Tuesday, November 11, 2008

Revised AIG Terms Begin Treasury Transfusions to 'Zombie' Firms

Revised AIG Terms Begin Treasury Transfusions to 'Zombie' Firms

By Craig Torres

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The revised bailout of American International Group Inc. marks a new phase in the government's effort to shore up financial markets: It's the first time cash from the rescue fund Congress created last month has been committed to a failing company.

The Federal Reserve, which saved the insurer from collapse two months ago with an $85 billion loan, yesterday reduced that loan and offered lower rates, while the Treasury chipped in $40 billion from its bank-rescue fund to buy preferred shares. The new terms represent a departure for Secretary Henry Paulson, who until now has said he only wants to invest Treasury funds in ‘‘healthy'' firms.

Taxpayers are ‘‘keeping the zombie alive,'' said Robert Eisenbeis, chief monetary economist at hedge fund Cumberland Advisors and former director of research at the Atlanta Fed. ‘‘We keep getting deeper and deeper into these holes.''

The shift is likely to vastly expand political demands for saving dying companies in the name of financial or economic stability. The administration of President-elect Barack Obama may soon have to consider credit or capital injections for other insurers, automakers, even retailers as the U.S. slides deeper into what could be the worst recession in a quarter-century.

‘‘Are you going to do General Motors and Ford, and, if you do those, are going to go on and do retailers?'' said William Isaac, former chairman of the Federal Deposit Insurance Corp. and now chairman of the Secura Group LLC. ‘‘ Where does it stop? That is a very difficult decision we are going to face as a country.''

AIG's Losses

With the new bailout plan, the Treasury is conceding the initial rescue wasn't sufficient. It's investing funds from the so-called Troubled Asset Relief Program created by Congress to purchase preferred shares in a company that lost $24.5 billion in the third quarter, its fourth straight unprofitable quarter. Losses in the past year wiped out profit from 14 previous quarters.

In addition to the Treasury's purchase of preferred stock, the Fed will lend AIG $60 billion, and create two new emergency loan units to finance up to $52.5 billion of the company's securities. Between loans and the capital injection, the government's $152.5 billion commitment is almost double the Fed's initial $85 billion loan.

The security of the government's collateral, the assets of the company itself, is likely improving because the Fed is removing distressed securities from the company's balance sheet and the government is now a direct stakeholder.

‘Changed Course'

‘‘The way the loan was structured previously would have led to a liquidation of AIG, whether intended or not,'' said Dino Kos, a managing director at Portales Partners LLC, New York. ‘‘Obviously, they have changed course.''

The New York Fed gave the original loan in September to prevent widespread default against AIG creditors in the same week that Lehman Brothers Holdings Inc. collapsed.

In a statement yesterday, the Fed said the revised terms ‘‘establish a more durable capital structure and resolve liquidity issues,'' as well as ‘‘protect the interests of the U.S. government and taxpayers.''

The Treasury, in a separate statement, called AIG a ‘‘systemically important company.'' The insurer guaranteed about $372 billion of fixed-income investments as of Sept. 30.

Stability

‘‘This action was necessary to maintain the stability of our financial system,'' Neel Kashkari, the interim assistant secretary who heads the Treasury's office overseeing the bailout, said yesterday at a Securities Industry and Financial Markets Association conference in New York.

Vincent Reinhart, resident scholar at the American Enterprise Institute and former director of the Monetary Affairs Division at the Fed Board, said yesterday's expansion of the AIG bailout shows that ‘‘no one knows the general principles'' behind the Treasury's trouble-assets program.

First, Treasury said it would buy distressed assets. Then it began injecting capital directly into banks, and now, with AIG, into troubled financial institutions.

‘‘Now we are outside solvent institutions. If you don't have a design principle it is very difficult to draw lines,'' Reinhart said. When the Obama administration takes over the Treasury, the new leaders ‘‘can increase the size of these programs and the scope, and say we are only following logically the Paulson plan.''

Automakers

Democratic congressional leaders urged Paulson in a Nov. 8 letter to use the rescue funds to lend to automakers, a sign that the package's scope may be broadened further. Senator Carl Levin, Democrat of Michigan, said in an interview he believes the Treasury has the authority to use the bailout funds for that purpose. That could be made explicit by adding language to an economic-stimulus bill that will be considered when Congress returns next week for a post-election lame-duck session, he said.

Shares of General Motors Corp. fell 23 percent yesterday after a Deutsche Bank AG analyst said the stock may be worthless in a year.

The revised terms for AIG reduce the interest rate on the $60 billion Fed loan to the three-month London interbank offered rate plus 3 percentage points, from a previous spread of 8.5 percentage points.

The Fed also invoked emergency authority to set up two new emergency loan facilities, one to fund the purchase of residential mortgage-backed securities from AIG's portfolio, and a second to finance the purchase of hybrid credits that AIG wrote default insurance contracts against. In effect, the Fed is taking a direct role in unwinding a troubled insurance business of AIG.

The capital injection into AIG will come from a $100 billion pool authorized by Congress for Treasury to use at its discretion, rather than the $250 billion allocated to purchase stakes in the country's banks, a Treasury official said. The government will get a 10 percent dividend for its preferred shares in the insurer, the Treasury official said.

‘‘The Fed and Treasury are saying there should be no penalty for bad performance,'' said Walker Todd, a former Cleveland Fed attorney who is now a senior research fellow at the American Institute for Economic Research in Great Barrington, Massachusetts. ‘‘It creates the zombie finance phenomenon. The living dead keep on walking instead of taking a decent burial.''

Washington secretly authorized military raids on 20 countries since 2004

Washington secretly authorized military raids on 20 countries since 2004

By Bill Van Auken

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Since 2004, the Bush administration has secretly authorized military raids against up to 20 countries without any declaration of war or even any explicit congressional authorization for armed action, according to a report published Monday in the New York Times.

The report, which cites recent attacks on targets in Pakistan, Syria and Somalia, establishes that under an order issued by then-Defense Secretary Donald Rumsfeld and approved by President George W. Bush in the spring of 2004, the US military’s Special Operations forces were given license to attack alleged al Qaeda targets “anywhere in the world.”

Citing unnamed senior US officials, the Times reported that the authorization provided a “sweeping mandate to conduct operations in countries not at war with the United States.” It confirmed that the US military has used the authority to “carry out nearly a dozen previously undisclosed attacks.”

Among the attacks carried out under the order was the October 26 raid on the Syrian village of Sukkiraya, near the Iraqi border, in which four US attack helicopters participated. Two of the helicopters landed Special Forces troops while the other two provided covering fire. The troops shot at civilians working on a farm, killing eight, including four children, and wounding a number of others. The raid sparked demonstrations in Damascus and the Syrian government denounced it as a “war crime” and a “terrorist act of aggression.”

According to the Times account, the raid, ostensibly aimed at an individual involved in smuggling fighters into Iraq, was not the first time that the US military had carried out such an operation on Syrian territory.

Similarly, on September 3, a US strike force believed to be composed of Navy Seals was helicoptered into Pakistan’s Waziristan region, near the Afghan border, to attack three houses. Between 15 and 20 people were killed in the raid, reportedly including eight women and children.

The Times report also established that this was not the first such attack on Pakistani soil. It revealed that in 2006, a similar Navy Seal team raided a compound in Pakistan’s Bajaur region, an operation that was filmed by a pilotless Predator drone and watched in real time by officials at the CIA’s Counterterrorism Center in Langley, Virginia.

The September 3 operation, in which at least 20 people were killed, was launched based on another secret order signed by Defense Secretary Robert Gates last July with Bush’s approval. The order directed the military—in collaboration with the Central Intelligence Agency—to prepare cross-border raids by Special Operations forces into Pakistan’s tribal areas. The authority for these operations was based on the previous order issued in 2004.

A January 2007 strike carried out by AC-130 gunships against southern Somalia, in which scores of civilians were killed, was also conducted under the authority of the executive order. Special Operations troops were subsequently landed in the area near the Kenyan border to sift through the rubble to determine if any of those killed by the aircrafts’ heavy cannons were actually targeted Islamist militants.

In addition to the raids that were carried out, the Times reports, up to a dozen more had been planned but were then scrapped after administration officials decided that they were “too risky” or “too diplomatically explosive.”

The decision authorizing these operations, known as “Al Qaeda Network Exord” (for executive order), represented a practical corollary to the so-called “Bush doctrine,” which arrogated to the United States the “right” to wage aggressive war anywhere in the world in the name of a global struggle against terrorism. In enunciating this doctrine in a June 2002 speech at the US Military Academy at West Point, Bush spoke of the need for the US military to “be ready to strike at a moment’s notice in any dark corner of the world.”

What is involved in many of these operations is the use of special task forces known as “hunter-killer teams,” in essence assassination squads. In most of them, however, the military has utilized air support resulting in the deaths of large numbers of civilians.

The Times report traces the executive order back to a campaign by Rumsfeld to take over operations that had traditionally been carried out by the US Central Intelligence Agency, whose utilization of such methods had earned it the nickname “Murder Inc.” Rumsfeld, the paper reported, “pressed hard to unleash the military’s vast firepower against militants outside the combat zones of Iraq and Afghanistan.”

While the Times account describes the order issued by Rumsfeld as “secret” and “classified,” there is every reason to suspect that, like the orders involving the use of waterboarding, extraordinary rendition, domestic spying and other criminal actions associated with the Bush administration’s “global war on terror,” the directive authorizing the US military to freely conduct raids in violation of the sovereignty of nations across the globe was made known to and received tacit approval from the Democratic leadership in Congress.

Moreover, any illusion that such practices are about to fade into history with the end of the Bush administration and the coming to office of Barack Obama in January would be wholly unfounded.

The Democratic president-elect made his advocacy of precisely such raids against targets in Pakistan a persistent theme in his campaign for the Democratic nomination and the presidency. Moreover, his platform prominently features the call for not only the expansion of US troop strength by another 100,000 soldiers and Marines, but also the “building up” of the military’s Special Operations forces for just such acts of aggression.

Obama’s advisers, the Democratic leadership in Congress and the Bush administration are all sending signals that the shift in administrations will be characterized more by continuity than any radical change in US foreign policy.

This was spelled out most clearly by Obama foreign policy adviser Zbigniew Brzezinski, who served as US national security advisor in the Carter administration, playing a key role in the US strategy of promoting and funding the war by Islamist forces—elements of which went on to found al Qaeda—against the Soviet-backed regime in Afghanistan.

Speaking to Deutsche Welle last Friday, Brzezinski cautioned against expectations of “a dramatic change” in US foreign policy. “You have to think of foreign policy as, for example, a boat moving on the sea,” he said. “A huge ocean liner doesn’t change its course in the way that a fast motor boat does. Therefore it is not possible for the United States to dramatically change every one of its policies.”

Meanwhile, on Saturday, Vice President Dick Cheney delivered a speech to cadets at the Virginia Military Institute in which he described “jihadists” as a “strategic threat to the United States” on a par with that once posed by Nazi Germany. He vowed an unending war against them, while promising a “smooth and graceful transition of power to President-Elect Obama and Vice President-Elect Biden, as they take up the duty of protecting America.”

Layoffs mount, economic crisis deepens in the US

Layoffs mount, economic crisis deepens in the US

By Tom Eley

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Monday brought a number of fresh indications—including mass layoffs, bankruptcies and negative labor market data—that the US is entering a deep economic crisis.

DHL Express, the country’s third largest parcel delivery company, now joins the ever-increasing list of companies making massive cuts in its labor force. It announced on Monday that it was laying-off 9,500 workers and shutting down hundreds of service centers. The cuts are in addition to a 5,400 employee reduction announced last May.

Economic conditions have also led to a reduction, for the first time since 2001, in the quantity of shipping that DHL and rivals Federal Express and United Parcel Service carry out.

The layoffs themselves will devastate the small town of Wilmington, Ohio, where DHL is headquartered. About 3,000 of the town’s 12,000 residents work directly for the company, while the remainder relies on it indirectly. “They’re taking away everything from me, my family, my friends—this whole town,” DHL employee Sherry Barrett told CNN.

Also on Monday, Circuit City, the second largest electronics retailer in the US, filed for bankruptcy protection. Prior to the announcement, manufacturers had begun to cut off product line shipments fearing that the company would not be able to make its payments. Circuit City simultaneously announced 700 layoffs among its corporate staff.

Only one week ago the company announced that it was closing 155 of its retail stores and laying-off 7,000 workers. Thousands more will undoubtedly lose their jobs as a result of the bankruptcy announcement.

Nortel, a telecommunications firm, announced 1,300 layoffs along with a freeze on salary increases after reporting a third quarter loss of $3.4 billion. It is not yet clear where the Canada-based corporation will carry out its latest headcount reduction, but it has operations at dozens of sites in the US and around the world.

On November 7, the nation’s largest toymaker, Mattel, announced 1,000 job cuts worldwide, including more than 170 at its El Segundo, California, headquarters.

On November 6, GlaxoSmithKlein, the world’s second largest drug maker, announced it was laying of 1,000 workers in the US.

The financial industry is also preparing a new round of mass layoffs for 2009—as many as 150,000 worldwide and 70,000 in the US alone--according to a Monday report in the Financial Times.

Over the next few years, New York City may shed between 55,000 and 78,000 finance jobs according to a recent Federal Reserve Board survey. Financial sector layoffs for 2009 are likely to be made public later this month as major financial firms prepare their respective budgets for the upcoming year.

The dismissals will come on top of the massive reductions that have already taken place or are currently underway in the financial sector. Citigroup is in the midst of laying-off 23,000; the collapse of Lehman Brothers and Bear Stearns has resulted in the loss of another 23,000 jobs; Merrill Lynch has fired 5,700; Morgan Stanley 4,400; and Goldman Sachs is dismissing 3,200 employees.

The series of announced layoffs—in virtually every sector of the economy--arrives on the heels of a sharp drop in employment in October, when 240,000 jobs were eliminated and the official unemployment rate soared to 6.5 percent.

Monday was also another bleak day for US auto giant General Motors. Its stock fell by 23 percent, reaching its lowest level in 60 years, after analysts for Deutsche Bank, JP Morgan, and Barclay’s Capital warned investors that GM’s prospects were grim.

Deutsche Bank lowered its target for GM equity to zero dollars, predicting that GM was unlikely to avoid bankruptcy or “bankruptcy-like” conditions, and that any government bailout would not benefit shareholders.

Also on Monday, GM issued its quarterly report with the US Securities and Exchange Commission. It revealed that that the mortgage component of its GMAC LLC financial arm may soon collapse, and that Delphi Corporation, GM’s spun-off parts-maker, might never emerge from bankruptcy protection. GM controls 49 percent of GMAC, while Cerberus Capital Management LP, which owns Chrysler, controls 51 percent.

In another sign of a rapidly worsening economy, the Conference Board’s monthly labor market index fell sharply. The Conference Board is a New York-based business research group. The index, which assesses eight employment-related economic indicators, has fallen 12 percent in one year. Part-time and temporary jobs have been especially hard hit over the past six months, the index reveals.

According to Gad Levanon, the Conference Board’s Senior Economist, the data “suggests we will experience even greater deterioration in the labor market in the months ahead, and that the unemployment rate will continue to rise sharply well into 2009. The economic developments of the last two months made it clear to businesses that demand for goods and services in the US is [sic] declining, and businesses are responding by aggressively slashing their payrolls. Unfortunately,” he said, “it seems this environment will persist for several more quarters and business leaders will continue reducing their workforce.”

As winter approaches, the federal government has done almost nothing to alleviate the suffering of millions of working class people who have been thrown on to unemployment lines, or who face home foreclosure, eviction, or personal bankruptcy.

The indifference of both the Democrats and Republicans to this social catastrophe engulfing millions stands in stark contrast to the alacrity with which they carry out the dictates of the financial aristocracy.

The federal government also announced an expanded government rescue package for the giant insurance company, American International Group, (AIG), this Monday, which will amount to a total of $150 billion, $40 billion of which will be invested directly into AIG despite the company’s disclosed losses of $24.5 billion from July through October.

According to a report by Bloomberg News, the federal government has extended over $2 trillion in emergency loans to major financial concerns in the past fifteen months and the Federal Reserve Board has thus far refused to reveal who has received the taxpayer infusions. On November 7th, Bloomberg News filed a lawsuit against the board, demanding that it release information pertaining to the recipients of the $2 trillion largesse, and also about the toxic assets which the US Government has now taken onto its books as collateral.

Globalization and the Rise of Monopolization Speeds Economic Failure

Globalization and the Rise of Monopolization Speeds Economic Failure

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Capitalism's base tenant of supply and demand requires a healthy environment of competition. Many of the calculated moves toward a global market have undermined that tenant. In a competitive arena, there are bound to be winners, and the governments used to regulate that to prevent monopolies from consolidating control in market sectors.

On a national level, consolidation has been occurring at increasing rates for the past 20 years. Do you remember the old mom and pop Hardware Stores? They are now rarely, if ever, found. The same has been occurring in the banking industry, as well as in nearly all other sectors. Control supply, and what happens to capitalism's balance? It no longer works.

On a global scale there are winners that are taking over the world of food supply. The mining industry from Gold to Coal, is being consolidated through mergers and takeovers. Many of the world governments have recently succeeded in placing the diverse interests of investment banks into centralized hands, not to mention AIG.

What does this continuing and quickening trend portend for the capitalist system? It is no longer predominantly capitalist in nature. To continue theoretically as though it is simply begs more disaster. There needs to be a commitment to protection the foundational precepts upon which the best proven system of economics are based, but can that happen?

Globalization will continue, and we must continue to partner with forces that have commitments to economic ideologies that have proven to be failures. In the west, we have made strides in the past that have inhibited, though not eradicated graft and corruption, but now we are letting our protective shields down in this regard. The result has been to allow monopolies to grab control, and in the resulting position of autonomous power, these organizations have been undermining our economic base with sacrificial, individualist greed.

The United States is still the predominant military and economic power in the world, though admittedly, not to the scale previously enjoyed. The retention of this position, however reduced, begs that the US craft a new approach that will protect our nation from further economic ruin.

Capitalism has worked in the past, and there may be some small comfort in the past, but it is not working now, largely because there has been a sell out of it's base principles. Will a global economy allow the fundamentals of capitalism to be re-asserted to a degree necessary in preserving the system? If not, lets figure out a better way before its too late.

Space-Based Domestic Spying: Kicking Civil Liberties to the Curb

Space-Based Domestic Spying: Kicking Civil Liberties to the Curb

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Last month, I reported that the Department of Homeland Security's (DHS) space-based domestic spy program run by that agency's National Applications Office (NAO) had gone live October 1.

Federal Computer Week reports that Charles Allen, DHS' Undersecretary for Intelligence and Analysis, told the 5th annual GEOINT Symposium on geospatial intelligence in Nashville late last month that, "DHS' imagery requirements are significantly greater, in number and scope, than they were at the department's creation, and will continue to grow at an accelerating rate as the department's mission-space evolves."

Indeed during Hurricane Ike, U.S. Customs and Border Protection for the first time flew the Predator B unmanned aerial vehicle in "support of the Federal Emergency Management Agency's relief efforts," the insider tech publication reported.

As readers are well aware, the Predator B carries out "targeted assassinations" of "terrorist suspects" across Afghanistan, Iraq and Pakistan. The deployment of the robotic killing machines in the United States for "disaster management" is troubling to say the least and a harbinger of things to come.

Despite objections by Congress and civil liberties groups DHS, in close collaboration with the ultra-spooky National Reconnaissance Office (NRO), the agency that develops and maintains America's fleet of military spy satellites, and the National Geospatial-Intelligence Agency (NGA) that analyzes military imagery and generates mapping tools, are proceeding with the first phase of the controversial domestic spying program.

NAO will coordinate how domestic law enforcement and "disaster relief" agencies such as FEMA will use satellite imagery intelligence (IMINT) generated by military spy satellites. As I wrote earlier this year, unlike commercial satellites, their military cousins are far more flexible, have greater resolution and therefore possess more power to monitor human activity.

Testifying before the House Homeland Security committee in September, Barry Steinhardt, Director of the ACLU's Technology and Liberty Project, called for a moratorium on the domestic use of military spy satellites until key questions were answered. Steinhardt said, "Congress needs to act before this potentially powerful surveillance tool is turned inward upon the American people. The domestic use of spy satellites represents a potential monster in the making, and we need to put some restraints in place before it grows into something that will trample Americans' privacy rights."

Needless to say, a feckless Congress has done virtually nothing to halt the program. As The Wall Street Journal reported in early October, Congress' "partial funding" of the office "in a little debated $634 billion spending measure," means that NAO is now providing federal, state and local officials "with extensive access to spy-satellite imagery."

Allen told the GEOINT Symposium that while "geospatial efforts are being coordinated across agencies," technical hurdles must be overcome in order to improve geospatial IT applications. Federal Computer Week avers,

For developing future satellite imagery capabilities, Allen recommended diversity, availability, survivability and flexibility for future systems in a satellite and modular payload system similar to what was advised by the Marino Report in July 2007 to the director of the National Geospatial-Intelligence Agency and the National Reconnaissance Office.

"It describes an architecture that allows for short time between launch as well as an option for variable modalities. This kind of diversity is what I believe will be necessary to assure adequate collection of a wide array of targets," Allen said. (Alice Lipowicz, "Geospatial Intelligence Use Grows at DHS, Official Says," Federal Computer Week, October 30, 2008)

What those "variable modalities" are were not spelled out by Federal Computer Week. However, the Marino Report was released by Chesapeake Analytics Corporation, an under-the-radar Arlington, Virginia-based private defense contractor that describes itself "as a 'boutique' consulting firm" for senior executives "in the geospatial technology sector." The report itself was written by Defense Group Inc. (DGI), a spooky Falls Church, Virginia defense contractor for NRO and NGA. According to their website, DGI "customers" include the Department of Homeland Security, the Department of Defense and "numerous Intelligence Agencies."

As we have seen however, the use of satellite imagery during "national security events" such as last summer's political conventions in Denver and St. Paul may have aided FBI and local law enforcement in their preemptive raids on protest organizers and subsequent squelching of dissent. One wonders if this is what DGI refers to when they write that the company "performs work in the national interest, advancing public safety and national security through innovative research, analysis and applied technology"?

NAO's launch is all the more troubling since an independent review of the program by the Government Accountability Office (GAO) found that the department has been less than forthcoming that NAO complies with privacy laws and doesn't violate the Posse Comitatus Act.

The 1878 law prohibits the military from playing a role in domestic law enforcement. Since the 1990s however, Posse Comitatus has been eroded significantly by both Democratic and Republican administrations, primarily in the areas of "drug interdiction," "border security" as well as "Continuity of Government" planning by U.S. Northern Command (NORTHCOM).

Despite objections by GAO auditors DHS securocrats held up the release of their 60-page report, citing its "sensitive nature." The September 15, 2008 report, entitled "National Applications Office. Certification of Compliance With Legal, Privacy, and Civil Liberties Standards Needs to Be More Fully Justified," is now in the public domain and was finally released November 6, two days after American national elections.

It makes for a very troubling read. In their November 6 cover letter to congressional committees, the GAO writes:

Citing a growing need to use classified satellite information for civil or domestic purposes, in 2005, an independent study group reviewed the future role of the CAC [Civil Applications Committee] and concluded that although the civil domestic users were well supported through the CAC, homeland security and law enforcement users lacked a coherent, organized, and focused process to access classified satellite information. (GAO, "National Applications Office Certification Review," GAO-09-105R, November 6, 2008)

However, the "independent study group" cited by GAO was neither independent nor predisposed towards limiting the deployment of military spy satellites for domestic "missions." Indeed that report, "Independent Study Group, Civil Applications Committee Blue Ribbon Study," (September 2005), was the product of a panel comprised solely of securocrats and defense and security contractors who stand to make a bundle on NAO. As investigative journalist Tim Shorrock revealed last year, the intelligence-sharing system to be managed by NAO,

...will rely heavily on private contractors including Boeing, BAE Systems, L-3 Communications and Science Applications International Corporation (SAIC). These companies already provide technology and personnel to U.S. agencies involved in foreign intelligence, and the NAO greatly expands their markets. Indeed, at an intelligence conference in San Antonio, Texas, last month, the titans of the industry were actively lobbying intelligence officials to buy products specifically designed for domestic surveillance. ("Domestic Spying, Inc." CorpWatch, November 27, 2007)

Indeed, the "independent study group" was appointed by Mike McConnell, the Director of National Intelligence who himself was a senior vice president for ten years with the spooky Booz Allen Hamilton corporation. McConnell oversaw that firm's extensive contracts in military intelligence and information operations for the Pentagon, Shorrock reported in March 2008.

GAO investigators have determined that while DHS "has established procedures for legal review, it has not yet fully addressed all outstanding issues regarding how the planned operations of the NAO, as described in the department’s certification documents, are to comply with legal requirements. Specifically, DHS has not resolved legal and policy issues associated with NAO support for law enforcement." As investigators outlined:

DHS originally did not fulfill agency requirements to identify privacy risks and control mechanisms but recently has taken steps to do so. At the time of NAO certification, DHS did not fully explain how the office would comply with widely accepted privacy standards, such as the need for personally identifiable information to be accurate, secure, and used only for limited purposes. Specifically, the NAO's original privacy assessment did not identify or analyze the risks that NAO operations might not meet these standards, nor did it specify measures to mitigate such risks. In response to discussions with us regarding these shortcomings, the Privacy Office developed a revised assessment that represented a substantial improvement in identifying privacy risks and mitigating controls to address them, such as providing appropriate oversight and building a process to identify and correct inaccurate information. However, differences between the review procedures outlined in the revised privacy impact assessment and those in the standard operating procedures raise questions about whether the specifics of the NAO's privacy protection controls have been clearly established. (GAO, op. cit. p. 4)

While paltry recommendations towards mitigating potential civil liberties' and privacy abuses by NAO were submitted to the DHS Undersecretary of Intelligence and Analysis (Charles Allen), GAO found that "specific measures have not yet been developed to address the potential for improper use or retention of information provided by the NAO and the potential for impermissible requests to be accepted as a result of a reliance on broad annual memorandums as justifications." In other words at NAO, as at other intelligence agencies across the war on terror's domestic "battlespace," it's business as usual.

Three categories of classified satellite information are to be provided law enforcement by the National Applications Office:

* Geospatial intelligence (GEOINT)--GEOINT is defined as "the exploitation and analysis of imagery and geospatial information to describe, assess, and visually depict physical features and geographically referenced activities on the Earth. Geospatial intelligence consists of imagery, imagery intelligence, and geospatial information."

* Measurement and signature intelligence (MASINT)--MASINT is defined as intelligence "derived from measurements of physical phenomena intrinsic to an object or event." These phenomena can include the following types:" electro-optical, infrared, laser, spectral, radar, polarimetric, high-power or unintentional radio frequency emanations, geophysical, chemical, biological, radiological, or nuclear."

* Electronic intelligence (ELINT)--ELINT is defined as "technical and geolocation intelligence derived from non-communications electromagnetic radiations emanating from other than nuclear detonations or radioactive sources. It does not include oral or written communications." Thus, ELINT could include intelligence based on signals from machines, such as computers, but not telephone conversations or other communications between individuals. (GAO, op. cit., p. 25)

While DHS has yet to resolve legal and policy issues associated with NAO support for law enforcement operations, the Office still continues to identify such support as a key element of its "mission." Indeed, DHS' Civil Rights and Civil Liberties Office did not resolve how NAO will comply with the applicability of the 4th Amendment to the Constitution which prohibits unreasonable searches and seizures, Posse Comitatus and the Reagan-era Executive Order 12333 that limits how federal intelligence agencies collect information on U.S. citizens and legal residents.

Citing lax standards in NAO's legal review process, GAO found that "the process for developing and approving annual memorandums for MASINT and ELINT has not been delineated. Such procedures are an important control in assuring that access, retention, and sharing of information is properly constrained."

However, as the eight long years of the Bush administration have demonstrated, any and all measures to "constrain" out of control federal spy agencies and their privatized assets in the corporate world have been rebuffed. Indeed, congressional oversight of the "intelligence community" and the Executive Branch is a joke--at the expense of an informed citizenry and democratic institutions accountable to the American people.

While DHS claims that data gathered for law enforcement purposes will be "in compliance with privacy and civil liberties laws and policies of the United States," the GAO found that "by broadly sharing information with non-federal users, who are not bound by the Privacy Act, personal information could be at risk of being used in ways not specified when it was originally collected." Considering that some 70% of U.S. intelligence assets are employees of private security and defense contractors, NAO is a civil liberties disaster waiting to happen.

GAO revealed four key areas where privacy risks have been identified:

1. An individual may be unaware that personally identifiable information will be collected about him or her in response to a request processed by the NAO.

2. Personally identifiable information may be collected, analyzed, or disseminated in a manner that makes the information inaccurate.

3. Personally identifiable information may be misused by a requestor.

4. Associated technology may improve so dramatically that qualitatively new capabilities will enable the gathering of personally identifiable information in ways that are impossible today, thus creating new potential privacy risks. (GAO, op. cit., p. 44)

DHS claims these issues will be mitigated by "providing appropriate oversight" and by "building a process to identify and correct inaccurate information, and ensuring that the DHS Privacy Office and DHS Office for Civil Rights and Civil Liberties remain critical components of all review processes as new and improved technology is developed."

In other words, we're to rely on DHS to police itself and that agencies critical to Office operations such as the National Reconnaissance Office and the National Geospatial-Intelligence Agency will simply hand over America's most closely-guarded intelligence secrets to federal civil rights attorneys for appropriate "oversight." Talk about a blind leap into the darkness!

Let's be clear here and shed whatever illusions one may have about the outcome of last Tuesday's election. Despite the overwhelming rejection of the Bush administration and their surrogates by the American people, the incoming Obama administration will pay lip-service to civil liberties and the rule of law. This however, will amount to no more than a better public relations campaign, image management and product roll-out. America rebranded.

But as we have seen throughout the unfolding disaster that is the "war on terror," the Democrats have been fully complicit with the crimes of the Bush regime. From the USA Patriot Act, warrantless wiretapping, immunity for criminal telecoms, "preemptive policing," torture, financial fraud and the looting of the economy by capitalist grifters, not to mention the invasion and occupation of Afghanistan and Iraq, threats against Russia, China, Iran, Pakistan, Bolivia, Cuba and Venezuela--indeed any nation that doesn't toe the imperialist line--the Democrats have been Bush's most faithful and reliable partners.

While the GAO's report is a welcome addition to the already voluminous catalogue of Bushist horrors, one can expect that NAO's law enforcement "mission" will quickly--and quietly--come on line. After all there's bundles of cash, courtesy of the American people, that need to be spread far and wide!