Wednesday, April 22, 2009

What the New York Times unwittingly reveals about the war in Afghanistan

What the New York Times unwittingly reveals about the war in Afghanistan

By Alex Lantier
Go To Original

Over last two weeks, the New York Times has published a series of articles on conditions facing US soldiers fighting in Afghanistan.

In describing soldiers’ lives and calling attention to the hellish conditions in Afghanistan, the Times articles reveal considerably more than what one suspects their authors set out to explain. For anyone reading them with a degree of historical consciousness, they depict a colonial war waged against an entire population, by US troops who see little purpose behind the violence they are unleashing on the Afghan population.

On April 20, the Times carried an article titled “Pinned Down, a Sprint to Escape Taliban Zone.” Beginning with a description of a US platoon ducking for cover amid a Taliban ambush that claimed the life of one of its members, it states, “Another pitched firefight in a ravine in eastern Afghanistan had begun, shaped by factors that have made the war against the Taliban seem unending: grueling terrain that favors ambushes and prevents American soldiers from massing; villages in thorough collaboration with insurgents; and experienced adversaries each fighting in concert with its [sic] abilities and advantages.”

The response of the trapped American troops is to call in air and artillery support, raining down bombs and mortar shells on Afghan positions above the riverbed where US troops are trapped. The targets apparently include not only barren mountainsides where insurgents are taking cover, but villages as well. The Times adds, “soldiers with heavier machine guns and automatic grenade launchers focused on Afghan buildings in three villages—Donga, Laneyal, and Darbart—from where the trapped platoon was taking fire.”

Halfway through the article, the Times explains that the local population is hostile because the US-backed Afghan government threw them all out of work by banning logging in the area. It notes that the “Taliban pay the best wages in the valley now,” adding that the US forces have taken over a sawmill as their base in the region.

The reader later learns that US forces are using ammunition containing white phosphorus—a chemical weapon that burns human flesh down to the bone—and that a Times photographer is with the troops in the fighting. The article does not say whether the Times has agreed to censor itself in exchange for obtaining permission for its staff to accompany the troops into battle.

After several Afghans are killed and the Afghans withdraw, the soldiers search for and ultimately find the body of one of their number, who has gone missing. The company commander says, “There is nothing I can say or anybody else can say that will bring Dewater back. But the best thing we can do for him is to continue to do the type of stuff that you guys did the other day.”

The commander is apparently referring to an incident described in a previous Times article. The April 17 piece, “Turning Tables, US Troops Ambush Taliban With Swift and Lethal Results,” explained, “The ambush, on Good Friday, has become an emotional rallying point for soldiers in Kunar Province, who have seen it as both a validation of their equipment and training and a welcome bit of score-settling in an area that in recent years has claimed more American lives than any other.”

The bulk of the April 17 article consists of a detailed account of how US soldiers “killed at least 13 insurgents, and perhaps many more, with rifles, machine guns, Claymore mines, hand grenades, and a knife.”

In the April 20 article, the Times explains that village elders later “arrived at the outpost to say that the Americans had shot up a search party of local men who were looking for a lost girl.” The US commander simply dismissed the elders’ claim as “one of the most ridiculous lies he had ever heard.”

The Times repeatedly notes the population’s hostility to the US occupation. In another article in this series, the April 13th “In Afghanistan, Soldiers Bridge 2 Stages of War,” reports, “Villagers have bluntly told the American military that its presence is not wanted.... In one village, the soldiers found an old woman carrying an assault rifle under her shawl; in another, they found a 12-year-old boy with a rocket-propelled grenade.”

What emerges from the Times' accounts, whatever its intentions, is a description of an imperialist occupation. The Times takes for granted that local population's hostility to the US occupation should be repressed, that its livelihood can be taken away at will, and that local inhabitants can be killed without trial. As for American soldiers, their grief at the death of their comrades is apparently handled with recommendations to get on with killing Afghans.

The Times' coverage comes shortly after President Barack Obama—whose election was in part motivated by popular opposition to war, due to his initial statements against the Iraq war and the Bush administration—announced plans to escalate US fighting in Afghanistan and Pakistan. On March 27 he announced plans to send at least 21,000 more US troops to Afghanistan and to intensify US attacks inside Pakistan.

The April 13 article makes clear that Obama’s policy will entail stepping up the fighting detailed in his later articles. The Times writes, “New construction is visible on a string of small American bases between Kabul and the Pakistani border. The officers said the infrastructure will house many of the 21,000 additional American soldiers due to arrive later this year and will serve as an on-ramp for fresh combat forces to flow into the field and fill many current gaps.”

US forces will present Afghans with an ultimatum: join a US-sponsored militia or face US attack. In an April 15 article titled “In Recruiting an Afghan Militia, US Faces a Test,” the Times notes, “The military is borrowing a page from a similar program that helped bring about the recent calm to Iraq, where the Americans signed up more than 100,000 Iraqis, most of them Sunnis and many of them insurgents, to keep the peace.”

In Afghanistan, US forces are bringing Afghan village elders to meetings and telling them that “time is running out” to decide whether they will join a US-sponsored militia. Those who fail to join the US will be treated as targets. An Afghan working for the Americans told reticent village elders, “If you don't take it, we are just going to associate you with the Taliban.”

The Times is well aware that this fighting along the Afghan-Pakistani border regions will also spill over into Pakistan, with disastrous consequences for that country. It writes, “Taliban militants are teaming up with local militant groups to make inroads in the Punjab, the province that is home to more than half of Pakistanis, reinvigorating an alliance that Pakistani and American authorities say poses a serious risk to the stability of the country.... As American drone attacks disrupt strongholds of the Taliban and al-Qaeda in the tribal [border] areas, the insurgents are striking deeper into Pakistan—both in retaliation and in search of new havens.”

The Taliban also obtain support by appealing to peasants’ hostility to big landowners, who make up a substantial section of the Pakistani ruling class. The Taliban have forced unpopular landlords to leave, taking over the rents paid by the peasantry and control of local mines. They strike, the Times noted, “at any competing point of power: landlords and elected leaders—who were usually the same people—and an underpaid and unmotivated police force.”

In an unusual piece of class analysis that seemed out of place in its pages, the Times added, “after independence in 1947, Pakistan maintained a narrow landed upper class that kept its vast holdings while its workers remained subservient, the officials and analysts said. Pakistani governments have since failed to provide land reform and even the most basic forms of education and health care. Avenues to advancement for vast majority of rural poor do not exist.”

The Times’ readers could be pardoned for asking why these issues are not raised more often in its pages. However, this important admission raises another question: what is it about the US that has allowed it to use as its main ally in the Indian subcontinent the state of Pakistan, which maintains such an iniquitous class structure? In fact, the oppressiveness of Pakistani capitalism is closely bound up with the aims the US bourgeoisie itself pursues in the region.

Obama's war in Afghanistan and Pakistan—in direct continuity with the policies of Bush and his predecessors—defends a regional order that has proved immensely profitable for the American ruling class. US forces in Afghanistan and violence in Pakistan block direct overland access from China and India to the energy reserves of the Persian Gulf, further the US policy of isolating Iran and threaten Russia to the north.

They thus prevent developments that would threaten the dominant role that US military, energy and financial interests play in Eurasia and the Middle East—and, one might add, inside the US itself.

Such policies are not bound up with a growth of prosperity or democracy. Rather, they entail the use of violence to repress discontented populations and maintain corrupt elites with whom the US bourgeoisie shares the spoils in the region. These are the interests dictating the bloodshed detailed in the pages of the Times.

Torture memos provoke deepening political crisis

Torture memos provoke deepening political crisis

By Tom Eley
Go To Original

President Barack Obama’s decision to release four Bush administration torture memos, and his promise to protect those who carried out the torture, has created sharp conflicts within the American state. This is highlighted by the increasingly erratic behavior of Obama, who during the affair has sought to balance among competing interests within the state and intelligence apparatus.

Obama has come under sharp attack from the Republican right for releasing the Justice Department memos, which presented a pseudo-legal defense of torture carried out by the Central Intelligence Agency (CIA) on “terror suspects.” On Monday, Bush’s vice president, Dick Cheney, joined the fray, warning that Obama has jeopardized national security.

At the same time, Obama finds himself in the legally untenable position of promising to protect individuals who ordered and carried out torture in violation of US and international law. This defense has in fact placed Obama himself in violation of the law.

There is, moreover, growing popular outrage within the US and internationally at the hideous crimes carried out in the name of “the war on terror.” American imperialism’s pretensions to be the standard-bearer of democracy and human rights have been delivered a devastating blow at home and abroad.

After repeated assurances that no CIA agents would face investigation, Obama on Tuesday appeared to open the door to investigations of the Bush administration lawyers who crafted the legal memos sanctioning torture.

Responding to a reporter’s question after a White House meeting with King Abdullah of Jordan, Obama said, “If and when there needs to be a further accounting of what took place during this period, I think for Congress to examine ways that it can be done in a bipartisan fashion, outside of the typical hearing process that can sometimes break down and break it entirely along party lines, to the extent that there are independent participants who are above reproach and have credibility, that would probably be a more sensible approach to take..”

While careful to maintain that he is “not suggesting” an investigative commission be set up, Obama’s references to “bipartisan fashion” and “outside the typical hearing process” indicate that he might support the creation of the sort of whitewash panel that issued the 9/11 Commission Report.

Any investigation, moreover, would be focused not on top administration officials, but on Justice Department lawyers. On Sunday White House Chief of Staff Rahm Emanuel said “those who devised policy... should not be prosecuted.” On Monday, Obama administration officials explained that Emanuel meant that those who ordered the policies carried out should be protected, and not the attorneys who drew up the policies, including John Yoo, Jay Bybee and Steven Bradbury.

Democratic Senator Dianne Feinstein of California Democrat had earlier written Obama requesting that he not rule out prosecutions until the Senate Intelligence Committee, which she chairs, had conducted an investigation, which she said could last eight months.

Obama’s Tuesday remarks were typical of his efforts to balance among competing interests within the state and even his own administration—all while attempting to assume the appearance of a rupture with the past, while in fact leaving the military/intelligence state-within-a-state untouched.

This strategy has so far failed. The memos have only served to raise in the public consciousness the horrors committed by the US in the “war on terror,” while Obama’s refusal to investigate or prosecute these torturers has made him, in the eyes of millions, an accessory after the fact.

Of more immediate concern to Obama, the memos’ release has stirred powerful forces within the intelligence apparatus into opposition. This is what compelled Obama’s visit to CIA headquarters in Langley, Virginia, on Monday.

Obama vows to protect CIA torturers

Media accounts emphasized that Obama’s trip to Langley aimed to mollify anger over the administration’s decision to release the torture memos. The New York Times on Tuesday referred to Obama’s effort “to calm the situation” amidst concerns about “alienating the agency.”

This testifies to the advanced decay of American democracy. An elected president has released four memos, based on a lawsuit filed under the Freedom of Information Act, which show that CIA agents—employees of the federal government— carried out egregious crimes including torture. Yet the media takes it as par for the course that Obama, who had already promised there would be no investigations, must approach the CIA on bended knee.

There is a general understanding, shared by Obama and the media, that the intelligence and military apparatus will not remain subservient to civilian political leadership if its interests are threatened.

During his Langley speech, Obama was lavish in his praise for the CIA. He called it “a great honor” to speak at Langley, thanking the agents who “protect the American people and the freedom we all cherish.” In reality, the CIA has long served as a conspiratorial center against the American people and has carried out countless bloody crimes the world over.

Obama stressed the prominent role that current and former CIA figures play in his administration, first mentioning his retention of Stephen Kappes from the Bush administration as CIA Director Leon Panetta’s “deputy.” Kappes, a 30-year CIA veteran, actually runs the agency, while Panetta functions largely as a figurehead.

Further ingratiating himself with his audience, Obama said “we have one of your own, John Brennan” as adviser for counterterrorism and homeland security ... and the extraordinary former CIA officer and director of Central Intelligence, [current Defense Secretary] Bob Gates, who is also part of our Cabinet and every once in a while give me a few tips.”

Obama heaped praise on the CIA for several minutes, before briefly pausing to convey the purpose of his visit, telling the assembled agents that his decision to release the memos had nothing to do with principled concerns over torture. “I acted primarily because of the exceptional circumstances that surrounded these memos, particularly the fact that so much of the information was public,” he said. “The covert nature of the information had been compromised.”

He then reiterated that the administration would protect CIA agents from torture investigations. “I have fought to protect the integrity of classified information in the past, and I will do so in the future,” Obama said. “I need everybody to be clear: we will protect your identities and your security as you vigorously pursue your missions.”

Separately, Obama held a private meeting with CIA Director Leon Panetta and about 50 agents. There are indications that the meeting was tense. Referring to the private meeting, Obama noted discussions “with senior folks here at Langley in which I think people have expressed understandable anxiety and concern.” The New York Times, citing an unnamed official, mentioned “complaints” and “pointed questions” during the meeting.

In a statement, American Civil Liberties Director Anthony D. Romero criticized Obama’s speech. “Torture is a crime,” he wrote. “Without accountability, we cannot truly 'move forward' because the stain of the past will haunt us into the future. No one is above the law. Prosecutions accomplish societal healing by ensuring that criminals pay their debt to society. This is as true for common criminals as it is for government officials who sanction and engage in torture. It is time to begin criminal investigations of officials who authorized torture, lawyers who justified it and interrogators who broke the law.”

The right wing attacks Obama

Compelling Obama’s trip to Langley and his paean to the CIA is opposition from influential quarters close to, or within, the state itself. This opposition has grown in intensity.

On Monday, Cheney appeared on Fox News to oppose Obama’s decision. It was an extraordinary appearance. Not only did Cheney denounce a sitting president over intelligence matters—certainly a rarity in modern US history—he suggested that torture (“enhanced interrogation techniques”) had been successful and should be continued.

Cheney is only the most prominent figure to join in the attack. Leon Panetta’s predecessor at the CIA, Michael Hayden, had sharply criticized Obama on a Sunday morning news show, suggesting that the 9/11 terrorist attacks had taken place because the US did not, before 2001, torture.

Three other former CIA chiefs and former Attorney General Michael Mukasey also opposed Obama’s decision to release the memos, and prominent opinion columns penned by former Bush administration officials appeared in the Wall Street Journal on Monday and the Washington Post on Tuesday.

These figures—no doubt speaking for powerful elements still active within the military/intelligence apparatus—claim that the methods employed by the CIA prevented another terrorist attack along the lines of 9/11—in other words, that torture works—and that in releasing the memos, Obama has imperiled the US in its “war on terror.”

Cheney, as so often in the past, waved the bloody shirt of 9/11. “The biggest task we had as an administration,” he said, “was to make certain that that never happened again.”

“We put in place certain policies to do that,” he added, all but claiming authorship of the torture memos. He spoke of “reports that I read, that I saw, that lay out what we learned through the interrogation process and what the consequences were for the country,” suggesting that torture had spared the US another 9/11—the facts of which still remain shrouded in mystery. Cheney claims that he has requested further memos be released to prove these allegations.

In a Washington Post column, a former Bush administration speechwriter, Marc Theissen, echoed Hayden in claiming that by revealing details of the CIA torture sessions, “terrorists” would be able to more easily resist interrogators.

“The Obama administration’s decision to share this secret with the terrorists threatens our national security,” he wrote. “Al Qaeda will use this information and other details in the memos to train its operatives to resist questioning and withhold information on planned attacks.”

These sorts of arguments are unlikely to gain much more traction with the broad masses in the US. Rather, they are designed to rally opposition within the military and intelligence apparatus.

The right-wing attack from Hayden, Cheney and others has had the effect of changing the dimensions of the debate. Much of the media is now focused not on whether crimes were committed, but whether the CIA interrogation methods—the media continues to avoid the word “torture”—were in fact useful.

Obama’s cringing before the CIA should be taken as a warning. There is no significant commitment within the ruling elite to democratic rights, or even, as the torture memos episode makes abundantly clear, the rule of law.

Democratic defender of NSA spying was wiretapped in Israeli spy probe

Democratic defender of NSA spying was wiretapped in Israeli spy probe

By Bill Van Auken
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Democratic Congresswoman Jane Harman of California was recorded in 2005 on a National Security Agency (NSA) wiretap of a suspected Israeli intelligence agent, according to current and former government officials cited in press reports. The recorded conversation, they indicated, dealt with an apparent quid pro quo arrangement involving Harman’s promise to seek leniency for two indicted pro-Israeli lobbyists in return for support for her bid to become chair of the House Intelligence Committee.

The revelation has further exposed the internecine struggles within the US state apparatus as well as the intimate involvement of the Democratic Party and the media in the assault on democratic rights.

According to the story first broken by the Congressional Quarterly web site, Harman, at the time the ranking Democrat on the House Intelligence Committee, was recorded in a discussion with the suspected Israeli agent in which she agreed to intercede on behalf of two officials of the American Israeli Public Affairs Committee (AIPAC), Steve Rosen, the group’s foreign policy director, and Keith Weissman, its senior Middle East analyst.

The two were indicted in 2005 on espionage-related charges stemming from their receiving secret documents dealing with US policy towards Iran from Lawrence Franklin, the Pentagon’s top Iran analyst. Franklin pleaded guilty for his role in the affair and was sentenced to 12 years in prison.

According to national security officials who spoke on condition of anonymity to Jeff Stein of the Congressional Quarterly, the transcript of the recording shows Harman telling the suspected Israeli agent that she would “waddle into” the AIPAC case “if you think it’ll make a difference.”

The New York Times, which also spoke to three officials familiar with the transcript, said that the suspected agent asked Harman to intervene with the Justice Department, and she responded that “she would have more influence with a White House official she did not identify.”

The Times reported that the suspected agent promised to reciprocate by inducing the Israeli-American media mogul Haim Saban, a major contributor to the Democratic Party, to threaten to withhold contributions from California Democratic Congresswoman Nancy Pelosi, who at the time was slated to become House speaker, unless she tapped Harman to head the intelligence panel. Such a deal would amount to illegal influence peddling to a foreign agent, and the Justice Department initiated an investigation.

According to the Congressional Quarterly, the transcript shows Harmon, apparently aware of the incriminating character of the discussion with the suspected Israeli agent, ending the phone call after telling him, “This conversation doesn’t exist.”

Most of this information surfaced two-and-a-half years ago. In October 2006, Time magazine reported that “Justice Department prosecutors... are examining whether Rep. Jane Harman of California and the American Israeli Public Affairs Committee (AIPAC) may have violated the law in a scheme to get Harman reappointed as the top Democrat on the House Intelligence Committee.” The article continued by citing government sources saying that the investigation involved “whether, in exchange for help from AIPAC, Harman agreed to help try to persuade the administration to go lighter on the AIPAC officials caught up in the ongoing investigation.”

What is new in this week’s reports, however, is that Harman was wiretapped discussing this alleged deal, and, even more importantly, the way in which the investigation was ultimately quashed.

Earlier reports had indicated that the probe was halted because of “lack of evidence,” a claim belied by the existence of the wiretap. As Congressional Quarterly reports, the Justice Department concluded that Harman had committed a crime and was ready to begin a full-scale investigation of the congresswoman. It went so far as to obtain the approval of then-CIA Director Porter Goss for going to the secret Foreign Intelligence Surveillance Court to seek a warrant to place a wiretap on Harman herself.

The investigation was dropped thanks to the intercession of Attorney General Alberto Gonzales, who, according to two officials cited in Stein’s article, said he “needed Jane” to help in defending the Bush administration’s illegal warrantless wiretapping operation, run by the NSA, which was about to be disclosed by a report in the New York Times.

Harman had already provided key support to the criminal activities of the Bush administration, as the Congressional Quarterly reported, having lobbied the New York Times on the eve of the 2004 election not to run the story.

The Times Tuesday confirmed this part of the story. It cited a statement issued by Times Executive Editor Bill Keller saying that Harman had called the newspaper’s Washington bureau chief, Philip Taubman, “in October or November of 2004” and, at the request of then-NSA Director Michael Hayden, asked the Times not to publish the story.

In the end, the newspaper held back the revelations concerning the wiretapping of millions of Americans for a full year. Keller’s statement that Harman contacted the paper in “October or November” of 2004 is typical of the duplicity of the newspaper’s editor.

Keller already admitted in an interview with the Times public editor in August 2006 that the discussion on killing the article had been “dragging on for weeks” before the November 2, 2004 election. The newspaper’s decision to withhold the information from the American people that they were being subjected to illegal and unconstitutional domestic surveillance represented complicity in this attack on democratic rights and undoubtedly played a role in delivering Bush a second term. And, as confirmed by Keller, Harman played an active role in this cover-up.

When the Times finally broke the story on the NSA domestic spying, Harman denounced the newspaper, charging that “its disclosure has damaged critical intelligence capabilities.” She further described the government employees who had blown the whistle on this illegal operation as “despicable” and suggested that the Times itself should be prosecuted.

In response to this week’s revelations, Harman issued a statement claiming, “I never engaged in any such activity. Those who are peddling these false accusations should be ashamed of themselves.” Her office, meanwhile, dismissed the story, acknowledging as “unremarkable facts” that Harman “is and has long been a supporter of AIPAC, and that some members of AIPAC regarded her as well-qualified to chair the House Intelligence Committee following the 2006 elections.”

No doubt AIPAC found Harman “well-qualified” because she was prepared to promote the policies of the Israeli state, including the attempt to steer Washington toward a military confrontation with Iran, precisely the aim of the espionage of which Franklin, Rosen and Weissman are accused.

The California congresswoman went further in an interview Tuesday on MSNBC, the cable television news channel, calling the wiretapping of her conversation with the suspected Israeli agent an “abuse of power” that could threaten any legislator.

“This isn’t about me,” she said. “This is about any member of Congress. Members of Congress have been calling my office this morning asking whether perhaps in their own conversations with advocacy groups... maybe they were inadvertently picked up on some kind of an eavesdrop with or without a warrant.”

There is no doubt that the threat of spying on members of Congress is genuine. As the Times reported last week, the NSA under the Bush administration attempted to bug telephone and email communications of a congressman after he went to the Middle East and spoke with someone the agency considered an “extremist.” The surveillance was called off only because of the agency’s fear that it would be exposed and create a political scandal.

In Harman’s case, the rush by the Bush Justice Department to seek a FISA warrant to bug the communications of a member of Congress is no doubt an indication of the increasing police state atmosphere in Washington.

Nonetheless, the hypocrisy of Harman invoking these threats in her own defense is breathtaking. She vehemently defended the illegal, warrantless wiretapping of ordinary Americans by the NSA, but is now protesting that her own conversation was recorded as the result of a legal, court-ordered wiretap issued against a suspected foreign intelligence agent.

There has been speculation by some liberal commentators that the breaking of the Harman story is part of an attempt by elements in the national security apparatus and former Bush administration officials to “change the story” following the release of previously classified Justice Department memos revealing in gruesome detail the administration’s authorization and justification of torture.

The Congressional Quarterly’s Stein has denied this, stating that he had had the information for some time but had only recently found the time to complete the article.

Undoubtedly, there are some officials implicated in the torture scandal and other illegal attacks on democratic rights under the Bush administration who derive some satisfaction in seeing a leading Democrat like Harman implicated in related crimes.

The reality, however, is that the revelations demonstrate the intimate and indispensable collaboration and complicity of the Democrats in all of the criminal actions of the Bush administration, from launching a war of aggression based upon lies against Iraq, to the systematic use of torture, to the unconstitutional and illegal spying on American citizens.

Harman personally played a prominent role in all of these crimes. She promoted the lies about “weapons of mass destruction” and supposed ties between Baghdad and Al Qaeda before the war. She, along with Pelosi, was among the four members of Congress to be fully briefed on the CIA’s torture—including waterboarding—of detainees in “black sites” scattered around the world. Neither she nor anyone else made the slightest protest over these criminal actions, while they kept them secret from the American people.

It is not a question of “changing the story,” as the revelations about Harman are entirely bound up with the revelations about the Bush administration itself. It is a further manifestation of the intense crisis of the US political establishment and the advanced decay of American democracy. These processes are only accelerating as the Obama administration defends those responsible for torture and other crimes under the Bush administration, while continuing the attacks on democratic rights.

Obama Proposes $100 Billion Loan for IMF

Obama Proposes $100 Billion Loan for I.M.F.

President Barack Obama Monday proposed a $100 billion U.S. loan to the International Monetary Fund to boost the IMF's war chest and urged a bigger stake in the IMF for emerging powers like China and India.

In a letter sent to Democrat and Republican leaders in the U.S. Congress, Obama said the U.S. funding "does not represent a budgetary expenditure or any increase in the deficit since it effectively represents an exchange of assets."

The letter comes days before world finance leaders gather in Washington on April 24 and 25 for meetings of the IMF and World Bank to discuss among other things IMF lending and governance reforms at the global institutions.

The $100 billion is part of pledges made by Group of 20 member countries during a summit in London on April 2 to combat the worst economic crisis since the Great Depression.

The G20 committed to triple IMF resources to a total of $750 billion by adding $500 billion on top of $250 billion in existing resources to allow the fund to respond to crises in hard hit emerging market and developing countries.

The U.S. funding will boost the IMF's so-called New Arrangements to Borrow (NAB), an emergency facility established in 1998 that allows IMF member countries to provide credit to the Fund to deal with crises that may threaten the stability of the global financial system.

Obama urged Congress to quickly pass legislation to allow the U.S. to keep its G20 promises, and emphasized it would not require budgetary outlays.

"The United States transfers dollars to the IMF under the NAB, the United States receives in exchange another monetary asset in the form of a liquid, interest-bearing claim on the IMF, which is backed by the IMF's strong financial position, including its significant holdings of gold," Obama wrote.

He said the NAB's pool of capital was "woefully inadequate" for the IMF to support emerging and developing countries in the current severe economic and financial crisis.

"The deteriorating conditions threaten to worsen the recessions in these countries and could cause currencies to collapse," Obama wrote.

"Together, these factors, particularly if they become more acute, will further lower global growth and, as we saw during the Asian financial crisis, they will cause U.S. growth, jobs, and exports to fall even more sharply," he added.

Obama said an enlargement of the NAB facility by an overall $500 billion would allow for more participation by emerging market economies, in particular China and India, in the IMF.

Chinese officials have already indicated Beijing plans to contribute $40 billion to the IMF through a bond issued to its central bank by the Fund. Meanwhile, IMF officials have said Brazil and Saudi Arabia could also contribute.

Obama said countries were looking to Washington to deliver on its G20 commitment, indicating that other governments could follow the lead of the U.S., which is the IMF's largest and most influential shareholder.

Emerging market economies have long pushed for a greater stake in the IMF and a rebalancing of voting power to reflect their rising clout in the global economy.

Meltdown losses of '$4 trillion'

Meltdown losses of '$4 trillion'

By Steve Schifferes

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The International Monetary Fund (IMF) has warned credit crunch losses could reach $4 trillion (£2.75tn), damaging the financial system for years to come.

It says that even if urgent action is taken to clean up the banking system, the process will be "slow and painful", delaying economic recovery.

Banks may need $1.7 trillion in additional capital, the IMF forecasts.

And it warns that the cost of the bail-out will severely hit UK government finances with its added debt burden.

The power to force banks to raise additional capital rests with national regulators, such as the FSA, not the IMF
Robert Peston BBC Business Editor

But the IMF corrected its estimate of the cost to the UK of the bail-out from 13.4% of GDP, or £200bn, to 9.4% of GDP, or £130bn.

The Treasury confirmed that the chancellor will be making a "prudent" estimate of the cost of the bail-out in the Budget, but many commentators believe this will be around £60bn, or half the IMF estimate.

The US and Ireland will face even higher government bills for the bail-out, according to IMF estimates.

Rising bill

One year ago, the IMF estimated that total losses from the credit crunch would be $1tn, which has been exceeded, showing how rapidly the financial meltdown has escalated.

The IMF now says that banks are likely to lose $2.7tn, but other financial institutions such as insurance companies and pension funds are also coming under strain.

And it says that emerging market economies, which will need $1.8tn in refinancing next year, will be hard-hit by the collapse of cross-border lending. It predicts that there will be no net private lending at all to developing countries this year.

WHY $4TN LOSS MATTERS

The banks' huge losses have made them reluctant to lend

The lack of lending has pushed the world economy into a deep recession

Government budgets are strained by the cost of the bail-outs, hitting taxpayers

The report comes as the IMF and World Bank are beginning their spring meeting in Washington, after receiving a promise of $750bn in fresh funds agreed at the G20 summit.

Policy response

The IMF's latest Global Stability Report says that the banking system has not yet been stabilised, despite the billions of dollars spent by governments.

But it warns that political support for further bank bail-outs is waning.

It says that there may be "a real risk that governments will be reluctant to allocate enough resources to solve the problem" because the public has become "disillusioned by what it perceives as abuse of taxpayer funds".

The situation is especially difficult in the US, where Congress appears reluctant to allocate additional bail-out funds above the $700bn approved last autumn despite the inclusion of another $750bn in President Obama's latest budget proposal.

Systemic risks remain high and the adverse feedback loop between the financial system and the real economy has yet to be arrested
IMF

The US Treasury has instead proposed a private-public partnership to buy up troubled assets underwritten by loans from the Federal Reserve.

But the IMF comments that "uncertainty about political reactions may undermine the likelihood that the the private sector will constructively engage in finding orderly solution to financial stress".

Deeper recession

The IMF says that restoring the banking system so that it functions normally is likely to take several years, and this will make the recession longer and deeper than usual.

But it warns that if policies are unclear or not implemented forcefully and promptly, "the recovery process is even more delayed and the costs, in terms of taxpayer money and economic activity, are even greater".

It adds that the worldwide recession has deepened the financial crisis.

COST OF REBUILDING BANKS

US banks: $275bn

Eurozone banks: $725bn

UK banks: $250bn

Other European banks: $225bn Source: IMF, based on 6% capital/assets ratio

"Systemic risks remain high and the adverse feedback loop between the financial system and the real economy has yet to be arrested, despite the wide range of policy actions and some limited improvement in market functioning.

"Further effective government action - particularly geared toward cleansing balance sheets and strengthening institutions - will be required to stabilise the global financial system and to provide the foundation for a sustainable economic recovery."

On Wednesday, the IMF will present its world economic forecast.

It is expected to be the gloomiest for 60 years, with the world falling into a global recession, and an even sharper decline in output in the rich countries.

UK retail inflation turns negative

UK retail inflation turns negative

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Britain's annual retail price inflation rate has given its first negative reading in almost 50 years, official figures have revealed, sparking fears of deflation in the recession-hit country.

The retail price index (RPI), which includes the cost of mortgages, fell to -0.4 per cent in March, the Office for National Statistics (ONS) said.

"For the first time since March 1960, annual inflation measured by the RPI, which includes housing costs such as mortgage interest payments and council tax, fell below zero," the ONS said.

Falling house prices and the Bank of England's decision to bring interest rates down to a record low of 0.5 per cent, leading to lower mortgage costs, have helped cause the significant drop in the RPI.

Fears of deflation

Figures also showed that Britain's consumer price inflation (CPI) fell to 2.9 per cent in March, a one-year low, due to lower gas, housing and transport costs.

The consumer index, which provides the Bank of England's target measure of inflation, has dropped from a peak of 5.2 per cent last September.

However, it has not fallen as fast as the Bank of England anticipated in its last quarterly projections.

Andrew Sentance, a member of the rate-setting panel at the Bank of England, said: "The recent data suggests that the downward momentum of inflation in the short-term may not be as strong as we thought in February, probably because of the very marked depreciation in sterling since the summer of 2007."

But there are fears that falling rates of inflation could lead to deflation, which would see prices fall.

Howard Archer, an economist with IHS Global Insight, a financial forecasting company, said: "The ongoing relative stickiness of consumer price inflation suggests that it is unlikely to turn sharply negative later this year although a brief period of mild deflation is still possible.

"However, the year-on-year decline in retail prices will undoubtedly deepen significantly further as lower mortgage rates impact."

German optimism

Meanwhile, positive economic gains are being seen in Germany, where investor confidence has risen to its highest level in two years.

ZEW, a German economic research centre, said on Tuesday that its monthly index had risen to 13 points in April, from -3.5 points in March.

Wolfgang Franz, ZEW's president, said; "It is even becoming more likely that the economy will slowly recover in the second half of this year."

Big banks have a big credit problem

Big banks have a big credit problem

Bank of America and Citigroup have been sinking billions into rainy day funds, but problem loans are growing even faster.

By Colin Barr

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Banks are socking away funds for future loan losses at a record clip. But at the sickliest institutions, problem loans are rising even faster.

On Monday, Bank of America (BAC, Fortune 500) became the latest big bank to report a stronger-than-expected quarterly profit, posting net income of $4.2 billion, or 44 cents a share. Analysts had expected a profit of just 4 cents a share.

Like its rivals Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500), Charlotte-based BofA pointed to strong fixed-income trading results and a big rise in earnings from its mortgage business.

BofA managed to post the big profit even as it set aside more than $6 billion to cover future loan losses. The bank's loan loss reserve now stands at $30 billion -- double its year-ago level.

BofA expects more borrowers will fall behind on payments or default on their loans as job losses deepen and the economy struggles through its worst recession in decades.

"We understand that we continue to face extremely difficult challenges primarily from deteriorating credit quality driven by weakness in the economy and growing unemployment," CEO Ken Lewis said in a statement Monday morning.

Yet as much money as BofA is putting away, both it and Citi -- the two big banks that have received multiple infusions of federal aid over the past year -- are reporting sharp rises in problem loans, particularly on their big credit card portfolios. BofA posted a $1.8 billion loss in its global cards business in the latest quarter.

These high credit costs could weigh on the banks' earnings for many quarters -- and perhaps even affect the regulatory stress tests whose results are due to be revealed in coming weeks.

Not keeping pace

While BofA has doubled its loan loss reserve, nonperforming assets -- loans that are no longer producing income as borrowers fall behind on payments -- have more than tripled, reflecting the weakening economy and the acquisition of troubled Countrywide and Merrill Lynch.

As a result, BofA's loan loss reserve now covers just 121% of its nonperforming loans -- down from 203% a year ago.

That means the bank has a thinning cushion just as the industry braces for rising losses on commercial and industrial loans, as well as continuing declines in residential real estate.

Another bank with a thin cushion is Citi, which reported an unexpected $1.6 billion first-quarter profit Friday even as credit costs doubled from a year ago.

Though Citi's loan loss reserve has jumped 78% from a year earlier, nonperforming assets have more than doubled over the same span. As a result, Citi's loan-loss coverage ratio has slipped to 121%, from 177% a year earlier.

In contrast, the stronger big banks -- JPMorgan, which posted a $2.1 billion first-quarter profit last Thursday, and Wells Fargo, which said earlier this month it expects to make $3 billion in the quarter -- have healthier coverage ratios, thanks to extensive reserve building.

At JPMorgan, for instance, nonperforming assets have jumped to $11 billion from $4 billion in the span of a year. But the bank has been bulking up its reserves at a similar pace.

As a result, JPMorgan's loss reserves at the end of the first quarter amounted to 241% of nonperforming assets -- double the coverage at Citi and BofA, although down from 271% a year ago.

And Wells Fargo's reserve ratios have risen significantly over the past year, in large measure due to a $37 billion writedown of bad loans associated with its Dec. 31 acquisition of Charlotte-based lender Wachovia.

Wells' reserves were 255% of nonperforming assets at the end of the first quarter, according to estimates by analysts at Fox-Pitt Kelton, up from 134% a year earlier. (The bank has yet to report its full results for the first quarter.)

While coverage ratios are far from the only indicator of a bank's health heading into a prolonged period of economic distress, they are likely to be one factor in the stress tests being conducted by federal regulators.

The Federal Reserve and Treasury are expected to begin informing the 19 big banks taking the tests of their results in coming weeks. Those that with lower scores are expected to be forced to raise capital, though the terms and the timing aren't clear. Concerns about the health of the banking sector helped to send shares of most big banks down in midday trading Monday.

Still, even BofA -- the biggest loser Monday with a 15% decline -- has experienced a stunning rally since the sector hit its recent low in early March. At their lows Monday, BofA shares had tripled off their March 6 floor.

The Pulitzer-Winning Investigation That Dare Not Be Uttered on TV

The Pulitzer-Winning Investigation That Dare Not Be Uttered on TV

By Glenn Greenwald

The New York Times' David Barstow won a richly deserved Pulitzer Prize yesterday for two articles that, despite being featured as major news stories on the front page of The Paper of Record, were completely suppressed by virtually every network and cable news show, which to this day have never informed their viewers about what Bartow uncovered. Here is how the Pulitzer Committee described Barstow's exposés:

Awarded to David Barstow of The New York Times for his tenacious reporting that revealed how some retired generals, working as radio and television analysts, had been co-opted by the Pentagon to make its case for the war in Iraq, and how many of them also had undisclosed ties to companies that benefited from policies they defended.

By whom were these "ties to companies" undisclosed and for whom did these deeply conflicted retired generals pose as "analysts"? ABC, CBS, NBC, MSNBC, CNN and Fox -- the very companies that have simply suppressed the story from their viewers. They kept completely silent about Barstow's story even though it sparked Congressional inquiries, vehement objections from the then-leading Democratic presidential candidates, and allegations that the Pentagon program violated legal prohibitions on domestic propaganda programs. The Pentagon's secret collaboration with these "independent analysts" shaped multiple news stories from each of these outlets on a variety of critical topics. Most amazingly, many of them continue to employ as so-called "independent analysts" the very retired generals at the heart of Barstow's story, yet still refuse to inform their viewers about any part of this story.

And even now that Barstow yesterday won the Pulitzer Prize for investigative reporting -- one of the most prestigious awards any news story can win -- these revelations still may not be uttered on television, tragically dashing the hope expressed yesterday (rhetorically, I presume) by Media Matters' Jamison Foser that "maybe now that the story has won a Pulitzer for Barstow, they'll pay attention." Instead, it was Atrios' prediction that was decisively confirmed: "I don't think a Pulitzer will be enough to give the military analyst story more attention." Here is what Brian Williams said last night on his NBC News broadcast in reporting on the prestigious awards:

The Pulitzer Prizes for journalism and the arts were awarded today. The New York Times led the way with five, including awards for breaking news and international reporting. Las Vegas Sun won for the public service category for its reporting on construction worker deaths in that city. Best commentary went to Eugene Robinson of The Washington Post, who of course was an on-air commentator for us on MSNBC all through the election season and continues to be. And the award for best biography went to John Meacham, the editor of Newsweek magazine, for his book "American Lion: Andrew Jackson in the White House."

No mention that among the five NYT prizes was one for investigative reporting. Williams did manage to promote the fact that one of the award winners was an MSNBC contributor, but sadly did not find the time to inform his viewers that NBC News' war reporting and one of Williams' still-featured premiere "independent analysts," Gen. Barry McCaffrey, was and continues to be at the heart of the scandal for which Barstow won the Pulitzer. Williams' refusal to inform his readers about this now-Pulitzer-winning story is particularly notable given his direct personal involvement in the secret, joint attempts by NBC and McCaffrey to contain P.R. damage to NBC from Barstow's story, compounded by the fact that NBC was on notice of these multiple conflicts as early as April, 2003, when The Nation first reported on them.

Identically, CNN ran an 898-word story on the various Pulitzer winners -- describing virtually every winner -- but was simply unable to find any space even to mention David Barstow's name, let alone inform their readers that he won the Prize for uncovering core corruption at the heart of CNN's coverage of the Iraq War and other military-related matters. No other television news outlet implicated by Barstow's story mentioned his award, at least as far as I can tell.

The outright refusal of any of these "news organizations" even to mention what Barstow uncovered about the Pentagon's propaganda program and the way it infected their coverage is one of the most illuminating events revealing how they operate. So transparently corrupt and journalistically disgraceful is their blackout of this story that even Howard Kurtz and Politico -- that's Howard Kurtz and Politico -- lambasted them for this concealment. Meaningful criticisms of media stars from media critic (and CNN star) Howie Kurtz is about as rare as prosecutions for politically powerful lawbreakers in America, yet this is what he said about the television media's suppression of Barstow's story: "their coverage of this important issue has been pathetic."

Has there ever been another Pulitzer-Prize-winning story for investigative reporting never to be mentioned on major television -- let alone one that was twice featured as the lead story on the front page of The New York Times? To pose the question is to answer it.

UPDATE: Media Matters has more on the glaring omissions in Brian Williams' "reporting" and on the pervasive impact of the Pentagon's program on television news coverage. Williams' behavior has long been disgraceful on this issue, almost certainly due to the fact that some of the "analysts" most directly implicated by Barstow's story are Williams' favored sources and friends.

On a different note, CQ's Jeff Stein responds today to some of the objections to his Jane-Harman/AIPAC/Alberto-Gonazles blockbuster story -- quite convincingly, in my view -- and, as Christy Hardin Smith notes, the New York Times has now independently confirmed much of what Stein reported.

UPDATE II: For some added irony: on his NBS News broadcast last night suppressing any mention of David Barstow's Pulitzer Prize, Brian Williams' lead story concerned Obama's trip to the CIA yesterday. Featured in that story was commentary from Col. Jack Jacobs, identified on-screen this way: "Retired, NBC News Military Analyst." Jacobs was one of the retired officers who was an active member of the Pentagon's "military analyst" program, and indeed, he actively helped plan the Pentagon's media strategy at the very same time he was posing as an "independent analyst" on NBC (h/t reader gc; via NEXIS). So not only did Williams last night conceal from his viewers any mention of the Pentagon program, he featured -- on the very same broadcast -- "independent" commentary from one of the central figures involved in that propaganda program.

On a related note, Howard Kurtz was asked in his Washington Post chat yesterday about Mike Allen's grant of anonymity to a "top Bush official" that I highlighted on Saturday, and Kurtz -- while defending much of Allen's behavior -- said: "I don't believe an ex-official should have been granted anonymity for that kind of harsh attack."

Stock Market Bulls Have Got it Wrong, Warns Nouriel Roubini

Stock Market Bulls Have Got it Wrong, Warns Nouriel Roubini

'Dr Doom' predicts further shocks in the market

By Nick Clark

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Nouriel Roubini, the so-called "arch bear" economist who predicted the current financial crisis in 2006, added further gloom yesterday after he wrote off recent rises in global stock markets as no more than a dead cat bounce.

While an increasing number of analysts have in recent weeks urged investors to go back into equities, Mr Roubini, a professor at New York University's Stern School of Business who has emerged as one of the most respected economic voices in the wake of the credit crunch, warned yesterday that he didn't yet see a buying opportunity.

He holds little faith in the recent market rallies, which prompted some to suggest a recovery was underway. "I'm still cautious and bearish," he said. "I believe we are closer to a bottom in the stock market than a year ago, but this is a bear market rally."

Anthony Bolton, fund manager at Fidelity International, said last month that a bull phase had started, while analysts at Goldman Sachs have argued in recent weeks that "we are past the low point in the economic cycle".

However, Mr Roubini, dubbed "Dr Doom" for his warnings about financial meltdown, said there would be more bad news in the next few quarters.

In particular, the economist warned of further dangers ahead for the financial services industry in the US. "I see financial shocks in the months ahead. Some financial institutions are in so much trouble we may have to take them over," he said, before adding that losses in the industry could rise from $1 trillion to as high as $3.6 trillion.

Firms from across financial services will go out of business or be taken over, he said, particularly focusing on the bleak future for hedge funds.

Mr Roubini also disagrees with more optimistic forecasts for the US economy. In an interview published on Forbes.com yesterday, he said that the prediction of a 2 per cent growth rate next year was far too bullish. He called it at somewhere around 1 per cent. "So while we are going to be technically out of a recession, it is going to feel like a recession," he added.

He blamed weak recovery, deflation which would dog the US for the next two years, and financial shocks for the lower-than-expected growth.

Investors should stay on the sidelines, he cautioned, but added that there was light at the end of the tunnel. "I'm not a permabear. I believe that actually, if we do the right things, the US, Europe, Japan, but especially emerging markets can have a bright future of high economic growth."

Mr Roubini criticised market regulators, saying that while deregulation was positive "we took it to an extreme". He added: "Even financial markets need laws, institutions, rules; otherwise it is the law of the jungle."

Quoting from Oliver Stone's film Wall Street, he added: "Greed is good. There is nothing bad with greed. You know, that's what drives capitalism. But greed has to be contained by fear of losses and also realisation you are not going to be bailed out in bad times."

The Housing Bust Takes Center-stage

The Housing Bust Takes Center-stage

By Mike Whitney

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The Fed's $12.8 trillion of monetary stimulus has triggered a six week-long surge in the stock market. Think of it as Bernanke's Bear Market Rally, a torrent of capital gushing from every leaky valve and rusty pipe in the financial system. The Fed's so-called "lending facilities" are a joke; stocks rocket into the stratosphere while the broader economy is stretched out corpse-like on a cold marble slab. Is this an economic recovery or just more of Bernanke's "no down" zero-percent "no doc" faux prosperity?

Bernanke has provided generous "100 cents on the dollar" loans for Triple A mortgage-backed collateral that is now worth 30 cents on the dollar. The Fed stands to lose trillions of dollars on these loans because the assets will never regain their original value. Eventually the taxpayer will have to pony up the difference in higher taxes, fewer public services and a weaker dollar.

Naturally, some of Bernanke's liquidity has made its way into the stock market where the prospects for maximizing profit are still the best. The Fed's creditors didn't borrowed the money just to stick it in a dusty vault in their offices. They've put it where they think it will do them some good. At the same time, the relentless systemwide contraction continues apace and hasn't been eased by Bernanke's low interest rates or lending programs. All of the economic indicators point to a deepening recession that will last for two years or more. Here's a clip from a recent statement from the IMF:


"Recessions associated with financial crises have typically been severe and protracted. Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others. Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992. The duration of a synchronous recession is, on average, nearly 1½ time as long as the duration of the typical recession. Recoveries are usually sluggish, owing to weak external demand..."

The recession will be a long uphill slog regardless of developments in the stock market. Bernanke admitted as much last Thursday when he said that the collapse of U.S. lending will cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be....The damage from this turn in the credit cycle -- in terms of lost wealth, lost homes, and blemished credit histories -- is likely to be long-lasting.”


Unlike Treasury Secretary Geithner, Bernanke has been surprisingly candid in his analysis of the crisis. That doesn't mean that his policies have been worker-friendly; far from it. But he has been honest about the shortcomings of deregulation and financial innovation. So far, the meltdown has wiped out more than $11 trillion of household wealth, ignited soaring unemployment, and pushed millions of people from their homes. As Bernanke admits, the country will not quickly bounce back from this 100-year economic flood.

Economists Kenneth Rogoff and Carmen Reinhart have conducted a study on the last 18 international financial crises and compiled their findings in a document called: "Is the 2007 U.S. Subprime Financial Crisis So Different?" What they discovered was that "rising public debt is a near universal precursor of other post-war crises" and that countries that experienced large capital inflows were particularly vulnerable to crises. By 2006, two-thirds of the world's surplus capital was flowing into the United States via its current account deficit. This flood of foreign capital kept interest rates low, housing and equity prices high, and Wall Street flush with money. Now foreign investment is drying up, housing prices are falling, the secondary market is frozen, and deflation is setting in across all sectors of the economy. Rogoff and Reinhart believe that "recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage. If the United States follows the norm of recent crises, as it has until now, output may take four years to return to its pre-crisis level. Unemployment will continue to rise for three more years, reaching 11–12 percent in 2011." (Newsweek, "Don't Buy the Chirpy Forecasts")

The proliferation of opaque, unregulated debt-instruments (MBSs, CDOs, CDSs) also played a big role in the present crash by reducing transparency and increasing systemic instability. Here's Rogoff and Reinhart in their Newsweek article "Don't Buy the Chirpy Forecasts:

"Assuming the U.S. continues going down the tracks of past financial crises, perhaps the scariest prospect is the likely evolution of public debt, which tends to soar in the aftermath of a crisis. A base-line forecast, using the benchmark of recent past crises, suggests that U.S. national debt will rise by $8.5 trillion over the next three years. Debt rises for a variety of reasons, including bailout costs and fiscal stimulus. But the No. 1 factor is the collapse in tax revenues that inevitably accompanies a deep recession. Eight and a half trillion dollars may sound like a lot. It is more than 50 percent of U.S. national income. But if one looks at the Obama administration's stunning budget-deficit projections, with exceedingly optimistic projections on growth and bank-bailout costs, we think the U.S. is right on track."

Tax revenues are already falling sharply across the country as the recession deepens. In fact, Bloomberg News reports that “State and local sales-tax revenue fell more sharply in the fourth quarter of 2008 than at any time in the past half century"… (Corporate and personal income taxes are also declining at a record pace.) This makes it impossible to predict the ultimate cost of the crisis. But what makes it even harder is that Treasury Secretary Timothy Geithner refuses to remove toxic assets from the banks balance sheets using the usual "tried and true" methods. A recent report from a congressional oversight committee (The Warren Report) revealed that there are three ways to fix the banking system; liquidation, reorganization and subsidization. Geithner has rejected all three of these preferring to implement his own make-shift Public Private Investment Program (PPIP) which is thoroughly untested, has no base of public or political support, and is clearly designed to shift the toxic debts of the banks onto the taxpayer through publicly-funded non recourse loans. (Geithner's plan will allow the banks to establish off-balance sheet operations so they can buy their own bad assets from themselves using 94 percent public money) The whole thing is a obvious swindle papered-over with gibberish.

So far, less than $10 billion has been transacted through Giethner's PPIP; a mere drop in the bucket. The IMF estimates that the banks and other financial institutions may be holding up to $4 trillion in toxic assets. At the current rate, Geithner's strategy will take a century to succeed. There's simply not enough time. The Treasury Secretary knows his plan won't fix the banking system; he's just hoping that the economy rebounds before the government is forced to nationalize the big banks. It's just a stalling ploy, but, even so, there are risks. As the economy worsens, the likelihood of another financial meltdown or a run on the dollar increases. Foreign central banks and investors on getting antsy and are starting to rattle Geithner's cage. In recent months China has slowed it purchases of US Treasuries, traded tens of billions of USD in currency swaps, and gone on a spending spree for raw materials; all to protect itself from perceived weakness in the dollar. According to Bloomberg:



"People's Bank of China Zhou Xiaochuan called for the establishment of a "super-sovereign reserve currency" last month after Chinese Premier Wen Jiabao said he's worried a weaker US dollar may hurt China's investments. Inflation and a depreciating dollar would erode the value of US holdings owned by international investors."

Again, Bloomberg:

“China, Japan and Korea should establish a routine mechanism to diversify the region’s reserve currencies away from the dollar, the China Securities Journal reported, citing central bank adviser Fan Gang. The Asian countries need to consider setting up a transitional arrangement to help reduce reliance on the dollar before the problems in the international financial system are resolved."

Geithner's foot-dragging could be extremely costly for America's long-term economic prospects. The Treasury Secretary should be tackling the toxic assets problem head-on and stop the dilly-dallying. Harvard historian Niall Ferguson underlined the importance of swift action in a recent interview:

“Only somebody who studies financial history could say, ‘Look, something as big as the liquidity crisis of 1914 or as big as the banking crisis of 1931 is imminent.. If we stay the present course, you're going to see the tailspin continue... The Great Depression was initially a U.S. financial crisis. But what made it a depression was its global contagion, and then the breakdown of trade and the retreat into protectionism. All of that can happen. All of that is in fact happening with terrifying speed.”

There's no time to lose.



HOUSING BUST REDUX: Shadow Inventory Portends an even Bigger Crash


Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed. The moratorium was initiated in January to give Obama's anti-foreclosure program--which is a combination of mortgage modifications and refinancing--a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes. But it's clear now that the program will fall well-short of its objective. (Legislation for cram-downs, that is, allowing judges to reduce the face-value of the mortgage, is still bogged-down in Congress. Most economists believe that cramdows are the only way to keep people from abandoning their homes when they are underwater on their loans.)

In March, housing prices fell faster than anytime in the last two years. Trend-lines are now steeper than ever before, nearly perpendicular. Housing prices are not falling, they're crashing and crashing hard. Now that the foreclosure moratorium has ended, Notices of Default (NOD) have spiked to an all-time high. These Notices will turn into foreclosures in 4 to 5 months time creating another cascade of foreclosures. Market analysts predict there will be 5 million more foreclosures between now and 2011. This is a disaster bigger than Katrina. Soaring unemployment and rising foreclosures ensure that hundreds of banks and financial institutions will be forced into bankruptcy. 40 percent of delinquent homeowners have already vacated their homes. There's nothing Obama can do to make them stay. Worse still, only 30 percent of foreclosures have been relisted for sale suggesting major hanky-panky at the banks. Where have the houses gone? Have they simply vanished?

Here's a excerpt from the SF Gate explaining the mystery:

"Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."

In a recent study, RealtyTrac compared its database of bank-repossessed homes to MLS listings of for-sale homes in four states, including California. It found a significant disparity - only 30 percent of the foreclosures were listed for sale in the Multiple Listing Service. The remainder is known in the industry as "shadow inventory." ("Banks aren't Selling Many Foreclosed Homes" SF Gate)


If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They'd also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 "disappeared" homes means that housing prices have a lot farther to fall and that an even larger segment of the banking system is insolvent.

Here is more on the story from Mr. Mortgage "California Foreclosures About to Soar...Again"

"Are you ready to see the future? Ten’s of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season...Foreclosure start (NOD) and Trustee Sale (NTS) notices are going out at levels not seen since mid 2008. Once an NTS goes out, the property is taken to the courthouse and auctioned within 21-45 days....The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium."

JP Morgan Chase, Wells Fargo and Fannie Mae have all stepped up their foreclosure activity in recent weeks. Delinquencies have skyrocketed foreshadowing a brutal ajustment straight ahead. According to the Wall Street Journal:

"Ronald Temple, co-director of research at Lazard Asset Management, expects home prices to fall 22% to 27% from their January levels. More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008." (Ruth Simon, "The housing crisis is about to take center stage once again" Wall Street Journal

Another 20 percent carved off the aggregate value of US housing means another $4 trillion loss to homeowners. That means smaller retirement savings, less discretionary spending, and lower living standards. The next leg down in housing will be excruciating; every sector will feel the pain. Obama's $75 billion mortgage rescue plan is a mere pittance; it won't reduce the principle on mortgages and it won't stop the bleeding. Policymakers have decided they've done enough and refuse to lift a finger to help. They don't see the tsunami looming in front of them plain as day. The housing market is going under and it's going to drag a good part of the broader economy along with it. Stocks, too.

When Fascism Came to America

When Fascism Came to America

By William Pfaff

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In 1935, Sinclair Lewis, author of “Babbitt” and the first American writer to be awarded the Nobel Prize, published a novel entitled “It Can’t Happen Here.”

It was written to influence the 1936 presidential election. The enormously popular ex-governor of Louisiana, Sen. Huey Long, “the Kingfish,” who campaigned to “Share the Wealth” with the people, was widely thought to be a threat to President Franklin Delano Roosevelt in his bid for a second term.

The Lewis novel envisioned someone like Long winning the presidency and installing an American counterpart to the fascist dictatorships already in power in Italy and Germany. Lewis was much influenced by his second wife, Dorothy Thompson, who was one of the most important syndicated political columnists of the 1930s and was greatly concerned about the possibility of populist dictatorship crossing the Atlantic.

Long was not a fascist, although he could have become a dictator. His support was from the poor. Rightist and white-supremacist forces actually formed an armed militia to oppose him, but Long was killed by an assassin, presumably with a family grievance against him, in 1935.

The man who actually opposed Roosevelt in 1936 was Republican Alf Landon of Kansas, a moderate who was defeated by Roosevelt in the greatest presidential landslide in American history. That year, FDR carried all but eight electoral votes. Sinclair Lewis’ fears had been misplaced; “It” didn’t happen here.

In 2004, Philip Roth wrote another novel on the topic. This one was about the arrival of an anti-Semitic and fascist president in the United States in 1940, in the supposed person of the aviator, American anti-war nationalist and isolationist Charles A. Lindbergh. Roosevelt’s actual opponent in 1940 was the businessman Wendell Willkie, whom he comfortably defeated with 54.7 percent of the popular vote.

Lindbergh never retracted his opposition to U.S. entry into the European war, and following Pearl Harbor President Roosevelt refused ex-Col. Lindbergh’s effort to rejoin the military. Lindbergh found experimental and consultant work in the aviation industry, helped develop the Vought Corsair, the only American fighter in the Pacific war superior to the Japanese Zero, and despite remaining a civilian flew 36 combat missions in the Pacific. Once again, “It” had not happened in the United States.

When “It” did happen was in 2001-2008, in the George W. Bush administration. There was a takeover of the government by a self-willed executive power, unprecedented in American history. The president and vice president acted on a novel and legally unsupported claim to unlimited “wartime” presidential and executive-branch power. The justification was an illegal, undeclared war.

International law and American treaty obligations were defied, as were established American law on the conduct of war and the treatment of prisoners, constitutional protections, and the surveillance of citizens.

All of this occurred without meeting serious, or at least successful, congressional or judicial challenge, with little or no objection from the national press, and all but unanimous support from the national audiovisual media. One needn’t go through all that again.

There were unsuccessful efforts by individuals inside and outside the government to overturn this state of affairs, but in two congressional elections, and in the presidential election of 2004, the electorate endorsed all that had been done. “It,” which Sinclair Lewis and Philip Roth had both warned against, proved in fact to be very popular. At least this was so until 2008, when the practical and political consequences of this abandonment of law and history finally alienated the electorate.

All that is familiar. What concerns me in this article is something else. It is the fact that the mass of agents and officials of the government, and the vast majority of the population, passively accepted what was done, and even today disputes whether anyone should be held accountable.

President Obama’s unwillingness to see his first term dominated by the crimes of the Bush administration is comprehensible.

Yet there is a limit. The latest case of the human moral vacuum created and encouraged during the Bush years is so outrageous, perverse, sadistic and nihilistic that it demands attention, for all that it tells us about the rest that has happened. I speak of the ordered, authorized and conscientiously supervised waterboarding of two prisoners 266 times.

The men who authorized, ordered and performed such acts should be hanged. It is as simple as that.

It then would be possible to face the future with a response to the question, “Can It Happen Here?”