Monday, March 30, 2009

European powers rebuff US, British proposals for economic stimulus

European powers rebuff US, British proposals for economic stimulus

By Patrick Martin

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In what appears to be a calculated leak by the German government to demonstrate its opposition to increased deficit spending, Der Spiegel magazine published excerpts this weekend of a draft final communiqué proposed by Britain for the G-20 summit of leading economies to be held in London April 2.

Der Spiegel confirmed that the draft document came from the German government, with other press accounts identifying the conservative Christian Social Union, the ruling party in Bavaria and a coalition partner of German Chancellor Angela Merkel, as the source.

The document called for the G-20 countries to spend a combined $2 trillion to stimulate the world economy, now sinking into the deepest crisis since the Great Depression of the 1930s. Its publication provided an occasion for many continental European leaders to make additional denunciations of new spending that would increase fiscal deficits.

Merkel attacked calls for a "global new deal," adding, according to a Times of London report, "I will not let anyone tell me that we must spend more money." Spanish Finance Minister Pedro Solbes said, "In these conditions, I and the rest of my colleagues from the eurozone believe there is no room for new fiscal stimulus plans."

These remarks follow previous negative comments by French President Nicolas Sarkozy, who said international bank regulation, not more spending, was required, and a scathing denunciation of the Obama administration's policies by the current president of the European Commission, Czech Premier Mirko Topolanek, who described US calls for big deficits to stimulate the economy as "the road to hell."

A spokesman for British Prime Minister Gordon Brown claimed that the document was an old draft that merely estimated what spending had already been approved, including the $787 billion stimulus package enacted by the Obama administration.

No additional stimulus was to be expected at the summit, British Foreign Secretary David Miliband told the BBC, saying the G-20 meeting "isn't about rabbits out of hats." He added, "This is about trying to tackle an exceptional economic crisis--far beyond the financial system--and set in place measures... that really do make a difference over the short term and the long term."

But press commentaries in both Britain and the United States called the leak to Der Spiegel an "embarrassing disclosure" and even "a deliberate act of sabotage" by the German government.

The most nationalistic reaction came from British Labour MPs. Denis MacShane, the former Europe minister, asked, "Who does Mrs. Merkel think is going to buy Mercedes and BMWs if she... says putting demand into the economy is a bad thing?" Another Labour MP said: "One has to ask who had something to gain from the leak of the communiqué. This feels like a dirty trick."

Right-wing domestic critics of Brown sounded warnings similar to Merkel's. In an article in the Sunday Telegraph, former foreign secretary Lord Owen warned that the British economy may be subjected to "IMF disciplines" to halt a "precipitate loss of confidence." He compared the current atmosphere in London to the crisis that erupted in the British Labour government of James Callaghan in the late 1970s, which paved the way for Margaret Thatcher.

Mervyn King, the governor of the Bank of England, urged Brown earlier in the week to drop further plans for fiscal stimulus. "Given how big these deficits are, I think it would be sensible to be cautious about going further in using discretionary measures to expand the size of those deficits," he told a parliamentary committee on Tuesday.

In a White House briefing Saturday, an Obama aide denied there was a split between the continental Europeans, particularly Merkel and Sarkozy, and the Anglo-American leaders, saying, "You know, the president had very productive video conferences this week and phone calls with Chancellor Merkel, with Prime Minister Brown and with President Sarkozy, to work on many of the issues we're talking about, and I saw no evidence of any such back-and-forth or rift or anything."

The verbal gymnastics cannot disguise the gulf between the policy proposals from Washington and London and those coming from the other European powers, as well as such G-20 attendees as China, Brazil and Argentina. Despite the attempts to present a picture of responsible world leaders gathering to consult and cooperate on reviving the world economy, the participants in the G-20 summit will arrive in London effectively crippled and deeply at odds.

Last week the head of China's central bank created an international stir by suggesting that it was time to investigate an alternative to the US dollar as the main vehicle for settling international trade accounts. He called for a greater reliance on Special Drawing Rights issued by the International Monetary Fund, provided that China and other countries in Asia, Africa and Latin America were given a greater say in the IMF's affairs.

The Obama administration has enacted not only a stimulus spending package, but a far larger federal bailout of Wall Street, which has pumped trillions into the financial system, requiring enormous borrowing and money creation by the Federal Reserve, the US central bank. These policies are of a highly nationalist character, aimed at shifting the burden of the crisis which began with the collapse of the US financial system onto the major rivals of American capitalism in Europe and Asia. By raising the US budget deficit and national debt to unprecedented levels, Washington is drawing virtually all available private capital around the world into the US.

At the same time, US demands that the European powers expand their deficit spending to finance larger stimulus programs would, if carried out, would have a destabilizing impact on the euro and intensify centrifugal tendencies already threatening to tear the European Union apart.

The impasse, in attempts to fashion a credible international response to the crisis coincides with a deepening slide toward world depression. The US unemployment rate is expected to jump to 8.5 percent in March (the figure will be officially announced on Friday, the day after the G-20 meeting), with one projection, from IHS Global Insight, that net job loss in March will hit a record 750,000, the worst month since 1949.

Japanese industrial output is expected to show a 10 percent decline in a report due out Monday, while all the European countries are in deep recession. Recent forecasts have the German economy shrinking by 6 percent in 2009, its worst showing in the post-World War II period. As for the impoverished countries of Asia, Africa and Latin America that will not be represented at the G-20, their fate is even worse. According to the Institute of International Finance, private capital inflows into "emerging markets" will fall from $929 billion in 2007 to only $165 billion this year.

Reflecting the mood in Washington, one prominent economist predicted the outcome of the G-20 meeting: "There will be a very long communiqué, but there won't be much in it." Such a result would mean that the London conference, far from setting a course for the revival of world capitalism, could mark an important turning point in its further disintegration.

Financial Times columnist Martin Wolf noted the historical parallel to the crisis of the 1930s in a column last month, in which he warned of the danger of a repetition of the summit held in the same city in 1933, in the depths of the Great Depression. US President Franklin Roosevelt did not even bother to attend the meeting, which broke up in failure over proposals to revive the gold standard.

Wolf wrote: "The London summit of 1933 marked the moment at which cooperative efforts to manage the Great Depression collapsed. The summit of the Group of 20 countries, in the same city, on April 2, must turn out quite differently. That may seem a simple task. It is not. The usual platitudinous communiqué would be a catastrophe."

All indications are that precisely such a result is now to be expected. The divisions between the rival capitalist nation-states, each seeking to safeguard the profits and privileges of its own ruling class, are an insuperable obstacle to the formulation of a coherent policy for dealing with the deepening global depression.

Obama escalates war in Central Asia

Obama escalates war in Central Asia

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The new military strategy announced by President Barack Obama in Afghanistan marks a major escalation of the war in Afghanistan and the official transformation of Pakistan into a theater of US military action.

Prepared behind the backs of the American people and with contempt for anti-war opinion expressed in the presidential election, Obama's plan calls for replicating in Afghanistan Bush's military "surge" in Iraq and launching military strikes at will in Pakistan. It confirms that Obama's candidacy was not a move towards peace, but the expression of a struggle inside the American ruling elite over the strategic priorities of US imperialism. Obama served as the front man for those who believed the Pentagon had focused too much attention on Iraq and that the main target of military violence should be Central Asia.

Obama is preparing a bloody pacification campaign in Pakistan and Afghanistan, aiming to exterminate those sections of their populations that interfere with US control of the area. There will be a heavy price paid by the American people as well, in thousands of military casualties, the squandering of hundreds of billions of dollars, and an increased risk of terrorist attacks on Americans, as Washington reinforces the widely held perception that it is waging war on the Islamic world.

Pakistan, a nominal US ally, is threatened with reduction to colonial status. A country with 173 million inhabitants and a nuclear-equipped military, Pakistan is desperately poor and riven by regional and ethnic divisions. An escalation of US attacks, which have already killed hundreds of Pakistanis living in tribal regions bordering Afghanistan, will further enrage Pakistani public opinion, antagonize sections of the Pakistani army and push the country towards civil war, with incalculable consequences in the region.

Those who echo the New York Times' description of Obama's plan as a "narrowing" of the war, because it abandons "Mr. Bush's vague talk of representative democracy in Afghanistan," are only trying to deceive the public.

Not only are these claims belied by the expanding scope of US military action, they are directly contradicted by blunter representatives of US imperialism. Asked on a Fox Network television interview yesterday about the difference between Bush's "war on terror" and Obama's "campaign against extremism," Defense Secretary Robert Gates replied, "I think that's people looking for differences where there are none." Gates added that the US would deploy 68,000 US troops to Afghanistan, rather than the 59,000 announced thus far by Obama.

Obama's escalation is a unilateral decision by Washington, despite favorable statements from European governments. Britain has proposed contributing 1,700 more troops and several other countries may send trainers for Afghan police. However, US officials do not expect NATO allies to contribute significant numbers of troops and they are setting up a separate American military command for operations in southern Afghanistan.

The reasons given by Obama for the escalation are half-truths and lies—above all, the claim that it is a response to the threat of terrorism. This war is a continuation of the struggle for domination of oil-rich Central Asia, the stakes of which—pipeline routes, control of international commerce, military advantage—have motivated all of the US wars of the last 25 years. One could easily quote countless analyses of think tanks and US foreign policy experts establishing the strategic significance for US imperialism of this region—the crossroads between China, Russia, the Indian subcontinent and the Middle East.

The region has long been a central preoccupation of the American ruling class. This year marks the 30th anniversary of Washington's first major intervention in Afghanistan—its 1979 decision to destabilize a Soviet-backed regime in Kabul with the aim of provoking a Soviet invasion. After the Kremlin invaded, Washington financed and armed anti-Soviet mujahedin commanders and rural notables, from whom today's Afghan ruling elite of narco-warlords emerged.

In his interview on "Fox News Sunday," Gates responded to a question about Pakistani intelligence links to anti-US insurgent forces in Afghanistan by noting his own personal involvement in the 1980s in "helping make sure that some of those same groups got weapons from our safe haven in Pakistan."

After the collapse of the USSR, the US continued its intrigues in the region, initially backing the Taliban in the 1990s and then invading Afghanistan to overthrow them after the September 11 attacks.

As with every previous war launched by Washington, Obama's intervention only sets into motion developments that will generate further, even more dangerous conflicts. Russia will view US escalation in Afghanistan with alarm. Building US supply lines to Afghanistan that avoid the war zones in Pakistan will mean increasing US influence in areas where Russia has powerful strategic interests: the Caucasus, ex-Soviet Central Asia, and possibly Iran. This comes only a few months after Washington nearly provoked a war by supporting an attack by its puppet regime in Georgia on Russian peacekeepers in South Ossetia.

The longstanding enmity between Muslim Pakistan and majority-Hindu India notwithstanding, Pakistan's descent towards chaos and civil war will pose serious threats to India. US missile strikes will further roil the Indo-Pakistani border conflict in Kashmir, and they will inflame right-wing Muslim opinion which the Pakistani state mobilizes to aid guerillas in Indian Kashmir. Besides threatening the vulnerable position of India's Muslim minority, this brings with it the risk of a fourth Indo-Pakistani war, this time between two nuclear-armed states.

As US-China tensions mount over China's reluctance to keep funding US deficits and propping up the dollar, an American intervention in Pakistan—China's main ally in the Indian subcontinent—will intensify the risk of an American confrontation with China.

Obama's plan exposes the connection between US militarism and the decayed state of American democracy. Overwhelming popular opposition to war is routinely ignored and violated. Obama's plan was adopted without congressional authorization or public debate.

Its release was timed to avoid public attention and scrutiny. Just two days before, Obama held a prime time news conference where the issue of Afghanistan was not raised. He chose to announce a major escalation of the war at a 9:30 AM no-questions-asked press conference, when most of the population was at work and unable to watch. As Obama spoke, he was flanked by Gates and other Bush administration holdovers, and he noted the presence of military satraps, think-tank operatives and other professional war criminals.

This militarization of the office of the presidency expresses malignant tendencies in US social life. Commenting ten years ago on the US bombing of Serbia, the World Socialist Web Site wrote: "The widening social chasm within American society is fast approaching—if it has not already been reached—the point at which even the pretense of a broad-based social consensus, rooted in core democratic values, cannot be maintained. [...] The specific character of the wealth-generating process—that is, enrichment through rising share values—quite naturally produces social and political attitudes that are of a deeply anti-working class and pro-imperialist character." [See "After the Slaughter: Political Lessons of the Balkan War"]

The subsequent explosion of US militarism under Bush and the outbreak of a major economic crisis last year only confirm this analysis. With the US occupations of Iraq and Afghanistan, and now Obama's escalation, war has become an indispensable tool of US foreign policy as well as a means of suppressing class conflict at home and ensuring the profitability of American corporations. Obama's Central Asian policy, formulated on behalf of powerful oil and gas interests, is the outer face of a domestic policy centered around trillion-dollar handouts to Wall Street and the super-rich.

Obama's policies demonstrate that his election campaign for "change" was a political fraud, aimed at setting the stage for a tactical shift in the violent assertion of US imperialist interests. War and social reaction cannot be opposed through appeals to the Democratic Party, but only through the mobilization of the working class in struggle against capitalism.

April 3-4: All out to Wall Street

April 3-4: All out to Wall Street

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Unemployment is up. Banks are stealing homes. Washington is throwing trillions at the bankers. And the wars keep feeding the military-industrial complex. It’s past time to bring the demands of the working class directly to the heart of the U.S. ruling class: Wall Street. End U.S. wars of occupation. Use government funds to rescue workers instead of bankers.

On March 21 many anti-war activists marked the sixth anniversary of the criminal occupation of Iraq by demonstrating in Washington. There the ugly symbols of the capitalist state clog the landscape, from the presidential monuments to the Pentagon and the fortress-like offices of the privatized military in Arlington, Va.

On April 3 and 4, anti-war and other movements of workers and oppressed peoples will aim their anger at the New York Stock Exchange, AIG and the big banks and investment houses. That’s one step closer to the class of billionaire owners that the state power in Washington serves.

The institutions of Wall Street, their management and their biggest owners are the wealthy recipients of the trillions in bailout money printed at the Treasury. They’re the same ones who squeal in anguish if a family on welfare gets a free carton of milk. After profiting for decades from a system that concentrated wealth in their hands, those same hands are reaching for a giveaway from the government.

It’s no surprise that they have awakened the righteous anger of workers, poor, and just about everyone else in the country who are not themselves millionaires or billionaires.

The Bail Out the People Movement’s decision to call and mobilize for a march in the financial district hits the nail on the head. They will gather at 1 p.m. on April 3—a working Friday when the financial district will be packed—and again on the following day, April 4, the anniversary of Dr. Martin Luther King Jr.’s assassination.

In a step forward for the struggle, the BOPM and the United for Peace and Justice coalition—which had been mobilizing for an April 4 march in the same area—have announced they will mutually support each other’s actions. BOPM will have the main responsibility for April 3 and UFPJ for April 4. Each will help build and join both actions.

Through the initiative of BOPM and with an impulse from the agreement with UFPJ, those fighting the war machine are reaching out to the working class to mobilize the sector of society that has the power to confront the government and force an end to the military adventures abroad.

We call on all our readers to come to Wall Street on April 3, April 4 or both if possible. Add to this impulse. Help build a movement that can fight for workers’ rights and bring the imperialist wars to a halt.

Trillions for Wall St., poverty for workers

Trillions for Wall St., poverty for workers

By Fred Goldstein

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There is nothing like the smell of a trillion-dollar bonanza to send the stock market through the roof. Wall Street has struck it rich with the Obama administration’s blatantly pro-banker, pro-investor program to revive the capitalist economy.

The so-called Public-Private Investment Plan, crafted and presented by Secretary of the Treasury Timothy Geithner, intends to make a trillion dollars available to the biggest banks, hedge funds, private equity funds and other investors, supposedly to get the banks to lend money to businesses and consumers again.

The essence of the plan has two sides to it. First, bribe hedge funds, private equity funds and others in the shadow banking system who have been sitting on the sidelines with trillions of dollars—by offering them government money and loan guarantees to purchase bad bank assets. Second, bribe the banks to sell investors these bad loans by offering to pay far more than they are worth.

So the rich get a deal from the Treasury both ways.

The banks are holding onto $2 trillion in bad loans resulting from their speculation on the great housing and real estate bubble. They don’t want to sell these bad loans at anywhere near their vastly reduced worth because they would have to declare them as big losses. Up to now they have been refusing to sell and have been holding out for more.

Meanwhile, hedge funds, private equity funds and other investors are holding onto trillions of dollars, which they keep in government bonds and other secure investments. They don’t want to lend this money to help workers or businesses or anybody. These moneybags are sitting on the sidelines, looking for mergers or buyouts, while clipping the interest coupons.

Geithner, Lawrence Summers—Obama’s chief economic adviser—and company came up with a brilliant modification of the plan to buy so-called “toxic assets” crafted by former Treasury Secretary Henry Paulson during the Bush administration.

Here is an illustration of one part of Geithner’s plan. “It works like this, according to the Treasury Department fact sheet: Imagine that a bank wants to sell mortgage loans with a $100 million face value. The FDIC [Federal Deposit Insurance Corporation] would auction the loans to private bidders. Suppose the winning bidder offered $84 million. The private investor would put up $6 million, Treasury would put up $6 million, and the FDIC would guarantee $72 million worth of loans.” (Washington Post, March 23)

No matter if things go well or bad—in other words, whether the assets can be sold at close to $84 million or if they completely fail and not a penny can be collected—the bank still gets its $84 million. If things go well, the investors make a killing on a $6 million investment. If things go bad, the government gets stuck with the loan to pay off, while the investors walk away with a minimum loss (which they will write off their taxes). In addition, the private fund managers get to retain control over the investment.

There is another type of deal in the plan in which the government matches the private investors dollar-for-dollar and also provides loans to go with it. This is for the bad mortgage-backed securities.

Make a trillion dollars subject to these giveaway terms and it is guaranteed to send the stock market through the roof—at least for a moment.

Giveaway vs. ‘nationalize’

There are so many problematical issues involved with this plan that its prospect for success, even on the terms projected by Geithner and his allies, seems highly doubtful to more cautious sections of the ruling class.

The giveaway plan represents a victory of the Geithner/Larry Summers faction over the “nationalization” current in the ruling class establishment. In this sense it represents a victory of the faction closest to the big banks on Wall Street that are in the deepest trouble.

The nationalization current, more properly described as those for receivership, is not so closely tied to the direct interests of these banks and has a broader view of the needs of their class and the financial system in this present crisis. Their views are sharply opposed to the Geithner/Summers adventure.

This current wants to stop pouring money indiscriminately into banks that are already insolvent, change the management, force them to declare losses, restructure them, take a stake in the banks and then hand them back to private owners and collect dividends. This view was recently propounded by Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, in a paper entitled “Too Big Has Failed.” It is easy to see how unpalatable such a view would be to Citigroup and other large banks.

It is the normal function of the capitalist state and the bourgeois political parties to protect the interests of the capitalist class as a whole and their system. This is the way the state has conducted itself, by and large, during previous lesser crises: the Latin American debt crisis, which endangered the U.S. banking system during the Reagan administration; the savings and loan crisis of the late 1980s and early 1990s; and the 1995 Mexican bailout crisis, when U.S. investors were threatened by the collapse of the Mexican peso.

A ruling class consensus was arrived at on each occasion and the Treasury Department and Federal Reserve System took the necessary measures to deal with the situation and avert a collapse.

Crisis has deep roots

But the magnitude of this global crisis is so vast, and the power of the banks involved, the extraordinary deterioration of their financial conditions, and their desperation to save themselves at all costs is so great, that the Obama administration has been dragged into a most questionable scheme.

The administration has become entrapped by the narrow interests of Goldman Sachs, Citigroup, AIG, Merrill Lynch and their ilk to the point of throwing trillions of dollars at them to keep these specific banks afloat, at the expense of using these funds to bolster the system as a whole.

This could have dire political consequences in the long run for President Barack Obama himself.

Not that any amount of funding could significantly turn this capitalist crisis around in the long run. It is fundamentally caused by a global crisis of capitalist overproduction, which has been aggravated and intensified by the financial crisis.

The present crisis is profound. It represents the end of a 70-year era of upward development of the productive forces by U.S. and world capitalism that was propelled by military spending, imperialist globalization, destruction of the standard of living of the workers of the world, technological attacks on jobs, devastation of the environment, plus massive credit and indebtedness. These forces have run their course and no bailout or stimulus package can change these fundamentals.

But a trillion dollars is a lot of money. It could fund measures to ameliorate the crisis to some extent if strategically placed—particularly if it were given directly to the masses, either as wages for a jobs program or as direct assistance or to cancel the mortgages of the millions facing foreclosure and to restore the foreclosed families to their homes.

What workers won in the 1930s

One need go back to the administration of Franklin D. Roosevelt to get a sense of the kind of temporary relief for the workers that could be administered—even though Roosevelt was never able to solve the crisis of capitalist overproduction, except through war.

Economist James Galbraith in a Washington Monthly article of March 9, “No Return to Normal,” cites one study showing that the Roosevelt government “hired about 60 percent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown. It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock.”

No faction of any significance in the ruling class is debating this question for now because the class struggle is dormant and the masses have not yet risen up against their conditions as they did during the Great Depression. But that is because the crisis is only in its early stages. Roosevelt is known for his concessions to the workers because the workers won those concessions by mass struggle. Obama has no such situation right now and is hewing to a generally conservative line of approach. This could change.

In addition, the issue of the AIG bonuses has sharpened the political situation. Fearing the masses and because their own connections to the big banks are coming out, the Democratic Party politicians in the House of Representatives became hysterical in their denunciations of the bonuses to AIG executives, as did a significant number of Republicans. They all engaged in a public attack on corporate bosses and, by implication, on their own paymasters.

The situation may be quieted somewhat now that some of the executives are returning the bonuses. But this political outburst showed that the right-wing forces are straining at the bit to become champions of the “little people” and supposed adversaries of the “greedy bankers” as a way of getting at the Obama administration. They hope crisis will create an opening for a right-wing, racist revival. The working class must be on the alert for this and not be sucked in by any of this demagogy.

‘A dangerous year’

The entire government plan is predicated on a revival of the capitalist economy and the housing market. This is what will presumably make the bad assets go up in value, when people start buying houses again and bidding up the prices. In fact, an announcement that first-time housing sales went up helped fuel a buying frenzy on Wall Street.

But the Wall Street Journal of March 23 wrote about the rise in home sales that “nearly half of the sales occurred in the foreclosure/vulture market. So, home sales are up, but it’s heavily dominated by bottom fishing.”

More important was a statement by the head of the World Bank, Robert Zoellick, that 2009 would be a “dangerous year.” He said on March 21 that the global economy would shrink by 1 to 2 percent during the year: “We haven’t seen a figure like that globally since the end of World War II, which really means the Great Depression.” In addition the World Bank was projecting that global trade was set to slide the most in 80 years, a decline in exports of 2.1 percent, not seen since 1982. The European economy will shrink by 3.2 percent (raised from an earlier forecast of 2 percent). Japan’s economy is projected to shrink by 5.8 percent and the U.S. economy by 2.6 percent.

Of course these projections are always subject to correction, but they have been consistently revised in a negative direction. They are confirmed by a report about global manufacturing. In Europe industrial production is down 12 percent from a year ago. In Brazil it is down 15 percent, in Taiwan a staggering 43 percent. Manufacturing fell in India for the first time in years. China’s manufacturing is down by 25 percent.

The three largest imperialist economic blocs—Europe, Japan and the U.S.—are all predicted to shrink their economies. And three of the most populous countries in the world, representing two-fifths of the world’s population, are showing a decline in industrial output.

It is clear that, despite the momentary euphoria of the profiteers on Wall Street, this crisis is not about to be solved. Even if the banks were to start lending again, the population is in ruins. No one is credit worthy because they are in debt, losing their jobs, paying medical bills, paying student loans, paying their credit card loans and/or are behind in their mortgages.

The idea that it is necessary to give these banks trillions in order to solve the crisis is either a grand illusion or outright fraud. The bailout is calculated first and foremost to save the banks while the masses sink deeper into the real crisis—the crisis of unemployment, homelessness and poverty.

The only solution is a mass mobilization to fight back against the capitalist system that is robbing people of their incomes, their homes and their very lives. The sanctity of capitalist profits is what is at the bottom of bailouts, layoffs and foreclosures. It is time to say no to capitalism.

More Senior Citizens Forced to Declare Bankruptcy

More senior citizens forced to declare bankruptcy


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Jose Abrahantes has been working for about half a century -- in construction, landscaping, even as a janitor cleaning offices on the night shift. He figured he would eventually enjoy a relaxing retirement.

But at 66, with medical bills piling up after an emergency surgery, Abrahantes has filed for bankruptcy. Retirement isn't even in the picture. Instead, he's working part-time at a Publix bakery.

''I had no choice,'' said Abrahantes, who rents a modest Little Havana apartment with his wife, Carmen. ``If I'm making $8 an hour and trying to live off that, there's no way I'm going to pay down all my bills.''

Abrahantes is one of a growing number of senior citizens doing what they once thought unthinkable -- or, as Abrahantes put it, ''embarrassing and painful.'' Hit hard by the slumping economy, unable to pay mounting bills from meager retirement savings, older Americans are filing for protection from their creditors in record numbers. Experts said many end up bankrupt because of medical bills they can't afford to pay. Others simply can't cover their living expenses with their Social Security and savings.

In 2007, Americans 55 and older accounted for 23 percent of the more than one million Americans who filed for bankruptcy, a threefold increase from 1991, according to a recent AARP study. They experienced the sharpest increase in bankruptcy filings of all age groups, jumping from 8.2 percent of all debtors. The numbers are especially stark for older seniors, with bankruptcy more than quadrupling for seniors ages 75 to 84.

Elizabeth Warren, a professor at Harvard Law School and the AARP study's author, said these bankruptcy filings provide a snapshot of the financial vulnerability of older Americans who ``now, more than ever, are confronting serious financial challenges.''

What's more, advocates said seniors have been filing at even higher rates since 2007, the last year of the AARP study, because of a declining economy, increasing healthcare costs and a lack of retirement savings.

''It's bad,'' said Barbara Prager, executive director of Coast to Coast Legal Aid of South Florida, which serves people 60 and older in Broward. ``We're seeing a lot of seniors with medical debt and without the income to pay for it. And it's coming at a time when it's harder to find solutions.''

Carlos Franco, the community outreach director for the nonprofit Consumer Credit Counseling, said the problem may be compounded in South Florida, where many senior citizens can't understand English or don't have the savvy to negotiate debt relief.

''They let the bills pile up. They bounce checks,'' he said. ``They don't understand what's going on or what the bills and letters are saying.''


His counselors don't automatically suggest bankruptcy. Instead, they draw up a budget and look at a family's income versus its expenditures. If possible, they ask creditors to reduce interest rates and propose a repayment plan. However, he adds, seniors who depend on small Social Security checks and savings hit hard by the stock market find their options limited.

In the past, some tapped the equity in their homes. But with the housing market in the doldrums, that may not be an option. A September 2008 AARP study found that 684,000 Americans 50 or older -- 28 percent of all homeowners -- were delinquent on their first mortgages, were in foreclosure or had already lost their homes.

''Because the equity value of homes has dropped so much, we can't use reverse mortgages as often as we used to,'' Prager said. ``We're literally flooded with clients in foreclosure or about to go into foreclosure.''

At Consumer Credit Counseling, a senior citizen filing for bankruptcy is offered a bankruptcy education class and told to visit an attorney for legal advice. Emotional support is often required, too. ''It's very hard for them at this point in their lives to deal with having to declare bankruptcy,'' Franco said. ``It can be very embarrassing. Many Latinos don't even want to talk about it.''

Timothy Kingcade, a bankruptcy lawyer with Kingcade & Garcia, said his clients often break down and weep in his office. ``It's very traumatic for them. It's not what they expected in their golden years.''

Their unpaid debt, he adds, usually starts off as a small figure. After several months, however, it can add up to tens of thousands of dollars.

''What I see a lot of are seniors using their credit cards for prescription drugs,'' he said. ``They need their medicine so they worry about paying it later. But even if you're only charging $200, $300, $400 a month, it adds up. It's not long before they're in a lot of trouble.''


Abrahantes' problems started when he was in an accident and was unable to pay the $1,000 deductible on his damaged pickup truck. When he could no longer afford the payments, the bank repossessed the truck. Then Abrahantes developed an infected boil that had to be removed. The bill: $40,000. Abrahantes did not have health insurance or Medicare.

Calls and letters from creditors became too much for Abrahantes, so he filed for bankruptcy.

''If I were 30, it would be different,'' he said. ``I could get myself out of this hole.''

Medical-related financial debt can be particularly problematic for seniors who are uninsured but not old enough -- or poor enough -- to receive government help, said Dave Certner, AARP's legislative policy director. He singles out the ''pre-Medicare'' age group -- 55 to retirement -- who may be an injury or illness away from financial ruin. ''If they don't have insurance through an employer, they find it hard to get affordable insurance on their own or [a policy] that doesn't disqualify them for all these pre-existing conditions,'' Certner said.

More pre-retirement workers are faced with this problem as cost-cutting employers drop insurance or lay off older workers, he adds.


But not all senior citizen bankruptcy is due to healthcare costs. Patrick Cordero, another bankruptcy attorney in Miami, said about 60 percent of the elderly clients he sees are simply in over their heads: Income doesn't cover living expenses.

''One month they pay the electric bill but not the phone,'' he said, ``The next month they pay the phone, but not the electric bill. That goes on until they can't juggle it anymore.''

The reason? Lack of planning for retirement. In other words, some people are outliving their savings.

''Now, more than ever, you have to be prepared for retirement because that's the one thing nobody is going to finance for you,'' Kingcade said. ``When planning, you have to build in the possibility of an expensive long-term illness. You better have a good game plan.''

How Insurers Blacklist Millions With Common Ailments

Insurers shun those taking certain meds


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Trying to buy health insurance on your own and have gallstones? You'll automatically be denied coverage. Rheumatoid arthritis? Automatic denial. Severe acne? Probably denied. Do you take metformin, a popular drug for diabetes? Denied. Use the anti-clotting drug Plavix or Seroquel, prescribed for anti-psychotic or sleep problems? Forget about it.

This confidential information on some insurers' practices is available on the Web -- if you know where to look.

What's more, you can discover that if you lie to an insurer about your medical history and drug use, you will be rejected because data-mining companies sell information to insurers about your health, including detailed usage of prescription drugs.

These issues are moving to the forefront as the Obama administration and Congress gear up for discussions about how to reform the healthcare system so that Americans won't be rejected for insurance.

It's especially timely because growing numbers are looking for individual health insurance after losing their jobs. On top of that, small businesses, which make up the bulk of South Florida's economy, are frequently finding health policies too expensive and are dropping coverage, sending even more people shopping for insurance.

The problem is, material available on the Web shows that people who have specific illnesses or use certain drugs can't buy coverage.

''This is absolutely the standard way of doing business,'' said Santiago Leon, a health insurance broker in Miami. Being denied for preexisting conditions is well known, but when a person sees the usually confidential list of automatic denials for himself, ``that's a eureka moment. That shows you how harsh the system is.''

A 50-year-old Broward County man, with two long-standing medical conditions, saw the harshness for himself when surfing the Web trying to learn why insurers kept denying him coverage. He was shocked to find several insurers' instructions to sales personnel, usually called the Guide to Medical Underwriting and often marked ``confidential and proprietary.''

''I think it's atrocious what's going on,'' he said. ``Basically, they're taking only the healthy so they can get the fattest profits. If you really need insurance, then you can't get it.''

The man, a self-employed consultant, didn't want his name or preexisting conditions identified for fear that the information might frighten away potential employers.


Insurers don't want to talk about the guides. Sunrise-based Vista , which has its 35-page ''confidential and proprietary'' guide tucked away within its website, refused to make executives available for an interview and instead issued a brief statement:

``The medical underwriting guidelines used by VISTA are based on industry standards, comply with all regulations and are subject to review by the Florida Department of Insurance. VISTA's Guide to Medical Underwriting is an educational tool intended to assist agents and brokers who are selling VISTA individual plans. We do not comment on our specific underwriting processes and practices.''

Sandra Foertsch, who sells individual policies, says the fundamental concern of insurers is clear: ''They don't want to buy a claim,'' meaning that they would start to collect $500 monthly premiums from a person and quickly pay out more than that to doctors and other providers.

Foertsch said she was surprised that any of the guides could be found on the Web. ``I'd guess someone made a mistake.''

The Miami Herald asked several other major Florida insurers -- Aetna, Humana and Blue Cross Blue Shield of Florida -- for copies of their underwriting guides. All refused, saying they contained propriety information and were confidential.

Searching the Web, The Miami Herald found underwriting guidelines for Coventry Health Care, which owns Vista; Wellpoint; Assurant Health; and Blue Cross Blue Shield of Nebraska.

Among the health problems that the guides say should be rejected: diabetes, hepatitis C, multiple sclerosis, schizophrenia, quadriplegia, Parkinson's disease and AIDS/HIV.

Some guides echo Nebraska's warning on the Web that it's ''intended as a reference tool only,'' with final decisions made by managers.


Insurers have different criteria. Sleep apnea and fainting for no known cause are reasons for denial for the Nebraska plan, but not for other plans. Vista doesn't want to cover severe acne, but other guides seen don't mention it. Insurers often use measures of body mass index to reject those who are too heavy or too thin.

For cancer, the key is how patients have been doing in remission. Wellpoint, a national insurer, rejects applicants who have had breast or prostate cancer within the past five years. With other types of cancer, 10 years must have passed. Assurant Health, based in Milwaukee, rejects most patients whose cancer has not been in remission for at least eight years.

Other reasons for automatic denial by various companies: alcohol-related problems of people who have not been abstinent for at least six years, chronic bronchitis, severe migraines, and a cardiac pacemaker installed within the last two years.

Some insurers will automatically reject applicants who are using certain prescription drugs. Wellpoint denies anyone who within the past year has taken Abilify and Zyprexa for mental disorders as well as Neupogen, which is used to treat the side effects of chemotherapy. Vista lists the anticoagulant Warfarin and the pain medication Oxycontin. Both companies list insulin.

The medications, of course, are indications of specific health problems. To make sure that applicants are not lying, insurers hire a data-gathering service -- Medical Information Bureau, Milliman's Intelliscript or Ingenix Medpoint.

Intelliscript and Medpoint do computerized searches of a person's drug use, gleaned from pharmacy benefits managers and other databases. The two companies say they comply with privacy laws. ''Ingenix requires each Medpoint client to obtain the authorization of the individual applicant or insured person,'' said Ingenix spokeswoman Karin Olson.

Last year, the Federal Trade Commission accused both companies of violating the Fair Credit Reporting Act by not offering to provide consumers with information about them. The companies agreed to settlements in which they promised to let people see their personal information.

Taxing Main Street to Make Wall Street Richer

Geithner's Plan Will Tax Main Street to Make Wall Street Richer

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The new consensus among the experts who missed the housing bubble (EMHB) is that Treasury Secretary Tim Geithner's plan to subsidize the purchase of junk mortgages and their derivatives will help alleviate the stress on the banking system. That's good news.

These geniuses have devised a plan that for $1 trillion (approximately equal to 300 million kid-years of SCHIP, the State Child Health Insurance Program) can alleviate the stress on the banking system. Note that no one claims that $1 trillion spent on the Geithner plan will actually clean up the banking system - that would be asking too much. The EMHB only assure us that this $1 trillion (more than enough to have energy conserving retrofits for every building in the country) will make things better. Isn't that enough?

Oh, by the way, some people will get very rich off the Geithner plan. Some hedge and equity fund managers could make hundreds of millions or even billions off the Geithner plan. And, under current law, they will pay a lower tax rate on this money than a schoolteacher or firefighter. Are you sold yet?

One other outcome of the Geithner plan is that the folks who bankrupted their banks and wrecked the economy will be able to continue to earn multi-million dollar salaries. Of course this is necessary, because who else has the skills to run these banks, other than the people who drove them into bankruptcy?

For some reason, every plan the EMHB have developed so far involves using taxpayer dollars to subsidize the bankrupt banks and keep them breathing a little bit longer, while offering opportunities for other Wall Street actors to get hugely wealthy. Some people say that the EMHB keep coming up with plans that enrich the Wall Street crew because they are so closely tied to the Wall Street financial interests.

It is, of course, possible that the EMHB are too closely tied to the financial industry, but it's also possible that they just lack the creativity and imagination to think of a plan that doesn't enrich the Wall Street crew. After all, these people lacked the ability to see an $8 trillion housing bubble, the largest financial bubble in the history of the world. So, let's see if we can help them out.

The core problem is that many of the largest banks are bankrupt. They are currently concealing this bankruptcy by listing assets on their books at prices that are far above their market value. In principle, they can do this for a long time, unless the government forces them to write-down the value of these assets. As long as the banks are bankrupt, they will not make new loans, limiting the ability of many businesses to get capital.

Instead of Geithner's plan to allow banks to sell these assets at a subsidized price, we can go the other way. Geithner could have announced a plan to clean up the banks, following a standard FDIC-type takeover.

This approach could harness the power of existing bondholders to help the government clean up the banks quickly. Geithner could, for example, promise to honor the banks' commitments to bondholders in full, if the banks recognized their losses immediately. Bondholders, however, would be offered a lower payback rate for each month that the banks waited.

So, if a bank waited one month, the bondholders would only get a guarantee for 90 percent of the value of their assets. If the bank waited two months, the payback would fall to 85 percent and so on. (Note the issue here is bank bonds that the government has no legal or moral obligation to pay off. The government will, of course, pay off the banks' FDIC-insured deposits.)

Under this kind of a plan, bondholders would place enormous pressure on the banks to recognize their losses. Bank executives that refused to own up to the bank's bad assets might even face personal liability. In other words, executives who lie about their bank's assets might not just lose the bonuses that came out of TARP money, they also might lose the tens or hundreds of millions of dollars they "earned" during the housing bubble.

If President Obama's advisers, all of whom are leading members of the EMHB camp, had more imagination, they might have devised a plan like this for dealing with the banking crisis. Instead, they came up with a plan that will enrich Wall Street and further punish Main Street.

Congress can try to bring enough pressure to make President Obama reverse course. At the very least, Congress should insist that when this plan fails, Secretary Geithner and others involved in drafting the plan are sent packing. We cannot continue to have a system that always ignores the mistakes by those on top and only holds those at the bottom accountable. The EMHB already wrecked the economy once; how many more times will they get the opportunity?

When the Solution to the Financial Crisis becomes the Cause

Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk

When the Solution to the Financial Crisis becomes the Cause

by F. William Engdahl

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US Treasury Secretary Tim Geithner has unveiled his long-awaited plan to put the US banking system back in order. In doing so, he has refused to tell the ‘dirty little secret’ of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction.

The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model. Yet, one might say, won’t this eventually help the problem by getting the banks back to health?

Not the way the Obama Administration is proceeding. In defending his plan on US TV recently, Geithner, a protégé of Henry Kissinger who previously was CEO of the New York Federal Reserve Bank, argued that his intent was ‘not to sustain weak banks at the expense of strong.’ Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system.

The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps.

In 2000 the Clinton Administration then-Treasury Secretary was a man named Larry Summers. Summers had just been promoted from No. 2 under Wall Street Goldman Sachs banker Robert Rubin to be No. 1 when Rubin left Washington to take up the post of Vice Chairman of Citigroup. As I describe in detail in my new book, Power of Money: The Rise and Fall of the American Century, to be released this summer, Summers convinced President Bill Clinton to sign several Republican bills into law which opened the floodgates for banks to abuse their powers. The fact that the Wall Street big banks spent some $5 billion in lobbying for these changes after 1998 was likely not lost on Clinton.

One significant law was the repeal of the 1933 Depression-era Glass-Steagall Act that prohibited mergers of commercial banks, insurance companies and brokerage firms like Merrill Lynch or Goldman Sachs. A second law backed by Treasury Secretary Summers in 2000 was an obscure but deadly important Commodity Futures Modernization Act of 2000. That law prevented the responsible US Government regulatory agency, Commodity Futures Trading Corporation (CFTC), from having any oversight over the trading of financial derivatives. The new CFMA law stipulated that so-called Over-the-Counter (OTC) derivatives like Credit Default Swaps, such as those involved in the AIG insurance disaster, (which investor Warren Buffett once called ‘weapons of mass financial destruction’), be free from Government regulation.

At the time Summers was busy opening the floodgates of financial abuse for the Wall Street Money Trust, his assistant was none other than Tim Geithner, the man who today is US Treasury Secretary. Today, Geithner’s old boss, Larry Summers, is President Obama’s chief economic adviser, as head of the White House Economic Council. To have Geithner and Summers responsible for cleaning up the financial mess is tantamount to putting the proverbial fox in to guard the henhouse.

The ‘Dirty Little Secret’

What Geithner does not want the public to understand, his ‘dirty little secret’ is that the repeal of Glass-Steagall and the passage of the Commodity Futures Modernization Act in 2000 allowed the creation of a tiny handful of banks that would virtually monopolize key parts of the global ‘off-balance sheet’ or Over-The-Counter derivatives issuance.

Today five US banks according to data in the just-released Federal Office of Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activity, hold 96% of all US bank derivatives positions in terms of nominal values, and an eye-popping 81% of the total net credit risk exposure in event of default.

The five are, in declining order of importance: JPMorgan Chase which holds a staggering $88 trillion in derivatives (€66 trillion!). Morgan Chase is followed by Bank of America with $38 trillion in derivatives, and Citibank with $32 trillion. Number four in the derivatives sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives. Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7 trillion.

After that the size of US bank exposure to these explosive off-balance-sheet unregulated derivative obligations falls off dramatically. Just to underscore the magnitude, trillion is written 1,000,000,000,000. Continuing to pour taxpayer money into these five banks without changing their operating system, is tantamount to treating an alcoholic with unlimited free booze.

The Government bailouts of AIG to over $180 billion to date has primarily gone to pay off AIG’s Credit Default Swap obligations to counterparty gamblers Goldman Sachs, Citibank, JP Morgan Chase, Bank of America, the banks who believe they are ‘too big to fail.’ In effect, these five institutions today believe they are so large that they can dictate the policy of the Federal Government. Some have called it a bankers’ coup d’etat. It definitely is not healthy.

This is Geithner’s and Wall Street’s Dirty Little Secret that they desperately try to hide because it would focus voter attention on real solutions. The Federal Government has long had laws in place to deal with insolvent banks. The FDIC places the bank into receivership, its assets and liabilities are sorted out by independent audit. The irresponsible management is purged, stockholders lose and the purged bank is eventually split into smaller units and when healthy, sold to the public. The power of the five mega banks to blackmail the entire nation would thereby be cut down to size. Ooohh. Uh Huh?

This is what Wall Street and Geithner are frantically trying to prevent. The problem is concentrated in these five large banks. The financial cancer must be isolated and contained by Federal agency in order for the host, the real economy, to return to healthy function.

This is what must be put into bankruptcy receivership, or nationalization. Every hour the Obama Administration delays that, and refuses to demand full independent government audit of the true solvency or insolvency of these five or so banks, inevitably costs to the US and to the world economy will snowball as derivatives losses explode. That is pre-programmed as worsening economic recession mean corporate bankruptcies are rising, home mortgage defaults are exploding, unemployment is shooting up. This is a situation that is deliberately being allowed to run out of (responsible Government) control by Treasury Secretary Geithner, Summers and ultimately the President, whether or not he has taken the time to grasp what is at stake.

Once the five problem banks have been put into isolation by the FDIC and the Treasury, the Administration must introduce legislation to immediately repeal the Larry Summers bank deregulation including restore Glass-Steagall and repeal the Commodity Futures Modernization Act of 2000 that allowed the present criminal abuse of the banking trust. Then serious financial reform can begin to be discussed, starting with steps to ‘federalize’ the Federal Reserve and take the power of money out of the hands of private bankers such as JP Morgan Chase, Citibank or Goldman Sachs.

6 Million Families Face Losing Their Homes in the Next Three Years

Foreclosure Crisis Hits Warp Speed: 6 Million Families Face Losing Their Homes in the Next Three Years

By Nan Mooney

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What would you do if someone foreclosed on your home? If suddenly you and all your possessions were out on the street with a bank account depleted from trying to make mammoth mortgage payments, where would you go?

An estimated 6 million families could be facing this question in the next three years, with nearly 1 in 10 mortgage holders either delinquent or in foreclosure. And although we've heard a lot about trying to help people stay in their homes -- like President Obama's $275 billion foreclosure-prevention package -- it's been far more difficult to follow what happens to these families once they've been forced out.

"We haven't done a good job of tracking those people who were not able to stay in their homes," admits Douglas Robinson of NeighborWorks, an umbrella organization for more than 230 local nonprofits focused on community development. "Over the past four years, we've been heavily focused on foreclosure prevention -- keeping people in their homes. We're just starting to look at the other side of things now."

According to Robinson, those victims of foreclosure who do wind up being pushed out of their homes can be roughly divided into two waves.

The first wave consists of those who lost their homes because they were unable to keep up with payments on poor mortgages, often with cripplingly high interest rates. There's no hard research as yet, but anecdotal evidence indicates that, although these people didn't have the financial resources to keep up with their mortgage payments, most were able to rent apartments or even homes in their same communities.

But for the second wave, the transition hasn't been nearly so seamless. These are the people who are unable to make mortgage payments because they've lost their jobs. They no longer have the incomes to afford rentals.

This second wave is creating a strong demand for social services, including homeless shelters -- a demand that far exceeds supply. Again, as yet there is no hard data, but anecdotal evidence indicates a far higher percentage of these people are winding up in hotel rooms, with friends and relatives, in shelters, or even sleeping in cars or on the street.

The recession has created a new and growing segment of the homeless population --those who until recently were gainfully employed, often living paycheck to paycheck, and now find themselves out of a home through no fault of their own.

A recent report from the National Center on Family Homelessness estimates that 1 in every 50 American children was homeless between 2005 and 2006, about 1.5 million kids. And the numbers are likely to get worse as the economy continues to decline.

"Our main effort has been to keep people in their homes, and that's where the bulk of our money and resources has gone," explains Robinson. "But it is important, from a public policy standpoint, to know just what's happening to those people who can't stay."

There is federal aid pending for foreclosure victims, but for many it will be too little too late. The stimulus package pledges money to help potential renters with rent and security deposits.

In addition, President Obama's proposed foreclosure package promises assistance to those still in danger of losing their homes. But the money isn't available yet, and when it is, it will still leave plenty of the financially struggling high and dry.

For example, the Obama plan allows homeowners to obtain new, lower interest loans up to 105 percent of what their homes are worth, but that's not enough for the numerous homeowners who are underwater in their homes (meaning they owe more in loans than the property is worth).

The plan will also pay cash and fees to mortgage companies to encourage them to modify homeowners' loans so their payments are no more than 31 percent of their incomes. But even then, homeowners have to make steep payments, an impossibility for many in a nation boasting 8.1 percent unemployment rate, with rates leaping up to 12 and 14 percent in some major cities.

And the bill does not provide additional resources to the housing counseling agencies that are often the sole thing standing between potential foreclosure victims and success or failure at keeping their homes.

"We have a 30-35 percent success rate keeping people in their homes, which is pretty good," explains Dave Pesch, the Housing Counseling Program Director at St. Martin's Center in Erie, Pa. "But that means 60-65 percent of our clients can't stay."

According to Pesch, for the majority of those people, losing a home to foreclosure means a rapid skid down the ladder they've just spent years attempting to climb up.

Many are forced back into dangerous neighborhoods they'd only recently escaped. Entire families are moving temporarily into shelters that are bursting at the seams and often underequipped to handle children. Or they're leaving town, and jobs, to move in with relatives until they can get back on their feet.

"They may wind up in a shelter or in a relative's spare room for a few months, but then what?" asks Pesch. "Very few of these people are finding anything more than a temporary solution to homelessness, because there simply are no long-term solutions out there."

The help available to foreclosure victims may be too late in another sense as well. The emotional fallout attached to losing your home is tremendous. The humiliation and shame resulting from not being able to put a roof over your family's head runs deep and can't be wiped away by something as flimsy as a rent subsidy.

For children, for parents, for the elderly, the shadow of such an experience can linger a long time, perhaps forever. Many foreclosure victims will come away with a sense that, just like a job, a home is something impermanent, forcing another giant crack into the dissipation of the American Dream.

"Our resources are strained to the breaking point," says Pesch. "This country is in a world of hurt, and we haven't hit bottom yet. People think foreclosures don't affect them if they're still in their homes. But foreclosures affect all of us."

The "Dollar Glut" is What Finances America's Global Military Build-up

Economic Meltdown: The "Dollar Glut" is What Finances America's Global Military Build-up

by Prof. Michael Hudson

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I am traveling in Europe for three weeks to discuss the global financial crisis with government officials, politicians and labor leaders. What is most remarkable is how differently the financial problem is perceived over here. It's like being in another economic universe, not just another continent.

The U.S. media are silent about the most important topic policy makers are discussing here (and I suspect in Asia too): how to protect their countries from three inter-related dynamics: (1) the surplus dollars pouring into the rest of the world for yet further financial speculation and corporate takeovers; (2) the fact that central banks are obliged to recycle these dollar inflows to buy U.S. Treasury bonds to finance the federal U.S. budget deficit; and most important (but most suppressed in the U.S. media, (3) the military character of the U.S. payments deficit and the domestic federal budget deficit.

Strange as it may seem ­ and irrational as it would be in a more logical system of world diplomacy ­ the "dollar glut" is what finances America's global military build-up. It forces foreign central banks to bear the costs of America's expanding military empire ­ effective "taxation without representation." Keeping international reserves in "dollars" means recycling their dollar inflows to buy U.S. Treasury bills ­ U.S. government debt issued largely to finance the military.

To date, countries have been as powerless to defend themselves against the fact that this compulsory financing of U.S. military spending is built into the global financial system. Neoliberal economists applaud this as "equilibrium," as if it is part of economic nature and "free markets" rather than bare-knuckle diplomacy wielded with increasing aggressiveness by U.S. officials. The mass media chime in, pretending that recycling the dollar glut to finance U.S. military spending is "showing their faith in U.S. economic strength" by sending "their" dollars here to "invest." It is as if a choice is involved, not financial and diplomatic compulsion to choose merely between "Yes" (from China, reluctantly), "Yes, please" (from Japan and the European Union) and "Yes, thank you" (Britain, Georgia and Australia).

It is not "foreign faith in the U.S. economy" that leads foreigners to "put their money here." This is a silly anthropomorphic picture of a more sinister dynamic. The "foreigners" in question are not consumers buying U.S. exports, nor are they private-sector "investors" buying U.S. stocks and bonds. The largest and most important foreign entities putting "their money" here are central banks, and it is not "their money" at all. They are sending back the dollars that foreign exporters and other recipients turn over to their central banks for domestic currency.

When the U.S. payments deficit pumps dollars into foreign economies, these banks are being given little option except to buy U.S. Treasury bills and bonds ­ which the Treasury spends on financing an enormous, hostile military build-up to encircle the major dollar-recyclers ­ China, Japan and Arab OPEC oil producers. Yet these governments are forced to recycle dollar inflows in a way that funds U.S. military policies in which they have no say in formulating, and which threaten them more and more belligerently. That is why China and Russia took the lead in forming the Shanghai Cooperation Organization (SCO) a few years ago.

Here in Europe there is a clear awareness that the U.S. payments deficit is much larger than just the trade deficit. One need merely look at Table 5 of the U.S. balance-of-payments data compiled by the Bureau of Economic Analysis (BEA) and published by the Dept. of Commerce in its Survey of Current Business to see that the deficit does not stem merely from consumers buying more imports than the United States exports as the financial sector de-industrializes its economy. U.S. imports are now plunging as the economy shrinks and consumers are now finding themselves obliged to pay down the debts they have taken on.

Congress has told foreign investors in the largest dollar holder, China, not to buy anything except perhaps used-car dealerships and maybe more packaged mortgages and Fannie Mae stock ­ the equivalent of Japanese investors being steered into spending $1 billion for Rockefeller Center, on which they subsequently took a 100% loss, and Saudi investment in Citigroup. That's the kind of "international equilibrium" that U.S. officials love to see. "CNOOK go home" is the motto when it comes to serious attempts by foreign governments and their sovereign wealth funds (central bank departments trying to figure out what to do with their dollar glut) to make direct investments in American industry.

So we are left with the extent to which the U.S. payments deficit stems from military spending. The problem is not only the war in Iraq, now being extended to Afghanistan and Pakistan. It is the expensive build-up of U.S. military bases in Asian, European, post-Soviet and Third World countries. The Obama administration has promised to make the actual amount of this military spending more transparent. That presumably means publishing a revised set of balance of payments figures as well as domestic federal budget statistics.

The military overhead is much like a debt overhead, extracting revenue from the economy. In this case it is to pay the military-industrial complex, not merely Wall Street banks and other financial institutions. The domestic federal budget deficit does not stem only from "priming the pump" to give away enormous sums to create a new financial oligarchy. It contains an enormous and rapidly growing military component.

So Europeans and Asians see U.S. companies pumping more and more dollars into their economies, not only to buy their exports in excess of providing them with goods and services in return, and not only to buy their companies and "commanding heights" of privatized public enterprises without giving them reciprocal rights to buy important U.S. companies (remember the U.S. turn-down of China's attempt to buy into the U.S. oil distribution business), and not only to buy foreign stocks, bonds and real estate. The U.S. media somehow neglect to mention that the U.S. Government is spending hundreds of billions of dollars abroad ­ not only in the Near East for direct combat, but to build enormous military bases to encircle the rest of the world, to install radar systems, guided missile systems and other forms of military coercion, including the "color revolutions" that have been funded ­ and are still being funded ­ all around the former Soviet Union. Pallets of shrink-wrapped $100 bills adding up to tens of millions of the dollars at a time have become familiar "visuals" on some TV broadcasts, but the link is not made with U.S. military and diplomatic spending and foreign central-bank dollar holdings, which are reported simply as "wonderful faith in the U.S. economic recovery" and presumably the "monetary magic" being worked by Wall Street's Tim Geithner at Treasury and Helicopter Ben Bernanke at the Federal Reserve.

Here's the problem: The Coca Cola company recently tried to buy China's largest fruit-juice producer and distributor. China already holds nearly $2 trillion in U.S. securities ­ way more than it needs or can use, inasmuch as the United States Government refuses to let it buy meaningful U.S. companies. If the U.S. buyout would have been permitted to go through, this would have confronted China with a dilemma: Choice #1 would be to let the sale go through and accept payment in dollars, reinvesting them in what the U.S. Treasury tells it to do ­U.S. Treasury bonds yielding about 1%. China would take a capital loss on these when U.S. interest rates rise or when the dollar declines as the United States alone is pursuing expansionary Keynesian policies in an attempt to enable the U.S. economy to carry its debt overhead.

Choice #2 is not to recycle the dollar inflows. This would lead the renminbi to rise against the dollar, thereby eroding China's export competitiveness in world markets. So China chose a third way, which brought U.S. protests. It turned the sale of its tangible company for merely "paper" U.S. dollars ­ which went with the "choice" to fund further U.S. military encirclement of the S.C.O. The only people who seem not to be drawing this connection are the American mass media, and hence public. I can assure you from personal experience, it is being drawn here in Europe. (Here's a good diplomatic question to discuss: Which will be the first European country besides Russia to join the S.C.O.?)

Academic textbooks have nothing to say about how "equilibrium" in foreign capital movements ­ speculative as well as for direct investment ­ is infinite as far as the U.S. economy is concerned. The U.S. economy can create dollars freely, now that they no longer are convertible into gold or even into purchases of U.S. companies, inasmuch as America remains the world's most protected economy. It alone is permitted to protect its agriculture by import quotas, having "grandfathered" these into world trade rules half a century ago. Congress refuses to let "sovereign wealth" funds invest in important U.S. sectors.

So we are confronted with the fact that the U.S. Treasury prefers foreign central banks to keep on funding its domestic budget deficit, which means financing the cost of America's war in the Near East and encirclement of foreign countries with rings of military bases. The more "capital outflows" U.S. investors spend to buy up foreign economies ­the most profitable sectors, where the new U.S. owners can extract the highest monopoly rents ­ the more funds end up in foreign central banks to support America's global military build-up. No textbook on political theory or international relations has suggested axioms to explain how nations act in a way so adverse to their own political, military and economic interests. Yet this is just what has been happening for the past generation.

So the ultimate question turns out to be what countries can do to counter this financial attack. A Basque labor union asked me whether I thought that controlling speculative capital movements would ensure that the financial system would act in the public interest. Or is outright nationalization necessary to better develop the real economy?

It is not simply a problem of "regulation" or "control of speculative capital movements." The question is how nations can act as real nations, in their own interest rather than being roped into serving whatever U.S. diplomats decide is in America's interest.

Any country trying to do what the United States has done for the past 150 years is accused of being "socialist" ­ and this from the most anti-socialist economy in the world, except when it calls bailouts for its banks "socialism for the rich," a.k.a. financial oligarchy. This rhetorical inflation almost leaves no alternative but outright nationalization of credit as a basic public utility.

Of course, the word "nationalization" has become a synonym for bailing out the largest and most reckless banks from their bad loans, and bailing out hedge funds and non-bank counterparties for losses on "casino capitalism," gambling on derivatives that AIG and other insurers or players on the losing side of these gambles are unable to pay. Such bailouts are not nationalization in the traditional sense of the term ­ bringing credit creation and other basic financial functions back into the public domain. It is the opposite. It prints new government bonds to turn over ­ along with self-regulatory power ­ to the financial sector, blocking the citizenry from taking back these functions.

Framing the issue as a choice between democracy and oligarchy turns the question into one of who will control the government doing the regulation and "nationalizing." If it is done by a government whose central bank and major congressional committees dealing with finance are run by Wall Street, this will not help steer credit into productive uses. It will merely continue the Greenspan-Paulson-Geithner era of more and larger free lunches for their financial constituencies.

The financial oligarchy's idea of "regulation" is to make sure that deregulators are installed in the key positions and given only a minimal skeleton staff and little funding. Despite Mr. Greenspan's announcement that he has come to see the light and realizes that self-regulation doesn't work, the Treasury is still run by a Wall Street official and the Fed is run by a lobbyist for Wall Street. To lobbyists the real concern isn't ideology as such ­ it's naked self-interest for their clients. They may seek out well-meaning fools, especially prestigious figures from academia. But these are only front men, headed as they are by the followers of Milton Friedman at the University of Chicago. Such individuals are put in place as "gate-keepers" of the major academic journals to keep out ideas that do not well serve the financial lobbyists.

This pretence for excluding government from meaningful regulation is that finance is so technical that only someone from the financial "industry" is capable of regulating it. To add insult to injury, the additional counter-intuitive claim is made that a hallmark of democracy is to make the central bank "independent" of elected government. In reality, of course, that is just the opposite of democracy. Finance is the crux of the economic system. If it is not regulated democratically in the public interest, then it is "free" to be captured by special interests. So this becomes the oligarchic definition of "market freedom."

The danger is that governments will let the financial sector determine how "regulation" will be applied. Special interests seek to make money from the economy, and the financial sector does this in an extractive way. That is its marketing plan. Finance today is acting in a way that de-industrializes economies, not builds them up. The "plan" is austerity for labor, industry and all sectors outside of finance, as in the IMF programs imposed on hapless Third World debtor countries. The experience of Iceland, Latvia and other "financialized" economies should be examined as object lessons, if only because they top the World Bank's ranking of countries in terms of the "ease of doing business."

The only meaningful regulation can come from outside the financial sector. Otherwise, countries will suffer what the Japanese call "descent from heaven": regulators are selected from the ranks of bankers and their "useful idiots." Upon retiring from government they return to the financial sector to receive lucrative jobs, "speaking engagements" and kindred paybacks. Knowing this, they regulate in favor of financial special interests, not that of the public at large.

The problem of speculative capital movements goes beyond drawing up a set of specific regulations. It concerns the scope of national government power. The International Monetary Fund's Articles of Agreement prevent countries from restoring the "dual exchange rate" systems that many retained down through the 1950s and even into the Œ60s. It was widespread practice for countries to have one exchange rate for goods and services (sometimes various exchange rates for different import and export categories) and another for "capital movements." Under American pressure, the IMF enforced the pretence that there is an "equilibrium" rate that just happens to be the same for goods and services as it is for capital movements. Governments that did not buy into this ideology were excluded from membership in the IMF and World Bank ­ or were overthrown.

The implication today is that the only way a nation can block capital movements is to withdraw from the IMF, the World Bank and the World Trade Organization (WTO). For the first time since the 1950s this looks like a real possibility, thanks to worldwide awareness of how the U.S. economy is glutting the global economy with surplus "paper" dollars ­ and U.S. intransigence at stopping its free ride. From the U.S. vantage point, this is nothing less than an attempt to curtail its international military program.