Monday, February 16, 2009

Obama administration seeks to block lawsuit over illegal wiretapping

Obama administration seeks to block lawsuit over illegal wiretapping

By John Burton and Marge Holland

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For the second time in less than a week, lawyers from the Justice Department headed by Obama administration Attorney General Eric Holder have embraced the Bush administration's pseudo-legal argument that the "state secrets" doctrine bars civil lawsuits challenging the methods used in its so-called "war on terror."

On February 9, Obama administration lawyers argued before the United States Court of Appeal for the Ninth Circuit, headquartered in San Francisco, that the maintenance of "state secrets" mandates the dismissal of cases challenging "extraordinary rendition" - that is kidnapping and torture - by the US government. (See "Obama administration defends torturers")

The most recent intervention also occurred in San Francisco, with the filing of papers February 11 to block an order by United States District Judge Vaughn R. Walker reinstating the claim of the Al-Haramain Islamic Foundation that it was the target of government wiretapping. The surveillance was carried out without the required court approval, under the "Terrorist Surveillance Program." The blatantly illegal electronic surveillance took place before the Bush administration made the Ashland, Oregon-based charity a "Specially Designated Global Terrorist" organization and froze its assets.

During legal proceedings arising from the asset seizure, government attorneys mistakenly turned over classified documents that detailed illegal wiretaps to the charity's lawyers. After discovering the error, the government sent FBI agents personally to each member of the Al-Haramain legal team and forced the return of the documents, but not before they were read and disseminated.

Al-Haramain sued George W. Bush, alleging that the secret government documents established that its federal privacy rights had been violated by Bush's illegal federal wiretaps, including some that recorded confidential attorney-client conversations. Walker, an appointee of George H.W. Bush, initially dismissed the complaint on the basis that the charity could not use the information in the classified documents to allege that the government illegally spied on it, and therefore could not prove "standing" that it was an "aggrieved person" entitled to challenge the surveillance program. The Ninth Circuit Court of Appeals subsequently affirmed this Alice-in-Wonderland decision.

On January 5, however, Walker reinstated the case after Al-Haramain produced a series of public statements by government officials corroborating allegations that the charity had been the victim of illegal surveillance. These included an October 2007 speech by a deputy FBI director at a conference of the American Bankers Association and American Bar Association on money laundering.

In a key provision of his ruling, Walker directed that lawyers for Al-Haramain have access to confidential material, ordering the government to provide top-security clearance to three of the charity's lawyers.

Filed as a supplement to a motion for a stay of the January 5 order initiated by Bush administration lawyers before the Obama inauguration, the recent papers argue that the "state secrets privilege" -a cold-war era judge-made doctrine - allows the executive branch to keep information confidential when it asserts that national security might be jeopardized.

Walker had ruled that "state secrets" do not trump a provision in the Foreign Intelligence Surveillance Act (FISA), which authorizes federal district judges, "whenever any motion or request is made by an aggrieved person," and "notwithstanding any other law," to "review in camera and ex parte [confidentially] the application, order, and such other materials relating to the surveillance as may be necessary to determine whether the surveillance of the aggrieved person was lawfully authorized and conducted."

The provision continues: "In making this determination, the court may disclose to the aggrieved person, under appropriate security procedures and protective orders, portions of the application, order, or other materials relating to the surveillance only where such disclosure is necessary to make an accurate determination of the legality of the surveillance."

Just like Bush administration lawyers who preceded them, the current Obama administration attorneys are asserting legal positions directly contrary to federal privacy laws. "We are aware of no prior case where the state secrets privilege has been held to be preempted by statutory law to decide whether alleged surveillance has occurred and to grant security clearances for the disclosure of classified information to a party seeking that information in order to litigate their claims," they wrote in their papers before Judge Walker.

The reason there are no such precedents, of course, is that the Bush administration's utter disregard for the letter of laws passed during the post-Watergate era, when attempts were made to reign in government spying, is itself unprecedented.

That the Obama administration would intervene to block confidential judicial review of illegal Bush administration wiretapping exposes the futility of attempting to defend fundamental liberties through the Democratic Party.

On February 13, Walker denied the Obama administration's request for a stay. He explained that his January 5 order "would prioritize two interests: ‘protecting classified evidence from disclosure and enabling plaintiffs to prosecution their action,'" while at the same time "making it possible for the court to determine whether plaintiffs had been subject to unlawful electronic surveillance."

Walker ordered the government attorneys to inform him by February 27 how they intend to comply.

The Obama administration lawyers are expected to appeal again to the Ninth Circuit, and repeat their arguments that federal judges cannot review cases challenging the legality of Bush administration wiretaps.

Wall Street demands lifting of pay limits

Wall Street demands lifting of pay limits

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A provision restricting executive compensation that was inserted into the $787 billion economic stimulus bill prior to its passage by the US Congress has provoked howls of protest from the Wall Street elite and sent the Obama administration scrambling to emasculate it.

The measure was authored by Democratic Senator Christopher Dodd, the chairman of the Senate Banking Committee, over the objections of Obama and his top economic advisers. Dodd argued that the measure was necessary to assuage public outrage against bank executives who have continued to reward themselves with multimillion-dollar bonuses after their banks received billions of dollars in taxpayer funds. He said such action was needed to make it politically possible for Congress to allocate hundreds of billions more to bail out the banks.

The provision goes somewhat further than the token pay restrictions announced February 4 by Obama's treasury secretary, Timothy Geithner, which set a base pay limit of $500,000 only on the top executives of banks receiving "exceptional assistance" and did not apply retroactively to banks that previously received money under the $700 billion Troubled Asset Relief Program (TARP). Dodd's measure applies retroactively to all banks that have received TARP funds. It sets no limit on salaries, but restricts bonuses to one-third of total compensation. It does not apply to deferred compensation or pensions, and evidently places no limits on stock options.

Since the vast bulk of the stratospheric annual compensation of Wall Street tycoons comes in the form of bonuses, stock options and other perks rather than base pay, the measure, if enforced, could reduce their yearly take to the millions, rather than the double-digit millions to which they have become accustomed. The Wall Street Journal on Saturday estimated that under the new provision, Bank of America CEO Kenneth Lewis's compensation would fall from $16.4 million in 2007 to a "mere" $2.25 million.

Such a fate, the prospect of which sent Wall Street lobbyists descending on Capitol Hill and the White House, would reduce Lewis's income to a sum more than 56 times that of an ordinary American—that is, he would be forced to survive on substantially more per week than the median worker earns in a year.

The outrage of the Wall Street billionaires was immediately translated into front-page headlines in the major US newspapers. The New York Times, the Wall Street Journal and the Washington Post all ran lead stories Saturday on the issue. The Post, the main newspaper in the nation's capital, ran a front-page follow-up on Sunday, bearing the subtitle "Compensation Limits May Backfire."

Only weeks ago, it should be recalled, Congress was railing against autoworkers who make less than $60,000 a year. Obama supported the imposition of drastic wage and benefit cuts, along with mass layoffs, as a condition for emergency loans to prevent the collapse of General Motors and Chrysler.

Judging from the Sunday morning news and interview programs, there was some doubt as to whether Obama would go ahead with his plans to sign his "stimulus and recovery" bill on Tuesday, as scheduled. His representatives felt obliged to affirm that he would sign the bill, but hastened to add that the White House would demand changes in its executive compensation provisions even after it became law.

Senior adviser David Axelrod said on "Fox News Sunday" that the White House would work with Congress to "do something that's workable" about the issue. Obama's press secretary, Robert Gibbs, appearing on CBS's "Face the Nation," said the administration would seek to "strike the right balance" by discussing changes with House and Senate members.

It is an extraordinary commentary on the reality of class relations and political power in the United States that this issue should figure so prominently in the discussion of what is billed as a plan to rescue the nation from, in Obama's words, a "catastrophe." The narrow and selfish interests of a miniscule fraction of the population weigh infinitely more on the scales of government policy than the needs of tens of millions of people who are being hurled into unemployment and poverty. This financial aristocracy exercises an effective veto power over state policy—exposing the class dictatorship that underlies the increasingly threadbare trappings of democracy.

The real question in the minds of most Americans is why the bank executives who bear direct responsibility for the collapse of their own firms and the economy as a whole—not only in the United States but internationally—are still in their posts. They want to know why there are no serious investigations or criminal prosecutions.

The furor over the bankers' pay also sheds light on the nature of the stimulus package itself. It is a hodgepodge of tax cuts—including tens of billions for big business and the wealthy—and government outlays that will do nothing to solve the economic crisis and little to relieve the mounting suffering of the people.

Moreover, as Obama indicated in his Saturday radio-video address, it is a prelude to another massive taxpayer bailout of Wall Street that will reach into the trillions of dollars, to be followed by draconian austerity measures targeting basic social programs such as Social Security and Medicare.

The stimulus plan purports to address the deepest economic crisis since the Great Depression without examining its underlying causes or the social interests that underlie the crisis. This is no accident, since the fundamental premise of all of the measures taken in response to the crisis, by Obama no less than Bush, is the defense of the interests of the financial elite.

The response of the Wall Street elite to the executive pay provision exposes the cynicism of Obama's talk of collective "responsibility" for the crisis and his calls for "national sacrifice." For their part, the plutocrats have no intention of ceding an inch of their wealth or power, whatever the cost to society.

They have made it clear that if the Dodd provision stands, they will drain their reserves to pay back the government as soon as possible in order to remove themselves from its compensation limits, further undermining the viability of their own firms and threatening an even greater economic disaster for the US and the world. And, as many commentators have suggested, they will evade the restrictions on bonuses by jacking up their salaries. As Nell Minow of the Corporate Library told the Washington Post, "The people who work on Wall Street are motivated by money."

All of the measures proposed to rein in the bankers are utterly inadequate. Over the past decade, they have pocketed—in salaries, bonuses, stock options, golden parachutes, pensions, private jets, limos and other perks—trillions of dollars. Their extravagance has involved a massive transfer of wealth from the working class and played no small part in bringing the US and global economy to the point of collapse.

Their finances should be audited and they should be forced to make restitution. The wealth they have drained from society should be recaptured, transferred to the public treasury and used to finance public works programs to provide millions of jobs rebuilding the schools, hospitals and basic infrastructure.

A rational solution to the crisis is not a technical issue. It is a fundamental class question, and therefore a political and revolutionary question. There is a direct relationship between the forms of the crisis—the parasitism of the ruling elite, the vast growth of social inequality—and the mode of production and appropriation under capitalism, which subordinates all social needs to the accumulation of personal wealth by those who own and control the means of production and the levers of finance.

Their stranglehold must be broken through a mass, independent social and political movement of the working class. The aim of this movement must be the establishment of a workers' government to carry out socialist policies.

The demand must be raised to open the books of the banks and conduct a careful, public examination to reveal how trillions of dollars were squandered and the economy bankrupted. Those responsible must be held accountable, including by means of criminal prosecution.

Tainted peanut butter scandal deepens

Tainted peanut butter scandal deepens

By Naomi Spencer

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Prompted by a nationwide outbreak of food poisoning from peanut butter, Congress heard testimony on February 11 from food safety officials and family members of those sickened. The president of Peanut Corporation of America, the company at the center of the scandal, was under subpoena to attend the hearings but declined to answer any questions, invoking the Fifth Amendment protections against self-incrimination.

Peanut Corporation of America filed for Chapter 7 bankruptcy protection on Friday afternoon, citing a large drop in business after federal investigations traced tainted food back to its facility. Overall peanut sales in the US have dropped off dramatically in the past few weeks because of public fears of food poisoning.

The case once again underscores the vulnerability of the food supply and other critical areas of public health to the bottom lines of private companies. Outbreak after outbreak in the past decade and a half have revealed the depth to which food safety is compromised by cost-cutting, completely voluntary compliance standards and the dismantling of regulatory enforcement powers.

Since September, at least nine deaths across the US have been linked to salmonella-tainted peanut products originating from a PCA processing facility in Blakely, Georgia, including the death of an Ohio woman on Wednesday. The illnesses of at least 600 people have also been linked to the outbreak. The list of recalled foods containing the contaminated peanuts has expanded to more than 1,900 items, making it one of the largest recalls in US history.

PCA closed down another peanut processing facility in Texas on February 9 after salmonella was found there, along with dead rodents, rodent feces, and bird feathers. While products from that plant had not been identified with the current salmonella outbreak, the facility had not been inspected for years because it was operating without a license and state-level food safety inspectors did not know it existed.

A Food and Drug Administration investigation into the Blakely peanut processing plant last month found flagrantly unsanitary conditions. Among many other violations were the presence of roaches, mold growing on the walls, holes large enough for rats to climb in and gaps in the ceiling through which dirty water and bird feces could fall into the production area. (See "US: Nationwide salmonella outbreak forces major recall, plant closure")

The FDA also found evidence that the company was well aware of contamination problems at least as far back as 2006, but that nothing was done to remedy them. According to the FDA, the company instead actively sought to paper over the problems through manipulation of test samples and, in at least one case, the fabrication of a homemade document falsely certifying the purity of a contaminated product shipped to customers.

The evidence strongly suggests criminal negligence on the part of company management.

Among documents made public this week were emails from PCA President and CEO Stewart Parnell ordering company staff to ship out peanut products after they had tested positive for salmonella, rather than having them destroyed. In at least a dozen cases over the past two years, PCA products that tested positive for the deadly bacteria were re-tested to obtain a negative reading, then shipped out to dozens of major food manufacturers.

In one email released by the House Subcommittee on Oversight and Investigations Tuesday, Parnell complained about losing money because of the time spent testing peanut products for salmonella.

A PCA staff member told Parnell on September 29, 2008, that a shipment had been identified as contaminated and that PCA's clients needed to be informed "and the product placed on HOLD until this can be cleared."

Parnell replied while awaiting a negative result from a re-test October 6: "We need to discuss this....the time lapses, besides the cost is costing us huge $$$ and causing obviously a huge lapse in the time from the time we pick up peanuts until the time we can invoice... We need to find out somehow what our competition (JIMBOS) is doing and at the very least mimic their policy...We need to protect our self and the problem is that the tests absolutely give us no protection, just an indication at best....." [ellipses in original]

In another email exchange from June 6, 2008, an employee told Parnell that salmonella had been identified in a batch of peanuts and that a re-test was under way. "I go thru this about once a week," Parnell replied. "I will hold my breath ... again."

After another batch tested positive in August, PCA sent the sample to another lab. "We divided the retained sample up into Variegate and Butter. The results... show the product to be clean and ‘in spec' for micro analysis," Blakely plant manager Sammy Lightsey wrote in an August 21 email. "Okay, let's turn them loose then," Parnell instructed.

The decision to deliberately "turn loose" a product known to contain a deadly substance for use in children's snacks, school cafeterias and nursing home facilities is a heinous act. Anyone making such a decision should be prosecuted and punished for the resulting suffering and deaths.

After the FDA traced the salmonella illnesses to the Blakely plant in January, Parnell told the FDA that he and the company "desperately at least need to turn the raw peanuts on our floor into money." Parnell suggested having the peanuts shipped to PCA's Texas facility for processing, ostensibly to circumvent public suspicion over the safety of the products.

While haggling with the FDA, Parnell sent an email to PCA employees insisting that there was no link between the outbreak and the Blakely plant. He suggested that increased scrutiny on the facility was based on a "misunderstanding," and that "news agencies are looking for a news story where there currently isn't one."

Mindful of public outrage over food outbreaks, the Obama administration has pledged to scrutinize the food oversight system. However, it is doubtful that any but the most cosmetic changes will be made. During Tuesday's hearing, FDA food safety director Stephen Sundlof suggested that the agency may simply re-classify peanut butter as a "high-risk food." This change would require producers to comply with certain written guidelines on sanitation, and would allow inspectors to regularly visit and collect samples from facilities. Currently, the FDA conducts inspections within peanut processing facilities—under the jurisdiction of the US Department of Agriculture—only when it has ample evidence of a problem. The change would not grant the FDA any necessary enforcement powers even if violations were discovered.

The standards to which the peanut industry are held are also not likely to be tightened as a result of the PCA case, since the industry itself is intimately involved with the US Department of Agriculture's quality standards board. Indeed, until being removed by the Obama administration last week, PCA CEO Parnell was a member of the USDA's Peanut Standards Board, which advises the agency on "standards intended to assure that satisfactory quality and wholesome peanuts are used in the domestic and import peanut markets."

Europe turns to protectionism as industry plummets

Europe turns to protectionism as industry plummets

By Ulrich Rippert

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Statistics released Thursday by the European Union's Eurostat agency reveal that production plummeted across Europe at the end of 2008. The figures announced were far worse than analysts had anticipated. Industrial production declined across Europe by 2.6 percent in December compared to the previous month. On a year-to-year basis, European production has slumped 12 percent.

For some time, leading European politicians have attempted to put a positive gloss on declining figures for European production, but the results released Thursday ushered in a new tone. European Union Industry Commissioner Günter Verheugen told the Financial Times Deutschland, "The extent and speed of the crisis is completely new."

One day previously, an Ifo Institute for Economic Research survey revealed that business sentiment within the 16-country common-currency eurozone declined for the sixth consecutive quarter, plunging to its lowest point since the survey began 16 years ago. The European Central Bank (ECB) also issued a warning that the recession gripping Europe will not be short-lived. Rather, it will be a "long-lasting and clear downturn," the ECB said.

The response of the individual European nations to the growing crisis has been to embrace a raft of protectionist measures. Italian Premier Silvio Berlusconi recently warned appliance maker Indesit SpA not to transfer production and jobs to Poland, and in Britain, trade unions and politicians are demanding "British jobs for British workers."

On Wednesday, the acting EU Council president, Czech Prime Minister Mirek Topolanek, appeared before the press in Brussels and warned of a "protectionist race" in Europe, while acknowledging that national economies in the European Union were being hit hard by the international crisis and losing ground with unanticipated speed.

Topolanek said, "Problems are emerging in the wake of the economic and financial crisis which the European Union considered to be relics of the past century and long since solved."

After a meeting with EU Commission President José Manuel Barroso, Topolanek described the situation in Europe "as worse than it has ever been." The confidence of citizens in the economic and political system had been shaken, he said, and warned that the battening down of national markets endangered the European domestic market and the world economy.

The Süddeutsche Zeitung echoed the statements of the EU Council president, writing, "Any politician seeking to solve the economic crisis by protectionist measures only worsens the situation."

Barroso also warned against states going it alone. European heads of state and government should put an end to any "nationalist navel gazing," he said. Otherwise, there was a danger of "intensifying the powerful downward trend."

The European automotive industry is being especially hard hit by the lack of credit. A European Union analysis stated: "Broad access to credit plays an important role in the automotive industry, with between 60 and 80 percent of private car sales in Europe carried out on a credit basis." In the steel industry, European Commission experts have reported a slump in orders of 43 to 57 percent.

The European Union leadership expects a sharp rise in the number of unemployed in the coming months. According to EU Industry Commissioner Verheugen, in the past four months companies have shed 158,000 jobs and created just 25,000 new jobs. This is a reversal of the first three quarters of 2008, which saw a general trend toward increased employment.

Last Wednesday, the French automaker Peugeot announced it was shedding at least 11,000 jobs, and one day later, Renault announced its own plans to cut its workforce by 9,000. These job cuts have been agreed to by the French government and trade unions and are bound up with the announcement by French President Nicolas Sarkozy that he plans to subsidise domestic automakers with the sum of €6 billion.

Sarkozy declared that, in his opinion, it was irresponsible "to continue to manufacture French cars in the Czech Republic." He demanded a halt to the transfer of production to other countries. "If we give financial aid to the automotive industry," he said, "we do not want them to set up a factory in the Czech Republic again." He also urged the carmakers to support French industries involved in supplying parts and services to French auto companies.

Czech Prime Minister Topolanek reacted sharply to this openly protectionist policy and called for a special European summit to block it and similar policies.

German Chancellor Angela Merkel (Christian Democratic Union—CDU) also criticised the French action. The defence of free trade and the European domestic market is of crucial importance, Merkel said.

The German economy, which is heavily dependent on its export industries, would be especially vulnerable to any growth of protectionist measures in Europe.

Sarkozy defended his decision and drew attention to the fact that the German chancellor had rejected a joint European stimulus programme just a few weeks before. Now, every government was forced to take its own measures to deal with the crisis, he said. He added that the latest German stimulus programme includes many measures aimed at subsidising German enterprises.

The conflict between Berlin and Paris runs deep. In his role as EU Council president last year, Sarkozy repeatedly raised the demand for an "economic administration" for the eurozone. He made it quite clear that he regarded himself as best suited to head such an administration.

Supported by a majority of the 16 eurozone countries, Sarkozy is seeking to compel the German government to take more responsibility for financial policy. According to the Élysée Palace, Germany, as the continent's biggest national economy, must contribute much more to managing the crisis.

The German government wants precisely to prevent such a development. It regards itself better prepared for the crisis than other euro countries due to the labour market reforms introduced by the previous Social Democratic-Green government, which slashed welfare payments and opened the way for the creation of a huge low-wage sector in Germany.

Backed by the country's business federations, the Merkel government is seeking to exploit the crisis to strengthen Germany's dominant role in Europe. Berlin is vehemently opposed to taking any responsibility for Europe's "weak states"—i.e., those countries that have thus far failed to implement drastic social and welfare cuts.

Behind the German chancellor's appeals for adherence to "free trade" and rejection of protectionism lie the egoistic interests of the German business elite, which profits most from the European domestic market.

The varying economic performances of individual euro countries and the absence of a uniform financial and economic policy have led to increasing discrepancies ("spreads") between the government loans of the euro countries. In mid-January, Greece had to take out a new government loan at an interest rate well above the 3 percent levied on German government securities. Financial experts have said that the trend of rising spreads has "definitely not stopped" and warn that it could have explosive consequences for the fate of the euro as a common currency.

When the chairman of the euro group, Luxembourg Finance Minister and Prime Minister Jean-Claude Juncker, suggested introducing eurobonds to allow weaker member states access to credit on the basis of a pan-European solution, his proposal was immediately rejected by German Finance Minister Peer Steinbrück (Social Democratic Party—SPD). Instead, the German government is seeking to use its EU industry commissioner, Günter Verheugen, to force member states to implement budget cuts and strict austerity policies.

In view of increasing tensions, the EU presidency and the European Commission have announced plans for no fewer than three separate summits in the coming three months. On March 1, the heads of state and government will meet in Brussels to "coordinate national stimulus packages." The agenda is to include the struggle against protectionist tendencies, measures to revive the circulation of credit, the handling of "toxic" securities, and policies directed against the rise of unemployment. Three weeks later, the regular spring summit of the EU takes place in Brussels, which is also likely to concentrate on the economic and financial crisis. In May, the Czech council president has invited member countries to Prague for an employment summit.

Behind this summit frenzy are fears of a possible break-up of the European Union and an escalation of working class resistance to mass unemployment and growing poverty.

US intelligence chief: World capitalist crisis poses greatest threat

US intelligence chief: World capitalist crisis poses greatest threat

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In testimony before the Senate Committee on Intelligence Thursday, Washington's new director of national intelligence, Dennis Blair, warned that the deepening world capitalist crisis posed the paramount threat to US national security and warned that its continuation could trigger a return to the "violent extremism" of the 1920s and 1930s.

This frank assessment, contained in the unclassified version of the "annual threat assessment" presented by Blair on behalf of 16 separate US intelligence agencies, represented a striking departure from earlier years, in which a supposedly ubiquitous threat from Al Qaeda terrorism and the two wars launched under the Bush administration topped the list of concerns.

Clearly underlying his remarks are fears within the massive US intelligence apparatus as well as among more conscious layers of the American ruling elite that a protracted economic crisis accompanied by rising unemployment and reduced social spending will trigger a global eruption of the class struggle and the threat of social revolution.

The presentation was not only the first for Blair, a former Navy admiral who took over as director of national intelligence only two weeks ago, but also marked the first detailed elaboration of the perspective of the US intelligence apparatus since the inauguration of President Barack Obama.

"The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications," Blair declared in his opening remarks. He continued: "The crisis has been ongoing for over a year, and economists are divided over whether and when we could hit bottom. Some even fear that the recession could further deepen and reach the level of the Great Depression. Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability, and high levels of violent extremism."

Blair described the ongoing financial and economic meltdown as "the most serious one in decades, if not in centuries."

"Time is probably our greatest threat," he said. "The longer it takes for the recovery to begin, the greater the likelihood of serious damage to US strategic interests."

The intelligence chief noted that "roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown." He added that the "bulk of anti-state demonstrations" internationally have been seen in Europe and the former Soviet Union.

But Blair stressed that the threat that the crisis will produce revolutionary upheavals is global. The financial meltdown, he said, is "likely to produce a wave of economic crises in emerging market nations over the next year." He added that "much of Latin America, former Soviet Union states and sub-Saharan Africa lack sufficient cash reserves, access to international aid or credit, or other coping mechanism."

Noting that economic growth in these regions of the globe had fallen dramatically in recent months, Blair stated, "When those growth rates go down, my gut tells me that there are going to be problems coming out of that, and we're looking for that." He cited "statistical modeling" showing that "economic crises increase the risk of regime-threatening instability if they persist over a one to two year period."

In another parallel to the 1930s, the US intelligence director pointed to the implications of the crisis for world trade and relations between national capitalist economies. "The globally synchronized nature of this slowdown means that countries will not be able to export their way out of this recession," he said. "Indeed, policies designed to promote domestic export industries—so-called beggar-thy-neighbor policies such as competitive currency devaluations, import tariffs, and/or export subsidies—risk unleashing a wave of destructive protectionism."

It was precisely such policies pursued in the 1930s that set the stage for the eruption of the Second World War.

Blair also raised the damage that the crisis has done to the global credibility of American capitalism, declaring that the "widely held perception that excesses in US financial markets and inadequate regulation were responsible has increased criticism about free market policies, which may make it difficult to achieve long-time US objectives." The collapse of Wall Street, he added, "has increased questioning of US stewardship of the global economy and the international financial structure."

The threat assessment also included evaluations of potential terrorist threats, the "arc of instability" stretching from the Middle East to South Asia, conditions in Latin America and Africa and strategic challenges from both China and Russia, centering in Eurasia. It likewise dealt with the war in Afghanistan, which the Obama administration is preparing to escalate, providing a scathing assessment of the Karzai regime in Kabul and the familiar demand for an escalation of the intervention in Pakistan. Nonetheless, the report's undeniable focus was on the danger that economic turmoil will ignite revolutionary challenges on a world scale.

Blair's emphasis on the global capitalist crisis as the overriding national security concern for American imperialism seemed to leave some of the Senate intelligence panel's members taken aback. They have been accustomed over the last seven years to having all US national security issues subsumed in the "global war on terrorism," a propaganda catch-all used to justify US aggression abroad while papering over the immense contradictions underlying Washington's global position.

The committee's Republican vice chairman, Senator Christopher Bond of Missouri, expressed his concern that Blair was making the "conditions in the country" and the global economic crisis "the primary focus of the intelligence community."

Blair responded that he was "trying to act as your intelligence officer today, telling you what I thought the Senate ought to be caring about." It sounded like a rebuke and a warning to the senators that it is high time to ditch the ideological baggage of the past several years and confront the real and growing threat to capitalist rule posed by the crisis and the resulting radicalization of the masses in country after country.

It may have been lost on some of those sitting at the dais in the Senate hearing room, but when Blair referred to a return to the conditions of "violent extremism" of the 1920s and 1930s, he was warning that American and world capitalism once again faces the specter of a revolutionary challenge by the working class.

There is no doubt that behind the façade of Obama, the US national security apparatus is making its counter-revolutionary preparations accordingly.

Including Blair, Obama has named three recently retired four-star military officers to serve in his cabinet. The other two are former Marine Gen. James Jones, his national security adviser, and former Army chief of staff Gen. Erik Shinseki, his secretary of veterans affairs. This unprecedented representation of the senior officer corps within the new Democratic administration is indicative of a growth in the political power of the US military that poses a serious threat to basic democratic rights.

A report that appeared in a magazine published by the US Army War College last November, just weeks after the election, indicates that the Pentagon and the US intelligence establishment are preparing for what they see as a historic crisis of the existing order that could require the use of armed force to quell social struggles at home.

Entitled "Known Unknowns: Unconventional ‘Strategic Shocks' in Defense Strategy Development," the monograph insists that one of the key contingencies for which the US military must prepare is a "violent, strategic dislocation inside the United States," which could be provoked by "unforeseen economic collapse" or "loss of functioning political and legal order."

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

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

The document continues: "Under the most extreme circumstances, this might include use of military force against hostile groups inside the United States. Further, DoD [the Department of Defense] would be, by necessity, an essential enabling hub for the continuity of political authority in a multi-state or nationwide civil conflict or disturbance." The phrase—"an essential enabling hub for continuity of authority"—is a euphemism for military dictatorship.

It's Going to Take a Civic Jolt By Ralph Nader

It's Going to Take a Civic Jolt

By Ralph Nader

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Can Congress "walk and chew gum at the same time?"

This phrase used by President Lyndon Johnson for one of his political opponents comes to mind at a time early in the first 100 days of the Obama Administration when supposedly many long-overdue changes and rollbacks are possible.

It is not just that Congress is completely absorbed with the tax-cut-stimulus package. It is stasis that seems to be enveloping, even within its numerous well-funded and staffed committees in the House and Senate, from even the signaling of serious movement toward rolling back Bush-pushed legislation and starting widely supported forays that take hope to change.

The continuation of this state of stasis is made more likely because the Republican minority is feeling its oats. It put the White House on the defensive during the struggle to enact economic recovery legislation even though previous Republican policies and coddling of Wall Street for eight years build a steep cliff for financial collapse. Add the de-regulatory moves of 1999 and 2000 by the Clinton-Rubin crowd and the financial meltdown accelerates.

There is something else operating. One gets the feel on Capitol Hill among some fairly sharp people of a lack of horizon, a paucity of progressive determination, a sense of being overwhelmed by the corporate forces still bearing down on Congress-easily the most powerful branch of government under our Constitution.

But Congress does not act as if it is the most powerful branch. It routinely abdicates its constitutional responsibilities-the declaration of war authority and the plenary authority to investigate and require access to information in the executive branch.

Even after the Democrats took control of the Congress in January 2007, George W. Bush again and again got his way including a rubber stamp for the huge Iraq and Afghanistan war budgets outside of the normal appropriations processes.

Efforts by Senator Russ Feingold and Cong. John Conyers to move a modest censure resolution of Bush and Cheney for their many constitutional and statutory violations were aggressively rejected by their leaders-Speaker Nancy Pelosi and Senator Harry Reid. In January 2007, Pelosi and Reid two took impeachment off the table allowing the most chronically impeachable presidency in our history to continue undisturbed.

Some staffers in Congress privately assert that the Democrats are not acting like a majority party. It is worse than that. They are not acting-period.

From their majority status in 2007 to 2009 and a Democratic President in the White House, the Congressional Democrats are not moving swiftly to repeal the ban on Uncle Sam negotiating drug prices from volume discounts under the drug benefit law. They are not moving to amend the Patriot Act, regain control of warrantless surveillance, strengthen the corporate criminal laws and enforcement budgets. Congress is not even pushing to require taxing Hedge Fund manager's income as ordinary income not as capital gains.

I cite these policies because they are policies much favored by many Democratic lawmakers. But in practice lawmakers duck and duck and duck from translating their beliefs into contentious action vis-à-vis the lobbyists and their captive legislators.

Senator Chris Dodd and the vast majority of the American people want to do something about credit card company abuses and gouges. But he is surrounded not just by the Republicans on the Senate Banking Committees but high-ranking Democrats beholden to the financial goliaths who, are demanding and receiving hundreds of billions of dollars in taxpayer bailouts.

There is word from the politicians that consideration of health care insurance-apart from a quickly enacted expansion of some coverage for more poor children-will be put off for a year. The trade unions' top priority to enact labor law reforms, supported by Obama during his presidential campaign, are being held back by the Democrats.

There is even doubt whether the District of Columbia will get a voting Representative in the House when push comes to shove in the Senate.

The one-subject-at-a-time attitude is coming from the White House. "Obama doesn't want it now" is a common phrase used by legislators to excuse themselves from exercising the separate but equal Congressional powers. This pretext applies to taking away some of the hugely expensive and unnecessary weapons systems like the F-22 aircraft decried by many military and retired military analysts. The vast, bloated military budget is sacrosanct on Capitol Hill as it is in the White House.

At a time of widely perceived needs for Congressional action, with large corporations busy applying for corporate welfare and on the defensive, the Democrats are not generating any momentum for standing for and with the people. Even in the midst of food contamination, illnesses and fatalities, they cannot turn around forty years of delay on giving the Food and Drug Administration adequate authority and inspectors to protect our food supply.

It is going to take a very focused civic jolt from you all to your Senators and Representatives. A couple of million jolters from our large country can get the train moving on the tracks. It doesn't take much time to holler, yell or bellow with the facts.

Looting Social Security

Looting Social Security

By William Greider

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Is Social Security threatened by entitlement reformers? David M. Walker, president and CEO of the Peter G. Peterson Foundation responds to William Greider's essay here. Read William Greider's answer to Peterson's criticism here.

Governing elites in Washington and Wall Street have devised a fiendishly clever "grand bargain" they want President Obama to embrace in the name of "fiscal responsibility." The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system. They are also targeting Medicare and Medicaid. The pitch sounds preposterous to millions of ordinary working people anxious about their economic security and worried about their retirement years. But an impressive armada is lined up to push the idea--Washington's leading think tanks, the prestige media, tax-exempt foundations, skillful propagandists posing as economic experts and a self-righteous billionaire spending his fortune to save the nation from the elderly. These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what's happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as "fiscal reform." In fact, it's the political equivalent of bait-and-switch fraud.

Defending Social Security sounds like yesterday's issue--the fight people won when they defeated George W. Bush's attempt to privatize the system in 2005. But the financial establishment has pushed it back on the table, claiming that the current crisis requires "responsible" leaders to take action. Will Obama take the bait? Surely not. The new president has been clear and consistent about Social Security, as a candidate and since his election. The program's financing is basically sound, he has explained, and can be assured far into the future by making only modest adjustments.

But Obama is also playing footsie with the conservative advocates of "entitlement reform" (their euphemism for cutting benefits). The president wants the corporate establishment's support on many other important matters, and he recently promised to hold a "fiscal responsibility summit" to examine the long-term costs of entitlements. That forum could set the trap for a "bipartisan compromise" that may become difficult for Obama to resist, given the burgeoning deficit. If he resists, he will be denounced as an old-fashioned free-spending liberal. The advocates are urging both parties to hold hands and take the leap together, authorizing big benefits cuts in a circuitous way that allows them to dodge the public's blame. In my new book, Come Home, America, I make the point: "When official America talks of 'bipartisan compromise,' it usually means the people are about to get screwed."

The Social Security fight could become a defining test for "new politics" in the Obama era. Will Americans at large step up and make themselves heard, not to attack Obama but to protect his presidency from the political forces aligned with Wall Street interests? This fight can be won if people everywhere raise a mighty din--hands off our Social Security money!--and do it now, before the deal gains momentum. Popular outrage can overwhelm the insiders and put members of Congress on notice: a vote to gut Social Security will kill your career. By organizing and agitating, people blocked Bush's attempt to privatize Social Security. Imagine if he had succeeded--their retirement money would have disappeared in the collapsing stock market.

To understand the mechanics of this attempted swindle, you have to roll back twenty-five years, to the time the game of bait and switch began, under Ronald Reagan. The Gipper's great legislative victory in 1981--enacting massive tax cuts for corporations and upper-income ranks--launched the era of swollen federal budget deficits. But their economic impact was offset by the huge tax increase that Congress imposed on working people in 1983: the payroll tax rate supporting Social Security--the weekly FICA deduction--was raised substantially, supposedly to create a nest egg for when the baby boom generation reached retirement age. A blue-ribbon commission chaired by Alan Greenspan worked out the terms, then both parties signed on. Since there was no partisan fight, the press portrayed the massive tax increase as a noncontroversial "good government" reform.

Ever since, working Americans have paid higher taxes on their labor wages--12.4 percent, split between employees and employers. As a result, the Social Security system has accumulated a vast surplus--now around $2.5 trillion and growing. This is the money pot the establishment wants to grab, claiming the government can no longer afford to keep the promise it made to workers twenty-five years ago.

Actually, the government has already spent their money. Every year the Treasury has borrowed the surplus revenue collected by Social Security and spent the money on other purposes--whatever presidents and Congress decide, including more tax cuts for monied interests. The Social Security surplus thus makes the federal deficits seem smaller than they are--around $200 billion a year smaller. Each time the government dipped into the Social Security trust fund this way, it issued a legal obligation to pay back the money with interest whenever Social Security needed it to pay benefits.

That moment of reckoning is approaching. Uncle Sam owes these trillions to Social Security retirees and has to pay it back or look like just another deadbeat. That risk is the only "crisis" facing Social Security. It is the real reason powerful interests are so anxious to cut benefits. Social Security is not broke--not even close. It can sustain its obligations for roughly forty years, according to the Congressional Budget Office, even if nothing is changed. Even reports by the system's conservative trustees say it has no problem until 2041 (that report is signed by former Treasury Secretary Henry Paulson, the guy who bailed out the bankers). During the coming decade, however, the system will need to start drawing on its reserve surpluses to pay for benefits as boomers retire in greater numbers.

But if the government cuts the benefits first, it can push off repayment far into the future, and possibly forever. Otherwise, government has to borrow the money by selling government bonds or extend the Social Security tax to cover incomes above the current $107,000 ceiling. Obama endorses the latter option.

Follow the bouncing ball: Washington first cuts taxes on the well-to-do, then offsets the revenue loss by raising taxes on the working class and tells folks it is saving their money for future retirement. But Washington spends the money on other stuff, so when workers need it for their retirement, they are told, Sorry, we can't afford it.

Federal budget analysts try to brush aside these facts by claiming the government is merely "borrowing from itself" when it dips into Social Security. But that is a substantive falsehood. Government doesn't own this money. It essentially acts as the fiduciary, holding this wealth in trust for the "beneficial owners," the people who paid the taxes. This is the bait and switch the establishment intends to execute.

Peter Peterson, a Republican financier who made a fortune doing corporate takeover deals at Wall Street's Blackstone Group, is the Daddy Warbucks of the "fiscal responsibility" crusade. He has campaigned for decades against the dangers that old folks pose to the Republic. Now 82 and retired, Peterson claims he will spend nearly one-third of his $2.8 billion in wealth--he ranks 147 on the Forbes 400 list of richest Americans--alerting the public to this threat (leave aside the fact that old people have already paid for their retirement or that Social Security's modest benefits are equivalent to minimum-wage income). The major media treat him adoringly. Most reporters are too lazy (or dim) to check out the facts for themselves, so they simply repeat what Peterson tells them about Social Security.

It is a frightful message. Peterson describes a "$53 trillion hole" in America's fiscal condition--but the claim assumes numerous artful fallacies. His most blatant distortion is lumping Social Security, which is self-funded and sound, with other entitlements like Medicare and Medicaid. Those programs do face financial crisis--not because the elderly and poor are greedily gaming the system but because the medical-industrial complex has the profit incentive to drive healthcare costs higher and higher. Healthcare reform can solve the financing problem only if it imposes cost controls on private players like the insurance and pharmaceutical industries.

Peterson is financing a media blitz. His tendentious documentary--I.O.U.S.A.--opened in 400 theaters and was broadcast on CNN with appropriate solemnity. Last September Peterson bought two full pages in the New York Times to urge the next president to create a "bipartisan fiscal responsibility commission" once he was in office (Peterson was for John McCain). This group of so-called experts would be authorized to design the reforms for Congress to enact. But Peterson does not want Congress to have a full, freewheeling debate on the particulars. The reform package, he suggests, should be submitted to a single "up-or-down vote by Congress, as is done with military base closings." That's one of the gimmicks intended to give politicians cover and protect them from their constituents. It is profoundly antidemocratic. But that's the idea--save the government from the unruly passions of citizens. Peterson's proposal also resembles the notorious fast-track provision, which for years enabled presidents to steamroll Congress on trade agreements, no amendments allowed.

Peterson's proposal would essentially dismantle the Social Security entitlement enacted in the New Deal, much as Bill Clinton repealed the right to welfare. Peterson has assembled influential allies for this radical step. They include a coalition of six major think tanks and four tax-exempt foundations.

Their report--Taking Back Our Fiscal Future, issued jointly by the Brookings Institution and the Heritage Foundation--recommends that Congress put long-term budget caps on Social Security and other entitlement spending, which would automatically trigger benefits cuts if needed to stay within the prescribed limits. The same antidemocratic mechanisms--a commission of technocrats and limited Congressional discretion--would shield politicians from popular blowback.

The authors of this plan are sixteen economists from Brookings and Heritage, joined by the American Enterprise Institute, the Concord Coalition, the New America Foundation, the Progressive Policy Institute and the Urban Institute. "Our group covers the ideological spectrum," they claim. This too is a falsehood. All these organizations are corporate-friendly and dependent on big-money contributors. No liberal or labor thinkers need apply, though the group includes some formerly liberal economists like Robert Reischauer, Alice Rivlin and Isabel Sawhill.

The ugliest ploy in their campaign is the effort to provoke conflict between the generations. "The automatic funding of Social Security, Medicare and Medicaid impedes explicit consideration of competing priorities and threatens to squeeze out spending for young people," these economists declared. Children, it is suggested, are being shortchanged by their grandparents. This line of argument has attracted financial support from some leading foundations usually associated with liberal social concerns--Annie E. Casey, Charles Stewart Mott, William and Flora Hewlett. Peterson has teamed up with the Pew Trust and has also created front groups of "concerned youth."

Trouble is, most young people did not buy this pitch when George W. Bush used it to sell Social Security privatization. Most kids seem to think Grandma is entitled to a decent retirement. In fact, whacking Social Security benefits, not to mention Medicaid, directly harms poor children. More poor children live in families dependent on Social Security checks than on welfare, economist Dean Baker points out. If you cut Grandma's Social Security benefits, you are directly making life worse for the poor kids who live with her.

The assault sounds outrageous and bound to fail, but the conservative interests may have Obama in a neat trap. Their fog of scary propaganda makes it easier to distort the president's position and blame him for any fiscal disorders driven by the current financial collapse. He will be urged to "do the right thing" for the country and make the hard choices, regardless of petty political grievances (words and phrases he has used himself). Obama's fate may depend on informing the public--now, not later--so that people are inoculated against these artful lies.

The real crisis, in any case, is not Social Security but the colossal failure of the private pension system. Most people know this, either because their 401(k) account is pitifully inadequate, or their company dumped its pension plan, or the plummeting stock market devoured their savings. Obama can protect himself with the public by speaking candidly about this reality and proposing a forceful, long-term solution. He should expand the guarantees that ordinary people need to get their families through these adverse times. Instead of taking away old promises to people, the president should make some new ones. Healthcare reform is obviously an important imperative, but so is retirement security.

The solution to retirement insecurity is the creation of a national pension, alongside Social Security, that would be the bedrock social insurance. Improving Social Security benefits is one step, but it cannot possibly restore what so many middle-class families have lost. Tinkering with the 401(k) would be doomed, because it is basically a tax subsidy for the middle and upper classes, another way to avoid taxes that failed utterly to produce real savings [see Greider, "Riding Into the Sunset," June 27, 2005].

The new universal pension would be mainly self-financing--that is, funded by mandatory savings--but the system would operate as a government-supervised nonprofit, not manipulated by corporate executives or Wall Street firms. A national pension would combine the best qualities of defined-benefit plans and individual accounts. Each worker's pension would be individualized and portable, moving with job changes, but the savings would be pooled with others for diversified investment.

There is nothing radical about this approach. It follows the form of the government's thrift savings plan for civil servants and members of Congress, TIAA-CREF for college professors or other union pension plans jointly managed by labor and management trustees. The crucial difference is that since the new universal pension would be nonprofit, nobody would get to play self-interested games with the money that employees are storing in it for retirement. People could check their accumulated balance at any time.

Washington would set the performance standards and enforce proper behavior, but the operations of retirement programs could be widely decentralized among many private organizations or sector by sector. Other nations, like Australia, have proved this can be both democratic and reliable. Economist Teresa Ghilarducci of the New School has designed a promising and plausible plan (available at the Economic Policy Institute's website, epi.org, or in her book When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them). With payroll savings of 5 percent and government-guaranteed returns on investment, average workers could count on pensions that would replace 70 percent of pre-retirement earnings when combined with Social Security. Low-wage earners could be subsidized by government to make up for inadequate pay. Private retirement plans that collect a higher percentage of pay and provide higher benefits could continue, so long as they exceed the federal standard. One great virtue of this approach is that nobody gets left behind, dependent on charity, the predatory instincts of the financial system or the magic of the marketplace.

Another great virtue is that a national pension would confront the country's glaring economic weakness--the collapse of national savings. As the economy digs out of its hole, restoring household savings will be crucial for ultimate recovery and for reduction of our dangerous dependence on foreign capital. Obviously, any system that adds a new payroll tax cannot be introduced at the depth of a recession, but the work of constructing it can begin right now, with the new system phased in gradually, as economic conditions permit. Instead of second-guessing the past and destroying its accomplishments, this reform would look forward and create conditions for a more promising future. Nobody gets a free lunch, and everybody has to take personal responsibility. But unlike what the governing elites are attempting, nobody gets thrown over the side.

Large U.S. Banks on Brink of Insolvency, Experts Say

Large U.S. Banks on Brink of Insolvency, Experts Say

By Steve Lohr

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Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking.

A sober assessment of the growing mountain of losses from bad bets, measured in today's marketplace, would overwhelm the value of the banks' assets, they say. The banks, in their view, are insolvent.

None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the U.S. government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.

But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department's plan outlined this week.

The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets.

It is the basic blueprint that has proved successful, they say, in resolving major financial crises in recent years. Such forceful action was belatedly adopted by the Japanese government from 2001 to 2003, by the Swedish government in 1992 and by Washington in 1987 to 1989 to overcome the savings and loan crisis.

"The historical record shows that you have to do it eventually," said Adam Posen, a senior fellow at the Peterson Institute for International Economics. "Putting it off only brings more troubles and higher costs in the long run."

Of course, the Obama administration's stimulus plan could help to spur economic recovery in a timely manner and the value of the banks' assets could begin to rise.

Absent that, the prescription would not be easy or cheap. Estimates of the capital injection needed in the United States range to $1 trillion and beyond. By contrast, the commitment of taxpayer money is the $350 billion remaining in the financial bailout approved by Congress last fall.

Meanwhile, the loss estimates keep mounting.

Nouriel Roubini, a professor of economics at the Stern School of Business at New York University, has been both pessimistic and prescient about the gathering credit problems. In a new report, Roubini estimates that total losses on loans by American financial firms and the fall in the market value of the assets they hold will reach $3.6 trillion, up from his previous estimate of $2 trillion.

Of the total, he calculates that American banks face half that risk, or $1.8 trillion, with the rest borne by other financial institutions in the United States and abroad.

"The United States banking system is effectively insolvent," Roubini said.

For its part, the banking industry bridles at such broad-brush analysis. The industry defines solvency bank by bank, and uses the value of a bank's assets as they are carried on its books rather than the market prices calculated by economists.

"Our analysis shows that the banks have varying degrees of solvency and does not reveal that any institution is insolvent," said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable, a trade group whose members include the largest banks.

Edward Yingling, president of the American Bankers Association, called claims of technical insolvency "speculation by people who have no specific knowledge of bank assets."

Roubini's numbers may be the highest, but many others share his rising sense of alarm. Simon Johnson, a former chief economist at the International Monetary Fund, estimates that the United States banks have a capital shortage of $500 billion. "In a more severe recession, it will take $1 trillion or so to properly capitalize the banks," said Johnson, an economist at the Massachusetts Institute of Technology.

At the end of January, the IMF raised its estimate of the potential losses from loans and other credit securities originated in the United States to $2.2 trillion, up from $1.4 trillion last October. Over the next two years, the IMF estimated, United States and European banks would need at least $500 billion in new capital, a figure more conservative than those of many economists.

Still, these numbers are all based on estimates of the value of complex mortgage-backed securities in a very uncertain economy. "At this moment, the liabilities they have far exceed their assets," said Posen of the Peterson institute. "They are insolvent."

Yet, as Posen and other economists note, there are crucial issues of timing and market psychology that surround the discussion of bank solvency. If one assumes that current conditions reflect a temporary panic, then the value of the banks' distressed assets could well recover over time. If not, many banks may be permanently impaired.

"We won't know what the losses are on these mortgage-backed securities, and we won't until the housing market stabilizes," said Richard Portes, an economist at the London Business School.

Raghuram Rajan, a professor of finance and an economist at the University of Chicago graduate business school, draws the distinction between "liquidation values" and those of calmer times, or "going concern values." In a troubled time for banks, Rajan said, analysts are constantly scrutinizing current and potential losses at the banks, but that is not the norm.

"If they had to sell these securities today, the losses would be far beyond their capital at this point," he said. "But if the prices of these assets will recover over the next year or so, if they don't have to sell at distress prices, the banks could have a new lease on life by giving them some time."

That sort of breathing room is known as regulatory forbearance, essentially a bet by regulators that time will help heal banking troubles. It has worked before.

In the 1980s, during the height of the Latin American debt crisis, the total risk to the nine money-center banks in New York was estimated at more than three times the capital of those banks. The regulators, analysts say, did not force the banks to value those loans at the fire-sale prices of the moment, helping to avert a disaster in the banking system.

In the current crisis, experts warn, banks need to get rid of bad assets quickly. The Treasury's public-private investment fund is an effort to do that.

But many economists and other finance experts say that the government may soon have to move in and take on troubled assets itself to resolve the credit crisis. Then, they say, the government could have the patience to wait for the economy to improve.

Initially, that would put more taxpayer money on the line, but in the end it might reduce overall losses. That is what happened during the savings and loan crisis, when the troubled assets, mostly real estate, were seized by the Resolution Trust Corporation, a government-owned asset management company, and sold over a few years.

The eventual losses, an estimated $130 billion, were far less than if the hotels, office buildings and residential developments had been sold immediately.

"The taxpayer money would be used to acquire assets, and behind most of those securities are mortgages, houses, and we know they are not worthless," Portes said.

A Torture Report Could Spell Big Trouble for Bush Lawyers

A Torture Report Could Spell Big Trouble For Bush Lawyers

Michael Isikoff

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An internal Justice Department report on the conduct of senior lawyers who approved waterboarding and other harsh interrogation tactics is causing anxiety among former Bush administration officials. H. Marshall Jarrett, chief of the department's ethics watchdog unit, the Office of Professional Responsibility (OPR), confirmed last year he was investigating whether the legal advice in crucial interrogation memos "was consistent with the professional standards that apply to Department of Justice attorneys." According to two knowledgeable sources who asked not to be identified discussing sensitive matters, a draft of the report was submitted in the final weeks of the Bush administration. It sharply criticized the legal work of two former top officials—Jay Bybee and John Yoo—as well as that of Steven Bradbury, who was chief of the Office of Legal Counsel (OLC) at the time the report was submitted, the sources said. (Bybee, Yoo and Bradbury did not respond to multiple requests for comment.)

But then–Attorney General Michael Mukasey and his deputy, Mark Filip, strongly objected to the draft, according to the sources. Filip wanted the report to include responses from all three principals, said one of the sources, a former top Bush administration lawyer. (Mukasey could not be reached; his former chief of staff did not respond to requests for comment. Filip also did not return a phone message.) OPR is now seeking to include the responses before a final version is presented to Attorney General Eric Holder Jr. "The matter is under review," said Justice spokesman Matthew Miller.

If Holder accepts the OPR findings, the report could be forwarded to state bar associations for possible disciplinary action. But some former Bush officials are furious about the OPR's initial findings and question the premise of the probe. "OPR is not competent to judge [the opinions by Justice attorneys]. They're not constitutional scholars," said the former Bush lawyer. Mukasey, in speeches before he left, decried the second-guessing of Justice lawyers who, acting under "almost unimaginable pressure" after 9/11, offered "their best judgment of what the law required."

But the OPR probe began after Jack Goldsmith, a Bush appointee who took over OLC in 2003, protested the legal arguments made in the memos. Goldsmith resigned the following year after withdrawing the memos, and later wrote that he was "astonished" by the "deeply flawed" and "sloppily reasoned" legal analysis in the memos by Yoo and Bybee, including their assertion (challenged by many scholars) that the president could unilaterally disregard a law passed by Congress banning torture.

OPR investigators focused on whether the memo's authors deliberately slanted their legal advice to provide the White House with the conclusions it wanted, according to three former Bush lawyers who asked not to be identified discussing an ongoing probe. One of the lawyers said he was stunned to discover how much material the investigators had gathered, including internal e-mails and multiple drafts that allowed OPR to reconstruct how the memos were crafted. In a departure from the norm, Jarrett also told members of the Senate Judiciary Committee last year he would inform them of his findings and would "consider" releasing a public version. If he does, it could be the most revealing public glimpse yet at how some of the major decisions of Bush-era counterterrorism policy were made.

GM Considering Chapter 11 Filing, New Company: Report

GM considering Chapter 11 filing, new company: report

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General Motors Corp, nearing a Tuesday deadline to present a viability plan to the U.S. government, is considering as one option a Chapter 11 bankruptcy filing that would create a new company, the Wall Street Journal said in its Saturday edition.

"One plan includes a Chapter 11 filing that would assemble all of GM's viable assets, including some U.S. brands and international operations, into a new company," the newspaper said. "The undesirable assets would be liquidated or sold under protection of a bankruptcy court. Contracts with bondholders, unions, dealers and suppliers would also be reworked."

Citing "people familiar with the matter," the story said that GM could also ask for additional government funds to stave off a bankruptcy filing.

GM declined to comment, the story said.

General Motors and Chrysler LLC face a Tuesday deadline to file restructuring plans to the government in exchange for receiving $17.4 billion in federal loans.

Automakers have struggled as U.S. auto sales have tumbled amid a recessionary economy. U.S. auto sales in January tumbled to a 27-year low.

GM has been in talks with bondholders and the United Auto Workers union to get an agreement on a restructuring that would wipe out about $28 billion in debt for the auto maker, sources have told Reuters. However, it appears unlikely a deal could be reached by the Tuesday deadline, they said.

GM has already announced plans to cut 10,000 salaried workers worldwide, or 14 percent of its staff, impose pay cuts for most remaining white-collar U.S. workers and has offered buyouts to its 62,000 U.S. workers represented by the UAW.

In addition, it is trying to sell its Hummer SUV and Swedish Saab brands and is reviewing the status of its Saturn brand.

Torture Report Erodes Bush's Defense

Torture Report Erodes Bush's Defense

By Jason Leopold

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A key line in George W. Bush’s defense against war crimes charges has weakened with the disclosure that an internal Justice Department watchdog has concluded that the legal advice, which cleared the way for Bush’s policies on torture and other abuse of detainees, was tainted by political influence.

An investigation by H. Marshall Jarrett, head of the Justice Department’s Office of Professional Responsibility, reached “damning” conclusions about numerous cases of “misconduct” in the advice from John Yoo and other lawyers in the Office of Legal Counsel during the Bush administration, according to legal sources familiar with the report’s contents.

OPR investigators determined that Yoo blurred the lines between an attorney charged with providing independent legal advice to the White House and a policy advocate who was working to advance the administration’s goals, said the sources who spoke on condition of anonymity because the contents of the report are still classified.

One part of the OPR report criticized Yoo’s use of an obscure 2000 health benefits statute to narrow the definition of torture in a way that permitted waterboarding and other acts that have historically been regarded as torture under U.S. law, the sources said.

The report also criticizes Yoo’s legal theories that the President of the United States had the right to suspend Fourth Amendment protections against unreasonable searches and seizures, the sources said. It is believed that Yoo’s legal theories led to a warrantless wiretap program after 9/11.

The OPR report was completed late last year but was kept under wraps by Attorney General Michael Mukasey while Bush finished out his days in office, the sources said.

Bush’s Defense

The OPR’s findings could influence whether Bush and other senior officials are held to account for torture and other war crimes. Bush has pinned his defense on the fact that he had received advice from Yoo and other Justice Department lawyers that the brutal interrogations of “war on terror” detainees did not constitute torture or violate other laws of war.

Bush’s line of defense could collapse if it were determined that the lawyers were colluding with administration officials in setting policy, rather than providing objective legal analysis. Already, extensive evidence exists, including Yoo’s own writings, showing that he participated in high-level administration meetings to discuss and set policy.

For instance, in his 2006 book War by Other Means, Yoo describes his involvement in frequent White House meetings regarding what “other means” should receive a legal stamp of approval. Yoo, who was a deputy assistant attorney general assigned to the powerful Office of Legal Counsel at the Justice Department, wrote:

“As the White House held its procession of Christmas parties and receptions in December 2001, senior lawyers from the Attorney General’s office, the White House counsel’s office, the Departments of State and Defense and the NSC [National Security Council] met a few floors away to discuss the work on our opinion. …

“This group of lawyers would meet repeatedly over the next months to develop policy on the war on terrorism. We certainly did not all agree, nor did we always get along, but we all believed that we were doing what was best for the nation and its citizens.

“Meetings were usually chaired by Alberto Gonzales,” who was then White House counsel and later became Bush’s second Attorney General. Yoo identified other key players as Timothy Flanigan, Gonzales’s deputy; William Howard Taft IV from State; John Bellinger from the NSC; William “Jim” Haynes from the Pentagon; and David Addington, counsel to Vice President Dick Cheney.

What Yoo’s book and other evidence make clear is that the lawyers from the Justice Department’s OLC weren’t just legal scholars handing down opinions from an ivory tower; they were participants in how to make Bush’s desired actions “legal” even if the arguments were professionally flawed.

For instance, the Aug. 1, 2002, OLC opinion known as the “torture memo,” which opened the door to abusive tactics such as waterboarding, which subjects a detainee to the sensation that he is drowning, was rescinded soon after Jack Goldsmith became head of the OLC in fall 2003.

Goldsmith later described the opinion as “legally flawed” and “sloppily written.” The OPR report concurs in Goldsmith’s judgment, the sources said.

Congressional Interest

Asked to comment about the OPR report and the disclosure that Mukasey blocked its delivery to Congress, staffers for Democratic Sens. Dick Durbin and Sheldon Whitehouse said they were working on a letter to Jarrett to inquire about the circumstances that resulted in the report being kept under wraps.

A year ago, Whitehouse and Durbin discovered the existence of the internal probe after writing a letter to the Justice Department’s watchdog agencies requesting an investigation into the role “Justice Department officials [played] in authorizing and/or overseeing the use of waterboarding by the Central Intelligence Agency... and whether those who authorized it violated the law.”

The questions posed by the senators included whether the legal advice met professional standards and whether the lawyers were “insulated from outside pressure to reach a particular conclusion?” Whitehouse and Durbin also asked what role was played by Bush’s White House and the CIA in possibly influencing “deliberations about the lawfulness of waterboarding?”

Jarrett responded by saying the senators’ concerns were already part of a pending investigation that OPR was conducting into the genesis of the Aug. 1, 2002, legal opinion.

Because Yoo no longer works for the Justice Department, OPR can only recommend state bar associations conduct a review of his work to determine if he breached ethics and should be punished. The punishment could include disbarment.

The report also recommends state bar associations review the work of Jay Bybee, who was Yoo’s boss at the OLC, the sources said. Bybee signed the so-called torture memo and other controversial legal opinions that Yoo helped to draft.

Troubling Narrative

OPR investigators poured over thousands of pages of internal Justice Department e-mails and White House memos over the past four years and built a disturbing narrative about Yoo’s work, the sources said, adding that OPR investigators also examined Yoo’s book for further evidence that he had fixed the law around the administration’s policy interests.

In War by Other Means, Yoo wrote: “The only way to prevent future September 11s will be by acquiring intelligence. The main way of doing that is by interrogating captured al-Qaeda leaders or breaking into their communications.... In an opinion eventually issued on Jan. 22, 2002, OLC concluded that al-Qaeda could not claim the benefits of the Geneva Conventions.”

In the context of explaining why detainees were not entitled to the benefits of the Geneva Convention or prisoner of war status, Yoo wrote:

“When our group of lawyers visited Gitmo, the Marine general in charge told us that several of the detainees had arrived screaming that they wanted to kill guards and other Americans. …

“Many at Gitmo are not in a state of calm surrender. Open barracks for most are utterly impossible; some al-Qaeda detainees want to kill not only guards, but their peers who might be cooperating with the United States. The provision of ordinary POW rights...is infeasible.”

Yoo’s argument that only quiet POWs “in a state of calm surrender” should qualify for Geneva protections might be news to many former U.S. POWs, including Sen. John McCain, who have boasted about their various forms of resistance to their captors.

Yoo added that a few weeks after he returned from Guantanamo “the lawyers met again in the White House Situation Room to finally resolve the issue for presidential decision.”

“If Geneva Convention rules were applied, some believed they would interfere with our ability to apprehend or interrogate al-Qaeda leaders,” Yoo wrote. “We would be able to ask Osama bin Laden loud questions and nothing more. Geneva rules were designed for mass armies, not conspirators, terrorists or spies.”

Long Battle

The OPR probe was launched in mid-2004 after a meeting in which Jack Goldsmith, then head of the OLC, got into a tense debate with then-White House counsel Alberto Gonzales about the torture memo. Following the meeting, Goldsmith, who had rescinded the memo, resigned.

According to people familiar with the OPR report, Yoo was briefed on the report in January. Yoo is said to have informed officials at the University of California at Berkeley, where he is a tenured law professor, according to two senior law school officials.

Yoo is now a visiting law professor at Chapman University School of Law in Orange, California, where he teaches foreign relations law. I approached him on campus recently and asked him about the report’s findings but he refused to comment. Chapman University officials also declined to comment.

In a letter to faculty and students last December, Law School Dean John Eastman said “Chapman University officials have received several notes of concern about my decision to offer Professor John Yoo a distinguished visitorship at the Chapman University School of Law.”

“I would encourage those who object to Professor Yoo's appointment here to read his scholarly work on the subject of Executive power, and in particular the memos he authored while serving in the administration,” Dean Eastman wrote Dec. 18, 2008. “You will find that Yoo's position, while disputed, is far from ignorant or disrespectful of the Constitution.”

Dawn Johnsen, who has been tapped by President Barack Obama to head the Office of Legal Counsel, has publicly criticized the work of Yoo and other OLC officials under Bush. In a 2006 Indiana Law Journal

“The advocacy model of lawyering, in which lawyers craft merely plausible legal arguments to support their clients’ desired actions, inadequately promotes the President’s constitutional obligation to ensure the legality of executive action,” said Johnsen, who served in the OLC under President Bill Clinton. article, she said the function of OLC should be to “provide an accurate and honest appraisal of applicable law, even if that advice will constrain the administration’s pursuit of desired policies.”

In a 2007 UCLA Law Review article, Johnsen said Yoo’s Aug. 1, 2002, torture memo is “unmistakably” an “advocacy piece.”

“OLC abandoned fundamental practices of principled and balanced legal interpretation,” Johnsen wrote. “The Torture Opinion relentlessly seeks to circumvent all legal limits on the CIA’s ability to engage in torture, and it simply ignores arguments to the contrary.

“The Opinion fails, for example, to cite highly relevant precedent, regulations, and even constitutional provisions, and it misuses sources upon which it does rely. Yoo remains almost alone in continuing to assert that the Torture Opinion was ‘entirely accurate’ and not outcome driven.”

[For another story about the OPR report, see Newsweek's "A Torture Report Could Spell Big Trouble for Bush Lawyers."]