Saturday, November 8, 2008

The Severity of Today's Crisis: The Wages of Sin

The Severity of Today's Crisis: The Wages of Sin

by Stephen Lendman

Go To Original

"Reaping the whirlwind" for money manager and market strategist Jeremy Grantham in his latest no-nonsense commentary. Worlds different from most in the mainstream. Cheerleaders in upturns. Downplaying risks. Soft-pedaling reversals and still many in denial about the severity of today's crisis. The virtual certainty of a deep and protracted recession. The likely emergence of a changed world order at its end - for better or worse. The result of what Grantham calls "the poisonous wind we all sowed," and went on to explain it with his customary thoughtful analysis. Calling it like he sees it as one of the earliest to spot the current storm. Even though it arrived sooner and with more severity than he imagined. In that respect, it fooled some of the best and brightest but no longer the ones most credible.

Grantham enumerated 10 "poisonous" elements:

(1) an extended period of excess in: "money supply, loan growth, leverage, and below normal interest rates;"

(2) at a time of a "remarkably lucky global economic" climate he called "near perfect;" in January 2007, he observed that "Against all odds, Goldilocks tiptoed through the perils of the first (2005) and second (2006) year of the Presidential Cycle (and) 2006 was the rarest of rare birds - a perfect year;" it was "the best year in the entire history of finance for the selling of high credit risks at low premiums" and sowed many seeds for the current debacle; it produced what Grantham called "the first truly global bubble in all asset classes everywhere with only a few modest exceptions;"

(3) as asset bubbles inflated, the Fed, SEC, Treasury, and (both parties in) Congress dismantled regulations instead of tightening them; they sanctified leverage and rejected efforts to curtail risks; worse still, they "encouraged (extreme) excesses by admiring the ingenuity of new financial instruments and repeated their belief that no bubbles existed and that housing at the peak 'merely reflected a strong US economy;' " when conditions headed south, a "strong economy" was still the near-universal mantra;

(4) the combination of a favorable climate and cheerleading by authorities "produced an even more poisonous bubble - that in risk-taking itself;" the idea was that in the event of trouble, moral hazard would ride to the rescue, so go as far out on limbs as you like;

(5) the "concept of rational expectations, or market efficiency," laid deadly groundwork; the idea that we're "far too sensible" to let major bubbles appear let alone get out of control; the notion is nonsensical on its face; in the "real world of greed and fear, it dangerously encourages the belief that if you take more risk you will automatically receive more reward;" true enough in calm markets, but in turbulent ones it's disastrous; astonishingly, investors were lulled to think that until mid-2007, market conditions "were actually paying to take risks for the first time in history;"

(6) these bubbles burst like all previous ones; unsurprisingly, they were "absolutely not outlier events;"

(7) built up stresses were so extreme that unwinding them was certain to be painful; in early 2007, Grantham noted that "it is increasingly impressive and surprising how much we have done wrong this time;"

(8) "by far, the biggest failing of our system has been its unwillingness to deal with important asset bubbles as they form;" as the one grew, Grantham explained it in 1998, 1999 and in a 2002 "Feet of Clay" commentary that "aimed at (his) arch villain, Alan Greenspan;" because of a more dangerous housing bubble, "Bernanke joined (his) rogues' gallery;"

(9) added icing on the cake came from Warren Buffett on derivatives; "financial weapons of mass destruction" he called them; so complex few understand them, and many of them are for gambling, not protection or investing; a sure recipe for trouble; the destruction of the very keys to our financial structure; as a result, trust and confidence have been hugely impaired; "a potentially lethal blow to the system and must be addressed at any cost as fast as possible;" and a final observation:

(10) foresight, imagination and competence are essential to avoid crises; when they occur, these elements in abundance are needed to deal with it; "the bitterest disappointment" this time is how authorities "rationalized and ignored" asset bubble buildups and risk-taking; especially their cheerleader in-chief, "the formerly esteemed chairman of the Fed."

Grantham then asked: "Why did our leaders encourage the deregulation, encourage the leveraging and risk-taking, and completely miss or dismiss the growing signs of trouble and what we described as the 'near certainties' of bubbles breaking?" He suggested two "theories." The first based on "career risk" or what he calls "the Goldman Sachs Effect: Goldman increased its leverage and its profit margins shot into the stratosphere." Eager and needing to keep up, other less talented banks copied them "with ultimately disastrous consequences." They had to because "woe betide the CEO who missed the game....The Board would simply kick him out" and replace him with a "gunslinger."

Theory two is harder to prove: "that CEOs are picked for their left-brain skills - focus, hard work, decisiveness, persuasiveness, political skills (and with luck) analytical (ones) and charisma. The Great American Executives are not picked for their patience." For wasting time "thinking about history and the long-term future. They are paid to be decisive and to act now." Today's CEOs, "to the man, missed everything that was new and different," and these elements "happened to be vital."

In mid-2007, Grantham noted three "near certainties:"

-- that US and UK house prices would decline;

-- profit margins globally would fall; and

-- risk premiums everywhere would rise with the result that "markets and the financial and economic systems" would experience "severe consequences."

The US housing market is down but "probably has quite a way to go" to reach bottom. The UK slump has just begun. It will hit with a thud and cause "another wave of write-downs and stress." Global profits are falling "rapidly, but have a long way to go." Most dramatically has been the rise of risk premiums. From record narrow spreads 18 months ago in developed country fixed income markets to far above normal. In emerging countries, the worst is likely ahead and in places may be "very severe." As for equities, global markets "moved in three weeks from quite expensive to moderately cheap for the first time in at least 20 years."

But hold the cheers. We're not out of the woods. Not even close perhaps given the history of bubbles that are punctuated by strong bear market rallies like the one in the run-up to November's election. Grantham's research shows that all markets revert to their mean values from their highs and lows. No exceptions, and getting there is very bumpy. Nearly always by way overshooting. Further, the larger the bubble, the greater the overshoot.

In addition, US markets haven't been cheap since 1982 - 1983 and have been "permanently overpriced since 1994." Hence a "terrible caveat." Until the greatest ever 2000 equity bubble, the three most important 20th century ones were in 1929, 1965 and Japan at end of 1989. All three overcorrected by more than 50%. Today, we have "a more global, interlocking, and complicated system, including non-bank players like hedge funds." We've also got destabilizing derivatives in a totally unregulated market. Is a 50% overrun likely? Grantham thinks governments will do anything to prevent it and with luck they will, but not entirely.

He estimates S & P 500 fair value at around 975 and believes that it will likely "overrun on the downside by 20 - 40%, giving a range of 585 to 780 as a probable low." Its closing October 9, 2007 high was 1565. The lower figure, if reached, will be 63% below the high. In the event of a 50% overshoot, the low will be 487, or a 69% drop. In sum, "the world faces unavoidable declines in economic activity and profit margins, so this overrun is unlikely to be much less painful than average" and may be worse.

Another disturbing sign was in the November 3 closely-watched Institute for Supply Management (ISM) report. The index fell to 38.9% in October from 43.5% in September. Its lowest level since September 1982. Readings below 50 signal contraction. This one is big and maybe worsening. Both new orders and production were their lowest since the early 1980s. A clear sign of a deepening recession with the worst still yet to come.

More evidence as well from an October 30 Bloomberg report headlined: "The Shipping News Suggests World Economy is Toast." Writer Mark Gilbert cites the Baltic Dry Index that tracks the cost of shipping goods and commodities. It fell below 1000 for the first time in six years with a thud. It's now nearly 90% cheaper to ship goods over water than early in the year. Air freight is also affected and dropped 7.7% in September, according to the International Air Transport Association, or the steepest decline since the trade group began compiling the data in January 2003.

Given the current economic crisis and some of the worst economic conditions in years, Societe Generale's Guy Stear and Claudia Panseri said "Earnings expectations still look optimistic, with analysts projecting 2009 earnings for the S & P 500 rising by 19 per cent." It's astonishing that some people buy it or that analysts are allowed to get away with such deception. Slowly and grudgingly, they'll lower their figures as unfolding evidence forces them.

More from Martin Weiss on "The Great American Housing Nightmare: Next Phase"

His latest analysis as of November 3, and it's pretty grim. He explains that it's foolish to assume home prices "are so low that they (can't) go any lower. They don't stop declining because they appear cheap or match a historical low. They keep dropping until "no new economic forces drive them down. Despite sharp declines already recorded, a steeper plunge is dead ahead." Because "most of the (housing market) troubles (so far) have been caused by bad mortgages going sour. Meanwhile, the more common causes of housing slumps - high interest rates, rising unemployment, and recession - are just starting to kick in, and the most powerful causes - depression and deflation - are still on the horizon."

In addition, massive over-indebtedness will pressure greater numbers of homeowners to abandon or sell properties for whatever amounts they'll bring. Already in 2008, 10% of them are in foreclosure. Nearly 40% owe more than their homes are worth, and all this kicked in before recession deepens and the "next phase of the Great American Housing Nightmare" begins.

Weiss calls it "one of the biggest speculative manias of all time." With no precedent, so no historical roadmap is available for guidance. "No one can (say) with precision how far US home prices will decline, when they will hit bottom, how many homeowners will lose their homes, or how soon a real recovery will begin." It may take many years, and the most comparable precedents for today's crisis had nothing to do with homes.

"They are the Dutch speculative mania of the 1630s, the South Sea Bubble of the 1700s, and the stock market panics of the early 1900s." The 1929 one as well. Their critical boom-bust elements were quite similar:

(1) Debt: the fuel of speculation; with enough, prices can be wildly inflated; "in many respects, the borrowing mania makes all previous debt manias pale by comparison;" by mid-2008, the Fed reported $14.8 trillion in outstanding US mortgages or 40% more than the official national debt and triple the total of all mortgages a dozen years earlier. Even worse, was the quality of debt. Dangerous and substandard because all types of speculative lending proliferated. Requiring no proof of an ability to repay. No down payment so even low income households could buy unaffordable properties or even more than one. And even pay interest only or less than the full amount.

It's no surprise that a majority made the smallest required payments and accrued unpaid amounts to their loan balances. The more payments they made, the deeper in debt they fell.

It gets worse. Unlike past speculative periods, non-lenders this time hold most of the mortgages - "institutions and investors far removed from borrowers." And the $14.8 trillion in residential and commercial mortgages is compounded by another $20.4 trillion in consumer and corporate debt. As a result, Americans are pressured on multiple fronts - unaffordable mortgages, credit card and other loan balances, combined with mounting layoffs and unemployment. A potentially lethal combination.

(2) Investor Frenzy: history shows that the wilder it gets on the upside, the greater the selling panic heading down; at the housing bubble's peak, the average existing home price was nearly five times the yearly incomes of owners - the highest ever ratio in history; at the same time, home affordability plunged to its lowest ever level; in addition, speculation was rampant as the market peaked; "an astounding 40% of houses and condos were bought as second homes or investments."

Further, the annual appreciation rate for existing homes jumped from 3.6% in January 2001 to 16.6% in November 2005. For new homes, it surged from 4.8% to 18.1% over the same period. Securitized mortgages (sold globally) added more bubble fuel to the mix - $4.8 trillion worth or 60% more than the total value of all Dow Jones Industrial Average stocks.

(3) Government-Created Monopolies, Corruption, Fraud and Cover-Ups: some of the greatest bubbles in history were created, fueled and extended this way.

For example, failing to create a massive railroad monopoly caused the Panic of 1901. The Panic of 1907 followed the inability to corner the copper market, and the 1929 crash, in large measure, resulted from collusion among brokers, bankers and tycoons. Nearly always, the government fostered a deregulatory climate. Gave selected companies and individuals special privileges. Encouraged concentrated power, and desperately tried to reconstitute the boom after the bust occurred. It proved fruitless, collapse followed, and it portends what may happen today with a potentially similar or even worse outcome than in the past.

Take the two government-created housing monopolies for example - Fannie Mae and Freddie Mac. They got dominant control over the nation's largest debt market - mortgages, and were encouraged to compete aggressively with private subprime lenders. It proved disastrous, showed up early, but was ignored.

In September 2004, Fannie and Freddie's primary regulator, the Office of Federal Housing Enterprise (OFHE), revealed massive accounting irregularities on both companies' books. Four years later, they were still unaddressed. As a result, the SEC began investigating their accounting practices. In addition, their official filings and public pronouncements "consistently and wildly overstated their capital, while understating their risk. Fannie and Freddie were actually houses of cards in disguise," but their executives repeatedly lied about their companies' health in testimony before Congress. That both were undercapitalized and, in fact, insolvent.

It's no surprise given their speculative practices. Between 2005 and 2008, Fannie alone purchased or guaranteed at least $270 billion in subprime mortgages - more than three times the amount it bought in all previous years combined. It went unnoticed, and Wall Street and Washington encouraged even greater risk-taking. In September 2008, it ended with a crash. Both companies were bankrupt, and it no longer could be hidden. They needed "an unprecedented $100 billion" each from the government to keep them operating.

But that amount way understates the problem. It "assumes an end to the credit crunch, no more debt collapses, no recession, and certainly no depression." It thus completely ignores reality. What may be needed for what's "fast becoming history's largest (ever) cesspool of sinking debts and commitments - $5.2 trillion in mortgages guaranteed or owned by the two companies, their $1.5 trillion in debts, and their $2 trillion in derivatives."

(4) Collapse: How far home prices will decline can't be predicted with certainty. However, history once again is a guide:

-- in the Dutch Tulip Mania, investors lost nearly everything if they paid cash; even more if they bought on a slim 2.5% margin.

-- in the South Sea Bubble, share prices declined about 90%;

-- in the 1929 crash, they dropped 89%;

-- In the 2000 - 2002 tech bubble, they sunk 78%;

-- in the 1990 to the present Japanese bear market, they lost 82% in the leading Nikkei average; and

-- in today's financial crisis, losses of up to 99% have occurred in some of America's most noted companies.

Right or wrong, Weiss believes that today's US housing bubble "is as extreme as (the above-listed) examples." He sees it progressing in three phases:

-- the subprime mortgage bust already experienced;

-- a severe US recession "just beginning;" and

-- "depression and deflation" to come.

Home prices will continue falling precipitously with the most over-valued areas and blightest regions with high unemployment hardest hit. "Never before in history have we witnessed home price declines of this magnitude." The result of unprecedented levels of debt, speculation, government manipulation, fraud, corruption and consumer abuse. If history teaches anything, "it's that unprecedented causes (produce) unprecedented consequences." It's now playing out in America and globally with the worst of it to come.

Another Potential Shoe to Drop

According to Nouriel Roubini in his November 4 commentary titled: "The Rising Risk of a Hard Landing in China: The Two Engines of Global Growth - the US and China - are Now Stalling."

In recent years, "the global economy has been running on two engines, the US on the consumption side and China on the production side, both lifting the global economy." As the world's "consumer of first and last resort," the latest macro data show this engine has effectively shut down. "More worrisome," increasing signs show China is also stalling.

Their latest macro data are mixed but all point to "a sharp deceleration of economic growth." Now at 9% compared to past 12% years. At risk is a potential "hard landing" that for China would mean around 5 - 6% growth and not the 9 - 10% it needs to absorb its 24 million new workers annually. Various "macro indicators suggest that China is indeed headed towards a hard landing." It's not good news for America, and in combination, aren't good news for world economies.

One year ago, Chinese exports to the US grew at an annualized 20% rate. The most recent trade data show zero growth, but "the worst is still to come in the next few quarters" as US consumption is falling and is expected to continue declining. In addition, nearly all advanced economies face severe recession that will slow China's growth further.

Monetary policy may prove ineffective, and analysts disagree about fiscal measures. As export demand falls, the country is committed to more infrastructure and other spending and has a huge (near-$2 trillion) foreign currency war chest to do it. But Roubini believes fiscal stimulus will be limited at best. Because of the combined effects of Olympics spending, natural disasters, and social strife in the West, a large budget hole was created. Other factors are in play as well such as a turnover decline in local property markets. Lower fees and taxes have resulted that, in turn, have delayed some industrial development plans.

A "hard landing" may also increase the amount of non-performing loans from "the still mostly public state banks....Once net exports go bust and real investment sharply falls we will see a massive surge in non-performing loans that financed low return and marginal investment projects. The ensuing fiscal costs of cleaning up the banking system could be really high."

An additional factor comes from Michael Pettis - a leading Chinese economy expert. That a tax revenue surge "in the last 4 years has been more than matched by (a) surge in spending so that if revenue growth diminishes (or reverses) it might not be easy to slow spending growth proportionately. Contingent liabilities from non-performing loans could also reduce resources available for a fiscal stimulus."

Nonetheless, fiscal measures are being implemented but so far just modestly, and the "big question is (can China) increase (the amount enough) if a quick order hard landing were to occur." Roubini believes likely not because "moving a massive amount of economic resources from the tradeable (to the non-tradeable infrastructure) sector will take time...." He sees China decelerating to a 2009 7% growth rate - "just a notch above a 6% hard landing (and) an even worse outcome cannot be ruled out...."

In addition, "a hard landing in China will have severe effects on growth in emerging market economies in Asia, Africa and Latin America as Chinese demand for raw materials and intermediate inputs has been a major source of economic growth for emerging markets and commodity exporters....Thus, global growth - at market prices - will be close to zero in Q 3 of 2008, likely negative in Q 4 and well into negative territory in 2009. So brace yourself for an ugly and protracted global economic contraction" next year.

On November 4, the US Commerce Department added fuel to that argument as factory orders slumped sharply as US and foreign businesses curtailed their capital equipment demand for the second straight month. It fell 2.5% in September, much weaker than the .2% expected. In August, it declined 4.3%, the biggest drop in almost two years, and more erosion is expected in the coming months as the US recession deepens.

Exacerbated by plunging US auto sales according to the latest reported figures. They dropped 31% in October to around 850,000 vehicles with GM reporting its worst month since 1945 - down 45% along with Chrysler's 35% and Ford's 30%. According to one analyst, adjusted for population increases, it was the worst monthly performance "in the post-WW II era. This is clearly a severe, severe recession," and auto executives warned that the worst still may lie ahead.

Very likely according to the Fed's Opinion Survey on Bank Lending Practices. It shows tighter standards along with weaker loan demand. It stated: "In the current survey, large net fractions of domestic institutions reported having continued to tighten their lending standards and terms on all major loan categories over the previous three months." Both to businesses and households. In addition, "Demand for loans from both businesses and households at domestic institutions continued to weaken, on net, over the past three months."

At the same time, there are huge federal funding demands that will cause an even greater debt crisis. The Treasury just announced a need to borrow $550 billion in the current quarter. Near-term needs may add $2 - $3 trillion more to that total - to finance the federal deficit, buy $500 billion in toxic assets, roll over $561 billion in maturing Treasuries, and add the unknown factor of what other needs may arise.

On November 5, another worrisome one came from the latest ISM non-manufacturing (or service) sector. It dropped from a neutral 50.2 September reading to 44.4 in October. Another clear sign of contraction. In addition, the non-manufacturing business activity index fell 7.9 points to 44.2, and the new orders one declined 6.8 points to 44. The employment index stands at 41.5, and the price index dropped 16.6 points to 53.4. Any number below 50 signals contraction.

On November 6, two more weak reports came out:

-- One from retailers showing their sales plummeted to their lowest level in about 40 years. AP retail reporter Anne D'Innocenzio called it "stunning and rare" and said it augurs a bleak outlook for holiday shopping. Michael Niemira, the International Council of Shopping Centers' chief economist, described October sales as "awful. This reflects the severity of the current financial crisis." The ICSC-Goldman Sachs Index registered a 1% decline to its lowest level since at least 1969 when the index was established.

-- The Labor Department reported that longer-term jobless benefits hit a 25-year high with the number of people drawing unemployment benefits jumping by 122,000 to 3.84 million in late October. It was the highest reading since 1983 at a time of deepening recession. In addition, another report showed productivity declined to 1.1% in Q 3 compared to 3.6% in Q 2. Unit labor costs increased at a 3.6% rate compared to .1% in the earlier period.

The View According to Krassimir Petrov

He's an economist and assistant professor at the American University in Bulgaria teaching macroeconomics, money and banking, and international finance, and his world view signals trouble of the most serious kind. "Worse than the Great Depression" he explains in a recent article. Gives reasons he feels are compelling, and lists the "very same mistakes that led to the" earlier one only this time they're even worse:

-- asset bubbles in stocks, real estate and more;

-- securitization and the immense amount of toxic debt it created;

-- excessive leverage compounded by a world of hedge funds;

-- corrupt gatekeepers that allowed an Enron and Worldcom scandal and today's far worse problems;

-- lagging regulations or a complete lack of them where they're most needed;

-- market ideology; laissez unfair fundamentalism; and

-- non-transparency to the degree that financial executives even fool themselves.

Combined he sees the current debacle much "worse than the Great Depression" because of six "baked in the cake" fundamental factors:

-- overvalued real estate to a far greater degree than in the 1920s when most people paid cash for their homes;

-- total US highly-levered credit; again more extreme than in the earlier era; to unprecedented levels;

-- the explosion of derivatives; a thousand trillion dollar "sword of Damocles over the financial system;" an estimated $180 trillion held by banks alone;

-- the Dow-gold ratio; the "most important ratio between the relative prices of financial" and real assets; leverage creates an imbalance and implies gross overvaluation; it reached its highest ever level in 2000 and needs painfully more downside to unwind;

-- global bubbles not easily comparable to the less globalized 1920s; today, however, US stock market and real estate excesses exceed what occurred back then; and

-- the collapsing Bretton Woods II as distinguished from Bretton Woods I tied to gold and its ability to restrain credit and financial excesses.

Today's cumulative imbalances far exceed those of the earlier era and suggest a very grim outlook - if Petrov is right. His advice, and he's not alone - think gold.

A Morning-After Reality Check

November 4 election night. It was a happening at Chicago's Grant Park. Like New Year's eve in Times Square. Expectant many tens of thousands assembled for a huge victory rally. Office buildings were emptied to let them come. They arrived early. Awaiting official word that their man won. Eager to greet him. The new president-elect. A change of the guard. A new day. At around 10PM, the crowd erupted when on giant TV screens CNN called it for Obama. "Yes we can" people chanted.

It was mass euphoria. At a time of deepening financial duress. The worst in many decades. Hitting Chicagoans hard like many others. The nation at war on two fronts as well. A possible new one with Iran, and a new Cold War with Russia in the wings. Out of sight and mind as Chicago threw a party and brought the whole city to a halt. Until after midnight when crowds began dispersing.

All night electricity filled the air. "Finally we have someone who will change the world," said a woman. "He'll put the right people in the right jobs," said another. "He wants to make a difference in our country," one more. Not a hint of negativity in sight. Not tonight at least. Tomorrow will be soon enough. Mark January 20 as the day it arrives. Inauguration day. In the meantime, party on.

In less than three months, the age of George Bush will end and a new Obama one will begin. Will it be different or more of the same? Will the new president be less hawkish? Less supportive of massive Wall Street bailouts? Socialism for the rich and the hindmost for the rest? Less controlled by monied interests? More committed to public need? Main Street over Wall Street? More eager to end foreign wars? More dedicated to a new course? Reversing his predecessor's toxic legacy? Governing responsibly for the first time in decades? Maybe ever, but at least since the New Deal? Is anything close to that possible? Think so? Think again.

Comparing Obama to FDR and expecting another New Deal is ludicrous. Yet with every new president hope springs eternal. Candidates promise change (or at least suggest it) and people buy it. A new course. Racial harmony. Peace and prosperity. Populist reform and a radical shift away from the Bush administration's toxic extremism. A deep breath please for a reality check. A wake-up call. A cold shower.

Obama is a creation of Wall Street and America's boardroom rulers. Its dominant corporate power. His administration:

-- will continue an imperial agenda;

-- won't end foreign wars;

-- won't repeal repressive police state laws;

-- will let corruption go unpunished;

-- will continue to serve monied interests;

-- send hundreds of billions more to bankers;

-- loot the federal treasury to do it;

-- let taxpayers fund it;

-- let Wall Street run the Treasury with either Goldman Sachs executives or others just like them;

-- increase the size of the military;

-- send more troops to Afghanistan;

-- continue occupying Iraq;

-- begin a new Cold War with Russia;

-- continue attacking Pakistan;

-- possibly Iran as well;

-- will keep waging the "war on terrorism;"

-- will continue one-sided support for Israel's repressive occupation of Palestine and proved it by choosing pro-Israeli hardliner and neoliberal Rahm Emanuel as his White House chief of staff; it's considered the most powerful executive branch position after the president and a Dick Cheney type vice-presidency; Emanuel rammed through NAFTA for Clinton and is a Democratic Leadership Council (DLC) insider;

-- will send Israel billions of dollars, the latest weapons and technology, and much more annually;

-- will maintain the Cuban embargo;

-- hostility toward Hugo Chavez and all other independent leaders, democrats or despots;

-- will support neoliberal "free trade;"

-- keep undermining labor;

-- do nothing to foster racial harmony;

-- or defend the rights of immigrant workers;

-- or reform the US gulag prison system; the largest in the world by far; affecting mostly poor people of color; his own people;

-- won't end the barbaric death penalty;

-- won't release political prisoners or end the war on Islam;

-- will support privatizing public education;

-- will ignore the plight of tens of millions with no health insurance and many millions more with too little;

-- will back a business as usual agenda because "the business of America is business," and Obama won't ever forget it. Or the foreign wars he'll support in its behalf, and

-- will protect the two-party duopoly and do nothing to make an anti-democratic America more democratic.

Think a new progressive age is dawning? Think again. An Obama presidency will go Lincoln one better. It'll prove that the electorate can be fooled "all of the time" - or enough of them long enough before eventually they'll know they were had - fooled again. One commentator put it up this way: "Forget the honeymoon - I want a divorce," and Ralph Nader asked: Will Barak Obama be an "Uncle Sam for the people of this country, or Uncle Tom for the giant corporations?"

That said, consider two positive things. Thankfully, Obama isn't John McCain, and given the dire state of things, he and Congress may have to help people in need. It will be woefully inadequate, packaged to look otherwise, but may be enough to contain public anger. Unless things get so dire, nothing less than massive stimulus will help, and then political exigencies may force a more progressive agenda than party leaders now have in mind. It's how the New Deal came about. Enlightened politicians and some business leaders were scared enough to give a little to save capitalism. In the months ahead, that choice may again arise.

A View from the UK

It comes from Ambrose Evans-Pritchard in his November 4 commentary headlined: "Revenge of the Left across the world." He suggests the possibility that America's election will produce a hostile laissez-faire climate given that "capitalism has run amok" and caused damage so great that Obama "may have to pursue unthinkable policies." Just as Franklin Roosevelt did once in office.

True or not, some observers believe it or at least are hopeful. Ninety-one year old Eric Hobsbawm for one. The famed British Marxist historian and author in a BBC interview. He calls today's events "the dramatic equivalent of the collapse of the Soviet Union: we now know that an era has ended. It is certainly the greatest crisis of capitalism since the 1930s. As Marx and Schumpeter foresaw, globalization not only destroys heritage, but is incredibly unstable. It operates through a series of crises."

This one will result in "a much greater role for the state, one way or another. We've already got the state as lender of last resort. We might well return to the idea of the state as employer of last resort" the way it was under FDR.

Evans-Pritchard is sympathetic and disagrees with those who think business can go on as usual given that governments have stepped in with massive rescue packages. He quotes Germany's foreign minister, Frank-Walter Steinmeier, saying: "The rule of the radical market ideology that began with Margaret Thatcher and Ronald Reagan has ended with a loud bang. We need a comprehensive new start, so we can reestablish our society on fresh foundations. People create value, not locusts." Thatcher's TINA (there is no alternative) has come full circle. It was fraudulent on its face and is now turned on it head.

So says Nicolas Sarkozy in his "Laissez-faire, c'est fini" comment that needs no translation. "We will intervene massively whenever a strategic enterprise needs our money," he said. It's pouring out of Washington, the UK, and most Western European capitals in a frantic effort to staunch the bleeding that keeps gushing no matter what they do. Because of what Evans-Pritchard calls the "awful truth." Gross excesses producing awesome credit bubbles now imploding and landing with a thud. Their "shock will move by degrees from revulsion to political rage." It produced Hitler in 1930s Germany. Hobsbawm hopes America will be wiser and choose socialism over "the Hegelian broth nearing the boil in Europe."

Given current conditions near certain to worsen and a new US administration in power, it's anyone's guess how a crisis this grave will be resolved or how things will look when it ends. One thing, however, is sure. The age of George Bush is over, and not a moment too soon. But unduing his damage may be too great a task for any head of state - even for all of them combined. The wages of sin are now due.

Wall Street's 'Disaster Capitalism for Dummies' 14 reasons Main Street loses big while Wall Street sabotages democracy

Wall Street's 'Disaster Capitalism for Dummies'

14 reasons Main Street loses big while Wall Street sabotages democracy

by Paul B. Farrell

Go To Original

Yes, we're dummies. You. Me. All 300 million of us. Clueless. We should be ashamed. We're obsessed about the slogans and rituals of "democracy," distracted by the campaign, polls, debates, rhetoric, half-truths and outright lies. McCain? Obama? Sorry to pop your bubble folks, but it no longer matters who's president.

Why? The real "game changer" already happened. Democracy has been replaced by Wall Street's new "disaster capitalism." That's the big game-changer historians will remember about 2008, masterminded by Wall Street's ultimate "Trojan Horse," Hank Paulson. Imagine: Greed, arrogance and incompetence create a massive bubble, cost trillions, and still Wall Street comes out smelling like roses, richer and more powerful!

Yes, we're idiots: While distracted by the "illusion of democracy" in the endless campaign, Congress surrendered the powers we entrusted to it with very little fight. Congress simply handed over voting power and the keys to trillions in the Treasury to Wall Street's new "Disaster Capitalists" who now control "democracy."Why did this happen? We're in denial, clueless wimps, that's why. We let it happen. In one generation America has been transformed from a democracy into a strange new form of government, "Disaster Capitalism." Here's how it happened:

Three decades of influence peddling in Washington has built an army of 42,000 special-interest lobbyists representing corporations and the wealthy. Today these lobbyists manipulate America's 537 elected officials with massive campaign contributions that fund candidates who vote their agenda.

This historic buildup accelerated under Reaganomics and went into hyperspeed under Bushonomics, both totally committed to a new disaster capitalism run privately by Wall Street and Corporate America. No-bid contracts in wars and hurricanes. A housing-credit bubble -- while secretly planning for a meltdown.
Finally, the coup de grace: Along came the housing-credit crisis, as planned. Press and public saw a negative, a crisis. Disaster capitalists saw a huge opportunity. Yes, opportunity for big bucks and control of America. Millions of homeowners and marginal banks suffered huge losses. Taxpayers stuck with trillions in debt. But giant banks emerge intact, stronger, with virtual control over government and the power to use taxpayers' funds. They're laughing at us idiots!

Amazing isn't it, Wall Street's Disaster Capitalists screwed up, likely planned or let happen this meltdown and recession. Yet America's clueless taxpayers just reward them by giving the screw-ups massive bailouts, control over more than $2 trillion of tax money, and the power to clean up the mess they made. Oh yes, we are dummies!

This end game was planned for years in secret war rooms on Wall Street, in Corporate America, in Washington and the Forbes 400. Democracy is too cumbersome. It had to be marginalized for Disaster Capitalism to take over. Reagan, Bush and Paulson were Wall Street's "Trojan Horses."
Naomi Klein summarizes the game in "Shock Doctrine: the Rise of Disaster Capitalism." This "new economy" generates enormous profits feeding off other peoples' misery: Wars, terror attacks, natural catastrophes, poverty, trade sanctions, subprime housing meltdowns and all kinds of economic, financial and political disasters. Natural (Katrina) or manmade (Iraq), either way "disaster capitalism" creates fortunes.

So you, me and the other 300 million better get out of denial. America is no longer a democracy. Voting is irrelevant. Best case scenario: We're a plutocracy, a government ruled by the wealthy, the richest 1%, the Forbes 400, the influential wealthy elite, while the other 99% are their "servants." Meanwhile, the inflation-adjusted income of wage-earners has declined for three decades.

Worst case scenario: America's no democracy and as a result of the meltdown and the surrender of our power to Wall Street's new Disaster Capitalism we are morphing into what one WWII dictator called "corporatism," a "merger of state and corporate power," kind of like what's going on now with Goldman Sachs' ex-boss as de facto president.

Wolves in sheep's clothing

Yes, a strong charge. But like a lot of our readers, I don't like what's happening to America. I'm a patriot. I volunteered for the Marines. Served four years. Volunteered for Korea. I don't like how our freedoms, rights and value system are being subverted in the name of greed, arrogance, self-righteous intolerance and other false gods.

We know for the last eight years disaster capitalists ignored obvious warnings of a coming meltdown. They apparently planned it. They road the bull, got very rich. Now they have the ultimate disaster capitalist weapons, trillions in tax money, virtual control of government.

That's why I fear we're on the edge of a dangerous line between Wall Street's version of disaster capitalism and a toxic "merger of state and corporate power." The wolf is in sheep's clothing. Wall Street pretends we're a democracy. Yet America more closely resembles the kind of "corporatism" that Laurence W. Britt wrote about five years ago in Free Inquiry magazine.

We adapted his historical analysis of 14 key traits for today's discussion. Notice how they have a huge impact your investments and retirement:

1. Wall Street rich get first priority

Think "bailout." Wall Street's greedy con game spins out of control globally. Millions of homeowners misled, lose. Who gets hundreds of billions first? Wall Street's con men.

2. National security obsession

Think of the expansion of executive powers in the name of national security: Preemptive wars, wiretapping private citizens, Gitmo, torture; driven by a dark wealthy neocon elite.

3. Superpower with massive military

Think of our $3 trillion Iraq/Afghan War. Disaster capitalists love the thrill of military power. We outspend all nations, over half the federal budget to strut before the world.

4. Extreme nationalism

Signs are everywhere: Flags, lapel pins, "support the troops" slogans, all to get huge military budgets passed. Challenge them and you're un-American and unpatriotic.

5. Rally the masses by scapegoating enemies

Think "axis of evil," mushroom clouds, "Islamofascists," more terrorist attacks on the homeland. Propaganda creates "enemies" in the public's mind and distracts from real issues.

6. Corruption and cronyism

Think earmarks, no-bid defense contracts, paid mercenaries outnumbering military in Iraq, superlobbyist Jack Abramoff, biofuels, bridge to nowhere, millions donated to campaigns.

7. Obsession with crime

Think of prison-building as just another investment opportunity, rather than focusing on reforming our criminal justice system. Stoke irrational fear of criminals and extremists.

8. Labor and low wages

Think corporate earnings versus the wages paid to workers. No "trickling down," leaves more for tricklers: Rich insiders, stockholders. Wages dropping as CEO salaries skyrocket.

9. Contempt for human rights

Think of abuses of habeas corpus, loss of right to trial, bogus charges, plus "demonizing" the victims, all in the name of national defense and homeland security.
10. Mass media manipulation

Think of leaking false information, Joseph Wilson, Valerie Plame, Scooter Libby, Colin Powell's United Nation's testimony, Condoleezza Rice's mushroom clouds, WMDs, all to suppress the truth.

11. Obsession with sexism

Think of paternalism, antigays, antiabortion, subordinate women -- then codify the system as the law of the land reinforcing a male-dominated society, punish violators.

12. Disdain for intellectuals

Think of conservative intellectuals Francis Fukuyama and Bill Buckley. Contrast them to Sarah Palin and Joe Sixpack conservatism, Bush's funding cuts for arts and science education.

13. Religion in government

Think of all the faith-based programs versus antiscience in drug approvals, creationism vs. evolution, Ten Commandments enshrined in public buildings, public money to churches.

14. Fraudulent elections

Think of police and prosecutorial intimidation and threats to voters, challenging minority voters, ballots disappearing, party election officials committing outright fraud.

Yes, officially America is still a democracy. We have enough signs and rituals to support that illusion. But the truth is America has become a plutocracy run by and for the wealthy. And since Wall Street's Disaster Capitalism coup de grace, we are rapidly morphing into a dangerous new government.

For more, read Britt's original article.

Was the meltdown planned by Wall Street's Disaster Capitalists?

3 'superbanks' now dominate industry

3 'superbanks' now dominate industry

Sudden consolidation raises questions about regulation, consumer impact

By Eve Tahmincioglu

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The financial crisis that has been sweeping the globe has reshaped nearly every corner of the economy, but no industry has been altered more radically than banking.

Several of the nation's biggest banks have failed or been absorbed by healthier institutions, leaving three giant "superbanks" with an unprecedented concentration of market power: Bank of America, JPMorgan Chase and Wells Fargo.

While that may be good news for emerging giants and the failing companies they helped rescue, the new oligopoly raises troubling questions about regulation and competition, analysts and consumer advocates say.

"Bank fees are going up, up, up, and that’s the danger to consumers as more of these banks consolidate,” says Sally Greenberg, executive director of the National Consumer League. “It’s difficult for the average person to get a bank account that doesn’t involve fees, and if you get into financial distress you’re cooked, and you’ll be ‘fee-ed’ to death.”

According to a recently released banking fee study from, ATM surcharges rose 11 percent this year to an average of $1.97, and the fee for a bounced checks rose 2.5 percent to an average $28.95.

"Consumers are going to be victims of higher and more punitive fees,” Greenberg predicts.

Moreover, many analysts worry about how federal and state authorities, who were unable to prevent the current financial industry meltdown, will be able to monitor the new giant banks that combine a wide range of operations from investment banking to consumer lending.

“Large institutions are impossible to manage prudently, let alone regulate,” says Amar Bhide, a professor at the Columbia Business School.

In fact, existing federal banking laws say that no bank can have more than 10 percent of the domestic deposit market — a threshold recently surpassed by all three superbanks.

When asked whether the government would take any action, a Justice Department official was noncommittal.

“It’s always something we’ve looked at and will continue to look at," said spokeswoman Gina Talamona. "It’s something we’ve looked at as part of our general antitrust review.”

The reason limits on market share were put in place were so banks didn’t get so big they’d become monopolies that could risk the whole economy, explains Atul Gupta, finance department chair for Bentley University in Boston.

But now the government appears to be pushing banks in the direction of more consolidation. The Treasury is pouring some $250 billion of taxpayer money into healthy financial institutions, and some of that is being used by stronger banks to snap up weaker rivals.

“The government is convinced that allowing any of these firms to fail would have catastrophic implications,” says Gupta. “So the government is saying, ‘This bank is in trouble, so I want this bank to buy that one.’ And everyone holds their noses and hopes things work out.”

In the current environment, such rapid consolidation is a “no brainer," says Gregory F. Udell, Chase Chair of Banking and Finance at the Indiana University Kelley School of Business.

The risk of creating monopolies, he says, “is a lot less than the risk of having a lot of zombie institutions out there.”

He also points out that consolidation in the banking sector, though recently at a fever pitch, is nothing new.

Indeed, the number of commercial banks and savings & loans in the United States has fallen in the past 20 years to 8,451 as of June, compared to 16,574 in 1988, according to FDIC data.

Espen Eckbo, finance professor at Dartmouth’s Tuck School of Business, believes economies of scale will only help the troubled financial sector.

He maintains the banking sector got into trouble because of out-of-control risk taking — not because banks got too big.

His answer: “We need to educate the boards of these banks that ultimately are supposed to be a stopgap for these things. They need to have a bird’s-eye view of the organization and understand if the left arm is taking on debt while the right arm is taking on debt. They have to oversee that.”

But some analysts are arguing that the current wave of consolidation could be followed by a move to break up the biggest banks.

In a recent congressional hearing, Nobel Prize-winning economist Joseph Stiglitz said the consolidation of the banking industry is "a very serious problem."

"I think it’s part of a general failure to enforce antitrust laws in the last few years. So one of the things I think is part of your exit strategy is that we have to think about breaking up some of the big banks.”

Even American Banker, which covers the industry, predicts in a story titled “Pressure Builds to Corral the Giant Firms” that “the financial services companies considered ‘too big to fail’ may face a political backlash next year.”

Another major issue will be how successfully these merged banks will be able to integrate their operations, from staffing to technology.

Even in the best of circumstances where companies have months to plan for a merger things can go awry, says Carol M. Beaumier, executive vice president of global industry programs at Protiviti, a business consulting and internal audit firm.

“The level of due diligence and planning doesn’t exist,” says Beaumier of the rapid consolidations that have resulted from the financial meltdown. “We are creating a daunting task for companies that have to carry out these mergers. It creates uncertainty among employees (and) customers, and the government will be looking over its shoulder.”

Good employees at some of these institutions may be lost in the shuffle because, she says, “You don’t have time to prepare and identify those key performers.”

As they grow, the megabanks could end up shooting themselves in the foot when it comes to service, says Standard & Poor’s analyst Stuart Plesser.

“When they get really big they may lose some relationships in the end because there’s certainly some impersonal banking going on when they get that big,” he says.

The National Consumer League’s Greenberg believes government should move quickly to keep banking fees down for consumers, just as Congress capped executive compensation as part of the bailout bill.

“The system isn’t working now, and all this consolidation means less competition,” she says. “It is incumbent on regulators and Congress to step in and say, ‘Wait a second. You don’t get to impose exorbitant fees.'”

“These banks have to get away from a business plan that’s based on fines and penalties, she adds, “and get back to providing consumers, farmers and small businesses credit at a reasonable rate that serves both the lender and the borrower.”

Until a new administration takes action, consumers and small businesses can always vote with their feet and use a smaller, community bank.

“Many consumers (are) turning to local banks, saying, 'I’m much more comfortable having my money with you,’” says Nancy Atkinson, senior analyst with Aite Group, a research firm that covers the financial services industry. “And small businesses say, 'I know my local banker, and I trust that person.’”

Democratic leaders discuss confiscating 401(k)s, IRAs

Dems Target Private Retirement Accounts

Democratic leaders in the U.S. House discuss confiscating 401(k)s, IRAs

By Karen McMahan

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Democrats in the U.S. House have been conducting hearings on proposals to confiscate workers' personal retirement accounts — including 401(k)s and IRAs — and convert them to accounts managed by the Social Security Administration.

Triggered by the financial crisis the past two months, the hearings reportedly were meant to stem losses incurred by many workers and retirees whose 401(k) and IRA balances have been shrinking rapidly.

The testimony of Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, in hearings Oct. 7 drew the most attention and criticism. Testifying for the House Committee on Education and Labor, Ghilarducci proposed that the government eliminate tax breaks for 401(k) and similar retirement accounts, such as IRAs, and confiscate workers' retirement plan accounts and convert them to universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration.

Rep. George Miller, D-Calif., chairman of the House Committee on Education and Labor, in prepared remarks for the hearing on "The Impact of the Financial Crisis on Workers' Retirement Security," blamed Wall Street for the financial crisis and said his committee will "strengthen and protect Americans' 401(k)s, pensions, and other retirement plans" and the "Democratic Congress will continue to conduct this much-needed oversight on behalf of the American people."

Currently, 401(k) plans allow Americans to invest pretax money and their employers match up to a defined percentage, which not only increases workers' retirement savings but also reduces their annual income tax. The balances are fully inheritable, subject to income tax, meaning workers pass on their wealth to their heirs, unlike Social Security. Even when they leave an employer and go to one that doesn't offer a 401(k) or pension, workers can transfer their balances to a qualified IRA.

Mandating Equality

Ghilarducci's plan first appeared in a paper for the Economic Policy Institute: Agenda for Shared Prosperity on Nov. 20, 2007, in which she said GRAs will rescue the flawed American retirement income system (

The current retirement system, Ghilarducci said, "exacerbates income and wealth inequalities" because tax breaks for voluntary retirement accounts are "skewed to the wealthy because it is easier for them to save, and because they receive bigger tax breaks when they do."

Lauding GRAs as a way to effectively increase retirement savings, Ghilarducci wrote that savings incentives are unequal for rich and poor families because tax deferrals "provide a much larger 'carrot' to wealthy families than to middle-class families — and none whatsoever for families too poor to owe taxes."

GRAs would guarantee a fixed 3 percent annual rate of return, although later in her article Ghilarducci explained that participants would not "earn a 3% real return in perpetuity." In place of tax breaks workers now receive for contributions and thus a lower tax rate, workers would receive $600 annually from the government, inflation-adjusted. For low-income workers whose annual contributions are less than $600, the government would deposit whatever amount it would take to equal the minimum $600 for all participants.

In a radio interview with Kirby Wilbur in Seattle on Oct. 27, 2008, Ghilarducci explained that her proposal doesn't eliminate the tax breaks, rather, "I'm just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth."

All workers would have 5 percent of their annual pay deducted from their paychecks and deposited to the GRA. They would still be paying Social Security and Medicare taxes, as would the employers. The GRA contribution would be shared equally by the worker and the employee. Employers no longer would be able to write off their contributions. Any capital gains would be taxable year-on-year.

Analysts point to another disturbing part of the plan. With a GRA, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts. For workers who die after retiring, they could bequeath just their own contributions plus the interest but minus any benefits received and minus the employer contributions.

Another justification for Ghilarducci's plan is to eliminate investment risk. In her testimony, Ghilarducci said, "humans often lack the foresight, discipline, and investing skills required to sustain a savings plan." She cited the 2004 HSBC global survey on the Future of Retirement, in which she claimed that "a third of Americans wanted the government to force them to save more for retirement."

What the survey actually reported was that 33 percent of Americans wanted the government to "enforce additional private savings," a vastly different meaning than mandatory government-run savings. Of the four potential sources of retirement support, which were government, employer, family, and self, the majority of Americans said "self" was the most important contributor, followed by "government." When broken out by family income, low-income U.S. households said the "government" was the most important retirement support, whereas high-income families ranked "government" last and "self" first (

On Oct. 22, The Wall Street Journal reported that the Argentinean government had seized all private pension and retirement accounts to fund government programs and to address a ballooning deficit. Fearing an economic collapse, foreign investors quickly pulled out, forcing the Argentinean stock market to shut down several times. More than 10 years ago, nationalization of private savings sent Argentina's economy into a long-term downward spiral.

Income and Wealth Redistribution

The majority of witness testimony during recent hearings before the House Committee on Education and Labor showed that congressional Democrats intend to address income and wealth inequality through redistribution.

On July 31, 2008, Robert Greenstein, executive director of the Center on Budget and Policy Priorities, testified before the subcommittee on workforce protections that "from the standpoint of equal treatment of people with different incomes, there is a fundamental flaw" in tax code incentives because they are "provided in the form of deductions, exemptions, and exclusions rather than in the form of refundable tax credits."

Even people who don't pay taxes should get money from the government, paid for by higher-income Americans, he said. "There is no obvious reason why lower-income taxpayers or people who do not file income taxes should get smaller incentives (or no tax incentives at all)," Greenstein said.

"Moving to refundable tax credits for promoting socially worthwhile activities would be an important step toward enhancing progressivity in the tax code in a way that would improve economic efficiency and performance at the same time," Greenstein said, and "reducing barriers to labor organizing, preserving the real value of the minimum wage, and the other workforce security concerns . . . would contribute to an economy with less glaring and sharply widening inequality."

When asked whether committee members seriously were considering Ghilarducci's proposal for GSAs, Aaron Albright, press secretary for the Committee on Education and Labor, said Miller and other members were listening to all ideas.

Miller's biggest priority has been on legislation aimed at greater transparency in 401(k)s and other retirement plan administration, specifically regarding fees, Albright said, and he sent a link to a Fox News interview of Miller on Oct. 24, 2008, to show that the congressman had not made a decision.

After repeated questions asked by Neil Cavuto of Fox News, Miller said he would not be in favor of "killing the 401(k)" or of "killing the tax advantages for 401(k)s."

Arguing against liberal prescriptions, William Beach, director of the Center for Data Analysis at the Heritage Foundation, testified on Oct. 24 that the "roots of the current crisis are firmly planted in public policy mistakes" by the Federal Reserve and Congress. He cautioned Congress against raising taxes, increasing burdensome regulations, or withdrawing from international product or capital markets. "Congress can ill afford to repeat the awesome errors of its predecessor in the early days of the Great Depression," Beach said.

Instead, Beach said, Congress could best address the financial crisis by making the tax reductions of 2001 and 2003 permanent, stopping dependence on demand-side stimulus, lowering the corporate profits tax, and reducing or eliminating taxes on capital gains and dividends.

Testifying before the same committee in early October, Jerry Bramlett, president and CEO of BenefitStreet, Inc., an independent 401(k) plan administrator, said one of the best ways to ensure retirement security would be to have the U.S. Department of Labor develop educational materials for workers so they could make better investment decisions, not exchange equity investments in retirement accounts for Treasury bills, as proposed in the GSAs.

Should Sen. Barack Obama win the presidency, congressional Democrats might have stronger support for their "spreading the wealth" agenda. On Oct. 27, the American Thinker posted a video of an interview with Obama on public radio station WBEZ-FM from 2001.

In the interview, Obama said, "The Supreme Court never ventured into the issues of redistribution of wealth, and of more basic issues such as political and economic justice in society." The Constitution says only what "the states can't do to you. Says what the Federal government can't do to you," and Obama added that the Warren Court wasn't that radical.

Although in 2001 Obama said he was not "optimistic about bringing major redistributive change through the courts," as president, he would likely have the opportunity to appoint one or more Supreme Court justices.

"The real tragedy of the civil rights movement was, um, because the civil rights movement became so court focused that I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change," Obama said.

Another US massacre in Afghanistan

Another US massacre in Afghanistan

By James Cogan

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An Afghan government investigation into US air strikes carried out on Monday in the province of Kandahar has found that at least 37 civilians taking part in a wedding celebration were massacred. Another 30 people or more—men, women and children—were injured. The investigation also claimed that 26 insurgents fighting for the former Islamist Taliban regime were killed.

The US attacks devastated the small village of Wocha Bakhta in the district of Shah Wali Kot, some 80 kilometres north of Kandahar city.

According to a US military statement issued on Wednesday, the air strike was called in against a band of Taliban who had occupied the village and fired on a patrol of NATO troops. It alleged that the insurgents used the civilian population as human shields and implied that any casualties could have been caused by insurgent fire.

US spokesman Colonel Greg Julian told journalists: "We acknowledge that some civilians have been injured and some may have been killed. I can't confirm numbers."

An Agence France Presse report based on interviews with villagers and filed on Wednesday presented a very different picture of events. Locals told AFP that as a lunch-time wedding celebration was drawing to a close, insurgents fired on occupation troops from a nearby hill. NATO forces wrongly concluded that the village was the source of the attack and initiated a full-scale assault.

Abdul Jalil, a cousin of the woman getting married, told AFP: "They surrounded the village. From 2 p.m. until 12 at night they kept the village under fire from helicopters, jet fighters and troops on the ground."

The village cleric, Mullah Mohammad Asim, claimed that air strikes had targeted six to seven houses, including the complex where the wedding party was taking place. "They pounded and fired into the village from afternoon until midnight," he said.

The family of the bride, who was wounded in the attack, was decimated. Her father, Roozbeen Khan, said: "I lost two sons, two grandsons, a nephew, my mother and a cousin... My wounded son was in my arms, right here, bleeding. He died last night." While the groom was not injured, his father, mother and sister were reportedly killed.

Mullah Mohammad Asim described what took place when US ground forces finally entered the village: "At midnight the Americans came and they took the men out of the houses and handcuffed them. But when they saw the death and the destruction, they removed the handcuffs and told us to take the wounded to hospital."

The slaughter of civilians in Afghanistan has become an almost daily occurrence. Without sufficient troops to control the country and desperate to avoid casualties of their own, US and NATO forces rely heavily on air power to combat the growing Taliban insurgency. Air strikes or helicopter gunship attacks are called in against any suspected insurgent concentration. In scores of cases, the alleged "Taliban" have turned out to be villagers attempting to go about their lives amid a foreign occupation and a resistance war. Wedding parties—which often involve celebratory gun fire into the air—have frequently been wrongly assessed as "insurgent activity".

Statistics released by the US military show a huge increase in airstrikes. In all, 13,802 air missions have been flown in Afghanistan and 2,983 bombs were dropped in the first nine months of this year. This breaks down to at least 50 missions and 10 bombings per day—a 31 percent increase over the 10,538 missions flown during the same time period in 2007.

The US-backed Afghan government of President Hamid Karzai is becoming increasingly frantic over the indiscriminate air strikes. The constant reports of civilian deaths have generated enormous hatred of both the American occupation and the puppet regime. They are a factor in the growing support for the Taliban resistance—especially in the country's ethnic Pashtun southern provinces where the population has suffered the most from US and NATO atrocities.

At a press conference on Wednesday to congratulate Barack Obama on his election victory, Karzai issued an appeal to the president-elect. "My first demand from the US president, when he takes office, would be to end civilian casualties in Afghanistan and take the war to places where there are terrorist nests and training centres," he said.

Any notion that an Obama administration will direct the US military to scale back its operations in Afghanistan is absurd. On the contrary, Obama has centred his foreign policy on an escalation of the Afghan war and an increase in US and NATO troop numbers in the country. During the election, he repeatedly advocated extending the conflict over the border into Pakistan's tribal agencies, which Taliban insurgents have used as a safe haven and base for their resistance to the US-led occupation.

Under the fraudulent banner of finishing the "war on terrorism", Obama intends to ensure that Afghanistan is consolidated as a US client state. His election campaign served as the vehicle for influential sections of the American establishment that consider a high priority should be given to Central Asia—a region where Russia and China are striving for geopolitical dominance.

The Bush administration is now in essence implementing the Obama strategy. Since September, the US military has carried out repeated air strikes inside Pakistan. Additional US combat brigades are being prepared for deployment to Afghanistan. As many as 30,000 extra troops may be sent over the next three to six months. The bipartisan militarist policy is one of the reasons why Bush can speak of a "seamless transition" to an Obama White House.

The figure overseeing the escalation of the Afghan war on behalf of both Bush and Obama is US general David Petraeus, the former commander of US forces in Iraq. Petraeus now heads US Central Command, which has authority over operations throughout the Middle East and Central Asia.

Petraeus visited Pakistan at the beginning of this week for talks with President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani. Both appealed to him to end the US attacks inside the country which are fueling support for Islamist militants. He responded by authorising another air strike yesterday against a housing complex in the tribal agency of North Waziristan, which killed between 10 and 13 people according to Pakistani sources.

Petraeus is now in Afghanistan, where he is compiling a "strategic review" of US operations that will be presented in the coming weeks to the Bush administration and president-elect Obama. Petraeus arrived in the country as the US military brushed off the Karzai government's complaints over the impact of air strikes. Within hours of Karzai's press conference on Wednesday, a bombing run against an alleged Taliban band in the Afghan province of Badghis reportedly killed seven civilians as well as 13 militants.

US jobless rate hits 14-year high

US jobless rate hits 14-year high

By Patrick O'Connor

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Data released yesterday by the US Labor Department showed unemployment increased last month from 6.1 to 6.5 percent, the highest rate recorded since 1994. The number of officially unemployed increased by 603,000 to a total of 10.1 million, the largest number since 1983.

A total of 240,000 jobs were lost last month on a net basis, significantly more than had been anticipated, again pointing to a prolonged and severe downturn. “We’re heading for a deep recession,” Nariman Behravesh, chief economist at IHS Global Insight, told Bloomberg News. “Banish the word mild from your vocabulary. It’s big, it’s bad, and it’s broad-based.”

The Labor Department revised its jobless figures for September, from the initially reported 159,000 net job losses to 284,000. Total employment has declined by 1.2 million in the first 10 months of 2008, with more than half of this fall recorded in the last three months. Economists estimate that the economy must generate an additional 100,000 jobs each month just to keep up with population growth.

Jobs were shed across a number of sectors:

• Manufacturing employment declined by 90,000 in October, including employment in fabricated metal parts (11,000 jobs lost), furniture and related products (10,000) and motor vehicles and parts (9,000).

• Construction employment fell by 49,000. The Labor Department noted that since peak activity in September 2006, construction employment has fallen by 663,000.

• The employment services industry lost 51,000 jobs.

• Retail trade employment declined by 38,000, with auto dealerships (20,000 jobs lost) and department stores (18,000) the worst affected.

• Financial sector employment fell by 24,000 and is down by 200,000 jobs since its peak in December 2006.

The number of long-term unemployed, those out of work for 27 weeks or more, increased last month by a quarter of a million to a total of 2.3 million. This is 22 percent of the total unemployed, the highest proportion recorded in 25 years.

“A quick observation of the duration of unemployment indicates that individuals are experiencing a much more difficult time finding jobs that correspond with their skill sets,” Joseph Brusuelas of Merk Investments noted. “This data implies that individuals in the manufacturing, real estate and financial communities may be on the cusp of experiencing a type of structural unemployment of the kind that has not been seen since the breakdown of the steel and coal industries over three decades ago.”

The rising unemployment rate is having a devastating social impact. According to the New York Times, only 32 percent of the officially unemployed are drawing state benefit checks because of onerous eligibility restrictions and other conditions designed to drive people off the books.

Moreover, the real jobless rate is far higher than the official 6.5 percent figure. The Labor Department’s monthly report acknowledged that the number of “involuntary part-time workers”—that is, those who are unable to find full-time work, or those whose hours have been cut back to part-time levels—increased in October by 645,000 to 6.7 million.

Also not counted as unemployed are those “marginally attached to the workforce”—i.e., those who wanted and were available for work and had looked for a job in the last year, but not in the four weeks preceding the survey. A total of 1.6 million people were in this category in October. Among the marginally attached were 484,000 “discouraged workers” who have stopped actively looking for employment. Other marginally attached workers include those who were unable to look for work in the preceding four weeks due to school attendance or family responsibilities.

When the involuntary part-time and marginally attached workers are counted, the unemployment rate stands at 11.8 percent, up from 11 percent in September and from 8.4 percent a year earlier.

Commenting on the Labor Department data, the Wall Street Journal’s Sudeep Reddy and Justin Lahart noted, “One of the more worrisome aspects of today’s report: signs that the labor market was declining substantially even before the worst of the credit crisis hit... If conditions were that bad before October, they’re likely to be far worse in the months to come as companies adjust to the new credit environment and consumers retrench with added pressure on housing and credit markets.”

Goldman Sachs economists revised their unemployment and gross domestic product forecasts after the unemployment figures were released. The firm now anticipates that the economy will contract by 3.5 percent in the fourth quarter and 2 percent in the first quarter of 2009, leading to an unemployment rate of 8.5 percent by the end of next year. Such GDP figures would mark the sharpest quarterly declines since 1981-82.

The deepening recession has led the auto industry, once one of the leading symbols of US capitalism’s world dominance, to the brink of collapse.

General Motors said yesterday that its cash reserves “will approach the minimum amount necessary to operate” for the rest of the year. Estimated liquidity, the automaker added, will fall “significantly short” of what is required by July unless the car market stages a comeback or the company receives a massive injection of capital.

GM senior executives, together with those from Ford and Chrysler, met this week with Democratic House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, and other legislators to plead for a massive government bailout. GM announced it is suspending merger discussions with Chrysler to focus instead on securing billions in public money, without which the company will likely go bankrupt.

GM reported a $4.2 billion operating loss for the third quarter. Its available cash fell from $21 billion to $16.2 billion in just three months. The former industrial giant lost almost $73 billion since the end of 2004. Massive job losses and cuts to wages and conditions are to follow. GM said yesterday it will try to slash 30 percent of salaried workforce expenses, up from the previously stated goal of 20 percent.

Ford, the second-largest US automaker, also released its quarterly figures yesterday. Its operating loss was $2.98 billion, bringing total losses since 2005 to $24 billion. Ford also reported using up $7.7 billion in cash over the last three months.

Like GM and Chrysler, Ford is desperately slashing production and jobs in a bid to remain solvent. The company reduced North American output by 34 percent in the third quarter, and said yesterday it would cut output in the fourth quarter by a further 33 percent, rather than the previously planned 27 percent. The 33 percent cut is equivalent to 211,000 less vehicles being produced.

Ford also announced it would cut salaried personnel costs by an additional 10 percent by the end of January, on top of a 15 percent cut imposed in 2008. Next year will also see the abolition of “merit-pay” for salaried workers.

Obama reassures big business on economic policy

Obama reassures big business on economic policy

By Patrick Martin

Go To Original

In his first public appearance as president-elect, Barack Obama held a press conference in Chicago Friday afternoon after meeting for several hours with a selected group of economic advisers, comprised entirely of bankers, corporate executives and current and former government officials.

Members of Obama’s Transitional Economic Advisory Board and other economic advisers, including former Federal Reserve Chairman Paul Volcker and Clinton-era treasury secretary and current Citigroup executive Robert Rubin, were lined up behind Obama as he answered questions from reporters.

In his opening statement to the press conference, Obama underscored the gravity of the economic crisis, citing the report earlier in the day that a net 240,000 US jobs were lost in October. “In total, we’ve lost nearly 1.2 million jobs this year, and more than 10 million Americans are now unemployed,” he said. “Tens of millions of families are struggling to figure out how to pay the bills and stay in their homes. Their stories are an urgent reminder that we are facing the greatest economic challenge of our lifetime, and we must act swiftly to resolve them.”

He proposed no immediate actions, however, emphasizing that President Bush remains in the White House until next January 20. Obama was clearly seeking to divorce himself from responsibility for the rapid increase in economic distress which is expected over the next two months.

“Immediately after I become president,” he said, “I will confront this economic crisis head-on by taking all necessary steps to ease the credit crisis, help hard-working families, and restore growth and prosperity.” But he gave few details of what policies he might propose, other than including an extension of unemployment benefits in a new “economic stimulus” package.

While acknowledging the depth of the crisis, Obama was at pains to downplay expectations of any rapid economic recovery, saying, “It is not going to be easy for us to dig ourselves out of the hole that we are in.”

Obama declared, “We need a rescue plan for the middle class,” but the composition of his Transitional Economic Advisory Board belies his claim to be focusing on the economic difficulties of ordinary people. The panel consists entirely of representatives of the corporate and financial elite and the Democratic wing of the political establishment.

The 17 members of the panel include billionaire Warren Buffett, the richest man in America, the CEOs of Xerox and Google, the chairman of the board of Time Warner, Hyatt Hotels heiress Penny Pritzker, and Citigroup Vice Chairman Rubin.

Joining them in the meeting that preceded the press conference were former Clinton administration officials William Daley, Robert Reich, Laura Tyson and Lawrence Summers, as well as two former commissioners of the Securities and Exchange Commission, Volcker and former Fed Vice Chairman Roger Ferguson, former Democratic Congressman David Bonior, Michigan governor Jennifer Granholm and Los Angeles Mayor Antonio Villaraigosa.

The panel had the obligatory gender and racial diversity—two black members, two Hispanics, four women—but not even a semblance of class diversity. There was not a single individual representing workers, the unemployed, consumers, homeowners or those facing foreclosure and homelessness.

Nor were there any representatives of the labor federations—the AFL-CIO and Change To Win—which poured hundreds of millions of dollars into the Obama campaign—or of African-American, Hispanic and women’s organizations, such as the NAACP and NOW.

Some 16 years ago, the last time that a Democrat replaced a Republican in the White House, President-elect Bill Clinton was at pains to include high-ranking union officials at his economic summit in Little Rock. But so socially irrelevant have the trade unions become that Obama and his advisers do not consider it necessary to make even a pretense of consulting them in the making of economic policy.

Two indications of future Democratic policy emerged at the press conference. Obama strongly suggested that the Bush administration’s $700 billion bailout of the banks—adopted with the support of the Democratic-controlled Congress, including Obama’s own vote—would be expanded to include the auto industry.

When asked point blank whether he would stick to his campaign pledge to cut taxes for those making less than $200,000 a year and raise taxes on those with incomes of $250,000, he responded by leaving open the possibility that this policy would be reconsidered.

“I think that the plan that we’ve put forward is the right one, but obviously over the next several weeks and months, we’re going to be continuing to take a look at the data and see what’s taking place in the economy as a whole,” Obama said.

“The goal of my plan is to provide tax relief to families that are struggling, but also to boost the capacity of the economy to grow from the bottom up,” he added, in what was an implicit concession to the arguments by business groups and congressional Republicans that a tax hike on the wealthy would damage economic growth.

Obama made no criticism of the Bush administration’s handling of the bank bailout, saying only that his transition office would monitor it to make sure the Treasury was “protecting taxpayers, helping homeowners and not unduly rewarding the management of financial firms that are receiving government assistance.”

The language, in avoiding any criticism of Wall Street speculators and CEOs, is both telling and consistent with the tenor of Obama’s election campaign. As during the campaign, Obama avoids any exposure, let alone condemnation, of the social interests which are responsible for the economic crisis and which underlie the policies of the Bush administration.

Whatever Obama’s criticisms of Bush or the Republican presidential candidate John McCain, the Democratic president-elect represents the same class interests--the financial aristocracy which rules America and subordinates the social and economic life of the country to its drive for personal enrichment.