Monday, March 23, 2009

US will appoint Afghan 'prime minister' to bypass Hamid Karzai

US will appoint Afghan 'prime minister' to bypass Hamid Karzai

White House plans new executive role to challenge corrupt government in Kabul

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The US and its European allies are ­preparing to plant a high-profile figure in the heart of the Kabul government in a direct challenge to the Afghan president, Hamid Karzai, the Guardian has learned.

The creation of a new chief executive or prime ministerial role is aimed at bypassing Karzai. In a further dilution of his power, it is proposed that money be diverted from the Kabul government to the provinces. Many US and European officials have become disillusioned with the extent of the corruption and incompetence in the Karzai government, but most now believe there are no credible alternatives, and predict the Afghan president will win re-election in August.

President Karzai has failed to root out corruption and government incompetence Link to this audio

A revised role for Karzai has emerged from the White House review of Afghanistan and Pakistan ordered by Barack Obama when he became president. It isto be unveiled at a special conference on Afghanistan at The Hague on March 31.

As well as watering down Karzai's personal authority by installing a senior official at the president's side capable of playing a more efficient executive role, the US and Europeans are seeking to channel resources to the provinces rather than to central government in Kabul.

A diplomat with knowledge of the review said: "Karzai is not delivering. If we are going to support his government, it has to be run properly to ensure the levels of corruption decrease, not increase. The levels of corruption are frightening."

Another diplomat said alternatives to Karzai had been explored and discarded: "No one could be sure that someone else would not turn out to be 10 times worse. It is not a great position."

The idea of a more dependable figure working alongside Karzai is one of the proposals to emerge from the White House review, completed last week. Obama, locked away at the presidental retreat Camp David, was due to make a final decision this weekend.

Obama is expected to focus in public on overall strategy rather than the details, and, given its sensitivity, to skate over ­Karzai's new role. The main recommendation is for the Afghanistan objectives to be scaled back, and for Obama to sell the war to the US public as one to ensure the country cannot again be a base for al-Qaida and the Taliban, rather than the more ambitious aim of the Bush administration of trying to create a European-style democracy in Central Asia.

Other recommendations include: increasing the number of Afghan troops from 65,000 to 230,000 as well as expanding the 80,000-strong police force; ­sending more US and European civilians to build up Afghanistan's infrastructure; and increased aid to Pakistan as part of a policy of trying to persuade it to tackle al-Qaida and Taliban elements.

The proposal for an alternative chief executive, which originated with the US, is backed by Europeans. "There needs to be a deconcentration of power," said one senior European official. "We need someone next to Karzai, a sort of chief executive, who can get things done, who will be reliable for us and accountable to the Afghan people."

Money and power will flow less to the ministries in Kabul and far more to the officials who run Afghanistan outside the capital – the 34 provincial governors and 396 district governors. "The point on which we insist is that the time is now for a new division of responsibilities, between central power and local power," the senior European official said.

No names have emerged for the new role but the US holds in high regard the reformist interior minister appointed in October, Mohammed Hanif Atmar.

The risk for the US is that the imposition of a technocrat alongside Karzai would be viewed as colonialism, even though that figure would be an Afghan. Karzai declared his intention last week to resist a dilution of his power. Last week he accused an unnamed foreign government of trying to weaken central government in Kabul.

"That is not their job," the Afghan president said. "Afghanistan will never be a puppet state."

The UK government has since 2007 advocated dropping plans to turn Afghanistan into a model, European-style state.

Richard Holbrooke, the US envoy for Afghanistan and Pakistan, who will implement the new policy, said it would represent a "vastly restructured effort". At the weekend in Brussels, he was scathing about the Bush administration's conduct of the counter-insurgency. "The failures in the civilian side ... are so enormous we can at least hope that if we get our act together ... we can do a lot better," he said.

Remembering the 1999 NATO led War on Yugoslavia: Kosovo "Freedom Fighters" Financed by Organized Crime

Remembering the 1999 NATO led War on Yugoslavia: Kosovo "Freedom Fighters" Financed by Organized Crime

by Michel Chossudovsky

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Heralded by the global media as a humanitarian peace-keeping mission, NATO's ruthless bombing of Belgrade and Pristina goes far beyond the breach of international law. While Slobodan Milosevic is demonised, portrayed as a remorseless dictator, the Kosovo Liberation Army (KLA) is upheld as a self-respecting nationalist movement struggling for the rights of ethnic Albanians. The truth of the matter is that the KLA is sustained by organised crime with the tacit approval of the United States and its allies.

Following a pattern set during the War in Bosnia, public opinion has been carefully misled. The multibillion dollar Balkans narcotics trade has played a crucial role in "financing the conflict" in Kosovo in accordance with Western economic, strategic and military objectives. Amply documented by European police files, acknowledged by numerous studies, the links of the Kosovo Liberation Army (KLA) to criminal syndicates in Albania, Turkey and the European Union have been known to Western governments and intelligence agencies since the mid-1990s.

"...The financing of the Kosovo guerilla war poses critical questions and it sorely test claims of an "ethical" foreign policy. Should the West back a guerilla army that appears to partly financed by organised crime." 1

While KLA leaders were shaking hands with US Secretary of State Madeleine Albright at Rambouillet, Europol (the European Police Organization based in the Hague) was "preparing a report for European interior and justice ministers on a connection between the KLA and Albanian drug gangs."2 In the meantime, the rebel army has been skilfully heralded by the global media (in the months preceding the NATO bombings) as broadly representative of the interests of ethnic Albanians in Kosovo.

With KLA leader Hashim Thaci (a 29 year "freedom fighter") appointed as chief negotiator at Rambouillet, the KLA has become the de facto helmsman of the peace process on behalf of the ethnic Albanian majority and this despite its links to the drug trade. The West was relying on its KLA puppets to rubber-stamp an agreement which would have transformed Kosovo into an occupied territory under Western Administration.

Ironically Robert Gelbard, America's special envoy to Bosnia, had described the KLA last year as "terrorists". Christopher Hill, America's chief negotiator and architect of the Rambouillet agreement "has also been a strong critic of the KLA for its alleged dealings in drugs."3 Moreover, barely a few two months before Rambouillet, the US State Department had acknowledged (based on reports from the US Observer Mission) the role of the KLA in terrorising and uprooting ethnic Albanians:

"...the KLA harass or kidnap anyone who comes to the police, ... KLA representatives had threatened to kill villagers and burn their homes if they did not join the KLA [a process which has continued since the NATO bombings]... [T]he KLA harassment has reached such intensity that residents of six villages in the Stimlje region are "ready to flee." 4

While backing a "freedom movement" with links to the drug trade, the West seems also intent in bypassing the civilian Kosovo Democratic League and its leader Ibrahim Rugova who has called for an end to the bombings and expressed his desire to negotiate a peaceful settlement with the Yugoslav authorities.5 It is worth recalling that a few days before his March 31st Press Conference, Rugova had been reported by the KLA (alongside three other leaders including Fehmi Agani) to have been killed by the Serbs.

Covert Financing of "Freedom Fighters"

Remember Oliver North and the Contras? The pattern in Kosovo is similar to other CIA covert operations in Central America, Haiti and Afghanistan where "freedom fighters" were financed through the laundering of drug money. Since the onslaught of the Cold War, Western intelligence agencies have developed a complex relationship to the illegal narcotics trade. In case after case, drug money laundered in the international banking system has financed covert operations.

According to author Alfred McCoy, the pattern of covert financing was established in the Indochina war. In the 1960s, the Meo army in Laos was funded by the narcotics trade as part of Washington's military strategy against the combined forces of the neutralist government of Prince Souvanna Phouma and the Pathet Lao.6

The pattern of drug politics set in Indochina has since been replicated in Central America and the Caribbean. "The rising curve of cocaine imports to the US", wrote journalist John Dinges "followed almost exactly the flow of US arms and military advisers to Central America".7

The military in Guatemala and Haiti, to which the CIA provided covert support, were known to be involved in the trade of narcotics into Southern Florida. And as revealed in the Iran-Contra and Bank of Commerce and Credit International (BCCI) scandals, there was strong evidence that covert operations were funded through the laundering of drug money. "Dirty money" recycled through the banking system--often through an anonymous shell company-- became "covert money," used to finance various rebel groups and guerilla movements including the Nicaraguan Contras and the Afghan Mujahadeen. According to a 1991 Time Magazine report:

"Because the US wanted to supply the mujehadeen rebels in Afghanistan with stinger missiles and other military hardware it needed the full cooperation of Pakistan. By the mid-1980s, the CIA operation in Islamabad was one of the largest US intelligence stations in the World. `If BCCI is such an embarrassment to the US that forthright investigations are not being pursued it has a lot to do with the blind eye the US turned to the heroin trafficking in Pakistan', said a US intelligence officer.8

America and Germany join Hands

Since the early 1990s, Bonn and Washington have joined hands in establishing their respective spheres of influence in the Balkans. Their intelligence agencies have also collaborated. According to intelligence analyst John Whitley, covert support to the Kosovo rebel army was established as a joint endeavour between the CIA and Germany's Bundes Nachrichten Dienst (BND) (which previously played a key role in installing a right wing nationalist government under Franjo Tudjman in Croatia).9 The task to create and finance the KLA was initially given to Germany: "They used German uniforms, East German weapons and were financed, in part, with drug money".10 According to Whitley, the CIA was, subsequently instrumental in training and equipping the KLA in Albania.11

The covert activities of Germany's BND were consistent with Bonn's intent to expand its "Lebensraum" into the Balkans. Prior to the onset of the civil war in Bosnia, Germany and its Foreign Minister Hans Dietrich Genscher had actively supported secession; it had "forced the pace of international diplomacy" and pressured its Western allies to recognize Slovenia and Croatia. According to the Geopolitical Drug Watch, both Germany and the US favoured (although not officially) the formation of a "Greater Albania" encompassing Albania, Kosovo and parts of Macedonia.12 According to Sean Gervasi, Germany was seeking a free hand among its allies "to pursue economic dominance in the whole of Mitteleuropa."13

Islamic Fundamentalism in Support of the KLA

Bonn and Washington's "hidden agenda" consisted in triggering nationalist liberation movements in Bosnia and Kosovo with the ultimate purpose of destabilising Yugoslavia. The latter objective was also carried out "by turning a blind eye" to the influx of mercenaries and financial support from Islamic fundamentalist organisations.14

Mercenaries financed by Saudi Arabia and Koweit had been fighting in Bosnia.15 And the Bosnian pattern was replicated in Kosovo: Mujahadeen mercenaries from various Islamic countries are reported to be fighting alongside the KLA in Kosovo. German, Turkish and Afghan instructors were reported to be training the KLA in guerilla and diversion tactics.16

According to a Deutsche Press-Agentur report, financial support from Islamic countries to the KLA had been channelled through the former Albanian chief of the National Information Service (NIS), Bashkim Gazidede.17 "Gazidede, reportedly a devout Moslem who fled Albania in March of last year [1997], is presently [1998] being investigated for his contacts with Islamic terrorist organizations."18

The supply route for arming KLA "freedom fighters" are the rugged mountainous borders of Albania with Kosovo and Macedonia. Albania is also a key point of transit of the Balkans drug route which supplies Western Europe with grade four heroin. 75% of the heroin entering Western Europe is from Turkey. And a large part of drug shipments originating in Turkey transits through the Balkans. According to the US Drug Enforcement Administration (DEA), "it is estimated that 4-6 metric tons of heroin leave each month from Turkey having [through the Balkans] as destination Western Europe."19 A recent intelligence report by Germany's Federal Criminal Agency suggests that: "Ethnic Albanians are now the most prominent group in the distribution of heroin in Western consumer countries."20

The Laundering of Dirty Money

In order to thrive, the criminal syndicates involved in the Balkans narcotics trade need friends in high places. Smuggling rings with alleged links to the Turkish State are said to control the trafficking of heroin through the Balkans "cooperating closely with other groups with which they have political or religious ties" including criminal groups in Albanian and Kosovo.21 In this new global financial environment, powerful undercover political lobbies connected to organized crime cultivate links to prominent political figures and officials of the military and intelligence establishment.

The narcotics trade nonetheless uses respectable banks to launder large amounts of dirty money. While comfortably removed from the smuggling operations per se, powerful banking interests in Turkey but mainly those in financial centres in Western Europe discretely collect fat commissions in a multibillion dollar money laundering operation. These interests have high stakes in ensuring a safe passage of drug shipments into Western European markets.

The Albanian Connection

Arms smuggling from Albania into Kosovo and Macedonia started at the beginning of 1992, when the Democratic Party came to power, headed by President Sali Berisha. An expansive underground economy and cross border trade had unfolded. A triangular trade in oil, arms and narcotics had developed largely as a result of the embargo imposed by the international community on Serbia and Montenegro and the blockade enforced by Greece against Macedonia.

Industry and agriculture in Kosovo were spearheaded into bankruptcy following the IMF's lethal "economic medicine" imposed on Belgrade in 1990. The embargo was imposed on Yugoslavia. Ethnic Albanians and Serbs were driven into abysmal poverty. Economic collapse created an environment which fostered the progress of illicit trade. In Kosovo, the rate of unemployment increased to a staggering 70 percent (according to Western sources).

Poverty and economic collapse served to exacerbate simmering ethnic tensions. Thousands of unemployed youths "barely out of their Teens" from an impoverished population, were drafted into the ranks of the KLA...22

In neighbouring Albania, the free market reforms adopted since 1992 had created conditions which favoured the criminalisation of State institutions. Drug money was also laundered in the Albanian pyramids (ponzi schemes) which mushroomed during the government of former President Sali Berisha (1992-1997).23 These shady investment funds were an integral part of the economic reforms inflicted by Western creditors on Albania.

Drug barons in Kosovo, Albania and Macedonia (with links to the Italian mafia) had become the new economic elites, often associated with Western business interests. In turn the financial proceeds of the trade in drugs and arms were recycled towards other illicit activities (and vice versa) including a vast prostitution racket between Albania and Italy. Albanian criminal groups operating in Milan, "have become so powerful running prostitution rackets that they have even taken over the Calabrians in strength and influence."24

The application of "strong economic medicine" under the guidance of the Washington based Bretton Woods institutions had contributed to wrecking Albania's banking system and precipitating the collapse of the Albanian economy. The resulting chaos enabled American and European transnationals to carefully position themselves. Several Western oil companies including Occidental, Shell and British Petroleum had their eyes rivetted on Albania's abundant and unexplored oil-deposits. Western investors were also gawking Albania's extensive reserves of chrome, copper, gold, nickel and platinum... The Adenauer Foundation had been lobbying in the background on behalf of German mining interests. 25

Berisha's Minister of Defence Safet Zoulali (alleged to have been involved in the illegal oil and narcotics trade) was the architect of the agreement with Germany's Preussag (handing over control over Albania's chrome mines) against the competing bid of the US led consortium of Macalloy Inc. in association with Rio Tinto Zimbabwe (RTZ).26

Large amounts of narco-dollars had also been recycled into the privatisation programmes leading to the acquisition of State assets by the mafias. In Albania, the privatisation programme had led virtually overnight to the development of a property owning class firmly committed to the "free market". In Northern Albania, this class was associated with the Guegue "families" linked to the Democratic Party.

Controlled by the Democratic Party under the presidency of Sali Berisha (1992-97), Albania's largest financial "pyramid" VEFA Holdings had been set up by the Guegue "families" of Northern Albania with the support of Western banking interests. VEFA was under investigation in Italy in 1997 for its ties to the Mafia which allegedly used VEFA to launder large amounts of dirty money.27

According to one press report (based on intelligence sources), senior members of the Albanian government during the Presidency of Sali Berisha including cabinet members and members of the secret police SHIK were alleged to be involved in drugs trafficking and illegal arms trading into Kosovo:

(...) The allegations are very serious. Drugs, arms, contraband cigarettes all are believed to have been handled by a company run openly by Albania's ruling Democratic Party, Shqiponja (...). In the course of 1996 Defence Minister, Safet Zhulali [was alleged] to had used his office to facilitate the transport of arms, oil and contraband cigarettes. (...) Drugs barons from Kosovo (...) operate in Albania with impunity, and much of the transportation of heroin and other drugs across Albania, from Macedonia and Greece en route to Italy, is believed to be organised by Shik, the state security police (...). Intelligence agents are convinced the chain of command in the rackets goes all the way to the top and have had no hesitation in naming ministers in their reports.28

The trade in narcotics and weapons was allowed to prosper despite the presence since 1993 of a large contingent of American troops at the Albanian-Macedonian border with a mandate to enforce the embargo. The West had turned a blind eye. The revenues from oil and narcotics were used to finance the purchase of arms (often in terms of direct barter): "Deliveries of oil to Macedonia (skirting the Greek embargo [in 1993-4] can be used to cover heroin, as do deliveries of kalachnikov rifles to Albanian `brothers' in Kosovo".29

The Northern tribal clans or "fares" had also developed links with Italy's crime syndicates.30 In turn, the latter played a key role in smuggling arms across the Adriatic into the Albanian ports of Dures and Valona. At the outset in 1992, the weapons channelled into Kosovo were largely small arms including Kalashnikov AK-47 rifles, RPK and PPK machine-guns, 12.7 calibre heavy machine-guns, etc.

The proceeds of the narcotics trade has enabled the KLA to rapidly develop a force of some 30,000 men. More recently, the KLA has acquired more sophisticated weaponry including anti-aircraft and antiarmor rockets. According to Belgrade, some of the funds have come directly from the CIA "funnelled through a so-called "Government of Kosovo" based in Geneva, Switzerland. Its Washington office employs the public-relations firm of Ruder Finn--notorious for its slanders of the Belgrade government".31

The KLA has also acquired electronic surveillance equipment which enables it to receive NATO satellite information concerning the movement of the Yugoslav Army. The KLA training camp in Albania is said to "concentrate on heavy weapons training - rocket propelled grenades, medium caliber cannons, tanks and transporter use, as well as on communications, and command and control". (According to Yugoslav government sources.32

These extensive deliveries of weapons to the Kosovo rebel army were consistent with Western geopolitical objectives. Not surprisingly, there has been a "deafening silence" of the international media regarding the Kosovo arms-drugs trade. In the words of a 1994 Report of the Geopolitical Drug Watch: "the trafficking [of drugs and arms] is basically being judged on its geostrategic implications (...) In Kosovo, drugs and weapons trafficking is fuelling geopolitical hopes and fears"...33

The fate of Kosovo had already been carefully laid out prior to the signing of the 1995 Dayton agreement. NATO had entered an unwholesome "marriage of convenience" with the mafia. "Freedom fighters" were put in place, the narcotics trade enabled Washington and Bonn to "finance the Kosovo conflict" with the ultimate objective of destabilising the Belgrade government and fully recolonising the Balkans. The destruction of an entire country is the outcome. Western governments which participated in the NATO operation bear a heavy burden of responsibility in the deaths of civilians, the impoverishment of both the ethnic Albanian and Serbian populations and the plight of those who were brutally uprooted from towns and villages in Kosovo as a result of the bombings.


1. Roger Boyes and Eske Wright, Drugs Money Linked to the Kosovo Rebels The Times, London, Monday, March 24, 1999.

2. Ibid.

3. Philip Smucker and Tim Butcher, "Shifting stance over KLA has betrayed' Albanians", Daily Telegraph, London, 6 April 1999

4. KDOM Daily Report, released by the Bureau of European and Canadian Affairs, Office of South Central European Affairs, U.S. Department of State, Washington, DC, December 21, 1998; Compiled by EUR/SCE (202-647-4850) from daily reports of the U.S. element of the Kosovo Diplomatic Observer Mission, December 21, 1998.

5. "Rugova, sous protection serbe appelle a l'arret des raides", Le Devoir, Montreal, 1 April 1999.

6. See Alfred W. McCoy, The Politics of Heroin in Southeast Asia Harper and Row, New York, 1972.

7. See John Dinges, Our Man in Panama, The Shrewd Rise and Brutal Fall of Manuel Noriega, Times Books, New York, 1991.

8. "The Dirtiest Bank of All," Time, July 29, 1991, p. 22.

9. Truth in Media, Phoenix, 2 April, 1999; see also Michel Collon, Poker Menteur, editions EPO, Brussels, 1997.

10. Quoted in Truth in Media, Phoenix, 2 April, 1999).

11. Ibid.

12. Geopolitical Drug Watch, No 32, June 1994, p. 4

13. Sean Gervasi, "Germany, US and the Yugoslav Crisis", Covert Action Quarterly, No. 43, Winter 1992-93).

14. See Daily Telegraph, 29 December 1993.

15. For further details see Michel Collon, Poker Menteur, editions EPO, Brussels, 1997, p. 288.

16. Truth in Media, Kosovo in Crisis, Phoenix, 2 April 1999.

17. Deutsche Presse-Agentur, March 13, 1998.

18. Ibid.

19. Daily News, Ankara, 5 March 1997.

20. Quoted in Boyes and Wright, op cit.

21. ANA, Athens, 28 January 1997, see also Turkish Daily News, 29 January 1997.

22. Brian Murphy, KLA Volunteers Lack Experience, The Associated Press, 5 April 1999.

23. See Geopolitical Drug Watch, No. 35, 1994, p. 3, see also Barry James, In Balkans, Arms for Drugs, The International Herald Tribune Paris, June 6, 1994.

24. The Guardian, 25 March 1997.

25. For further details see Michel Chossudovsky, La crisi albanese, Edizioni Gruppo Abele, Torino, 1998.

26. Ibid.

27. Andrew Gumbel, The Gangster Regime We Fund, The Independent, February 14, 1997, p. 15.

28. Ibid.

29. Geopolitical Drug Watch, No. 35, 1994, p. 3.

30. Geopolitical Drug Watch, No 66, p. 4.

31. Quoted in Workers' World, May 7, 1998.

32. See Government of Yugoslavia at

33. Geopolitical Drug Watch, No 32, June 1994, p. 4.

As Credit Markets Froze, Banks Loaned Millions to Insiders

As credit markets froze, banks loaned millions to insiders

Stella M.Hopkins

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Banks nationwide hold $41 billion in loans to directors, top executives and other insiders, a portfolio that experts say should be stripped of secrecy.

Insider lending to directors is particularly troublesome because it could cloud the judgment of people charged with protecting shareholders and overseeing bank management, the experts say.

At Charlotte-based Bank of America, those loans more than doubled last year, to $624.2 million — the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch.

Bank of America ranked fourth on the list of biggest insider lenders. At the top was JPMorgan of New York, which held $1.48 billion in insider loans, mostly by directors or their companies.

At No. 2, Charlotte-based Wachovia, which was sold to Wells Fargo of San Francisco at the end of 2008, finished the year with $747 million in insider loans. All of the loans were held by the bank's directors or their companies, with just five holding the largest.

Ranking third on the list was M&I Marshall & Ilsley of Milwaukee, with $644.4 million, and Chicago's Northern Trust was at No. 5 with $524.5 million.

Insider loans, ranging from home mortgages to multimillion-dollar lines of credit for big companies, are legal but are largely shrouded from public scrutiny.

Banks don't have to explain increased insider lending. They don't have to disclose individual loan amounts or terms for any insiders, including executives. Directors and their businesses, often the largest insider borrowers, are completely shielded. Directors must approve insider loans greater than $500,000, so they sometimes vote on loans for each other or the executives they oversee.

Insider favoritism is against the law. Bankers and regulators say the loans are subject to greater scrutiny to ensure insiders aren't getting better terms and are creditworthy.

But top corporate governance experts contend that insider lending carries serious potential for conflict of interest among bank officials and must be stripped of secrecy. They argue that lending to directors, the watchdogs of management, must be revealed so shareholders can gauge their independence. And disclosure should be paramount for banks receiving government aid, said Ed Lawrence, a University of Missouri-St. Louis finance professor and co-author of a 1989 study that was a rare look at insider lending.

Seven of the 10 banks with the largest insider loans received a total of more than $50 billion in the banking bailout late last year, banks' federal filings show.

"It's good for the public to know ... where the money is going," Lawrence said. "When you start taking public money, we hold them to a much higher standard."

The majority of the nation's 8,000-plus banks make insider loans, some very small. At the end of last year, banks had $41 billion of insider loans, up 5.7 percent from a year earlier, according to the filings.

Insider loans accounted for less than 2 percent of the banks' assets, amounts that are generally unlikely to seriously damage banks if the loans go sour. The loans tend to make up a larger percentage of business for smaller banks.

Not all large banks are big insider lenders. Wells Fargo, for example, was about the size of Wachovia before the San Francisco bank swooped up the wounded Charlotte institution late last year. Wells ended last year with $20 million of insider loans, a fraction of Wachovia's $747 million. Neither bank would discuss the disparity.

Most publicly traded companies were banned from making insider loans in 2002, part of the regulatory rush following the collapse of Enron and other accounting scandals.

But banks were excluded from the ban, partly because they're in the business of lending and also because the loans have been subject to extensive regulation for more than 25 years.

The loans were blamed for bank problems during the nation's S&L crisis. Lawrence and others have linked insider lending to bank failures. In December, the chairman of a large Irish bank resigned after revelations he had $109 million of secretive insider loans. In January, the government seized the Dublin bank.

"Studies of bank failures have found that insider abuse, including excessive or poor quality loans made ... is often a contributing factor to the failure," says the "Insider Activities" handbook from the Comptroller of the Currency, the lead regulator for big national banks.

Banks can be hurt by even the perception of insider favoritism, the guide says.

"We don't have a difficulty with insider loans when they're properly written and extended," said Ray Grace, the North Carolina deputy banking commissioner who heads bank supervision for state-chartered firms. "It makes a certain amount of sense that a director or bank officer take that business to their own bank rather than shop it to a competitor."

A key requirement is that insider loans be on the same terms as those to similar outsiders.

"This is a highly scrutinized area, so usually any problems would be caught early," said Mindy West, a Federal Deposit Insurance Corp. chief whose job includes crafting instructions for bank examiners.

Large banks, such as Bank of America, have regulatory officials on site. Smaller banks are typically examined every 12 to 18 months. Regulatory officials request insider loan details for review prior to their regular bank examinations, West said. The FDIC has regulatory authority over about 5,100 banks.

New loans and increases in existing loans are especially likely to be scrutinized, West said. And a loan balance that doubled would probably trigger a second look.

Longtime governance expert Charles Elson doesn't advocate banning insider loans, although he was startled the loans can run into hundreds of millions. But, he said, banks need to make full disclosure, revealing names, amounts and terms. He is especially concerned about disclosure for loans to directors and their interests.

"Management, who can dictate the terms of the loan, are being overseen by the director who is a beneficiary," said Elson, who is director of the University of Delaware's Weinberg Center for Corporate Governance. "It compromises the director's ability to be objective."

As borrowers, directors might be less rigorous when evaluating the CEO or other executives, he said. They might be unwilling to buck management when approving deals.

Wachovia's board approved its 2006 acquisition of mortgage lender Golden West Financial, a vote that ultimately helped push the bank near collapse. Shortly before that approval, the bank had $1.47 billion in insider lending. Fifteen borrowers held the largest loans. Banks aren't required to disclose details of past lending so there's no way to identify those borrowers.

At the end of 2008, all of the bank's $747 million in insider loans were held by directors or their companies, said Julia Bernard, a spokeswoman for Wells Fargo, which bought Wachovia last year. Five borrowers held the largest loans. Bernard said most of the loans were made before 2008.

Wachovia's former chairman and longtime director, Lanty Smith, did not respond to two calls for comment.

Nell Minow, co-founder of The Corporate Library, said directors should take their business elsewhere if they aren't comfortable with disclosure.

"Do you want them as directors or do you want them as customers?" she said. "To the extent there's even the perception of conflict of interest, it's very important for them to be very transparent."


JPMorgan Chase, New York, $1.48 billion

Wachovia, Charlotte, N.C., $747 million

M&I Marshall & Ilsley, Milwaukee, $644.4 million

Bank of America, Charlotte, $624.2 million

Northern Trust, Chicago, $523.5 million

Union Bank, San Francisco, $499.3 million

BB&T, Winston-Salem, N.C., $493.8 million

Commerce Bank, Kansas City, Mo., $467.9 million

Regions Bank, Birmingham, Ala., $444.3 million

Comerica Bank, Dallas, $391.5 million

A.I.G. Bonuses: Class War in the Media

The Battle Over the A.I.G. Bonuses: Class War in the Media

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The debate over the A.I.G. bonuses is class war in its full naked glory. On the surface, everyone agreed that paying multi-million bonuses to the folks who bankrupted their company and handed the taxpayers a bill for $170 billion ($2,300 for a family of four) was outrageous. The difference is between the angry masses, who actually want to take back the bonuses, and the elites who insist that there is nothing that can be done.

In spite of the superior education of the elites, the masses have the much better argument. As a result, the elites have been desperately cooking up excuse after excuse as to why their well-heeled friends at A.I.G. and the bankrupt banks shouldn't lose their bonuses.

The first line of defense against measures to retake the bonuses, such as the tax passed by the House, was that retroactive taxes that apply to income already "earned," are unfair. This one carries little weight to those who can remember back to 1993 when President Clinton signed a tax bill in August 1993 that increased taxes on income earned since January: Masses 1, Elites 0.

The second line was a moral plea that the A.I.G. crew and other Wall Street bonus babies had worked for their money. While most did show up at the office, the value of their "work" is questionable. More substantively, the elites have been perfectly happy in other circumstances to take away money that people have worked for. For example, Congress changed the rules on Social Security so that beneficiaries cannot get the benefits they paid for while they are in prison: Masses 2, Elites 0.

But, the third line of defense was the best: The elites claimed that the bonus tax and other similar measures would disrupt compensation patterns on Wall Street. Banks receiving TARP money will lose good people to hedge funds and others who are not similarly restricted.

This is the line that sends tens of millions of ordinary people rushing to get their baseball bats. The reason the banks are bankrupt, the reason we have more than 12 million people unemployed, the reason we are facing the worst downturn since the Great Depression is that the banks don't have "good" people: Masses 3, Elites 0.

The people running these banks were unable to see an $8 trillion housing bubble, the largest financial bubble in the history of the world. They sold bonds and complex derivative instruments that only had value if this bubble would continue to inflate. Now, as we sit in the wreckage, with millions of people having lost their jobs in construction, manufacturing, real estate, and other areas, we are supposed to use taxpayer dollars to pay these bankers multi-million dollar bonuses?

It was bad enough when they got their multi-million dollar paychecks when the money at least belonged to the companies. Of course, that was illusory - the too big crowd was always playing with the taxpayers' dollars, we just didn't know it back then. But now, we know it is our money. We are taxing schoolteachers, firefighters and bus drivers to pay multi-million dollar bonuses to incompetent bank executives and traders. Yes, people are angry.

This is what really has the elites appalled more than anything. It's one thing for banks, drug companies or insurance companies to use their money to influence legislation. The elites all know and understand that. This is their game. However, when angry people try to affect Congress, then the elites get concerned. And, clearly, that is what is going on with the bonus tax.

The last time that angry people tried to influence Congress like this was with the original passage of TARP last fall. At that time, popular pressure led the House to vote down the bailout the first time.

At that point, the elites rallied. They turned over most of the country's newspapers, and radio and television stations to the PR effort to pass the TARP. They abandoned any pretense of objectivity, essentially branding members of Congress who were opposed to the TARP as "know-nothings" and making it clear that they would be blamed for everything that went wrong in the economy if the TARP was defeated.

Members of Congress folded under this pressure. In effect, the media created a one-sided bet for members of Congress in which voting against the TARP meant that you would be held responsible for everything bad that happened, while voting for the TARP made you immune from responsibility. (No major news outlet has run a story blaming the horrible economic news over the last six months on the passage of the TARP. By contrast, there were numerous stories blaming the stock market plunge on the initial defeat of the TARP. The market has fallen much lower in subsequent months.)

Of course, the bonus money is relatively small change in the scheme of things. The same people who think it's fine to give incompetent financial company executives multi-million dollar bonuses are busy crafting plans to hand several thousand times this amount to the same crew in their latest bailout scheme. They are saying that if this plan doesn't go through, the economy will be wrecked.

Just to be clear (because the media won't tell you), the people who designed this plan are the same people who wrecked the economy. Before anyone even thinks of supporting this plan, they should get a clear answer from Bernanke, Geithner, and the rest of the crowd to the question: "When did you stop being wrong about the economy?"

Bailed-out JP Morgan moves forward with $120 million in jet buys

JPMorgan Chase To Spend Millions on New Jets and Luxury Airport Hangar

Outraged Critics Decry the Proposal, Call For Bank To Abandon Plans


Go To Original

Embattled bank JPMorgan Chase, the recipient of $25 billion in TARPluxury corporate jets and build "the premiere corporate aircraft hangar on the eastern seaboard" to house them, ABC News has learned. funds, is going ahead with a $138 million plan to buy two new

The financial giant's upgrade includes nearly $120 million for two Gulfstream 650 planes and $18 million for a lavish renovation of a hangar at the Westchester Airport outside New York City.

A public hearing will be held by Westchester County officials tonight regarding JPMorgan's request for new hangar space.

According to JPMorgan Chase architects, the new hangar will be built with reclaimed wood, quarry tile and even a "vegetated roof garden."

The Gulfstream 650's are described by the manufacturer as the "fastest," "widest" and "most comfortable" private jet ever with superior cabin amenities, an optional stateroom, and 12 interior designs to choose from.

"It's a remarkably boneheaded decision," said corporate watchdog Nell Minow, the editor and founder of The Corporate Library, a group that provides independent corporate governance research and analysis. "It's completely tone deaf."

Mike Dolphin, president of fixed-based operator Avitat Westchester, is fighting the bank's grand plans ,, because he says JPMorgan's proposed expansion would force his company out of the hangar the bank is eyeing. Westchester County, NY has recommended that the bank ,, a "high quality corporate citizen" ,, be awarded the lease to the hangar when it becomes available in April 2010, in part, because of how much money it is dedicating for the "construction of a state of the art "green building.""

"I am the little guy, so we have a bit of a David versus Goliath fight on our hands," Dolphin told ABC News. He said JPMorgan Chase's plans come at the "wrong place, wrong time" and that despite scaled back private aviation from other TARP-funded companies, JPMorgan Chase is going ahead with its plans, which, if finalized by the county, will cut his business and his staff in half.

"You wouldn't find another hangar in the airport that has anything near this," Dolphin said of the bank's proposal.

JPMorgan Says No TARP Money Will Be Used

Joseph Evangelisti, a spokesman for JPMorgan Chase, said no TARP money would be used to make any payments for new jets or jet hangar improvements. He refused to comment on whether JPMorgan had put a down payment for new planes, saying only that any future jet purchases would be part of its normal aircraft replacement policy, and that JPMorgan Chase will repay all TARP money before it makes any payments for new planes or renovations.

The spokesman also said the bank would have nine years to make its $18 million in renovations, but the county told ABC News that JPMorgan Chase's plans indicate that renovations would be complete within six months of assuming the lease.

JPMorgan Chase currently has four jets at Westchester Airport, two of which would be replaced by the 650's when they arrive in 2013, Dolphin said.


Corporate Perks Take a Hit

TARP-funded corporations have been harshly criticized recently for continued use of luxury perks and corporate waste. President Obama has voiced his outrage, introducing regulations on executive compensation and on the disclosure of money spent on such perks. After pressure from his administration, Citigroup abandoned plans for a new $50 million corporate jet from France. And in February, Obama said the days of bank executives flying corporate jets "were over."

But on March 11, the chairman of JPMorgan Chase, Jamie Dimon, said he could not understand why corporate America has such a bad image.

"When I hear the constant vilification of corporate America I personally don't understand it," Dimon said.

Dimon, whose 2008 compensation package, according to SEC documents, was worth more than $19 million in salary, stock and options, declined to speak with ABC News about the proposed plans.

"There are going to be business school case studies for generations about exactly these decisions, and people will be learning forever about what incredible stupidity these executives showed," said Minow.

Avitat Fights Back

Dolphin said his company approached the county in 2007 to renew the lease for a 30-year term. But, he said, the county uncharacteristically decided to look elsewhere for another tenant and put out a Request for Proposals. Avitat Westchester has filed a federal lawsuit against the county, saying its decision goes against past practices and violates their First and Fourteenth Amendment rights. Dolphin believes the county is retaliating against them after previous disagreements between the company and the county.

Westchester County Officials tell ABC News they're in favor of going forward with the JPMorgan proposal because it "is the best deal for county taxpayers and the best deal for the environment." They say that if the Board of Legislators approves the new lease, the county "will be happy to discuss with any company that may be displaced from the current hangar other alternatives for them."

Obama administration plan for “toxic assets”: A windfall for Wall Street

Obama administration plan for “toxic assets”: A windfall for Wall Street

By Barry Grey

Go To Original

The Obama administration is expected to provide more details today of its plan to enable Wall Street banks to offload up to $1 trillion of their bad mortgage loans and other "toxic" assets at public expense.

Over the weekend, the administration leaked to the press key features of the scheme, to be announced by Treasury Secretary Timothy Geithner. The press reports make clear that the plan is designed to provide a windfall for the very banks and investment firms which precipitated the deepest economic crisis since the 1930s by speculating on high-risk investments that generated extraordinary returns—until the housing and debt bubbles burst—and sustained the multi-million-dollar pay packages of Wall Street CEOs.

According to the reports, the plan will have three major components, all of which involve the use of taxpayer money to guarantee large profits for hedge funds, private equity firms and insurance companies who agree to use low-cost government loans to purchase virtually worthless mortgage loans and securities that are weighing down the balance sheets of the banks.

The government will put up as much as 97 percent of the cash to carry out the purchases and agree to absorb 75 percent or more of any losses that might result from the deals. At the same time, the government will expand a Federal Reserve program launched last week to revive the dormant market in asset-backed securities, otherwise known as the "shadow banking system," to enable the Wall Street billionaires who participate in the scheme to eventually repackage and resell the assets they take off of the hands of the banks at a substantial profit.

As for the banks, the plan will enable them to not only offload their failed investments at public expense, but profit handsomely from a resulting rise in the price of their stock.

Geithner is expected to announce the creation of a new government entity, called the Public Investment Corporation, which will oversee the bailout. This agency will be backed by $100 billion not yet allocated from the $700 billion Troubled Asset Relief Program (TARP) that was proposed by the Bush administration and authorized by the Democratic-controlled Congress last October.

Geithner is not expected to directly request any additional bailout funding from Congress, in part because of the eruption of public anger over $165 million in bonuses handed out by the insurance giant American International Group (AIG), which is now 80 percent owned by the government after the injection of over $170 billion in bailout funds. However, the Obama administration allocated an additional $750 billion in bank bailout funds as a "place holder" in the budget it submitted last month.

The first prong of the three-part plan involves the Federal Deposit Insurance Corporation (FDIC), the agency created in the 1930s to insure the savings of ordinary bank depositors. The FDIC will establish partnerships with hedge funds and other private investment firms to buy whole home loans—as distinct from loans packaged into mortgage-backed securities—from banks that agree to sell them. (In this, as in the other parts of the plan, the participation of banks and investment firms is entirely voluntary).

According to a report in Saturday's New York Times, the FDIC will provide non-recourse loans—that is, loans secured only by the value of the home loans bought—to participating firms worth up to 85 percent of the value of a portfolio of "troubled" bank assets. Of the remaining 15 percent of the cost, the Treasury will use public funds to cover up to 80 percent, leaving the investment firms to contribute as little as 3 percent of the total cost. The government will, moreover, set the interest rate it collects on loans to the firms well below current market rates.

In its report on Sunday, the Washington Post indicated that the government will guarantee 75 percent of any possible losses. The private investors, not the government, will manage the loan portfolios.

This means that the function of the FDIC will be largely transformed from guaranteeing the bank deposits of small savers into guaranteeing the investments of billionaire investment fund managers.

As for the cost to the public, it is doubtful that Geithner will mention that on March 5 Christopher Dodd, the Democratic chairman of the Senate Banking Committee, submitted a bill at the behest of the Obama administration to authorize the FDIC to increase the limit on funds it can borrow from the Treasury from $30 billion to $500 billion. This fiscal sleight of hand will allow the administration to claim that it is allocating "only" $100 billion in taxpayer money for its new bailout scheme.

The other two prongs of the administration plan are directed at the banks' money-losing securities backed by mortgages and other forms of consumer and commercial debt. One will expand a Federal Reserve program, the Term Asset-Backed Securities Loan Facility (TALF), which was launched last week to extend low-cost loans and guarantees against losses to hedge funds and private equity firms that purchase new securities backed by auto loans, credit card debt, commercial mortgages and small business loans.

TALF will be enlarged to include the purchase of previously existing asset-backed securities, including those backed by residential mortgages. In addition, the Fed will be required to offer longer-term loans to private investors than under the original TALF plan, possibly as long as seven years. This is designed to provide sufficient time for markets to recover so that the investors can reap big profits before their loans come due.

Finally, the government will establish a so-called "public-private partnership," in which the Treasury Department hires a number of investment management firms to buy mortgage-backed and other securities from the banks. The Treasury will match, dollar-for-dollar, money from private investors who participate and will also loan funds to increase the investment funds' purchasing power.

In all, the plan amounts to a racket in which the federal treasury is placed at the disposal of Wall Street. One question that arises is why the Obama administration chooses not to directly purchase the bad assets from the banks? There are two basic reasons.

The first is bound up with immediate political considerations. Under conditions of mounting public opposition to the bailout of Wall Street, the administration does not want to be seen as setting absurdly high prices for the purchase of the banks' bad debts. By subsidizing private investors, who will bid against one another in auctions for home loans and securities offered for sale by the banks, the government can claim that the "market" is setting the price.

This is a fraud. By paying investors to buy the banks' junk assets and insuring them against losses, the government is creating conditions where the buyers will be willing to pay outlandishly high prices and the banks will receive multiples of the real market value of the assets they offload.

The New York Times columnist and economist Paul Krugman characterized the scheme aptly in a blog he published on Saturday:

"In effect, Treasury will be creating—deliberately!—the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn't, that's someone else's problem."

The second, and more basic, reason goes to the class character of the administration and the reality of class relations in the United States. Decades of financial parasitism, aided and abetted by successive administrations, Democratic as well as Republican, have transformed the ruling class into a financial aristocracy that exercises overwhelming and unchecked power over the state. Only a government that functions as the open instrument of this miniscule segment of society could present such a flagrant scheme to plunder the country's resources and utilize the crisis of the financial aristocracy's own making to further enrich it at the expense of the people.

When Geithner, formerly the president of the Federal Reserve Bank of New York and a key architect of the Bush administration bailout, announced the outlines of the new administration's bailout plan last month, he was pilloried by Wall Street—the Dow Jones Industrial Average plummeted 380 points—because he was deemed to have provided insufficient guarantees for the wealth and power of the banks and Wall Street firms. Obama, who was elevated to the presidency by the most powerful sections of finance capital to serve as their front-man, got the message. In the intervening period, his top economic advisers have undoubtedly been involved in talks with the masters of Wall Street to make sure that the new announcement will meet with their satisfaction.

As the Washington Post reported on Sunday, some of the richest and most powerful figures on Wall Street were the real authors of the administration's plan. The newspaper noted: "Last fall, billionaire investor Warren E. Buffett, Goldman Sachs chief executive Lloyd Blankfein and William H. Gross, the managing director of PIMCO, the largest bond fund in the world, approached Treasury officials about an idea to create investment funds, using public and private money, to buy toxic assets from banks, according to former senior Treasury officials."

The utter servility of the administration to Wall Street was on full display on the Sunday television talk shows. Administration spokesmen all but begged the banks and hedge funds not to allow their indignation over congressional moves to limit executive bonuses to dissuade them from participating in the government's new bailout scheme.

Christina Romer, chairwoman of the White House Council of Economic Advisors, appearing on the "Fox News Sunday" program, signaled that the administration did not support such moves and sought to reassure Wall Street that no firms which participated in the bailout plan would face limits on executive pay.

"What we're talking about now are private firms that are kind of doing us a favor," she said, "coming into this market to help us buy these toxic assets off banks' balance sheets. And I think they understand that the president realizes they're in a different category... They are firms that are being the good guys here."

Wall Street hysterics over the AIG bonus bill

Wall Street hysterics over the AIG bonus bill

Go To Original

If there is a positive element to be found in the bonuses recently handed out to American International Group (AIG) executives, it is in further lifting the veil on the character of American society and the ruling class.

AIG is an important factor in the financial crisis that has gripped the American and world economy. The company was one of the principal sellers of credit default swaps—instruments used by banks and investment firms to hedge their mortgage-backed securities and other speculative investments.

With the bursting of the housing and debt bubbles, AIG was unable to make good on its obligations, threatening the solvency of hundreds of counterparties and the multi-trillion-dollar edifice of financial derivatives. The US government intervened to prevent its collapse, handing it some $173 billion in bailout loans and cash, much of which has found its way onto the balance sheets of major banks in the US and internationally.

Earlier this month, the company handed out $165 million in bonuses, including large sums to individuals who themselves helped create the current financial disaster. The House of Representatives, fearful that public anger could make passage of the next stage in the Obama administration's Wall Street bailout more difficult, moved quickly to pass legislation that would impose a 90 percent tax on bonuses to some executives and traders at companies receiving more than $5 billion in government handouts, including AIG. The Senate may consider a similar measure as early as this week.

The bill is limited, applying only to a small group of companies. However, even this measure has evoked a furious response from Wall Street. For the financial elite, there is a fundamental principle at stake, a principle that can brook no violation: its right to the unrestrained accumulation of personal wealth.

The Financial Times reported on Saturday a semi-hysterical environment among the multi-millionaire executives. It quoted the fulminations of unidentified bankers in the US and Europe, including one who declared that the bill is "the most profoundly anti-American thing I've ever seen." One executive insisted that the new tax measure would "send [the US] back to the stone age." It is, presumably, the ability of the financial elite to accumulate vast fortunes while millions of people lose their jobs that chiefly characterizes humanity's advance since the invention of metal tools.

The New York Times cited an AIG executive as insisting that the situation is "as bad if not worse than McCarthyism."

The charge of McCarthyism is both absurd and odious. The McCarthyism of the 1950s was a campaign by the American ruling class to demonize all socialist and left-wing thought. It was based on a lie—that socialists were criminals. The campaign destroyed the lives of many workers and intellectuals in the drive to fully subordinate the institutions of American society—the unions, the media, the universities—to the capitalist system and the global aims of US imperialism.

The popular outrage against bonuses for financial executives is, on the contrary, entirely justified. These are individuals who amassed their wealth on the basis of parasitism and speculation. Now that the financial house of cards has come crashing down they are demanding that the public treasury foot the bill, while insisting that there be no consequences for their own standard of living.

Responding to the outrage from the bankers, the Obama administration is working to water down or block the bonus legislation. As public anger mounted last week, the administration adopted the mode of hypocritical posturing. The president insisted on his "outrage" over the bonuses, even though he had earlier campaigned against restrictions on executive pay as part of the bank bailout measures and the stimulus plan passed by Congress. Administration officials insisted they would seek to recover the AIG bonuses.

By last weekend however, the administration was shifting gears. Jared Bernstein, economic adviser for Vice President Joe Biden, said on Sunday that the House bill may "go too far." The Wall Street Journal reported on Saturday that the administration was campaigning in the Senate to "soften" the legislation.

In an interview aired on the CBS television program "60 Minutes" Sunday evening, Obama made clear that he did not support the House bill.

The fallout from the AIG bonuses has also exposed the role of the American media as attorney for the financial elite. As the World Socialist Web Site has reported, the media has responded with a torrent of columns attacking popular anger over the bonuses. While the arguments vary, they all come down to one basic point: The wealth of these individuals cannot be touched.

Among the more cynical arguments is the claim, asserted in an article in the New York Times "Week in Review" section on Sunday that the issue of bonuses is a "political distraction." With barely disguised contempt for the American people, the Times' Sheryl Gay Stolberg insists that the issue of bonuses is merely a "simple and clear narrative" with "shock appeal." Compared to the multi-trillion-dollar price tag on government programs, $165 million in bonuses for AIG executives is simply "small change."

What the AIG bonuses exemplify, however, is a fundamental aspect of American society that is central to the present crisis—the looting of the economy by the financial elite. Over the past three decades social inequality has grown enormously. A financial aristocracy, basing itself increasingly on speculation and fraud, has built up its wealth by dismantling the productive foundations of the economy and attacking the living standards of the working class.

The sums accumulated in this process are hardly small change. The collective net worth of the world's billionaires is $2.4 trillion—more than one fifth of the gross domestic product of the United States—and this is after a drop of $2 trillion from 2008. In the United States, the wealth of the top one percent exceeds that of the bottom 90 percent of the population.

The stranglehold of the financial aristocracy over all the major levers of economic and political life is the principal obstacle to any rational solution to the economic crisis. The financial elite would rather bankrupt the economy than tolerate any impingement on its personal wealth.

Social being determines social consciousness. The social character of the American ruling class has generated a corresponding social psychology—one that is profoundly anti-democratic. It is typical of an aristocratic social layer to view the society upon which it parasitically feeds with a mixture of fear and hostility. It views democratic institutions—even in the thoroughly eroded form that they take in the American political system—with contempt, as unnecessary constraints on its personal prerogatives.

In the end, what Wall Street fears is not the pathetic posturing of its own paid representatives in Washington, but the popular anger, as yet not consciously articulated in the form of an independent working class program, building up in American society.

Will Congress Wipe Out Home Gardens, Growers Markets?

Will Congress Wipe Out Home Gardens, Growers Markets?

By Sarah Foster

Go To Original

The Internet’s buzzing about a bill in Congress its sponsor and supporters say is vital for protecting consumers from food-borne illnesses, but critics claim would place all U.S. food production “from farm to fork” under control of federal bureaucrats, effectively destroying family farms and farmers markets in the process and hijacking the burgeoning organic food movement.

“This bill will not just sweep up commercial food operations,” warns Tom DeWeese, who heads the American Policy Center in Virginia, in a Sledgehammer Alert, “[It] will subject hobby gardeners, home canners, anyone with a few chickens, or anyone who ‘holds, stores, or transports food’ … to registration, extensive management, and inspection by a huge new bureaucracy, the Food Safety Administration, even if the food items will only be consumed personally.”

“The truly chilling language lays out civil and criminal penalties of up to $1 million per day, per infraction, and imprisonment of five or 10 years, or both, depending how serious the violation(s),” De Weese adds, characterizing the bill as “over-the-top in its overreach.”

Particularly attention grabbing: the bill would bring in the National Animal ID System through the back door, opponents claim.

Introduced Feb. 4 by Rep. Rosa DeLauro (D-Conn.), in the middle of the peanut-product recall, the Food Safety Modernization Act of 2009 (HR 875) was assigned to both the House Committee on Agriculture and the Energy and Commerce Committee. It has 41 co-sponsors. Although not yet scheduled for a hearing, proponents have been forced into damage control mode because of public outrage coming from a politically diverse opposition.

Spokesperson in DeLauro’s office offer assurances: “The bill does not apply to vendors at farmers markets, and therefore will not change the way this business runs. It is meant to address food sold in supermarkets.”

The non-profit Food and Water Watch weighs in: “There is no language in the bill that would result in farmers markets being regulated, penalized by any fines or shut down. Farmers markets would be able to continue to flourish under the bill. In fact, the bill would insist that unsafe imported foods are not competing with locally grown foods.”

A “Major Threat” to Local Food

But in an extensive analysis the Farm-to-Consumer Legal Defense Fund – a DC-based advocacy group that champions locally grown and organic food production – foresees HR 875 fueling “a tremendous expansion of federal power, particularly the power to regulate intrastate commerce” and warns:

“While the proposed legislation tries to address the many problems of the industrial food system, the impact on small farms if the bill becomes law would be substantial and not for the better HR 875 is a major threat to sustainable farming and the local food movement.” [Emphasis added]

If enacted, there would be a reshuffling within the Department of Health and Human Services. The Food and Drug Administration, a division of HHS, would be split into two agencies – one to deal with food, the other with drugs and medical devices. This second agency would be titled the Federal Drug and Device Administration and keep the acronym FDA.

Food-safety functions would be transferred to a new Food Safety Administration, headed by a food tsar (Administrator of Food Safety) appointed by the President for a five-year term, with Senate approval. The Center for Food Safety and Applied Nutrition (CFSAN) and the Center for Veterinary Medicine – both presently part of the FDA -- would move into the new Food Safety Administration, along with the National Marine Fisheries Service from the Department of Commerce.

That’s for starters.

The shakeup at Health and Human Services would be accompanied by tremendous expansion of federal regulatory power over the nation’s food producers, with mandated surveillance and monitoring of all farming, processing, transporting, and selling operations. The new agency is to “modernize and strengthen Federal food safety law,” making certain that food establishments are able to guarantee “that all stages of production, processing, and distribution of their products under their control satisfy the requirements of this law.”

The food tsar is tasked with developing and implementing a national food safety program, one that can ensure “that persons who produce, process, or distribute food meet their responsibility to prevent or minimize food safety hazards related to their products.”

This nationwide program is to be based on a “comprehensive analysis” of “hazards” – including identification of “the sources of potentially hazardous contamination or practices extending from the farm or ranch to the consumer that may increase the risk of food-borne illness.” The Administrator will also set up a national system for the registration of food establishments and foreign food establishments.

Defenders of H.R. 875 insist it wouldn’t overburden small farming operations; that the law is aimed at “Food establishments” – facilities where food is actually processed and packaged, where food-borne illnesses begin. Indeed, there’s a subsection under “Definitions” (Section 3) that at first reading appears would exclude farms from the onerous regulatory provisions of the law. Specifically:

“(13) FOOD ESTABLISHMENT (A) The term ‘food establishment’ means a slaughterhouse (except those regulated under the Federal Meat Inspection Act or the Poultry Products Inspection Act), factory, warehouse, or facility owned or operated by a person located in any State that processes food or a facility that holds, stores, or transports food or food ingredients.

“(B) EXCLUSIONS: For the purposes of registration, the term ‘food establishment’ does not include a food production facility as defined in paragraph (14), other retail food establishments, …

“(14) FOOD PRODUCTION FACILITY – The term “food production facility” means any farm, ranch, orchard, vineyard, aquaculture facility, or confined animal-feeding operation.”

The devil’s in the details, and these are in Section 206 which deals with Food Production Facilities. According to FTCLDF, the only thing farms and the other food production facilities don’t have to do is register with the FSA as food establishments must. The agency has sweeping powers to regulate farming practices, and is directed to issue regulations establishing “minimum standards related to fertilizer use, nutrients, hygiene, packaging, temperature controls, animal encroachment, and water.”

“The Feds would control to a much greater degree the inputs farmers can use as well as the products farmers can produce (raw milk). Unannounced federal inspections of small farms will be the order of the day, reducing the level of protection provided by the Fourth Amendment.”

Here’s a taste of what farmers and other food producers can expect from H.R. 875 if it becomes law:

Each food production facility – no matter how small – would have to have a written food-safety plan describing “the likely hazards and preventive controls implemented to address those hazards.”

Farmers selling directors to consumers would have to make their customer list available to federal inspectors.

Federal inspectors would be authorized to:

inspect food production facilities to make sure the producer is “operating in compliance with the requirements of the food safety law;”

conduct “monitoring and surveillance of animals, plants, products, or the environment, as appropriate;”

access and copy all records to determine if food is “contaminated, adulterated, or otherwise not in compliance with the food safety law or to track the food in commerce.”

FTCLDF stresses that these regulations and requirements apply even if the farm is engaged in only intrastate commerce – that is, within state boundaries. Under the existing Federal Food, Drug and Cosmetics Act, the FDA can only inspect farms that produce food destined for commerce across state lines. HR 875 changes this – all production and commerce becomes “interstate.” Section 406 provides: “In any action to enforce the requirements of the food safety law, the connection with interstate commerce required for jurisdiction shall be presumed to exist.”

“Traceability” and the National Animal ID System

Under Section 210 – “Traceback Requirements” – the Food Safety Administration is charged with setting up a national traceability system requiring farmers to keep extensive records that would enable inspectors to track “the history, use, and location of an item of food.”

This system is to be “Consistent with existing statutes and regulations that require record-keeping or labeling for identifying the origin or history of food or food animals,” including “The National Animal Identification system (NAIS) as authorized by the Animal Health Protection Act of 2002 (AHPA).”

The problem is that NAIS was not authorized by the AHPA; it’s never been authorized by congressional legislation.

Jim Babka, editor of, a political action website, regards this as a “bureaucratic initiative,” a “de facto authorization” of NAIS.

“This false assumption gives NAIS the aura of congressional approval,” he writes. “Instead, this is another step on the road to converting NAIS from a voluntary program to a mandatory one. This is exactly what we predicted three years ago when we launched our anti-NAIS campaign.”

Could “Raw” Milk Take a Hit?

Many critics are worried whether it will be legal to purchase over deeply concerned over HR 875 bans unpasteurized milk. According to the FTCLDF it’ll depend on the regulations, but the future doesn’t look good. Right now it’s illegal to sell unpasteurized milk across state lines, but some states allow its sale within their boundaries, albeit grudgingly and with heavy restrictions. HR 875 puts even this limited market in jeopardy.

FTCLDF explains:

“FDA has long wanted a complete ban on the sale of raw milk. The agency’s mantra is that raw milk should not be consumed by anyone at any time for any reason. The agency does not consider this subject to be debatable…Under HR 875, FSA is given statutory authority to unilaterally impose a ban.” [Emphasis added]

“Under HR 875, FSA has the power to adopt “preventative process controls to reduce adulteration of food” [Section 203], and to issue regulations that “limit the presence and growth of contaminants in food prepared in a food establishment using the best reasonably available techniques and technologies” [Section 203(b)(1)(D)]. FDA has long made it clear that in its opinion the best available technology to limit contamination in milk is pasteurization.”

Even if the FSA doesn’t issue an outright ban, raw milk producers could be harassed out of business instead. HR 875 designates dairies and farms processing milk as Category 2 Food Establishments – and these are to be “randomly inspected at least weekly.”

$1 Million-a-Day Fines for the Food Police

On March 14, during his weekly radio broadcast, President Barack Obama accused the Bush administration of having created a “hazard to public health” by not solving food contamination problems, adding he planned to set up set up a “Food Safety Working Group” to “upgrade our food safety laws for the 21st century.”

That’s going to cost money, and Obama said he’d ask Congress for $1 billion to pay for added inspectors and new laboratories.

If $1 billion isn’t enough, HR 875 has its own built-in money generator to make up any deficit. Fines can be assessed at up to $1 million a day per violation – and each day a violation continues is considered a separate offense. That’s for civil offenses. Criminal offenses – those causing illness or death -- mandate lengthy jail terms for those deemed responsible.

Fines collected by the agency are to be deposited in an account in the Treasury, and the agency “may use the funds in the account without further appropriation or fiscal year limitation . . . to carry out enforcement activities under the food safety law.” The agency may also use the funds “to provide assistance to States to inspect retail commercial food establishments or other food or firms under the jurisdiction of State food safety programs.

As FTCLDF see it: “This would give the States reason to support the bill despite the fact that it dilutes much of what is left of their Tenth Amendment police power to regulate food.”

“Great for Factory Farming”

“How did they get this far with such a scheme to apply insane industrial standards to every farm in the country?” asks Linn Cohen-Cole. “Through fear of diseases and of outbreaks of food borne illnesses, both of which they [the multi-national food corporations] cause themselves.” Cole-Cohen, self-described “leftist” and Democrat, isn’t alone in linking the food industry to food control bills like HR 875.

HR 875 would be “Devastating for everyday folks but great for factory farming ops like Monsanto, ADM, Sodexo and Tyson to name a few,” writes Lydia Scott at Campaign for Liberty. “I have no doubt that this legislation was heavily influenced by lobbyists from huge food producers. … It will literally put all independent farmers and food producers out of business due to the huge amounts of money it will take to conform to factory farming methods.”

The role of agribusiness in actually writing HR 875 is a valid question. The fact that DeLauro’s husband Stanley Greenberg, a powerful Democratic political strategist and consultant, counts pesticide and biotech giant Monsanto among his many clients has helped fuel a growing bipartisan opposition to the bill itself, as has the revelation that DeLauro received over $186,000 from agribusiness for her recent re-election campaign.

Critics like Cohen-Cole, Scott and DeWeese say HR 875 has little or nothing to do with food safety and everything to do with government and corporate control of the food supply, and ultimately over the population. As former Secretary of State Henry Kissinger famously observed: "Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world."

For More Information and to Take Action

1. HR 875 has not been set for a hearing. Opponents hope to keep it from getting out of committee and are urging phone calls and emails to committee members and congressional representatives.
2. Tom DeWeese’s Sledgehammer Alert provides excellent analysis, with contact information and phone numbers on committee members and other members of Congress.
3. The Analysis by Farm-to-Consumer Legal Defense Fund.
4. A PDF version of HR 875 is here. It’s over 100 pages.
5. See also the Q&A section on HR 875.
6. Linn Cohen-Cole and Sue Diederich, of the Illinois Independent Consumers and Farmers Association, take a "Solemn walk through HR 875 at OpEd News, a site self-described as “liberal…tough…progressive.”