Friday, March 20, 2009

The Threat and Danger of One World Currency

The Threat and Danger of One World Currency

Go To Original

Last week China’s Premier expressed concern about the safety of his nation’s investments in the United States as well to the value of its U.S. dollar reserves.

A day later Russia's Prime Minister Vladimir Putin suggested dumping the dollar as the world’s reserve currency and urged the creation of one world currency.

This morning Reuters News Service is reporting the a U.N. panel will recommend next week that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Persaud has long argued that the dollar would give way to the Chinese Yuan as a global reserve currency within decades.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Finds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note.

Any way you look at this the U.S. Dollar is under siege and my prediction about the danger of the death of our currency is growing. When I was a young man study economics I used to laugh and dismiss conspiracy stories about one world government, the Trilateralists which the stories used to be embellished by predictions of secret black hawk helicopters.

While the drama of those stories may have been embellished for effect I find myself re-thinking the possibility of a global conspiracy with the stories of one world currency.

We’re living in a very dangerous time that threatens not only our nation’s economic viability but also our democracy. The best defense and protection you can employ is to own physical gold and protect your IRA with physical gold ownership.

Approaching a Depression? New Twist in the Old Saga of Under-Counting the Unemployed

Approaching a Depression? New Twist in the Old Saga of Under-Counting the Unemployed

By Joshua Holland

Go To Original

I'm pretty sure that AlterNetters, savvy bunch that they are, are well aware of the fact that a lot of working Americans' economic pain isn't captured in the "official" unemployment rate.

While that number was 8.1 percent last month, the broadest measure the government tracks -- which includes those working part-time for lack of a full-time gig, those who have said, 'fuck it' and given up the search out of frustration and other "marginally attached workers" -- was 14.8 percent.

But, wait, says economist John Schmitt, there's more!

"February's unemployment rate of 8.1 percent is bad news, but the unemployment picture is even worse than it looks," said Schmitt (who, by the way, never answers my emails, but whose work I'm promoting here anyway because I'm just that kind of guy).

The gist of the study is this: comparing this recession -- or depression or whatever we're calling the econopocalypse these days -- to past downturns leads to an apples an oranges problem because of demographic changes that have taken place in the American workforce.

Here's the quick and dirty from the ole' press release:

The report, "Is the U.S. Unemployment Rate Today Already as High as It was in 1982?," adjusts the current unemployment rate to account for demographic and statistical differences that lower the unemployment rate today by 1.4 percentage points, relative to the official unemployment rate in 1982. After these adjustments, the current unemployment level rises to 9.5 percent, a level that is close to the 1982 average of 9.7 percent.

"After accounting for these demographic and statistical differences, today's unemployment rate rises to 9.5 percent, already on a par with the worst recession since the Great Depression," said Schmitt.

The report notes that the population today is substantially older than it was in the early 1980s, which has the effect of lowering the unemployment rate today relative to the past. Young people have a higher unemployment rate than older workers because the young change jobs more frequently and are more likely to move in and out of the labor force. In 1982, about 22 percent of the labor force was between the age of 16 and 24; in 2008, 16-to-24 year olds were only about 14 percent of the labor force. As a result, the age of the typical US worker has risen from 35 in 1982 to about 42 today. Adjusting for this aging of the population raises the unemployment rate in 2009 by 1.2 percentage points.

Of course, some argue that the real real unemployment rate is higher still ...

Over at John Williams' Shadow Government Statistics, there's an analysis suggesting that today's unemployment rate is approaching a Great Depression-like 20 percent:

Chart of U.S. Unemployment

As they explain, "The SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated 'discouraged workers' defined away during the Clinton Administration added to the existing BLS estimates of level U-6 unemployment." U-6 is the technical term for that broader measure of unemployment -- the one at 14.8 percent right now -- that I mentioned above.

Which way forward for anti-war forces?

Which way forward for anti-war forces?

By Fred Goldstein

Go To Original

With Washington carrying out war, occupation and intervention on expanding fronts, the anti-war movement is more necessary than ever. It is needed by the workers and oppressed people abroad who are the direct targets of the Pentagon and also by the masses of people in the U.S. who will pay for these military operations and have to carry them out.

The anti-war struggle is developing in the midst of the most severe economic crisis in generations. This creates a new situation for the movement and raises two burning questions: what should be the character of the movement and what should be the relationship of the struggle against the war to the struggle against the economic crisis?

While millions of workers are losing their jobs and their homes and undocumented workers are being scapegoated and rounded up in raids, Washington is promoting aggression in one form or another in Asia, the Middle East, Latin America and Africa.

The workers in the U.S. are under attack because U.S. capitalism has been seized by an inevitable crisis of overproduction, which is built into the system.

The oppressed people abroad are under attack because the Pentagon is trying to secure the interests of the giant oil companies and the transnational corporations and banks with global empires, from Halliburton, Exxon and GM to Citigroup, JPMorgan Chase and AIG—the biggest insurance company in the world with operations in over 100 countries. These same capitalist corporations are behind the crisis at home.

These two developments are inseparable: the collapse of profits at home and the search for super-profits abroad.

Just a brief resume of recent events shows the need for an anti-imperialist movement with a global outlook.

Some 17,000 U.S. troops are scheduled to leave for the front in Afghanistan within weeks to continue a war that was launched in October 2001 and shows no sign of ending. The war has recently been expanded to northwest Pakistan, with Predator drones violating Pakistani air space at will and U.S. Special Forces going over the border.

The administration is withdrawing troops from Iraq at a snail’s pace and is committed to keeping an occupation force of 50,000 in the country to secure its puppet regime, its military position and the interests of the oil companies, both in Iraq and in the region.

Diplomacy notwithstanding, threats to Iran continue. It was just revealed that U.S. forces shot down an Iranian pilotless plane over Iraqi air space in February, showing both a provocation to Iran and the absolute sovereignty of the U.S. military over the Iraqi puppets.

The U.S. continues the flow of funds and military supplies to Israel to carry out its brutal occupation of Palestine. This includes the continued expulsion of Palestinians to make way for settlements and Israeli aggression against Gaza.

Under the guise of the so-called “war on terror,” the U.S. has sent 6,000 U.S. troops to lead 2,500 Filipino troops in operations in the Bicol region south of Manila.

In south Korea, 26,000 U.S. troops are leading 50,000 south Korean troops in military exercises—dubbed operations Key Resolve and Foal Eagle—all over south Korea from March 9 to March 20. The nuclear-powered aircraft carrier USS John C. Stennis and seven U.S. Aegis missile-carrying destroyers are taking part.

On March 9, the Pentagon sent a naval spy ship equipped with anti-submarine sonar into China’s territorial waters in the South China Sea in a calculated provocation.

The Pentagon continues to aid the death squad government in Colombia; Washington is trying to destabilize the revolutionary government of Hugo Chávez in Venezuela; is fomenting a separatist movement against the first Indigenous president in Latin America, Evo Morales of Bolivia; and continues the embargo against socialist Cuba.

In Africa, the Pentagon is moving ahead with plans to establish an African Command. For the present it is headquartered in Stuttgart, Germany, with Army and Navy operations set up in Italy. This bolsters the U.S. effort to strangle the nationalist government of Robert Mugabe in Zimbabwe through sanctions and undermine the regime in Sudan.

The Pentagon has killed up to 1 million people in Iraq. It has killed untold numbers in Afghanistan, including civilians. The U.S. military has a long record of wars of conquest, starting with the decimation of the Native peoples, then the seizure of much of Mexico and, in 1898, the invasion of Cuba, Puerto Rico and the Philippines. Dozens more followed.

The U.S. is the only government ever to use nuclear weapons. The Pentagon is the overseas arm of the same racist, repressive state that has 2.4 million people in jail, disproportionately Black and Latina/o, and uses the racist death penalty.

More than a century of wars and interventions does not flow just from bad policies. The policies flow from the needs of the giant imperialist monopolies that have spread their corporate empires across the globe in their insatiable desire for cheap labor, raw materials and profits.

Working-class movement must be goal

Before the 2003 invasion of Iraq, the largest anti-war protests in U.S. history were organized. The same goes for Britain, Spain and other European countries. But these mammoth protests failed to stop the war, even though such protests are an indispensable stage in the opposition to imperialist war and a necessary show of solidarity.

Protests can be a deterrent to capitalist governments at times and they are necessary to create the organization and energy needed to move to the stage of outright resistance.

There are many forms of resistance to imperialist war. But the class character of capitalist society dictates the ultimate forms of effective resistance.

A profound and protracted economic crisis, such as the entire capitalist world is going through now, is bound to eventually produce an upsurge of resistance among the working class. Once the rebellion against capitalist exploitation takes hold among the workers, once consciousness of the antagonism between “them and us” becomes widespread, it sets the stage for their rebellion against being used to enable a war for the exploiters—either as workers or soldiers.

The U.S. war on Vietnam took place at the height of imperialist prosperity, when the workers as a class were relatively shielded from the disasters of a protracted capitalist crisis.

The period was nevertheless characterized by rebellions against war and the draft among the youth, resistance among the soldiers, and uprisings against racism, police repression and poverty in the African-American, Latina/o and Native communities. But the workers as a class, at the point of production, remained at a distance from the struggle.

Even during that war, however, the crucial character of the workers as soldiers emerged. It was the workers in uniform who finally obstructed the war in a material way by rebelling against the military, by refusing to go into battle, by going AWOL en masse and by resorting to violence against their officers. They even organized an anti-war union, the American Servicemen’s Union.

Today, matters are quite different. Not only is there a growing crisis for the soldiers who are being called upon to kill or be killed abroad, but the working class as a whole is in a growing crisis. More than 20 million workers are unemployed or underemployed. There are no signs that the layoffs are going to stop. Millions of people have lost their homes or are going to lose them.

The vicious cycle behind a capitalist downturn—where layoffs lead to poverty which leads to more layoffs—is transparent now, unlike in the 1960s. The sight of rich bankers being bailed out while the workers get a few stimulus crumbs is there for all to see. The contradiction of having to close down factories, shut down whole chains of retail stores, keep food off the market, and drive people out of millions of homes while tent cities of the homeless spring up around the country–in short, the contradiction of poverty amidst plenty–can open the way in the long run to organize the working class to struggle against the system and its wars.

Right now $534 billion has been budgeted for the military, but this does not include many military related expenses such as nuclear weapons research, veterans’ costs, interest on debt from past wars, and the wars in Iraq and Afghanistan. Factor these in, and the war budget for this year rises to at least $1 trillion! The struggle for resources to create jobs is inextricably bound up with the struggle against the military.

But beyond military spending alone, the struggle to bring the working class into the anti-war movement is the only way to go from protest to resistance to actually stopping the wars and interventions. It is the workers who create and transport everything that supports the war. They as a class have the social power to interfere with the war. In one reminder of this fact, it is worth recalling that the International Longshore and Warehouse Union shut down the entire port system on the West Coast on May Day, 2008, to protest the Iraq war. This was a political strike. While a one-day strike alone could not stop the war, this example is of the greatest significance for the anti-war movement.

The approach the anti-war movement takes to reach the workers not only needs to include working-class demands in its program, like the right to a job, but it needs to seek out ways of showing concrete solidarity in the struggle. In order to insure the broadest solidarity, it is essential to include demands for the rights of undocumented workers as well as demands against racism, national oppression, sexual and gender oppression, and all other forms of oppression.

To be sure, the anti-war struggle must be carried on independently. But it must have a working-class perspective. Anti-imperialist resistance must fuse with international working-class solidarity. It must be recognized that the workers and oppressed of the world are under attack by the same bosses and bankers that carry out exploitation and layoffs at home.

Ultimately, the struggle against the war must become a struggle against capitalism itself, which engenders war and intervention in its search for profit, just as it produces crises and suffering at home.

Strengthening the working-class struggle against capitalism is the surest way to help get U.S. imperialism off the backs of the people of the world.

"Getting Tough" with Predator Financial Institutions

"Getting Tough" with Predator Financial Institutions

by F. William Engdahl

Finally the US authorities have gotten ‘tough’ with the predator financial institutions. The world has been waiting for such decisive intervention since an unending series of Government bailouts of financial institutions began early in 2008 amounting to now trillions of taxpayer dollars. Now, with the world’s largest insurance giant, AIG, the White House Economic Council chairman, Larry Summers has expressed ‘outrage.’ President Obama himself has entered the fray to promise ‘justice.’ US Senators have threatened a law to change the injustice. The only problem is they are all exercising ‘politics of deflection,’ taking attention away from the real problem, the fraudulent bailout.

The issue is over AIG announcing it was obligated to pay its traders in its high-risk London unit a sales bonus totaling $165 million for the year. Obama Treasury Secretary, Tim Geithner has announced a novel strategy for ‘justice.’ AIG will ‘reimburse’ the taxpayers up to $165 million for bonuses the company is giving employees. AIG will pay the Treasury an amount equal to the bonuses, and the Treasury will deduct that amount from the $30 billion in government (taxpayer) assistance that will soon go to the company. But he said that the Obama administration hasn't given up on efforts to recoup the money from the employees who got the bonuses. Good luck.

Larry Summers is the man directly responsible for the mess. As Clinton Treasury Secretary from 1999-January 2001 he shaped and pushed the financial deregulation that unleashed the present crisis. He was Treasury Secretary after July 1999 when his boss, Robert Rubin left to become Vice Chairman of Citigroup, where Rubin went on to advance the colossal agenda of deregulated finance directly.

As Treasury Secretary in 1999, Summers played a decisive role in pushing through the repeal of the Glass Steagall Act of 1933 that was instituted to guard against just the kind of banking abuses taxpayers now are having to bail out. Not only Glass-Steagall repeal. In 2000 Summers backed the Commodity Futures Modernization Act that incredibly mandated that financial derivatives, including in energy, could be traded between financial institutions completely without government oversight, ‘Over-the-Counter’ as in where the taxpayer is now being dragged. Credit default Swaps, at the center of the current storm, would not have been possible without Larry Summers and the Commodity Modernization Act of 2000. He is now the White House Economic Council chairman, mandated to find a solution to the crisis he helped make along with Tim Geithner, his friend who is Treasury chief. Foxes should never be asked to guard the henhouse.

Theatre of the absurd or deflection?

This all makes great food for tabloid headlines and popular outrage. They can write that elected politicians are finally acting in taxpayer interests. Until we look a bit more closely. Paying $165 million in employee bonuses or any amount for a company that is in the middle of a multi-trillion dollar fraud that is bringing the world economy down with it is ‘outrageous.’

The problem is the tax bailout haemmorrhage will go on. The reason is the Obama Administration like its predecessor refuses to take consequent action with AIG, despite the fact today the US Government owns at least 80% of AIG stock, bought for $180 billion of, yes, taxpayer dollars. To demand AIG ‘pay back the government’ is absurd as the government is in effect demanding it pay itself back with its own money. The latest claim that the Treasury will subtract the $165 million bonus money from the next $30 billion tranche it will give AIG says it all.

Preserving the CDS bubble

The political ‘outrage’ expressed by the Obama Administration is an example of ‘perception management.’ The population is being slylyduped into believing their officials are working in their interest. In reality the officials are channeling growing popular outrage over endless bank bailouts away from the real problem to an entirely tertiary one. The US Government has injected $180 billion since September 2008 to keep the ‘brain dead’ AIG in business and honoring its Credit Default Swap obligations. In effect, they are propping up the casino to continue endless gambling with taxpayer dollars.

The rise of a market in derivatives or ‘swaps’ contracts supposedly to ‘insure’ against a company going into default and not being able to honor its debts, the Credit Default Swaps market, is at the heart of the global financial catastrophe. The market was ‘invented’ by a young economist at JP MorganChase, interestingly enough one of the few big banks recording profit today.

As noted, CDS trading was created free from US Government regulation by President Clinton when he signed the Commodity Futures Modernization Act of 2000 that mandated that financial derivatives not be under government regulation scrutiny. Enron crony and UBS bank adviser, Texas good ‘ol boy Senator Phil Gramm helped pass the laws at a time his wife, Wendy headed the putative regulator, the Commodity Futures Trading Corporation (CFTC). That gave the green light to a derivatives market nominally worth more than $62 trillion in 2008. No one knows the exact size because this is a ‘phantom banking market’ completely private and between banks, so-called OTC for Over-The-Counter, ‘just between us.’

Michael Greenberger who headed the CFTC Division of Trading and Markets in the late 1990’s at the time of the financial deregulation acts, says that banks and hedge funds"were betting the subprimes would pay off and they would not need the capital to support their bets." The unregulated Credit Default Swaps, he says, have been at "the heart of the subprime meltdown. In 1998 Greenberger proposed regulating the growing derivatives market. At the prospect, he says, "all hell broke loose. The lobbyists for major commercial banks and investment banks and hedge funds went wild. They all wanted to be trading without the government looking over their shoulder."

The confidence between banks, the ‘just between us,’ collapsed after the ill-conceived decision by the US Government on September 15 2008 not to save the world’s fourth largest investment bank, Lehman Brothers. By then, there was no alternative but to nationalize and then sort out the mess. Bankruptcy, as the world now realizes, was not an option. But neither was the Henry Paulson TARP ‘casino rescue plan’ and Geithner’s continuation any option.

At the point the Government let Lehman Bros go down only months after saving the far smaller Bear Stearns and also AIG, not even a bank, there was no clear idea who would be saved and who not. No bank could afford to trust any other bank not to be holding just as risky loans as they. The crisis became a global systemic crisis. Notably, the man who participated in the decision to let Lehman Bros fail ‘to teach a lesson’ was then President of the New York Federal Reserve, US Treasury Secretary Tim Geithner.

The US Government has stated that AIG cannot be allowed to fail, that, to use the jargon, AIG is ‘too big to fail.’ The reason the Government says it can’t let AIG fail is that if the company defaulted, hundreds of billions of dollars’ worth of Credit-Default Swaps (CDS) would ‘blow up,’ and US and European banks whose toxic assets are supposedly insured by AIG would suddenly be sitting on immense losses. Quite the contrary, AIG is ‘too big to save’ under current rules of the game that have been written by Wall Street and the privately-owned Federal Reserve, Treasury Secretary Geithner’s former employer.

The CDS fraud

Credit Default Swaps purported, in theory, to let banks remove loan risk from their balance sheet onto others such as AIG, an insurer. It was based on a colossal fraud using flawed mathematical risk models.

AIG went big into the selling Credit Default Swaps with banks around the world, from its London ‘Financial Practices’ unit. AIG in effect issued pseudo ‘insurance’ for the hundreds of billions of dollars in new Asset Backed Securities (ABS) that Wall Street firms and banks like Citigroup, Goldman Sachs, Deutsche Bank, Barclays were issuing, including Sub-prime Mortgage Backed Securities.

It was a huge Ponzi scheme built by AIG that depended on the fact the world’s largest insurance company held a rare AAA credit rating from Moody’s and S&P rating agencies. That meant AIG could borrow more cheaply than other companies with lower ratings

AIG issuing of CDS contracts acted as a form of insurance for the various exotic Asset Backed Securities (ABS) securities being issued by Wall Street and London banks. AIG was saying ‘if, by some remote chance’ those mortgage-backed securities suffered losses, AIG would pay the loss, not the banks.

Then it got really wild. Because credit-default swaps were not regulated, not even classed as a traditional insurance product, AIG didn’t have to set aside loss reserves! And it didn’t. So when housing prices started falling, and losses started piling up, it had no way to pay off.

AIG then issued of hundreds of billions of dollars worth of CDS instruments to allow banks to make their balance sheets look safer than they really were. Banks were able to get their loan risk low not by owning safer assets. They simply bought AIG’s credit-default swaps. The swaps meant that the risk of loss was transferred to AIG, making the bank portfolios look absolutely risk-free. That gave banks the legal illusion of BIS minimum capital requirements, so they could increase their leverage and buy yet more ‘risk-free’ assets.

How could that be allowed? The level of venal corruption in the Clinton and then Bush Administration rivals that of the last days of Rome before its fall from the internal rot of corruption. Banks invested billions in lobbying Washington politicians to get their way.

What can be done?

Fortunately there is a simple way out of the AIG debacle. The US Government can step in and fully nationalize AIG, 100%, kick out responsible management, declare AIG’s CDS contracts null and void and let holders sue the US government to regain value for what were in reality lottery gambles not loans to the real economy. They own 80% so the step is small to 100%. Doing that would end the global market in CDS and open the door for countless legal challenges. But AIG’s counterparties, as we begin to learn, were exactly the big Wall Street players like Goldman Sachs, Citigroup, even Deutsche Bank. They have gotten enough taxpayer bailouts to cover their risk in CDS. Let them recognize risk is the heart of banking, not the opposite.

Myron Scholes, the ‘father’ of financial derivatives, who won a Nobel Prize in economics in 1997 for inventing the stock options model that led to financial derivatives back in the 1970’s, has declared that derivatives and Credit Default Swaps have gotten so dangerously out of hand that authorities must ‘blow up’ the market.

Scholes says derivatives traded over the counter should be shut down completely. Speaking at York University Stern School of Business recently, he said the "solution is really to blow up or burn" the over-the-counter market and start over. He included derivatives on stocks, interest rate swaps and credit default swaps that should be then moved into regulated markets.

The idea is simple and not that radical. A US law banning OTC derivatives and moving them to regulated exchanges would end a colossal ‘shadow banking’ fraud. Banks would not lose much more than already, but the world financial system would get back to ‘normal.’ OTC derivatives are unregulated precisely to hide risk and enable fraud by the banks. It is past time to end that. There is where the US Treasury and other Governments must focus, not on meaningless ‘transparency’ calls or trading bonus ‘justice.’

El Salvador's Left Wins Historic Election

El Salvador's Left Wins Historic Election

Go To Original

Last Sunday's election in El Salvador, in which the leftist FMLN (Farabundo Martí Front for National Liberation) won the presidency, didn't get a lot of attention in the international press. It's a relatively small country (7 million people on land the size of Massachusetts) and fairly poor (per capita income about half the regional average). And left governments have become the norm in Latin America: Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela have all elected left governments over the last decade. South America is now more independent of the United States than Europe is.

But the FMLN's victory in El Salvador has a special significance for this hemisphere.

Central America and the Caribbean have long been the United States' "backyard" more than anywhere else. The people of the region have paid a terrible price - in blood, poverty, and underdevelopment - for their geographical and political proximity to the United States. The list of U.S. interventions in the area would take the rest of this column, stretching from the 19th century (Cuba, in 1898) to the 21st, with the overthrow of Haiti's democratically elected president Jean-Bertrand Aristide (for the second time) in 2004.

Those of us who can remember the 1980s can see President Ronald Reagan on television warning that "El Salvador is closer to Texas than Texas is to Massachusetts" as he sent guns and money to the Salvadoran military and its affiliated death squads. Their tens of thousands of targets - for torture, terror, and murder - were overwhelmingly civilians, including Catholic priests, nuns, and the heroic Archbishop Oscar Romero. It seems ridiculous now that Reagan could have convinced the U.S. Congress that the people who won Sunday's election were not only a threat to our national security, but one that justified horrific atrocities. But he did. At the same time millions of Americans - including many church-based activists - joined a movement to stop U.S. support for the terror, as well as what the United Nations later called genocide in Guatemala, and the U.S.-backed insurgency in Nicaragua (which was also a war against civilians).

Now we have come full circle. In 2007, Guatemalans elected a social democratic president for the first time since 1954, when the CIA intervened to overthrow the government. Last September, President Zelaya of Honduras - which served as a U.S. base for U.S. military and paramilitary operations in the 1980s -- joined with Bolivia's Evo Morales and Venezuela's Hugo Chávez when they expelled their U.S. ambassadors: Zelaya defended their actions and postponed the accreditation of the U.S. ambassador to Honduras, saying that "the world powers must treat us fairly and with respect." In 2006 Nicaraguans elected Daniel Ortega of the Sandinistas, the same president that Washington had spent hundreds of millions of dollars trying to topple in the 1980s.

El Salvador's election was not only another step toward regional independence but a triumph of hope against fear, much as in the U.S. presidential election of 2008. The ruling ARENA party, which was founded by right-wing death squad leader Roberto D'Aubuisson, made fear their brand: fear of another civil war; fear of bad relations with the United States; fear of a "communist dictatorship." Almost comically, they tried to make the election into a referendum on Hugo Chávez. (Venezuela kept its distance from the election, with no endorsements or statements other than its desire to have good relations with whomever won).

ARENA was joined by Republican Members of Congress from the United States, who tried to promote the idea that Salvadorans - about a quarter of whom live in the U.S. - would face extra-ordinary problems with immigration and sending remittances home if the FMLN won. Although these threats were completely without merit, the right's control over the media made them real for many Salvadorans. In the 2004 election the Bush administration joined this effort to intimidate Salvadoran voters, and it helped the right win.

The right's control over the media, its abuse of government in the elections, and its vast funding advantage (there are no restrictions on foreign funding) led José Antonio de Gabriel, the deputy chief of the European Union's observer mission to comment on "the absence of a level playing field." It's amazing that the FMLN was still able to win, and testimony to the high level of discipline, organization, and self-sacrifice that comes from having a leadership that has survived war and hell on earth.

This time around, the Obama administration, after receiving thousands of phone calls - thanks to the solidarity movement that stems from the 1980s -- issued a statement of neutrality on the Friday before the election. The administration appears divided on El Salvador as with the rest of Latin America's left; at least one of Obama's highest-level advisors on Latin America favored the right-wing ruling party. But the statement of neutrality was a clear break from the Bush administration.

El Salvador's new president Mauricio Funes, a popular former TV journalist, will face many challenges, especially on the economic front. The country exports 10 percent of its GDP to the United States, and receives another 18 percent in remittances from Salvadorans living there. Along with sizeable private investment flows, this makes El Salvador very vulnerable to the deep U.S. recession. El Salvador has also adopted the U.S. dollar as its national currency. This means that it cannot use exchange rate policy and is severely limited in monetary policy to counteract the recession. On top of this, it has recently signed an agreement with the IMF that commits the government to not pursuing a fiscal stimulus for this year. And the FMLN will not have a majority in the Congress.

But the majority of Salvadorans, who are poor or near-poor, decided that the left would be more likely than the right to look out for them in hard times. That's a reasonable conclusion, and one that is shared by most of the hemisphere.

Sarkozy Under Pressure as 'Millions' Take to Streets

Sarkozy under pressure as 'millions' take to streets

By James Mackenzie

Go To Original

As many as three million people took to the streets across France today to protest against President Nicolas Sarkozy's handling of the economic crisis and demand more help for struggling workers.

The protests, which polls show are backed by three quarters of the French public, reflect growing disillusion with Sarkozy's pledges of reform as the crisis has thrown tens of thousands out of work and left millions more worried about their jobs.

Bright spring sunshine helped the turnout and the total reported by union organisers surpassed the 2.5 million seen on an earlier day of protest on Jan. 29.

Streets in central Paris were packed with protesters waving anti-Sarkozy placards and chanting slogans, with badges reading "Get lost you little jerk!", the now infamous comment made by Sarkozy to a protestor at an agriculture show, much in evidence.

"There are more and more workers who feel they are not responsible for this crisis but that they are the main victims of it," said Bernard Thibault, head of the CGT, one of the eight trade unions organising the strikes.

More than 2 million people are out of work in France and despite an easing in inflation, even many with a job struggle with the high cost of living.

A large public sector payroll and a relatively generous welfare state has kept French people better protected than many in other countries but there has been deep public anger at plant closures and stories of corporate excess.

Sarkozy, elected in 2007 on a pledge to shake up the French economy, has seen his approval ratings plunge as he has poured billions into bailing out banks and carmakers but rejected union demands for higher pay and tax hikes for the rich.

"People are in the streets and they are suffering, there are more and more people out of work and something has to be done," said Sylvie Daenenck, marching in Paris. "We shouldn't just be giving money to the bosses."

The CGT said 3 million people had joined the protests, with hundreds of thousands at the main rally in Paris and tens of thousands taking part in marches in provincial towns and cities. Police, however, put the Paris total at just 85,000.

Sarkozy's room for manoeuvre has been limited by the dire state of French public finances, which have been drastically strained by the need to prop up the fragile financial sector.

But a series of disputes, ranging from strikes by university staff to unruly protests by workers at a tyre plant in northern France, have underlined a worsening climate of discontent that the government fears could escalate.

Workers at the Continental tyre factory pelted managers with eggs at the protest this week and the government and business leaders have been acutely aware of the danger of unrest spilling over into the kind of violence seen in the urban riots of 2005.

Transport, energy and some government offices were all affected and unions said there was also strong participation by workers from the private sector, although there was no general shutdown of the economy. Most businesses and public services functioned at close to normal levels.

The unions have presented a long list of demands, including a boost for the lower salaried, more measures to protect employment, a tax hike for high earners and a halt to job cuts planned in the public sector.

The government has introduced a 26 billion euro ($36 billion) stimulus plan aimed at business investment, and after the Jan. 29 strike Sarkozy offered 2.65 billion euros of additional aid to help vulnerable households weather the storm.

But there is little prospect of an improvement in the situation, with many analysts predicting the economy will contract by 2 percent this year and unemployment will jump 25 percent to almost 10 percent.

Who Owns Colorado's Rainwater?

Who owns Colorado's rainwater?

Environmentalists and others like to gather it in containers for use in drier times. But state law says it belongs to those who bought the rights to waterways.

By Nicholas Riccardi

Go To Original

Every time it rains here, Kris Holstrom knowingly breaks the law.

Holstrom's violation is the fancifully painted 55-gallon buckets underneath the gutters of her farmhouse on a mesa 15 miles from the resort town of Telluride. The barrels catch rain and snowmelt, which Holstrom uses to irrigate the small vegetable garden she and her husband maintain.

But according to the state of Colorado, the rain that falls on Holstrom's property is not hers to keep. It should be allowed to fall to the ground and flow unimpeded into surrounding creeks and streams, the law states, to become the property of farmers, ranchers, developers and water agencies that have bought the rights to those waterways.

What Holstrom does is called rainwater harvesting. It's a practice that dates back to the dawn of civilization, and is increasingly in vogue among environmentalists and others who pursue sustainable lifestyles. They collect varying amounts of water, depending on the rainfall and the vessels they collect it in. The only risk involved is losing it to evaporation. Or running afoul of Western states' water laws.

Those laws, some of them more than a century old, have governed the development of the region since pioneer days.

"If you try to collect rainwater, well, that water really belongs to someone else," said Doug Kemper, executive director of the Colorado Water Congress. "We get into a very detailed accounting on every little drop."

Frank Jaeger of the Parker Water and Sanitation District, on the arid foothills south of Denver, sees water harvesting as an insidious attempt to take water from entities that have paid dearly for the resource.

"Every drop of water that comes down keeps the ground wet and helps the flow of the river," Jaeger said. He scoffs at arguments that harvesters like Holstrom only take a few drops from rivers. "Everything always starts with one little bite at a time."

Increasingly, however, states are trying to make the practice more welcome. Bills in Colorado and Utah, two states that have limited harvesting over the years, would adjust their laws to allow it in certain scenarios, over the protest of people like Jaeger.

Organic farmers and urban dreamers aren't the only people pushing to legalize water harvesting. Developer Harold Smethills wants to build more than 10,000 homes southwest of Denver that would be supplied by giant cisterns that capture the rain that falls on the 3,200-acre subdivision. He supports the change in Colorado law.

"We believe there is something to rainwater harvesting," Smethills said. "We believe it makes economic sense."

Collected rainwater is generally considered "gray water," or water that is not reliably pure enough to drink but can be used to water yards, flush toilets and power heaters. In some states, developers try to include a network of cisterns and catchment pools in every subdivision, but in others, those who catch the rain tend to do so covertly.

In Colorado, rights to bodies of water are held by entities who get preference based on the dates of their claims. Like many other Western states, Colorado has more claims than available water, and even those who hold rights dating back to the late 19th century sometimes find they do not get all of the water they should.

"If I decide to [take rainwater] in 2009, somewhere, maybe 100 miles downstream, there's a water right that outdates me by 100 years" that's losing water, said Kevin Rein, assistant state engineer.

State Sen. Chris Romer found out about this facet of state water policy when he built his ecological dream house in Denver, entirely powered by solar energy. He wanted to install a system to catch rainwater, but the state said it couldn't be permitted.

"It was stunning to me that this common-sense thing couldn't be done," said Romer, a Democrat. He sponsored a bill last year to allow water harvesting, but it did not pass.

"Welcome to water politics in Colorado," Romer said. "You don't touch my gun, you don't touch my whiskey, and you don't touch my water."

Romer and Republican state Rep. Marsha Looper introduced bills this year to allow harvesting in certain circumstances. Armed with a study that shows that 97% of rainwater that falls on the soil never makes it to streams, they propose to allow harvesting in 11 pilot projects in urban areas, and for rural users like Kris Holstrom whose wells are depleted by drought.

In contrast to the high-stakes maneuvering in the capital, Holstrom looks upon the state's regulation of rainwater with exasperated amusement.

Holstrom, director of sustainability for Telluride, and her husband, John, have lived on their farm since 1988. During the severe drought at the start of this decade, their well began drying up. Placing rain barrels under the gutters was the natural thing to do, said Holstrom, 51.

"Rain out here comes occasionally, and can come really hard," she said. "To be able to store it for when you need it is really great."

Holstrom had a vague awareness of state regulations. She decided to test it last summer when she was teaching a class on water harvesting. She called the state water department, which told her it was technically illegal, though it was unlikely that she would be cited.

Holstrom is known in southwestern Colorado for a lifestyle and causes that many deem quixotic. The land she and her husband own holds a yurt and tepees to house "interns" who help on their organic farm in the summers. It boasts a greenhouse, which even on a recent snowy day held an oasis of rosemary, artichokes, salad greens and a fig tree.

She plucked a bit of greens from one plant and munched on it as goldfish swam in a small, algae-filled pond that helps heat the enclosure. "This has been my passion for a long time -- trying to live the best way I know how," she said.

Soldiers' Accounts of Gaza Killings Raise Furor in Israel

Soldiers’ Accounts of Gaza Killings Raise Furor in Israel

Go To Original

In the two months since Israel ended its military assault on Gaza, Palestinians and international rights groups have accused it of excessive force and wanton killing in that operation, but the Israeli military has said it followed high ethical standards and took great care to avoid civilian casualties.

Now testimony is emerging from within the ranks of soldiers and officers alleging a permissive attitude toward the killing of civilians and reckless destruction of property that is sure to inflame the domestic and international debate about the army’s conduct in Gaza. On Thursday, the military’s chief advocate general ordered an investigation into a soldier’s account of a sniper killing a woman and her two children who walked too close to a designated no-go area by mistake, and another account of a sharpshooter who killed an elderly woman who came within 100 yards of a commandeered house.

When asked why that elderly woman was killed, a squad commander was quoted as saying: “What’s great about Gaza — you see a person on a path, he doesn’t have to be armed, you can simply shoot him. In our case it was an old woman on whom I did not see any weapon when I looked. The order was to take down the person, this woman, the minute you see her. There are always warnings, there is always the saying, ‘Maybe he’s a terrorist.’ What I felt was, there was a lot of thirst for blood.”

The testimonies by soldiers, leaked to the newspapers Maariv and Haaretz, appeared in a journal published by a military preparatory course at the Oranim Academic College in the northern town of Tivon. The newspapers promised to release more such anecdotal accounts on Friday, without saying how many.

The academy’s director, Dany Zamir, told Israel Radio, “Those were very harsh testimonies about unjustified shooting of civilians and destruction of property that conveyed an atmosphere in which one feels entitled to use unrestricted force against Palestinians.”

The revelations caused an immediate uproar here, with some soldiers and reservists saying they did not recognize the stories being told as accurate.

Defense Minister Ehud Barak told Israel Radio that he believed such incidents to be exceptions, adding, “The Israeli Army is the most moral in the world, and I know what I’m talking about because I know what took place in the former Yugoslavia, in Iraq.”

It was clear that Mr. Zamir felt that his concerns, which he had raised earlier in a letter to the military chief of staff, Lt. Gen. Gabi Ashkenazi, had not been taken seriously and that was why he published the testimonies.

Since the war ended, others have raised similar questions, generating a heated debate within military circles.

“According to the code, a soldier has to do his utmost to avoid civilian casualties and that involves taking some risk,” said Moshe Halbertal, a Jewish philosophy professor at Hebrew University who, along with three others, rewrote the military ethics code eight years ago. “That is the question we have to struggle with. From the testimonies of these soldiers, it sounds like they didn’t practice this norm.”

Amir Marmor, a 33-year-old history graduate student in Jerusalem and a military reservist, said in an interview with The New York Times that he was stunned to discover the way civilian casualties were discussed in training discussions before his tank unit entered Gaza in January. "Shoot and don’t worry about the consequences,” was the message from the top commanders, he said. Speaking of a lieutenant colonel who briefed the troops, Mr. Marmor said, “His whole demeanor was extremely gung ho. This is very, very different from my usual experience. I have been doing reserve duty for 12 years, and it was always an issue how to avoid causing civilian injuries. He said in this operation we are not taking any chances. Morality aside, we have to do our job. We will cry about it later.”

Some 1,300 people were killed in the Gaza war, but how many of them were combatants remains a matter of controversy. Israel lost about 10 soldiers in Gaza, some because of fire by its own forces.

The Gaza-based Palestinian Center for Human Rights, which has documented the Gaza deaths, says that about two-thirds of the 1,300 were civilians, among them 121 women and 288 children, which it defines as anyone 18 and younger.

But the Institute for Counter-Terrorism in Israel said Thursday that it had analyzed the Palestinian center’s names and found that some that it listed as civilians were identified as combatants on Hamas-related Web sites. Some listed as children were 17-year-olds with guns, it said, adding that more than 500 of those described by the center as civilians it considered “unknowns” because most were men of combat age whose activities could not be easily traced.

It argued that the proportion of women and children among the dead was relatively low, showing that Israel had not killed in an indiscriminate fashion.

Gur Rosenblat, a company commander during the Gaza operation, said in an interview: “To say that people were killed without justification — the opposite was true. We put soldiers at risk to prevent harming their civilians.”

Israeli experts noted that Palestinian women had served as suicide bombers in the past so that soldiers in Gaza did not always know when a woman was approaching whether she was a threat.

One of the soldiers’ testimonies involved the killing of a family. The soldier said: “We had taken over the house, and the family was released and told to go right. A mother and two children got confused and went left. The sniper on the roof wasn’t told that this was O.K. and that he shouldn’t shoot. You can say he just did what he was told.”

Much of what happened in Gaza, some military experts said, was in reaction to the way events unfolded in the second Lebanon war in 2006 when Hezbollah caused many Israeli casualties.

In that war, when Israeli soldiers took over a house, they sometimes found themselves shot at from a house next door. The result was that in Gaza, many houses next to those commandeered by troops were destroyed to avoid that risk.

Still, Israeli ethicists say they are troubled by what they have heard.

“Unfortunately, I think that selective use of killing civilians has been very much on the agenda for fighting terror,” said Yaron Ezrahi, a political scientist at Hebrew University who has been lecturing at defense colleges. “The army believes that a weak spot of Israeli deterrence is its strong commitment not to kill civilians, and there has grown the sense that it might have to temporarily overcome that weakness in order to restore deterrence.”

Israel's dirty secrets in Gaza

Israel's dirty secrets in Gaza

By Donald Macintyre

Go To Original

Army veterans reveal how they gunned down innocent Palestinian families and destroyed homes and farms

Israel was last night confronting a major challenge over the conduct of its 22-day military offensive in Gaza after testimonies by its own soldiers revealed that troops were allowed and, in some cases, even ordered to shoot unarmed Palestinian civilians.

The testimonies – the first of their kind to emerge from inside the military – are at marked variance with official claims that the military made strenuous efforts to avoid civilian casualties and tend to corroborate Palestinian accusations that troops used indiscriminate and disproportionate firepower in civilian areas during the operation. In one of the testimonies shedding harsh new light on what the soldiers say were the permissive rules of engagement for Operation Cast Lead, one soldier describes how an officer ordered the shooting of an elderly woman 100 metres from a house commandeered by troops.

Another soldier, describing how a mother and her children were shot dead by a sniper after they turned the wrong way out of a house, says the "atmosphere" among troops was that the lives of Palestinians were "very, very less important than the lives of our soldiers".

A squad leader said: "At the beginning the directive was to enter a house with an armoured vehicle, to break the door down, to start shooting inside and – I call it murder – to shoot at everyone we identify. In the beginning I asked myself how could this make sense? Higher-ups said it is permissible because everyone left in the city [Gaza City] is culpable because they didn't run away."

The accounts, which also describe apparently indiscriminate destruction of property, were given at a post-operation discussion by graduates of the Yitzhak Rabin pre-military course at the Oranim Academic College in northern Israel. The transcript of the session in front of the head of the course – details from which were published by the newspaper Haaretz – prompted the Israel Defence Forces (IDF) military advocate general Avichai Mendelblit yesterday to announce a military police investigation into the claims. Haaretz said the airing of the "dirty secrets" would make it more difficult for Israelis to dismiss the claims as Palestinian propaganda. The course principal, Danny Zamir, told the newspaper that after being "shocked" by the testimonies on 13 February he told the IDF chief of staff Gabi Ashkenazi he "feared a serious moral failure" in the IDF.

In one account, an infantry squad leader describes how troops released a family who had been held in a room of their house for several days. He said: "The platoon commander let the family go and told them to go to the right. One mother and her two children didn't understand and went to the left, but they forgot to tell the sharpshooter on the roof they had let them go and it was okay... The sharpshooter saw a woman and children approaching him. He shot them straight away. I don't think he felt too bad about it, because, as far as he was concerned, he did his job according to the orders he was given. And the atmosphere in general, from what I understood from most of my men who I talked to, the lives of Palestinians, let's say, is something very, very less important than the lives of our soldiers."

A second squad leader, who described the killing of the elderly woman, says he argued with his commander over loose rules of engagement that allowed the clearing out of houses by shooting without warning residents beforehand. After the orders were changed, soldiers had complained that "we should kill everyone there [in the centre of Gaza]. Everyone there is a terrorist." The squad leader said: "To write 'death to the Arabs' on walls, to take family pictures and spit on them, just because you can. I think this is the main thing: To understand how much the IDF has fallen in the realm of ethics."

Ehud Barak, Israel's Defence Minister, said: "I say to you that from the chief of staff down to the last soldier, the most moral army in the world stands ready to take orders from the government of Israel. I have no doubt that every incident will be individually examined."

But Israeli human rights organisations, including B'Tselem and the Association for Civil Rights in Israel, called for an independent investigation and complained that the military police inquiry had only been announced after Haaretz published the story, "three weeks after the relevant materials reached the Chief of the General Staff. This tardiness follows a pattern of failures to investigate suspicions of serious crimes".

Amos Harel, the paper's respected military correspondent who broke the story, wrote that Mr Zamir was sentenced in 1990 for refusing to guard a settlers' ceremony at Joseph's tomb in the West Bank. But he added that a reading of the transcript shows that Mr Zamir "acts out of a deep concern for the spirit of the IDF".

In their own words: Soldiers' stories

Squad leader Aviv

"At the beginning the directive was to enter a house with an armoured vehicle, to break the door down, to start shooting inside and to ascend floor by floor and – I call it murder – to go from floor to floor and to shoot at everyone we identify. In the beginning I asked myself how could this make sense? Higher-ups said it is permissible because everyone left in the city [Gaza City] is culpable because they didn't run away. This frightened me a bit. I tried to influence it as much as possible, despite my low rank, to change it. In the end the directive was to go into a house, switch on loudspeakers and tell them 'you have five minutes to run away and whoever doesn't will be killed'."

Soldier Ram

"There was an order to free the [confined] families. The platoon commander set free the family and told them to turn right. A mother and two children didn't understand and turned left. [Officers] had forgotten to tell the sniper on the roof that they were being set free and that everything was okay and he should hold fire. You can say that he acted as he was supposed to, in accordance with the orders. The sniper saw a woman and children approaching him, past lines that no one was to be allowed to cross. He fired directly at them. I don't know if he fired at their legs but in the end he killed them."

Ex-Bush admin official: Many at Gitmo are innocent

Ex-Bush admin official: Many at Gitmo are innocent


Go To Original

Many detainees locked up at Guantanamo were innocent men swept up by U.S. forces unable to distinguish enemies from noncombatants, a former Bush administration official said Thursday. "There are still innocent people there," Lawrence B. Wilkerson, a Republican who was chief of staff to then-Secretary of State Colin Powell, told The Associated Press. "Some have been there six or seven years."

Wilkerson, who first made the assertions in an Internet posting on Tuesday, told the AP he learned from briefings and by communicating with military commanders that the U.S. soon realized many Guantanamo detainees were innocent but nevertheless held them in hopes they could provide information for a "mosaic" of intelligence.

"It did not matter if a detainee were innocent. Indeed, because he lived in Afghanistan and was captured on or near the battle area, he must know something of importance," Wilkerson wrote in the blog. He said intelligence analysts hoped to gather "sufficient information about a village, a region, or a group of individuals, that dots could be connected and terrorists or their plots could be identified."

Wilkerson, a retired Army colonel, said vetting on the battlefield during the early stages of U.S. military operations in Afghanistan was incompetent with no meaningful attempt to discriminate "who we were transporting to Cuba for detention and interrogation."

Navy Cmdr. Jeffrey Gordon, a Pentagon spokesman, declined to comment on Wilkerson's specific allegations but noted that the military has consistently said that dealing with foreign fighters from a wide variety of countries in a wartime setting was a complex process. The military has insisted that those held at Guantanamo were enemy combatants and posed a threat to the United States.

In his posting for The Washington Note blog, Wilkerson wrote that "U.S. leadership became aware of this lack of proper vetting very early on and, thus, of the reality that many of the detainees were innocent of any substantial wrongdoing, had little intelligence value, and should be immediately released."

Former Defense Secretary Donald Rumsfeld and Vice President Dick Cheney fought efforts to address the situation, Wilkerson said, because "to have admitted this reality would have been a black mark on their leadership."

Wilkerson told the AP in a telephone interview that many detainees "clearly had no connection to al-Qaida and the Taliban and were in the wrong place at the wrong time. Pakistanis turned many over for $5,000 a head."

Some 800 men have been held at Guantanamo since the prison opened in January 2002, and 240 remain. Wilkerson said two dozen are terrorists, including confessed Sept. 11 plotter Khalid Sheikh Mohammed, who was transferred to Guantanamo from CIA custody in September 2006.

"We need to put those people in a high-security prison like the one in Colorado, forget them and throw away the key," Wilkerson said. "We can't try them because we tortured them and didn't keep an evidence trail."

But the rest of the detainees need to be released, he said.

Wilkerson, who flew combat missions as a helicopter pilot in Vietnam and left the government in January 2005, said he did not speak out while in government because some of the information was classified. He said he feels compelled to do so now because Cheney has claimed in recent press interviews that President Barack Obama is making the U.S. less safe by reversing Bush administration policies toward terror suspects, including ordering Guantanamo closed.

The administration is now evaluating what to do with the prisoners who remain at the U.S. military base in Cuba.

"I'm very concerned about the kinds of things Cheney is saying to make it seem Obama is a danger to this republic," Wilkerson said. "To have a former vice president fearmongering like this is really, really dangerous."

How the Fed Failed to Tell Obama About the Bonuses

How the Fed Failed to Tell Obama About The Bonuses

By David Cho and Michael D. Shear

Go To Original

Federal Reserve officials knew for months about bonuses at American International Group but failed to tell the Obama administration, according to government and company officials, exposing problems in a relationship that is vital to addressing the financial crisis.

As pressure mounted on AIG employees to return the bonuses, new details emerged yesterday about what the Fed, the Treasury Department and the White House knew regarding the payments and when. AIG executives said the Fed was informed three months ago by the company that it would pay $165 million by March 15 to employees working at its most troubled division. The Treasury and White House said they learned of the payments from Fed officials only days before they were due.

Close coordination between the Fed and the administration is now more important than ever as they near the launch of two signature programs to rescue the financial system, which together could reach $2 trillion and are aimed at reviving consumer lending and purchasing soured assets and loans from ailing banks.

Treasury Secretary Timothy F. Geithner, a central figure in the decision to bail out AIG last fall as president of the Federal Reserve Bank of New York, said in an interview yesterday that he had not been aware of the size of the bonuses and the timing of the payments.

"I was stunned when I learned how bad this was on Tuesday [March 10]," Geithner said. "I shouldn't have been in that position, but it's my responsibility and I accept that."

Two days later, Geithner told the White House. The last-minute disclosure irked some of the president's senior advisers, but they refuse to point fingers now, saying the timing had little impact on the outcome or the president's public statements this week.

"Would I have liked an earlier warning system on this? Yeah," said David Axelrod, a senior White House adviser. "Would it have markedly changed things? Probably not. The legal constraints are the legal constraints."

One source familiar with the discussions said the company had provided details about the bonuses to senior Treasury officials at least a month ago. A Treasury spokesman said last night that was not true.

Democrats and Republicans in Congress are increasingly questioning how Geithner could not have known about the bonuses, given his past role in AIG's bailout, which has totaled more than $170 billion.

"I'm sick and tired of hearing the administration and the Secretary of the Treasury say, 'I just found out about it,' " Rep. Paul E. Kanjorski (D-Pa.) said yesterday.

The dispute over AIG's payouts represents the most pressing controversy confronting the administration as it addresses the financial crisis. Some private firms say the furor has made them wary of joining the federal initiatives to help save the economy. Government officials add that the newly charged political environment will make it difficult to ask Congress for more rescue funds.

When the government rescued AIG in mid-September, no one was more central to the decision than Geithner.

AIG officials met with Geithner and then Treasury Secretary Henry M. Paulson Jr. in New York on Sept. 14 to warn them of the dire threat posed by the derivative business developed by AIG's Financial Products unit. Executives told the two men the firm needed help but had at least a week before it faced collapse, sources said.

Paulson left for Washington. But Geithner stayed up all night with officials at the New York Fed to examine AIG's situation. He discovered not only an enormous number of complicated trades, estimated at $2 trillion, but that AIG had backed retirements funds across the nation. He also realized that a collapse of AIG was imminent, and that the fallout would ripple across the banking system, sources familiar with the episode said.

Geithner, with Paulson and Fed Chairman Ben S. Bernanke, decided to lend the company $80 billion in exchange for an 80 percent ownership equity stake.

About a month later, Geithner redesigned the bailout package for AIG, which raised the total to about $123 billion.

During this period, Geithner's primary concern was keeping the financial system from collapsing, not what firms were paying their employees, a source said. Other staff members at the Fed and Treasury were in charge of the compensation issues and only briefed Geithner, two sources said. Once nominated for the Treasury post in December, Geithner recused himself from affairs related to specific firms.

AIG executives said they disclosed in a quarterly filing late last year to federal regulators that employees at Financial Products would receive retention bonuses but the filings, with the Securities and Exchange Commission, did not detail how much individuals would be paid or the dates of the payments. The company revealed those details in meetings with New York Fed officials in January, AIG chief executive Edward M. Liddy said at a congressional hearing yesterday.

"What we've assumed is that, in our discussions with the Federal Reserve, that they were properly communicating with others," Liddy said. "It appears that we need to improve upon that process."

While declining to answer questions about the AIG bonuses, Fed spokeswoman Michelle Smith said in a statement: "The Fed and Treasury officials have coordinated closely on all aspects of the U.S. government's support for AIG during this extraordinary period."

The Fed officials did not anticipate the political firestorm that would erupt over the bonuses, a senior government official said. "They clearly underestimated the matter," the source said.

AIG executives say the Fed had been intimately involved in reviewing the contracts before the first dime was paid. The payments, which were due by March 15, were ready to be distributed last Tuesday, a senior AIG executive said. But the firm didn't get the go-ahead from government officials to make the payments until late last week.

"We weren't authorized until Thursday night," the AIG executive said. "We were negotiating with the Treasury and the Federal Reserve. Treasury indicated that they needed it cleared by the White House, as well. We hit the go button for the payments on Friday."

Geithner said the Fed did not tell him about the bonuses until March 10. He immediately huddled with his senior staff, examining options, but ultimately concluded that the government could not change contracts for work that had already been done.

He confronted Liddy over the phone March 11, demanding that he renegotiate the bonus contracts. Some minor changes were made, but the bulk of the bonuses were paid. Company and Treasury officials say they will seek changes to bonuses promised for work done this year.

Obama learned of the bonuses March 12, the day before they were paid out, from Axelrod, whom Geithner had briefed on the situation. The president was "aggravated" and "a little bit disbelieving," Axelrod said in an interview yesterday.

For the new administration, the bonuses were a distraction from what senior aides called the main focus: getting the economy working and people back to work. "People are not sitting around their kitchen tables thinking about AIG," Axelrod said. "They are thinking about their own jobs."

Obama's top economic aides -- including Geithner -- sought to identify any recourse. The task was made more difficult Friday, when millions of dollars were disbursed. Their message to the president when the group assembled for their first extended conversation about AIG in the Roosevelt Room on Sunday was not optimistic: They told him they had "done and will do what we legally can," Axelrod said.

But Obama made clear at that meeting that he was unwilling to throw up his hands. He instructed Geithner and the others to seek legal ways that the government might recover the bonuses. And he made plans to tell the public what he thought the next day.

That decision ran counter to the belief among some in his inner circle that the bonus issue while an outrage was a small problem compared with the economic issues confronting his young presidency. "The first and most important job we have is to get this economy moving again," Axelrod said. "As galling as this is, it doesn't go to the main issue."

Over the following days, Obama came out swinging, denouncing the bonuses while expressing "complete confidence" in Geithner. Yesterday, he continued the effort, saying that "I don't want to quell anger. I think people are right to be angry. I'm angry."

What's Another $1 Trillion? Fed Moves to Boost Lending

What's another $1 trillion? Fed moves to boost lending

Kevin G. Hall

Go To Original

The Federal Reserve's surprise announcement Wednesday that it would purchase more than $1 trillion in Treasury securities and mortgage bonds in hopes of sparking greater economic activity shows that Chairman Ben Bernanke is working hard to keep his pledge to do whatever it takes to reverse the nation's deep recession.

The Fed's rate-setting Federal Open Market Committee ended a two-day meeting with the announcement that it would leave its benchmark federal funds rate near zero. That was expected. Unexpected was word that the Fed would now aggressively purchase assets to get money flowing across the broader economy.

"It's a decision by the committee to go all out," said Laurence Meyer, a former Fed governor from 1996 to 2002, joking that "every move these days is historic and unprecedented."

Throwing caution to the wind, the Fed committee said it would purchase another $750 billion of top-rated mortgage-backed securities issued by Fannie Mae and Freddie Mac. Those two mortgage finance titans were seized by the government in September.

The new purchases will bring the Fed's total purchases of Fannie and Freddie mortgage bonds this year to $1.25 trillion. The Fed said it would also double its purchase of Fannie and Freddie debt, to $200 billion.

Those two moves are designed to boost the flow of mortgage finance and revive the moribund housing market nationwide. In a second and related move, the Fed said it would purchase, over the next six months, up to $300 billion in medium and long term Treasuries. This action seeks to lower borrowing costs of all sorts for consumers and businesses, and to boost housing affordability by knocking fixed mortgage rates below 5 percent.

"The Fed is essentially underwriting half of the gross issuance in the (mortgage-backed securities) market and 30 percent of the gross issuance in the Treasury market," wrote Ethan Harris, the co-head of U.S. markets research for Barclay's Capital in New York, in a research note. "With the rest of Washington moving in slow motion (and in some cases hindering the revival in capital markets), the Fed continues to move ahead aggressively."

The aggressive Fed actions were expected later in the year, and the Fed may have been trying to gain some shock value with an element of surprise. It wrested attention away from bailout and bonus controversies — for the afternoon at least — and drove up stocks. The Dow Jones Industrial Average closed up 90.88 points to 7486.58. The S&P 500 finished up 16.23 to 794.35 and the Nasdaq rose 29.11 points to 1491.22.

The Fed's actions aren't without potential consequences.

"In the short run, Fed easing is a plus. Over the longer run, however, a long period of easy monetary policy may generate more problems down the road with a combination of higher inflation premiums and a weaker dollar to boot," said John Silvia, the chief economist at Wachovia, in a note to investors. "Higher long-term (interest) rates are the likely outcome."

But that's tomorrow's problem.

The bold Fed action followed an unprecedented television interview with Bernanke. Appearing Sunday on CBS's "60 Minutes," Bernanke said that "the Federal Reserve is here and is going to do everything possible to support this recovery."

Meyer interpreted for McClatchy: "Recently they've shown some reluctance to buy Treasuries . . . (But) today they've said lets do everything, let's do it all, and let's be very aggressive about it. Let's leave no doubt we mean what we say in our statement that we'll use all available tools."

The Fed's benchmark federal-funds rate remains in a range that floats between zero and a quarter of a percent. The Fed statement said that rate — which influences the prime rate charged by banks to their best customers — is expected to stay at these historic lows "for an extended period."

The Fed is turning to the only alternative left: printing more money to circulate in the economy.

"We see this as equivalent to a (three-quarters of a percentage point) cut in the funds rate," wrote Harris of Barclay's Capital. "This underscores our belief that a combination of monetary, credit and fiscal easing will slow the recession in (the second quarter) and spark a modest recovery by year-end."

The Fed wasn't as date-certain. In its statement, the Fed noted only that "policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth."

The big announcement of heightened Fed intervention to drive loan rates down was preceded by a rundown of grim economic data.

"Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession," the Fed said, darkly.