Sunday, March 8, 2009

Outlaw the Shadow Banking System!

"Outlaw the Shadow Banking System!" - Guess Who Said It?

by Matthias Chang

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When I read the remarks of President Obama and Prime Minister Gordon Brown after their meeting at the Oval Office on March 3, 2009 and the speech of the latter to the Joint Session of Congress on March 4, 2009, I realized that a growing antagonism has emerged between certain factions of the ruling elites in the City of London and in Washington DC.

The first warning of the acute differences was sounded by President Obama himself and it was most surprising that the mass media paid hardly attention to it. In his weekly address on February 28, 2009, President Obama said:

“I realize that passing this budget won’t be easy. Because it represents real and dramatic change, it also represents a threat to the status quo in Washington. I know that the insurance industry won’t like the idea that they’ll have to bid competitively to continue offering Medicare coverage, but that’s how we’ll help preserve and protect Medicare and lower health care costs for American families. I know that banks and big student lenders won’t like the idea that we’re ending their huge taxpayer subsidies, but that’s how we’ll save taxpayers nearly $50 billion and make college more affordable. I know that oil and gas companies won’t like us ending nearly $30 billion in tax breaks, but that’s how we’ll help fund a renewable energy economy that will create new jobs and new industries. In other words, I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight as we speak. My message to them is this:

So am I.

Read the underlined words again.

It is clear something is definitely amiss within the ruling elites and President Obama has thrown the gauntlet to his adversaries. The skeptics may say that we should not read too much into this above quoted paragraph, as it could be mere spin to rally the troops in times of crisis. Time will tell.

I take the view that it is inevitable that the members of the ruling elites would go for each other’s throats because those who were given the charge to ensure that the money-machine keeps running have screwed up big time. Someone must answer for the fiasco.

The Blame Game

It would be naïve to assume that the status quo would remain, when the Global Trillion Dollar Casino is for all intents and purposes broken down beyond repair.

Confirmation that the blame game has started in earnest can be found in the aforesaid remarks of President Obama and Prime Minister Gordon Brown on March 3, 2009 given after their meeting at the Oval Office and Brown’s speech to Congress on March 4, 2009.

Let us come back to the issue of the money-lenders. For some strange reason, many people are put off by the term “money-lenders” but are ever so comfortable with bankers.

But are not bankers, money-lenders?

In fact I would say that money-lenders are more honourable than your high street bankers, as they can only rob you in the millions. The global bankers, they rape and plunder in the trillions!

Is it any wonder that Gordon Brown and President Obama, the political representatives of the Power Elites have decided that it is about time that these financial harlots are to be brought under control before they wreck the entire global power structure?

Let us have no illusions about Obama and Gordon Brown. They are going after these financial harlots not because they want to protect us from these criminals, but because for too long the political faction had to play second fiddle to the financial faction in the overall scheme of global one world government.

Until lately, money power triumphed over political power. However, when the entire financial system broke into pieces, it was time to settle scores!

Read for yourself:

Prime Minister Gordon Brown’s remarks at the White House, March 3, 2009

“Well, there's got to be deep regulatory change. We've just been talking, Barack and I, about the need for proper supervision of shadow banking systems, of areas where there was bank practices that were unacceptable, where remuneration policies got out of hand and weren't based on long-term success, but on short-term deals. And these are the changes that we've already announced that we are going to make.”

We've had a global banking failure, and it's happened in every part of the world. It's almost like a power cut that went right across the financial system. And we have got to rebuild that financial system. We've got to isolate the bad assets.”

You don't want shadow banking systems. You don't want regulatory tax havens. So we've got to act as a world together to deal with that. And that's one of the things we'll be talking about in April in London.”

President Obama’s response at the White House, March 3, 2009

Now, having said that, the banking system has been dealt a heavy blow. It has to do with many of the things that Prime Minister Brown alluded to: lax regulation, massive over-leverage, huge systemic risks taken by unregulated institutions, as well as regulated institutions. And so there are a lot of losses that are working their way through the system. And it's not surprising that the market is hurting as a consequence. In fact, I think what we're seeing is that as people absorb the depths of the problem that existed in the banking system, as well as the international ramifications of it, that there's going to be a natural reaction.

We are cleaning up that mess. It's going to be sort of full of fits and starts in terms of getting the mess cleaned up, but it's going to get cleaned up.”

Prime Minister Gordon Brown’s Speech to Congress, March 4, 2009

“And we need to understand what went wrong in this crisis, that the very financial instruments that were designed to diversify risk across the banking system instead spread contagion across the globe. And today's financial institutions are so interwoven that a bad bank anywhere is a threat to good banks everywhere.

“And you are also restructuring your banks. So are we. But how much safer would everybody's savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?

Blink and read again the underlined words. You have just read that Prime Minister Gordon Brown has made the call to “outlaw the shadow banking system and offshore tax havens!”


Even if you are a skeptic and holds the view that the quotes are mere spin to delude the people, you cannot deny that Prime Minister Brown has let the genie out of the bottle!

Whether there are any follow through actions by President Obama and Prime Minister Brown, the global citizens must take action independently, if they want to save their children, and their children’s children from decades of impoverishment and extreme hardship.

The most powerful leader of the Western world and his side-kick has openly and unreservedly acknowledged that we are having a global financial melt-down. And that the cause for this catastrophe is the shadow banking system!

There is now an open warfare between the political factions and the financial factions of the global power elites. This will be ugly. And as President Obama warned, “they are gearing for a fight…” He has also responded to the challenge: “So am I.”

Given the above scenario, we must first take out the financial elites, and thereafter the political faction, failing which we will all plunge into the black hole of financial Armageddon!

California's new budget and the social crisis in San Diego

California’s new budget and the social crisis in San Diego

By Josué Olmos

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A recently released report by economists at the University of San Diego lays bare the consequences of the rapid unraveling of the California economy and the state's massive fiscal crisis for working people in San Diego County. Based on an index that measures six basic economic indicators—building permits issued, unemployment claims, local stock prices, consumer confidence, help-wanted advertising, and the national economy—the report concludes that the area has been in an almost unbroken decline since March 2006.

More than 30,000 unemployment insurance claims were filed in the county in January alone. During that same month, permits issued to build new housing dropped below 100, the lowest since 1973. Hiring fell for the 29th straight month, while consumer confidence has dropped 47 percent year over year from January 2008 to January 2009.

The University of San Diego report was released in the context of the passage of a new state budget for California. Signed into law with the overwhelming backing of Democrats in the state legislature, the budget imposes massive spending cuts of $14.8 billion in social services and public education, along with $13 billion in largely regressive tax increases, $11 billion in new borrowing, and $700 million in tax cuts for big business.

Unemployment rates in California have now reached double-digits, at 10.1 percent, amounting to more than 1.8 million people without jobs. This number is up from 6.1 percent a year ago, and 8.7 percent just a month ago, and is also well above the national average of 8.5 percent.

Although San Diego's unemployment rate is lower than the state's, it remains persistent. Unemployment rates in San Diego County were 8.6 percent for January. Reports show that 28,000 jobs were lost from December to January in San Diego and surrounding communities, with most losses coming in trade, transportation, utilities, retail, leisure and hospitality and professional and business services.

Housing prices in San Diego have also continued to plummet. Prices have dropped an average of 25 percent in San Diego County in the last year and nearly 40 percent from the market peak in 2005. Recently released data shows that nearly 30 percent of homeowners in San Diego are underwater on their mortgages, meaning their homes are worth less than what they owe on them, almost double the national average of 18.3 percent.

San Diego Mayor Jerry Sanders, a Republican, has begun his own effort to close the city's $54 million budget gap almost completely on the backs of city workers. Sanders is seeking massive cuts to the wages, pensions, and health benefits of workers, while cutting essential city services as well. The contracts of city workers in five unions will be voted on in April, and the unions have not put up any real opposition to the mayor's proposed cuts.

The city's pension fund, already in a bad position due to the actions of union and city bureaucrats, recently took a large hit when pension officials found out that $78 million of pension funds may be lost. Funds invested into a hedge fund may turn out to be a criminal enterprise. Two from the WG Trading Co. investment firm have already been charged with conspiracy, securities fraud and wire fraud. At one point in 2007, pension officials had up to $1.4 billion of city workers' pension money invested in hedge funds.

The San Diego Unified School District (SDUSD), the second largest school district in California and the eighth largest in the US, is grappling with the impact of the $5.9 billion cut in state-level financing for public education handed down by the recently passed state budget. The SDUSD currently oversees 221 educational facilities, more than 132,000 students and 15,800 employees in San Diego. SDUSD is one of San Diego County's largest employers.

The SDUSD recently approved a plan to offer its most experienced teachers early retirement packages in an effort to save the school district between $7.6 million and $12.3 million. According to the school district, 633 teachers would be eligible for the voluntary Supplementary Retirement Plan (SRP) and would be replaced by lower paid, less experienced teachers.

By enacting this early retirement program, the SDUSD is attempting to avoid teacher layoffs, which have become the norm for school districts across California. March 13 has been dubbed Pink Friday in California, because it is the last day for school districts affected by budget cuts to hand out tentative pink slip notices to employees. The California Teachers Association (CTA) estimates that nearly 18,000 tentative pink slips will be issued to teachers by that day.

The SDUSD is attempting to cover what is expected to be a nearly $77 million budget gap in next year's budget without handing out an excessive number of pink slips. Even if the SDUSD is able to avoid layoffs of teachers, others in neighboring districts are already being affected. Another local district, the Sweetwater Union High School District, recently handed out nearly 100 tentative pink slips in an effort to cover its $11.6 million budget gap.

The San Diego Education Association (SDEA), which represents teachers in the SDUSD, has greeted the SRP as a win for the teachers and supported the measure as a viable solution to save the district millions.

The SDEA is practicing a great deal of deceit on this issue. While it celebrates the fact that the plan will result in less pink slips for SDUSD teachers, it fails to mount any real opposition to the massive attacks on K-12 education, including class size, teacher workload and quality of education—all of which will suffer tremendously as a result of the budget cuts.

The SDEA, part of the CTA, works in close collusion with the state Democratic Party, which worked hand-in-hand with Schwarzenegger to hoist the present fiscal crisis onto the backs of the working class in California. The Democrats along with their backers in the CTA bear direct responsibility for the massive education spending cuts in the current state budget.

The SDEA, along with all the other affiliated divisions of the CTA, cannot lead a struggle in defense of public education as a whole because it is wedded to a political establishment that fundamentally defends the interests of the financial elite, not those of teachers, students and working people.

Workers must reject the view of the SDEA and the CTA and stand in solidarity with all workers—especially those in the education field, including counselors, secretaries, instructional aides, cafeteria workers, custodians, and school administrators—to fight the cuts in education and defend all jobs.

Top U.S., European Banks Got $50 Billion in AIG Aid

Top U.S., European Banks Got $50 Billion in AIG Aid

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The beneficiaries of the government's bailout of American International Group Inc. include at least two dozen U.S. and foreign financial institutions that have been paid roughly $50 billion since the Federal Reserve first extended aid to the insurance giant.

Among those institutions are Goldman Sachs Group Inc. and Germany's Deutsche Bank AG, each of which received roughly $6 billion in payments between mid-September and December 2008, according to a confidential document and people familiar with the matter.

Covered Counterparties

Some banks that were paid by AIG after it was bailed out by the government

  • Goldman Sachs
  • Deutsche Bank
  • Merrill Lynch
  • Société Générale
  • Calyon
  • Barclays
  • Rabobank
  • Danske
  • HSBC
  • Royal Bank of Scotland
  • Banco Santander
  • Morgan Stanley
  • Wachovia
  • Bank of America
  • Lloyds Banking Group

Source: WSJ research

Other banks that received large payouts from AIG late last year include Merrill Lynch, now part of Bank of America Corp., and French bank Société Générale SA.

More than a dozen firms with smaller exposures to AIG also received payouts, including Morgan Stanley, Royal Bank of Scotland Group PLC and HSBC Holdings PLC, according to the confidential document.

The names of all of AIG's derivative counterparties and the money they have received from taxpayers still isn't known, but The Wall Street Journal has identified some of them and is publishing others here for the first time.

Lawmakers Want Names

The AIG bailout has become a political hot potato as the risk of losses to U.S. taxpayers rises. This past week, legislators demanded that the Federal Reserve disclose names of financial firms that have received money from AIG, which Fed officials have described as too systemically important in the financial system to be allowed to fail.

In a Senate Banking Committee hearing in Washington on Thursday, Fed Vice Chairman Donald Kohn declined to identify AIG's trading partners. He said doing so would make people wary of doing business with AIG.

But Mr. Kohn told lawmakers he would take their requests to his colleagues. The Fed, through a new committee led by Mr. Kohn to discuss transparency concerns, is now weighing whether to disclose more details about the AIG transactions.

The Fed rescued AIG in September with an $85 billion credit line when investment losses and collateral demands from banks threatened to send the firm into bankruptcy court. A bankruptcy filing would have caused losses and problems for financial institutions and policyholders globally that were relying on AIG to insure them against losses.

Since September, the government has had to extend more aid to AIG as its woes have deepened; the rescue package now has swelled to more than $173 billion.

The government's rescue of AIG helped prevent its counterparties from incurring immediate losses on mortgage-backed securities and other assets they had insured through AIG. The bailout provided AIG with cash to pay the banks collateral on the money-losing trades; it also bought out underlying mortgage-linked securities, many of which are currently worth less than half their original value.

Banks and other financial companies were trading partners of AIG's financial-products unit, which operated more like a Wall Street trading firm than a conservative insurer. This AIG unit sold credit-default swaps, which acted like insurance on complex securities backed by mortgages. When the securities plunged in value last year, AIG was forced to post billions of dollars in collateral to counterparties to back up its promises to insure them against losses.

More Problems

Now, other problems are popping up for AIG. The insurer generated a sizable business helping European banks lower the amount of regulatory capital required to cushion against losses on pools of assets such as mortgages and corporate debt. It did this by writing swaps that effectively insured those assets.

Values of some of those assets are declining, too, forcing AIG to also post collateral against those positions. And if the portfolios incur losses, AIG will have to compensate the banks.

AIG had seen this business as a relatively safe bet for the company and its investors. The structures were designed to allow European banks to shuck aside high capital costs. A change in capital rules has meant that the AIG protection no longer meets regulatory requirements.

The concern has been that if AIG defaulted, banks that made use of the insurer's business to reduce their regulatory capital, most of which were headquartered in Europe, would have been forced to bring $300 billion of assets back onto their balance sheets, according to a Merrill report.

Merrill Lynch probes $400m trader loss

Merrill Lynch probes $400m trader loss

By Adrian Cox and Peter Garnham

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A Merrill Lynch currency trader has been suspended after racking up more than $400m in undisclosed losses in recent months, raising further questions about the financial health of the investment bank bought by Bank of America last September.

Merrill is poring over the books of Alexis Stenfors, a London currency trader, who was suspended after Norwegian and Swedish currency trades went wrong, according to people familiar with the situation. Merrill is in talks with UK regulators after uncovering what it called a trading “irregularity” in London.

The trading losses are another blow to the once mighty Wall Street firm that made a $27.6bn overall loss last year and was forced to sell to Bank of America to avoid bankruptcy.

“During a recent evaluation of certain positions, we discovered an irregularity,” the bank said in a statement on Friday without giving details.

“We informed regulators immediately and are working closely with authorities to thoroughly investigate the matter.”

It added: “Senior managers of the business are focused on the issue and believe the risks surrounding possible losses are under control.”

The New York Times reported the investigation on Friday and said that Mr Stenfors had reported a personal trading profit of $120m for 2008.

Mr Stenfors could not be reached for comment and his lawyer’s office directed calls to Merrill. The New York Times said he had told the newspaper the matter was a “misunderstanding” and that his lawyer had said he was co-operating with the investigation.

The trading loss of $400m would cut into, but not erase, the profits of Merrill’s rates and currency operations, headed by David Gu, in London. Mr Gu’s operations are believed to have generated several billion dollars in profits last year.

Details of the loss emerged as Andrew Cuomo, New York attorney-general, accused BofA of interfering with his investigation into the payment of bonuses at Merrill Lynch in December, according to a court filing.

In the filing, Mr Cuomo said BofA was refusing to comply with a subpoena requiring the bank to provide him with a list of the Merrill employees who received multi-million dollar bonuses in December.

Defending the profits of the health care industry

Defending the profits of the health care industry

White House Forum on Health Reform

By Tom Eley

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On Thursday, President Barack Obama hosted a White House Forum on Health Reform. The gathering of politicians, health care industry lobbyists and reform advocates produced no concrete policy proposals. Rather, it advanced broad "guidelines" for reform, all tailored to protect the profits of the major insurance companies, pharmaceuticals and health and medical organizations (HMOs).

The US has the worst functioning health care system of any advanced capitalist country. Currently, nearly 50 million Americans, or one in six, are without health insurance, and a majority of the population carries on with either inadequate or unaffordable insurance plans. Americans pay more per capita for health care than residents of other developed countries, yet generally see worse results. Between private and government spending, health care consumes well over $2 trillion annually. In large measure this money does not go toward providing services, but to line the pockets of health industry CEOs and investors.

The gathering was emblematic of the fraudulent character of Obama's "change." While he ran for the presidency on a promise to "overhaul" the health care system and vastly extend medical coverage, his Forum on Health Reform provided a venue for the major health industry interests to dictate terms for future legislation. Behind Obama's claims of "bipartisanship" and gaining cooperation from all interested parties is a simple reality. His health care reform, like his administration as a whole, will serve the interests of the financial elite.

This message was received by industry representatives and lobbyists, who expressed satisfaction with the forum. Among these were Karen Ignani, president of America's Health Insurance Plans, Rich Umbdenstock of the American Hospital Association, the CEO of pharmaceutical giant Pfizer, Jeff Kindler, and Pharmaceutical Research and Manufacturers of America head Billy Tauzin.

In an article entitled "In Health Plan, Industry Sees Good Business," the Washington Post quoted a pleased Tauzin. "This is a great start," he said. "There are things we don't like about it. But there's time to discuss all that."

Also on board is Chip Kahn, president of the Federation of American Hospital Systems. In 1993, Kahn played a role in crafting the media campaign that helped to turn decisive sections of the ruling class against President Bill Clinton's modest health care reform proposals.

The Wall Street Journal approvingly noted Obama's retreat from the Clinton years. "The very groups—and in some cases, the very people—who were instrumental in blocking the Clinton plan were at the White House on Thursday, vowing to make it happen this time around," it wrote.

As for addressing the pressing health care needs of the population, Obama was full of platitudes but short on proposals, at one point declaring "I just want to figure out what works." He indicated that his central goal would be containing spiraling health care costs—the rapidly rising prices associated with medicine, treatments, and hospital stays. Precisely how this would be done, he did not explain.

Obama did make clear, however, that he intends to retreat from his broader campaign promises on health care. "During the campaign," he said, "I put forward a plan for health care reform. I thought it was an excellent plan. But I don't presume that it was a perfect plan or that it was the best possible plan."

Among these promises was a plan to create a public health insurance provider that would compete with private insurers. This has provoked the ire of the health care industry. In the lead-up to the forum it also drew a warning from five leading Republican senators, including minority leader Mitch McConnell of Kentucky.

Writing to Obama, they warned that a public health provider, even one based on consumer payments, would chase private insurers from the market. "It would create an unlevel playing field and inevitably doom true competition," the senators wrote. "Ultimately we would be left with a single government-run program controlling all of the market."

Buckling under this rebuke, Obama all but promised to abandon the scheme. "I recognize the fear that if a public option is run through Washington," he said, "private insurance plans might end up feeling overwhelmed."

Obama had originally proposed paying for his health care proposals by closing tax loopholes on the richest Americans. This plan raised objections from powerful senate Democrats, among them Max Baucus, Finance Committee Chair. At a budget hearing on Wednesday, Treasury Secretary Timothy Geithner indicated Obama would drop the plan.

In the hearings, Baucus protested that closing tax shields for the rich "has nothing to do with health care." To which Geithner responded, "We recognize there are other ways to do this."

To be sure, there are sections of the ruling class that favor changing the health care system. US manufacturing, for example the auto industry, is unable to meet the spiraling costs of health care benefits that workers won from the Big Three in an earlier era. The auto industry would now welcome a publicly run system that would relieve it of these obligations.

Yet the health care industry is a powerful force in the ruling class, closely tied to finance capital through the insurance industry. The Post describes it as "one of the mightiest political forces in Washington, spending nearly $1 billion on lobbying and contributing $162 million to candidates of both parties over the past two years." Obama's first nominee for Secretary of Health and Human Services, former senator Tom Daschle, withdrew his candidacy after revelations that he had not paid taxes on what were essentially lobbying payments from major health industry players. The industry gave Obama $19 million in his run for the presidency.

With his health care forum, Obama has set out to achieve the impossible: effect health care "reform" that in no way touches the wealth and power of the health care industry.

In fact there can be no resolution to the crisis in the American health care system that does not take as its starting point wresting away control of the industry from the insurers, pharmaceuticals and HMOs.

The subordination of health care to the profit system costs, quite literally, millions of lives the world over each year. Hundreds of millions more suffer with eminently treatable conditions. In the US, millions forego necessary medical treatment for lack of money.

This is an unnecessary tragedy. Medical science has produced enormous breakthroughs, many of these pioneered in the US. And there are millions of dedicated and talented doctors, nurses and health care professionals. Yet capitalism stands like a Goliath blocking the road to even the most modest improvements.

Media Blackout on Single-Payer Healthcare

Media Blackout on Single-Payer Healthcare

Proponents of popular policy shut out of debate

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Major newspaper, broadcast and cable stories mentioning healthcare reform in the week leading up to President Barack Obama's March 5 healthcare summit rarely mentioned the idea of a single-payer national health insurance program, according to a new FAIR study. And advocates of such a system--two of whom participated in yesterday's summit--were almost entirely shut out, FAIR found.

Single-payer--a model in which healthcare delivery would remain largely private, but would be paid for by a single federal health insurance fund (much like Medicare provides for seniors, and comparable to Canada's current system)--polls well with the public, who preferred it two-to-one over a privatized system in a recent survey (New York Times/CBS, 1/11-15/09). But a media consumer in the week leading up to the summit was more likely to read about single-payer from the hostile perspective of conservative columnist Charles Krauthammer than see an op-ed by a single-payer advocate in a major U.S. newspaper.

Over the past week, hundreds of stories in major newspapers and on NBC News, ABC News, CBS News, Fox News, CNN, MSNBC, NPR and PBS's NewsHour With Jim Lehrer mentioned healthcare reform, according to a search of the Nexis database (2/25/09-3/4/09). Yet all but 18 of these stories made no mention of "single-payer" (or synonyms commonly used by its proponents, such as "Medicare for all," or the proposed single-payer bill, H.R. 676), and only five included the views of advocates of single-payer--none of which appeared on television.

Of a total of 10 newspaper columns FAIR found that mentioned single-payer, Krauthammer's syndicated column critical of the concept, published in the Washington Post (2/27/09) and reprinted in four other daily newspapers, accounted for five instances. Only three columns in the study period advocated for a single-payer system (San Diego Union-Tribune, 2/26/09; Boston Globe, 3/1/09; St. Petersburg Times, 3/3/09).

The FAIR study turned up only three mentions of single-payer on the TV outlets surveyed, and two of those references were by TV guests who expressed strong disapproval of it: conservative New York Times columnist David Brooks (NewsHour, 2/27/09) and Republican congressman Darrell Issa (MSNBC's Hardball, 2/26/09).

In many newspapers, the only argument in favor of the policy has been made in letters to the editor (Oregonian, 2/28/09; USA Today, 2/26/09; Washington Post, 3/4/09; Philadelphia Inquirer, 2/27/09; Atlanta Journal Constitution, 2/26/09).

In contrast, the terminology of choice for detractors of any greater public-sector role in healthcare--such as "socialized medicine" and "government-run" healthcare--turned up seven times on TV, including once on ABC News's This Week (3/1/09) and five times on CNN. CNN senior medical correspondent Elizabeth Cohen has herself adopted this terminology in discussing healthcare reform, stating (CNN Newsroom, 2/26/09) that "if in time, Americans start to think what President Obama is proposing is some kind of government-run health system--a la Canada, a la England--he will get resistance in the same way that Hillary Clinton got resistance when she tried to do tried to do this in the '90s."

Particularly in the absence of actual coverage of single-payer, such rhetoric confuses rather than informs, blurring the differences between the Canadian model of government-administered national health insurance coupled with private healthcare delivery that single-payer proponents advocate, and healthcare systems such as Britain's, in which healthcare (and not just healthcare insurance) is administered by the government.

The views of CNN's senior medical correspondent notwithstanding, opinion polling (e.g., ABC News/Washington Post, 10/9-19/03) suggests that the public would actually favor single-payer.

Though more than 60 lawmakers have co-sponsored H.R. 676, the single-payer bill in Congress, Obama has not expressed support for single-payer; both the idea and its advocates were marginalized in yesterday's healthcare forum. But given the high level of popular support the policy enjoys, that's all the more reason media should include it in the public debate about the future of healthcare.

The U.S. Financial System Is Effectively Insolvent

The U.S. Financial System Is Effectively Insolvent

Nouriel Roubini

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For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.

There is, in fact, a rising risk of a global L-shaped depression that would be even worse than the current, painful U-shaped global recession. Here's why:

First, note that most indicators suggest that the second derivative of economic activity is still sharply negative in Europe and Japan and close to negative in the U.S. and China. Some signals that the second derivative was turning positive for the U.S. and China turned out to be fake starts. For the U.S., the Empire State and Philly Fed indexes of manufacturing are still in free fall; initial claims for unemployment benefits are up to scary levels, suggesting accelerating job losses; and January's sales increase is a fluke--more of a rebound from a very depressed December, after aggressive post-holiday sales, than a sustainable recovery.

For China, the growth of credit is only driven by firms borrowing cheap to invest in higher-returning deposits, not to invest, and steel prices in China have resumed their sharp fall. The more scary data are those for trade flows in Asia, with exports falling by about 40% to 50% in Japan, Taiwan and Korea.

Even correcting for the effect of the Chinese New Year, exports and imports are sharply down in China, with imports falling (-40%) more than exports. This is a scary signal, as Chinese imports are mostly raw materials and intermediate inputs. So while Chinese exports have fallen so far less than in the rest of Asia, they may fall much more sharply in the months ahead, as signaled by the free fall in imports.

With economic activity contracting in 2009's first quarter at the same rate as in 2008's fourth quarter, a nasty U-shaped recession could turn into a more severe L-shaped near-depression (or stag-deflation). The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging-market economies are on the verge of a fully fledged financial crisis, starting with emerging Europe.

Fiscal and monetary stimulus is becoming more aggressive in the U.S. and China, and less so in the euro zone and Japan, where policymakers are frozen and behind the curve. But such stimulus is unlikely to lead to a sustained economic recovery. Monetary easing--even unorthodox--is like pushing on a string when (1) the problems of the economy are of insolvency/credit rather than just illiquidity; (2) there is a global glut of capacity (housing, autos and consumer durables and massive excess capacity, because of years of overinvestment by China, Asia and other emerging markets), while strapped firms and households don't react to lower interest rates, as it takes years to work out this glut; (3) deflation keeps real policy rates high and rising while nominal policy rates are close to zero; and (4) high yield spreads are still 2,000 basis points relative to safe Treasuries in spite of zero policy rates.

Fiscal policy in the U.S. and China also has its limits. Of the $800 billion of the U.S. fiscal stimulus, only $200 billion will be spent in 2009, with most of it being backloaded to 2010 and later. And of this $200 billion, half is tax cuts that will be mostly saved rather than spent, as households are worried about jobs and paying their credit card and mortgage bills. (Of last year's $100 billion tax cut, only 30% was spent and the rest saved.)

Thus, given the collapse of five out of six components of aggregate demand (consumption, residential investment, capital expenditure in the corporate sector, business inventories and exports), the stimulus from government spending will be puny this year.

Chinese fiscal stimulus will also provide much less bang for the headline buck ($480 billion). For one thing, you have an economy radically dependent on trade: a trade surplus of 12% of GDP, exports above 40% of GDP, and most investment (that is almost 50% of GDP) going to the production of more capacity/machinery to produce more exportable goods. The rest of investment is in residential construction (now falling sharply following the bursting of the Chinese housing bubble) and infrastructure investment (the only component of investment that is rising).

With massive excess capacity in the industrial/manufacturing sector and thousands of firms shutting down, why would private and state-owned firms invest more, even if interest rates are lower and credit is cheaper? Forcing state-owned banks and firms to, respectively, lend and spend/invest more will only increase the size of nonperforming loans and the amount of excess capacity. And with most economic activity and fiscal stimulus being capital- rather than labor-intensive, the drag on job creation will continue.

So without a recovery in the U.S. and global economy, there cannot be a sustainable recovery of Chinese growth. And with the U.S, recovery requiring lower consumption, higher private savings and lower trade deficits, a U.S. recovery requires China's and other surplus countries' (Japan, Germany, etc.) growth to depend more on domestic demand and less on net exports. But domestic-demand growth is anemic in surplus countries for cyclical and structural reasons. So a recovery of the global economy cannot occur without a rapid and orderly adjustment of global current account imbalances.

Meanwhile, the adjustment of U.S. consumption and savings is continuing. The January personal spending numbers were up for one month (a temporary fluke driven by transient factors), and personal savings were up to 5%. But that increase in savings is only illusory. There is a difference between the national income account (NIA) definition of household savings (disposable income minus consumption spending) and the economic definitions of savings as the change in wealth/net worth: savings as the change in wealth is equal to the NIA definition of savings plus capital gains/losses on the value of existing wealth (financial assets and real assets such as housing wealth).

In the years when stock markets and home values were going up, the apologists for the sharp rise in consumption and measured fall in savings were arguing that the measured savings were distorted downward by failing to account for the change in net worth due to the rise in home prices and the stock markets.

But now with stock prices down over 50% from peak and home prices down 25% from peak (and still to fall another 20%), the destruction of household net worth has become dramatic. Thus, correcting for the fall in net worth, personal savings is not 5%, as the official NIA definition suggests, but rather sharply negative.

In other terms, given the massive destruction of household wealth/net worth since 2006-07, the NIA measure of savings will have to increase much more sharply than has currently occurred to restore households' severely damaged balance sheets. Thus, the contraction of real consumption will have to continue for years to come before the adjustment is completed.

In the meanwhile the Dow Jones industrial average is down today below 7,000, and U.S. equity indexes are 20% down from the beginning of the year. I argued in early January that the 25% stock market rally from late November to the year's end was another bear market suckers' rally that would fizzle out completely once an onslaught of worse than expected macro and earnings news, and worse than expected financial shocks, occurs. And the same factors will put further downward pressures on U.S. and global equities for the rest of the year, as the recession will continue into 2010, if not longer (a rising risk of an L-shaped near-depression).

Of course, you cannot rule out another bear market suckers' rally in 2009, most likely in the second or third quarters. The drivers of this rally will be the improvement in second derivatives of economic growth and activity in the U.S. and China that the policy stimulus will provide on a temporary basis. But after the effects of a tax cut fizzle out in late summer, and after the shovel-ready infrastructure projects are done, the policy stimulus will slacken by the fourth quarter, as most infrastructure projects take years to be started, let alone finished.

Similarly in China, the fiscal stimulus will provide a fake boost to non-tradable productive activities while the traded sector and manufacturing continue to contract. But given the severity of macro, household, financial-firm and corporate imbalances in the U.S. and around the world, this second- or third-quarter suckers' market rally will fizzle out later in the year, like the previous five ones in the last 12 months.

In the meantime, the massacre in financial markets and among financial firms is continuing. The debate on "bank nationalization" is borderline surreal, with the U.S. government having already committed--between guarantees, investment, recapitalization and liquidity provision--about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).

Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

But even in this case, the distinction is only between partial nationalization and full nationalization: With 36% (and soon to be larger) ownership of Citi, the U.S. government is already the largest shareholder there. So what is the non-sense about not nationalizing banks? Citi is already effectively partially nationalized; the only issue is whether it should be fully nationalized.

Ditto for AIG, which lost $62 billion in the fourth quarter and $99 billion in all of 2008 and is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

News and banks analysts' reports suggested that Goldman Sachs got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.)

But some things are known: Goldman's Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

So for the Treasury to hide behind the "systemic risk" excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.

America Loses 23,000 Jobs Every Day

America loses 23,000 jobs every day and output suffers biggest slump in 25 years

Gráinne Gilmore

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American businesses were forced to shed more than 23,000 jobs every day last month as recession tightened its grip on the economy, pushing the unemployment rate to a 25-year high.

The rate jumped from 7.6 per cent to 8.1 per cent, the highest level since the downturn of the early 1980s. The US economy has lost 4.4 million jobs since the beginning of the slowdown, with more than half of these positions disappearing in the past four months alone.

While the loss of 651,000 non-farm jobs in February was broadly in line with analysts' expectations, drastic revisions to the level of cuts in earlier months indicated that the employment market had been hit much more severely than had been previously thought.

Job losses in January were revised sharply to 655,000 from 598,000, while revised estimates for unemployment in December showed that 681,000 workers were laid off, the worst month on record since October 1949.

The dire numbers came only a week after figures for gross domestic product were radically revised down to show that the United States had suffered the biggest slump in a quarter of a century in the final three months of last year.

In a further sign of the struggles that are facing workers in America, the number of people forced into part-time work because their hours were cut or they were unable to find full-time work rose by 787,000 to 8.6 million last month. Yet despite the gloomy figures, analysts drew hope from evidence that the pace of job losses was easing.

Paul Ashworth, US economist at Capital Economics, said: “Another terrible set of labour market figures — there is just the slightest glimmer of hope that conditions may be improving.”

Robert MacIntosh, chief economist at investment firm Eaton Vance, disagreed and called the figures “ugly”, adding that since unemployment was often a lagging indicator, recovery may not be on the cards until next year.

The unemployment data prompted President Obama to highlight the jobs that he claims to have been saved by his $787 billion economic stimulus package. Speaking in Ohio, Mr Obama admitted that joblessness is “a future that millions of Americans still face right now”, but he added that it was “not a future I accept for the United States of America”.

This came as the International Monetary Fund (IMF) gave warning that the world's biggest economies needed to take urgent action to address their precarious longer-term finances. It said that many countries would have to boost spending even further to stave off the worst ravages of the recession but that this needed to be balanced against the risk of a “loss of confidence in government solvency”.

While the IMF said that higher spending was warranted to combat a deepening recession, deteriorating government finances raised “issues of fiscal solvency and could eventually trigger adverse market reactions”. In particular, it warned that higher borrowing costs could add to government debts, “in some cases resulting in snowballing debt dynamics”.

In a paper published as part of its advice to finance leaders from the Group of 20 rich and developing nations, which is meeting next week, the IMF said: “This scenario would be deleterious for global growth. Balancing these risks will be challenging but the trade-off can be improved if governments clarify, in a credible way, their strategy to ensure fiscal solvency.

“Indeed, greater clarity is urgently needed. The problem cannot simply be ignored.”

The IMF pointed out that many of the most developed countries were carrying the added burden of ageing populations, which would soon be putting even greater pressures on the public finances.

Movement spreads to boycott Israel

Movement spreads to boycott Israel

By Kathy Durkin

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The Palestinian Unified Call for Boycott, Divestment and Sanctions (BDS) against Israel is taking hold and growing in unions, universities and among political forces on many continents.

A worldwide focus is organizing for March 30—Global Boycott, Divestment and Sanctions Action Day—when progressive forces are being asked to carry out concrete, strong protests to further this key campaign in solidarity with the Palestinian people.

Many exciting actions and commitments to the BDS campaign have taken place within the last month.

Inspiring activists worldwide, Basque political prisoners at France’s Fresnes jail strongly spoke out for the people of Gaza, despite threats of reprisal. They avowed, “We, Basque political prisoners, refuse to buy [Israeli] products [in the canteen] [to] show our solidarity with [the] Palestinian people.” (

On Boycott Israel Day, Feb. 14, picket lines circled grocery stores throughout Denmark. Protesters targeted produce sold by Israeli companies, especially Carmel Agrexco, Israel’s biggest exporter of fruits and vegetables, which are grown in occupied Palestine.

The city of Stockholm, Sweden, has terminated an agreement with Veolia Transport because it is connected to a tramway project in Israel.

The BDS call has swept through Norway’s union movement. Six top Norwegian unions and many organizations are calling for a campaign to end state investments in Israel. The Union of Trade and Office Workers, Norway’s biggest union of store workers, has called on its members’ employers to stop purchasing Israeli goods.

The Norwegian Trade Unions confederation, which represents 20 percent of the country’s population, condemned Israel’s bombing and invasion of Gaza and called for strong protests. (More than 28 cities were sites of protests during the siege.) This union also expressed solidarity with COSATU when South African dockworkers refused to unload an Israeli ship last month.

Italy’s largest metalworkers’ union, the FIOM, representing 360,000 members, has called for war crimes’ trials for Israeli officials for the Gaza siege. The union also demands agreements be terminated between Israel and Italy, and between Israel and the European Union.

An academic boycott of “all Israeli institutions participating in the occupation [of Gaza]” was announced in a call by many French academics, who are promoting a wide scale BDS campaign and want to see war crimes’ trials for Israeli leaders.

The Consumers Association of Turkey called for a nationwide boycott of Israeli, U.S. and British goods that are sold by companies that “openly declare their support and cooperation to Israel [and] the ones that transfer funds to [the] Israeli Army.” Among companies listed are Coca-Cola, Pepsi-Cola, Starbucks, McDonald’s and Burger King. (

The Association of Social Workers of Mauritius has called for the removal of Israeli products, including food and medicines, from store shelves and for a boycott.

University workers’ delegates in the Ontario branch of the Canadian Union of Public Employees, which represents 200,000 public sector workers, just passed a resolution which calls for an academic boycott of Israel. It calls for an educational campaign on Israel’s “apartheid,” asks the union to back the BDS movement, and more.

The Australia BDS campaign has picked up steam, especially in recent weeks in Sydney. There have been direct actions, campus organizing and strategizing on long-term campaigns. A key target is Max Brenner Chocolates, an Israeli-owned company in the transnational Strauss group, which supports the IDF’s Golani brigade, notorious for its ruthless offensives in Gaza, the West Bank and Lebanon.

And as of March 1, the city of Tulkarem, which is in the Occupied West Bank, is initiating an all-out boycott of Israeli food and other products.

March 1-8 will be the fifth annual Israeli Apartheid Week. It will be commemorated with cultural events and protests in the Occupied West Bank at universities and refugee camps, and in cities worldwide. Activities will help to build the BDS campaign under the theme of “Standing United with the People of Gaza.” (

CIA Confirmed Videotapes Depict "Enhanced Interrogation Methods"

CIA Confirms 12 Destroyed Videotapes Depicted ‘Enhanced Interrogation Methods’

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The CIA has reportedly just confirmed — conveniently late on a Friday afternoon — that 12 of the videotapes it destroyed while its interrogation methods were under investigation and the subject of a pending lawsuit depicted the “enhanced interrogation methods” that detainees’ advocates were worried about.

The American Civil Liberties Union reports that as part of its lawsuit seeking information on detainee abuse, the government today provided new details about the content of interrogation videotapes destroyed by the CIA — specifically, that 12 depict so-called “enhanced interrogation techniques.” In court documents, the government also said it would produce a complete list of summaries, transcripts or memoranda related to the videotapes by March 20. However, the inventory of tapes provided to the court is so heavily redacted that it’s virtually all black ink.

“The government is needlessly withholding information about these tapes from the public, despite the fact that the CIA’s use of torture – including waterboarding – is no secret,” said Amrit Singh, staff attorney with the ACLU in a statement released today. “This new information only underscores the need for full and immediate disclosure of the CIA’s illegal interrogation methods. The time has come for the CIA to be held accountable for flouting the rule of law.”

In December 2007, the ACLU filed a motion to hold the CIA in contempt for its destruction of the tapes in violation of a court order requiring the agency to produce or identify all records requested by the ACLU. That motion is still pending.

Earlier this week, the CIA acknowledged it destroyed 92 tapes of interrogations. According to today’s documents, these tapes all related to just two detainees; 90 involved one, and the other two tapes showed the other. The tapes were not identified and processed for the ACLU in response to its Freedom of Information Act request back in 2005 seeking information on the treatment and interrogation of detainees in U.S. custody. The ACLU notes that the tapes were also withheld from the 9/11 Commission, which had specifically asked the CIA to hand over transcripts and recordings documenting the interrogation of CIA prisoners.

Legal documents in the case are available here.

Why Did So Few Americans Give a Damn?

Why Did So Few Americans Give a Damn?

By William Pfaff

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The documents currently being released by the Justice Department that demonstrate the Bush administration’s view of the president’s constitutional power in a “state of war” tell us things we suspected but didn’t want to know.

The first seven of these official memorandums issued last week dealt with claimed presidential powers to unilaterally abrogate international treaties; suspend constitutional guarantees of freedom of speech and press; and order warrant-less searches, wiretaps and seizures of documents and indefinite imprisonment inside the U.S. without trial or criminal charges. The memorandums claimed that Congress has no overriding authority in these matters.

The authors of all but one of these documents were John Yoo and Jay Bybee (both then of the Justice Department but now, respectively, a member of the University of California at Berkeley Law School faculty and a federal judge on the Ninth Circuit Court of Appeals). They were also the authors early in the Bush administration of two special memorandums defining torture much more narrowly than in the United States code of military justice or U.S. civil law.

They redefined torture to permit what ordinarily is illegal in U.S. military and civil law under the so-called Federal Maiming Statute. This law makes it a crime to disfigure faces and body parts with knives or razors, or to cause blindness, or cut out tongues, or perform other grotesque and gruesome tortures that this column will leave to the consciences of professor Yoo, Judge Bybee and the senior members of the Bush administration who wished to be advised on their exemption from such legal limits.

Professor Yoo’s view is that the president possesses unchecked authority “in a state of armed conflict.” At the time, this state of armed conflict consisted of a dozen or so stateless persons who had deliberately crashed aircraft into New York and Washington buildings. The two initial memos on torture were withdrawn when they became public.

The American use of torture has been public knowledge or surmise since very early in President Bush’s war on terror. Not many Americans seemed to take note or to protest at the time. There were individuals who protested; the American Civil Liberties Union was on the job, as were Amnesty International and other American nongovernmental organizations and citizens’ groups. They were mostly ignored. Questions were asked in Congress, but little ensued.

This was the amazing thing, really. Very few people among the American public seemed to care—except Fox television executives, who recognize a commercial opportunity when it hits them between the eyes.

Fox began a drama in which each program was devoted to the American president’s torturer doing whatever had to be done to thwart a new threat to the American republic. The hero would apply one of the tortures pronounced legally OK for Americans to use, until the terrorist, gasping or screaming, blurts out where the nuclear bomb has been planted.

This turned out to be one of the most popular programs on the air. It seems that President Bush himself watched. People in the torturing business joked that they got some good ideas from the program.

What if 65 years ago in Germany entertainment radio had broadcast a popular program in which SS and Gestapo officers tortured American OSS officers, or captured American or British airmen, to extract vital information from them at any cost? Adolf Hitler himself might have tuned in. He had decreed that Allied commandos in military uniform should be treated as terrorists rather than as soldiers.

The final thing I will say about this is that many or most of the documents now being issued on how President Bush might ignore the U.S. Constitution had to do with domestic surveillance and the (illegal) use of American military forces against the American public.

That probably would have begun in a small way. “Troublemakers” disappearing here and there. Protest groups rounded up and sent to camps. Possibly a day would have come when some conference of lawyers, or the United States Conference of Catholic Bishops, or Americans for Democratic Action, or the Cato Institute, or some political pressure group like the American Israel Public Affairs Committee, did something that seriously annoyed the White House.

If a battalion of military police took over the hall and the participants “disappeared,” it would certainly have made the newspapers, if the newspapers still reported such things. But considering the precedent of the American popular reaction to torture, what else would have happened? Possibly there would have been a popular new television program about the subversive forces at work in America, and how patriots should deal with them.

Supreme Court Upholds President’s Power To Indefinitely Detain People Without Charge

High court ends al-Marri challenge, upholds president's powers

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The president has the authority to detain people without charge, the Supreme Court decided today, dismissing a challenge by suspected al-Qaeda operative Ali Al-Marri.

Last week, President Obama ordered al-Marri transferred from military to civilian custody to face federal charges of conspiracy and providing support to terrorists. For 5½ years he has been held as an enemy combatant in the Navy brig in Charleston, S.C. He can now be transferred to a civilian jail.

The action granted the administration's request to end the case before the high court. The justices also dismissed a federal appeals court ruling that upheld presidential powers of detention.

Obama has not rejected the use of preventive detention, which former President Bush used extensively after the Sept. 11, 2001, terror attacks.

Al-Marri, a legal U.S. resident from Qatar, is under indictment in Peoria, Ill. He was studying at Bradley University when he was arrested in late 2001 as part of the investigation of the Sept. 11 attacks.

The Legal Times has more.