Sunday, January 18, 2009

Obama Adviser Urges More Rigorous Global Financial Regulation

Obama Adviser Urges More Rigorous Global Financial Regulation

By Anthony Faiola

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A top economic adviser to the incoming Obama administration unveiled a plan Thursday to radically rethink the global financial system, including measures that would dramatically expand government control over banking and investment in the United States.

The report -- which recommends limiting the size of banks, monitoring executive pay and regulating hedge funds -- offers the first hint of the kind of change to the financial system that President-elect Barack Obama may push for in coming months.

Obama has pledged to present a package of reforms to prevent another round of the financial crisis that began in the United States, ahead of a summit of world leaders in London this April. Observers saw in Thursday's report potential building blocks of Obama's plan. Although issued by the Group of 30 -- an organization of international economists and financial policymakers -- its lead author is Paul Volcker, the chairman of the Federal Reserve during the Carter and Reagan administrations who will serve as a special adviser to the Obama White House. Part of Volcker's role is to help mastermind what could become the biggest overhaul of the U.S. financial system in decades.

"I think this is a clear sign that the new administration is going to push for a major overhaul, for major structural reforms of the regulatory system," said Steven Schrage, the Scholl Chair in International Business at the Center for Strategic and International Studies. "Having this highly esteemed group backing that proposal is going to put pressure to present those changes before [the] April summit."

The report's recommendations may find support among those in the United States and Europe who have called for tighter regulation over the financial system in the wake of the current economic crisis. But elements of the plan were already opposed Thursday by some in the financial industry, where some worry that the push for tighter government regulation may go too far.

The report offered 18 recommendations that would insert government regulators into the boardrooms of financial institutions as never before. The plan calls for vastly increased oversight of major banks, going as far as to recommend the end of an era of mega banks whose size makes their failure potentially catastrophic to the global financial system. To limit their size and scope, banks, the document states, should be prohibited from managing private-equity or hedge funds. And deposits should not be concentrated in the hands of too few banks.

"Keep them small, so that any failure won't have systematic importance," Volcker said at a news conference.

Money-market mutual funds that offer services similar to banks, including dollar-for-dollar withdrawal at any time, should be subjected to increased government oversight, the report said. Currently, most do not operate that way. But those bank-like mutual funds that want to avoid tighter regulation should sell relatively safe financial instruments and clearly state to customers that the value of their funds may or may not remain stable.

The proposal suggests that the U.S. government should clarify the status of mortgage giants Fannie Mae and Freddie Mac, either making them government agencies or regulating them as independent mortgage brokers. Credit-rating agencies would also be subjected to greater scrutiny.

Volcker said he would press the new administration to consider the measures, saying major changes are imperative because the financial system is "broken."

"It's a four-letter word," he said. "It's a mess."

Elements of the plan -- such as imposing regulation on hedge funds -- echo calls for closer supervision made by policymakers in the United States and abroad in past months. But Thursday's report was more specific and aggressive in imposing government restrictions on the financial system than a broad outline of changes agreed to by the Bush administration during a meeting of leaders representing the Group of 20 economic powers in Washington last November.

The Obama administration is expected to work closely with key congressional leaders including Rep. Barney Frank (D-Mass) on legislation that could restructure existing regulatory agencies and impose new guidelines on U.S. financial institutions. The scope of Volcker's proposal, analysts say, suggests that Obama's plan may contain highly ambitious reforms.

Although financial industry officials concede that more regulation is likely needed to prevent a repeat of the current crisis, they also said that some of the measures in the report appeared to go too far. For instance, they opposed the suggestion that banks limit their deposits and size.

"You want to apply the appropriate amount of regulation to address the concern that this kind of crisis never happens again," said Scott Talbott, senior vice president of government affairs for Financial Services Roundtable, which represents the largest financial institutions in the United States. "But at the same time, you don't want to stifle innovation, creativity or the allocation of resources to take appropriate risks."

Although the report calls for global reform, it acknowledged charges that flaws in the U.S. financial system were to blame for starting the current global economic crisis. Thusly, it noted that "several of the issues and recommendations have a direct U.S. focus."

The report renewed calls for greater international cooperation on regulation, and new laws to oversee exotic financial derivatives, made during the November summit in Washington. With cautious support by President Bush, plans are moving forward, for instance, to enhance international cooperation in overseeing major banks through the Financial Stability Forum in Switzerland. But European leaders have eagerly awaited a signal from Obama on his ideas for new rules for the global financial system.

It is unclear how many of the recommendations will make their way into Obama's final plan, but the report could lift the spirits of Europeans who have called for tighter government oversight on executives' pay and risk management in financial institutions -- an area where the Bush administration has offered tepid support. The report urges the government to enforce systematic board reviews of executive pay as well as new guidelines to measure the level of risk a firm is taking with exotic investments.

Bank of America Threatens Fed, Demands More Cash From Taxpayers

Bank of America Threatens Fed, Demands More Cash From Taxpayers

by Mike "Mish" Shedlock

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Bank of America fell a whopping 18.43% today, hitting a new 52 week intraday low of $7.35 on concerns it is not going to easily be able to digest the merger with Merrill Lynch. I suggest Bank of America has easily bitten off more than it can chew and said so at the time, on September 15, 2008 in Market Votes "No Confidence" In Merrill, Bank of America Merger.

Bank of America (BAC) was hammered a whopping 21% for its ridiculous offer for Merrill Lynch (MER). Clearly the market thinks Bank of America overpaid and so do I. Merrill Lynch which gapped up to $21 (the offer was for $29), gave every penny of it back and closed at $17.06. It is highly likely that Merrill Lynch would have fallen to $14 or $15 (if not a lot more) in the wake of the bankruptcy of Lehman (LEH).

CEO Lewis had to know that, and he had to know there would be enormous pressure on Merrill to do something today if only he waited one day. If he did not know that, then Lewis is incompetent.

By the way, there is one other possible explanation for this foolishness: Lewis was in a mad rush to enhance his Ego. This merger (if it goes through) would create a behemoth that would rival Citigroup (C) in terms of assets under management. Lewis, in an impatient state did not care what he paid to achieve that fame.

The action in Bank of America (BAC) today is a stern warning to JPMorgan (JPM) to not get cute and buy Washington Mutual (WM) even though that is exactly what the Fed would like to see.

The moral of this story is: The strong swallow the weak until the strong become weak.

What Really Happened With That Offer?

Assuming for a second that Lewis had his mental capabilities with him at the time, there is yet another explanation for that ridiculous offer. Please consider Another Shotgun Marriage: Bank of America and Merrill Lynch.

Bank of America (BAC) agreed to pay $44 billion for a company that would have been worth $18 billion on Monday's open, assuming a $5 markdown on Monday to $12. Why?

I sense a shotgun wedding sponsored at gunpoint by the Fed.

A shotgun wedding at a purposely ridiculous price with an agreement from the Fed to pick up the pieces later if necessary sounds just like what the doctor ordered. Of course it could be pure incompetence by Lewis, or a pure gamble by Lewis that the Fed (taxpayers) would pick up the pieces if it all came crashing down.

One point to remember is that the Fed is desperate to buy time. The Fed seems willing to lie, threaten, postpone, and usurp authority to buy that time. Time is up for this maneuver.

Bank of America Threatens The Fed

Please consider BofA in talks for $15 billion capital plus guarantees.

Bank of America Corp is in talks with the U.S. government to receive about $15 billion in additional capital from the Treasury Department's Troubled Asset Relief Program, plus government guarantees, according to a financial policy source familiar with the talks.

President-elect Barack Obama and President George W. Bush have both signed off on additional aid for Bank of America, the source said.

Bank of America has already received $25 billion of TARP money. The source said Bank of America has threatened to walk away from the Merrill deal if it did not receive more government aid.

More Details

Bloomberg has additional details of the taxpayer ripoff in Bank of America May Get U.S. Aid for Merrill Lynch.

Bank of America Corp., the biggest U.S. bank by assets, may get more aid from the government to help absorb losses tied to this month's acquisition of Merrill Lynch & Co., three people familiar with the matter said.

Details are likely to be disclosed on Jan. 20, the people said. That's when Bank of America may post its first quarterly loss in 17 years as it digests the purchases of Merrill Lynch and Countrywide Financial Corp. The combined company has already received $25 billion from the U.S.

Bank of America, based in Charlotte, North Carolina, told regulators in December the takeover might be abandoned because of Merrill's worse-than-expected results, said the people, who declined to be identified because the talks are private. The government insisted the transaction proceed because its collapse would create new turmoil in the financial system, they said.

“Bank of America has all kinds of problems with its acquisitions,” said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. “They’ve been so acquisitive, they find themselves with very little in tangible equity.”

Bank Of America Is Insolvent

Gary Townsend nails it with his statement: “They’ve been so acquisitive, they find themselves with very little in tangible equity”. Let me simplify matters a bit with this statement. "Bank of America is Insolvent".

Congress, the Fed, and the Treasury are proposing that insolvent and overburdened taxpayers should bailout insolvent banks. The idea is of course cannot possibly work, but the bureaucrats would rather believe in the Keynesian Free Lunch theory, than common sense.

Huddling Under The TARP

Inquiring minds are reading Andrew Jeffery's column, Bank of America Huddling Under TARP.

To quote a recent op-ed in the Journal, which likened the government response to the current financial crisis to the circumstances described in Ayn Rand's Atlas Shrugged...

"Politicians invariably respond to crises -- that in most cases they themselves created -- by spawning new government programs, laws and regulations. These, in turn, generate more havoc and poverty, which inspires the politicians to create more programs . . . and the downward spiral repeats itself until the productive sectors of the economy collapse under the collective weight of taxes and other burdens imposed in the name of fairness, equality and do-goodism."

The similarities are so striking, it almost seems like regulators are using Atlas Shrugged as a playbook for their policy response to the crisis. They must not have waded through all 1,000 pages to see how the story ended.

Atlas Shrugged: Fiction To Fact

The Wall Street Journal article that Jeffrey quoted is Atlas Shrugged': From Fiction to Fact in 52 Years. Here is another snip.

The current economic strategy is right out of "Atlas Shrugged": The more incompetent you are in business, the more handouts the politicians will bestow on you. That's the justification for the $2 trillion of subsidies doled out already to keep afloat distressed insurance companies, banks, Wall Street investment houses, and auto companies -- while standing next in line for their share of the booty are real-estate developers, the steel industry, chemical companies, airlines, ethanol producers, construction firms and even catfish farmers.

With each successive bailout to "calm the markets," another trillion of national wealth is subsequently lost. Yet, as "Atlas" grimly foretold, we now treat the incompetent who wreck their companies as victims, while those resourceful business owners who manage to make a profit are portrayed as recipients of illegitimate "windfalls."

The Market Could Tank Very Soon After the Inauguration

Is the Economy Going to Get Worse? "The Market Could Tank Very Soon" After the Inauguration of President Barack Obama


Exactly the Opposite of What You've Been Told

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Most Americans have been told by the Bush administration and the talking heads that things will get worse for a couple of months, but then the economy will start to turn around and improve in the second half of 2009 after Bushco and Obamaco's bailout and stimulus programs kick in.

In fact, the smart money is saying that the exact opposite will happen.

Specifically, Marc Faber, Robert McHugh, Societe Generale, Mish and others are saying that the stock market is now in a bear market bounce, buoyed by the hope of the general population that Obama will turn things around. But that at some point after the inauguration, people will realize that Obama's plan won't stop the crisis, and that things are going to get worse.

At that point, they say, the market will really tank.

Mish and Societe Generale think the market could tank very soon - say a couple of days after the inauguration.

Faber and McHugh seem to think the crash will come in the spring.

But they all agree that the exact opposite of what the mainstream talking heads say will occur: things will seem temporarily better, and then the market will crash dramatically.

Bailouts could backfire, WEF warns governments

Bailouts could backfire, WEF warns governments

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The World Economic Forum took a grim view of prospects for the world economy this year in a report released yesterday, warning that government spending to counter the financial crisis could backfire.

The annual report on global risks, which this year focuses on the implications of the crisis that has hit banking and finance, concluded that “the economic outlook for 2009 is a grim one for most economies.” The business leaders, experts and financial services firms that took part in the report pointed to ongoing volatility in markets, a liquidity shortage, rising unemployment and record lows in business and consumer confidence.

But the crux of the report was a prediction that “massive” government spending to support ailing financial institutions hit by the credit crisis could sow the seeds of more problems in the future. Although it has been widely advocated, such spending is set to fuel big deficits in several major economies including Australia, Britain, France and the United States, WEF’s “Global Risks 2009” report said.

“One of the biggest risks is that short-term crisis fighting may induce businesses and governments to lose the long term perspective on risk,” said one of the contributors, Daniel Hofmann, chief economist for insurer Zurich Financial Services.

The report also sounded a warning about the consequences of a theoretical “hard landing” for the Chinese economy, despite more positive forecasts from institutions such as the World Bank.

Financial Coup d’Etat & Your 401(k)

Financial Coup d’Etat & Your 401(k)

Catherine Austin Fitts

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In 1997, I had approximately $500,000 of assets sitting in a 401(k) at T. Rowe Price. The funds represented a portion of the money I saved while working on Wall Street. After I left the Bush Administration, I used these funds, along with the proceeds of the sale of my house, to start a company called the Hamilton Securities Group.

It was not long before Hamilton Securities was successful and repaid my 401(k) the funds that had given it life.

A few years later, the federal loan sale program for which Hamilton served as financial advisor was the target of a highly politicized “investigation” by the federal government. A new Housing Secretary was eager to assist the Federal Reserve and Treasury in engineering a housing bubble: honest people had to go.

After a year of beating back false allegations, the government put my 401(k) under audit. My company’s chief financial officer and I looked at each other and said, “Uh-oh.” Somebody was trying to prevent me from borrowing the money.

Sure enough, a few months later the U.S. Department of Housing and Urban Development (HUD) created a pretext to withhold monies owed to Hamilton and demanded several hundred thousand dollars of contract close-outs. Our bank received anonymous tips which persuaded them to pull our credit line. Our insurance company breached its obligation to fund our attorneys. And (surprise, surprise) our auditors said that the audit meant I could not arrange a loan from my 401(k) to Hamilton Securities. We were to learn in time that the auditors were quite dirty in the affair.

Fearless by nature, I closed out my 401(k) without blinking an eye, paid $225,000 in taxes and penalties, and loaned the remaining money to Hamilton Securities for contract compliance and legal expenses. I hired an excellent attorney on contingency and sued the federal government for the monies owed.

And we eventually won.

The moral of the story was that if you stand in the way of the largest housing bubble and pump and dump in history, it pays to have a nest egg.

After winning the case, my accountant hoped that some or all of the settlement would repay Hamilton’s legal expenses. Thrilled at the possibility, she said, “The first thing we’ll do is set up a new 401(k).”

“No,” I said. “I will never have an IRA or 401(k) again.” To this day, I never have. Fool me once, shame on you; fool me twice, shame on me.

I assumed that my situation was unique – I hold highly visible positions – and that most people had nothing to worry about. There are numerous benefits to building savings in a 401(k) or IRA, although many of these plans are restricted in their investment choices. With persistence, someone can usually make such investment vehicles work for them. So, I had never considered the possibility of overt or covert confiscation of IRAs and 401(k)s until I read one of Franklin Sanders‘ comments about gold confiscation:

“Finally, gold and silver today don’t represent the huge pool of wealth they represented in 1933. [Solari note: the US government confiscated gold in 1933.] Why risk wide-spread disobedience to steal such a tiny plum? If the government wants to steal a big pool of wealth, they’ll snatch your pension funds and IRAs, not your gold.”

In fact, if you look at the value of most 401(k)s and IRAs lately, a great deal has already been “confiscated.” The mainstream media has described these losses as part of the normal economic cycle, but this is a fallacy. These losses are the result of a financial coup d’etat, including fraudulent housing bubbles, pump and dump schemes, naked short selling, precious metals price suppression, and active intervention in the markets by the government and central bank. Which begs the question, where is all this going?

I began hearing questions about whether it was safe to leave money in 401(k)s and IRAs late last year. These questions were due, in part, to a report in the Carolina Journal that floated the idea of federally-managed retirement accounts. And there were other concerns: the ease with which financial interests have manipulated Congress, the passage of the highly unpopular bailout package in 2008, and the growing federal deficit. These issues have raised the possibility of greater financial losses in 2009, increased capital controls, and possible constraints on 401(k)s and IRAs.

Enter the Wall Street Journal. Last week, a front-page article in the Journal examined recent 401(k) losses: Big Slide in 401(k)s Spurs Calls for Change. Here’s an excerpt:

“About 50 million Americans have 401(k) plans, which have $2.5 trillion in total assets, estimates the Employee Benefit Research Institute in Washington. In the 12 months following the stock market’s peak in October 2007, more than $1 trillion worth of stock value held in 401(k)s and other “defined-contribution” plans was wiped out, according to the Boston College research center. If individual retirement accounts, which consist largely of money rolled over from 401(k)s, are taken into account, about $2 trillion of stock value evaporated.”

First of all, as I have pointed out many times, money does not simply disappear. It goes somewhere. The fact that $2 trillion has suddenly “evaporated” means that some corresponding value is now under new ownership. And, in this case, the owners are no longer ordinary investors. If you have doubts about this, see my definition of “pump and dump”.

The Journal article also raised the possibility of changes in the structure of 401(k) accounts:

“Congress has begun looking at ways to overhaul the 401(k) system … One such plan called for establishing accounts that would receive annual contributions from the federal government, and would offer a guaranteed, but relatively low, rate of return. Another proposed automatically investing contributions in an index fund that holds stocks and bonds, with the mix getting more conservative as workers approach retirement.”

So, the solution is that the victims cede even more power to the perpetrators. Who’s pushing these ideas? Why is the Wall Street Journal floating such a trial balloon on the front page?

I live in an area with increasing tornado activity, but I am not planning on selling my home because of these risks. I know how to track storm warnings. I have a disaster preparedness kit and I know where the town’s storm cellar is located. With this in mind, I am not advising anyone to pull their money from a 401(k) or IRA. But, I do think we should understand the rules associated with this process. We should also make it clear to Congressional representatives that any tampering is not acceptable.

In this week’s Solari Report, I’ll be talking about why I’m going to be tracking proposals for increased restrictions on 401(k)s and IRAs in 2009. I’ll also touch on President-Elect Obama’s stimulus package followed by the plain-talking, ever lively Precious Metals Update with Franklin Sanders. You can learn more about The Solari Report and subscribe here.

I hope you’ll join us.

Bailed-Out Firms Have Tax Havens, GAO Finds

Bailed-Out Firms Have Tax Havens, GAO Finds

By Carol D. Leonnig

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Most of America's largest publicly traded corporations -- including several that are receiving billions of dollars from U.S. taxpayers to finance their recovery -- have set up offshore operations that could help them avoid paying U.S. taxes on their profits, a government study released yesterday found.

American International Group, Bank of America, Citigroup and Morgan Stanley are among the companies that are getting bailed out by U.S. taxpayers while having subsidiaries in locations where they can avoid paying U.S. taxes, according to the Government Accountability Office.

Of the 100 largest public companies, 83 do business in tax-haven hotspots like the Cayman Islands, Bermuda and the British Virgin Islands, where they can move their income into tax-free accounts.

It is all legal, but it could come to an end, given the dire condition of the U.S. economy and President-elect Barack Obama's campaign pledge to close this popular business tax loophole. The Treasury estimates that it loses $100 billion a year in tax revenue as a result of companies shipping their income off shore, and congressional leaders are vowing to introduce legislation forcing big companies to pay full freight.

The GAO did not independently review company transactions to see if the companies purposely created tax-haven businesses to avoid U.S. taxes. But it said that historically, offshore subsidiaries are used for reducing tax costs and shielding transactions from public view.

Several of the companies are household names, including Pepsi, Exxon, Dell and Dow Chemical. In the list of 100 companies that GAO studied were 63 with major federal contracts, including Caterpillar, BearingPoint, Boeing, Merck & Co. and Kraft Foods.

Legislators gave particular attention to the 14 companies on the list that received bailout money from the Treasury in the recent financial meltdown. Sens. Byron L. Dorgan (D-N.D.) and Carl M. Levin (D.-Mich.) requested the GAO study as a launching pad for their effort to curtail what they call "tax-dodgers."

The bailout recipients on the list include Bank of America, which received $45 billion; Citigroup, $45 billion; American Express, $3.4 billion; and Goldman Sachs, $10 billion, according to the Taxpayers for Common Sense watchdog group.

"This is kind of like economic patriotism," Dorgan said. "Americans were told you have to pony up some money to help these companies. And it's rather infuriating for them to find out now that those companies, when they were profitable, didn't want to pay taxes and found clever ways to hide their money overseas."

Several companies said they are engaged in legitimate business operations around the world, and rejected the premise that they are trying to avoid paying their share of U.S. taxes.

Representatives from two companies reported in interviews that they couldn't say whether their foreign operations ultimately reduced their total tax bill.

"We do business around the globe," AIG spokesman Nick Ashooh said. "It's absurd that we're being accused of using these as tax havens. Now what the net tax impact is, that's extremely complicated."

The GAO found 17 companies with no business in tax-haven locales, including Fannie Mae, Freddie Mac, United Parcel Service, Verizon, Lockheed Martin and Northrup Grumman.

Obama pledged during his campaign to shut down the ability of U.S. corporations to avoid paying taxes by shipping their income to offshore havens. As a senator in 2007, he joined Levin in proposing similar legislation to curb abuse of offshore tax operations and force companies to be more transparent about their overseas operations in those jurisdictions.

Some critics of the loophole argue that the secrecy in tax-haven countries may hide shady accounting at some businesses. Members of Congress say that investigators at the Internal Revenue Service are outgunned in trying to track down who is crossing the line and who is not.

"This is a basic issue of fairness and integrity," Obama said in introducing the 2007 bill. "We need to crack down on individuals and businesses that abuse our tax laws so that those who work hard and play by the rules aren't disadvantaged."

Tax experts said that such legislation has been a perennial in years past, but is "very likely" to gain steam this time around because of growing unpopularity of tax havens.

"The number one thing, however, is we need revenue," said Jack Blum, a tax-haven expert and Washington lawyer who has testified before Congress about shutting down the loophole. "This business of letting people get away with bloody murder by taking their money offshore is inconsistent with trying to fund our government. That is going to put terrific pressure to close down obvious and ridiculous loopholes."

Levin noted that not all companies use such havens and some use far fewer than others. The report found that Citigroup has set up 427 subsidiaries in tax-haven countries, including 91 in Luxembourg, 90 in the Cayman Islands and 35 in the British Virgin Islands.

Levin said other havens where Citigroup has subsidiaries include Switzerland, Hong Kong, Panama and Mauritius. Morgan Stanley has 273 subsidiaries in tax-haven countries, 158 of them in the Caymans, according to the GAO.

"Pepsi has 70 tax-haven subsidiaries, while Coca Cola has eight," Levin said. "Morgan Stanley has 273, while Fannie Mae has zero, and Caterpillar has 49, while Deere has three.''

Morgan Stanley declined to comment on the report.

Citigroup said in a statement: "Citi has more than 4,000 subsidiaries throughout the world which enables us to serve hundreds of millions of individuals and institutions in more than 100 countries."

21,000 Jobs Worldwide Erased in Day as Recession Chokes Demand

21,000 Jobs Worldwide Erased in Day as Recession Chokes Demand

By Oshrat Carmiel

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At least 21,000 jobs were targeted for elimination yesterday as employers from Hertz Global Holdings Inc. to Advanced Micro Devices Inc. grappled with recession-choked demand.

More than 20 companies said they were cutting jobs, ranging from Amonil SA, Romania’s second-biggest fertilizer maker, to Fiat SpA’s Magneti Marelli auto-parts division. Hertz, the second-largest U.S. rental-car company, said it will cut more than 4,000 jobs, as businesses and consumers slow travel because of the global recession.

“What you take away here is just how miserably profitability performed in the final quarter of ‘08,” said John Lonski, chief economist at Moody’s Capital Markets Group in New York, in an interview. “Companies cut back on staff when sales are significantly under expectation.”

About 2.1 million U.S. jobs will be lost in 2009, Lonski predicted, with 80 percent of the layoffs by the 4th of July.

“The downside risks facing the U.S. economy dwarf the upside potential that exists,” Lonski said.

WellPoint, the second-largest U.S. health insurer, will end 1,500 jobs, which include 600 workers and 900 open positions.

Clear Channel Communications Inc. will lay off 1,500 employees on Jan. 20, mostly in ad sales, the Wall Street Journal reported, citing people familiar with the situation. Clear Channel is the largest U.S. radio broadcaster.

ConocoPhillips, the second-largest U.S. refiner, announced after the markets closed that it plans to cut 4 percent of its workforce, or about 1,350 jobs.

Advanced Micro

Advanced Micro, the second-largest producer of personal- computer processors, said it will eliminate 1,100 jobs by the end of the first quarter.

Amonil said it will cut 45 percent of its staff, or 389 jobs, this year. Magneti Marelli will eliminate 800 jobs in Brazil, or 10 percent of its workforce there.

General Electric Co.’s finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump, people familiar with the plans said.

“We’ll be reducing costs by $2 billion in 2009 as we discussed in November,” said Marissa Moretti, a spokeswoman for GE Capital. “Job cuts are a part of that.” She declined to say how many.

De Beers, the world’s biggest diamond company, said it will cut jobs at its six mines in South Africa, totaling “less than” 1,000 people.

Interwoven, Blue Cross

Interwoven Inc., the provider of data-management software, announced after trading hours that it would cut 70 jobs.

Blue Cross Blue Shield of Michigan will cut up to 1,000 jobs in 2009. Renold Plc, the maker of the chains that drive the clock in London’s Big Ben, announced 350 job reductions. WS Atkins Plc, the U.K.’s biggest engineering-design company, plans to eliminate 210 jobs at its Middle East operations.

Several manufacturers said they will operate with fewer workers. Scania AB, Sweden’s second-largest maker of heavy trucks, said it won’t renew contracts for 2,000 temporary employees to adjust production because of weaker demand.

Haynes International Inc., the manufacturer of alloys for use in aerospace and chemical processing, said it will eliminate 12 percent of its global workforce. Varian Inc., manufacturer of scientific instruments and vacuum technologies, will shed 240 jobs.

In the banking industry, Banco Santander SA, Spain’s biggest bank, eliminated 400 jobs in Brazil after buying ABN Amro Holding NV’s Banco Real unit in the country, a workers’ union said.

Harry & David Holdings, a fruit and food retailer, said it would cut more than 100 positions.

Systemic Economic Crisis: The Sequence of Global Insolvency Begins

Systemic Economic Crisis: The Sequence of Global Insolvency Begins

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In 2007, LEAP/E2020 announced that US banks and consumers were both insolvent. More than a year ago, our team estimated that USD 10,000-billion worth in « ghost-assets » would vanish in the crisis. Both announcements came in complete opposition with the common opinion of that time; however they proved perfectly justified in the months after. In the same line, LEAP/E2020 today estimates that a new sequence of the fourth phase (so-called « decanting phase ») of the unfolding global systemic crisis has began: the sequence of global insolvency.

The heavy consequences conveyed by the global insolvency are anticipated in this GEAB N°31, of which this announcement presents an excerpt meant to put clearly what is at stake in this new sequence of the crisis. GEAB N°31 also details the 20 "ups and downs" of the year 2009 according to the LEAP/E2020 team : fifteen upward trends and fourteen downward trends, as many decision- abnd analysis-support instruments for all those worried or intrigued by the coming year.

Contrary to what political leaders and their central bankers seem to believe worldwide, the problem of liquidity that they are striving to solve by means of historic interest rate drops and unlimited money creation, is not a cause but a consequence of the current crisis. It is in fact a problem of solvency which is digging « black holes » where liquidities disappear, whether we call these holes bank balance sheets (1), household debt (2), corporate bankruptcies or public deficits. In consideration of the fact that a conservative estimation of these “ghost-assets” reaches already USD 30,000-billion (3), our team considers that the world is now facing a situation of general insolvency affecting in the first place the most indebted countries and organizations (public or private) and/or those depending most on financial services.


Market capitalisation of stock markets worldwide (in trillions of US Dollars) - Source: Thomson financial Datastream, 01/2009

Market capitalisation of stock markets worldwide (in trillions of US Dollars) - Source: Thomson financial Datastream, 01/2009

How to make the difference between a crisis of solvency and a crisis of liquidity?

The difference between a crisis of liquidity and a crisis of solvency can appear rather technical and in the end not very decisive concerning the evolution of the current crisis. However it is not a simple academic dispute; indeed, according to the answer to that question, the actions taken by governments and central banks will either be useful or utterly useless, if not dangerous.

A simple example can help to understand what is at stake. If you meet a temporary problem of cash, and if your bank or your family agrees to lend you the money you need to cross over that difficult path, their effort is mutually beneficial. Indeed, you can resume your activity, you can pay your employees and yourself, your bank or your family get their money back (with an interest in the case of the bank), and the economy in general benefited from a positive contribution. But if your problem is not due to a question of cash-flow but to the fact that your activity has ceased to be profitable and will never be again because of new economic conditions, then the effort made by your bank or family becomes all the more dangerous that it was substantial. Indeed, in all likelihood, your first call for funds will soon be followed by more calls, always matched with promises (honest ones we suppose) that difficult times are about to be over. The more your bank or your family has lent you (and therefore the more it would lose if your activity is stopped) the more willing they will be to continue helping you. However if the situation worsens, and it will if it comes from a problem of profitability, there is a moment when the limits are reached: on the one hand, your bank will decide that there is more to lose in keeping supporting you than in letting you down; on the other hand, your family ends up with no money left because you have siphoned its entire savings. Then it appears clearly to everyone not only that you are insolvent or bankrupt, but that you dragged down with you your family or your bank (4). You have thus dealt a severe blow on the economy around you, including on your close relatives (5). It is important to highlight the fact that all this could take place in all sincerity because you were not aware of the impact on your activity of a sudden change in the economic context disrupting the conditions of your profitability.


US daily bankruptcy filings (01/2006 – 11/2008) - Source: CreditSlips, 01/2009

US daily bankruptcy filings (01/2006 – 11/2008) - Source: CreditSlips, 01/2009


According to LEAP/E2020, this simple example illustrates perfectly the situation prevailing today throughout the entire global financial system, a large part of the world economy and all the economic players (including States) who based their growth on debt in the past years. The crisis translates and magnifies a problem of global insolvency. The world is becoming aware of the fact that it is a lot poorer than it used to believe in the last decade. And 2009 is the year when all the economic players must try to assess their real level of solvency, knowing that many assets are still losing value. Moreover a growing number of investors no longer trust the traditional instruments and indicators of measurement. Quoting agencies have lost all credibility. The US Dollar is just a fiction of international monetary unit and many countries are striving to get away from it as quickly as possible (6). Thus, quite rightly, the entire financial sphere is suspected of being a giant black hole. Concerning companies, no one can tell if their order books are reliable (7) because in every sector customers cancel their orders (8) or just stop buying, even when prices are discounted, as indicated by dropping retail sales in the past few weeks (9). Concerning States (and municipalities), slumping fiscal revenues are likely to result in even higher deficits and then bankruptcies. As a matter of fact, Russian billionaires (10), Gulf oil-monarchies, Chinese commercial Eldorados (11), all the « golden-egg geese » of companies and financial institutions of the planet (namely European, Japanese and North-American ones (12)) turn out to be insolvent or hardly solvent. The question of the solvency of the US federal State and federated states (13) (as well as of Russia or the United-Kingdom) is beginning to be asked by some big international media; as well as the question of the solvency of large capital-based pension funds, major players in this past twenty years’ globalised economy.

According to LEAP/E2020, the trend is clear: the sequence that has begun this year is a sequence of global insolvency.


Notes

(1) On this subject, here is a very useful list of US banks on the verge of bankruptcy, presented on LewRockwell and elaborated on the basis of Texas Ratio - measuring risk exposure.

(2) This dynamic map of credit card and mortgage delinquencies in the US (2nd quarter), elaborated by the Federal bank of New-York, enables to realize the scope of the crisis affecting household revenues and the size of their debt. Source: NewYorkFed, 12/2008

(3) The evolution of stock markets capitalization worldwide is a good indicator of « ghost-assets » disappearance; even if real estate and other categories of assets capitalization losses should also be accounted for in the estimation, as well as small increases (swept away by the current storm but to be restored once the peak of the crisis is behind us) should be deducted.

(4) Not to speak about employees, suppliers, costumers, …

(5) This kind of situation, repeated at the scale of a whole country, results in social chaos. As a matter of fact, the US army itself is beginning to envisage that social unrest caused by the crisis requires military action. Source : ElPasoTimes, 29/12/2008

(6) On this subject, LEAP/E2020 wishes to made a recommendation for the intention of international financial institutions, and in particular of their statistical services: it is urgent to set up an alternative international accounting system, based on a basket of currencies (for instance: 25% USD, 25% Euro, 25% Yen and 25% Yuan, until political leaders make a formal decision about a global basket) because when the US defaults on their debt and the global monetary system breaks down as we anticipated should happen next summer 2009, there will be immediate disastrous effects on the accounting of international financial assets and flows. Therefore it is urgent, even if it results from non-official discussions and “black” accounting, to backup the current statistics (calculated in US Dollars mostly) with another version, based on a basket of currencies, in order to secure the continuity of statistics while the global monetary system is being rebuilt.

(7) A series of articles in Der Spiegel (12/18/2008), entitled « The calm before the storm: Bracing for the global downturn », gives a good idea of the crisis as seen from Germany. And the downturn of goods transport market in the Eurozone illustrates further this fact. Source: LibĂ©ration, 01/12/2009

(8) One advanced indicator of the global economy is provided by the market of core machines. Indeed core-machines make it possible to anticipate 6 months to 1 year in advance the state of the global manufacturing industry. The world’s two largest constructors and exporters of core-machines are Germany and Japan. The evolution of their production and export in this sector is a reliable indicator of the future global manufacturing industry. In this case, perspectives for 2009 are rather grim since, like Germany, Japan’s machinery orders registered a staggering 16.2 percent slump between October and November 2008, i.e. the worst fall since 1987, when this kind of statistics began to be published. Source: MarketWatch, 01/15/2009

(9) In the US, 2009 could see a quarter of the retailers go bankrupt. Source: ClusterStockAlleyInsider, 12/27/2008

(10) « Russian billionaires » are reduced to beg money from the Kremlin, whose financial reserves are themselves melting away. Source: Spiegel, 01/08/2009

(11) A « Chinese Eldorado » turning in 2009 into a socio-economic quagmire. Sources: Janelanaweb, 12/25/2008 ; Yahoo/Reuters, 01/07/2009 ; Guardian, 01/13/2009

(12) The recent bankruptcy of Nortel, North-America’s leading telecommunication industry, is a striking example.

(13) Sources: USAToday, 12/28/2008 ; Reuters, 01/02/2009

The Economy Is in a Depression by Prof. Peter Morici

The Economy Is in a Depression

Prof. Peter Morici

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The Labor Department reported on Jan. 9 that the economy lost 524,000 payroll jobs in December, and average employment was 1.3 million lower in the fourth quarter than in the third quarter. I believe the economy is already in the jaws of a depression.

Companies have shed 2.6 million jobs since December 2007 as the full weight of the banking crisis, trade deficit with China and burdens imposed by high-priced imported oil are bearing down on manufacturing, construction and the broader economy with unrelenting pressure.

Unemployment increased to 7.2% in December. However, factoring in discouraged workers, unemployment is closer to 9.4%. Add workers in part time positions that cannot find full time employment and the hidden unemployment rate is 14.5%.

Recession or Depression?

The economy contracted at about a 5% annual rate in the fourth quarter. This looks worse than a recession to me.

Recessions are like stock market corrections -- after a time, equity prices rebound without government intervention. Federal Reserve interest rate cuts and stimulus tax rebates and spending have shortened the lives and eased the impact of post-World War II recessions, but those policies did not end them. The economy self-corrected.

A depression is not self-correcting. Roosevelt administration stimulus packages -- huge deficit spending -- eased the pain but failed to end the Great Depression. Roosevelt’s policies did not put the U.S. economy on a sustainable growth path because New Deal policies worsened structural problems that pulled the economy down in the first place. For example, the New Deal proliferated monopoly pricing, extended the life of undersized farms, raised structural savings rates, and created a system of home lending too dependent on federally sponsored banks.

The challenges facing President-elect Barack Obama could not be clearer. The current economic slowdown has two structural causes -- bad management practices at the large money center banks and the huge foreign trade deficit. These problems are not self-correcting.

The economy will not recover without fundamental changes in banking and trade policy. A large stimulus package, though necessary, will only give the economy a temporary lift. Then unemployment will rise again and continue at unacceptable levels indefinitely without successively larger stimulus packages and huge federal budget deficits. The economy is in a depression, not a recession

Obama must ensure that the banks use the trillions of dollars in federal bailout assistance to renegotiate mortgages and make new loans to worthy homebuyers and businesses. Obama must make certain that banks do not continue to squander federal largess by padding executive bonuses, acquiring other banks and pursuing new high-return, high-risk lines of businesses in merger activity, carbon trading and complex derivatives.

Industry leaders like Citigroup have announced plans to move in those directions. Many of these bankers enjoyed influence in and contributed generously to the Obama campaign. Now it remains to be seen if a President Obama can stand up to these same bankers and persuade or compel them to act responsibly.

In addition, Obama must address the huge cost of imported oil and the trade deficit with China. Otherwise any effort to resurrect the economy is doomed to create massive foreign borrowing, another round of excessive consumer borrowing, and a second banking crisis that the Treasury and Federal Reserve will not be able to reverse.

Ultimately, reducing the oil import bill will require higher mileage standards for automobiles and assistance to automakers to accelerate the build-out of alternative, high-mileage vehicles. Fixing trade with China will require a tax on dollar-yuan transactions if China continues to refuse to stop subsidizing dollar purchases of yuan to prop up its exports and shift Chinese unemployment to the U.S. manufacturing sector.

Near term, a stimulus package focused on infrastructure is critical for resuscitating growth. The recent round of tax rebate checks ended up in savings accounts or spent at the Wal-Mart on Chinese goods, and did little to create jobs or accelerate growth. Whereas projects to repair roads, rehabilitate schools and refurbish public buildings would create high-paying jobs at home and provide a legacy in capital improvements that assist growth now and in the future.

But without fixing the banks, energy and trade with China, the lift provided by the stimulus package will be temporary and unemployment will rise again. The economy would then require progressively larger stimulus packages -- and foreign borrowing to finance them -- to keep Americans employed. Eventually, the foreign line of credit would run out, and widespread unemployment, depression and economic decline would follow.

Politically correct promises to create millions of new jobs producing alternative fuels makes effective presidential campaign slogans, but realistic policies for governing require aggressive development of more conventional oil and gas, as well as non-conventional energy sources, and efforts to improve the energy efficiency of personal transportation. If the Democrats are not willing to drill for more oil off shore and take on the automobile industry’s resistance to significantly higher mileage vehicles, the U.S. economy will be even more indentured to Persian Gulf oil exporters at the end of President-elect Obama’s first term than it is today.

Finally, the dollar is too strong against the Chinese yuan, Japanese yen and other Asian currencies. The Chinese government intervenes in foreign exchange markets to suppress the value of the yuan to gain competitive advantages for Chinese exports, and the yuan sets the pattern for other Asian currencies. Similarly, Beijing subsidizes fuel prices and increasingly requires U.S. manufacturers to make products in China to sell there.

Ending Chinese currency market manipulation and other mercantilist practices are critical to reducing the non-oil U.S. trade deficit, and instigating a recovery in U.S. employment in manufacturing and technology-intensive services that compete in trade. Yet neither President Bush nor congressional leaders like House Ways and Means Chairman Charles Rangel and New York Sen. Chuck Schumer have been willing to seriously challenge China on this issue, and Sens. John McCain and Obama appeared comfortable with continuing their approaches during the campaign.

Now Obama must alter his position and get behind a policy to reverse the trade imbalance with China, or preside over the wholesale destruction of many more U.S. manufacturing jobs.

In the end, without assertive steps to fix trade with China, as well as fix the banks and curtail oil imports, the Bush years will seem like a walk through the park compared to the real income losses Americans will suffer during the Obama years.

The choices for the incoming president are simple. It’s either recovery or depression. Fix the banks, energy policy and the trade situation with China or become America’s Nero.

Prof. Peter Morici teaches at Robert H. Smith School of Business at University of Maryland.

Report: U.S. Surveillance Society Running Rampant

Report: U.S. Surveillance Society Running Rampant

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Surveillance If you think you're being watched, you're probably right.

The American Civil Liberties Union posted a website Monday showing that government-financed surveillance cameras are running rampant across the United States.

All the while, studies suggest they do nothing to cut down on violent crime. San Francisco, for example, has spent $700,000 for dozens of public cameras, but a University of California study (.pdf, 187 pages) just concluded there was "no evidence" they curtailed violent crime.

"Violent incidents do not decline in areas near the cameras relative to areas further away," added the study, which noted the cameras helped police bring charges against six people accused of felony property crimes. "We observe no decline in violent crimes occurring in public places."

But the report did show that, over the past two years, property crimes such as burglary and muggings dropped an estimated 24 percent in areas within 100 feet of San Francisco camera locations.

The ACLU's website, "You Are Being Watched," shows a map of the 50 U.S. states with links to news accounts about where surveillance cameras are in each state. The federal government has given state and local governments $300 million in grants to fund an ever-growing array of cameras.

Barry Steinhardt, director of the ACLU's Technology and Liberty Program, said in a telephone interview that, while the cameras have helped nab suspects, he believes they provide a false sense of security.

"It's the illusion of security ... public authorities like to give the impression they are doing something about crime and terrorism," Steinhardt said.

He said it is impossible to quantify exactly how many government-backed surveillance cameras are in the public right of way, but they are in virtually every U.S. state.

Two questions posed on the ACLU site ask: "Do we want a society where an innocent individual can't walk down the street without being considered a potential criminal?" and "Do we want a society where people are comfortable with constant surveillance?"

US military may “forced to intervene” if Mexico collapses

Mexico in danger of collapse, says US army

America may be forced to intervene in Mexico to prevent the country's "rapid and sudden collapse" at the hands of organised crime and drug cartels, according to the US army

By David Blair

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A report on the "Joint Operating Environment", compiled by the army's high command, places Mexico alongside Pakistan as a possible failed state of the future. America, which shares a 2,000 mile border with Mexico, would be the obvious destination for massive refugee flows if its neighbour descended into civil war.

President Felipe Calderon has deployed Mexico's army in a new offensive against organised crime. This battle against four major drug cartels, along with a myriad of local syndicates, claimed the lives of 5,367 members of the security forces or suspected criminals last year alone.

"Two large and important states bear consideration for rapid and sudden collapse: Pakistan and Mexico," reads the US army's report.

"The Mexican possibility may seem less likely, but the government, its politicians, police and judicial infrastructure are all under sustained assault and pressure by criminal gangs and drug cartels. How that internal conflict turns out over the next several years will have a major impact on the stability of the Mexican state."

Mexico, with a population of 110 million, provides America with more migrants than any other country. It also lies astride the crucial smuggling routes linking the US with the drug-growing areas of South America, notably Colombia, which remains the world's biggest source of cocaine.

If Mexico became a failed state, millions would flee across the northern border and organised crime gangs would have a secure base from which to penetrate America. This could leave Washington with little choice but to intervene, possibly by military means.

"Any descent by Mexico into chaos would demand an American response based on the serious implications for homeland security alone," says the report.

Mexico's crime gangs have retaliated for Mr Calderon's offensive by targeting members of the security forces for murder. Dozens of soldiers have been beheaded. Many ordinary police officers and security officials accept bribes from the drug rings. This corruption, which may reach into the highest levels of the government itself, is a crucial factor obstructing Mr Calderon's campaign. Ultimately, it may also have the effect of destroying the state itself.

The US army's report stresses that countries can collapse very quickly, pointing to the example of Yugoslavia which broke up during the civil wars of 1991 - 95. "The collapse of Yugoslavia into a chaotic tangle of warring nationalities suggests how suddenly and catastrophically state collapse can happen - in this case a state which had hosted the 1984 Winter Olympics at Sarajevo, and which then quickly became the epicentre of the ensuing civil war."

Mr Calderon won Mexico's presidency by a tiny margin of less than one per cent during a controversial election held in July 2006. Despite this slender mandate, he has made the fight against organised crime the central goal of his leadership.

Secret List of U.S. Military Bases to Replace Gitmo

Secret List of U.S. Military Bases to Replace Gitmo

Pendleton, Leavenworth, Miramar Included as Possible New Home for 250 Detainees

By BRIAN ROSS and LUIS MARTINEZ

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The U.S. military has prepared a list of U.S. military bases that could be used to house as many as 250 detainees currently being held at the U.S. Naval base in Guantanamo Bay, military officials tell ABCNews.com.

The list -- which includes Camp Pendleton in California, Fort Leavenworth in Kansas; the Marine Air Station in Miramar, California; and the U.S. Naval Consolidated Brig in South Carolina -- has been circulated in a classified brief to members of Congress and was prepared by the Pentagon's Joint Staff.

President-elect Barack Obama is expected to order that the Guantanamo Bay detainee facility be closed on his first day in office, officials say. Officials say it would take at least a year to prepare a new prison and transfer the detainees.

The preliminary list was based on cost, logistic, and security concerns, but the Department of Defense is expected to present a more comprehensive recommendation based on a variety of factors, according a military official.

Camp Pendleton was determined to be the least expensive option and officials say its vast 125,000 acre size would allow for a new prison to be built in an isolated and secure area.

60,000 Residents, Employees at Camp Pendleton

Camp Pendleton has a daytime population of 60,000, according to its website, including military personnel, their families and civilian employees.

Three San Diego county Congressmen have already voiced opposition to sending the terror detainees to Camp Pendleton.

Congressmen Duncan Hunter (R-CA), Brian Bilbray (R-CA) and Darrell Issa (R-CA) sent a letter Tuesday to Defense Secretary Robert Gates saying Camp Pendleton was too busy preparing Marines for combat.

"We feel that introducing Guantanamo Bay terrorist suspects would certainly negatively impact Camp Pendleton's training and wartime missions," the letter stated. "For those Marines serving in harm's way they should now not have to worry about the safety of their families."

Click here to see the letter sent to Secretary Gates.

A spokesperson for Hunter, a retired Marine combat veteran, said he had not been informed of the recommendation.

A spokesman for Senator Sam Brownback (R-KS) said that the Senator called Secretary Gates and Admiral Mullen earlier this week to convey his concerns about using Fort Leavenworth to house detainees..

Brownback, who was not briefed on this list, spoke out against the possible use of Leavenworth at Thursday's confirmation hearings for Attorney General nominee Eric Holder.

"Fort Leavenworth does not want these detainees," Brownback flatly told Holder. "If I could put it any clearer to you, I would. But they don't want these detainees."

Brownback said the use of Leavenworth to house prisoners would interfere with the primary mission of the base which is education.

"And if you hurt that by moving detainees to a place at Leavenworth that's not fit anyway to move this, this is a big hit," said Brownback. "And I would just plead you really to look at the specifics. "

How to sell 'ethical warfare'

How to sell 'ethical warfare'

Claim moral superiority, intimidate enemies and crush dissent – Israel's media management is not just impressive, it's terrifying

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One of my students was arrested yesterday and spent the night in a prison cell. R's offence was protesting the Israeli assault on Gaza. He joins over 700 other Israelis who have been detained since the beginning of Israel's ruthless war on Gaza: an estimated 230 of whom are still behind bars. Within the Israeli context, this strategy of quelling protest and stifling resistance is unprecedented, and it is quite disturbing that the international media has failed to comment on it.

Simultaneously, the Israeli media has been towing the government line to such a degree that no criticism of the war has been voiced on any of the three local television stations. Indeed, the situation has become so absurd that reporters and anchors are currently less critical of the war than the military spokespeople. In the absence of any critical analysis, it is not so surprising that 78% of Israelis, or about 98% of all Jewish Israelis, support the war.

But eliding critical voices is not the only way that public support has been secured. Support has also been manufactured through ostensibly logical argumentation. One of the ways the media, military and government have been convincing Israelis to rally behind the assault is by claiming that Israel is carrying out a moral military campaign against Hamas. The logic, as Eyal Weizman has cogently observed in his groundbreaking book Hollow Land, is one of restraint.

The Israeli media continuously emphasises Israel's restraint by underscoring the gap between what the military forces could do to the Palestinians and what they actually do. Here are a few examples of the refrains Israelis hear daily while listening to the news:

• Israel could bomb houses from the air without warning, but it has military personnel contact – by phone no less – the residents 10 minutes in advance of an attack to alert them that their house is about to be destroyed. The military, so the subtext goes, could demolish houses without such forewarnings, but it does not do so because it values human life.

• Israel deploys teaser bombs – ones that do not actually ruin houses – a few minutes before it fires lethal missiles; again, to show that it could kill more Palestinians but chooses not to do so.

• Israel knows that Hamas leaders are hiding in al-Shifa hospital. The intimation is that it does not raze the medical centre to the ground even though it has the capacity to do so.

• Due to the humanitarian crisis the Israeli military stops its attacks for a few hours each day and allows humanitarian convoys to enter the Gaza Strip. Again, the unspoken claim is that it could have barred these convoys from entering.

The message Israel conveys through these refrains has two different meanings depending on the target audience.

To the Palestinians, the message is one that carries a clear threat: Israel's restraint could end and there is always the possibility of further escalation. Regardless of how lethal Israel's military attacks are now, the idea is to intimidate the Palestinian population by underscoring that the violence can always become more deadly and brutal. This guarantees that violence, both when it is and when it is not deployed, remains an ever-looming threat.

The message to the Israelis is a moral one. The subtext is that the Israeli military could indiscriminately unleash its vast arsenal of violence, but chooses not to, because its forces, unlike Hamas, respect human life.

This latter claim appears to have considerable resonance among Israelis, and, yet, it is based on a moral fallacy. The fact that one could be more brutal but chooses to use restraint does not in any way entail that one is moral. The fact that the Israeli military could have razed the entire Gaza Strip, but instead destroyed only 15% of the buildings does not make its actions moral. The fact that the Israeli military could have killed thousands of Palestinian children during this campaign, and, due to restraint, killed "only" 300, does not make Operation Cast Lead ethical.

Ultimately, the moral claims the Israeli government uses to support its actions during this war are empty. They actually reveal Israel's unwillingness to confront the original source of the current violence, which is not Hamas, but rather the occupation of the Gaza Strip, West Bank and East Jerusalem. My student, R, and the other Israeli protesters seem to have understood this truism; in order to stop them from voicing it, Israel has stomped on their civil liberties by arresting them.

Israel using “DIME” weapons on civilian population in Gaza

Israel using “DIME” weapons on civilian population in Gaza

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Dr Gilbert, a Norwegian Dr has just confirmed on PRESS TV that the Israelis are using a new type of weapon that shred’s the body in pieces. If the person lives they will develop Cancer and Leukemia. The Dr has said that these weapons are against international law and that most people coming into the hospital have been injured by this weapon, women and children have been affected by this weapon They are called Dense Inert Metal Explosive (DIME). Apparently it’s, designed for low “collateral damage” yet, it is highly carcinogenic and harmful to the environment. Doctors in Gaza noticed cases of amputated limbs with evidence of intense heat at the point of amputation but no shrapnel.