Tuesday, November 18, 2008

Obama’s “seamless transition” to endless war

Obama’s “seamless transition” to endless war

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President-elect Barack Obama appeared Sunday on the CBS program “60 Minutes” for his first televised interview since his November 4 election victory.

He covered a wide range of subjects with a lack of specificity and a placid tone that suggested someone who had read through stacks of briefing books, but had few defined positions of his own and was above all anxious to offend no one.

When asked what he had been “concentrating on” in the past week, however, his answer was unhesitating: “Number one, I think it’s important to get a national security team in place because transition periods are potentially times of vulnerability to a terrorist attack. We want to make sure that there is as seamless a transition on national security as possible.”

A “seamless transition on national security”; the phrase is well worth pondering, given the strategy and policy pursued by the administration that will be handing over power to an incoming Obama administration.

The Bush administration enunciated a clear national security policy that became known as the Bush Doctrine. Essentially, it proclaimed the “right” of the US government to attack preemptively any country it believes might pose a military threat to the United States. Underlying this formally stated policy of aggressive war lay the determination of the US ruling elite to advance its monopolization of wealth and power through war abroad and repression at home.

The Bush doctrine was the political expression of an explosion of American militarism, leading to the continuing wars and occupations in Iraq and Afghanistan as well as a series of military strikes against a number of other countries, including Pakistan, Syria, Somalia and Yemen.

“National security” and the “global war on terrorism” were likewise invoked as the justification for criminal policies that have included kidnapping, extraordinary rendition, torture and imprisonment without trial.

Obama’s determination to effect a “seamless transition” in this area would appear to fly in the face of the fact that his electoral victory is owed in large measure to the popular revulsion aroused by these policies. If there were anywhere that the electorate might expect to see “seams”—i.e., disparities, interruptions and discontinuity—it would be here.

Yet, even in the run-up to the election, Obama repeatedly made clear that his differences with Bush were of a tactical rather than a strategic or principled character. He tacitly embraced the policy of preventative war, implying that he would employ it both to strike at targets inside Pakistan and to preempt Iran’s alleged quest for nuclear weapons.

And as the transition process advances, it is becoming increasingly clear that—tactical differences over US foreign policy notwithstanding—the pursuit of the global strategic aims of America’s financial oligarchy by means of military aggression and international criminality is not about to come to end when Obama enters the White House in January.

Rather, the change in administrations is seen within the ruling establishment as a means of bringing about changes that will make American militarism more effective while providing, in the person of Obama, a better political cover for the pursuit of American capitalism’s worldwide interests.

In his interview Sunday, Obama reiterated his determination to “draw down” troops in Iraq, but only in order to “shore up” the US war in Afghanistan. He declared that his “top priority” is to “stamp out Al Qaeda once and for all,” making it clear that the “global war on terrorism” will not only continue, but may well be escalated.

The real shape of the military agenda that will likely be pursued under Obama was spelled out in some detail Sunday in a lead editorial published in the New York Times, a paper whose views reflect close association with the Democratic Party establishment figures setting policy for the incoming administration.

Titled “A military for a dangerous new world,” the editorial presents a chilling blueprint for the building up of US armed forces in preparation for multiple wars on a scale that will dwarf anything seen in Iraq or Afghanistan.

It begins by lamenting the fact that the protracted war and occupation in Iraq have left US “troops and equipment … so overtaxed” that they are not prepared to confront the supposedly necessary escalation in Afghanistan or the “next threats.”

In addition to fighting to “defeat the Taliban and Al Qaeda in Afghanistan” and “pursuing Al Qaeda forces around the world,” the Times argues, the US military must prepare to confront “Iran’s nuclear ambitions, an erratic North Korea, a rising China, an assertive Russia and a raft of unstable countries like Somalia and nuclear-armed Pakistan.”

The paper repeats Obama’s own call for adding nearly 100,000 more soldiers and marines to American ground forces—bringing the total to 759,000 active duty forces. It goes on to assert, however, that, while this “sounds like a lot,” it really remains inadequate.

Declaring that the military has been “badly stretched” by the Iraq war, the Times concludes, “The most responsible prescription for overcoming these problems is a significantly larger ground force.”

Where and how is an Obama administration to procure these “significantly larger” numbers of troops? The Times does not say. One logical conclusion, however, is that if such a significant change in the size of the US military is to be effected it will likely mean the reinstitution of conscription—bringing back the draft. Obama’s repeated invocation of “national service” and “sacrifice” in his campaign for the presidency has laid the ideological foundations for once again rounding up tens of thousands of American youth to serve as cannon fodder in US imperialism’s militarist adventures.

Not only does the Times believe that the US military must be substantially bigger, it also calls for it to develop “new skills,” particularly honing its ability to suppress “guerrilla insurgencies” and conduct “irregular warfare.” In other words, the continuing “wars of the 21st century,” to borrow a phrase from George W. Bush, will include more dirty colonial-style occupations and subjugations of oppressed countries in order to secure raw materials, markets and pools of cheap labor for American capitalism.

At the same time, the paper advocates beefing up the American military’s “lift capacity,” i.e., the ability “to move enormous quantities of men and materiel quickly around the world and to supply them when necessary by sea.”

It also warns against China’s building up of its navy and vows that Washington cannot “allow any country to interfere with vital maritime lanes.” The editorial urges major new investments in Maritime Prepositioning Force ships, which carry supplies needed for rapid interventions by marines, and in Littoral Combat Ships, smaller vessels capable of carrying out attacks on targeted countries’ coastlines.

“What we are calling for will be expensive,” the Times admits, acknowledging that the current plan to add 92,000 ground troops will cost $100 billion over the next six years. The substantially greater buildup the paper advocates will entail far greater spending, as will the beefing up of naval forces and purchasing other military hardware.

“Much of the savings from withdrawing troops from Iraq will have to be devoted to repairing and rebuilding the force,” the editorial states. So much for Obama’s campaign promise to stop spending $10 billion a month in Iraq and invest it instead in “rebuilding America.” Rather, that money will go to preparing still more death and destruction.

Under conditions in which the bailout’s pouring of trillions of dollars into the Wall Street banks has occasioned continuous warnings that promises of increased social spending must be shelved, it is significant that there is no questioning here of the need to pour hundreds of billions of additional funds into the US war machine.

The Times editorial and the evolution of the Obama transition serve as stark warnings that the desperate economic crisis of American capitalism will produce an even more explosive development of US militarism in the months and years ahead.

Obama Team Signals No War Crimes Prosecution

Obama advisers: No charges likely against workers who authorized harsh interrogation methods

By LARA JAKES JORDAN

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Barack Obama's incoming administration is unlikely to bring criminal charges against government officials who authorized or engaged in harsh interrogations of suspected terrorists during the George W. Bush presidency. Obama, who has criticized the use of torture, is being urged by some constitutional scholars and human rights groups to investigate possible war crimes by the Bush administration.

Two Obama advisers said there's little - if any - chance that the incoming president's Justice Department will go after anyone involved in authorizing or carrying out interrogations that provoked worldwide outrage.

The advisers spoke on condition of anonymity because the plans are still tentative. A spokesman for Obama's transition team did not respond to requests for comment Monday.

Additionally, the question of whether to prosecute may never become an issue if Bush issues pre-emptive pardons to protect those involved.

Obama has committed to reviewing interrogations on al-Qaida and other terror suspects. After he takes office in January, Obama is expected to create a panel modeled after the 9/11 Commission to study interrogations, including those using waterboarding and other tactics that critics call torture. The panel's findings would be used to ensure that future interrogations are undisputedly legal.

"I have said repeatedly that America doesn't torture, and I'm going to make sure that we don't torture," Obama said Sunday on CBS' "60 Minutes." "Those are part and parcel of an effort to regain America's moral stature in the world."

Obama's most ardent supporters are split on whether he should prosecute Bush officials.

Asked this weekend during a Vermont Public Radio interview if Bush administration officials would face war crimes, Senate Judiciary Chairman Patrick Leahy flatly said, "In the United States, no."

"These things are not going to happen," said Leahy, D-Vt.

Robert Litt, a former top Clinton administration Justice Department prosecutor, said Obama should focus on moving forward with anti-torture policy instead of looking back.

"Both for policy and political reasons, it would not be beneficial to spend a lot of time hauling people up before Congress or before grand juries and going over what went on," Litt said at a Brookings Institution discussion about Obama's legal policy. "To as great of an extent we can say, the last eight years are over, now we can move forward - that would be beneficial both to the country and the president, politically."

But Michael Ratner, a professor at Columbia Law School and president of the Center for Constitutional Rights, said prosecuting Bush officials is necessary to set future anti-torture policy.

"The only way to prevent this from happening again is to make sure that those who were responsible for the torture program pay the price for it," Ratner said. "I don't see how we regain our moral stature by allowing those who were intimately involved in the torture programs to simply walk off the stage and lead lives where they are not held accountable."

In the years after the Sept. 11, 2001, terror attacks, the White House authorized U.S. interrogators to use harsh tactics on captured al-Qaida and Taliban suspects. Bush officials relied on a 2002 Justice Department legal memo to assert that its interrogations did not amount to torture - and therefore did not violate U.S. or international laws. That memo has since been rescinded.

At least three top al-Qaida operatives - including 9/11 mastermind Khalid Sheik Mohammed - were waterboarded in 2002 and 2003 because of intelligence officials' belief that more attacks were imminent. Waterboarding creates the sensation of drowning, and has been traced back hundreds of years and is condemned by nations worldwide.

Bush could take the issue of criminal charges off the table with one stroke of his pardons pen.

Whether Bush will protect his top aides and interrogators with a pre-emptive pardon - before they are ever charged - has become a hot topic of discussion in legal and political circles in the administration's waning days. White House deputy press secretary Tony Fratto declined to comment on the issue.

Under the Constitution, the president's power to issue pardons is absolute and cannot be overruled.

Pre-emptive pardons would be highly controversial, but former White House counsel Arthur B. Culvahouse Jr. said it would protect those who were following orders or otherwise trying to protect the nation.

"I know of no one who acted in reckless disregard of U.S. law or international law," said Culvahouse, who served under President Ronald Reagan. "It's just not good for the intelligence community and the defense community to have people in the field, under exigent circumstances, being told these are the rules, to be exposed months and years after the fact to criminal prosecution."

The Federalist Papers discourage presidents from pardoning themselves. It took former President Gerald Ford to clear former President Richard Nixon of wrongdoing in the 1972 Watergate break-in.

Our Home-Grown Melamine Problem

Our Home-Grown Melamine Problem

By JAMES E. McWILLIAMS

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CHINA’S food supply appears to be awash in the industrial chemical melamine. Dangerous levels have been detected not only in milk and eggs, but also in chicken feed and wheat gluten, meaning that melamine is almost impossible to avoid in processed foods. Melamine in baby formula has killed at least four infants in China and sickened tens of thousands more.

In response, the United States has blasted lax Chinese regulations, while the Food and Drug Administration, in a rare move, announced last week that Chinese food products containing milk would be detained at the border until they were proved safe.

For all the outrage about Chinese melamine, what American consumers and government agencies have studiously failed to scrutinize is how much melamine has pervaded our own food system. In casting stones, we’ve forgotten that our own house has more than its share of exposed glass.

To be sure, in China some food manufacturers deliberately added melamine to products to increase profits. Makers of baby formula, for example, watered down their product, lowering the amount of protein and nutrients, then added melamine, which is cheap and fools tests measuring protein levels.

But melamine is also integral to the material life of any industrialized society. It’s a common ingredient in cleaning products, waterproof plywood, plastic compounds, cement, ink and fire-retardant paint. Chemical plants throughout the United States produce millions of pounds of melamine a year.

Given the pervasiveness of melamine, it’s always possible that trace elements will end up in food. The F.D.A. thus sets the legal limit for melamine in food at 2.5 parts per million. This amount is indeed minuscule, a couple of sand grains in an expanse of desert that pose no real threat to public health. Moreover, the 2.5 p.p.m. figure is calculated for a person weighing 132 pounds — a cautious benchmark given that the average adult weighs 150 to 180 pounds.

But these figures obscure more than they reveal. First, while adults eat about one-fortieth of their weight every day, toddlers consume closer to one-tenth. Although scientists haven’t measured the differential impact of melamine on infants versus adults, it’s likely that this intensified ratio would at least double (if not quadruple) the impact of legal levels of melamine on toddlers.

This doubled exposure might not land a child in the hospital, but it could certainly contribute to the long-term kidney and liver problems that we know are caused by chronic exposure to melamine.

On a more concrete note, melamine not only has widespread industrial applications, but is also used to buttress the foundation of American agriculture.

Fertilizer companies commonly add melamine to their products because it helps control the rate at which nitrogen seeps into soil, thereby allowing the farmer to get more nutrient bang for the fertilizer buck. But the government doesn’t regulate how much melamine is applied to the soil. This melamine accumulates as salt crystals in the ground, tainting the soil through which American food sucks up American nutrients.

A related area of agricultural concern is animal feed. Chinese eggs seized last month in Hong Kong, for instance, contained elevated levels of melamine because of the melamine-laden wheat gluten used in the feed for the chickens that produced the eggs.

To think American consumers are immune to this unscrupulous behavior is to ignore the Byzantine reality of the global gluten trade. Tracking the flow of wheat gluten around the world, much less evaluating its quality, is like trying to contain a drop of dye in a churning whirlpool.

More ominous, the United States imports most of its wheat gluten. Last year, for instance, the F.D.A. reported that millions of Americans had eaten chicken fattened on feed with melamine-tainted gluten imported from China. Around the same time, Tyson Foods slaughtered and processed hogs that had eaten melamine-contaminated feed. The government decided not to recall the meat.

Only a week earlier, however, the F.D.A. had announced that thousands of cats and dogs had died from melamine-laden pet food. This high-profile pet scandal did not prove to be a spur to reform so much as a red herring. Our attention was diverted to Fido and away from the animals we happen to kill and eat rather than spoil.

Frightening as this all sounds, the concerned consumer is not completely helpless. We can seek out organic foods, which are grown with fertilizer without melamine — unless that fertilizer was composted with manure from animals fed melamine-laden feed (always possible, as the Tyson example suggests).

We could further protect ourselves by choosing meat from grass-fed or truly free-range animals, assuming the grass was not fertilized with a conventional product (something that’s also very hard to know).

But as all the caveats above indicate, these precautions will only go so far. Melamine, after all, points to the much larger relationship between industrial waste and American food production. Regulations might be lax when it comes to animal feed and fertilizer in China, but take a closer look at similar regulations in the United States and it becomes clear that they’re vague enough to allow industries to “recycle” much of their waste into fertilizer and other products that form the basis of our domestic food supply.

As a result, toxic chemicals routinely enter our agricultural system through the back channels of this under-explored but insidious relationship.

So, sure, let’s keep the heat on China. And, yes, let’s take with a big dose of skepticism the Chinese government’s assurances that they’re improving the food supply.

At the same time, though, instead of delivering righteous condemnation, the United States should seize upon the melamine scandal as an opportunity to pass federal fertilizer standards backed by consistent testing for this compound, which could very well be hidden in plain sight.

James E. McWilliams, a history professor at Texas State University at San Marcos, is the author of “American Pests: The Losing War on Insects From Colonial Times to DDT.”

U.S. Sen. Jim Inhofe: Cancel the 'blank check'

U.S. Sen. Jim Inhofe: Cancel the 'blank check'

He criticizes Henry Paulson for changing the $700 billion bailout plan.

JIM MYERS

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U.S. Sen. Jim Inhofe said Saturday that Congress was not told the truth about the bailout of the nation's financial system and should take back what is left of the $700 billion "blank check'' it gave the Bush administration.

"It is just outrageous that the American people don't know that Congress doesn't know how much money he (Treasury Secretary Henry Paulson) has given away to anyone,'' the Oklahoma Republican told the Tulsa World.

"It could be to his friends. It could be to anybody else. We don't know. There is no way of knowing.''

Inhofe's comments, unusually pointed even for a senator known for being blunt, come on the heels of Paulson's shift in how he thinks the bailout funds should be spent.

Last week the Treasury secretary announced he was abandoning his plan to free up the nation's credit system by buying up toxic assets from troubled financial institutions. Instead, Paulson wants to take a more direct action on the consumer credit front.

"He was able to get this authority from Congress predicated on what he was going to do, and then he didn't do it,'' Inhofe said.

"So, that's enough reason right there.''

Inhofe recalled earlier comments opposing Paulson's plan because the administration's point man did not have answers for a number of questions. He also recalled questioning the rush to get the bailout passed.

"I have learned a long time ago. When they come up and say this has to be done and has to be done immediately, there is no other way of doing it, you have to sit back and take a deep breath and nine times out of 10 they are not telling the truth,'' he said.

"And this is one of those nine times.''

Inhofe has laid out his legislative plans for this week on the bailout package in a letter to his Senate colleagues.

He wants to freeze what is left of the initial $350 billion — reportedly $60 billion, but Inhofe concedes he does not know for sure.

Then he wants a provision requiring an affirmative vote by Congress before Paulson can get his hands on the second $350 billion of bailout money.

Current law lays out a scenario where President Bush submits a plan on the second half of the funding.

Lawmakers have 15 days to disapprove it, but Inhofe questions that wording.

"Congress abdicated its constitutional responsibility by signing a truly blank check over to the Treasury Secretary,'' he wrote.

"However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.''

In the interview, the senator said his plans can provide "redemption'' for those senators who supported Paulson.

Inhofe's plan appears to be a long shot at this point. Senators originally approved the bailout plan by a 74-25 vote.

He does not know how much support he has among his Republican colleagues, and he concedes Democratic leaders could block it.

Bush also could veto it if it were to make it out of Congress.

Neither Senate Majority Leader Harry Reid's office nor the Treasury Department commented.

Reid, D-Nev., wants to use the upcoming lame duck session to push economic issues such as extending unemployment benefits and aid to the nation's ailing auto industry.

Inhofe opposes both.

"You don't stimulate the economy by giving away more money,'' he said.

In response to concerns expressed by some that allowing even one of the big automakers to fail would be too much of an economic hit for the nation, Inhofe said reality must be accepted.

"If we keep on nursing a broken system, then we can't expect to have a different result come later on,'' he said.

"I just think we have to draw the line someplace, and the time is here.''

Foreclosures up 25 percent: RealtyTrac

Foreclosures up 25 percent: RealtyTrac

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Foreclosure activity in October rose 25 percent from a year earlier, although filings in California fell by double-digit percentage points for the second consecutive month due to a state law slowing the foreclosure process, according to a monthly report by RealtyTrac.

Foreclosure filings -- default notices, auction sales notices and bank repossessions -- rose by 5 percent from September to 279,561 in October, according to Irvine, California-based research firm RealtyTrac.

That means one in every 452 U.S. housing units received a foreclosure filing in October, the firm said in its report released on Thursday.

The California law, which requires lenders to contact homeowners and explore options to avoid foreclosure before initiating the process, took effect in early September and drove the state's foreclosure activity rates down, at a pace of 31.6 percent from August to September and 18 percent from September to October.

But in September, the California law helped drive the national foreclosure rate down, something that did not happen in October.

"Foreclosure activity in other places rose significantly enough to offset the drop in California," said RealtyTrac Senior Vice President Rick Sharga.

Years of lending to risky, or "subprime" borrowers that fueled the housing boom has created an unprecedented number of foreclosures due to the inability of many of those borrowers to pay their mortgages, particularly as interest rates reset and as plunging home values nationwide increasingly render properties worth less than the mortgage.

The numbers might also be showing the effects of the economic downturn, Sharga said. If they do not yet, they will soon.

"An economic downturn is traditionally a precursor to foreclosures, even in a normal foreclosure cycle," Sharga said. "This is not a normal foreclosure cycle by any means."

Moreover, California's law will likely not prevent most of the state's homes which are teetering on the brink of foreclosure from falling off the cliff, Sharga said.

Previous experience with similar laws in Maryland and Massachusetts attests to such laws' inability to make a material difference.

"For most homeowners, these laws just delay the inevitable," he said.

HELP FROM FANNIE, FREDDIE ON THE WAY?

The markets that once lead the housing boom topped the foreclosure list in September.

Nevada posted the nation's highest foreclosure rate for the 22nd consecutive month in October, with one in every 74 housing units, or 14,483, receiving a foreclosure filing during the month -- more than six times the national average.

Arizona registered the second-highest state foreclosure rate. Filings were reported on 17,507 Arizona properties, an increase of 35 percent from the previous month and 176 percent from October 2007.

In Florida, one of every 157 units received a filing during October, the nation's third-highest state rate. A total of 54,324 Florida properties received a foreclosure filing during the month, an increase of 13 percent from the previous month and nearly 80 percent from last year.

However, the government unveiled a plan on Tuesday which, unlike California's law, could permanently reduce the number of foreclosures, Sharga said.

Homeowners facing foreclosure who are spending more than 38 percent of their income on mortgage payments could have monthly payments reduced by Fannie Mae and Freddie Mac, the two largest U.S. mortgage finance companies.

"The good news is that there are programs and facilities in place that could actually have a material effect of stemming the tide of foreclosures, but as always the devil is in the details," Sharga said, adding that he does not expect to see that effect until late in the first quarter of 2009.

RealtyTrac counts foreclosures by compiling the total number of properties with at least one foreclosure filing reported during the month. If more than one foreclosure document is filed against a property, RealtyTrac counts only the most recent filing.

Florida pension fund plummets

Florida pension fund plummets

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The State Board of Administration, which manages many of Florida's public investments, has seen its assets plummet by $62-billion, a third of their value, in the last 13 months.

The decline — the steepest in the agency's 65-year history — reflects both big investment losses in the global financial crisis and the decision by hundreds of local and state agencies to withdraw money from shaky SBA accounts.

In both cases, the SBA plowed money into higher-risk investments with the potential for bigger profits. But in the ongoing financial meltdown, they generated big losses instead.

Combined, the investment losses and withdrawals slashed SBA assets from a high of $187.5-billion on Sept. 30, 2007, to $125.4-billion as of Oct. 31.

The SBA manages 34 public funds. The largest is the state's retirement system pension plan for almost 1-million public employees, retirees and their family members.

The SBA also handles investment accounts for the Florida Lottery, the state's hurricane catastrophe fund and a local government investment pool where nearly a thousand counties, cities, school districts and other state and local entities keep surplus cash.

In the last 13 months, the state pension plan lost more than a quarter of its value, or $37.9-billion. It peaked at $138.4-billion on Sept. 30, 2007, and was worth $100.5-billion on Oct. 31.

The local government pool, which was once the largest in the country, shrank by $21.2-billion, from $27.3-billion to $6.1-billion, largely because of withdrawals.

Spokesman Dennis MacKee said all SBA funds are built to survive losses in the market, even severe ones, adding that they will recoup those losses over time.

"We remain confident with the long-term soundness of the funds we manage,'' he said.

MacKee also said the benefits of pension plan participants and retirees are guaranteed by the state. Florida is better off than many states, he said, because its pension plan has more than enough money to cover future retirement benefits.

But that surplus has been declining for the last eight years — not because of poor performance, the state says, but because government employers were allowed to make smaller contributions to the plan.

If the surplus disappears, the Legislature might have to turn to government employers — and taxpayers — to increase contributions to meet benefit obligations.

The SBA, which employs about 160 people, is governed by a three-member board of trustees who also make up a majority of Florida's Cabinet — the governor, the attorney general and the chief financial officer.

Gov. Charlie Crist did not respond to an interview request. Chief Financial Officer Alex Sink was traveling for two days and unavailable, an aide said.

Attorney General Bill McCollum said Florida is "doing pretty well compared to the market overall."

"It's going to have down years and it's going to have up years, and we've had a lot more up years,'' he said. "The overall result of this pension fund is still very good — better than the norm. Will it be lower this year? Yes. But it has still been beating the market.''

Opaque investments

Florida isn't alone. Across the country, the financial crisis is wreaking havoc on public pension funds and investment agencies. The meltdown is spurring a debate over whether those government agencies are gambling too much.

"In the current environment, we should replace the reach for yield with a return to basics,'' said Thomas Tew, a Miami securities lawyer. Earlier this year, he was hired by the Legislature to review the near-collapse of the SBA's local government investment pool. "That means less aggressive investments and less risks.''

Like big banks and mutual funds, the SBA and other public investment agencies are complex financial institutions. But unlike banks and mutual funds, they face no comparable oversight. There is no requirement that they fully disclose their finances, and they don't have to undergo annual, independent audits.

"It's appalling that those whose public pensions are at risk don't have the same disclosure that a retiree who owns mutual funds would have,'' Tew said.

In September, some members of Congress called for more oversight of public and private pension funds after a federal study found more of them were putting money into higher-risk, lightly regulated investments.

Sen. Charles Grassley of Iowa has long raised concerns about opaque investments creeping up in Americans' pension plans, and whether they pose a danger to workers' retirement security.

"We don't have the facts about these swaps and derivatives and hedge funds and whatever they are,'' said Grassley, the top Republican on the Senate Finance Committee. "It's one thing when a $5-million investor buys these investments. It's quite another when it involves pension funds of your average middle-class person.''

Florida's investment problems came to light late last year after reports that the SBA held billions of dollars of securities tied to bundles of loans that included subprime mortgages, which are loans granted to risky borrowers with poor credit histories.

In November 2007 alone, nervous counties, cities and school districts withdrew $12.2-billion from the local government pool.

Citizens Property Insurance, the state-run insurer of homes and condos, pulled more than $5-billion this year and closed several SBA accounts. It still has about $743-million in the local government pool.

The city of St. Petersburg has withdrawn more than $111-million from the local government pool since mid November 2007.

"We won't make any more investments in the SBA until we have assurances that it's as safe an investment as where we have our dollars now,'' said Tish Elston, the city's first deputy mayor.

The SBA "put whole school systems in jeopardy'' when it temporarily froze the account to prevent it from collapsing, said Jackie Pons, superintendent of Leon County school district. He says he had to call a local banker late at night to get a $10-million loan to meet payroll for school employees.

"Everybody's lost confidence in this account and everybody wants their money back,'' he said.

But bank failures of recent months may be changing things.

Take the Hillsborough County Tax Collector's Office. It decided to reinvest with the SBA in June after commercial banks began struggling.

"The SBA started looking good,'' said Scott McAlister, an auditor in the tax office.

The SBA has not acknowledged losses from the subprime mortgage debacle. MacKee said the information was too difficult to get.

But the agency is still holding about $2-billion in troubled securities. That means the tax collector, the pension plan and many state and local agencies that invest with the SBA face losses.

The SBA also has sustained big losses in the stock market.

With more than half of its assets invested in stocks, Florida's state pension plan lost about 15 percent in value, or $23.9-billion, for the year ended Sept. 30. It lost another $14-billion, or an additional 12 percent of value, in October. That decline roughly parallels the performance of other large public pension funds.

The market turmoil wiped out 22 percent of the value of domestic stocks in Florida's pension plan. Foreign stocks dropped 29 percent.

A riskier strategy

One factor in the sharp decline of the SBA's assets appears to be a recent change in its investment strategy.

In the last few years, the SBA — like many other investment agencies around the country — has invested in complicated, sophisticated tools with the potential for dramatically higher gains.

They have names like structured investment vehicles, 130/30 funds, derivatives, credit default swaps and private equity investments, and they are lightly regulated, unpredictable and not routinely reported to the public.

Instead of big payoffs, however, the new tools have apparently produced big losses for the SBA.

The size of the losses are difficult to determine, partly because some of the investments are traded privately and are notoriously hard to value. In addition, the SBA says it doesn't focus on prices of individual assets. Instead, it tracks the entire fund or asset category and compares the performance to established objectives and other large pension funds.

But congressional committees and the Securities and Exchange Commission are now examining the role some of these higher-risk investment tools have played in the global financial turmoil.

The SBA's executive director, Ash Williams, says he, too, plans to review some of the more aggressive strategies.

"When you're talking about investments that are still in process, you don't know where they will end up,'' said Williams, a former Wall Street investment fund manager who recently joined the SBA. "It's sort of like being at a football game in the second quarter. You don't know who won the game because it's not over.''

States want their own federal financial bailout

States want their own federal financial bailout

Rob Hotakainen

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Led by California with a $28 billion hole in its budget, 41 states are in financial trouble, and many of their leaders are looking to Congress to bail them out.

State officials are hoping to join the ranks of the financial industry and auto manufacturers, who've found a sympathetic ear on Capitol Hill. They've found some key supporters: House Speaker Nancy Pelosi and other top Democrats are promoting aid to states as part of a broad stimulus package that could inject more than $300 billion into the ailing economy.

The idea is getting a strong bipartisan push from governors across the country, with California Republican Gov. Arnold Schwarzenegger and New York Democratic Gov. David Paterson among the chief proponents. Both are blaming Washington for their states' mounting troubles.

Testifying at a recent House of Representatives hearing, Paterson said that New York was "at the epicenter of a national emergency" after federal oversight bodies "utterly failed in their duty" to protect Americans' savings and the U.S. financial system. Speaking Wednesday before a Chamber of Commerce group in Fresno, Calif., Schwarzenegger said that "government is really at fault" and that Washington was obligated to "get us out of this mess."

One could argue that the federal government isn't in much better fiscal shape, with a $10.6 trillion debt that's been growing by nearly $4 billion a day for the past year. Unlike the states, however, Congress doesn't have to bother balancing its books.

Critics say that it makes no sense to shift expenses from one unit of government to another.

"While state governments fund different functions than the federal government, there is no distinction on who pays the bill: the taxpayer," California Republican Rep. Kevin McCarthy said. He added, however: "It is no surprise that states are looking for a bailout after Congress approved a $700 billion bailout for Wall Street."

Compared with such a huge price tag, many state officials regard their requests for help as minimal.

California Assembly Speaker Karen Bass said Congress should view states "as deserving of help as much as banks and automakers and everyone else in line for funds." If Congress can give $700 billion to financial institutions, she asked: "Can we have $5 (billion) or $6 (billion)?"

"We can't let one of the world's largest economies go over the cliff," she said in California.

Pelosi has been urging passage of a stimulus package for months. In September, the House passed a $61 billion stimulus that included aid to states to help them pay for Medicaid costs, emergency food assistance, more spending on infrastructure and an extension of unemployment benefits. The stimulus stalled in the Senate, however. Since the House vote, Pelosi said, the economic crisis has worsened and "the need for more (money) has grown."

House Minority Leader John Boehner, R-Ohio, charged that the $300 billion bailout would be "aimed at social and pork-barrel programs" that would hurt small business owners and families.

"Our path to economic recovery is not more tax-and-spend government programs that spread the wealth."

In a report released last week, the Center on Budget and Policy Priorities says that 41 states are facing budget shortfalls either this year, next year or both. The report says that states are facing "a great fiscal crisis" and their revenue projections are only weakening. Half of them already have cut spending, used their financial reserves or raised taxes to balance their budgets, according to the report. The only states that managed to stay off the list are Texas, Alaska, Montana, Wyoming, North Dakota, South Dakota, Nebraska, Indiana and West Virginia.

Paterson, testifying before the House Ways and Means Committee, said the states now were projecting a combined shortfall of $100 billion for their fiscal 2010 budgets. In New York alone, he said, more than 160,000 workers are expected to lose their jobs next year, pushing the state's unemployment rate to 6.5 percent.

"States need direct and immediate fiscal relief to help close their massive budget deficits," Paterson said.

Paterson said the state of New York has been "shortchanged for years when it comes to aid from Washington," noting that last year the state sent nearly $87 billion more to the federal government in taxes than it received in return.

Schwarzenegger made a similar argument to the chamber group, saying that Washington is sending "only 80 cents on the dollar" back to Californians.

"So it's not like we are asking for a bailout, because it's our money," he said. "We're just saying, 'Hey, give us some of our money back.' "

Not all governors are on board.

At the House hearing, South Carolina Gov. Mark Sanford said states had increased their spending by 124 percent over the last 10 years and that a bailout by the federal government would only exacerbate the trend.

"There seems to be no consequence, and indeed a reward, for unsustainable spending growth by states," he said. He suggested that Congress remove restrictions on how states spend federal money "to simply give the states more freedom," predicting that would ease their financial troubles.

Many Democrats want Congress to include infrastructure projects as part of a stimulus package.

That's also what the U.S. Conference of Mayors wants to do. On Friday, the mayors suggested a "Main Street" stimulus package, announcing that they'd identified 4,591 infrastructure projects that would cost $24.4 billion but would create more than a quarter of a million jobs in return.

After bailing out Wall Street, "it is now time for an investment in local economies that will produce a guaranteed return of jobs," said the U.S. Conference of Mayors' president, Miami Mayor Manny Diaz.

Olmert orders plans drawn up for massive offensive against Gaza

Olmert orders plans drawn up for massive offensive against Gaza

Invaders accuse Hamas of 'shattering' truce

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Interim Israeli Premier Ehud Olmert accused Hamas on Sunday of "shattering" the Gaza truce after two rockets hit Israel, which the Jewish state followed with an air strike that killed four Palestinian resistance fighters. However, Olmert, who made the comments at a weekly Israeli Cabinet meeting, did not mention the initial Israeli invasion of the Gaza Strip on November 5 that killed seven Hamas members. The incursion, which touched off days of fighting, was in violation of an Egyptian-mediated truce between Israel and Hamas which had virtually halted violence between the two foes.

The head of the Hamas administration in Gaza, deposed Prime Minister Ismail Haniyya, said Israel was violating the truce and demanded that Israel prove its interest by keeping to its side of the bargain.

"Israel must turn its words about a truce into action by halting aggression and lifting the unjust siege," he said, dismissing calls by some Israeli leaders for a resumption of assassinations against Hamas leaders.

"Such threats don't even frighten the smallest Palestinian child," he added.

Haniyya made his comments at the funeral of four Palestinian militants from the Popular Resistance Committees, a small armed group not linked to Hamas, who were killed in the Israeli air raid on Gaza City earlier on Sunday.

The Israeli Army said the four had been preparing to fire rockets at Israel, and the raid had followed two hits which had caused neither casualties nor damage.

Following the Israeli strike, Palestinians fired several more rockets from Gaza into Israel late Sunday afternoon, leaving one person with light shrapnel wounds to the head and the arm, the Israeli military said.

Meanwhile, Israeli officials said the Jewish state's border crossings with Gaza, which is denied control by Israel of its land and sea borders in addition to its airspace, would remain closed to humanitarian deliveries to the aid-dependent territory, despite mounting international calls for a resumption of much-needed food and fuel.

Since Hamas won parliamentary polls deemed fair and democratic by international observers in 2006, Israel has imposed a crushing blockade on Gaza and tightened it when the Islamists ousted their Fatah rivals in 2007.

Various human-rights groups, in addition to UN and EU officials, have decried the siege as collective punishment of a civilian population, an act illegal under international law.

The Israeli siege has forced the UN to suspend food distribution to 750,000 Gaza residents and the territory's sole power plant to shut down. Roughly half of the enclave's population lives in abject poverty and is entirely depended on international food handouts for survival.

Under the terms of the truce, the Jewish state pledged to lift the blockade. But despite the deal halting rocket fire from Gaza - Israel's main condition - no substantial opening of the border crossings was made.

"The [Gaza] crossings will remain closed until further orders," said Israel's liaison officer for the Palestinian territories, Peter Lerner.

Amos Gilad, a top aide to Defense Minister Ehud Barak who negotiated the informal truce with the Egyptians, said Israel had not ruled out reopening the crossings to limited humanitarian deliveries.

"The decision to reopen the borders could be taken today or tomorrow. Israel does not want a humanitarian crisis," Gilad claimed on Army Radio.

Various UN officials have stressed that the territory has already been experiencing a humanitarian crisis due to the Israeli closure of Gaza.

Palestinian President Mahmoud Abbas was expected to press Olmert on the issue in talks on Monday, following appeals from both the EU and the United Nations.

At the weekly Cabinet meeting, Olmert said he had ordered security chiefs to draw up action plans against Hamas' 17-month-old rule in Gaza.

"The responsibility for the shattering of the calm and the creation of a situation of prolonged and repeated violence in the south of the country is entirely on Hamas and the other terror groups in Gaza," Olmert told ministers.

"I instructed them to ... present different action plans against the Hamas terror rule without its hampering our ability to use all necessary force in our response to violations of the calm," he added.

A senior official quoted Transport Minister Shaul Mofaz, a former defense minister, as saying at the Cabinet meeting: "We must stop talking and start a policy of targeted killing against the Hamas leadership."

Olmert's speech to the Cabinet exposed a mounting rift with Barak over the truce with Hamas, which went into force on June 19.

Barak took a far more conciliatory line than his colleagues, saying Israel should be prepared to consider a return to the deal.

"If the other side wants the calm, we will consider it seriously," he said.

Any major change of policy will have to be approved by Israel's Security Cabinet, which is expected to meet later this week. - AFP, with The Daily Star

Iranian legislators urge united front to aid Gazans

TEHRAN: Iranian MPs denounced the crisis in Gaza and asked Islamic organizations to respond to "cries" from Gaza's people, Iran's labor news agency ILNA reported Sunday.

A declaration supported by 217 members of the conservative-dominated 290-seat Parliament, the MPs condemned "the deteriorating situation and a great humanitarian tragedy" in Gaza.

"In recent days, the disastrous situation in Gaza has worsened and a great humanitarian tragedy is on the verge of taking place," it said.

"In addition to savage killings, lack of water, electricity [and] health services have placed the population in the worst conditions," it said.

The deputies voiced "solidarity" with the Gazan people and asked the Organization of the Islamic Conference and Muslim parliaments to take a collective stance and respond to the "cries of Gazans."

Pressure has risen on Israel to unblock humanitarian supplies for the aid-dependent territory, after days of bloody exchanges between Israelis and Gaza, controlled by the Hamas movement.

Four Palestinians were killed in a new outbreak of violence Sunday despite a truce between Hamas and Israel in force since June 19 that the Jewish state shattered with a deadly invasion of the territory on November 5.

The Real Goal of Israel’s Blockade

The Real Goal of Israel’s Blockade

By Jonathan Cook

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The latest tightening of Israel’s chokehold on Gaza – ending all supplies into the Strip for more than a week – has produced immediate and shocking consequences for Gaza’s 1.5 million inhabitants.

The refusal to allow in fuel has forced the shutting down of Gaza’s only power station, creating a blackout that pushed Palestinians bearing candles on to the streets in protest last week. A water and sanitation crisis are expected to follow.

And on Thursday, the United Nations announced it had run out of the food essentials it supplies to 750,000 desperately needy Gazans. “This has become a blockade against the United Nations itself,” a spokesman said.

In a further blow, Israel’s large Bank Hapoalim said it would refuse all transactions with Gaza by the end of the month, effectively imposing a financial blockade on an economy dependent on the Israeli shekel. Other banks are planning to follow suit, forced into a corner by Israel’s declaration in Sept 2007 of Gaza as an “enemy entity”.

There are likely to be few witnesses to Gaza’s descent into a dark and hungry winter. In the past week, all journalists were refused access to Gaza, as were a group of senior European diplomats. Days earlier, dozens of academics and doctors due to attend a conference to assess the damage done to Gazans’ mental health were also turned back.

Israel has blamed the latest restrictions of aid and fuel to Gaza on Hamas’s violation of a five-month ceasefire by launching rockets out of the Strip. But Israel had a hand in shattering the agreement: as the world was distracted by the US presidential elections, the army invaded Gaza, killing six Palestinians and provoking the rocket fire.

The humanitarian catastrophe gripping Gaza is largely unrelated to the latest tit-for-tat strikes between Hamas and Israel. Nearly a year ago, Karen Koning AbuZayd, commissioner-general of the UN’s refugee agency, warned: “Gaza is on the threshold of becoming the first territory to be intentionally reduced to a state of abject destitution”.

She blamed Gaza’s strangulation directly on Israel, but also cited the international community as accomplice. Together they began blocking aid in early 2006, following the election of Hamas to head the Palestinian Authority (PA).

The US and Europe agreed to the measure on the principle that it would force the people of Gaza to rethink their support for Hamas. The logic was supposedly similar to the one that drove the sanctions applied to Iraq under Saddam Hussein through the 1990s: if Gaza’s civilians suffered enough, they would rise up against Hamas and install new leaders acceptable to Israel and the West.

As Ms AbuZayd said, that moment marked the beginning of the international community’s complicity in a policy of collective punishment of Gaza, despite the fact that the Fourth Geneva Convention classifies such treatment of civilians as a war crime.

The blockade has been pursued relentlessly since, even if the desired outcome has been no more achieved in Gaza than it was in Iraq. Instead, Hamas entrenched its control and cemented the Strip’s physical separation from the Fatah-dominated West Bank.

Far from reconsidering its policy, Israel’s leadership has responded by turning the screw ever tighter – to the point where Gazan society is now on the verge of collapse.

In truth, however, the growing catastrophe being unleashed on Gaza is only indirectly related to Hamas’s rise to power and the rocket attacks.

Of more concern to Israel is what each of these developments represents: a refusal on the part of Gazans to abandon their resistance to Israel’s continuing occupation. Both provide Israel with a pretext for casting aside the protections offered to Gaza’s civilians under international law to make them submit.

With embarrassing timing, the Israeli media revealed at the weekend that one of the first acts of Ismail Haniyeh, the Hamas prime minister elected in 2006, was to send a message to the Bush White House offering a long-term truce in return for an end to Israeli occupation. His offer was not even acknowledged.

Instead, according to the daily Jerusalem Post, Israeli policymakers have sought to reinforce the impression that “it would be pointless for Israel to topple Hamas because the population [of Gaza] is Hamas”. On this thinking, collective punishment is warranted because there are no true civilians in Gaza. Israel is at war with every single man, woman and child.

In an indication of how widely this view is shared, the cabinet discussed last week a new strategy to obliterate Gazan villages in an attempt to stop the rocket launches, in an echo of discredited Israeli tactics used in south Lebanon in its war of 2006. The inhabitants would be given warning before indiscriminate shelling began.

In fact, Israel’s desire to seal off Gaza and terrorise its civilian population predates even Hamas’s election victory. It can be dated to Ariel Sharon’s disengagement of summer 2005, when Fatah’s rule of the PA was unchallenged.

An indication of the kind of isolation Mr Sharon preferred for Gaza was revealed shortly after the pull-out, in Dec 2005, when his officials first proposed cutting off electricity to the Strip.

The policy was not implemented, the local media pointed out at the time, both because officials suspected the violation of international law would be rejected by other nations and because it was feared that such a move would damage Fatah’s chances of winning the elections the following month.

With the vote over, however, Israel had the excuse it needed to begin severing its responsibility for the civilian population. It recast its relationship with Gaza from one of occupation to one of hostile parties at war. A policy of collective punishment that was considered transparently illegal in late 2005 has today become Israel’s standard operating procedure.

Increasingly strident talk from officials, culminating in February in the deputy defence minister Matan Vilnai’s infamous remark about creating a “shoah”, or Holocaust, in Gaza, has been matched by Israeli measures. The military bombed Gaza’s electricity plant in June 2006, and has been incrementally cutting fuel supplies ever since. In January, Mr Vilnai argued that Israel should cut off “all responsibility” for Gaza and two months later Israel signed a deal with Egypt for it to build a power station for Gaza in Sinai.

All of these moves are designed with the same purpose in mind: persuading the world that Israel’s occupation of Gaza is over and that Israel can therefore ignore the laws of occupation and use unremitting force against Gaza.

Cabinet ministers have been queuing up to express such sentiments. Ehud Olmert, for example, has declared that Gazans should not be allowed to “live normal lives”; Avi Dichter believes punishment should be inflicted “irrespective of the cost to the Palestinians”; Meir Sheetrit has urged that Israel should “decide on a neighbourhood in Gaza and level it” – the policy discussed by ministers last week.

In concert, Israel has turned a relative blind eye to the growing smuggling trade through Gaza’s tunnels to Egypt. Gazans’ material welfare is falling more heavily on Egyptian shoulders by the day.

The question remains: what does Israel expect the response of Gazans to be to their immiseration and ever greater insecurity in the face of Israeli military reprisals?

Eyal Sarraj, the head of Gaza’s Community Mental Health Programme, said this year that Israel’s long-term goal was to force Egypt to end the controls along its short border with the Strip. Once the border was open, he warned, “Wait for the exodus.”

Chronic Malnutrition in Gaza Blamed on Israel

Chronic Malnutrition in Gaza Blamed on Israel

Donald Macintyre reveals the contents of an explosive report by the Red Cross on a humanitarian tragedy

By Donald Macintyre

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The Israeli blockade of Gaza has led to a steady rise in chronic malnutrition among the 1.5 million people living in the strip, according to a leaked report from the Red Cross.

It chronicles the "devastating" effect of the siege that Israel imposed after Hamas seized control in June 2007 and notes that the dramatic fall in living standards has triggered a shift in diet that will damage the long-term health of those living in Gaza and has led to alarming deficiencies in iron, vitamin A and vitamin D.

The 46-page report from the International Committee of the Red Cross – seen by The Independent – is the most authoritative yet on the impact that Israel's closure of crossings to commercial goods has had on Gazan families and their diets.

The report says the heavy restrictions on all major sectors of Gaza's economy, compounded by a cost of living increase of at least 40 per cent, is causing "progressive deterioration in food security for up to 70 per cent of Gaza's population". That in turn is forcing people to cut household expenditures down to "survival levels".

"Chronic malnutrition is on a steadily rising trend and micronutrient deficiencies are of great concern," it said.

Since last year, the report found, there had been a switch to "low cost/high energy" cereals, sugar and oil, away from higher-cost animal products and fresh fruit and vegetables. Such a shift "increases exposure to micronutrient deficiencies which in turn will affect their health and wellbeing in the long term."

Israel has often said that it will not allow a humanitarian crisis to develop in Gaza and the report says that the groups surveyed had "accessed their annual nutritional energy needs". But it warned governments, including Israel's, that "food insecurity and undernutrition, including micronutrient deficiencies" were occurring in the absence of "overt food shortages".

A 2001 Food and Agriculture Organisation definition classifies "food security" as when "all people, at all times, have physical, social and economic access to sufficient, safe and nutritious food that meets their dietary needs and food preferences for an active and healthy life."

The Red Cross report says that "the embargo has had a devastating effect for a large proportion of households who have had to make major changes on the composition of their food basket." Households were now obtaining 80 per cent of their calories from cereals, sugar and oil. "The actual food basket is considered to be insufficient from a nutritional perspective." The report paints a bleak picture of an increasingly impoverished and indebted lower-income population. People are selling assets, slashing the quality and quantity of meals, cutting back on clothing and children's education, scavenging for discarded materials – and even grass for animal fodder – that they can sell and are depending on dwindling loans and handouts from slightly better-off relatives.

In the urban sector, in which about 106,000 employees lost their jobs after the June 2007 shutdown, about 40 per cent are now classified as "very poor", earning less than 500 shekels (£87) a month to provide for an average household of seven to nine people.

The report quotes a former owner of a small, home-based sewing factory, who said he had laid off his 10 workers in July 2007. "Since then I earn no more than 300 shekels per month by sewing from time to time neighbours' and relatives' clothes. I sold my wife's jewellery and my brother is transferring 250 shekels every month ... I do not really know what to say to my children." Others said they were not able to give their children pocket money.

In agriculture, on which 27 percent of Gaza's population depends, exports are at a halt and, like fisheries, the sector has seen a 50 per cent fall in incomes since the siege began. Among the two-fifths classified as "very poor", average per capita spending is down to 50p a day. In the fisheries sector, which has been hit by fuel shortages and narrow, Israeli-imposed fishing limits, "People's coping mechanisms are very limited and those households that still have jewellery and even non-essential appliances sell them".

The report says that if the Israeli-imposed embargo is maintained, "economic disintegration will continue and wider segments of the Gaza population will become food insecure".

Arguing that the removal of restrictions on trade "can reverse the trend of impoverishment", the Red Cross warns that "the prolongation of the restrictions risks permanently damaging households' capacity to recover and undermines their ability to attain food security in the long term."

The detailed Gaza fieldwork for the report was carried out between May and July. An International Monetary Fund report confirmed in late September that the Gaza economy "continued to weaken".

Mark Regev, the spokesman for Israeli Prime Minister Ehud Olmert, said that, contrary to hopes when Israel pulled out of Gaza, the Gazan people were being "held hostage" to Hamas's "extremist and nihilist" ideology which was causing undoubted suffering. If Hamas focused resources on the "diet of the people" instead of on "Qassam rockets and violent jihadism" then "this sort of problem would not exist", he said.

The G-20 Economic Summit Won’t Change the "Financial Crime Scene"

The G-20 Economic Summit Won’t Change the "Financial Crime Scene"

By Richard C. Cook

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The G20 is meeting today in Washington , D.C. , to discuss the world financial crisis, its causes, and what can be done about it. But this won’t help the people of the U.S. who have been victimized by their own financial system.

The stated objectives are to find ways to stabilize and reduce speculation in the financial markets and make financial transactions more transparent, more efficient, and more international in scope. But this is also a revolt by the nations of the world against over-reliance on the U.S. dollar as the world’s reserve currency. What we are likely to see over time is a multi-currency regime that includes the Euro and one or more Asian currencies as well.

But the conference will not address the real causes of why the world is heading into a global recession or why the U.S. economy in particular is in such dire straits. Nor will the meeting result in redress of the staggering level of bankers’ criminality abetted by the U.S. government in the creation of the financial bubbles whose collapse is underway.

The real problem is that the world is locked into a debt-based financial system run by the world’s banks, where the only way currency can be entered into circulation is through lending. It’s been massive amounts of completely irresponsible lending which have leveraged the bubbles against much smaller amounts of tangible value.

The GDP of the entire world is $55 trillion. This is dwarfed by speculative lending in the derivatives markets of ten times that amount--$525-$550 trillion. No nation has clean hands in this travesty. The governments of the world and the central banks have allowed it to come into being.

Within the U.S. , reliance on money-creation through bank lending has been the problem since the creation of the Federal Reserve System in 1913. At that point the U.S. monetary system was privatized. The case has been the same with all the other nations which have private banking systems that control their central banks. The granddaddy is the Bank of England which dates from 1694.

The creation of the Federal Reserve System marked the start of a century of world war. This is hardly a coincidence. Indeed, the central banking system encourages wars and lives off them, because it is war and the threat of war that is most profitable to a system where the more money governments borrow the more profits the banks make.

All this started with World War I, which was largely financed by the British, French, German, and the U.S. banks. Events have continued in that vein through today, where the nations of the world are armed to the teeth and global finance capitalism tries to increase its control everywhere to the detriment of workers, national economies, and the environment.

To try to fix the crisis through bailing out the system, we are now seeing in the U.S. and Europe levels of government borrowing that have not been experienced since World War II. The purpose is to recapitalize a financial system that has destroyed itself through its own greed and folly. But all this does is defer the bill to future generations who have to pay the enormous compounded interest charges this borrowing entails. Interest on the national debt in the 2009 federal budget is over $500 billion. Every man, woman, and child in the nation is a victim of this crime.

The situation is so bad that many people believe the U.S. may even be in danger of defaulting on its gigantic national debt sometime in 2009.

Meanwhile, the failed financial system is dragging down the world’s producing economy with it, and the bailouts won’t change that situation. Combined with the financial crash has been a collapse in consumer “demand.” In other words, consumers, who are maxed out on their credit, no longer can borrow enough to keep the wheels of the economy turning.

But the reason they must borrow for consumption is that earnings are not sufficient for people to buy what they need to live. This is why in the U.S. there has been an outcry, including with the Obama campaign, for new government job-creation programs. Every day there is another proposal by progressives for new government spending, which, of course, will have to be financed by even more government debt.

So when are we going to learn how to introduce purchasing power without debt? How did we ever come to believe that the only way to create money is through a bank inventing it out of thin air? In the past few weeks we have had a number of Nobel-prize winning economists chip in with their suggestions of what to do, but none have addressed the obvious question of what the alternatives may be to bankers’ debt-based currency.

If we look at history, we see other ways governments have used their powers to create money. Indeed, until the Federal Reserve Act of 1913, the U.S. was a kind of laboratory of alternative methods of money-creation.

If we go back to colonial days, the American colonies used a variety of means to introduce currency into circulation. In Virginia , plantation owners received tobacco certificates when they deposited their product at public warehouses. The certificates then circulated as currency.

In Pennsylvania the government ran a land bank which paid cash to land-owners for liens on property. The interest paid for the costs of government without any taxation of citizens.

In Massachusetts, Pennsylvania, and elsewhere, governments spent paper money directly into circulation. The money received value by then being accepted by those governments, after it circulated within the economy, in payment of taxes.

Other forms of currency were Spanish dollars, Indian wampum, and IOUs. There was also a flourishing barter trade.

The system worked. By 1764, the American colonies formed one of the most prosperous trading regions on the planet. When asked why, Benjamin Franklin said it was because of colonial scrip—i.e., their paper money. When the British Parliament outlawed it through the Currency Act of 1764, an economic depression followed. It was the underlying cause of the Revolutionary War.

During that war, the Continental Congress issued the famous Continental Currency. What likely caused that money to inflate was extensive British counterfeiting, not being used to excess by our national government.

Once the nation became independent, a U.S. mint was founded so individuals could bring in gold or silver and have it stamped into coinage free of charge. New discoveries as with the California and Yukon gold rushes or better methods of extraction from ores resulted in economic booms. From then until coinage lost its value after the Federal Reserve System was established, precious metals were a major part of the U.S. monetary system that included not only coinage but also gold and silver certificates.

In 1791 and again in 1816 Congress passed legislation for the First and Second Banks of the United States . These banks were dupicates of the Bank of England whose purposes were to fasten on the U.S. the same type of debt-based monetary system that was the driving force for the British Empire . Presidents Thomas Jefferson, James Madison, Andrew Jackson, and Martin van Buren were among those who saw these banks as a Trojan Horse for financier tyranny. The split between pro- and anti-bank forces was the origin of the two-party system within the United States .

When Jefferson became president in 1800 he refused to borrow from the bank and balanced the federal budget for eight consecutive years by cutting military expenditures. Andrew Jackson took similar action in 1833 when he withdrew federal funds from the bank and paid off the entire national debt. It was recognized back then that fiscal responsibility was an effective means for keeping the government out of the control of the bankers and their political friends.

When the Civil War broke out in 1861, President Abraham Lincoln refused to borrow from the banks. Instead he financed the war through income and excise taxes, sale of war bonds directly to citizens, and issuance of the famous Greenbacks. This came about in 1862 when Congress authorized the government to spend $450 million in paper Greenbacks directly into circulation. Congress also introduced tangible value into the economy by what was then the very wise policy of transferring huge amounts of public land to the railroads and to citizens under the Homestead Act.

During the late 19th century, ordinary citizens were not so stunningly ignorant of the politics of money as they are today. People recognized the Greenbacks for having saved the union. A Greenback Party was formed that elected representatives to Congress and ran candidates for president.

Greenbacks remained in circulation, and as late as 1900 still made up a third of the nation’s monetary supply, along with coinage, gold and silver certificates, and national bank notes. Also, many other business entities, including the “company stores” owned by mining companies, issued their own paper scrip that was part of the circulating currency. For example, in a pamphlet on monetary reform written by American poet Ezra Pound in the 1930s was an illustration of paper money his grandfather issued from his lumberyard in Michigan in the late 1800s backed by board-feet of lumber payable on demand! Of course barter trade continued and still exists today among industrial firms.

But the bankers were on the move. In 1863 and 1864 Congress passed the National Banking Acts which drove the extensive system of state-chartered banks, including some owned by state governments, out of existence. By the early 1900s, the power of the bankers had coalesced under the New York banking trust led by the J.P. Morgan and Rockefeller financial interests.

The bakers struck in 1913 just before the Christmas recess when many Congressmen had already left Washington for the holidays. The Federal Reserve Act had actually been written by bankers from Europe who were allied with the Rothschild interests. Congressman Charles Lindbergh, Sr., father of the aviator, called the Act “the legislative crime of the ages.” Later President Woodrow Wilson, who signed the Act, said he had “unwittingly ruined my nation.”

But the deed was done. The Federal Reserve System created the first major financial bubble through World War I spending, followed by a depression, then created and burst the stock market bubble whose collapse started the Great Depression in 1929. President Franklin D. Roosevelt took over credit creation through low-cost government lending in the 1930s but had to use World War II to achieve full employment because by then the government was totally locked into the Keynesian tax-and-borrow credo of public finance.

The bankers began their comeback in the 1950s and consolidated their power in the 1970s under the heading of “monetarism,” which is the philosophy of trying to control the economy through raising and lowering of interest rates. This travesty—which is really institutionalized usury—is as familiar to us today as the water a fish swims in. We don’t even notice it. Yet it’s this system that has ruined the world. Ever since the 1970s, every period of economic growth in the U.S. has been a bank-created bubble followed by a crash and a recession.

We had the inflation of the 1970s created by the government-induced oil prices shocks, followed by the Paul Volcker crash of 1979-83 when the Federal Reserve raised interest rates above twenty percent and caused the biggest downturn since the Great Depression.

During the later Reagan years we had the merger-acquisition bubble followed by the recession that brought Bill Clinton to office in 1992. Then we had the dot.com bubble of the mid- to late-1990s that ended with the crash of 2000-2001.

Next, instead, of rebuilding an economy that had been devastated by export of our best manufacturing jobs to China and other cheap-labor countries, the Federal Reserve under chairman Alan Greenspan, with assistance from the George W. Bush administration, created the biggest bubble economy in history, with the housing, commercial real estate, equity, hedge fund, derivatives, and commodities bubbles all blowing up at the same time and leaving us with the mess we are in today.

What has happened during the Bush administration has been the greatest crime against the public interest in U.S. history. Its effects are only starting to be evident.

Of course in the face of so many disasters, the credit markets have imploded, and governments don’t know what to do except recapitalize and restructure them but without taking action to address the deep systemic problems with the producing economy. And while the Europeans may have blown the whistle on U.S. excesses through the G20 meeting, this country still faces disaster.

Yes, Wall Street is killing Main Street , and no one has come up with an answer except suggestions for the bailouts and some New Deal-type programs in an environment that is much worse even than in the 1930s. For one thing, most of what we consume today is produced abroad. For another, family farming has been ruined. In a pinch, our nation could no longer even feed itself.

But the amazing thing is how easy it would be to salvage the situation if the government took the simple step of treating credit as what it really is—a public utility like clean air, water, or electricity, not the private property of the banking system. In fact the banking system and the politicians they own have stolen and abused this fundamental piece of the social commons.

Banks have no legal right to work against the public interest. Every single bank that has ever existed has operated under a public charter. The Constitution gives Congress—i.e., the people’s representative government—authority to regulate interstate commerce. It also gives Congress the right and responsibility to control the monetary system.

So why doesn’t Congress do it? Why does Congress sit passively and stare when Federal Reserve chairmen such as Alan Greenspan or Ben Bernanke sit before them and mumble nonsense about markets and interest rates and inflation and the rest of a made-up system whose main result is to funnel the wealth of the economy upwards into the hands of the financial elite?

In my writings I have advocated several measures Congress could take immediately to remedy the catastrophe we are facing:

  1. Congress could authorize direct expenditure of government funds for legitimate public expenses, as was done with the Civil War-era Greenbacks. Contrary to bankers’ propaganda, the Greenbacks were not inflationary then and would not be inflationary now, because they would be backed by tangible economic production of goods and services. What has been inflationary has been the debt-based currency which, since it was introduced in 1913, has caused the dollar to lose 95 percent of its value. Greenback-type spending is contained in the proposed American Monetary Act, developed by the American Monetary Institute.
  2. Congress could authorize a national infrastructure bank that would be self-capitalized and would lend money into existence to state and local governments at zero percent interest. Legislation for such a bank has been introduced by Congressman Dennis Kucinich.
  3. Congress could authorize dividend payments to citizens as advocated by the Social Credit movement founded by Major C.H. Douglas of Great Britain decades ago as a means of monetizing the net appreciation of the producing economy. Dividends exceeding $1,000 a month could be issued from a national dividend account without recourse to taxation or borrowing. Such a concept is related to the Alaska Permanent Fund which paid over $3,200 to each state resident in 2008 and to the concept of a basic income guarantee advocated by proponents of the negative income tax in years past.
  4. Congress could utilize dividend payments once they were spent, possibly in the form of vouchers for necessities of life like food and housing, to capitalize a new network of community savings banks that would provide low-cost credit to home purchasers, students, small business people, and local farms.

I worked in the U.S. Treasury Department for 21 years and learned first-hand the history and operations of public finance in the U.S. I have seen the disastrous results of the debt-based financial system and how it has driven our nation, government, and people into bankruptcy. I have also seen how these simple measures of monetary reform would be easy to implement and would begin to turn the situation around within weeks or months.

All it takes is political will and a determination to challenge the death-grip the financial elite has had on our economy for a century.

We can be quite certain that these vital issues will not be addressed by the summit of the G20 meeting in Washington today. If anything, these meetings are likely to render the grip of private finance on the peoples of the world even tighter than before.

But sooner or later change must come. For the immediate future people could fight back by doing everything possible to get out of debt, convert their cash reserves to tangible holdings, and start their own local currency and barter systems. But for real change, a monetary revolution is required.

Richard C. Cook is a former U.S. federal government analyst and an advocate for economic democracy and sustainability. His new book, We Hold These Truths: The Hope of Monetary Reform, can now be ordered for $19.95 from www.tendrilpress.com.