Saturday, January 17, 2009

US home foreclosures mount as recession deepens

US home foreclosures mount as recession deepens

By Tom Eley

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Hopes that the US economy would "round the corner" in the early months of 2009 have been dashed by a steady stream of abysmal economic data. The collapse of the US housing market accelerated throughout 2008, according to a recent report. Meanwhile, layoff announcements, negative earnings reports and evidence of deflation continue to pile up.

Foreclosures shot up by 81 percent in 2008 and have increased by 225 percent since 2006, according to RealtyTrac, a real estate organization specializing in home foreclosures and bank repossessions. In all, 3.1 million households submitted foreclosure filings in 2008, or one in every 54 households. Of these, 861,664 were foreclosed upon during the year.

"Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami," said James Saccacio, CEO of RealtyTrac, in a press release.

Indeed, month-to-month foreclosure filings increased markedly, rising 17 percent in December from November, and 41 percent over December 2007. This in spite of a moratorium on foreclosures put in effect November 26 by the federally backed mortgage lending firms Freddie Mac and Fannie Mae, who together provide the great majority of mortgages to US homeowners.

Rick Sharga, a spokesman for RealtyTrac, was not sanguine at the prospects for a revival in the housing market in 2009. "I don't see how we can avoid 3 million foreclosures again in 2009," he said.

The "Sun Belt" states of California, Arizona, Nevada and Florida had the highest foreclosure rates in 2008, followed by Colorado and the "Rust Belt" states of Michigan, Ohio, and Illinois. In Las Vegas, more than 1 in 11 households received a foreclosure filing; in Phoenix, 1 in 17.

As bad as the statistics relating to the housing market are, they underestimate the full extent of the crisis, according to RealtyTrac. Banks are holding back from listing as much as 70 percent of their repossessed homes, in a likely bid to delay absorbing further losses on their balance sheets. "Either banks are overwhelmed and can't get the houses [listed] quickly, or they're deliberately slowing down so they don't have to take markdowns to actual home values on their books," Sharga said.

Banks have also delayed the speed with which they foreclose upon owners, in some cases due to new state laws that mandate longer periods of notification. Saccacio noted that in California, where such a law was passed, home foreclosures rebounded in December back to their level before the legislation was implemented. "The recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners," he said.

Such stalling tactics would only soften the economic disaster generated by the collapse of the housing market should home values suddenly reverse their downward spiral. However, all indications point in the opposite direction. Home prices have tumbled 21 percent from their peak, and it is anticipated that they will continue to fall through 2009 and the first part of 2010, according to David Wyss, chief economist at Standard & Poor's.

The rapid increase in foreclosures will only accelerate the overall decline in home prices, which, as more financially strapped homeowners go "underwater"—owing more on their homes than their market value—will cause more foreclosures.

The number of foreclosures exceeded by 200,000 the number of new homes built in 2008, when only 640,000 new houses were constructed— the lowest number if decades. Economists anticipate a further 20-30 percent decline in new housing starts for 2009.

Falling home prices have delivered a blow to the living standards and material wealth of much of the US working class. Beginning in the 1990s, many workers took to borrowing against the value of their homes to offset declining real wages. Spurred on by the cheap credit policies of the Federal Reserve Board, the US banking industry encouraged this tendency. The banks in turn packaged, sold and resold the home loan debt, enriching the financial aristocracy in the process.

The collapse of the debt regime continues to fall about the ears of the finance industry, as two of the three biggest US banks, Bank of America Corp (BOA) and Citigroup, announced dismal earnings reports and queued up for more government money to counteract plummeting asset and share value.

Citigroup posted an $8.29 billion loss, its fifth consecutive quarterly decline, and indicated that it would split its operations in two, spinning off its brokerage firm Smith Barney.

BOA received a Treasury Department "emergency cash injection" of $20 billion on Friday morning after it posted a $1.79 billion loss—excluding the troubled brokerage firm Merrill Lynch, which BOA acquired on September 15. Merrill Lynch's losses were undisclosed, but the emergency cash infusion was largely in response to its losses.

JPMorgan Chase, now the largest US bank by market share, reported a 76 percent decline in fourth quarter income and forecast a dismal year for 2009.

The big banks are suffering from a rising tide of loan defaults, both in the home loan-derivative market and in their credit card operations. These processes are in turn being accelerated by mounting layoffs.

The Labor Department announced that first-time applications for unemployment benefits increased by 54,000 to a seasonally adjusted 524,000 for the week ending January 10. This figure is expected to rise sharply in the coming months. "The experience of previous deep recession suggests claims are nowhere their peak," said Ian Shepherdson, an economist with High Frequency Economics, "[W]e doubt the peak will be reached before the fall of this year."

Mass layoffs have accelerated. On Friday, Circuit City, the bankrupt US electronics retailer, announced that it had been unable to work out terms for its survival with lenders. Circuit City must now liquidate, selling off the merchandise and buildings at its 567 locations. This will wipe out 30,000 jobs.

Also on Friday, GE Capital, the financial unit of General Electric, announced it would lay off as many as 11,000 workers in the coming months. Hertz Global Holdings, the second largest US car rental company, said it will eliminate 4,000 jobs, or 12 percent of its workforce.

Health insurance provider WellPoint, which manages Blue Cross and Blue Shield in California and a number of other states, announced that it would cut its workforce by 1,500. Advanced Micro Devices, a computer chip maker, will cut 1,100 jobs and slash pay for employees. Pharmaceuticals giant Pfizer announced 2,400 layoffs in its sales department. After posting record losses, Milwaukee-based bank Marshall & Ilsley Corp. announced 830 layoffs.

On Thursday, Delta airlines announced a workforce reduction of 2,000, after cutting 4,000 jobs earlier in the year.

Toyota Motor Corp announced on Thursday that it would add further production cuts in its North American factories in a bid to reduce inventory, by expanding the number of "nonproduction" days. On Friday, Nissan Motor Co. said that it would run its US factories on a four-day basis indefinitely, and Chrysler LLC said it would extend shutdowns at five of its factories by at least one week. The Chrysler plants affected are in Sterling Heights, Trenton and Dundee Michigan; Belvidere, Illinois; and Toluca, Mexico. All Chrysler production has been suspended since mid-December. The plants were due to reopen January 19.

Industrial production in the US fell sharply in December, far exceeding analysts' expectations. Overall production contracted by 2 percent, paced by the auto industry, which witnessed its lowest production in more than 25 years. The Federal Reserve also revised downward industrial production levels for November to 1.3 percent, more than double the previously announced level. Capacity utilization, which measures the proportion of the US industrial plants actually in operation, fell to 73.6 percent, a low point not reached since 1983.

Producer prices—the prices paid to factories, mines and farmers for their commodities—fell by 1.9 percent in December, according to Labor Department information released Thursday.

The emergence of depression-like conditions was also reflected in consumer prices, which increased in 2008 by just 0.1 percent, the slowest rate since 1954, according to Labor Department data. The trend accelerated as the year closed, with December prices falling by 0.7 percent, paced by an 8.3 percent fall in the cost of fuel. For urban workers, consumer prices fell by 0.9 percent in December, while wages fell by 0.3 percent, meaning real wages actually increased by 0.6 percent in December—for those who were able to keep their jobs.

Corporate profits continue to fall. On Friday, Intel, the computer hardware manufacturer and the world's largest producer of superconductors, posted a 90 percent drop in fourth-quarter earnings for 2008 from 2007. Johnson Controls announced a $600 million quarterly loss.

From Bush to Obama: On the eve of a “seamless transition”

From Bush to Obama: On the eve of a “seamless transition”

By Patrick Martin

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Three days before the inauguration of the 44th president of the United States, the distinctions have largely been effaced between the outgoing and incoming administrations.

George W. Bush is, as even the corporate-controlled media admits, the most hated and despised president in American history. Barack Obama is, at least according to the opinion polls that measure popular moods, the beneficiary of a temporary honeymoon period in which hope outweighs experience and many are inclined to "give him a chance."

Far more decisive than these illusions are the policies of the Obama administration. There is ample reason to believe that popular opposition to Obama will grow rapidly, and that anger and outrage over the gross deception involved in the electoral process will add fuel to the fire. While millions voted for the Democratic candidate in a repudiation of the Bush administration's program of war, repression and favors to the wealthy, the actions of Obama demonstrate the fundamental unity of the two big business parties, which are both instruments of the same corporate ruling elite.

Obama's first major political intervention, even before entering the White House, was to lobby for congressional authorization to release the second half of the $700 billion set aside last fall at the urging of the Bush administration to prop up the US financial system. The Senate (with Democrats providing 46 of the 52 votes) backed the latest bailout of the banks on Thursday.

The president-elect announced the same day that he would tackle another Bush administration economic priority—slashing the cost of entitlement programs like Medicare, Medicaid and Social Security. He told the Washington Post editorial board that he would convene a "fiscal responsibility summit" before delivering his first budget to Congress. He declared, in relation to entitlement spending, "We have to signal seriousness in this by making sure some of the hard decisions are made under my watch, not someone else's."

The economic policy team selected by Obama includes Timothy Geithner as secretary of the treasury. Geithner is one of the three key officials in the Bush administration's management of the financial crisis, in his capacity as president of the New York Federal Reserve Bank. The stimulus package proposed by the incoming administration will include at least a quarter-trillion-dollars worth of tax cuts, many of them targeted to corporate interests.

There is continuity of both personnel and policy in foreign and military affairs as well, most notably the retention of Robert Gates as secretary of defense, the first time that a Pentagon chief has remained in office despite a change in parties in the White House. Gates is an enthusiastic proponent of the new administration's first major overseas initiative—the escalation of the US war in Afghanistan, with the dispatch of another 30,000 troops this year as well as an increase in cross-border strikes into neighboring Pakistan.

As for Iraq, Obama is retaining all three generals responsible for that war: Raymond Odierno, the Iraq commander; General David Petraeus, now commander of Centcom, covering Iraq and Afghanistan; and General Douglas Lute, the assistant national security adviser who coordinates White House oversight of the wars.

Virtually all of Obama's foreign policy nominees and advisers—Secretary of State Hillary Clinton, National Security Adviser James Jones, Vice President Joseph Biden and a slew of National Security Council, State Department and Defense Department deputies—supported the war in Iraq until it became a military and political debacle for American imperialism.

Jones, the former commander of NATO forces, is one of an unprecedented four recently retired generals and admirals (one each from the Army, Navy, Air Force and Marines) to be named to top positions in the Obama administration. General Jones is joined by Admiral Dennis Blair, nominated as director of national intelligence, General Eric Shinseki, nominated as secretary of veterans affairs, and General Jonathan Scott Gration, the likely choice for NASA administrator.

Throughout the transition, Obama has refrained from comment on most foreign policy issues, repeating the mantra of "only one president at a time." He has departed from this deference to Bush only on one occasion: publicly defending the right of Israel to carry out its bloody onslaught against the Palestinian population in Gaza. There is not the slightest "change" in the transition from Republican to Democrat in the White House when it comes to rubber-stamping the crimes of the Zionist regime.

Friday brought another brazen demonstration that Obama upholds the same imperialist interests as Bush. According to a report in the Washington Post, "President-elect Barack Obama has privately signaled to top US intelligence officials that he has no plans to launch a legal inquiry into the CIA's past use of waterboarding and other harsh interrogation techniques, agency director Michael V. Hayden said yesterday. Obama learned key details of the CIA's interrogation practices in a closed-door meeting last month, and afterward made clear that he was more interested in protecting the country from terrorist attacks than investigating the past, the outgoing CIA director said."

The Post report came only a few days after the extraordinary declaration by the Pentagon jurist responsible for the military tribunals at Guantanamo Bay that prisoners held there had been systematically tortured on orders from Washington. It was a clear signal from Obama to the US military-intelligence apparatus that no one will be held accountable for the crimes committed during Bush's eight years in the White House.

The Obama administration has embraced the "war on terror" declared by George W. Bush, both rhetorically and in practice. The inauguration itself will be held under a security clampdown unprecedented in US history, with the Potomac River bridges closed, hundreds of undercover cops in the subways, and thousands of armed and uniformed personnel in the streets. Last week, Obama White House appointees joined their Bush counterparts in a dress rehearsal for a terrorist attack.

Obama and his top aides have repeatedly declared their intention of engineering a "seamless transition" and praised the outgoing Bush administration for its cooperation. These are not merely polite rituals, but rather demonstrate that what is taking place this month in Washington is a change in party and (to some extent) personnel, but not of fundamental policy. The Obama administration, like that of Bush, will defend the interests of the corporate elite against the working people, and of American imperialism against the world.

Investors dump $89B in U.S. securities in historic fire sale

Investors dump $89B in U.S. securities in historic fire sale

By David J. Lynch

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The deep river of private money that helped knit together the global economy has abruptly dried up, new government figures show.

As the global financial crisis grew more severe this summer, foreigners sold almost $90 billion of U.S. securities — the greatest quarterly fire sale by overseas investors since the government began keeping track in 1960. U.S. investors also are retrenching; they unloaded about $85 billion worth of foreign holdings in the quarter, says the Commerce Department's Bureau of Economic Analysis.

"We've had a global panic. Everyone is pulling their money home," says economist Adam Posen of the Peterson Institute in Washington, D.C.

That's bad for economic growth in the U.S. because it threatens to starve capital-hungry companies and entrepreneurs. But it's especially serious for emerging-market countries that rely heavily on outside financing. Capital flows into countries such as South Korea, Turkey and Brazil were evaporating even before the mid-September Lehman Bros. bankruptcy made things worse.

The reversal of private capital flows signals an abrupt end to a nearly two-decades-long era of financial globalization, says economist Brad Setser of the Council on Foreign Relations. Private flows into and out of the U.S. for purchases of stocks, corporate bonds and federal agency bonds have dropped from around 18% of economic output to near zero "in a remarkably short period of time," Setser says.

The past five quarters — roughly since the August 2007 onset of the financial crisis — private foreign investors have been net sellers of U.S. securities. The turnabout represents a dramatic change from the first half of 2007 when foreign purchases of U.S. securities other than Treasuries averaged about $250 billion per quarter.

The past two quarters also have seen an about-face in cross-border bank flows as institutional investors found lenders unwilling to extend credit. In the first quarter of 2008, foreigners deposited more than $79 billion with U.S. banks. That flow reversed in the second quarter, as foreigners withdrew a staggering $256 billion, and the outflow continued in the third quarter with an additional $147 billion. Likewise, banks in the U.S. brought home more than $151 billion in the quarter, as overseas institutions repaid loans.

"Institutional investors, including banks, across the board are pulling their capital back home," says economist Eswar Prasad of the Brookings Institution.

One bright spot: Foreign central banks continue to spend heavily on U.S. government securities, allowing the U.S. to finance the gap between what it produces and consumes.

Just Say "No" to the Credit Rating Agencies

Just Say "No" to the Credit Rating Agencies

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The credit rating agencies have got us, coming and going. First they help cause the biggest economic calamity since the 1930's. And now they tell us we can't take the fiscal measures needed to get us out of this mess. Meanwhile, they are laughing all the way to the bank (that is, if they can find one that is still solvent). Why are we still listening to them?

The role played by the big credit rating agencies - such as Standard & Poor's and Fitch - in the unfolding financial crisis is now well-known. By giving complex, opaque and ultimately toxic mortgage-backed securities high ratings and therefore, their own ringing stamp of approval, the credit agencies enabled banks to market these destructive securities around the world. We are now all paying the price.

Now, to prevent this very same crisis from turning into a full-blown catastrophe 1930's-style, governments around the world - from Obama to Brown to Merkel and beyond - are finally beginning to do the right thing: they are planning major fiscal spending operations to place a floor on the terrifying downward economic spiral and to begin to turn the world economy toward recovery. Even the austerity-loving IMF is strongly supporting these initiatives.

Yet now, Standard & Poor's and Fitch are sending "credit warnings" to other governments, threatening to downgrade their sovereign debt ratings if they "allow" their fiscal deficits to increase too much. Wednesday, Standard & Poor's downgraded Greece's sovereign credit rating. Explaining the downgrade, Marko Mrsnik, S&P analyst, said: "The global financial and economic crisis has, in our opinion, exacerbated an underlying loss of competitiveness in the Greek economy." (Financial Times, January 14, 2009). And in recent days, three other eurozone countries - Portugal, Ireland and Spain - have been warned by Standard & Poor's to "fix" their public finances or face downgrades. Under the current system, such downgrades would increase the cost of raising funds and be taken as a signal to investors to shy away from these investments.

Most significantly, these public warnings fire a shot across the bow of larger countries - such as Germany, the UK and France - that they had better not go too far down the road of fiscal expansion, or they might face a similar fate.

Yet, increasing spending and fiscal deficits in the short run is exactly what these governments should be doing. And now, after helping to cause the crisis, the credit rating agencies are blocking the way to the solution. The actions by Standard & Poor's are therefore profoundly misguided and potentially destructive.

For starters, the implicit model used by these agencies is fundamentally flawed - especially in this crisis context. As even the IMF, financial market economists, and usual deficit hawks such as Larry Summers now recognize, as the world's economies spiral downwards, fiscal deficits will automatically grow as tax revenues fall and spending on social safety nets increases. This will occur with no increases in discretionary counter-cyclical fiscal policy at all. Such depression-level deterioration surely will put pressure on countries' abilities to service their debts and even risk widespread defaults or debt rescheduling. The only way, then, to improve countries' ability and willingness to service debt in the medium term is to engage in massive fiscal expansions in the short term. But the credit rating agency models do not reflect this truth.

This is true on a country by country case. What is most insidious about the credit agency warnings is the "fallacy of composition" follies it provokes. If collectively countries and investors follow their advice and governments - especially in the largest countries - fail to engage in large enough fiscal expansions - then the prospects for widespread payment problems of sovereign debt surely will occur. A widespread heeding of Standard & Poor's information will almost certainly lead to massive losses for investors.

So what is to be done?

In the short run, prominent policymakers in national as well as international forums should collectively discredit the credit rating agencies. The IMF, the BIS, the European Union and business leaders around the world should denounce this wrong and destructive advice. Second, the rules governing pension funds and other investment funds should be immediately changed - at least for the duration of the crisis - to allow them to discount the weight they give to the agencies' ratings of sovereign debt. In the medium term, substitutes must be found for these agencies' ratings, which by now should have lost all credibility. The creation of a global nonprofit agency, funded with an endowment to protect its political independence, yet one that is transparent and broadly open to scrutiny - should be strongly considered.

Finally, and of fundamental importance, efforts to take more internationally coordinated action to achieve massive fiscal stimulus - supported by central banks - must be taken immediately. This credit ratings fiasco - which picks off the weakest countries one by one and sends warnings to the stronger ones - an anti-Keynesian divide-and-conquer strategy - could not occur if governments coordinated and unified their actions to turn this crisis around.

Struggle heats up to stop foreclosures

Struggle heats up to stop foreclosures

By Kris Hamel

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Activists with the Moratorium NOW! Coalition to Stop Foreclosures and Evictions are stepping up their struggle for a moratorium on foreclosures, evictions, utility shutoffs and plant closings. At a Jan. 10 coalition meeting, organizers announced plans for a demonstration at the State Capitol in Lansing on Feb. 3 when Gov. Jennifer Granholm delivers her annual State of the State address.

Michigan has been in a state of severe economic depression for the last decade. The state has lost half a million, mostly union, industrial jobs over the last five years. The House Fiscal Agency is forecasting the loss of another 258,000 jobs in the next two years. (Detroit Free Press, Jan. 7)

With the official unemployment rate at 9.6 percent, the highest in the U.S., Michigan residents will face increased foreclosures as more workers lose their incomes and as adjustable rate mortgages reset this year.

In 2006-07 more than 72,000 homeowners in the metro Detroit area alone went into foreclosure. Many thousands more lost their homes in 2008. Eighteen percent of Detroit’s homes are vacant and abandoned, second only to New Orleans. The 36th District Court in Detroit is the busiest eviction court in the country.

Foreclosures are destroying entire communities as vacant and stripped homes depress property values and make Michigan’s cities look like they’ve been hit by a hurricane. The average value of homes sold after foreclosure and eviction is approximately $5,000. Homeowners have seen the property value of their homes reduced to levels not seen in 30 or 40 years.

Stop legislative attacks on homeowners!

The Feb. 3 demonstration is especially critical in light of the recent attempt by Granholm and the state legislature to significantly reduce the redemption period for homeowners in foreclosure. A six-month redemption period has been in effect in Michigan since 1965. This is the time during which homeowners may buy back their homes for the total amount owing on their mortgages before being evicted.

At the urging of the governor, legislators met with the Michigan Poverty Law Center–supposedly an advocacy group for poor people–and the Michigan Bankers Association and came up with legislation that would actually worsen the situation for workers and poor people facing foreclosure by reducing the redemption period by up to three months.

What started out as an attempt to mandate minimal foreclosure notice requirements by lenders to homeowners ended up with concessions to the banks. Senate Bill 1666 placed the burden solely on borrowers to contact a counselor within 21 days to begin loan modification negotiations or else face a much shortened period before being tossed out of their homes by the banks.

In reality it is almost impossible for the average homeowner to successfully communicate and negotiate with her/his mortgage lender. Most banks and lenders, even when mandated by law to modify loans to help homeowners avoid foreclosure, have laid off workers and reduced personnel so much that often there’s no one to even answer the telephones.

There is no effective mechanism in place to help borrowers. Experienced attorneys have had to download federal Securities and Exchange Commission documents in order to obtain phone numbers of banking officials who are in a position to modify loans. The average person doesn’t have the resources and technology necessary to hunt down a banker.

Marilyn Mullane, an attorney at Michigan Legal Services which represents people in foreclosure, got wind of the secret bill before it went to a vote in late December and sent thousands of emails to alert community organizers about the outrageous situation unfolding in Lansing.

Emails and phone calls to legislators and the governor’s office stopped passage of this anti-homeowner law. But the banks and the politicians in their pockets have vowed to bring back an equally reactionary bill.

Granholm and the legislature oppose SB 1306, a two-year foreclosure moratorium bill introduced in 2008 by State Sen. Hansen Clarke. The governor has publicly stated her opposition to a two-year moratorium and said that any measures to give relief to the people must also “satisfy” the banks and mortgage lenders.

Press for moratorium, other demands

Coalition organizers continue to mobilize statewide to demand Gov. Granholm use her executive authority to declare a state of economic emergency in Michigan and impose a two-year moratorium on all foreclosures and evictions. They continue to demand the legislature pass SB 1306 mandating a two-year moratorium.

The Feb. 3 demonstration will bring together moratorium activists and others who want to protest the ongoing economic attacks on workers and the poor. Coalition literature demands, “Bail out the people!” and asks the pointed question, “Which side are you on?”

Utility shutoffs, budget cuts, school cutbacks and closings, plant closings, layoffs and other issues will be addressed. People with grievances and demands for the governor and state legislature are urged to make their voices heard in Lansing on Feb. 3.

For more information contact the Moratorium NOW! Coalition at 313-887-4344 or visit Donations to help in this work can be sent to the coalition office at 23 E. Adams, 4th Floor, Detroit, MI 48226.

‘Stop foreclosures & evictions!’

‘Stop foreclosures & evictions!’

By Steven Ceci

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The Network to Stop Foreclosures and Evictions rallied outside City Hall here on Jan. 12 to call on Mayor Sheila Dixon and the City Council to make Baltimore a “foreclosure-and-eviction-free zone.”

The group is calling on the city government to call a moratorium on foreclosures; to support an effort to have the sheriff’s office extend its holiday moratorium on foreclosures and evictions for the winter months; to call on banks directly to halt foreclosure proceedings; and to demand the Public Service Commission and Baltimore Gas & Electric Co. halt utility shutoffs during the winter months.

Sharon Black, co-coordinator for the network, told the rally, “The recent announcements that unemployment is now at 7.2 percent, which is far too conservative a figure, along with the fact that even more significant job losses will take place in the next few months, make our campaign urgent.

“The economic downturn, which many are now referring to as a depression, calls for innovative solutions that address the problems of foreclosures, evictions, utility shutoffs, joblessness and hunger.”

Andre Powell, an AFSCME delegate to the Baltimore Metropolitan Central Labor Council, said, “We must revive Rev. Dr. Martin Luther King Jr.’s movement for Jobs or Income Now. As a union representative, I would like to express my solidarity with the community and lend our voice to demand a moratorium on foreclosures, evictions, layoffs and budget cuts.”

Other speakers represented Pledge of Resistance and the Center for Non-Violence; the All Peoples Congress; ACORN; the Maryland Coalition to Stop BGE Rate Hike; the Campaign for Fresh Air and Clean Politics; and the Baltimore Economic Crisis Response Network.

The network will be leading a contingent called “Stop Foreclosures and Evictions—Jobs or Income Now” in the Dr. Martin Luther King Jr. annual parade.

Circuit City to liquidate, shutter stores

Circuit City to liquidate, shutter stores

By Karen Jacobs and Emily Chasan

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Bankrupt electronics retailer Circuit City Stores said on Friday it will liquidate its assets and shutter hundreds of U.S. stores after failing to reach a deal to sell the company.

Circuit City is one of the largest retail bankruptcies in the current U.S. recession. Its demise paves the way for larger rival Best Buy Inc to boost sales and gain clout with suppliers as the leading electronics retailer.

U.S. Bankruptcy Judge Kevin Huennekens approved the plan to liquidate Circuit City, and the No. 2 retail player in U.S. electronics said it would begin closing stores on Saturday.

"Regrettably for the more than 30,000 employees of Circuit City and our loyal customers, we were unable to reach an agreement with our creditors and lenders to structure a going-concern transaction ... and so this is the only possible path for our company," Vice Chairman James Marcum said.

Private equity firm Golden Gate Capital and Mexican retail and media tycoon Ricardo Salinas Pliego, who owns more than 28 percent of the company, had indicated an interest in bidding for the company, Gregg Galardi, a lawyer representing Circuit City, told the bankruptcy court in Richmond.

Shares of the chain fell 77 percent to 3.5 cents. Shares of Best Buy, which analysts have said stood to gain longer-term if Circuit City went out of business, closed up 8.1 percent.

An evaluation of bids for Circuit City's Canadian unit is still under way, and it may seek to sell its website, Galardi said.

Circuit City filed for Chapter 11 protection in November, citing a deteriorating cash position and tighter terms from vendors. It recently closed 155 stores, and now has about 567 U.S. stores.

A group including Great American Group, Hudson Capital Partners, SB Capital Group and Tiger Capital Group won the auction to run Circuit City's liquidation.

The company does not expect any value will remain from the bankruptcy estate for common shareholders.

As much as $1.8 billion in inventory could be liquidated, according to lawyers and liquidators. Going-out-of-business sales are to begin Saturday, lasting between six to eight weeks, with some stores closing earlier, said Great American Group.

During its auction this week, Circuit City sought a deal with Salinas to operate a smaller group of 180 stores, but that attempt failed as the retailer lacked necessary support from trade vendors and financing to continue operating.

Circuit City's liquidators will continue to accept gift cards throughout the liquidations, Galardi told the court.


Anthony Chukumba, an analyst with FTN Midwest Securities, said although the demise of Circuit City could hurt Best Buy in the next few months, the Minneapolis retailer stands to gain a significant portion of sales in the long run.

He estimated that should Best Buy gain 30 percent of Circuit City store sales, that could add 50 cents in annual earnings per share over its next fiscal year.

"We think they'll get better pricing, more access to exclusive merchandise, better terms," Chukumba added.

Best Buy spokeswoman Sue Busch Nehring said in an email that her company would not project how any Circuit City store closings might affect its business.

"It does mark a sad day. We're sorry to see the stores close and employees move on," Busch Nehring wrote.

Circuit City, founded in 1949 when Samuel Wurtzel opened Ward's, the first retail television store in Richmond, stumbled as rising unemployment and tighter credit led consumers to cut back sharply on purchases beyond food and other staples.

Restructuring experts are expecting a wave of store closures and potential bankruptcies due to the recession.

Earlier this week, regional department store chain Gottschalks Inc filed for bankruptcy reorganization, and Goody's, a clothing retailer, said it plans to liquidate remaining stores in a return to Chapter 11.

The bankruptcy case is Circuit City Stores Inc, U.S. Bankruptcy Court, Eastern District of Virginia, No. 08-35653.

Illinois-based Nat'l Bank of Commerce closed

Illinois-based Nat'l Bank of Commerce closed

By John Letzing

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Berkeley, Ill.-based National Bank of Commerce was closed by regulators Friday, marking the first bank failure of 2009, the Federal Deposit Insurance Corporation said in a statement. Republic Bank of Chicago will assume all of National Bank of Commerce's deposits, while the two locations of National Bank of Commerce will reopen Saturday as branches of Republic Bank, the FDIC said. National Commerce Bank had total deposits of $402.1 million as of Jan. 7, and total assets of $430.9 million, the FDIC said

US Senate votes another $350 billion to bail out the banks

US Senate votes another $350 billion to bail out the banks

By Barry Grey

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The United States Senate on Thursday voted to release the second $350 billion installment of the $700 billion bailout fund for the banks. The vote came amid predictions of hundreds of billions of dollars in new bank losses and calls by economists and some Federal Reserve officials for a vast expansion in the transfer of taxpayer funds to Wall Street over and above the $700 billion provided by the Troubled Asset Relief Program (TARP) passed by Congress last October.

Under the TARP legislation, the second installment, once requested by the president, could be blocked only if both houses of Congress voted to do so. Bush formally requested the release of the second $350 billion on Monday and the incoming Obama administration made its first priority rounding up sufficient votes in the Senate to defeat a Republican-led attempt to block the money.

Obama's top economic adviser, former Treasury Secretary Lawrence Summers, his incoming White House chief of staff, Rahm Emanuel, Vice President-elect Joseph Biden and Obama himself lobbied intensively to overcome the opposition of most Republican senators and some Democrats who were wary of defying broad popular hostility to yet another windfall for the banks.

A resolution to stop the release of the TARP funds was defeated by a vote of 52 to 42, with all but nine Democrats voting to release the money and all but six Republicans voting to block it. As with the bill to establish TARP last fall, the Democrats took the lead, in alliance with the Bush administration, in bailing out Wall Street, while the bulk of the opposition in Congress came from right-wing Republicans, who opposed it on the grounds that it was an affront to "free market" principles and who pushed instead for more sweeping tax cuts for big business.

Republican opponents were able to cite the utter failure of the first $350 billion in handouts to the banks to stem the slide into recession or solve the financial crisis, the refusal of the banks to use their taxpayer money to increase lending to businesses and consumers, and the absence of any serious restrictions or conditions attached to the government handouts.

Just last week, a congressional oversight panel established as part of the TARP program issued a report complaining that it had no idea how the banks were using their TARP funds, that nothing had been done to address the catastrophic rise in home foreclosures—ostensibly one of the main purposes of the government bailout—and that Treasury Secretary Henry Paulson, who was given virtually unlimited powers over the program, had provided no standards to measure its success and had ignored the panel's questions.

Only two weeks after the TARP bill was passed, Paulson abandoned the original plan he and Federal Reserve Board Chairman Ben Bernanke had laid out to justify the bailout—that the US Treasury would use the money to purchase "troubled" housing-related loans and other "toxic" assets weighing down the banks' balance sheets so as to free up cash and unfreeze the credit markets—and instead opted for direct cash infusions to the banks.

Of the first $350 billion, $250 billion was handed over to banks, with $125 billion of that amount going to the nine biggest institutions. An additional $40 billion was given to the insurance giant American International Group and a further $20 billion to Citigroup, on top of the $25 billion Citigroup received as part of the $125 billion that initially went to the biggest banks. The latter handout to Citigroup was part of a rescue operation carried out in late November involving a total allocation in cash, loans and guarantees of more than $300 billion in government funds.

Some $17 billion went for emergency loans to General Motors and Chrysler to avert the imminent bankruptcy of the two auto companies. But while the banks and other financial firms got their money with no strings attached, the Democratic-controlled Congress and the White House, with the support of President-elect Obama, insisted that the comparatively small loans to the auto companies include provisions for the slashing of tens of thousands of auto workers' jobs and sweeping cuts in the wages and benefits of unionized workers to bring them down to the level of non-union auto workers.

It quickly emerged that the TARP program had been designed by Bernanke and Paulson, the former CEO of Goldman Sachs, to facilitate a wave of bank takeovers and a further concentration of economic power in the hands of a few Wall Street giants. Reports surfaced that some $40 billion of the $125 billion given to the biggest banks would go to pay for the accumulated compensation and pension packages of the banks' top executives.

These facts demonstrate that the TARP program was improvised for one purpose: To secure the profits and personal fortunes of multimillionaire and billionaire CEOs and big shareholders. To this end, the sacred shibboleths of American "free market" capitalism were cast aside, with the state intervening to place the resources of the American people at the disposal of a financial elite whose recklessness, incompetence and criminality had precipitated the deepest economic crisis since the Great Depression.

Some commentators have equated this government bailout of the banks with "nationalization." But as the World Socialist Web Site has pointed out, it could be more accurately described as the "privatization" of the government.

To secure the release of the second TARP installment, Obama and his aides have promised to impose serious limits on executive pay and other restrictions on banks that receive government handouts and devote at least $50 billion to help "responsible" homeowners from losing their homes to foreclosure. The $50 billion figure is a drop in the bucket, with home foreclosures rising at record rates and some 3 million families having lost their homes in 2008 alone. The household wealth of the American people has declined by trillions as a result of the collapse of house prices.

Moreover, $50 billion for the victims of predatory lending policies pales in comparison to the $8 trillion estimated to have already been allocated in government loans, cash and guarantees to bail out banks, insurance firms, the mortgage giants Fannie Mae and Freddie Mac and other financial companies.

These assurances from the incoming administration were provided to give political cover primarily to Democratic legislators who know their support for TARP II is deeply unpopular. The second installment of the bailout fund will proceed under the same legislation that provided a blank check to the banks in TARP I. There will be no serious congressional hearings to uncover what happened to the money dispensed in the first installment, examine the failure of the program to avert a deepening economic disaster, or hold accountable the bankers who benefited or the government officials who fronted for them.

Meanwhile, the banks are reporting huge new losses and the government is racing to give them billions more in taxpayer money. Bank of America, the biggest US bank by assets, is about to receive an additional $20 billion in cash in a deal that will have the government absorb up to $100 billion in the bank's losses, according to reports in the press.

Goldman Sachs on Tuesday released a report estimating that the total in US bank losses from bad loans and investments will total $2.1 trillion, with the bulk of these still to come. That figure does not include losses from overseas investments.

Citigroup is expected to report a quarterly loss of at least $3 billion on Friday and announce it will downsize its business by a third.

JPMorgan Chase on Thursday reported that its profits plunged 76 percent in the fourth quarter as it wrote off another $2.9 billion in bad loans and added $4.1 billion to its loan-loss reserves.

Economist Nouriel Roubini, chairman of, said on Thursday, "The fact that Bank of America is going back now to the Treasury and saying ‘we need more money,' the fact that Citigroup is in trouble, the fact that many regional banks are insolvent, the fact that hundreds of community banks are insolvent means we need much more. If the credit losses are going to be as large as the estimate, $350 billion will not be enough."

Edmund Phelps, Nobel Prize winner and economics professor at Columbia University, said, "We've got to do a huge amount of TARP, TARP two and maybe TARP three...."

The cost of this government bailout of the banks will be borne by the working class. Obama is slated to make a speech on Friday on his economic stimulus plan in which he will reiterate his intention to slash spending for bedrock social programs such as Social Security, Medicare and Medicaid.

Government giving $20 billion to Bank of America Guaranteeing losses on over $400 billion worth of Citi, Bank of America assets

Government giving $20 billion to Bank of America

Guaranteeing losses on over $400 billion worth of Citi, Bank of America assets

By Steve Goldstein

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The U.S. government on Friday announced it was injecting $20 billion into Bank of America and guaranteeing losses on over $400 billion of assets both the Charlotte, N.C. lender and Citigroup.

In a statement released Friday, the Treasury Department and the Federal Deposit Insurance Corporation said they will invest $20 billion in Bank of America from the Troubled Assets Relief Program in exchange for preferred stock paying an 8% dividend.

The news lifted Bank of America shares in pre-open trading, as investors welcomed clarity on an issue whose uncertainty had sparked high volatility and big losses in the company's shares.

In fact, Bank of America moved up its fourth quarter earnings release and its unveiling of the government plan by a few days in response to the market action.

Also Friday, Bank of America said it swung to a fourth-quarter loss of $1.79 billion, or 48 cents a share, on escalating credit costs, including additions to reserves, and significant writedowns and trading losses in the capital markets businesses. See full story.
Bank of America shares traded up 5.5%, to $8.79 in pre-open trading.

However, even as the shares rose, Bank of America CEO Ken Lewis expressed continuing concern about the business bad economic environments.
Lewis told investors during a conference call to discuss the results that he expected the U.S. economy to show "some potential signs of stabilization during the second half of" 2009. Those comments amount to a shift in economic forecasting for Lewis, who had long maintained, until Friday, that the economy would start to recover around the middle of 2009.

The government also will provide Bank of America protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans and other such assets, which have been marked to current value.

Bank of America will absorb the first $10 billion of losses while the government will share losses from there, up to $10 billion. If that pool of assets sees losses of over $20 billion, then the government will absorb hits on 90% of them.
A similar guarantee was provided to Citigroup: Uncle Sam is on the hook for $301 billion of assets, with Citi taking the first $39.5 billion of hits, and then the government absorbing 90% of the rest.

Citigroup said this finalized what was announced with the government on Nov. 23.

The Federal Reserve also is ready to backstop "residual risk in the asset pool" if necessary.

The government relief comes as Bank of America stock skidded to a 17-year low, following Thursday's report in The Wall Street Journal that such a relief program was near. Investors were unnerved by the additional losses at Merrill Lynch.

Both Bank of America and Citigroup detailed billions of dollars during the fourth quarter, and that doesn't even include the estimated $15 billion of losses from Merrill Lynch.

Separately, the FDIC said it's going to extend its temporary liquidity guarantee program to up to 10 years, from a current three years.
"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the government said.

Cost of the Bush era: $11.5 trillion

Cost of the Bush era: $11.5 trillion

The outgoing administration has presided over 8 years of disasters and crises with some of the biggest price tags the nation has ever seen.

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George W. Bush's presidency cost the country about $11.5 trillion, if we estimate liberally.

Of course, it's debatable how much blame the president should bear.

Over the past eight years, we've suffered calamities that were bound to damage the nation deeply: two recessions, the most lethal terrorist attacks ever on U.S. soil, the invasion of Iraq on dubious grounds, the near destruction of one of our most storied cities and, finally, the Wall Street meltdown.

Because the median U.S. household income is about $50,000, readers may have trouble grasping the concept of spending trillions.

For context, let's compare two cases of extraordinary spending under Bush.

After the Sept. 11 attacks, Washington pledged $22 billion to help rebuild in lower Manhattan. At the time, that sum sounded enormous. It was more than one-fourth of the $80 billion budget that New York state had adopted a month before. Though some called for even more aid, the country at large was satisfied that this response was adequate to cope with calamity on a colossal scale.

Oh, how far we've come.

In early October of 2008, Congress appropriated $700 billion to rescue Wall Street's financial institutions. Once that was done, the sky was the limit, and the numbers became dizzying.

And the spending won't stop after Bush leaves office Jan. 20.

In hopes of "breaking the momentum" of the current recession, President-elect Barack Obama is reportedly drafting a stimulus package that would cost the government as much $850 billion. If past is precedent, it's unlikely Obama will stop there.

The new administration is already expected to inherit a $1.2 trillion deficit from Bush. The stimulus package would add to that record-breaking number.

Picture an avalanche of cash disappearing into the Potomac.

Where has all the money gone? Here are five areas where Bush has approved massive outlays of taxpayer money.

Wall Street bailouts: $6 trillion

When the real-estate bubble burst, Wall Street collapsed, too. Starting with Bear Stearns in March, investment banks fell like dominoes, done in by overexposure to mortgage-backed securities. We're still sifting through the damage. But we know U.S. taxpayers are among the biggest losers.

In hopes of stanching the bleeding, the federal government has spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day. Critics of this enormous commitment will point out that it has yet to produce any solid evidence of a turnaround in the economy's slide, while the Bush administration's apologists argue that, without such a commitment, the news would have been much worse.

The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy.

But TARP, as the program is known, is just the tip of the iceberg.

The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac when officials seized the mortgage giants to prevent their bankruptcy, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds. Again, a guarantee doesn't necessarily mean the Treasury will actually spend the money. But that money is at risk, and that's taxpayer money.

The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up, from outright loans to banks, to purchases of securities backed by consumer credit, to $600 billion to buy securities backed by prime mortgages -- a move that knocked standard home loan rates down to 5%.

And there's more.

Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant American International Group.

A lot of the guarantees that have been made will never come into play; just making a guarantee usually does the trick, if it's the Federal Reserve speaking. Here is some more good news: Some of the government's crisis-related investments may actually prove profitable. Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington, believes the government could see a profit of $500 billion from stock dividends and the appreciation of stocks. Just remember, that's peanuts in this game.

There are other variables that complicate the picture on a similar scale. The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, Kogan said, so it's unclear what the taxpayer's ultimate liability will be there.

Also unclear is how the Wall Street bailout money is being spent. The Treasury has been reluctant to monitor how banks are using TARP funds, and the Fed has refused to name the recipients of its loans, arguing that naming names would undermine the health of the companies in question.

"It's a lot of money going out the door, with basically no public knowledge of it whatsoever," said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington.

About $600 billion of the Fed's $1.3 trillion plan to buy commercial paper has been spent, Baker said. But the Fed won't say who has received that cash.

"People are making and losing fortunes depending on whether the Fed will buy their commercial paper," Baker said. "We should know what they're doing."

Iraq and Afghanistan: $3 trillion

The searches for Osama bin Laden in Afghanistan and for weapons of mass destruction in Iraq have morphed into occupations. So far, the U.S. has spent around $860 billion on both, according to the Congressional Budget Office.

But Harvard University professor Linda Bilmes and Nobel laureate Joseph Stiglitz of Columbia University say the agency is underestimating the tab. In their book, "The Three Trillion Dollar War" they claim Iraq will be far costlier.

Modern technology and medicine have kept U.S. deaths in these conflicts low, compared with previous wars, but tens of thousands of wounded soldiers will require taxpayer-supplied health care for years, said Bilmes, who served as an assistant secretary of commerce in the Clinton administration. Factoring in those benefits, replacement of worn-out hardware and other hidden bills, Bilmes and Stiglitz believe the real price for Iraq is $3 trillion.

That money hasn't been reinvested in the U.S. economy as mush as possibly expected, partly because of outsourcing by U.S. companies, Bilmes said. One example is construction company KBR, which used shell companies in the Cayman Islands to avoid payroll taxes.

"A dollar that is spent on a road is a dollar which has a multiplier," Bilmes said. "You have better roads. Whereas a dollar spent on a Malaysian contractor to do laundry doesn't help the U.S."

Tax cuts and deficit spending: $2 trillion

In 2001 and 2003, Bush signed legislation that cut taxes, much to the benefit of the affluent. The first cut was designed to help the economy after the Internet bubble collapsed. The second was to boost growth after the 2001 recession ended.

Kogan estimated the tax cuts have cost the Treasury $1.7 trillion in revenue to date. Of course, that may not be one bit disturbing to the taxpayers who've watched their tax bills go down. The only problem is, the cuts have been critical in opening up the gargantuan budget gap that Obama will face.

Because Bush did not reduce spending, Washington has paid about $265 billion in interest on loans to cover the lost revenue. So the $1.7 trillion in tax cuts really cost around $2 trillion.

Meanwhile, Bush increased deficit spending, incurring more debt service. Bush's expansion of Medicare drug benefits for the elderly, for example, cost around $130 billion, of which $10 billion was debt service between 2006 and 2008, said Kogan, of the Center on Budget and Policy Priorities.

"If some of this spending had been paid for by tax increases, then there wouldn't have been interest costs," he said. "But none of it was. We had tax cuts and spending increases."

In an e-mail, Treasury Department spokeswoman Brookly McLaughlin said Bush's tax cuts had helped the economy by allowing people to keep more of their wages and other earnings, increasing incentives to work, save and invest.

McLaughlin also cited an Office of Management and Budget/Haver Analytics study that compared federal spending as a share of gross domestic product under Bush and Franklin D. Roosevelt. Under Bush, spending grew from 18.4% of GDP in fiscal 2000 to 20.7% in fiscal 2008, the study said. FDR increased spending from 6.3% in fiscal 1932 to 43.6% in fiscal 1944.

Of course, Roosevelt was dealing with a full-blown depression and war against Germany and Japan.

Hurricanes Katrina and Rita: $270 billion

When Hurricane Katrina hit the Gulf Coast in 2005, New Orleans' levees gave way, and the city was inundated. Stories of survivors trapped in the Superdome and incompetence at the Federal Emergency Management Agency transformed the natural disaster into a national disgrace.

Katrina, along with Hurricane Rita soon after, cost about $270 billion, by some estimates. In Louisiana alone, officials said the hurricane destroyed $100 billion in property, shrank the state's economy by $80 billion and required $20 billion in local emergency relief.

Those figures don't include damages in other states, including communities that absorbed refugees fleeing the city. They also don't count the continuing costs of rebuilding the Big Easy.

FEMA has given $50 billion to Gulf Coast states, a spokesman said. The Army Corps of Engineers is spending $14 billion to upgrade levees, according to the agency's Web site.

Meantime, the Louisiana Recovery Authority is spending $10 billion in recovery efforts that include homeowners retrofitting their houses, for example.

"People are adding storm shutters and roof tie-downs so that they can make their homes more resilient," said Christina Stephens, an agency spokeswoman. "We're encouraging them to mitigate future loss."

9/11: $260 billion

New York City lost about $95 billion because of the Sept. 11 attacks, according to a 2002 report by City Comptroller William Thompson Jr.

That price tag includes costs associated only with New York: $22 billion to replace the World Trade Center, $65 billion in lost economic activity in the three years after the attacks and $9 billion in the human potential that disappeared when the hijackers killed 2,819 people in Manhattan -- a calculation that illustrates why economics is called the dismal science. It does not include Washington's $22 billion in aid.

Outside New York, the tragedy cost plenty. Kogan estimated that Bush spent about $140 billion on related nonmilitary measures, such as the creation of the Department of Homeland Security.

The approximate total of $260 billion does not include the damage wrought and lives lost on 9/11 at the Pentagon or in Pennsylvania, or money spent on preparedness by state and local governments and private industry. It also doesn't include the continuing losses associated with the vacant World Trade Center site, which housed as much office space as downtown Atlanta.

In other words, we're still paying for 9/11.

Bush's Only Gift to America

Bush's Only Gift to America

By Robert Parry

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George W. Bush’s gift to the American Republic may be that he has discredited a host of right-wing theories and practices – “trickle-down economics”; “self-regulating markets”; “tough-guy” foreign policy; the “imperial presidency”; and the notion that “government is the problem.”

As the United States gazes out on the wreckage of the past eight years – a $1.2 trillion (and growing) budget deficit, 7.2 percent (and rising) unemployment, two open-ended wars, a sullied U.S. image abroad, environmental degradation and a world that seems to be ripping apart – the hope must be that Bush has so tarnished these policies, which trace back to Richard Nixon and Ronald Reagan, that they will never be tried again.

If that is the lesson that the United States learns, then Barack Obama’s election truly could mark the end of an era and the start of something very different. However, if Obama and the Democrats fail to drive these lessons home – if they let bygones be bygones – they are courting a huge risk in that the same behavior could reemerge and the misjudgments could reoccur.

So far, it appears that President-elect Obama is so set on making friends with Washington’s corrupt Establishment – from dinner with neoconservative columnists like Charles Krauthammer to coffee with the Washington Post’s editorial board, which avidly supported the Iraq War – that he may be missing the opportunity for a genuine transformation.

Rather than confronting the architects of America’s debacles and decline, Obama is currying favor with them. He’s even equivocating over whether Bush and his subordinates should be held accountable for criminal behavior, like torture and aggressive war, violations of longstanding American principles.

It’s possible that Obama is engaged in a tactical maneuver, keeping these pooh-bahs at bay or at least delaying their fury until they see their Establishment interests challenged. But there is a more troubling interpretation of Obama’s positioning.

It’s possible that Obama – an African-American outsider raised in Hawaii by a single mother on food stamps – really aspires to be part of the Establishment, that he sees his presidency as not transformative or revolutionary but only mildly reformist, with an emphasis on continuity, not change.

That is how Krauthammer, one of the President-elect’s recent dinner partners, views Obama’s quiet embrace of so much that was George W. Bush.

“Vindication is being expressed not in words but in deeds – the tacit endorsement conveyed by the Obama continuity-we-can-believe-in transition,” Krauthammer wrote in his Washington Post column on Friday.

“It's not just the retention of such key figures as Defense Secretary Bob Gates or Treasury Secretary nominee Timothy Geithner, who, as president of the New York Fed, has been instrumental in guiding the Bush financial rescue over the past year. It's the continuity of policy.”

The Clinton Example

If Krauthammer is right, Obama appears poised to make many of the same mistakes that marked the start of the Clinton presidency 16 years ago, when another Bush was leaving office in the midst of an economic recession and the Establishment (led by its chief mouthpiece, the Washington Post) was nearly unanimous on the need to look forward, not backward.

Then, there was widespread (and bipartisan) agreement with President George H.W. Bush’s pardons of six Iran-Contra defendants, short-circuiting a trial of former Defense Secretary Caspar Weinberger that was set to begin in early 1993. That trial would have altered the historical understanding of the scandal by revealing the high-level approval of crimes by President Reagan and Vice President Bush.

The Weinberger trial also would have put front and center the concept of an all-powerful President. In effect, the Iran-Contra Affair was a way station in the restoration of the imperial presidency, from its collapse in Watergate to its post-9/11 resurrection under George W. Bush and Dick Cheney.

At its core, Iran-Contra – like its related scandals of secret Iraqgate assistance to Saddam Hussein and the cover-up of cocaine trafficking by the Nicaraguan contras – was a reassertion of Richard Nixon’s famous edict: “When the President does it, that means that it is not illegal.”

Yet even after George H.W. Bush’s Christmas Eve 1992 pardons of Weinberger, Elliott Abrams and four other Iran-Contra culprits, the historical record still could have been set right if the new President, Bill Clinton, had lent his support to serious fact-finding and meaningful accountability.

Instead Clinton and other Democrats joined in sweeping the Republican scandals under the rug, hoping that they might gain some reciprocity of bipartisanship. As Clinton wrote in his 2004 memoir, My Life:

“I wanted the country to be more united, not more divided, even if that split would be to my political advantage,” Clinton wrote. “Finally, President Bush had given decades of service to our country, and I thought we should allow him to retire in peace, leaving the matter between him and his conscience.” [See Bill Clinton, My Life, p. 457]

In some cases, Clinton and the Democrats went beyond simply ignoring lumps in the rug; they joined in falsifying the history and intimidating whistleblowers.

For instance, when the opportunity arose in early 1995 to get to the bottom of the Iraqgate scandal – the Reagan-Bush-I coddling of Saddam Hussein – the Clinton administration didn’t just look the other way; it went on the offensive against people who tried to expose the truth.

The context of this Clinton-Iraqgate cover-up came during a criminal trial of Teledyne, a company that sold explosives to a Chilean arms manufacturer, Carlos Cardoen, who then supplied Hussein with cluster bombs in the 1980s. Another defendant in the case was a hapless Teledyne salesman, named Ed Johnson, who earned a modest salary of about $30,000.

By the mid-1990s, the “official” take on Iraqgate was that the scandal about secret U.S. military assistance to Iraqi dictator Saddam Hussein was a “conspiracy theory” and that Reagan-Bush-I officials, including Vice President Bush, had been unfairly accused of facilitating shipments of weapons and WMD-related materiel to Iraq.

A Feckless Report

Solidifying this notion of a “conspiracy theory,” Clinton's Justice Department issued a report on Jan. 15, 1995, stating that it had found no "evidence that U.S. agencies or officials illegally armed Iraq" in the 1980s. The report, however, contained a curious admission that the CIA had withheld relevant data from the investigators.

"In the course of our work, we learned of 'sensitive compartments' of information not normally retrievable and of specialized offices that previously were unknown to the CIA personnel who were assisting us," wrote John M. Hogan, counselor to Attorney General Janet Reno.

Then, without further skepticism, Hogan added, "I do not believe this uncertainty severely undermined our investigation."

But two weeks after Hogan's odd findings, Howard Teicher, a former National Security Council official under President Reagan, came forward with a startling affidavit in the Teledyne case.

Teicher asserted that the secret arming of Iraq had been ordered by Reagan in June 1982 as part of a National Security Decision Directive. Under the order, CIA Director William Casey and his then-deputy, Robert Gates, "authorized, approved and assisted" delivery of cluster bombs to Iraq through Cardoen.

“In the Spring of 1982, Iraq teetered on the brink of losing its war with Iran,” Teicher wrote. “The Iranians discovered a gap in the Iraqi defenses along the Iran-Iraq border between Baghdad to the north and Basra to the south.

“Iran positioned a massive invasion force directly across from the gap in the Iraqi defenses. An Iranian breakthrough at the spot would have cutoff Baghdad from Basra and would have resulted in Iraq’s defeat. … In June 1982, President Reagan decided that the United States could not afford to allow Iraq to lose the war to Iran.”

Teicher wrote that he helped draft a secret national security decision directive that Reagan signed to authorize covert U.S. assistance to Hussein’s military. "The NSDD, including even its identifying number, is classified,” Teicher wrote.

The effort to arm the Iraqis was “spearheaded” by CIA Director William Casey and involved his deputy, Robert Gates, according to Teicher’s affidavit. “The CIA, including both CIA Director Casey and Deputy Director Gates, knew of, approved of, and assisted in the sale of non-U.S. origin military weapons, ammunition and vehicles to Iraq,” Teicher wrote.

In 1984, Teicher said he went to Iraq with Reagan's special envoy Donald Rumsfeld to convey a secret Israeli offer to assist Iraq after Israel had concluded that Iran was becoming a greater danger, according to the affidavit.

“I traveled with Rumsfeld to Baghdad and was present at the meeting in which Rumsfeld told Iraqi Foreign Minister Tariq Aziz about Israel’s offer of assistance,” Teicher wrote. “Aziz refused even to accept the Israelis’ letter to Hussein offering assistance because Aziz told us that he would be executed on the spot by Hussein if he did so.”

Bush Role

Another key player in Reagan’s Iraq tilt was then-Vice President Bush, according to Teicher’s affidavit.

“In 1986, President Reagan sent a secret message to Saddam Hussein telling him that Iraq should step up its air war and bombing of Iran,” Teicher wrote. “This message was delivered by Vice President Bush who communicated it to Egyptian President Mubarak, who in turn passed the message to Saddam Hussein.

“Similar strategic operational military advice was passed to Saddam Hussein through various meetings with European and Middle Eastern heads of state. I authored Bush’s talking points for the 1986 meeting with Mubarak and personally attended numerous meetings with European and Middle East heads of state where the strategic operational advice was communicated.”

Though Teicher’s affidavit represented a major breakthrough in an important historical mystery, the Clinton administration instead rallied to the defense of Reagan and Bush-41. Clinton’s Justice Department attacked the credibility of Teicher's affidavit and ordered it sealed as a national security secret.

Federal prosecutors even threatened Teicher with legal retaliation, pressed for sanctions against Teledyne's attorneys for trying to raise a justification defense, and convinced the Teledyne case judge to block Teicher's testimony on the grounds that it was irrelevant.

Barred from citing the Teicher evidence, Teledyne negotiated a plea deal. As for Ed Johnson, his jury never got to hear about Teicher or his affidavit, so it found the salesman guilty of violating the Arms Export Control Act. Johnson was sentenced to 3 1/2 years in prison.

The “official” history about Iraqgate solidified into a certainty that the story of secret U.S. military assistance to Iraq was bogus. That finding is enshrined in the shallow assessment of Wikipedia, whose entry states: “Although the charges received extensive attention in the early 1990s and are periodically repeated today, they were eventually discredited.”

That judgment still holds even though other senior government officials have acknowledged that the Iraqgate allegations were, in fact, true. For instance, former CIA officer Melissa Boyle Mahle, a Middle East expert, stated flatly in her 2004 book, Denial and Deception, that in the mid-1980s, “the United States was already deeply involved in providing weapons and other military support to Iraq.”

In other words, the Clinton administration didn’t just look the other way when it came to Reagan-Bush-41 crimes. Its officials joined in obstructions of justice, even to the extent of sending an American citizen off to prison rather than divulge secrets that would have damaged the legacies of Ronald Reagan and George H.W. Bush.

Similarly, the Clinton administration played down extraordinary admissions by the CIA’s inspector general in 1998 that the Reagan administration had concealed evidence of widespread cocaine trafficking by the Nicaraguan contras. Despite the CIA’s confession, that scandal, too, has gone down in American history as having been “discredited.” [For details, see Robert Parry’s Lost History.]

Repeating History

Beyond distorting the public record upon which Americans make their judgments in a democratic society, the Clinton administration got none of the wished-for reciprocity. The Republicans waged one of the most partisan assaults on a sitting American President ever, ultimately impeaching (though not convicting) Clinton of lying about a sexual dalliance.

Clinton’s humiliation – and the perceived propriety of the Reagan-Bush-41 years – set the stage for George W. Bush to run for the presidency against Vice President Al Gore and to get close enough so five Republican justices on the U.S. Supreme Court could hand the White House back to the GOP. [For details, see our book Neck Deep.]

Despite the controversial outcome of Election 2000 – which actually saw Gore getting a half million more votes than Bush – the new Republican administration behaved as if it had a popular mandate. Right-wing economic theories were pushed, including tax cuts aimed at the rich and "self-regulating markets." Reagan’s notion that “government is the problem” was back.

In foreign policy, especially after the 9/11 terror attacks, it was time for “tough-guy” swagger, American “exceptionalism” and “preemptive war.” Regarding presidential power, Nixon’s imperial theories returned with talk of the “unitary executive” exercising “plenary” – or unlimited – powers.

Along with these old Republican concepts came some of the same people who were responsible for the abuses in the 1980s, such as Elliott Abrams who parlayed his pardon from Bush-41 into a key job on the National Security Council staff of Bush-43.

Now, eight years later, with the disasters of Bush’s policies apparent all around, another new Democratic President is taking office faced with the challenges of cleaning up messes at home and abroad – and also with the opportunity to insist on a truthful record and to demand real accountability from those who committed a new set of crimes.

However, as happened 16 years ago, the Washington Establishment is circling the wagons around the departing Republicans. Pundit after pundit insists that prosecutions for torture and other crimes would amount to misguided partisan revenge. Again, the incoming Democrat is being urged to look to the future, not the past.

Yet, the combined lesson of Bill Clinton’s feckless gestures of bipartisanship in the 1990s and George W. Bush’s reckless application of right-wing nostrums this decade should give pause to anyone who thinks that ignoring – and indeed covering up – past crimes is a smart way to guarantee a better future.

What recent history has shown is that failure to address serious government misconduct only invites a repeat of those abuses or worse. It can be unpleasant to exact accountability – it is often easier to look the other way – but it has been a hard-learned lesson for America that leniency in such circumstances can have devastating consequences.

That lesson arguably is President Bush’s only gift to the Republic – and it is one that Barack Obama might well take to heart.