Tuesday, December 23, 2008

Roger Farmer: 50% chance of depression in US

50% chance of depression in US

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The US economy has a 50 per cent chance of falling into a depression during the next three years, said Roger Farmer, a member of the National Bureau of Economic Research's economic fluctuations and growth programme.

"There's a significant probability things will get worse," Farmer, 53, said during a phone interview Friday. "We're certainly not at the end of the recession and things are getting worse."

A drop in the Conference Board's index of leading indicators, released Thursday, underscores econo-mists' expectations that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge, and job losses mount. Farmer said he is predicting the US recession will last at least another year.

"Everything depends on business confidence, and what I see is declining confidence," said Farmer, who is also graduate vice-chair of the Economics Department of the University of California at Los Angeles.

The loss of confidence is leading households and companies to undervalue assets, which is hurting consumer spending and investment, he said. A government fiscal stimulus programme will have a "questionable" immediate effect on consumption and financial markets, Farmer said.

Instead, he said he supports the idea of letting the Federal Reserve or government step into the stock market by buying indexed securities such as those linked to the Standard & Poor's 500 Index.

Left to itself

"I don't think anything from historic episodes suggests that, left to itself, the economy is going to magically recover and come back to full employment," he said.

Employers cut 533,000 jobs from payrolls in November for a total loss so far this year of 1.9 million, which more than erases the 2007 gain of 1.1 million. The unemployment rate, now at 6.7 per cent, may go above 10 per cent, Farmer said.

Farmer's views on the likelihood of a US depression contrast with those of other economists, such as New York University professor Nouriel Roubini, who told Bloomberg Television last week that he sees a severe recession and not a depression.

Depression Hits Detroit: Average home price $18,513 - Unemployment rate 21%

Average home price $18,513 - Unemployment rate 21%

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The Great Depression has reached Detroit. The average price of a home is now $18,513 and unemployment has reached 21%, and it’s expected to get worse. Detroit is facing a crisis of epic proportions that officially puts Detroit statistically (and real term) on par with the great depression. Many readers of Tribble Ad Agency are advertising centric.. and due to the rash of layoffs within all Detroit Advertising firms has put the city on the map for the wrong reasons.

It has become the center of all that is wrong with America… and nothing of what is right.

For example, the crime rate has fallen…. because of lack of targets within the city. Meaning there is nothing left to steal. In fact, even the criminals don’t want to leave jail.

Heard confirmed that some offenders, notably those without homes of their own, were now expressing reluctance to leave jail when their sentences were done.

Home values have plummeted to levels not seen in 1/2 a century… and the 21% unemployment has in some cases been projected to double within 12 months if the auto industry totally collapses.

To make matters even worse, Detroit has superseded New Orleans as the “worst city” in America…. but New Orleans had a Hurricane they could assign blame to… Detroit has no such natural disaster crutch.

“It’s a depression — not a recession,” McDuell said, with the authority of someone who has lived through both. “It will get worse before it gets better.”

It’s a man-made disaster.

Regarding a local food bank in Detroit that has seen record numbers of individuals entering the system:

“Many people are first-timers — they have no idea how to navigate the system, how to qualify for food stamps,” Wells said. “Last year, some were donors — now they’re clients.”

In short, last year they donated money into the system… now they are feeding from it because they themselves are in hard financial times.

Detroit needs a miracle, the chances of it showing a resurgence is slim to none in the current economic outlook.

Britain edges to recession, IMF warns of Great Depression

Britain edges to recession, IMF warns of Great Depression

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Britain edged ever closer to a recession on Tuesday and the IMF's top economist warned of a second Great Depression, as stock markets awaited fresh US growth data in the hope of some Christmas cheer.

Britain's economy shrank by 0.6 percent in the three months to September compared with the previous quarter, against a previous estimate of 0.5-percent contraction given last month, the Office for National Statistics said.

Britain will officially be in recession if the economy contracts again in the fourth quarter after already screeching to a halt in the second quarter during which this key European Union economy recorded zero growth.

News of weakening growth sent the British pound sliding under 1.06 euros, nearing a record low of 1.0463 reached last week, as dealers bet on more interest rate cuts from the Bank of England and forecast parity with the euro.

The dollar also dipped against the euro and the yen in morning trading.

"Contraction of 0.6 percent in the third quarter was even sharper than previously anticipated, highlighting the serious downturn in the economy," said Howard Archer, an economist at the IHS Global Insight consultancy in London.

The IMF's top economist, Olivier Blanchard, meanwhile said governments around the world should boost domestic demand in order to avoid a Great Depression similar to the downturn that shook the world in the 1930s.

"Consumer and business confidence indexes have never fallen so far since they began. The coming months will be very bad," Blanchard said in an interview with the French newspaper Le Monde.

"It is imperative to stifle this loss of confidence, to restart household consumption, if we want to prevent this recession developing into a Great Depression," he added.

New data out in France offered some respite from the gloom, however, showing that household consumption of manufactured goods -- a key growth indicator -- rallied 0.3 percent last month after slumping in October.

"It is a first small Christmas present for the French economy," said Alexander Law, an economist at the Xerfi research centre in Paris.

But in Italy, retail sales figures went down 0.3 percent in October.

Denmark's economy contracted 0.4 percent in the third quarter and the Dutch economy showed zero growth, official data showed. Finland's unemployment rate rose to 6.0 percent in November from 5.8 percent a month earlier.

The European Central Bank issued some heartening pre-Christmas data showing that the eurozone's current account deficit narrowed to 6.4 billion euros (9.0 billion dollars) in October from 8.8 billion euros in September.

European stocks were slightly up in midday trading ahead of the release of US third-quarter growth data, with the FTSE index in London up 0.46 percent, the Frankfurt Dax up 0.37 percent but the CAC 40 in Paris dipping 0.04 percent.

"UK and US GDP readings will be closely watched and with expectations low for both, any positive surprises could help provide some festive cheer," said Jimmy Yates, a dealer at CMC Markets in London.

Asian stocks closed mostly down, with the Hong Kong stock market shedding 2.8 percent and Shanghai sinking 4.55 percent as a smaller-than-expected Chinese interest rate cut failed to boost market moods.

Oil prices also fell further to below 40 dollars a barrel in Asian trade, with New York's main futures contract, light sweet crude for delivery in February, shedding 60 cents to 39.31 dollars a barrel.

The contract had fallen to 39.91 dollars in New York on Monday.

Energy analysts were also keeping a close eye on a meeting of key world gas exporters in Moscow amid fears of a "gas OPEC" similar to the Vienna-based oil cartel that could raise natural gas prices.

In a keynote speech, Russian Prime Minister Vladimir Putin told the conference that the "era of cheap gas" for consumers was coming to an end because of the expense of developing new fields.

Pay cuts, layoffs mount in US

Pay cuts, layoffs mount in US

By Tom Eley

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The US government loans to the auto industry, conditioned on a massive attack on the wages and jobs of auto workers, are being used as a spearhead for broader attacks on the working class throughout the country. This attack has already begun, with numerous companies recently announcing pay cuts and layoffs for the coming year in response to the deepening economic crisis.

Many of the new pay cuts affect salaried positions. While cuts to the pay packages of top executives are largely designed to lend the impression of “shared sacrifice,” the salaries and pensions of wider layers of managerial and professional personnel—a large component of the US “middle class”—are being significantly reduced.

On December 18, FedEx Corp., one of the largest US parcel delivery services, announced plans to cut pay for more than 35,000 salaried employees. It will also indefinitely freeze its contributions to over 140,000 employee 401(k) retirement accounts. In announcing the pay cuts, Frederick W. Smith, FedEx founder and CEO, said that the corporation was “being challenged by some of the worst economic conditions in the company’s 35-year history.” Only one month ago the third largest US parcel delivery service, German-owned DHL, announced the suspension of its US operations and layoffs totaling 9,500 workers.

Caterpillar, the leading manufacturer of construction vehicles, has announced pay cuts ranging between 15 percent and 50 percent for all levels of management. It is also offering voluntary buyouts to its American workforce until January 12. Last week, Caterpillar announced 814 layoffs from its Mossville, Illinois, engine factory.

On Monday, Kemet Corp., a digital parts maker based in North Carolina, said it would cut pay for salaried employees by 10 percent percent beginning January 1 and will indefinitely suspend contributions to its 450 workers’ 401(k) retirement plans. It will also make permanent cuts to insurance benefits for its retirees and fire 1,500 workers in China, Europe, and Mexico, the Greenville News reported.

Last week, Motorola Inc. announced plans to freeze salaries and suspend payments to employee retirement accounts, and Agilent Technologies Inc. said it will cut pay by 10 percent for its global workforce of 20,000. Atlas World Group Inc., the second largest US moving and storage company, based in Evansville, Indiana, said it would cut the pay of its salaried personnel by 5 percent across the board.

On December 16, the nation’s largest electronics and appliance retailer, BestBuy, tendered buyout offers to virtually its entire corporate workforce. The Minnesota-based corporation has seen a sharp decline in sales and profits. Rival Circuit City filed for bankruptcy in early November.

The take backs have emerged as a widespread trend. According to a New York Times report published December 21, “a growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor.”

“The rolls of companies nipping at labor costs with measures less drastic than wholesale layoffs include Dell (extended unpaid holiday), Cisco (four-day year-end shutdown), Motorola (salary cuts), Nevada casinos (four-day workweek), Honda (voluntary unpaid vacation time) and The Seattle Times (plans to save $1 million with a week of unpaid furlough for 500 workers). There are also many midsize and small companies trying such tactics,” the Times reported.

Similar measures are being carried out by state and municipal governments, and by colleges and universities.

The city of Galveston, Texas, has demanded a 3 percent pay cut from its municipal workforce of more than 700. The city faces a current budget shortfall of $3.6 million, which is expected to expand by about $2 million when in April property tax appraisals are expected to show a sharp decline in revenue.

Tehama County in California has ordered a pay freeze for its employees, and has indicated it will also furlough workers in the coming months.

The state of California, which faces an acute budget crisis, has ordered a new round of pay cuts and layoffs. On Thursday, Governor Arnold Schwarzenegger issued an Executive Order calling for mandatory furloughs of two days per month for state workers beginning in February and lasting through June of 2010.

The Pennsylvania State University system recently joined the large number of colleges and universities that have enacted pay as well as hiring freezes, canceling job searches for vacant positions. The cancellation of numerous academic job searches, coupled with growing numbers of professors delaying retirement due to declines in their retirement accounts, have combined to create one of the worst job markets for recent PhDs in years.

Analysts consider pay cuts and hiring freezes as a first response for many companies to the economic crisis. A survey carried out by the labor relations firm Mercer in early November—well before the full brunt of the financial crisis had registered in the real economy—found that 35 percent of 1,028 companies it surveyed are planning “significant” workforce reductions in 2009, and that most “are likely to curtail overall hiring, [and] reduce 2009 salary increases and cut bonus payouts.”

Patricia A. Milligan, Mercer’s Chief Markets Officer, said that thus far in the economic crisis most companies “have refrained from … deep workforce cuts, across-the-board salary freezes, reductions in defined contribution plan contributions, or elimination of certain health benefit programs,” but that these decisions will be reconsidered after corporations look at their year-end books and worsening business forecasts. It is likely that an intensification of layoffs and pay cuts will emerge in January.

Another survey conducted in early December by the consulting firm Watson Wyatt Worldwide Inc. among 117 employers, found that 5 percent had already reduced salaries as a response to economic crisis and another 6 percent said they would follow suit in the coming year. On the other hand, 52 percent have already made job cuts or intend to do so by the end of 2009.

Mass layoffs continue to mount in the US and worldwide. The global advertising giant Omnicom has announced plans to fire up to 5 percent of its 70,000 global workforce. Two insurance corporations recently announced mass layoffs: Aetna will cut 3 percent of its workforce of over 36,000, while Genworth Financial will lay off 1,000 workers, over 13 percent of its employees. Newell Rubbermaid, a manufacturer of household storage products, has announced it will cut as much as 10 percent of its salaried labor force and will put in place a wage and salary freeze for 2009. The hard-drive maker Western Digital Corp., will eliminate 2,500 jobs, approximately 5 percent of its global workforce.

The financial services firm Northern Trust Corp. will cut 450 jobs in 2009. Baldor Electric Co. will eliminate 900 jobs by June. Microcontroller producer Atmel will purge 11 percent of its workforce in North America, while pharmaceutical firm Bristol-Myers Squibb will cut 10 percent through 2010, according to the AP, including 800 immediate layoffs.

The video game maker Electronic Arts Inc. has announced layoffs of 1,000, about 10% percent of its workforce. One of its rivals in the video game industry, Midway, will cut 25% of its employees.

It is also rumored that Microsoft, the giant software producer controlled by Bill Gates, the world’s richest man, will shortly announce major layoffs.

UAW beginning talks with GM on concessions

UAW beginning talks with GM on concessions

By Jerry White

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Just days after the Bush administration approved federal loans totaling $17.4 billion to stave off the collapse of General Motors and Chrysler, the United Autoworkers union is set to begin talks with the automakers to impose the wage and benefit concessions demanded by the government.

Under the terms of the bailout, an agreement for such concessions must be in hand by March 31, 2009 or the government can revoke the loans, throwing the automakers into bankruptcy.

The Wall Street Journal reported that GM will begin “brief and high level” talks with the UAW this week, along with bondholders, banks and suppliers, to put into place a plan for a drastic reduction in labor costs and debt obligations. The UAW has already agreed to reopen its four-year contracts with GM, Ford and Chrysler and negotiate further concessions for 139,000 workers at the companies.

According to the plan drawn up by the US Treasury Department, by December 31, 2009 the total compensation, including wages and benefits, of autoworkers at Detroit’s Big Three companies must be “competitive” with those of non-union workers at US plants operated by Nissan, Toyota and Honda.

A recent article in the Automotive News noted that wages at the so-called transplants are themselves “a moving target,” with each new plant offering lower wages. At Honda’s Greensburg, Indiana factory, which opened last month, starting wages are $14.84 an hour compared with $28.50 at the Detroit companies.

The bailout also requires that by the end of the 2009 work rules at the Big Three must be competitive with the transplants, where large numbers of workers are temporary employees, subject to being fired as a result of injury or a slowdown in sales.

The government is also demanding the “elimination of the payment of any compensation or benefits to workers who have been fired, laid off, furloughed or idled, other than customary severance pay.” This measure, which includes the elimination of the jobs bank program, already agreed to by the UAW, will deprive the tens of thousands of workers who lose their jobs in the downsizing of the industry of any significant income protection. The language suggests that, in addition to the jobs bank, UAW workers will be stripped of supplemental unemployment benefits.

In the restructuring plan GM submitted to Congress, the company announced plans to eliminate 31,500 jobs and close two dozen factories.

Finally, the UAW will have to accept shares of stock as payment for half of what the auto companies owe to the $50 billion retiree health care trust fund controlled by the union, known as the VEBA. Credit Suisse and Moody’s on Monday further downgraded GM stock, which has fallen from $43 to $3.52 a share over the last two years. A Credit Suisse analyst said in a report, “It will become increasingly clear that the enormous sacrifice of value on the part of the union (upwards of $10 billion) and bondholders (about $24 billion) will require the complete or near-complete elimination of the existing GM equity.”

This means that the UAW will accept worthless stock in lieu of cash—in effect, slashing in half the assets of its VEBA health care fund. The union will accordingly impose drastic reductions in health care coverage for 600,000 retired workers, spouses and dependents.

The UAW bureaucracy, which will be one of the biggest holders of GM stock, will have a financial incentive to further cut the wages of active workers and drive up their exploitation in order to boost the value of its investment.

The first installment of $13.4 billion in government loans is to take effect this month. As a condition for the second installment of $4 billion for GM, the UAW and other “stakeholders” have until February 17, 2009 to commit themselves to making the companies “viable” and “internationally competitive.”

On or before March 31, 2009, the companies must submit to a designee appointed by the president—the so-called “car czar”—a written certification detailing the progress made in implementing their restructuring plans. This must include: “Approval of the labor modifications by the members of the unions… Receipt of all necessary approvals of the VEBA modifications… The commencement of an exchange offer to implement the bond exchange.”

If the “car czar” is not satisfied that these goals are being met by April 30, 2009, he can recall the loans and force the companies into bankruptcy, where a judge can tear up existing labor agreements and annul pension obligations, or liquidate the companies.

The UAW is already putting into motion a campaign to blackmail its members into accepting what amounts to a historical reversal of gains won over decades. As it has done repeatedly in the past, beginning with the 1980 Chrysler bailout, the union is using the threat of bankruptcy to intimidate rank-and-file workers and suppress opposition to the wage- and job-cutting demands of the government.

The Wall Street Journal reported on Monday, “Throughout the nation, UAW officials began bracing GM workers to make what they called ‘unpopular sacrifices.’ In a letter to assembly-line employees in Texas, the leaders of UAW Local 276 said that ‘strict conditions associated with the loans are non-negotiable and must be met by the stated deadline,’ which is March 31. The officials warned UAW workers that they may not hear any updates from the union’s leadership in Detroit until after the holidays.”

The UAW’s role as an instrument for imposing the demands of the auto companies and the government on the workers was underscored by statements from GM CEO Rick Wagoner. According to CNNMoney.com, “General Motors Corp. Chief Executive Rick Wagoner on Monday defended the United Autoworkers and said he remains hopeful the company and union can strike a deal to lower labor costs.

“Wagoner, in a radio interview in Detroit, said the union ‘took a lot of bullets’ in the midst of high-profile talks over an aid package for Detroit’s struggling automakers. ‘People were trying to score political points rather than fix the issues we were facing,’ Wagoner said,’ adding that the union and company were beginning negotiations on changes to the labor agreement reached in 2007.”

Last year, the UAW accepted what the auto companies called “transformational” concessions, including a reduction in the wages of new-hires from $28 an hour to $14. The union, moreover, relieved the auto companies of billions of dollars in retiree health care obligations through the establishment of a union-controlled trust fund, or VEBA.

Given the widespread opposition to its 2007 betrayal, the UAW bureaucracy is fearful that the even more drastic concessions required under the government bailout could be defeated by a vote of the membership. For that reason, it has criticized the condition that the reduction in the wages and benefits of union workers to those of non-union workers be implemented by the end of 2009. Instead, it offers to achieve this goal by 2011, after the expiration of the current contract. The additional time will also enable it to work with the company in forcing out higher-paid veteran workers, in part through early-retirement and other buyout packages.

The UAW is seeking to promote illusions that the Obama administration will demand less onerous terms when it takes over the restructuring of the industry next year. There is no reason, however, to believe that Obama will be any less ruthless in his attacks on autoworkers. His key adviser on the auto bailout is former Federal Reserve Chairman Paul Volcker, who is likely to be appointed by the new president as the “car czar.”

As Federal Reserve chairman in the Carter and Reagan administrations, he played a central role in imposing wage cuts and other concessions as part of the 1980 Chrysler bailout. Upon becoming the head of the US central bank in 1979, he raised interest rates to 20 percent in order to precipitate a deep recession and use factory closings and mass unemployment to drive down wages. Volcker famously called President Reagan’s smashing of the 1981 PATCO strike and firing of 13,000 air traffic controllers “the most important” step in bringing down inflation.

Like the Chrysler bailout and the smashing of the PATCO strike, the current attack on autoworkers is being used to set a precedent for a drastic reduction in the wages and living standards of the entire working class.

“There’s going to be fewer factories, fewer salaried and hourly workers, lower compensation, fewer brands, fewer models, fewer dealers,” Dana Johnson, senior economist with Dallas-based Comerica Inc., told the Detroit Free Press. “Everything is going to continue to be rapidly downsized, just not in as chaotic a process if they had not gotten the financing,” Johnson said. He predicted that Michigan would lose another 30,000 auto jobs next year, along with 60,000 non-automotive jobs.

Obama, the military and the threat of dictatorship

Obama, the military and the threat of dictatorship

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With his choice of Admiral Dennis Blair as director of national intelligence, President-elect Barack Obama has now named three recently retired four-star military officers to serve in his cabinet. This unprecedented representation of the senior officer corps within the incoming Democratic administration is indicative of a growth in the political power of the US military that poses a serious threat to basic democratic rights.

As head of the US military's Pacific command in 1999-2000, Blair was distinguished by his efforts to solidarize the Pentagon with the military of Indonesia as it carried out butchery in East Timor, effectively vetoing the half-hearted human rights concerns voiced by the Clinton administration.

Before tapping Blair, Obama named former Marine Gen. James Jones as his national security adviser and former Army chief of staff Gen. Erik Shinseki as secretary of veterans affairs. It is also reported that the incoming administration may ask retired Air Force Gen. Michael Hayden to stay on as director of the Central Intelligence Agency.

The Washington Post last Saturday described this concentration of former senior officers in the administration as "an unusual trend for a Democratic administration and one that has surprised both political camps."

The appointments follow the announcement that Robert Gates, Bush's defense secretary, will stay on at the Pentagon, where multiple "transition teams" are at work to assure that continuity is maintained in America's ongoing wars of aggression and that the immense power of the military remains unchecked.

Earlier this month Obama spelled out his subservience to the Pentagon by declaring, "To ensure prosperity here at home and peace abroad, we all share the belief we have to maintain the strongest military on the planet." To that end, he has pledged to increase the size of US ground forces by 100,000 soldiers and Marines and made it clear that there will be no significant cuts to a military budget that is gobbling up some $850 billion annually under conditions of soaring deficits and an intensifying financial crisis.

There is no doubt a significant element of political calculation in Obama's decision to surround himself with military brass and assure that he is seen as "supporting our troops." There is, after all, the bitter experience of the last Democratic administration. Bill Clinton's first term was nearly shipwrecked by his confrontation with the uniformed command over his proposal to scrap the ban on gays in the military. For the remainder of his presidency, he was treated with open or barely concealed contempt by much of the officer corps.

The threat of an even uglier confrontation under Obama is very real given the disastrous effects of the wars in Iraq and Afghanistan on the military and reports of a growing delusional sentiment within the officer corps that the failures of the US operations in these countries were the result of a "stab in the back" delivered by the civilian authorities, the media and the American people themselves.

But there is a more fundamental process underlying both Clinton's experience and Obama's bowing before the military today. It is the immense growth in the power of the "military industrial complex" against which President Dwight Eisenhower warned nearly half a century ago—a power which grew uninterruptedly during the whole of the Cold War.

During the last seven years of the so-called "global war on terrorism," this expansion of power—together with the rise in military funding—has only escalated, accompanied by increasingly sinister features bound up with US imperialism's growing reliance on militarism as a means of offsetting the decline in its global economic position.

The military chiefs of the Pentagon's regional commands—CENTCOM, PACOM, SOUTHCOM and the new AFRICOM—have largely supplanted ambassadors and civilian officials as the representatives of US interests and power around the globe.

Meanwhile, in prosecuting two wars in Iraq and Afghanistan, the military command has been tasked with running colonial-style administrations with virtually unfettered power over entire populations.

Finally, with the creation of military tribunals and military prisons, such as the one in Guantánamo, the military has usurped tasks that historically have been assigned to civilian courts operating under the rules of the US Constitution.

These momentous changes have taken place even as the military, and particularly its officer corps, has grown increasingly separate and estranged from the civilian world and become ever more dominated by Republican politics in general and evangelical Christian beliefs in particular. A "professional" and "volunteer" force, it is more insulated from the popular pressures felt by armies made up of draftees and "citizen soldiers" of earlier generations.

The Washington Post Sunday published an extraordinarily blunt opinion piece by a former assistant secretary of state in the Bush administration, Thomas Schweich, on the increasing dominance of the American state by its military apparatus.

"Our Constitution is at risk," wrote Schweich. He warned that the elevation of an unprecedented number of former senior officers into Obama's cabinet could "complete the silent military coup d'etat that has been steadily graining ground below the radar screen of most Americans and the media."

Schweich, who served as an ambassador for counter-narcotics in Afghanistan and then oversaw international law enforcement affairs at the State Department, wrote that he "saw firsthand the quiet, de facto military takeover of much of the US government," which in Iraq and Afghanistan, he said, "was, in theory, justified by the exigencies of war."

He stressed that what began abroad is coming home. "Now the Pentagon has drawn up plans to deploy 20,000 US soldiers inside our borders by 2011, ostensibly to help state and local officials respond to terrorist attacks or other catastrophes." This mission, he warned, "could easily spill over from emergency counter-terrorism work into border-patrol efforts, intelligence gathering and law enforcement operations."

A report that appeared in a magazine published by the US Army War College last month, just weeks after the election, indicates that the Pentagon is preparing its own "transition," a process that is being driven not by Obama's vague promises of "change" but by what the military command sees as a historic crisis of the existing order that could require the use of armed force to quell social struggles at home.

Entitled "Known Unknowns: Unconventional 'Strategic Shocks' in Defense Strategy Development," the monograph was produced by Nathan Freier, a recently retired Army lieutenant colonel who is a professor at the college, the Army's main training institute for prospective senior officers. According to the magazine, he "continues to provide expert advice to key actors in the security and defense policymaking and analysis communities."

One of the key contingencies for which Freier insists the US military must prepare is a "violent, strategic dislocation inside the United States," which could be provoked by "unforeseen economic collapse" or "loss of functioning political and legal order."

He writes: "To the extent events like this involve organized violence against local, state, and national authorities and exceed the capacity of the former two to restore public order and protect vulnerable populations, DoD [Department of Defense] would be required to fill the gap."

Freier continues: "Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order … An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home."

In other words, a sharp intensification of the unfolding capitalist crisis accompanied by an eruption of class struggle and the threat of social revolution in the US itself could force the Pentagon to call back its expeditionary armies from Iraq and Afghanistan for use against American workers.

Given such conditions, he adds: "DoD might be forced by circumstances to put its broad resources at the disposal of civil authorities to contain and reverse violent threats to domestic tranquility. Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance."

This peculiar phrase—"an essential enabling hub for continuity of authority" —is a euphemism for military dictatorship.

He concludes this section of the article by noting, "DoD is already challenged by stabilization abroad. Imagine the challenges associated with doing so on a massive scale at home."

The point is well taken. Having failed to quell resistance and restore order in Iraq and Afghanistan, what would be the prospect of the military succeeding in an occupation of the US itself?

That these questions are being asked by the Pentagon's strategic planners should be taken with deadly seriousness. Those commanding the armed forces of the US capitalist state foresee the present crisis creating conditions for revolution and are preparing accordingly.

Progressive journalist fights felony charges

Progressive journalist fights felony charges

By Bryan G. Pfeifer

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A growing, broad-based coalition in metro Detroit is fighting to have five felony charges against people's journalist Diane Bukowski dropped immediately. Many view the attack on Bukowski as an attack against the entire progressive movement as well as freedom of the press.

"I believe these charges are retaliation against me and a total attack on the freedom of the press," said Bukowski at a press conference Dec. 15 at the AFSCME Local 312 union hall.

Dozens of individuals and representatives of labor, community and faith-based organizations attended the press conference.

The outrageous charges stem from an incident on Nov. 4 when Bukowski, a reporter for the Michigan Citizen, a progressive weekly newspaper, arrived at an accident scene on Detroit's east side where a motorcyclist and a pedestrian died after a police chase by Michigan state troopers.

Bukowski came upon the scene to observe and investigate. While taking photographs of the deceased motorcyclist, she was accosted by Detroit cops and state troopers, handcuffed and put in the back of a police vehicle. Originally charged with a misdemeanor, Wayne County prosecutor Kym Worthy charged Bukowski with five felony counts of assaulting, resisting and obstructing a police officer.

Bukowski and her allies say these charges are an attack against her for her years of steadfast anti-racist community reporting on a range of issues, including police brutality and police murders, utility shutoffs, foreclosures and union struggles. Bukowski and the Michigan Citizen have been fighting for access to public documents from Worthy's office in relation to police brutality and murder cases.

Bukowski says the attack against her is a clear intimidation tactic against freedom of the press. Before she was handcuffed and placed in police custody she had already interviewed witnesses at the scene who claim the state police vehicle ran upon the motorcyclist's back tire, forcing the crash and deaths and putting other lives at risk.

The Dec. 15 press conference was sponsored by the newly-formed Committee to Defend Diane Bukowski and Freedom of the Press. Speakers included representatives from Call 'Em Out; the Moratorium NOW! Coalition to Stop Foreclosures and Evictions; Detroit City Councilwoman JoAnn Watson; the Detroit Coalition Against Police Brutality; the Detroit Green Party; Michigan Citizen publisher Teresa Kelly; UAW Local 2334 President David Sole; and Bukowski's attorney, Arnold Reid.

"We are going to do everything to make sure Diane is completely exonerated. We're going to win this case. We're going to give them hell. We're going to fight," said Reid, who is working pro bono on the case and is also a journalist.

JoAnn Watson summed up: "It's outrageous that a woman like Diane, who has given her life to justice, is attacked like this. This is an attack on those who stand for justice. We're not going to stand for this."

Drop ALL charges now!

On Dec. 16 Bukowski supporters again packed the courtroom for a preliminary examination where testimony was given by the state troopers and Detroit police officers at the scene on Nov. 4. Because of lack of evidence on the part of the police, the judge dropped three of the five felony charges.

Future court dates are in the process of being scheduled and the defense committee will be mobilizing for these as well as other support actions. The committee is also soliciting funds for defense expenses.

"Diane is a voice, a soldier of the people speaking on our needs, our plight. This is critically important, especially during this time of economic crisis when independent reporting is so needed. We will fight until we win this battle," said Sandra Hines of the Moratorium NOW! Coalition and a Bukowski defense committee member.

To contribute funds for the defense committee and for more information, contact attorney Arnold Reid at 248-855-6330 and/or Diane Bukowski at 313-205-6718.

Supporters are urged to contact Wayne County Prosecutor Kym Worthy and demand the remaining two charges against Bukowski be dropped immediately. Write to the prosecutor at 1200 Frank Murphy Hall of Justice, 1441 St. Antoine, Detroit, MI 48226; call 313-224-5777 or fax 313-224-0974.

New School students occupy building and win!

New School students occupy building and win!

By Tyneisha Bowens

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Students at The New School in New York City formed the New School Radical Student Union and occupied the dining hall of a New School building on Dec. 17, demanding more accessible and democratic education.

The Union demanded the removal of New School President Bob Kerrey, Executive Vice President James Murtha, and war profiteer and treasurer of the New School Board of Trustees, Robert B. Millard.

Other demands included transparency and disclosure of the university budget and investment, money toward scholarships and reducing tuition, and the provision that students, faculty and staff elect the New School president, executive vice president and provost.

The students forming this coalition included members of New School Students for a Democratic Society, Student Environmental Action Coalition and United for Peace and Justice, as well as independent graduate students.

Occupying the building at 65 5th Ave. was an expression of student power as part of a year-long struggle for administrative transparency and accountability to students, faculty and staff.

When asked what drove the students to occupy the building, a New School student explained to Workers World: "We have been pissed off about this administration for a long time and a lot of us wanted to do something about it. So after the faculty vote of no-confidence regarding President Kerrey, students met and talked about restoring the radical New School foundations.

"We decided on that building because that building was supposed to be torn down over winter break to build a skyscraper, and it shows how Kerrey is loyal to corporate interests and is willing to compromise student space and rights."

Outside the building students coordinated a picket line of students, faculty, staff and supporters. Sarah Lopez, a member of New School SDS, describes these support efforts to WW: "At first we tried to occupy another building but we decided to picket outside to build support and visibility. At one point we blocked Fifth Avenue and marched, and we were also able to break some more students into the building."

Solidarity helps win student demands

On the second day of the student occupation Unite HERE Local 101, which represents the New School cafeteria workers, showed their support for the students by refusing to cross the barricades and picket line at the occupied dining hall.

Meaghan Alysia Linick-Loughley, member of the New School Radical Union and New School SDS, emphasized to WW the importance of solidarity between students and workers: "It's in the Unite HERE contract that they can't cross picket lines, and it was a really powerful thing to have workers stand in solidarity with us!" Linick-Loughley continued: "Our occupation was inspired by the recent workers' occupation in Chicago and the worker and student uprising in Greece."

International support for the New School occupation came in the form of endorsements, solidarity statements, international blogs, and independent and student media coverage.

After long negotiations between students and the administration on Dec. 19, President Kerrey conceded to many of the student demands. Kerrey, who was acting as president and interim-provost, stepped down as interim-provost and signed an agreement that included total amnesty for all participants involved in the occupation and all events related to it.

The agreement also provides for voting representation for students on the search committee for the interim-provost and the provost, as well as any searches that may take place in the future for a new president. And it allows the University Student Senate to have a representative at meetings of the Board of Trustees.

On the high note of this victory the student occupation ended early morning on Dec. 19. Sarah Lopez of New School SDS described to WW this moment as an inspiration and motivation for students to get involved on their campuses and reignite the student movement. Lopez stated, "I think our next steps need to be getting the word out about the occupation and victory and getting more students involved in working together to build coalitions of student power."

Taking inspiration from the workers' struggle in Chicago and the uprisings in Greece, the students of The New School have taken the student movement in the U.S. to the next level, calling on students across the country to take democracy into their own hands.

For more information on the New School Radical Student Union occupation and victory, visit www.newschoolinexile.com and newsds.org.

Secret Tapes Helped Build Graft Cases In Illinois

Secret Tapes Helped Build Graft Cases In Illinois

Hospital CEO Reported Shakedown, Wore Wire

By Carrie Johnson and Kimberly Kindy

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The wide-ranging public corruption probe that led to the arrest of Illinois Gov. Rod Blagojevich got its first big break when a grandmother of six walked into a breakfast meeting with shakedown artists wearing an FBI wire.

Pamela Meyer Davis had been trying to win approval from a state health planning board for an expansion of Edward Hospital, the facility she runs in a Chicago suburb, but she realized that the only way to prevail was to retain a politically connected construction company and a specific investment house. Instead of succumbing to those demands, she went to the FBI and U.S. Attorney Patrick J. Fitzgerald in late 2003 and agreed to secretly record conversations about the project.

Her tapes led investigators down a twisted path of corruption that over five years has ensnared a collection of behind-the-scenes figures in Illinois government, including Joseph Cari Jr., a former Democratic National Committee member, and disgraced businessman Antoin "Tony" Rezko.

On Dec. 9, that path wound up at the governor's doorstep. Another set of wiretaps suggested that Blagojevich was seeking to capitalize on the chance to fill the Senate seat just vacated by President-elect Barack Obama.

Many of the developments in Operation Board Games never attracted national headlines. They involved expert tactics in which prosecutors used threats of prosecution or prison time to flip bit players in a tangle of elaborate schemes that Fitzgerald has called pay-to-play "on steroids."

But now, Fitzgerald's patient strategy has led to uncomfortable questions not only for Blagojevich but also for the powerful players who privately negotiated with him, unaware that their conversations were being monitored. Democratic Rep. Jesse L. Jackson Jr. faces queries about his interest in the Senate seat, and key players in the Obama presidential transition team -- White House Chief of Staff-designate Rahm Emanuel and adviser Valerie Jarrett -- are being asked about their contacts with the governor on the important appointment.

A defiant Blagojevich has vowed to fight the charges. But the cozy nature of Illinois politics and the state's infamous record of corruption in both political parties suggest that Operation Board Games is far from over.

"We have a lot of information gained from a number of interviews and investigation over the years," Fitzgerald told reporters Dec. 9. "This is a moment of truth for Illinois. We have times when people decry corruption, and yet here we have a situation where there appear to be wide-ranging schemes where people are seeking to make people pay contributions to get contracts or appointments or do other stuff."

The sweep of the case has been surprising even to Meyer Davis, the hospital chief executive. "When I went to the authorities five years ago, I had no idea of the extent of the corruption and how high it reached in Illinois," she told The Washington Post by e-mail. "It's appalling that leaders entrusted with regulating health care have continued to abuse that trust."

Hospital Shakedowns

Meyer Davis's hospital wasn't the only one with problems winning approvals from the state board that reviewed new projects for health-care facilities. The Chicago Medical School wanted a student housing project and found itself steered to the same construction and investment firms. Mercy Hospital faced similar obstacles. The board held up requests for open-heart surgical units and community clinics, and it seemed that a high price tag was attached to moving the board toward action.

At the center of the scheme was board member Stuart Levine, a prominent GOP fundraiser and businessman. Levine also courted Blagojevich, flying him to fundraisers in Texas and New York at which the governor collected more than $120,000 in campaign contributions. Levine held seats on the health facilities board and the teachers pension board, which controlled more than $41 billion in assets.

The conversations Meyer Davis helped record during her meeting at the Eggshell Cafe in suburban Deerfield allowed prosecutors to learn the tactics of Levine, who had cut deals with certain firms for a piece of their contracts.

Levine also had many connections. A telephone wiretap captured his discussions with Rezko, a fundraiser for Blagojevich and Obama, and several others who would become federal targets, according to lawyers who closely followed the trial testimony.

"Before they had Levine in the fold, they had his phone," said former public corruption prosecutor Patrick Collins. "They happened to get up on Levine's phone at a time when he was very active in his corrupt schemes."

Fitzgerald's office indicted Levine in 2005 on multiple fraud and extortion charges for his role in the state board schemes, securing along the way cooperation from the favored construction executive who had paid him kickbacks. But Levine's path to cooperation took 18 more months. Faced with wiretap recordings, Levine realized his legal situation was nearly hopeless, struck a plea bargain and became the star witness against Rezko.

"Levine was the guy who's given them everybody else," said Jay Stewart, executive director of the Chicago-based Better Government Association.

Rezko was an important catch. The multifaceted businessman with interests in real estate and pizza parlors became a gatekeeper to Blagojevich, advising him on appointments to boards and commissions. Obama, for example, acknowledged he had "formal discussions" with Rezko in 2003 when a close friend of Obama's, Eric Whitaker, emerged as a candidate for director of the Illinois Department of Public Health. The agency oversaw funding for the staff of the health facilities planning board, but Whitaker -- who served as the agency's director from 2003 to 2007 -- has not been implicated in the scandal. Whitaker has said he did not actively seek the job.

Rezko and Levine developed their pay-to-play scheme over a meal of strip steaks, red wine and vodka at the upscale Standard Club, just blocks from the federal courthouse in Chicago, according to court testimony.

Levine needed Rezko's help persuading Blagojevich to resist an effort to consolidate several state boards. In return, they agreed to divide kickbacks. Meanwhile, Levine pressured board consultants to give Blagojevich large campaign contributions in return for state business.

During Rezko's trial this year, his attorneys tried to discredit Levine, saying he had a $25,000-a-month drug habit and routinely gathered with five male friends at the Purple Hotel in suburban Lincolnwood to go on binges using LSD, cocaine, crystal meth and even an animal tranquilizer known as ketamine.

Jeffrey Steinback, an attorney for Levine, said, "I'm extremely fond of Stuart, and I am proud of the commitment he's made to cooperate, despite the personal cost."

The Path to Blagojevich

Throughout the Democratic presidential primaries, Rezko's trial on fraud, money-laundering and bribery charges offered a sobering picture of state business under the Blagojevich administration.

In a string of federal indictments, the governor had been cryptically referred to as "Public Official A," the recipient of large donations in return for favors. Despite the anonymity, Blagojevich had been unable to keep his name out of the spotlight. In January 2005, his father-in-law, Alderman Richard F. Mell, had accused one of the governor's top political aides, Christopher Kelly, of demanding $50,000 contributions to Blagojevich in exchange for appointments. The allegation, although withdrawn, spurred a state attorney general probe that eventually melded into Fitzgerald's investigation.

Prosecutors indicted Kelly last year on charges of tax fraud related to his gambling debts, and his attorneys signaled last week that he intends to plead guilty, possibly as early as January.

Another head rolled at the Illinois Finance Authority. Director Ali Ata, a former fundraiser for Blagojevich, signed a sworn statement in April describing how Rezko had shaken him down four times for a total of $125,000 in bribes and large campaign contributions.

At a meeting, Ata said, Blagojevich thanked him and then asked him about his desire to work in his administration.

"Mr. Blagojevich stated again I had been a supporter and a friend and asked Mr. Rezko if I'd identified job opportunities, and Mr. Rezko said, 'Yes,' " Ata testified in May during Rezko's trial.

After negotiating with Rezko, Ata testified, he bought a $127,000-a-year state job as the head of a state loan agency, the Illinois Finance Authority, which funded more than $5 billion in projects in fiscal 2008.

Wiretaps Broaden the Web

As the scandal evolved, Blagojevich played it cool, and last week he angrily told supporters he would fight for vindication. The Democrat was a congressman when he ran for governor in 2002, and he was elected with bold promises of ethics reform after his predecessor, Republican George Ryan, was indicted in a separate case. When Ryan was convicted in 2006, Blagojevich asserted that "government is supposed to exist for the good of the people, not the other way around, and certainly not for the personal enrichment of those who hold public office."

Blagojevich regularly reported to work not at the state mansion but at the Friends of Blagojevich campaign office near his home in the Ravenswood neighborhood on the city's North Side, with Rezko and a former congressional chief of staff, John Wyma, by his side.

As investigators moved in on Rezko, they inched closer to the governor. His wife, Patricia, did real estate deals with Rezko that also came under scrutiny. There were allegations that she won commissions on property sales as payback for the governor's appointments.

And then, for reasons that remain murky, Wyma in early October apparently began cooperating with Fitzgerald's team. Wyma, 42, once worked as chief of staff to some of Capitol Hill's leading Democratic voices, including Sen. Charles E. Schumer (N.Y.) and Rep. Bart Stupak (Mich.), as well as Blagojevich.

Wyma left Washington more than five years ago but remained a big donor to congressional campaigns and a lobbyist for such clients as Lehman Brothers, Philip Morris and Chicago's Children's Memorial Hospital, a key player in Blagojevich's effort to provide health care to impoverished children.

Even a children's hospital was not exempt from the pressure, according to recordings of Blagojevich's conversations with someone identified as "Individual A," thought to be Wyma.

Wyma had meetings with Blagojevich and the governor's brother in which he was exhorted to step up fundraising in advance of a new state ethics law to take effect in January, investigators said. The pressure to raise millions intensified on some of Wyma's clients, including Children's Memorial Hospital and highway contractors.

In a conversation taped by the FBI, Blagojevich threatened to hold up state funding for a Children's Hospital program unless its chief executive donated $50,000 to his campaign.

In court filings, prosecutors said "Individual A" was a subject but not a target of the criminal investigation into the health planning board. The government source is helping authorities because he hopes to win immunity from prosecution, the FBI affidavit said. Wyma has not been charged with wrongdoing.

"Mr. Wyma has made efforts to provide federal investigators with truthful information regarding the matters under investigation and will continue to do so," lawyer Zachary Fardon said.

The Blagojevich tapes opened yet another path for investigation, based on his alleged claims that he would sell Obama's Senate seat to the highest bidder. Fitzgerald has said he moved to arrest the governor and top aide, John Harris, because he feared that some of the schemes were about to be carried out.

Jackson, who is mentioned in court papers as a candidate eager for the Senate post, told reporters that he spoke with Wyma about his interest in the job this year. Unnamed "emissaries" for Jackson allegedly promised to raise $1.5 million for Blagojevich, according to the FBI affidavit.

Fitzgerald's team has scrambled to interview Jackson, as well as members of the Obama transition team who talked with Blagojevich about the appointment. A spokesman for Jackson said the lawmaker had told authorities about his tangle with Blagojevich, in which the congressman says the governor rejected Jackson's wife for a lottery post after Jackson failed to raise $25,000 for the Blagojevich campaign.

Lawyers and political analysts who have followed Operation Board Games and the work of Fitzgerald describe the government strategy as a textbook model. At his Dec. 9 news conference, for instance, the prosecutor all but invited victims and the perpetrators of shakedowns to come forward.

Kent Redfield, a political scientist at the University of Illinois, said Fitzgerald used indictments to pressure the governor's confidants to turn on one another.

"It's a message: You are in my sights, and I'd like to get you to come in and talk to me," Redfield said. "It puts pressure on the person you indicted and puts on notice the next person up the chain."

In seven years as U.S. attorney in Chicago, Fitzgerald generally has won strong reviews from government and defense lawyers alike. Obama is said to be considering keeping Fitzgerald in his job even though the coveted spots typically turn over with a new administration. But defense lawyers who have faced Fitzgerald say he can be hard-nosed when it comes to even small fish trapped in the government's net.

One former prosecutor who knew Fitzgerald 20 years ago, when the U.S. attorney was a junior defense lawyer, said he was zealous in pursuit of his goals and offended by violations of the public trust.

"His line between right and wrong is very bright, and it's very easy for him to see that line," the former prosecutor said. "If there's a brick wall, he'll take it down brick by brick."

Senior Federal Banking Regulator Removed

Regulator Let IndyMac Bank Falsify Report

Agency Didn't Enforce Its Rules, Inquiry Finds

By Binyamin Appelbaum and Ellen Nakashima

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A senior federal banking regulator approved a plan by IndyMac Bank to exaggerate its financial health in a May federal filing, allowing the California company to avoid regulatory restrictions only two months before it collapsed, a federal inquiry has found.

The same regulatory agency, the Office of Thrift Supervision, allowed similar legerdemain by other banks, according to a letter sent yesterday to members of Congress by the Treasury Department's inspector general, Eric Thorson. The letter did not provide details about the other incidents.

The finding that OTS on several occasions "blessed a fiction," in the words of one congressional staffer, renews questions about the agency's relationship with the companies it regulates and about its complicity in the collapse this year of several of the nation's largest thrifts, including Washington Mutual and Countrywide Financial.

The Washington Post reported last month that OTS allowed thrifts to lend massively while reserves against future losses dwindled. Even as problems became apparent, the agency continued to prioritize deregulation. The latest findings underscore that OTS failed to enforce its own rules.

"The role of the Office of Thrift Supervision, as the name says, is to supervise these banks, not conspire with them," said Sen. Charles E. Grassley (R-Iowa). "It's good the inspector general has opened a full-blown audit as a result of this case. Everyone ought to be paying very close attention."

The regulator named in Thorson's letter, Darrel Dochow, was removed from his position yesterday as director of OTS's west division, which supervised Washington Mutual, Countrywide, IndyMac and Downey Savings and Loan, among other banks that have been seized or sold this year.

It is the second time Dochow has been removed from a position as a senior thrift regulator. He was demoted in the early 1990s after federal investigators found that he had delayed and impeded proper regulation of Charles Keating's failed Lincoln Savings and Loan.

Dochow did not return calls to his office and home. An OTS spokesman also did not return calls. In a letter to the inspector general, OTS director John M. Reich described Dochow's actions as a "relatively small factor in the events leading to the failure of IndyMac." Dochow has been reassigned to work in Washington on "special projects" and as head of human resources, pending completion of the inquiry, according to a memo sent to OTS staff yesterday.

Thorson's investigation has its roots in a standard review of IndyMac's failure. The review was triggered because OTS is an arm of the Treasury.

During that review, Thorson found the Dochow incident described in documents provided by IndyMac's accounting firm, Ernst & Young. Thorson presented those findings to Treasury Secretary Henry M. Paulson Jr., who urged him to investigate, according to a Treasury spokeswoman.

The core allegation is that Dochow allowed IndyMac to count money it got in May in describing its financial condition at the end of March.

Banks are required to file a report with regulators every three months detailing their financial condition, in addition to the reports filed by all publicly traded companies. IndyMac's initial filing for the first quarter showed that the amount of money it had on hand to cover potential losses was just large enough to meet regulatory requirements. But days after it submitted the filing, IndyMac was told by Ernst & Young that some numbers needed to be adjusted. The changes would drop the company below the capital threshold. Instead of "well capitalized," IndyMac would be categorized as "adequately capitalized," according to Thorson's letter.

Such a downgrade would threaten IndyMac's survival. Thrifts classified as "adequately capitalized" need special permission from regulators to gather deposits through brokers who funnel money from investors around the country. The use of brokers is restricted to healthy institutions because the money is seen as "hot," meaning that investors are quick to move money around, which can destabilize a weak institution.

At the end of March, 36 percent of IndyMac's $18.7 billion deposit base came through brokers, according to the company's regulatory filings.

IndyMac executives, who learned about the problem in early May, wanted permission to inject $18 million into the company's capital cushion. But that would solve the problem only if the bank could pretend the money was injected at the end of March.

Thorson wrote that Dochow gave his permission during a May 9 conference call, and the company submitted the new numbers.

The company's first-quarter earnings report, filed on May 12, includes the same numbers sent to banking regulators, apparently repeating the overstatement of the company's actual capital cushion as of March 31. The filing goes on to describe the company as "well capitalized."

Securities experts said the filing could raise legal issues because it is a crime to knowingly make false statements in the financial records of a public company.

The new numbers also averted an intervention by the Federal Deposit Insurance Corp., which could have acted to limit the eventual cost of IndyMac's failure. The FDIC now estimates the cost at about $8.9 billion. The agency is funded by the banking industry.

"It is their job to be a cop," said Bart Dzivi, a lawyer who represents financial services institutions in Northern California. "But Darrel Dochow and senior management take the view, 'We're working with these institutions to help them with their problems.' They see themselves as consultants, not cops."

A spokesman for Thorson declined to expand on his statement that other banks were allowed to make similar revisions to financial statements. Asked at a briefing with members of Congress whether he would describe the problems as "systemic," Thorson responded, "Yes," according to a congressional aide who attended the briefing.

Dochow was appointed regional director in September 2007 after serving as the No. 2 in the western region. Dochow got the job shortly after playing a leading role in persuading Countrywide to move under OTS supervision, a major coup for the agency, which is funded by fees from the companies it oversees. He was paid $230,000 in 2007, according to government records.

Dochow's efforts to help IndyMac extended beyond his support for the bank's revised financial filings.

At another point last spring, Dochow limited the scope of a review by OTS regulators of IndyMac's portfolio of loans and other assets, overruling the advice of others in the agency, according to a source with knowledge of the incident.

The current episode echoes Dochow's involvement in the collapse of Lincoln Savings and Loan.

In September 1987 Dochow halted an examination of Lincoln, which was meant to determine whether the bank had an adequate capital cushion, at the request of his then-boss, Federal Home Loan Bank Board Chairman M. Danny Wall, according to a congressional investigation. Attorneys for Lincoln and its chief executive, Keating, had threatened to sue the bank board, OTS's predecessor, if the exam went ahead.

When the exam finally happened eight months later, it revealed that Lincoln was engaged in unsafe, unsound lending practices, booking inappropriate income and inappropriately sending money to its holding company. The company was placed in conservatorship soon thereafter and taxpayers eventually spent $2.7 billion bailing it out. Dochow was demoted and sent to a regional job.

Then-Rep. Charles E. Schumer (D-N.Y.) said at hearings in November 1990 that Dochow had been carrying out the will of his superiors. Schumer noted that Dochow said in a statement that he got the impression the bank board "would like to see the Lincoln matter resolved amicably."

"In a sense, it's difficult to blame Mr. Dochow, because he apparently was simply carrying out orders, the desires of his superior, to resolve this amicably," Schumer said. "Unfortunately, that desire cost us billions of dollars. And I think it's that attitude that's the real problem here."

Groups want Obama to investigate Bush for war crimes

Groups want Obama to investigate Bush for war crimes

But prosecution would be difficult


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Emboldened by a Democratic win of the White House, civil libertarians and human-rights groups want the incoming Obama administration to investigate whether the Bush administration committed war crimes. They don't just want low-level CIA interrogators, either. They want President George W. Bush on down.

In the past eight years, administration critics have demanded that top officials be held accountable for a host of expansive assertions of executive powers, from eavesdropping without warrants to detaining suspected enemy combatants indefinitely at the Guantánamo Bay military prison.

A bipartisan Senate report on how Bush policies led to the abuse of detainees fueled calls for a criminal investigation.

However, many of the retired military officials who were early critics of the administration's legal justification of harsh interrogations aren't on board. They argue that criminal prosecution would be too difficult legally and politically to succeed.

Without wider support, the campaign to haul top administration officials before an American court is likely to stall.

In the end, Bush administration critics might have more success by digging out the truth about what happened and who was responsible, rather than assigning criminal liability, and letting the court of public opinion issue the verdicts.

Lawyers raise questions

"It is mind boggling to say eight years later that there is not going to be some sort of criminal accountability for what happened," said David Glazier, a law of war expert at Loyola Law School in Los Angeles and a retired naval officer. "It certainly undermines our moral authority and our ability to criticize other countries for doing exactly the same thing. But given the legal issues and the political reality, I am hard-pressed to see any other outcome."

Robert Turner, a former Reagan White House lawyer who supported several of the Bush administration's assertions of executive powers but not the use of harsh interrogation techniques, said that war crimes "may well have been committed," given reports by human-rights organizations that some prisoners may have been beaten to death.

Turner was outraged when Bush signed an executive order in 2007 that he said permitted highly abusive treatment, so long as the purpose was to acquire intelligence to stop future terrorist attacks, rather than just to humiliate or degrade the detainee.

He recalls telling senior Justice Department officials during a conference call prior to the public release of the order: "Do you people understand that you are setting up the president of the United States to be tried as a war criminal?" The conference call, he said, quickly came to an end.

Don't prosecute, some say

Turner, who co-founded the University of Virginia's Center for National Security Law in 1981, rebuts the administration's defense that waterboarding, which simulates the sensation of drowning, isn't torture and therefore is legal.

He also challenges the administration's argument that Common Article 3 of the 1949 Geneva Conventions, prohibiting inhumane treatment of detainees, isn't binding. "The standard is not torture. It's humane treatment. That's a much higher standard," he said, noting that after World War II, the United States prosecuted Japanese soldiers for using waterboarding on American troops.

Turner, nonetheless, joins a number of high-profile critics of the administration's interrogation practices who've concluded that prosecution of war crimes in American courts isn't the best course. Others include retired Brig. Gen. John H. Johns, retired Army Col. Larry Wilkerson and retired Air Force Judge Advocate General Scott Silliman.

"From a legal point of view, it would be exceedingly difficult," Silliman said. "From a policy point of view, we would be wading into dangerous waters."

Retired Navy JAG John Hutson, dean of the Franklin Pierce Law Center in Concord, N.H., said that Americans would be more likely to get the facts from inquiries modeled on the 9/11 commission or the post-Watergate Church Committee.

"It's absolutely crucial that we have an understanding of what happened so it doesn't happen again," Hutson said. "But to some extent, making that a criminal investigation would inhibit, rather than foster, a thorough understanding because people would lawyer up."

"You might get some prosecutions" of low-level officials, he added. "But you would not get absolute ground truth."

Democrats may open inquiry

Prosecuting interrogators without going after higher-ups would be divisive politically, even though following the orders of superiors isn't a valid defense against war crimes, military experts said.

Also left unanswered is whether any top congressional Democrats consented directly or indirectly to the most controversial interrogation practices after the administration disclosed them in closed-door briefings.

Americans have been reluctant to prosecute their own -- no matter how appalling the atrocities. Even after U.S. Army officer William Calley was convicted for ordering the 1968 My Lai Massacre, in which as many as 500 Vietnamese villagers were killed, many Americans continued to see him as a scapegoat. He was sentenced to three years of house arrest. No other officer, including Calley's commander, was convicted.

Recent polls show that a majority of Americans think that waterboarding is torture but are divided over whether it's justified in certain circumstances, such as preventing a terrorist attack.

Democrats, however, are likely to feel pressure to open some sort of broader criminal inquiry, especially given recent revelations.

Earlier this year, retired Army Maj. Gen. Antonio Taguba found that U.S. personnel tortured and abused detainees in Iraq, Afghanistan and Guantánamo by using beatings, electrical shocks, sexual humiliation and other practices.

This month's Senate report concluded that top officials -- including former Defense Secretary Donald Rumsfeld and Air Force Gen. Richard Myers, the former chairman of the Joint Chiefs of Staff -- were responsible for the use of "abusive" interrogation techniques on detainees.

The Senate Armed Services Committee, chaired by Michigan's Carl Levin, also dismissed the Bush administration's repeated claims that the abuses were the work of a few low-level officials.