Tuesday, March 17, 2009

Citi, Morgan Stanley look to sidestep bonus caps: report

Citi, Morgan Stanley look to sidestep bonus caps: report

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Anticipating restrictions on bonuses, officials at Citigroup Inc and Morgan Stanley are exploring ways to sidestep tough new federal caps on compensation, the Wall Street Journal said.

Executives at these banks and other financial institutions that received government aid are discussing increasing base salaries for some executives and other top-producing employees, the paper said, citing people familiar with the situation.

The discussions are at an early stage, partly because the government has not yet issued specific rules on the bonus payments that will be allowed at companies that received aid under the government's Troubled Asset Relief Program, the paper said.

The report comes on the heels of widespread outrage that insurer AIG, kept alive on a government bailout of up to $180 billion, was paying its employees bonuses of $165 million.

In February, President Barack Obama set a $500,000 annual cap on pay for top executives at companies receiving taxpayer funds.

Citigroup officials have considered designating which 25 executives will be subject to bonus limits, the paper said, citing people familiar with the discussions.

In that scenario, the new rules might not apply to lower-ranking yet still highly lucrative traders and investment bankers, the people told the paper.

"We will comply with the restrictions, in addition to the substantial changes we have already made to our compensation structure," a Citigroup spokeswoman told the paper.

A Citigroup spokesman in Hong Kong declined to comment on the report when contacted by Reuters.

Wall Street compensation has come under intense scrutiny, especially at banks that have received taxpayer money from TARP.

Citigroup has received $45 billion of TARP money. Morgan Stanley has received $10 billion.

Morgan Stanley could not immediately be reached for comment by Reuters.

The bonus forms a large part of salaries of traders and bankers on Wall Street, the paper said.

Wells Fargo & Co, which took $25 billion of capital last year under TARP, disclosed last week that it increased the base salaries of CEO John Stumpf and two other executives, the paper said.

Raising base pay at J.P. Morgan Chase & Co isn't being discussed, the paper said, citing people familiar with the matter.

Citigroup CEO awarded $10.8 million

Citigroup CEO awarded $10.8 million

By Jonathan Stempel and Dan Wilchins

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Citigroup Inc awarded Chief Executive Vikram Pandit $10.82 million of compensation in 2008, a year when the government propped up the bank with $45 billion of capital.

Citigroup also nominated four new independent directors to bolster the banking and financial expertise on its board, including Anthony Santomero, 62, a former president of the Federal Reserve Bank of Philadelphia.

The bank faces increased government pressure to right itself after more than $85 billion of writedowns and credit losses since the middle of 2007.

Pandit said in February he will accept a $1 annual salary and no incentive pay until the bank is profitable. His nearly $11 million of 2008 compensation included $7.73 million of sign-on and retention awards last January, the month after he took over.

"If I were a shareholder, $11 million would be hard to justify for a year where the company's shares fell almost 80 percent," said Walter Todd, a portfolio manager at Greenwood Capital Associates LLC in Greenwood, South Carolina. "But if he signed a contract, I guess it's hard to argue."

In 2008, the 52-year-old Pandit was awarded a $958,333 salary, $9.84 million of stock and option awards and $16,193 of other compensation, according to a summary compensation table included in a Monday proxy filing with the U.S. Securities and Exchange Commission.

Some pay consultants and governance experts tabulate executive pay differently, saying the summary total may be imperfect because it counts options and stock as part of pay when they vest rather than when they are awarded.

The value of shares and options as recorded in the summary table of a company's proxy filing typically reflects their value at the time they were granted. Their actual value now may be substantially lower, given that Citigroup's shares, for example, dropped nearly 80 percent last year.

Wall Street compensation has come under intense scrutiny, especially at banks that, like Citigroup, received money under the government's Troubled Asset Relief Program.

Citigroup got a $45 billion injection from TARP and the government agreed to share losses on $300.8 billion of troubled assets.

Pandit's compensation was higher than the $9.96 million that Bank of America Corp, which has also received $45 billion of TARP money, awarded its CEO, Kenneth Lewis.


The other nominated directors are Jerry Grundhofer, 64, a former CEO of U.S. Bancorp; Michael O'Neill, 62, a former CEO of Bank of Hawaii Corp and chief financial officer of a Bank of America predecessor; and William Thompson, 63, a former co-CEO of bond fund manager Pacific Investment Management Co.

If the nominations are approved, Citigroup's board would have 14 members. Three of its 15 current members are not standing for reelection and two have reached retirement age.

"Hopefully, this will provide better oversight," said Marshall Front, chairman of Front Barnett Associates LLC in Chicago, which invests $500 million. "The board had to become more knowledgeable, rather than the prior board, which was largely a rubber stamp for management."

The three directors stepping down are former Citigroup senior counselor and U.S. Treasury Secretary Robert Rubin; former Chairman Sir Win Bischoff; and Roberto Hernandez Ramirez, who chairs Citigroup's Mexican unit Banamex.

Kenneth Derr and Franklin Thomas are leaving because of the retirement age.

Richard Parsons, Citigroup's chairman, is the bank's only outside director with top-level financial services experience, having once run Dime Savings Bank of New York. He is better known as Time Warner Inc's former CEO.

Shareholders are expected to vote on the director nominations at Citigroup's annual meeting on April 21.

In afternoon trading, Citigroup shares were up 73 cents, or 41 percent, at $2.51 on the New York Stock Exchange. The shares bottomed at 97 cents on March 5.

A.I.G. Using "Suicide Strategy" to Push Bonuses

A.I.G. Using "Suicide Strategy" to Push Bonuses

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Washington, DC - As nationwide populist anger boils after the news that hundreds of millions of taxpayer dollars may be given to employees of the insurance-giant-turned-government-liability American International Group (A.I.G.), President Obama promised to try to block what he described as an "outrage" Monday, but a group of former regulators said the administration must get even tougher with A.I.G.

"[A.I.G.] is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at A.I.G. warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?" Obama said, adding, "I've asked [Treasury] Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole."

$165 million is set to be paid to executives of A.I.G.'s financial products division, the same people who made unregulated bets against the failure of major financial institutions and other companies. Losses on these bets are a major reason the company is failing, reporting a record-setting $60 billion loss last quarter.

Economics and law Professor William K. Black, a famous figure in the savings and loan crisis of the 1980s for his role as a senior regulator who fingered the then speaker of the House and "The Keating Five" for doing favors for bankers, has been a vocal critic of the bailout programs, which began during the Bush administration.

In an interview with Truthout, Professor Black said that A.I.G. is using a "suicide strategy" to hold the government hostage and keep the bailout funds flowing.

"A.I.G. is holding a gun to their own heads, saying 'unless you help us continue to have this incredible life in terms of bonuses, we're going to die and the taxpayers will be faced with a catastrophe,'" Professor Black said, adding "It's too bad Marxists don't believe in god. Otherwise they'd be thanking him for having sent A.I.G. down to earth to destroy capitalism."

Earlier on Monday, Professor Black joined three other notable analysts with deep industry, regulatory and academic experience in issuing a punishing statement calling for decisive action on A.I.G. and the ongoing bailout.

"A.I.G.'s decision to pay out at least $165 million in bonuses takes the bank bailout program's abuse of the public trust to a whole new level. This act simply cannot be allowed to stand. The only question is how to stop it," the statement said.

The plan to stop the bonuses would require bold action by government officials overseeing A.I.G., which is now 80 percent owned by the government after being given 173 billion taxpayer dollars to bail the company out.

The statement called on the Obama administration to reassert its leverage in the A.I.G. matter by ordering the US officials overseeing the company to stop bonus payments. Then, the government could split off A.I.G.'s derivatives unit - the riskiest part of the company, which brought about A.I.G.'s collapse - and threaten to allow it to go into bankruptcy if the executives don't clean up their act.

In other words, the statement advised the Obama administration to call A.I.G.'s bluff and see if they'll really pull the trigger.

In their defense, A.I.G. said that they are contractually obligated to pay the bonuses in question. Not paying these bonuses, the company said, would cause their executives to leave the company and could trigger a collapse at A.I.G., which could set off a collapse around the world.

Credit Default Swaps

The derivatives unit at A.I.G. trafficked heavily in financial products called credit-default swaps (CDSs). Originally devised as a type of insurance, CDSs morphed into an unregulated form of gambling akin to being able to take out fire insurance on a house you don't own and getting paid if the house burns. Because major financial institutions were betting on billion-dollar companies, and betting with each other on each other, their fates are bound together by these bets. If one company goes into bankruptcy, it could set off a string of default swaps and could fold the whole system in on itself.

Documents released by A.I.G. on Sunday show that $43 billion in taxpayers' money has been spent by A.I.G. to pay off financial bets to both US and international banks with a whopping $13 billion going to the politically connected Wall Street giant Goldman Sachs.

The documents directly contradict a statement made during a conference call with stock market analysts by Goldman Sachs chief financial officer David Viniar, who said that Goldman was only immaterially at risk if A.I.G. failed.

The CDS market has an approximate value of 50 trillion dollars worldwide. Critics charge that this massive, complicated and extremely murky market continues to hover over the heads of the global financial system like the blade of a guillotine with the banks holding the executioners rope, daring the government to stop funding their bailouts.

CEO Resignation?

In their statement, the former insiders called for the resignation of A.I.G.'s new CEO Edward Liddy for not anticipating and alerting the Treasury Department of the bonuses which started this firestorm.

"Right now, press reports suggest that the firm's top management waited until the last minute to inform the government of what was happening. A.I.G. CEO Edward Liddy, accordingly, should be asked to resign at once, for the sake of public confidence and to send a clear signal that gaming the system is unacceptable," the statement said.

Liddy is a former member of the Goldman Sachs board of directors.

Obama seemed to defend Liddy in his remarks. "[Secretary Geithner is] working to resolve this matter with the new CEO, Edward Liddy - who, by the way, everybody needs to understand came on board after the contracts that led to these bonuses were agreed to last year." Obama said.

Obama added a warning to Liddy and others on Wall Street: "But I think Mr. Liddy and certainly everybody involved needs to understand this is not just a matter of dollars and cents. It's about our fundamental values. All across the country, there are people who are working hard and meeting their responsibilities every day, without the benefit of government bailouts or multi-million dollar bonuses ... All they ask is that everyone, from Main Street to Wall Street to Washington, play by the same rules. And that is an ethic that we have to demand."


The statement called for an "investigation of the validity of A.I.G.'s past accounting and securities disclosures and its executive compensation program by the Office of Thrift Supervision, the Securities and Exchange Commission, and the FBI."

"I think that A.I.G. is simply one of the most obvious examples where their accounting was false. Fraudulent accounting at a publicly traded company is securities fraud and that's a felony," Professor Black told Truthout.

Professor Black is confident that a thorough investigation of A.I.G.'s books would reveal misdeeds. "Even though we effectively own the place, we have left it in the hands of the people who have every incentive to hide the past losses and to hide all the past accounting fraud that justified all their past bonuses. These people aren't at risk of simply losing their calendar year 2008 bonus. If this place were torn apart properly, they'd lose all their prior years bonuses as well."

Previous investigations of top management and accounting practices at A.I.G. have been swept under the rug with no criminal penalties.

In February 2005, A.I.G. agreed to pay $1.64 billion to resolve a lawsuit alleging the company used deceptive Enron-style accounting practices in order to mislead investors and government regulators.

Mark J. Novitsky, a corporate whistleblower and independent researcher, blames the Securities and Exchange Commission (SEC) for failing to enforce the Sarbanes-Oxley law, passed in the wake of the Enron and Worldcom accounting scandals, which was supposed to hold executives accountable for fraudulent accounting practices.

"What progress has been made since the enactment of Sarbanes-Oxley in 2002 that would leave people to believe the SEC is capable of detecting and preventing fraud and is willing to prosecute those who commit financial fraud?" Novitsky asked, adding, "It is obvious in hindsight, after the SEC failed to uncover massive fraud in cases like Bernie Madoff, Stanford Financial, Bear Sterns, Fannie Mae and A.I.G., the public was misled into believing that Sarbanes-Oxley was some kind of an answer. No question my personal experiences leads me to believe that the fox has most certainly been guarding the hen house."

Ben Bernanke's False Analogy: "A House Burning Down"

The Financial Sector: "A House Burning Down"

Ben Bernanke’s False Analogy

by Prof. Michael Hudson

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On the March 15 CBS show "60 Minutes", Federal Reserve Chairman Ben Bernanke used a false analogy already popularized by President Obama in his quasi-State of the Union Speech. He likened the financial sector to a house burning down – fair enough, as it is destroying property values, leading to foreclosures, abandonments, stripping (for copper wire and anything else recoverable) and certainly a devastation of value. The problem with this analogy was just where this building was situated, and its relationship to "other houses" (e.g., the rest of the economy).

Mr. Bernanke asked what people should do if an irresponsible smoker let his bed catch fire so that the house burned down. Should the neighbor say, "it’s his fault, let the house burn"? That would threaten the whole neighborhood with fire, Mr. Bernanke explained. The implication, he spelled out, was that economic recovery required a strong banking and financial system. And this is just what he said: The economy cannot recover without yet more credit and debt. And that in turn requires trillions and trillions of dollars given by "the neighbors" to the bad irresponsible man who burned down his own house. This is where the analogy goes seriously off track.

But watching "60 Minutes," my wife said to me, "That’s just what Mr. Obama said the other night. What do they do – have a meeting and agree on what metaphor to popularize?" They seem to have an image that will lock Americans into supporting a policy even though they don’t like it and many feel like letting the financial house (A.I.G., Citibank, and Bank of America/Countrywide) burn down.

What’s false about this analogy? For starters, banking houses are not in the same neighborhood where most people live. They’re the castle on the hill, lording it over the town below. They can burn down and leave the hilltop revert "back to nature" rather than having the whole down gaze up at a temple of money that keeps them in debt.

More to the point is the false analogy with U.S. policy. In effect, the Treasury and Fed are not "putting out a fire." They’re taking over houses that have not burned down, throwing out their homeowners and occupants, and turning the property over to the culprits who "burned down their own house." The government is not playing the role of fireman. "Putting out the fire" would be writing off the debts of the economy – the debts that are "burning it down."

To Mr. Bernanke the "solution" to the debt problem is to get the banks lending again. He’s spreading the debt-fire. The government is to lend the "threatened neighbors" enough money so that credit customers of the financial "house on the hill" can to pay it the stipulated interest charges they owe. It is not burning down at all; the neighborhood’s money (in this case, tax money) is being burned up.

Mr. Bernanke explained to the Sunday evening audience that his policy aimed at helping the economy return to "normalcy." Fully in line with what Mr. Paulson was saying last summer, "normalcy" is defined as a new exponential growth in the volume of debt. He talked about "sustainable" recovery. But "the magic of compound interest" is not sustainable. It’s all a false metaphor.

Mr. Bernanke then left the realm of metaphor altogether to give an outright false explanation of the balance of payments and the upcoming Gang of 20 meetings in Europe. On Friday, China’s premier expressed worry over the health of the American economy, in which China had recycled nearly $2 trillion of its dollar inflows in order to prevent the yuan from rising in price against the dollar. The fear is that despite this heavy recycling of dollars by foreign central banks, the U.S. exchange rate will still weaken as the trade balance continues unabated and, just as seriously, U.S. military spending keeps on pumping dollars into the world economy as war spreads eastward from Iraq to Afghanistan and Pakistan.

The way Federal Reserve Chairman Bernanke explained the problem on CBS, America had to keep its markets attractive to "Chinese savers." The image being conjured up again and again is that there is a world "savings surplus." That is supposed to be what flooded the large U.S. banks and Wall Street with so much money that they were obliged to move it into riskier and riskier investments. "They made us do it" was the message not quite spelled out.

One would think that Mr. Bernanke knows nothing at all about the balance of payments or how the global monetary system works. Here’s what really has been happening. The U.S. economy itself pumps "savings" into foreign central banks by spending abroad on military bases. (60 Minutes showed robot fork-lift machines moving around $40-million loads of U.S. currency through the New York Federal Reserve Bank the way that similar machines have been doing in Iraq to buy off local supporters and political groups.) U.S. consumers likewise buy more than the country is exporting. When these surplus dollars are turned over to foreign banks for domestic currency, the banks turn them over to the central bank – which has a problem.

Remember when an earlier U.S. Secretary, John Connolly, said "It’s our deficit, but their problem"? He meant that the U.S. was spending funds (at that time mainly in Southeast Asia) that ended up in foreign central banks, which faced a dilemma: If they let "the market" handle these dollars, their own currency would rise. That would threaten to price their exports out of world markets, and hence would cause domestic unemployment. So foreign governments chose to recycle their dollar inflows by keeping them in dollars – mainly in U.S. Treasury bills and then, when the supply began to run out, in federal agency securities such as Fannie Mae and Freddie Mac.

So the "fire" in the international sphere was the U.S. military-spending deficit and trade deficit. This doesn’t have much to do with Chinese consumers saving too much. Central banks were doing the quasi-saving, by being stuck with surplus U.S. dollars like a hot potato. But one rarely hears public officials mention the nation’s military deficit. It is as if foreign saving comes first, then a "market-based" decision to place these in the U.S. economy, "the engine of world growth." What actually comes first is the U.S. balance-of-payments deficit, pumping surplus dollars into the economy – which foreign central banks find themselves obliged to recycle within the dollar sphere. (This is the phenomenon I discuss in Super Imperialism: The Economic Strategy of American Empire, and Global Fracture.)

As for the surplus credit that Wall Street lent out, it is created out of thin air. At least Mr. Bernanke was clear about this, when he explained that the Fed "creates deposits" for its member banks just as these banks "create deposits" for their own customers at a stroke of the computer keyboard.

The bottom line is that the American public is being fed a carefully crafted mythology (no doubt "market tested" on "response groups" to see which images fly best) to mislead the American public into misunderstanding the nature of today’s financial problem – to mislead it in such a way that today’s policies will make sense and gain voter support.

But this mythology is based on false analogies, not economic reality. It is designed to make Wall Street appear as a savior, not an arsonist – and to depict the Fed and Treasury as protecting the welfare of American citizens by shoveling billions of dollars at the banks whose gambles have caused the crisis.

While Mr. Bernanke’s "60 Minutes" interview was being broadcast, the government was releasing the counterparties on the winning side of the Wall Street casino in bets that A.I.G. lost. To deflect the widespread voter disapproval of giving $160 billion to A.I.G., the Treasury finally released the names of the "counterparties" who ended up with the funds A.I.G. paid out to winning betters. Confirming rumors that had been circulating for the past few months, Mr. Paulson’s own company, Goldman Sachs, headed the list at $13 billion! Followed by Merrill Lynch ($7 billion), Bank of America ($5 billion), Citigroup ($23 billion and the much-loathed junk-mortgage lender Wachovia ($1.5 billion). So as Treasury Secretary, Mr. Paulson turns out to have represented not the U.S. interest but that of his own firm and its Wall Street neighbors.

These neighbors were given U.S. Treasury bonds in "cash for trash" transactions. The rest of the economy will be paying interest on this debt for a century to come. This is what causes "debt deflation." Revenue is diverted from spending on goods and services to pay interest and taxes. So the Treasury is spreading the fire, not putting it out.

Tide Turns Against Schools as Foreclosures Rise

Tide turns against schools as foreclosures rise

By Greg Toppo and Jack Gillum

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Way back when times were good — last April — builders showed up one day at Forest Grove Middle School and gutted a little-used classroom off the gym.

Four months and a half-million dollars later, they had transformed the space into a gleaming, bubbling mini marine biology laboratory, with five huge, blue plastic tanks for local marine life and a refrigerated tank that replicates the cold-water ecosystem off Maine.

For the first time, teacher Kevin Stinnette thought, his students could do hands-on lessons with cold-water species such as frilled anemones and Acadia hermit crabs.

Then the mortgage meltdown hit central Florida, and the crabs and anemones weren't the only ones hit with cold water. Here as elsewhere across the USA, hard times have forced schools to trim budgets, freeze hiring and, in a few cases, make substantial job cuts, raising doubts about the future of a range of programs, including the new marine lab.

Already, St. Lucie schools have lost $22 million in tax revenue from lower property values, and the district is staring at a 25% budget cut in the fall. It has frozen salaries and put central office employees on a four-day workweek. Enrollment is down only slightly but if things get much worse, schools here may cut athletics, after-school activities and summer school to the bone — or even consider a four-day week for students.

"It's not something I'd advocate, but if Florida takes a massive hit, we might not flat-out have the money to make payroll," says Superintendent Mike Lannon. "There are no sacred cows."

Meanwhile, in sprawling Clark County, Nev., home to Las Vegas, schools may have to eliminate as many as 1,000 jobs. The tiny Riverside Elementary District near Phoenix, with 46 teachers, probably will have to lay off nine.

A new USA TODAY analysis has identified these three districts and four others across the nation — Lee County in Florida, Murrieta Valley Unified and Temecula Valley Unified in California, and Fowler Elementary District in Arizona — as being particularly vulnerable to budget cuts in the coming year. They're in areas hit by a wave of mortgage delinquencies, foreclosures and upside-down mortgages, in which borrowers owe more than their homes are worth, according to data analyzed by First American CoreLogic.

Meanwhile, Census data show the districts' education budgets also are especially reliant on local property tax revenue, which is likely to slide at a time when thousands of residents in the districts are losing their homes and falling off the property tax rolls.

But school systems across the USA are vulnerable: More than half of school districts nationwide, including those serving once-fast-growing communities such as Fort Pierce, rely on local property taxes for more than 25% of their budgets.

As the housing crisis continues to unfold, school administrators are preparing for a body blow, although they're uncertain how much they'll benefit from the federal stimulus money now rolling out to states.

The reeling economy also has taken students out of some districts as their parents move in search of jobs. Because many schools are funded based on average daily enrollment, their budgets suffer with each drop.

"We're in rapid decline," says Richard Stokes, superintendent and business manager of the Riverside Elementary District west of Phoenix. "We've lost over 100 kids in the last year, and of course we're paid per kid, so it's not looking good."

In Florida, the future of Stinnette's program, although assured for the next year or so, is in doubt in the long run. St. Lucie County Schools are struggling with shrinking enrollments — down to 38,301 from 38,389 — rising expenses and mounting state and local cuts to Florida's Treasure Coast, a once-booming area south of Orlando.

In a recent survey of 250 superintendents in 46 states, 72% said their districts planned to eliminate jobs by fall — more than one-third from the ranks of teachers and support staff.

In the districts USA TODAY analyzed, state aid is also in jeopardy as their states — Arizona, California, Nevada and Florida — struggle to close budget gaps.

California is grappling with a $42 billion budget shortfall that Gov. Arnold Schwarzenegger calls "a rock upon our chest."

Says John Taylor, president of the National Community Reinvestment Coalition: "Any cities and towns that are looking for the state to make up (revenue shortages) are going to be woefully disappointed."

Stimulus effect unclear

The $787 billion congressional stimulus could ease the pain, but just how much is unclear.

A University of Washington analysis this year found that reduced state spending — even without local cuts — could force school districts to eliminate about 9% of K-12 jobs, or 574,277, over three years. But U.S. Education Secretary Arne Duncan says the stimulus could help prevent "hundreds of thousands" of teacher layoffs.

"I guess I'll believe it when I see it," Fowler, Ariz., schools Superintendent Marvene Lobato says of the stimulus package's potential effect on her 4,300-student district. "By the time it trickles through the legislators, I don't think the schools are going to see a whole lot in the end."

Taylor says the high numbers of foreclosed properties and double-digit unemployment in many communities means drastically lowered taxes and strapped schools, police, fire departments and public works. A few communities, he says, are "not going to survive this — they're going to be on life support."

In Florida, where state money accounts for about 41 cents of every education dollar spent, lawmakers in Tallahassee face a projected $5 billion shortfall in 2010. The prognosis for Florida schools is bleak, says Bill Montford, CEO of the Florida Association of District School Superintendents.

"There are some school districts in Florida that are on the verge of serious, serious financial breakdown," he says. "And it's not because of mismanagement — it's simply because of the economic crisis."

A few of the state's 67 school districts have begun cutting jobs. Volusia County, just up the coast from St. Lucie, has abolished 1,000 jobs in two years, and a group of Florida superintendents has requested help from Congress' Troubled Asset Relief Plan, or TARP, which is intended to help private financial institutions.

Lannon, the St. Lucie County superintendent, seems relentlessly upbeat about the problem but knows the worst is probably to come. A 41-year veteran of education, he's looking at a possible 25% cut in his $262 million budget next year.

It's a bitter pill for the Treasure Coast, a region that has long sought to shift its sights from tourism and agriculture to research, education and high-tech employment.

But local leaders, hoping to make the region the "Research Coast," acknowledge that if they face two more years of recession, it could undermine their plans.

Already the county's foreclosure rate is at an all-time high — it more than doubled last year to 8.6%, with 10,764 homes in foreclosure; unemployment sits at 10.5%. A county commissioner proposed declaring a state of emergency last month so St. Lucie could access $17.5 million in county reserve money set aside for natural disasters.

"I don't know if it's a crisis yet," says Larry Pelton, president of the county's Economic Development Council. "It's an urgency."

Cuts at central office

Development, which boomed here beginning in the late 1990s, has virtually halted. Property values in St. Lucie this year have declined about 20%, meaning the county's 42 schools will get about $22 million less in tax revenue. What for decades had been a steady northward stream of South Florida families looking for affordable housing has been reduced to a trickle as they find they can't sell their homes.

Last fall, for the first time in decades, St. Lucie's enrollment dropped as families left the area to look for work. "They've moved and they took their kids with them," Lannon says.

He has given up his annual raise and asked his employees to do the same. He dispatched 45 staffers from the 300-person central office to work in the schools as clerks, purchasers, bookkeepers and secretaries.

Since 2003, the district's central office has occupied an old Sears store in a former strip mall. Standing in the doorway of her office, school board member Kathryn Hensley jokes, "We're in 'sheets and towels.' "

On a recent Friday afternoon, the store was virtually empty — Lannon has reduced central office staff to four-day weeks so he can turn off the air conditioning and most of the lights. He works most Fridays anyway, propping his office door to let in a breeze.

Lannon has cut the jobs of assistant principals, computer techs and hall monitors. He did away with interscholastic middle-school athletics and won't provide buses for sports at any level.

In the thick of the crisis, Stinnette found a way to help pay for his marine lab: His kids are now raising 500 tilapia, the popular freshwater fish, that they'll sell at in a big community fish fry.

"We are raising as many as our capacity with the tanks will enable," he says. If it works, he wants to expand "beyond tilapia" to red snapper.

By law, school districts here must balance their budgets each year, but for the past decade, they've increasingly done it on the backs of taxpayers. In 1998, the state contributed about 50% of funding; local funds provided nearly 42%. By 2007, that was almost reversed, with the state providing just under 41% and districts providing nearly 51%.

Meanwhile, Lannon and his staff have considered just about every other way to save money.

"It's the worst time I've ever seen," Hensley says.

Lannon says he has done all he can to protect children from the cuts, adding that "a third-grade kid, just because of an economic downturn, doesn't get third grade as a do-over."

The Granny Bashers

The Granny Bashers: Different Facts, Same Policy

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The granny basher crew constitutes one of the largest and most determined lobbies in Washington. The top priority for this lobby is to cut Social Security and Medicare.

The lobby includes the Peter G. Peterson Foundation, with an endowment of more than $1 billion from the private equity tycoon himself. It also includes The Washington Post, which liberally sprinkles assertions about the need to cut Social Security and Medicare in both its news and editorial pages. Many prominent members of Congress also belong to the club, along with much of the punditry who make their living pronouncing on public policy.

The granny bashers' theme is that Social Security and Medicare constitute an enormous generational injustice because the young, and those yet to be born, will be forced to pay for the cost of these programs for retirees and current workers. Of course, the reality is that the vast majority of the granny bashers' horror stories about generational inequity stems from the cost of sustaining a broken health care system not from programs for retirees.

If the United States fixed its health care system, then the granny bashers' horror story disappears. In fact, even if we don't fix the health care system, we can make most of the horror story disappear by just allowing seniors to buy into the health care systems of countries that have more efficient systems than the United States .

But the granny bashers are not interested in fixing the health care system; that would involve confronting powerful interest groups like the insurance and pharmaceutical industries and the doctors' lobby. In fact, the granny bashers are not really even particularly interested in generational equity. This is just an excuse for their real agenda: cutting Social Security and Medicare.

This point is demonstrated by the fact that their policy recommendations never change even when the evidence changes in very big ways. The granny bashers have treated us to three very dramatic examples of this "different facts, same policy" approach in the last 15 years.

The first example is slightly technical. It has to do with the claim that the consumer price index (CPI) overstates inflation.

The CPI is our yardstick for measuring how much better off people are getting through time. If wages grow 4.0 percent and the CPI tells us that inflation is 3.0 percent, then real wages have grown by 1.0 percent. However, if the true rate of inflation is just 2.0 percent because the CPI overstates inflation by 1.0 percentage point a year, then real wages have grown by 2.0 percent (4.0 percent wage growth, minus 2.0 percent inflation).

Fifteen years ago, many economists and pundits (including much of the granny basher lobby) embraced the claim that the CPI overstated the true rate of inflation by at least 1.0 percent a year. If this claim was true, then it undermined the core of the granny bashers' story. It would mean that our children and grandchildren would be far richer than we ever imagined possible and that many older workers and elderly grew up in poverty.

If annual wage growth was 2.0 percent rather than 1.0 percent, then in 40 years, wages will be more than 220 percent of the current level, instead of just 50 percent higher. The granny bashers embraced the claim of the overstated CPI in order to justify cutting Social Security (retiree benefits are indexed to the CPI), but they never followed through the logic of this claim for their generational equity story.

This would be comparable to Al Gore maintaining a drive to reduce greenhouse gas emissions even after new evidence showed that the planet was actually cooling. Honest people don't ignore such evidence.

The exact same issue arises with the speed up in productivity growth in the mid-90s. The granny basher crusade against Social Security and Medicare dates from the mid-80s when productivity growth was just 1.5 percent a year.

Productivity growth determines the rate at which society can, on average, get richer. In the mid-90s, the rate of annual productivity growth increased by a full percentage point - in effect bringing about the more rapid gains in real income that would have been implied by an overstated CPI. However, none of the granny bashers noted how the productivity growth speedup had enormously improved the prospects of future generations. They just maintained their insistence on cutting Social Security and Medicare.

Finally, the recent collapse of the housing bubble and the resulting stock market plunge have reduced the wealth of older workers and retirees by close to $15 trillion. This is a transfer to the young, since they will be able to buy the housing stock and the corporate capital stock for a far lower price than they would have expected to pay just two years ago.

Remarkably, the granny basher crew has somehow failed to notice this enormous transfer of wealth from the old to the young. They just continue their crusade to cut Social Security and Medicare as though nothing has happened.

It should be evident that the granny bashers don't care at all about generational equity. They care about dismantling Social Security and Medicare, the country's most important social programs. It is important that the public recognize the granny bashers' real agenda so that they can give them the respect they deserve.

Bolivia Passes Land From Rich to Poor

Bolivia Passes Land From Rich to Poor

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Emboldened by a new leftist constitution, Bolivia President Evo Morales on Saturday handed over ownership of farmland seized by the state from wealthy estate holders to poor indigenous people.

Morales handed out around 94,000 acres of lands recently confiscated from five big ranches in Bolivia's wealthy eastern lowlands, a stronghold of his conservative political opponents. The ranchers have been accused of employing workers in conditions of semi-slavery.

"Private property will always be respected but we want people who are not interested in equality to change their thinking and focus more on country than currency," said Morales, flanked by military and police personnel.

Among those who lost land was U.S. cattleman Ronald Larsen, who has emerged as a key opponent of the Morales government's land reforms, which are designed to distribute more of the nation's riches to poor indigenous peoples.

Larsen and other ranchers who had threatened to block the handover of their lands can still appeal the expropriations before agrarian courts.

An Aymara Indian and former leader of coca-leaf farmers, Morales is Bolivia's first indigenous president. He has governed the resource-rich nation for three years.

He is especially popular among the poor and Aymara, Quechua, and Guarani indigenous groups that suffered centuries of discrimination in South America's poorest country.

"Today, from here, we are beginning to put an end to the giant landholdings of Bolivia," Morales said.

The land transfer came six weeks after Morales celebrated the approval of a new leftist constitution that aims to give Bolivia's indigenous majority more power, lets him run for re-election and hands him tighter control over the economy.

The constitution also sets limits on single farm tracts to 12,400 acres and states that farms must meet certain economic and social conditions.

"It is not that these lands were not in production, but that they were the site of human rights violations against the Guarani, who will now be their new owners," Morales said.

Blue Dogs & Citigroup Fight the Employee Free Choice Act

Blue Dogs and Citigroup Fight the Employee Free Choice Act

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Even the "Blue Dog" Democrats should be alarmed about bailed out banks taking billions in taxpayer funds only to lobby against this era's Wagner Act.

I don't think so.

Labor gaining ground was essential to putting the economy back together after the Great Depression and it is essential today. The activists working in favor of the Employee Free Choice Act are to President Barack Obama what the civil rights movement was to John F. Kennedy, or the C.I.O. was to Franklin Roosevelt. It's time to level the playing field no matter what the cretins say.

Come On, Blue Dogs! Get real. We're building the foundation for the global Green Industrial Revolution and any company that wins federal contracts must be unionized, hence, the Employee Free Choice Act (EFCA). The National Labor Relations Act was a pillar of the New Deal. The Employee Free Choice Act makes economic sense because it will put upward pressure on wages that could increase consumption. Indiana Senator Evan Bayh and his like-minded spendthrift colleagues should not stand with Mitch McConnell and the Republicans against Keynesian solutions to the current crisis. These times do not call for Hooverite budget tightening. Remember, it was a similar "belt tightening" on the part of FDR that led to the recession of 1937 after years of success.

We should also remember that the last time the world experienced such a dramatic economic collapse was the 1929-1932 period. The hardships in some industrial societies led to some pretty crazy political forms and movements. And it was not until World War II, with its massive spending and "creative destruction," the world really lifted itself from economic stagnation.

I don't want another world war to stimulate the economy. We've had enough of the military Keynesianism, it's time for some civilian Keynesianism.

Labor Union Bill Raises Broader Capitalism Issues

Labor Union Bill Raises Broader Capitalism Issues

Economic Downturn Intensifies Rhetoric of Workers, Businesses

By Alec MacGillis

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he Employee Free Choice Act seemed destined to be a relatively narrow clash between unions and employers. But amid the economic downturn, it is turning into a debate over fundamental questions of American capitalism.

After years of girding for this fight, labor supporters and business groups are scrambling after the bill's reintroduction last week to adapt their long-established arguments to suit the crisis. For those opposed to the bill, which would make it easier to form unions, the new message was that it would be a disaster for businesses reeling from the recession.

"In a time when we have an economy that's already struggling, we can't put more burdensome regulations on employers," said Sen. John Thune (R-S.D.). "This is a job killer for our economy when we really don't need it."

The bill's supporters are pointing to the downturn as the ultimate proof of their arguments that labor's decline has helped put the economy out of balance and that only by restoring workers' purchasing power can the nation return to broadly shared prosperity.

"In 1935, we passed the Wagner Act that promoted unionization and allowed unions to flourish, and at the time we were at around 20 percent unemployment. So tell me again why we can't do this in a recession?" said Sen. Tom Harkin (D-Iowa), invoking the pro-labor changes of the New Deal. "This is the time to do it. This is exactly the time we should be insisting on a fairer playing field for people to organize themselves."

The bill, first introduced in 2003, gives workers the choice of whether they want to organize by getting a majority of workers to sign pro-union cards, instead of having to hold secret-ballot elections. As it stands, it is up to employers to decide which method is used, and most require elections. The bill increases the penalties for employers who retaliate against employees and mandates binding arbitration when employers do not agree to a contract within three months after a union election.

Unions say the bill is needed because employers intimidate or retaliate against workers before elections, making the votes something less than true democracy; and because employers often merely go through the motions of negotiating, nearly half of new unions fail to get a first contract. Employers say that forming unions without secret ballots violates American notions of democracy and exposes workers to union coercion. Mandatory arbitration, they assert, is an intolerable intervention.

But the environment in which the bill is being debated has further ratcheted up the rhetoric, revealing a divide as wide as that on any other major issue on President Obama's agenda. The two sides put forth starkly different versions of both history and present-day reality, making it hard to imagine how the two sides could compromise.

The pro-labor version of history starts during the New Deal with the Wagner Act (better known as the National Labor Relations Act), which expanded the rights of private-sector workers to unionize. The Fair Labor Standards Act of 1938 established the minimum wage and 40-hour workweek.

"The truth is that Franklin Roosevelt passed those laws under similar circumstances, and from 1945 to 1974, we had an era where workers' wages and productivity was joined together," said Andrew Stern, president of the Service Employees International Union. "It was probably the most tested economic stimulus of any public policy that has worked for us."

In the telling of labor supporters, the decline in private-sector union membership -- from a peak of 36 percent in the early 1950s to 7.5 percent today, a level not seen since 1900 -- is a result not only of economic shifts but also of an increasingly pro-employer tilt in labor policy. As they see it, the decline of unions has contributed to the growing income inequality over the past three decades, when economic productivity has outpaced wage growth.

Lawrence H. Summers, the National Economic Council director, has long been regarded warily by unions, but in a speech Friday at the Brookings Institution, he made roughly this case for boosting organized labor.

"If we want to propel this economy forward [and] have a sound expansion, it has to be an expansion whose benefits are more broadly shared," he said. That involves tax policy and education, he said, but also "goes to the question of having a healthy and well-functioning trade union movement. . . . It is hard to avoid the conclusion that the way in which our labor laws have functioned, and have been enforced and been acted on over many years, have not been constructive from the point of view of having a healthy trade union movement. And an attempt to redress that balance seems to me something that is appropriate at such a time."

In the other side's version of history, organized labor played a small (and probably negative) role in the climb out of the Depression, and postwar prosperity had far more to do with technological advances and American economic dominance, which allowed manufacturers to reward workers with wage gains and benefits. Globalization produced a much more competitive climate in which unions hamstrung companies and contributed to the demise of industries such as steel and auto manufacturing.

The decline of unions, in this telling, is the result of the decline of manufacturing and of workers' realization that unions are not in their self-interest. To link the current crisis to a slide in labor strength is ludicrous, they say.

"They're trying to wave a wand to explain the origins of a tornado," said University of Chicago law professor Richard A. Epstein, a leading opponent. "If you want to look at the factors that account for the ups or down of the economy, labor policy -- which has been totally constant -- would be 83rd on the list."

Price V. Fishback, an economics historian at the University of Arizona, said both sides overstate their case. The growth of unions did lead to wage gains both in union and non-union companies, he said. But to attribute mid-century prosperity to unions is going too far -- for one thing, union density began to go into decline in the early 1950s, after the passage of the anti-union Taft-Hartley Act.

"It's a much more complex set of things than either side is talking about," Fishback said.

The bill's opponents go on to say that expanding union membership via "card check" would reverse a natural trend when business can least afford it. "It's very clear that things have changed from the 1940s, '50s and '60s, and we need to change, as well," said Pennsylvania building contractor Jerry Gorski, the national chairman of the Associated Builders and Contractors. "Just to go back to the old ways and say unions get a certain amount of pay is not a help to our society."

Anne Layne-Farrar, an economist with the consulting firm LECG who produced a study predicting job losses if the bill passes, said in a conference call organized by employers that increased productivity had not resulted in larger wage gains in recent decades because the growth was mostly the result of technology. "If the productivity of labor went up, then the wages of labor would go up," she said.

Bill Samuel, the AFL-CIO's chief lobbyist, scoffed at this logic. "So, the [business community] no longer believes in the unique power of the American workforce?" he asked. The opponents' shift from emphasizing the bill's alleged undemocratic nature to its job-killing potential, he added, also undermined one of business's long-standing rhetorical stances: that it is not opposed to unions per se but only to corrupt and coercive unions.

"The mask has come off, and now it's clear that the Chamber of Commerce is against unions. Now they're saying they just don't want to see unions grow and have access to collective bargaining," he said. "There are a lot of members of Congress who are not necessarily supporters [of the bill] but recognize there is a problem to be fixed, and the Chamber is going to lose them because of this attitude. The majority of members are not anti-union."

Chamber general counsel Steven J. Law countered by refining the Chamber's argument, saying it is opposed not to all unions but to a sudden surge in union growth. "Rapid unionization would have an economic impact," he said.

The bill's opponents say their case against passing it amid a recession is taking hold in the Senate, where it needs 60 votes to overcome a filibuster. Sen. Blanche Lincoln (Ark.), a key centrist Democrat, questioned the bill's timing, telling the Associated Press last week, "The question is: Is there a need for this legislation right now?"

But House Education and Labor Committee Chairman George Miller (D-Calif.) expressed confidence that most in Congress would reject employers' warnings about further job losses. "The members of Congress who support this legislation know exactly what's at stake and have respect for these workers, and don't think that [the workers] are trying to negotiate themselves out of a job," he said. "Everyone's aware of the economic condition, and everyone understand this proposal . . . is compatible with it."

"The People United Will Never Be Defeated"

"The People United Will Never Be Defeated"

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“It could be that the change we wanted for so long is possible this time” said a joyous Salvadoran woman after the election Sunday, March 15 of the FMLN (FarabundoMarti Liberation Movement) candidate for president. Mauricio Funes was the first FMLN candidate to defeat the rightwing Arena party in Salvadoran elections since the civil war in that country came to an end in a UN brokered ceasefire in 1992.

The most bloody face of the Salvadoran began in 1979, when a so-called reform coup was carried out by junior grade military officers to stop brutal violence against the people. But, in short order, reformers were forced out by hard line military dictators who launched a campaign of slaughter, targeting domestic and foreign “subversives” for assassination.Progressive reformers from some 80 mass organizations, the Democratic Revolutionary Front(FDR), joined forces with a coalition of revolutionaries, the FMLN, to defend the masses of landless peasants, factory workers, students, teachers, and health care workers from assassination, imprisonment, and dictatorship.

Over the decade of the 1980s, the FMLN gained control of regions of the country, establishing “zones of popular control,” where peoples’ assemblies could build rudimentary political institutions. But the FMLN never assembled sufficient forces to defeat the Salvadoran military, treasury police, death squads and other instrumentalities of the 2 percent of the population that controlled 60 percent of the land, the so-called “14 families.”

Throughout the eighties, sympathetic church people were slaughtered, from US nuns in 1979, to Archbishop Oscar Romero in 1980, to six Salvadoran Jesuit priests in 1989.

Perhaps the most egregious omission in recent stories in the mainstream US press concerning last Sunday’s elections was the fact that the decade of violence, killing 70,000 Salvadorans and causing hundreds of thousands to flee the country, was fully encouraged and supported by United States foreign policy. Nearly $2 billion of military aid flowed from the US treasury to El Salvador, about 100 US militaryadvisors were in country to direct the war effort against the people, and US soldiers and airmen provided logistical, radar and other support to the Salvadoran military in their war from neighboring Honduras. If the US had not taken sides and given its full resources to the dictators, and their “elected” officials from the Christian Democratic and then Arena parties, the FMLN and the mass organizations who had joined with them would have been victorious by 1984, saving thousands of lives.

Back in the United States CISPES, the Committee in Solidarity With the People of El Salvador, created a national organization with over 100 chapters in cities and towns. CISPES members marched, rallied, lobbied Congress, raised money for sister city projects in the zones of popular control, and in other ways tried to show the people of El Salvador that there were Americans who opposed military dictatorship andgrotesque economic inequality in their country. CISPES stood against US imperialism in Central America.

When CISPES members marched to the chant of “The People United Will Never Be Defeated” they did not realize how long the struggle might take. The election of Mauricio Funes, however, does confirm that what was being chanted may in fact be coming true.



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Have journalists learnt nothing from recent history? It truly is a wonder when a reporter can assert in public, on the BBC News no less, that “Tony Blair passionately believed that Iraq had weapons of mass destruction and posed a grave threat." (BBC1, Six O’Clock News, February 24, 2009). When BBC reporter Reeta Chakrabarti was challenged on this remarkable display of naïveté, she compounded her grievous error by responding:

“I said Mr Blair passionately believed Iraq had wmd because he has consistently said so. When challenged he has stuck to his guns.” (Email posted on the Media Lens Message Board, March 2, 2009)

So when a demonstrably mendacious leader claims he “passionately believed” in a lie, the media has to take him at his word. This is the same brand of journalistic gullibility that has had such tragic consequences for the people of Iraq. This is the endless, uncritical obedience to power that boosted the warmongering agenda of London and Washington, allowing them to fit ‘facts’ to a pre-ordained policy of launching a war of aggression. Such an act, sold by the BBC as Blair’s “passionate belief”, is the supreme international crime, as judged by the 1946 Nuremberg Tribunal.

And a similar tragic fate may yet befall the people of Iran, if the corporate media portrayal of Iran as a rogue state lorded over by “ruling mullahs”, desperate to get their hands on nuclear weapons, goes unchallenged.

A Nuclear Programme Under Close Surveillance

At the end of 2007, a thorough assessment by the United States concluded that Iran’s nuclear weapons programme had already halted in 2003. The National Intelligence Estimate was the consensus view of all 16 US spy agencies. (Mark Mazzeti, ‘U.S. Says Iran Ended Atomic Arms Work,’ New York Times, December 3, 2007)

In its latest report on Iran, the International Atomic Energy Agency (IAEA) strengthened this assessment when it stated it had “been able to continue to verify the non-diversion of declared nuclear material [for possible military purposes] in Iran.” (IAEA, ‘Introductory Statement to the Board of Governors by IAEA Director General Dr. Mohamed ElBaradei,’ March 2, 2009;

But under pressure from powerful Western countries, in particular the United States, the UN Security Council and the IAEA have been demanding that Iran suspend the enrichment of uranium “until Iran's peaceful intentions can be fully established.” (BBC online, ‘Q&A: Iran and the nuclear issue,’ 10:39 GMT, February 25, 2009;

Under the Nuclear Non-Proliferation Treaty (NPT), a country has the right to enrich uranium as fuel for civil nuclear power, although it must remain under inspection by the IAEA. The agency says in its latest report that although Iran is continuing to enrich uranium, it is doing so at a reduced rate.

The IAEA also reported that it had found an increase in Iran’s stockpile of low-enriched uranium (LEU) to 1,010 kg. This figure was over one-third greater than the estimate that had been provided by Iran. However, the IAEA emphasised that “Iran is cooperating well with U.N. nuclear inspectors to help ensure it does not again understate the amount of uranium it has enriched.”

News agency Reuters made an important observation:

“The IAEA statement seemed aimed at quashing any impressions... that the accounting shortfall might have been deliberate evasion.”

According to IAEA spokeswoman Melissa Fleming:

"The (IAEA) has no reason at all to believe that the estimates of LEU produced in the (Natanz) facility were an intentional error by Iran. They are inherent in the early commissioning phases of such a facility when it is not known in advance how it will perform in practice."

She emphasised:

"Iran has provided good cooperation on this matter and will be working to improve its future estimates.

"No nuclear material could have been removed from the facility without the agency's knowledge since the facility is subject to video surveillance and the nuclear material has been kept under seal." (Mark Heinrich, ‘Iran cooperates after understating atom stocks-IAEA,’ Reuters, February 22, 2009;

The IAEA stated that it is seeking improved transparency and further information about Iran’s nuclear programme. But it also noted that:

“[T]he apparent fresh approach by the international community to dialogue with Iran will give new impetus to the efforts to resolve this long-standing issue in a way that provides the required assurances about the peaceful nature of Iran’s nuclear programme, while assuring Iran of its right to use nuclear energy for peaceful purposes.” (IAEA, op.cit.)

Scaremongers R Us

However, for many years, the corporate media has been amplifying supposed “fear” in the West about Iran becoming a nuclear-armed nation alongside the US, the UK, France, Russia – and Israel.

Compare the sane and sober IAEA analysis above with the Daily Telegraph’s reporting last month of “fears in Israel and the US that Iran is approaching the point of no return in its ability to build atom bomb.” Use of “the point of no return” is a classic scare tactic intended to induce a sense of panic. Time is running out! Soon it will be too late! As though warmongering propaganda over Iraq had taken place in a parallel universe, the paper blithely asserted that “Israeli and Western intelligence agencies believe the 20-year-old programme, which was a secret until 2002, is designed to give the ruling mullahs an atom bomb.” (Philip Sherwell, ‘Israel launches covert war against Iran,’ Daily Telegraph, February 16, 2009;

“Ruling mullahs” is another trigger phrase intended to resonate in the public mind alongside “mad mullahs,” “Islamic fundamentalism” and “militant Islam”.

Remarkably, the BBC told the public, who pay for the broadcaster:

“Germany has warned Iran that it would support tougher sanctions if diplomatic efforts to stop the Iranians acquiring nuclear weapons broke down.” (BBC online, ‘Germany warns Iran over sanctions,’ 15:39 GMT, February 7, 2009;

So according to the BBC, Iran is indeed trying to acquire nuclear weapons. The corporation’s famed “impartiality” really is a joke.

Meanwhile, the Times maintained its own tragicomic tradition of balanced coverage (see Media Lens Media Alert, ‘Selling the Fireball’, June 25, 2008;

The paper’s chief foreign commentator, Bronwen Maddox, inaccurately described Iran’s nuclear programme as “accelerating.” In her column, Iran was portrayed as “ambitious” and keen to upset “the balance of power even further in a region already tense about Tehran's overbearing ways.” (Bronwen Maddox, ‘Ambitious Iran is bent on tilting the balance of power,’ The Times, February 27, 2009). There was no hint that it is the US which is “ambitious” and “overbearing” - with a long and shameful record of aggression towards Iran and many other countries in the region - and a proven eagerness to assert its dominance.

It is par for the course, and closely aligned with Western state priorities, for the corporate media to portray Iran as a threat; its “ruling mullahs” desperate to build nuclear weapons or arm “militants” targeted by the US in its “war on terror.”

The ‘liberal’ Guardian plays its part in the same propaganda system. A recent piece by the Guardian’s Rory McCarthy about a new Amnesty report on arms in the Middle East wrongly implicated Iran in the supply of weapons to Hamas in Gaza. McCarthy wrote:

“For their part, Palestinian militants in Gaza were arming themselves with ‘unsophisticated weapons’ including rockets made in Russia, Iran and China, it said.” (McCarthy, 'Suspend military aid to Israel, Amnesty urges Obama after detailing US weapons used in Gaza,' The Guardian, February 23, 2009;

This then, according to McCarthy, is what "it”, Amnesty, said.

But in fact Amnesty was +not+ the source of allegations about the origins of Palestinian rockets. Amnesty had merely cited the publication 'Janes Defence Weekly' and was not itself in a position to verify the claims. Worse for the Guardian, as the Amnesty report made clear, the claims actually originate from Israeli and Egyptian security and police sources. Such claims should be treated with extreme caution and, at the very least, be correctly attributed by the Guardian.

Worse still, Amnesty had this to say on the claim that rockets have been supplied from Iran:

"There have been several reports that Iran has provided military equipment and munitions, including rockets, to Hamas and other Palestinian armed groups but Amnesty International has not seen any evidence to verify these allegations." (Amnesty International, ‘Fuelling conflict: Foreign arms supplies to Israel/Gaza,’ AI Index: MDE 15/012/2009, February 23, 2009;
http://www.amnesty.org/en/library/info/MDE15/012/2009/en; page 31)

We wrote to both Rory McCarthy and Siobhain Butterworth, the readers' editor, suggesting they publish a prompt correction in the Guardian. As usual, we received only silence in response.

Friendly Nukes - Israel Doesn't Threaten Anyone, Never Did

No sane person wants nuclear conflict. What single act could be more monstrous than that of instantly incinerating a city full of men, women and children? This is what America did, twice, in its atomic bombings of Hiroshima and Nagasaki. (See David Cromwell, ‘Racing Towards The Abyss,’ Media Lens Cogitations, January 15, 2008;

Who could argue with the United Nations’ “goal of establishing in the Middle East a zone free from weapons of mass destruction and all missiles for their delivery”? (UN resolution 687, April 3, 1991;

But the stoked-up fears, and media hype, over Iran generally overlook the fact that there is already a nation in the region armed with nuclear weapons - Israel. But Israel is a western ally and therefore to be regarded as essentially benign.

Estimates for Israel's nuclear weapons stockpile range from 70 to 400 warheads. An assessment published by the Federation of American Scientists in 2007 concluded that the most likely number lay in the range 100-200. (Steven Aftergood and Hans M. Kristensen, ‘Nuclear weapons – Israel,’ Federation of American Scientists, updated January 8, 2007;

In 2008, the BBC reported former US President Jimmy Carter’s statement that Israel has “150 or more” nuclear weapons. (BBC online, ‘Israel “has 150 nuclear weapons”,’ 20:26 GMT, May 26, 2008;

Unlike Iran, Israel is not a signatory to the Nuclear Non-Proliferation Treaty. Also unlike Iran, Israel does not allow international inspection of its nuclear facilities. In fact, Israel has never formally admitted that it possesses nuclear weapons, instead following a “policy of ambiguity.” However, in an embarrassing slip, Israeli prime minister Ehud Olmert told a German television interviewer in 2006 that Iran was “aspiring to have a nuclear weapon as America, France, Israel and Russia.”

Olmert reacted angrily when asked if Israel’s alleged nuclear programme weakened the Western case against Iran, insisting no such comparisons could be made:

“Israel is a democracy, Israel doesn’t threaten any country with anything, never did.”

He said Iran could not be compared to the US, Russia, France and the UK, as Iran had threatened “to wipe Israel off the map.” (For a refutation of this mistranslation from Farsi, see Jonathan Steele, ‘Lost in translation,’ The Guardian, June 14, 2006;

Olmert explained in all seriousness:

“You are talking about civilized countries that do not threaten the foundations of the world [and] that do not threaten other countries that they will use the nuclear weapons in order to destroy them. That is why there is a big difference.” (Associated Press and Ynet, ‘Olmert: Iran wants nuclear weapons like Israel,’ December 12, 2006;

In 2006, US Secretary of Defense Robert Gates told a Senate committee that Israel possessed nuclear weapons and that these might provide Iran with the motivation to acquire its own. He even recognised that Iran faced a potential US threat:

"They [Iran] are surrounded by powers with nuclear weapons - Pakistan to their east, the Russians to the north, the Israelis to the west and us in the Persian Gulf." (Associated Press, ‘Incoming U.S. Defense Secretary tells Senate panel Israel has nuclear weapons,’ Ha’aretz, December 9, 2006;

Orwell’s Memory Hole

One searches in vain for any corporate media analysis focusing on Israel’s large stockpile of over 150 nuclear weapons. Where is the in-depth discussion that Israel might have a reason to divert attention from its own nuclear arms by cynically manipulating fears over Iran?

At best, there is an occasional subtle nod in the direction of uncomfortable truth. For instance, the Guardian’s Middle East editor, Ian Black, noted blandly that:

“Israel, which has its own undeclared nuclear weapons arsenal, has been warning for some time that Iran is far closer than believed in the west to being able to build a bomb.” (Ian Black, ‘US fears that Iran has capability to build a nuclear bomb,’ The Guardian, March 2, 2009)

But has Israel been simply “warning”, in the manner of a responsible citizen phoning the police about a mad gunman roaming the streets? Or has it, perhaps, been hyping fears about Iran for its own ends – and those of US power?

It is now almost unmentioned in media coverage that Israel carried out a massive military exercise in the eastern Mediterranean last June. This involved 100 bombers, rescue helicopters and midair refuelling planes over Crete, 1,400 kilometres from Israel – about the same distance separating Israel from Iran’s uranium enrichment facility at Natanz.

A few days after the exercise, Israel's deputy prime minister, Shaul Mofaz, said:

"If Iran continues its programme to develop nuclear weapons, we will attack it. The window of opportunity has closed. The sanctions are not effective. There will be no alternative but to attack Iran in order to stop the Iranian nuclear programme." (Jonathan Steele, ‘Israel asked US green light to bomb Iran,’ The Guardian, September 26, 2008)

Around the same time, the US announced that it would sell Israel 1,000 bunker-busting “smart” bombs, capable of penetrating 90 cm of steel-reinforced concrete. It was reported in passing that the US and Israel were in advanced talks about upgrading Israel's Arrow II ballistic missile shield.

In 2007, Israeli forces conducted an air raid against an alleged Syrian nuclear facility. Seemingly unable to obtain US backing for similar strikes against Iran, Israel has launched a “covert war” involving hitmen, sabotage, front companies and double agents to stop “the regime's illicit weapons project.” (Sherwell, op. cit.)

Although these developments have been given limited coverage, they invariably, and rapidly, disappear down the Orwellian ‘memory hole.’ Inconvenient facts are forgotten or overlooked. Somehow, the dots – the West’s long record of criminal actions, its current threats and longstanding strategic interests - are never joined. Somehow, there is no in-depth reporting or analysis of Israel’s hugely threatening stock of nuclear weapons; or of “our ally’s” threat to regional and global instability. Somehow, the West’s (particularly the US’s) massive financial, diplomatic and ideological support for a nuclear-armed Israel is not part of the story.

All of this is simply not discussed in any meaningful, sustained way by ‘mainstream’ broadcasters and newspapers. And so, like many others in the region, the people of Iran remain in the crosshairs of Western firepower; just as the Iraqis were.

Sadly, this deadly cocktail of media silence and diversion will likely yield yet more corpses, more mutilations, more victims demented by grief, fear and misery.

Whatever steps each of us can take to challenge the agenda of power propagated through the media are well worth the effort.


The goal of Media Lens is to promote rationality, compassion and respect for others. If you do write to journalists, we strongly urge you to maintain a polite, non-aggressive and non-abusive tone.

Write to Jeremy Bowen, BBC News Middle East editor
Email: jeremy.bowen@bbc.co.uk

Write to Ian Black, Guardian Middle East editor
Email: ian.black@guardian.co.uk

Write to Rory McCarthy, Guardian reporter
Email: rory.mccarthy@guardian.co.uk

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Email: reader@guardian.co.uk

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