman employees any bonuses. Seth Martin, a spokesman at Barclays, declined to comment.

Competition for top employees, a standard explanation for paying large bonuses, is less fierce this year. Hedge funds, which have poached top traders from securities firms in the past, may cut as many as 10,000 jobs this year after their biggest losses in more than 20 years, estimates Options Group.

‘‘People don't have a whole lot of alternative places to go to, and it's pretty clear to everybody that they're lucky to have a job,'' said Roy Smith, a former Goldman partner who's now a finance professor at New York University's Stern School of Business. ‘‘It has never been easy to find industries away from finance where you can make millions of dollars a year.''

Who Are Keepers?

Fewer employees means more bonus money will be available for those who remain, said Mercer's Orens.

‘‘You determine these are keepers, and you've got to keep them, so they'll receive a disproportionate amount of the money that remains,'' she said. ‘‘You want to make sure they're not there and angry.''

Joseph, the former Drexel CEO, recalled the time at Shearson Hammill & Co. in 1973 when he had to deliver some good news and some bad news to a young employee.

‘‘The good news is we're firing half your class, but we love you and we want you to stay; the bad news is you're not going to get a bonus, and we're cutting salaries 10 percent,'' he said. ‘‘He stayed and he built a whole career, and he's been a successful investment banker ever since.''

Call This a Crisis? Just Wait

Call This a Crisis? Just Wait

Actually, don't wait, because we've got to stop a bigger economic disaster in the making: 78 million baby-boomers eligible for Social Security and Medicare.

By David M. Walker, former U.S. Comptroller General

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Staring into the abyss always focuses the mind, which can help you avoid falling in. So let's take a look at the potential catastrophe that awaits us once we survive our current crisis.

At the dawn of the 21st century the U.S. had $5.7 trillion in total debt. As we approach the end of George W. Bush's presidency only eight years later, that sum has nearly doubled, thanks to war costs, tax cuts, spending increases, expanded entitlement programs, and now a welter of government bailouts and rescues.

This year was particularly bad. The federal budget deficit for fiscal 2008 hit $455 billion, up from $162 billion last year. That figure does not include the cost of the Emergency Economic Stabilization Act of 2008, which has an initial pricetag in the hundreds of billions of dollars. In fairness, some of that money presumably will come back to the Treasury, since the new rescue-related sums will be used to acquire preferred stock, mortgages, and other assets that someday could be sold at a profit.

Yet any such calculations are penny ante compared with the fiscal disaster that is bearing down on America. It's no longer an event in the misty future. It officially began earlier this year when teacher Kathleen Casey-Kirschling of Maryland became the first baby-boom retiree to collect Social Security benefits. She will be followed by about 78 million more boomers over the next 17 years.

The entitlements due from Social Security and Medicare present us with that frightening abyss. The costs of these current programs, along with other health-care costs, could bankrupt our country. The abyss offers no assets, troubled or otherwise, to help us cross it.

Yes, some have suggested less-than-revolutionary measures that could help. Among them: budget savings that would accrue from repealing the Bush-era tax cuts, ending the Iraq war, or expanding the economy after the current downturn runs its course. But even if the economy were to grow at the level of 3.2% a year, as it did in the 1990s, and these other savings were achieved, they wouldn't come close to addressing our federal financial problem.

Nor can we be complacent about timing. The costs of these programs start to threaten our solvency in the next several years. The only way to get across the chasm is to begin making tough choices now to change our current course. Delay will make the problem worse.

In fact, the deteriorating financial condition of our federal government in the face of skyrocketing health-care costs and the baby-boom retirement could fairly be described as a super-subprime crisis. It would certainly dwarf what we're seeing now.

The U.S. Government Accountability Office (GAO), noting that the federal balance sheet does not reflect the government's huge unfunded promises in our nation's social-insurance programs, estimated last year that the unfunded obligations for Medicare and Social Security alone totaled almost $41 trillion. That sum, equivalent to $352,000 per U.S. household, is the present-value shortfall between the growing cost of entitlements and the dedicated revenues intended to pay for them over the next 75 years.

Why call it a super-subprime crisis? Besides its gigantic scale, there are very disturbing similarities between the current mortgage-related crisis and our next potential disaster.

First, like the securitized investment vehicles that blew up, federal programs were launched without adequately thinking through who would bear the ultimate cost and related risk. Just as originators of mortgages let themselves off the hook by unloading packages of dubious loans onto others, lawmakers have increased spending, expanded entitlement programs, and cut taxes while expecting future generations to pay the bill.

Second, just as a lack of transparency associated with mortgage-backed securities resulted in big surprises and large losses for investors, our nation's huge off-balance-sheet obligations for Social Security and Medicare present a threat wrapped in camouflage. After all, the government's "trust funds" don't really provide much security since they don't hold anything but more government debt.

Third, in the same way that private sector "risk management" executives failed to prevent the subprime mortgage crisis, overseers in Congress and the executive branch have turned a blind eye to costs associated with entitlement programs and tax cuts. While lax regulation of banks fed the current subprime crisis, a lack of statutory budget controls has led to a widening gap between the government's revenues and costs.

At the heart of these problems is our leaders' collective failure to act in the face of known challenges. Our country has veered from its founding principles, which held to individual responsibility and accountability today in order to create more opportunity tomorrow. When our constitution was written, the concepts of thrift and prudence were no less at the center of the American spirit than liberty and justice.

Message Of Massacre Lives On For Palestinians

Message Of Massacre Lives On For Palestinians

By Jonathan Cook

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In a conflict that has produced more than its share of suffering and tragedy, the name of Kafr Qassem lives on in infamy more than half a century after Israeli police gunned down 47 Palestinian civilians, including women and children, in the village.

This week Kafr Qassem’s inhabitants, joined by a handful of Israeli Jewish sympathisers, commemorated the anniversary of the deaths 52 years ago by marching to the cemetery where the victims were laid to rest.

They did so as the local media revisited the events, publishing testimonies from two former senior police officers who recalled the order from their commander to shoot all civilians breaking a last-minute curfew imposed on the village, which lies just inside Israel’s borders.

The two men, who were stationed at villages close to Kafr Qassem, suggested that, had they not personally disobeyed the order when confronted with Palestinians returning from work, the death toll would have been far higher.

Taking part in the annual march was one of the few survivors of the massacre. Saleh Khalil Issa is today 71, but back in 1956 he was an 18-year-old agricultural worker.

He remembered returning to the village on his bicycle, along with a dozen other workers, just after 5pm on 29 October 1956.

What he and the other villagers did not know was that earlier that day the Border Police, a special paramilitary unit that operates inside both Israel and the occupied territories, had agreed to set up checkpoints unannounced at the entrance to half a dozen Palestinian villages inside Israel.

The villages were selected because they lie close to the Green Line, the ceasefire line between Israel and Jordan, which was then occupying the West Bank, following the 1948 war.

At a briefing the commanding officer, Major Shmuel Malinki, ordered his men to shoot any civilian arriving home after 5pm.

Asked about the fate of women or children returning late, Malinki replied: “Without sentiment, the curfew applies to everyone.” Pressed on the point, he responded in Arabic: “Allah yarahmum [God have mercy on them]”, adding that this was the order from the brigade commander, Colonel Issachar Shadmi.

Mr Issa said that, when his group reached the village, they were stopped by three policemen. “They told us to get off our bikes and form a line. The commander asked where we were from. When we replied ‘Kafr Qassem’, he took three steps back and told his colleagues, ‘Cut them down!’”

Mr Issa, who was shot in the arm and leg, pretended to be dead among the bodies. He heard villagers’ cars arriving and the policemen ask the same question. Each new arrival was executed.

“Finally, I heard a bus arrive with female passengers, including young girls. I later learnt that there were 12 of them on board. They were forced to get out and shot too, though one survived like me.”

Mr Issa said the policemen checked to see if any of the victims were moving, and then fired more bullets at them. While the police officers were not watching, he crawled away and hid behind a tree. He was found the next morning and taken to a hospital in nearby Petah Tikva, along with 12 other injured.

Of the dead, seven were children and nine women, including one who was pregnant.

Mohammed Arabi, today 84, arrived at the same checkpoint later that evening. A tailor, he had spent the day in Tel Aviv buying materials and hitched a lift home in the back of a truck with 26 other villagers.

When the driver tried to drop 11 of them off just outside the village, they came under fire. The 11 jumped back into the truck, he said, and the driver sped up the hill towards the village.

“When we reached the entrance to the village, we saw bodies everywhere. The driver panicked, frightened to go back, but forced to drive over several corpses lying in the street to get away.”

A short distance ahead, however, a detachment of policemen stopped them. Mr Arabi overheard a debate between the policemen about whether to let them go home or take them to the eastern side of the village.

“I knew what was being suggested. The eastern side was the border with the West Bank. Palestinians were regularly shot on sight by the police for trying to cross into Israel. If we were killed there, it would look like we were infiltrators.”

The commander said he would follow behind the truck in his jeep and escort them to the village’s eastern entrance.

“We were saved by a shepherd who at that moment was driving a large flock of sheep into the village. The sheep separated us from the police, and the truck driver saw his chance. He drove off at top speed and escaped.

“He took us to his home and all 27 of us hid there for three days, too frightened to come out.”

Despite the appalling loss of life, Israel has been slow to come to terms with the massacre. Mr Issa and other villagers were repeatedly arrested in subsequent years as they tried to stage a commemoration.

On the insistence of the government, the plaque erected in the village square to commemorate the deaths refers to the event as a “tragedy” rather a “massacre”. No government official has ever attended the annual march.

Kafr Qassem had to wait until December last year to receive what some interpreted as an official apology. President Shimon Peres, who in 1956 headed the Defence Ministry, told the villagers that “in the past a very serious event occurred that we greatly regret”.

In another possible sign of shifting attitudes, the Israeli media re-examined the massacre this month by interviewing two former officers in the Border Police who were given the task of imposing the last-minute curfew on villages neighbouring Kafr Qassem.

The curfew was imposed in the immediate build-up to Israel’s surprise attack on the Sinai as part of the Suez war.

According to Israeli historian Tom Segev, it later emerged that the decision to seal off the villages was one element of a contingency plan to expel the inhabitants to Jordan under cover of the war. Mr Arabi pointed out that the entrances to Kafr Qassem were shut on three sides, leaving open only an exit to the West Bank.

The government hushed up the massacre for two months. Excerpts from the Israeli state archives released in 2001 reveal a heated cabinet debate as ministers argued about whether to try the police officers in secret.

The prime minister of the day, David Ben-Gurion, eventually decided to go public, adding that “those who gave the order will get a strict verdict. I don't think the soldiers are guilty.”

In fact, the Israeli media reported at the time that the policemen involved “all received a 50 per cent increase in their salaries” and that they were treated in the courtroom “as heroes”.

When a trial was held, the commander, Col Shadmi, was found guilty of making an “administrative error” and fined a penny. Although his men received lengthy prison terms, they were pardoned and released after a short time.

Several went on to distinguished careers in public service, including Lieutenant Gavriel Dahan, who carried out the executions in Kafr Qassem. He was later appointed head of Arab affairs in the mixed town of Ramle.

Mr Issa, who was called to testify, said: “The trial was a farce. It was a game, to make it look as though they were dealing with the matter seriously.” He was later awarded 700 lire compensation, less than a year’s wage.

The main outcome of the trial was a recommendation from the court that some orders were “manifestly unlawful” and should be disobeyed – or what has come to be referred to as a “black flag order”.

This month the Haaretz newspaper published lengthy interviews with two surviving former Border Police officers who were part of a team charged with enforcing the curfew.

They admitted that Major Malinki had urged them to shoot civilians at the briefing.

Nimrod Lampert, now aged 74 but then a 22-year-old lieutenant posted at Kafr Bara, recalled that Malinki thought “it would be desirable to have a few people killed in each village … It was also clear to me that Malinki's order was effectively to murder people in cold blood.”

When faced with villagers arriving after the 5pm curfew, Lampert ignored his instructions and told his men to spare them.

Lampert remembered the company commander Haim Levy’s arrival at Bara. “He asked, ‘Well, not one person has been killed here? In other places people have been killed.’ I replied: What to do – should we take people out of their homes and shoot them?”

As news of the massacre broke, Lampert was ordered to drive to Kafr Qassem. “When I got there I thought I was going to pass out. There was no one there – only dozens of bodies scattered everywhere.”

Lampert said that during the subsequent trial his fellow officers “were very angry with me for not doing what they did … I also received threats on my life. For two years after the trial I received telephone threats.”

Lampert was not alone in refusing the order. Binyamin Kol, now 77, was 25 in 1956 and the senior officer assigned to the village of Jaljulya.

A refugee from Nazi Germany, he had experienced Kristallnacht in 1938 when Nazi troops conducted a pogrom against the local Jewish population. He was saved when a Nazi policeman warned him: “Run home fast, boy.”

Remembering that moment 18 years later as Arab workers arrived at his checkpoint, he said: “I fired in the air and shouted in Arabic – ‘Yallah, go home fast’ – just like the German policeman who warned me on Kristallnacht.”

Like Lampert, Kol admitted to feeling ashamed during the trial for refusing to obey his orders. He testified in court that, when he heard about the growing number of dead in Kafr Qasem, he felt “envious” of the commander there, Lieutenant Dahan.

Analysing the transcripts of the trial, Mr Segev has noted that the reason why many of the policemen followed a “manifestly unlawful” order was because of a general racism in Israeli society: “They hated Arabs”.

The threat of expulsion continues to haunt the inhabitants of Kafr Qassem and its neighbouring villages. It is the main platform of Avigdor Lieberman, a politician who was appointed deputy prime minister at one point in Ehud Olmert’s government.

Mr Arabi observed that the massacre at Kafr Qassem had changed Palestinians’ response to Israeli violence. “In the 1948 war, many people fled when faced with the Israeli army, expecting to return after the fighting. After Kafr Qassem, Palestinians learnt that Israel did not play by the rules of war. We learnt that sumud [steadfastness] was our only defence.”

Jonathan Cook is a writer and journalist based in Nazareth, Israel. His latest books are "Israel and the Clash of Civilisations: Iraq, Iran and the Plan to Remake the Middle East" (Pluto Press) and "Disappearing Palestine: Israel's Experiments in Human Despair" (Zed Books). His website is www.jkcook.net.

Chevron profits hit new record of $7.89 billion

Chevron profits hit new record of $7.89 billion

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Chevron Corp.'s earnings more than doubled in its third quarter and soared to a new quarterly record of $7.89 billion, the East Bay energy giant reported Friday.

Chevron's profits equated to $3.85 a share. One survey of analysts had predicted profits of $3.25 a share. The third quarter profits jumped 112 percent from the year-ago quarter, when net income totaled $3.72 billion.

San Ramon-based Chevron also noted strong results for its upstream operations — production, development and exploration — and its downstream activities— refinery operations and retail sales.

"Earnings for our upstream operations benefited from prices for crude oil that were significantly higher than in last year's third quarter," said David O'Reilly, chairman and chief executive of San Ramon-based Chevron. "Earnings for our downstream operations also increased from a year ago, due mainly to improved margins on the sale of refined products."

Bailout funds being spent in ways Congress never foresaw

Bailout funds being spent in ways Congress never foresaw

Kevin G. Hall

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After a bruising battle to get it through a doubting Congress, the Bush administration's $700 billion Wall Street rescue plan to purchase distressed mortgages and other bad assets has morphed into something else entirely.

Today the Emergency Economic Stabilization Plan, signed by President Bush on Oct. 3, involves the government taking direct equity stakes in banks, and at least one bank used the money to buy a rival. The taxpayer money's also expected to be used to buy stakes in life insurance companies, and may soon even go to help two struggling Detroit automakers merge.

In short, what once was disparagingly referred to as bailout for Wall Street now looks like a broader bailout of all sorts of troubled businesses. Some lawmakers and outside analysts question whether that's serving the public interest as intended — or whether it's becoming a taxpayer-financed giveaway to favored firms.

"I could say I told you so," said Rep. Joe Barton, R-Texas, who helped lead a revolt against GOP leaders and sunk the $700 billion plan on its first pass. "It was so open-ended and we put so little accountability into it, they can basically do whatever they want to with the money."

Lawmakers in both parties worried when the Treasury Department announced on Oct. 14 that $250 billion of the $700 billion plan would be used to inject cash directly into troubled banks. That pushed Treasury's previous emphasis on purchasing troubled mortgage assets to the back burner.

Some $125 billion was used to take equity stakes in the nine largest U.S. banks, and now lenders across the nation can ask, through Nov. 14, for more. At least a dozen other banks have done so.

In an interview with McClatchy, Massachusetts Rep. Barney Frank, the House Financial Services Committee chairman, who shepherded the legislation through Congress, disagreed that the plan has morphed beyond its original intent.

"Buying equity was always in the plan," he insisted. Still, he said he'd hold a Nov. 18 hearing to look at some of the developments that are troubling other lawmakers.

Among them is the fact that Pittsburgh-based PNC Financial Services used some of its $7.7 billion in taxpayer money to purchase Cleveland-based lender National City for $5.8 billion on Oct. 24.

That raised a question: Did the taxpayer money spur more lending, as the plan was intended to do, or did it just let one strong bank, PNC, get stronger by absorbing a weaker rival?

Some experts think that's just fine.

"I think it is very positive if it's a healthy bank buying a weak bank, and it's an all-stock deal," said Bert Ely, an expert on banking regulation. PNC's purchase of National City was in the taxpayer interest because it promoted an orderly and needed consolidation in the banking sector, he said.

However, on the same day as the PNC deal, the American Council of Life Insurers confirmed that Treasury was considering giving cash to some big insurance companies whose failure could pose risks to global finance.

"The purpose (of the rescue plan) is not to sell life insurance policies," Frank acknowledged, noting that Treasury hadn't told him that it might take stakes in insurers, too.

Yet another concern is that banks that receive cash from the government were allowed to continue to pay dividends to shareholders. That raises the prospect that taxpayer money will be funneled not to new lending but to well-heeled investors who buy bank stocks.

That's unlikely, the Bush administration insists.

Ed Lazear, the chairman of the White House Council of Economic Advisers, said on Thursday that he isn't worried that banks will use taxpayer money to pay shareholders because it's in their own interest to lend.

"So if they take that money and simply pay interest on it or pay dividends on it and don't lend it out and make money themselves, that's not a very good position for them to be in," he said.

Now, in perhaps the bailout's strangest twist, reports this week said that negotiations to merge General Motors and Chrysler hang on the government providing cash injections into the carmakers' auto-financing arms. For that to work though, the auto-finance arms first must convert themselves into commercial banks to be eligible for taxpayer loans.

It's all a far cry from Treasury's sales pitch of September — that the rescue plan would provide a two-for-one, rescuing banks and homeowners in one fell swoop.

"It really highlights that if you are not working from a set of core principles, you can drift. And this rescue package has drifted," said Vincent Reinhart, a former top Federal Reserve director from 2001 to 2007 and now a senior fellow at the American Enterprise Institute, a conservative research group.

John Coffee, a law professor at Columbia University in New York and adviser to Wall Street regulators, said the government missed an opportunity by taking equity stakes in banks without attaching requirements that they use the bailout funds for new loans to spur the economy.

"If we could do this all over again . . . you could have conditioned the loan (plan) on how the proceeds could be used," he said. "Some banks are still hoarding the money . . . and others simply are not interested in lending in areas where they classically lent, like construction lending, because they see a major recession coming. . . .

"Before this is over that we're going to have casinos in Las Vegas reconstituting themselves as bank holding companies" and applying for government loans, Coffee warned.

Other experts are more forgiving.

"I think Treasury's thought is that whatever risk they may run by creating confusion about the program is outweighed by the risk of failing to plug the holes in the financial dike, on a case by case basis, as they seem to be emerging. This is not an unreasonable judgment," said Robert Litan, an expert on regulation and banking for the Brookings Institution, a center-left policy research center.

There is no playbook for getting out of financial crisis like the current one, he said.

"This is like the New Deal on speed, or on Internet time. Treasury is trying to do its best to stop each potential crisis as it pops up," Litan said. "Another metaphor, Treasury's decision-making reminds me of 'whack a mole.'"

CIA officers could face trial in Britain over torture allegations

CIA officers could face trial in Britain over torture allegations

Attorney General to investigate abuse claims

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Senior CIA officers could be put on trial in Britain after it emerged last night that the Attorney General is to investigate allegations that a British resident held in Guantanamo Bay was brutally tortured, after being arrested and questioned by American forces following the terrorist attacks on New York and Washington in 2001.

The Home Secretary Jacqui Smith has asked Baroness Scotland to consider bringing criminal proceedings against Americans allegedly responsible for the rendition and abuse of Binyam Mohamed, when he was held in prisons in Morocco and Afghanistan.

The development follows criticism of US prosecutors by British judges who have seen secret evidence of torture committed against Mr Mohamed, including allegations his torturers used a razor blade to repeatedly cut his penis. The Attorney's investigation is expected to include allegations that MI5 colluded in Mr Mohamed's rendition. Mr Mohamed, 30, an Ethiopian national and British resident, was arrested in Pakistan in 2002, when he was questioned by an MI5 officer.

On Tuesday, Government lawyers wrote to the judges hearing Mr Mohamed's case against the UK government in the High Court. In the letter they said "the question of possible criminal wrongdoing to which these proceedings has given rise has been referred by the Home Secretary to the Attorney general for consideration as an independent minister of justice". Baroness Scotland has been sent secret witness statements given to the court and public interest immunity certificates for the proceedings.

Mr Mohamed, 30, accuses MI5 agents of lying about what they knew of CIA plans to transfer him to a prison in north Africa, where he claims he was subjected to horrendous torture. Mr Mohamed, who won asylum in the UK in 1994, has been charged with terrorism-related offences. He awaits a decision on whether he is to face trial at the US naval base. He is officially the last Briton at Guantanamo. Last night his lawyer, Clive Stafford Smith, said: "This is a welcome recognition that the CIA cannot just go rendering British residents to secret torture chambers without consequences, and British agents cannot take part in US crimes without facing the music. Reprieve will be making submissions to the Attorney General to ensure those involved, from the US, Pakistan, Morocco, Britain, are held responsible."

Richard Stein, of Leigh Day, representing Mr Mohamed in the High Court proceedings, said: "Ultimately the British Government had little choice once they conceded that a case had been made that Binyam Mohamed was tortured. The Convention Against Torture imposes an obligation on signatory states to investigate torture."

In August two judges ruled allegations of torture were at least arguable and that MI5 had information relating to Mr Mohamed that was "not only necessary but essential for his defence".

The judges have read statements and interviews with Mr Mohamed between 28 and 31 July, 2004 when he says he was forced to confess to terrorism. The judges said: "This was after a period of over two-and-a-half years of incommunicado detention during which Binyam Mohamed alleges he was tortured."

He was first held in Pakistan in 2002, where a British agent interrogated him; he was then sent to Morocco by the CIA and allegedly tortured for 18 months. He was rendered to the secret "Dark Prison" in Afghanistan, where his torture is alleged to have continued. Since September 2004, he has been in Guantanamo Bay.

Undervotes: The Scary Canary

This Year’s Butterfly Ballot

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In Florida’s “butterfly ballot” debacle of 2000, voters in Palm Beach County were so confused by the odd layout that many appear to have voted for the wrong candidate by mistake. At the time, there was a lot of talk about improving ballot design. Eight years later there are still far too many badly done ballots. North Carolina may have the country’s worst. It is already causing confusion with early voters. And if the presidential race is close, it could change the outcome.

Like a number of states, North Carolina allows its voters to choose a straight-party ticket. To do that, voters can mark one box and cast votes for all of the nominees of their preferred party. But North Carolina’s ballot has an unexpected twist. Even if a voter checks the straight-party box, he or she must vote separately for a presidential candidate.

North Carolina’s ballot explains the need to check two boxes, and election officials make an effort to inform voters of the drill. But the ballot is still far too confusing.

This peculiar form of straight-ticket voting was adopted in the 1960s, to help the state’s Democrats keep getting elected, even as a growing number of voters began to choose Republicans for president. Not surprisingly, North Carolina has an unusually high rate of undervotes, ballots that do not record a vote for president. In the last two presidential elections, the rate has been about double the national average.

Poor ballot design is a burden on all voters. Less-educated voters and the newly enrolled are even more likely to be confused and to end up not casting a vote for president.

This year, North Carolina’s flawed ballot could again result in tens of thousands of votes being lost. That is particularly worrisome since polls indicate a very close presidential race in the state. And as we saw in 2000, a presidential election can be decided by a mere 537 votes.

It is too late to change the ballot for this year’s election, so election officials must do everything they can to explain to voters how the state’s straight-ticket voting works. When the election is over, North Carolina needs to include the presidential race in its straight-ticket voting, or require voters to choose candidates one by one.

Election Protection By Amy Goodman

Election Protection

By Amy Goodman

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Election Day approaches, and with it a test of our election system’s integrity. Who will be allowed to vote; who will be barred? Who will get paper ballots; who will use electronic voting machines? Will polls be open long enough to accommodate what is expected to be a historic turnout?

Veteran activist Harvey Wasserman has co-written four books on elections and voter rights. He says John Kerry won Ohio in 2004. Why look back? Wasserman is concerned about the attempt by the Ohio Republican Party, with help from the Bush White House, to challenge the registration of new Ohio voters:

“The GOP is trying to disenfranchise these 200,000 people by challenging their right to vote, asking the secretary of state here, Jennifer Brunner, to let the counties investigate and knock off the voter rolls, if they choose to, people who have minor discrepancies in their Social Security numbers or driver’s license numbers. And the secretary of state has rightfully showed that many of these mistakes come from typographical errors when the numbers are entered in at the agencies.”

The U.S. Supreme Court ruled that only the U.S. Department of Justice can purge these new registrants from the voter rolls. Republican House Minority Leader John Boehner, of Ohio, and President Bush urged U.S. Attorney General Michael Mukasey to take action, potentially purging these 200,000 people. Advocates feared the homeless in Ohio would be disenfranchised because they lack a traditional address or identification (Wasserman notes that many of them may be veterans). U.S. District Judge Edmund Sargus ruled that Ohio counties must allow voters who list their addresses as park benches or other non-building locations.

Wasserman’s two main concerns about the integrity of the election are mass disenfranchisement through computerized purging and the failures of electronic voting machines, which can skew vote tallies and cause impossibly long lines at polling places (as can the provision of too few voting machines, whether they work well or not). These issues are both coming to a head in Colorado. There, Secretary of State Mike Coffman, a Republican who is also running for Congress, has been sued by Common Cause, Mi Familia Vota and the Service Employees International Union for purging 30,000 voters within a 90-day window before an election. Six thousand seven hundred new registrants were purged for failing to check a box on the voter-registration form. Colorado has seen enthusiastic participation in early voting (some estimates nationally put the number of early voters at an astounding 10 million, with days to go), and also has seen many voters opt for mail-in ballots. However, more than 11,000 voters in Denver did not receive their mail-in ballots because of a mistake made by Sequoia Voting Systems, the company that was supposed to have delivered 21,000 ballots to a Denver mail-processing facility on Oct. 16. Election officials promise the ballots will be delivered.

Brad Friedman of BradBlog.com told me: “Sequoia is one of the big-four voting-machine companies. Of course, they have failed in state after state.” Friedman also reports on “vote flipping,” a problem with electronic, touch-screen voting machines. “It’s West Virginia, it’s Tennessee, it’s Texas, Missouri, Nevada ... people go in and vote for a Democratic straight-party ticket or for Barack Obama, and the vote flips to a Republican or some other candidate.” The companies claim the machines can be calibrated to work properly. Friedman disagrees: “These machines need to be pulled out, because even when they work, the problem is that there is absolutely no way to ever verify that any vote ever cast on a touch-screen machine like this has been recorded as per the voter’s intent.”

In response to video of Georgia early voters waiting eight hours, Friedman blogged: “Thank you to those voters who were willing to hang in there! Shame on you to those officials who set up this system that can’t even accommodate the limited numbers of early voters! God save us all next Tuesday. Stay strong and brave people!”

The National Association for the Advancement of Colored People has sued Virginia’s Democratic governor, Tim Kaine, on the grounds that he is unprepared to deal with a massive onslaught of voters there Nov. 4. Virginia is not among the 31 states with early voting.

Thousands of lawyers and citizen-activists will be monitoring the polling places on Election Day. People are posting videos of election problems at videothevote.org. When you go to cast your vote, take a friend or neighbor, take your ID and take a camera as well. Election protection is everyone’s job.

The Triumph of Ignorance: How Morons Succeed in U.S. Politics

The Triumph of Ignorance: How Morons Succeed in U.S. Politics

By George Monbiot

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How was it allowed to happen? How did politics in the United States come to be dominated by people who make a virtue out of ignorance? Was it charity that has permitted mankind's closest living relative to spend two terms as president? How did Sarah Palin, Dan Quayle and other such gibbering numbskulls get to where they are? How could Republican rallies in 2008 be drowned out by screaming ignoramuses insisting that Barack Obama is a Muslim and a terrorist?

Like most people on this side of the Atlantic, I have spent my adult life mystified by American politics. The United States has the world's best universities and attracts the world's finest minds. It dominates discoveries in science and medicine. Its wealth and power depend on the application of knowledge. Yet, uniquely among the developed nations (with the possible exception of Australia), learning is a grave political disadvantage.

There have been exceptions over the past century: Franklin Roosevelt, Kennedy and Clinton tempered their intellectualism with the common touch and survived; but Adlai Stevenson, Al Gore and John Kerry were successfully tarred by their opponents as members of a cerebral elite (as if this were not a qualification for the presidency). Perhaps the defining moment in the collapse of intelligent politics was Ronald Reagan's response to Jimmy Carter during the 1980 presidential debate. Carter -- stumbling a little, using long words -- carefully enumerated the benefits of national health insurance. Reagan smiled and said, "There you go again." His own health program would have appalled most Americans, had he explained it as carefully as Carter had done, but he had found a formula for avoiding tough political issues and making his opponents look like wonks.

It wasn't always like this. The founding fathers of the republic -- men like Benjamin Franklin, Thomas Jefferson, James Madison, John Adams and Alexander Hamilton -- were among the greatest thinkers of their age. They felt no need to make a secret of it. How did the project they launched degenerate into George W. Bush and Sarah Palin?

On one level, this is easy to answer: Ignorant politicians are elected by ignorant people. U.S. education, like the U.S. health system, is notorious for its failures. In the most powerful nation on Earth, 1 adult in 5 believes the sun revolves around the Earth; only 26 percent accept that evolution takes place by means of natural selection; two-thirds of young adults are unable to find Iraq on a map; two-thirds of U.S. voters cannot name the three branches of government; and the math skills of 15-year-olds in the United States are ranked 24th out of the 29 countries in the Organisation for Economic Co-operation and Development.

But this merely extends the mystery: How did so many U.S. citizens become so dumb and so suspicious of intelligence? Susan Jacoby's book The Age of American Unreason provides the fullest explanation I have read so far. She shows that the degradation of U.S. politics results from a series of interlocking tragedies.

One theme is both familiar and clear: Religion -- in particular fundamentalist religion -- makes you stupid. The United States is the only rich country in which Christian fundamentalism is vast and growing.

Jacoby shows that there was once a certain logic to its anti-rationalism. During the first few decades after the publication of Origin of Species, for example, Americans had good reason to reject the theory of natural selection and to treat public intellectuals with suspicion. From the beginning, Darwin's theory was mixed up in the United States with the brutal philosophy -- now known as Social Darwinism -- of the British writer Herbert Spencer. Spencer's doctrine, promoted in the popular press with the help of funding from Andrew Carnegie, John D. Rockefeller and Thomas Edison, suggested that millionaires stood at the top of a scala natura established by evolution. By preventing unfit people from being weeded out, government intervention weakened the nation, according to the doctrine; gross economic inequalities were both justifiable and necessary.

Darwinism, in other words, became indistinguishable to the public from the most bestial form of laissez-faire economics. Many Christians responded with revulsion. It is profoundly ironic that the doctrine rejected a century ago by such prominent fundamentalists as William Jennings Bryan is now central to the economic thinking of the Christian Right. Modern fundamentalists reject the science of Darwinian evolution and accept the pseudoscience of Social Darwinism.

But there were other, more powerful reasons for the intellectual isolation of the fundamentalists. The United States is peculiar in devolving the control of education to local authorities. Teaching in the Southern states was dominated by the views of an ignorant aristocracy of planters, and a great educational gulf opened up. "In the South," Jacoby writes, "what can only be described as an intellectual blockade was imposed in order to keep out any ideas that might threaten the social order."

The Southern Baptist Convention, now the biggest Protestant denomination in the United States, was to slavery and segregation what the Dutch Reformed Church was to apartheid in South Africa. It has done more than any other force to keep the South stupid. In the 1960s it tried to stave off desegregation by establishing a system of private Christian schools and universities. A student can now progress from kindergarten to a higher degree without any exposure to secular teaching. Southern Baptist beliefs pass intact through the public school system as well. A survey by researchers at the University of Texas in 1998 found that 1 in 4 of the state's public school biology teachers believed that humans and dinosaurs lived on Earth at the same time.

This tragedy has been assisted by the American fetishization of self-education. Though he greatly regretted his lack of formal teaching, Abraham Lincoln's career is repeatedly cited as evidence that good education, provided by the state, is unnecessary; all that is required to succeed is determination and rugged individualism. This might have served people well when genuine self-education movements, like the one built around the Little Blue Books in the first half of the 20th century, were in vogue. In the age of infotainment, it is a recipe for confusion.

Besides fundamentalist religion, perhaps the most potent reason why intellectuals struggle in elections is that intellectualism has been equated with subversion. The brief flirtation of some thinkers with communism a long time ago has been used to create an impression in the public mind that all intellectuals are communists. Almost every day, men like Rush Limbaugh and Bill O'Reilly rage against the "liberal elites" destroying America.

The specter of pointy-headed alien subversives was crucial to the elections of Reagan and Bush. A genuine intellectual elite -- like the neocons (some of them former communists) surrounding Bush -- has managed to pitch the political conflict as a battle between ordinary Americans and an overeducated pinko establishment. Any attempt to challenge the ideas of the right-wing elite has been successfully branded as elitism.

Obama has a good deal to offer America, but none of this will come to an end if he wins. Until the great failures of the U.S. education system are reversed or religious fundamentalism withers, there will be political opportunities for people, like Bush and Palin, who flaunt their ignorance.

George Monbiot is the author of Heat: How to Stop the Planet from Burning. Read more of his writings at Monbiot.com. This article originally appeared in the Guardian.

"A Second 9/11": An Integral Part of US Military Doctrine

"A Second 9/11": An Integral Part of US Military Doctrine

By Michel Chossudovsky

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For several years now, senior officials of the Bush administration including the President and the Vice President have intimated, in no certain terms, that there will be "a Second 9/11".

Quotations from presidential speeches and official documents abound. America is threatened:


"The near-term attacks ... will either rival or exceed the 9/11 attacks... And it's pretty clear that the nation's capital and New York city would be on any list..."
(Former DHS Secretary Tom Ridge, December 2003)



"You ask, 'Is it serious?' Yes, you bet your life. People don't do that unless it's a serious situation." (Former Defense Secretary Donald Rumsfeld, December 2003)



"... Credible reporting indicates that Al Qaeda is moving forward with its plans to carry out a large-scale attack in the United States in an effort to disrupt our democratic process...
(Former DHS Secretary Tom Ridge, 8 July 2004)



"The enemy that struck on 9/11 is weakened and fractured yet it is still lethal and planning to hit us again."
(Vice President Dick Cheney, 7 January 2006)



"We are still a nation at risk. Part of our strategy, of course, is to stay on the offense against terrorists who would do us harm. In other words, it is important to defeat them overseas so we never have to face them here. Nevertheless, we recognize that we've got to be fully prepared here at the homeland."
(President George W. Bush February 8, 2006)

"Our main enemy is al Qaeda and its affiliates. Their allies choose their victims indiscriminately. They murder the innocent to advance a focused and clear ideology. They seek to establish a radical Islamic caliphate, so they can impose a brutal new order on unwilling people, much as Nazis and communists sought to do in the last century. This enemy will accept no compromise with the civilized world.... (President George W. Bush, CENTCOM Coalition Conference, May 1, 2007)



"[W]e now have capabilities in science and technology that raise the very realistic possibility that a small group of terrorists could kill not only thousands of people, as they did on September 11th, but hundreds of thousands of people. And that has changed the dimension of the threat we face." (Michael Chertoff, Homeland Security Secretary, Yale University, April 7, 2008.

We're fighting a war on terror because the enemy attacked us first, and hit us hard. ... Al Qaeda's leadership has said they have the right to "kill four million Americans,... For nearly six years now, the United States has been able to defeat their attempts to attack us here at home. Nobody can guarantee that we won't be hit again. ... (Vice President Dick Cheney, United States Military Academy Commencement, West Point, New York, May 26, 2008)

[emphasis added]

Al these authoritative statements point in chorus in the same direction: The enemy will strike again!

"Second 9/11": Historical Background

The presumption of a Second 9/11 has become an integral part of US military doctrine. America is under attack. The US military must respond preemptively.

In the immediate wake of the invasion of Iraq (April 2003), various national security measures were put in place focusing explicitly on the eventuality of a second attack on America. In fact these procedures were launched simultaneously with the first stage of war plans directed against Iran in May 2003 under Operation Theater Iran Near Term (TIRANNT). (See Michel Chossudovsky, "Theater Iran Near Term" (TIRANNT), Global Research, February 21, 2007).

The Role of a "Massive Casualty Producing Event"

Former CENTCOM Commander, General Tommy Franks, in an magazine interview in December 2003, had outlined a scenario of what he described as "a massive casualty producing event" on American soil [a Second 9/11. Implied in General Franks statement was the notion and belief that civilian deaths were necessary to raise awareness and muster public support for the "global war on terrorism":

"[A] terrorist, massive, casualty-producing event [will occur] somewhere in the Western world - it may be in the United States of America - that causes our population to question our own Constitution and to begin to militarize our country in order to avoid a repeat of another mass, casualty-producing event." (General Tommy Franks Interview, Cigar Aficionado, December 2003)

Franks was obliquely alluding to a "Second 9/11" terrorist attack, which could be used to galvanize US public opinion in support of martial law.


General Tommy Franks

The "terrorist massive casualty-producing event" was presented by General Franks as a crucial political turning point. The resulting crisis and social turmoil resulting from the civilian casualties would facilitate a major shift in US political, social and institutional structures, leading to the suspension of constitutional government. (See Michel Chossudovsky, Bush Directive for a "Catastrophic Emergency" in America: Building a Justification for Waging War on Iran? Global Research, June 24, 2007)

Operation Northwoods

The concept of "massive casualty producing event" is part of military planning. In 1962, the Joint Chiefs of Staff had envisaged a secret plan entitled "Operation Northwoods", to deliberately trigger civilian casualties among the Cuban community in Miami (i.e. "staging the assassination of Cuban living in the US") to justify an invasion of Cuba:

"We could blow up a U.S. ship in Guantanamo Bay and blame Cuba," "We could develop a Communist Cuban terror campaign in the Miami area, in other Florida cities and even in Washington" "casualty lists in U.S. newspapers would cause a helpful wave of national indignation." (See the declassified Top Secret 1962 document titled "Justification for U.S. Military Intervention in Cuba" (See Operation Northwoods at http://www.globalresearch.ca/articles/NOR111A.html).

Operation Northwoods was submitted to President Kennedy. The project was not carried out.


To consult the Northwoods Archive click here


Military Doctrine

General Franks was not giving a personal opinion regarding the role of civilian deaths. He was describing a central feature of a covert military-inteligence operation going back to Operation Northwoods.

The triggering of civilian deaths in the Homeland is used as an instrument of war propaganda. The objective is to turn realities upside down. The agressor nation is being attacked. the USA is a victim of war by the State sponsors of Islamic terrorism, when in reality it is the perpetrator of a large scale theater war in the Middle East.

The entire "Global War on Terrorism" construct is consistent with the logic of Operation Northwoods: Civilian casualties in America resulting from the September 11 attacks are used as "a war pretext incident" to galvanize public support for a military intervention in Afghanstan and Iraq.

As of 2005, the presumption of a Second 9/11 had become an integral part of military planning.

Statements emanating from the White House, the Pentagon and the Department of Homeland Security point to a growing consensus on the necessity and inevitability of a second terrorist attack on a major urban area in the US.

In the month following the July 2005 London bombings, Vice President Cheney is reported to have instructed US Strategic Command (USSTRATCOM) to draw up a contingency plan "to be employed in response to another 9/11-type terrorist attack on the United States". The "contingency plan" uses the pretext of a "Second 9/11" to prepare for a major military operation against Iran. (Philip Giraldi, Attack on Iran: Pre-emptive Nuclear War , The American Conservative, 2 August 2005)

In April 2006, the Pentagon, under the helm of Donald Rumsfeld, launched a far-reaching military plan to "fight terrorism" around the World, with a view to retaliating in the case of a second major terrorist attack on America.

The presumption of the Pentagon project was that this presumed attack on America by an outside enemy would result in the loss of American lives, which in turn would be used to justify US military actions in the Middle East war theater. The covert support of US intelligence to Islamic terrorist organizations (the outside enemy) slated to carry out the attacks, was of course not mentioned.

Various "scenarios" of a second 9/11 attack on the Homeland were envisaged. According to the Pentagon a Second attack on America, would serve an important policy objective.

The three Pentagon documents consisted of an overall "campaign plan" plus two "subordinate plans". The second "subordinate plan" explicitly focused on the possibility of a "Second 9/11" and how a second major attack on American soil might provide "an opportunity" to extend the US led war in the Middle East into new frontiers:

"[It] sets out how the military can both disrupt and respond to another major terrorist strike on the United States. It includes lengthy annexes that offer a menu of options for the military to retaliate quickly against specific terrorist groups, individuals or state sponsors depending on who is believed to be behind an attack. Another attack could create both a justification and an opportunity that is lacking today to retaliate against some known targets, according to current and former defense officials familiar with the plan. (Washington Post, 23 April 2006, emphasis added)

Martial Law

Since 2003, various procedures have been adopted regarding the enactment of Martial Law in the case of a so-called "National Catastrophic Emergency".

Under martial law, the military would take over several functions of civilian government including justice and law enforcement.

Initiatives in the area of Homeland Security outlined the precise circumstances under which martial law could be declared in the case of a second 9/11.

In May 2007, a major presidential National Security Directive was issued (National Security and Homeland Security Presidential Directive NSPD 51/HSPD 20) which explicitly envisaged the possibility of a Second 9/11:

NSPD 51 is tailor-made to fit the premises of both the Pentagon's 2006 "Anti-terrorist Plan" as well Vice President Cheney's 2005 "Contingency Plan". (See Michel Chossudovsky, Bush Directive for a "Catastrophic Emergency" in America: Building a Justification for Waging War on Iran?, Global Research, June 24, 2007). The directive establishes procedures for "Continuity of Government" (COG) in the case of a "Catastrophic Emergency". The latter is defined in NSPD 51/HSPD 20, as

"any incident, regardless of location, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the U.S. population, infrastructure, environment, economy, or government functions."

NSPD 51 is predicated on the notion that America is under attack and that the "Catastrophic Emergency" would take the form of a terror attack on a major urban area.

"Continuity of Government," or "COG," is defined in NSPD 51 as "a coordinated effort within the Federal Government's executive branch to ensure that National Essential Functions continue to be performed during a Catastrophic Emergency."

More recently, in May 2008, another National Security Presidential Directive was put forth by the White House entitled Biometrics for Identification and Screening to Enhance National Security (NSPD 59, HSPD 24).

NSPD59 complements NSPD 51. The new directive is not limited to KSTs, which in Homeland Security jargon stands for "Known and Suspected Terrorists", it includes various categories of domestic terrorists, the presumption being that these domestic groups are working hand in glove with the Islamists.

"The ability to positively identify those individuals who may do harm to Americans and the Nation is crucial to protecting the Nation. Since September 11, 2001, agencies have made considerable progress in securing the Nation through the integration, maintenance, and sharing of information used to identify persons who may pose a threat to national security." (NSPD 59)

NSPD 59 goes far beyond the issue of biometric identification, it recommends the collection and storage of "associated biographic""Big Brother" Presidential Directive: "Biometrics for Identification and Screening to Enhance National Security", Global Research, June 2008). information, meaning information on the private lives of US citizens, in minute detail, all of which will be "accomplished within the law" (For further details see Michel Chossudovsky,

NSPD is explicitly directed against American citizens, who are now categorized as potential terrorists.

While "conspiracy theorists" have been accused of cogitating regarding the possibility of a Second 9/11, most of the insinuations emanate from official US sources including the White House, the Pentagon and Homeland Security.

The fact that a "massive casualty producing events" could be used as part of a US foreign policy agenda is diabolical. The official statements are grotesque.

Bipartisan Consensus in the Presidential Election Campaign: "Al Qaeda will Strike Again"



While the presidential election campaign has avoided the issue of a Second 9/11, both candidates have acknowledged the dangers of a second attack. Both Barack Obama and John McCain have underscored their resolve to protect America against Al Qaeda:

[Question: Who's the enemy?] "Al Qaeda, the Taliban, a whole host of networks that are bent on attacking America, who have a distorted ideology, who have perverted the faith of Islam, and so we have to go after them." (Barack Obama in response to Bill O'Reilly, John Gibson News, September 5, 2008

"We have dealt a serious blow to al Qaeda in recent years. But they are not defeated, and they'll strike us again if they can." (John McCain, Acceptance Speech, September 5, 2008)

Mainstream Media Report: "The Need" for a Second 9/11

While the Washington Post leaked the substance of the Pentagon's classified documents pertaining to the "opportunity" of a Second 9/11, the issue has not been the object of mainstream commentary or analysis.

It is worth noting, however, that in an August 2007 Fox News interview, "A Second 9/11" was heralded as a means to create awareness and unite Americans against the enemy.

Broadcast on Fox News, Columnist Stu Bykofsky claimed that America "needs" a new 9/11 to unite the American people, because they have "forgotten" who the enemy is. He also claimed that "there will be another 9/11", and Fox New Anchorman John Gibson concurred. Civilian casualties would contribute to uniting the country and creating awareness:

"it’s going to take a lot of dead people to wake America up" said John Gibson. [emphasis added]

While Stu Bykofsky's controversial article in the Philadelphia Daily News (August 9, 2007) was, at the time, considered as outlandish, what Bykovsky was actually saying was not very different from The Pentagon's ploy (modeled on Operation Northwoods) concerning the role of massive casualty producing events in triggering "a useful wave of indignation".


Transcript Fox News Network

THE BIG STORY WITH JOHN GIBSON

August 7, 2007, 5PM, EST

Columnist Comes Under Fire for Saying "We Need Another 9/11 Attack"

Anchorman: John Gibson

Interview with Columnist Stu Bykofsky

John Gibson: In big security, to save America we need another 9/11. That’s what one columnist is advocating as a way to unite America. Nearly 6 years after the heinous terror attacks he says we have forgotten our enemy. He says the Iraq war has divided the US, the Republicans and Democrats are on the attack over the war, we pulled together after 9/11 but he justifies his controversial statement by saying the united front just didn’t last. And now, bloggers are outraged. Some say the journalist should be fired from his job for suggesting we, quote, “need” another attack. So is this just a means to shock or offend or does this columnist actually have a valid point? Well, he’s here now live to explain: Philadelphia Daily news columnist Stu Bykofsky. So Stu, let me... let’s just say it again. What do you say America needs at this point?

Stu Bykofsky: Well, my thesis here is that we’re terribly divided, there’s disunity in this country, and as a divided country we’re weak. When I look back over what has pulled the country together over the past few years, 9/11 united the country and it remained united and we were all on the same team for at least a year or two.

John Gibson: Stu, but do you mean to say that we arewill be united again, there’s a sort of inevitability to that or that in order to achieve this unity we actually need to suffer? going to be attacked again, we

Stu Bykofsky: Uh, John, I didn’t actually call for an attack on the United States. Uh, I can see where people read it that way but I didn’t actually say it. However, another attack on the United States is inevitable. I believe that, don’t you?

John Gibson: Yes, I do, actually, and I think that it’s going to take a lot of dead people to wake America up. I think the deal, Steve, Stu, I’m sorry...

Stu Bykofsky: It’s okay.

John Gibson: ...is the word “need”. If you say, well, it’s gonna happen and it, you know, Americans are gonna die because we’ve let down our guard – one thing – but when you say we “need” an attack it... especially has riled relatives of the dead.

Stu Bykofsky: John, uh, I can understand them being upset. Are you reading from the headline or from the text of my column which I don’t have in front of me?

John Gibson: Well, that’s a good point. Did you use the word “need” in the text or was it only the headline?

Stu Bykofsky: It’s the headline.

John Gibson: So you don’t actually, you don’t endorse the word “need”?

Stu Bykofsky: Uh, no, I don’t. There was a slight difference. Other people write headlines and it’s not exactly what I was trying to say.

John Gibson: Alright, so...

Stu Bykofsky: But, but if you look at the context...

John Gibson: But, but what you are trying to say is, is that, that somehow we have been, we’ve let down our guard, we’re fighting each other instead of the terrorists and that if we don’t get it together people are going to die.

Stu Bykofsky: That’s absolutely correct. We’re fighting like a group of rabid dogs and our attention should be turned elsewhere. And I also say that the primary reason for that in my opinion is the, uh, the war in Iraq which has been conducted so horribly by the administration.

John Gibson: Stu...

Stu Bykofsky: Not by our troops.

John Gibson: Yeah, okay, I don’t want to get you in further trouble. Stu, uh, what has been the reaction? Did the newspaper switchboard light up?

Stu Bykofsky: Uh, no, we don’t have a switchboard, John. Uh, yesterday when it appeared, the reaction was moderate because I think people in Philadelphia who have been reading me for a long time maybe know what to expect. Then it got posted somewhere outside of Philadelphia and this morning when I came in uh, there were well over a thousand e-mails and more kept coming in during the day. And a lot of calls...

John Gibson: A bunch want you fired, right?

Stu Bykofsky: Pardon?

John Gibson: A bunch of those e-mails want you fired, right?

Stu Bykofsky: Uh, a number of people told me that they were calling my editor and they were going to suggest that he fire me, yes. I don’t think that’s going to happen.

John Gibson: You standing by the column?

Stu Bykofsky: Oh, absolutely.

John Gibson: Stu Bykofsky, down in Philadelphia. Stu, thanks a lot.

(transcribed from original Video)

To view the TV interview click here