Tuesday, May 5, 2009

Ten Stressed Banks Will Need More Capital

More Banks Will Need Capital

Stress Tests Identify About Ten; Wells, BofA, Citigroup Face Order to Refill Coffers

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The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector.

The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.

Representatives from Wells, Bank of America and Citi declined to comment.

The Obama administration announced the stress tests -- a process of examining banks' ability to withstand future losses -- back in February. At the time, the news sparked concern among investors and depositors that the results would be used to shut down or nationalize some of the country's weaker institutions. But Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner assured investors that none of the banks undergoing stress tests would be allowed to fail and that all would have access to government funds if needed.

In fact, the stress-test regimen appears so far to have eased some of the fears that swept through financial markets in February, just as President Franklin D. Roosevelt's bank holiday did in 1933. He shut down the nation's banks for several days during a banking panic and only reopened those the government deemed safe. One possible explanation for the recent, calmer state of affairs: The problems the tests appear to be uncovering aren't as bad as some analysts' worst expectations.

Also, if multiple banks are being directed to boost their capital, that could make the process seem less daunting than if it were singling out a few companies as weak.

In a sign of how much the doomsday scenario has faded, bank stocks surged Monday despite reports that Wells Fargo was identified in an initial review as one of the financial institutions needing a stronger buffer.

The San Francisco bank's stock jumped 24%, or $4.64, to $24.25 in New York Stock Exchange composite trading at 4 p.m. Bank of America shares rose 19% on Monday, while Citigroup was up 7.7%.

The stock prices of all three banks, which may need to raise tens of billions in new capital as a result of the stress tests, have tripled since early March.

A Wells Fargo customer enters a bank branch May 4, 2009 in San Francisco, Calif.

It's possible Wall Street is being overly optimistic about the impact of the results and the resulting dash by banks to bolster capital. One big risk worrying industry officials is that the market will view banks on the list as insolvent when the official results are announced Thursday, even though Fed officials have repeatedly said that's not the case.

Several banks are expected to already have enough capital to weather a worsening economy, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. J.P. Morgan Chase Chairman and Chief Executive James Dimon expressed confidence Monday that the banking system can withstand losses from the recession, even though it will take years for the industry to recover.

"The banking system can handle an awful lot of stress and be OK," he said in a Monday conference call sponsored by Calyon Securities Inc., a unit of Credit Agricole Group.

Mr. Dimon also reiterated J.P. Morgan's goal to repay the $25 billion the New York bank received from the government last year "as soon as possible," saying company officials plan to discuss details of the potential repayment after the stress-test results are announced.

An initial stress test identified Wells Fargo as among the banks needing a bigger buffer, said a person close to the company. It is unclear whether Wells would be forced to raise fresh capital or if regulators would accept the bank's argument that it can earn its way through the losses in future years. Wells expects more clarity Tuesday.

Any bank holding company with more than $100 billion in assets was required to undergo the tests, which were largely conducted by the Fed. Their purpose was to ensure that major financial institutions had enough capital to continue lending if the economy worsened through 2010. Government officials are expected to meet with banks beginning Tuesday to go over final results. Banks directed to raise more capital aren't necessarily in trouble today, but regulators think they don't have enough of a buffer against potential future losses.

Administration officials believe many banks will be able to raise capital without tapping the Troubled Asset Relief Program's remaining $109.6 billion. They're optimistic the bulk of the money will come from private investors made more confident by the glut of information provided by the tests. Banks could sell assets and stakes in their companies, a move that could accomplish another government goal of shrinking some of the country's largest banks.

Officials say banks that can't tap private markets will be able to raise capital by agreeing to convert some of the government's existing preferred shares into common equity, a move that would leave the government owning chunks of the nation's largest banks.

"There undoubtedly will be banks that need more capital," White House spokesman Robert Gibbs said Monday in a news briefing. He said he didn't believe the Obama administration would need to ask Congress for more money. "I think everyone involved will be looking for banks to raise this through either private means or the selling of some assets that they have or that they control."

The tests have set off some tense exchanges in private between Treasury officials and bank regulators at the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, who worried that disclosing too much information publicly could threaten the health of banks that are trying to repair themselves.

The Fed plans to release the results of the stress tests on Thursday after U.S. stock markets close. Anticipating the test results, McGraw-Hill Cos.' Standard & Poor's Ratings Service unit put on watch for downgrade the credit ratings of 22 banks and one thrift.

The affected companies face at least a 50% chance of being downgraded by at least one notch in the next 90 days.

Pakistani army flattening villages as it battles Taliban

Pakistani army flattening villages as it battles Taliban

Saeed Shah

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The Pakistani army's assault against Islamic militants in Buner, in northwest Pakistan, is flattening villages, killing civilians and sending thousands of farmers and villagers fleeing from their homes, residents escaping the fighting said Monday.

"We didn't see any Taliban; they are up in the mountains, yet the army flattens our villages," Zaroon Mohammad, 45, told McClatchy as he walked with about a dozen scrawny cattle and the male members of his family in the relative safety of Chinglai village in southern Buner. "Our house has been badly damaged. These cows are now our total possessions."

Mohammad's and other residents' accounts of the fighting contradict those from the Pakistani military and suggest that the government of President Asif Ali Zardari is rapidly losing the support of those it had set out to protect.

The heavy-handed tactics are ringing alarm bells in Washington, where the Obama administration is struggling to devise a strategy to halt the militants' advances. Officials Monday talked about the need to train the Pakistani military, which has long been fixated on fighting armored battles with India, in counterinsurgency warfare, but it may be too late for that.

Navy Adm. Michael Mullen, the chairman of the Joint Chiefs of Staff, told reporters Monday that the Pakistani army in recent years has undertaken "bursts of fighting and engagement" fighting insurgents, but that its operations were "not sustained" by follow-up measures.

The army is now using force, but it also must hold and rebuild the area it conquers, he said. "There's a military piece" to the operation, he said, "but there also needs to be a hold and build aspect of it."

Another U.S. official, who closely tracks Pakistan developments, said the Pakistan army is "just destroying stuff. They have zero ability to deliver (aid) services."

"They hold villages completely accountable for the actions of a few, and that kind of operation produces a lot of (internally displaced persons) and a lot of angst," said a senior defense official. The officials spoke on the condition of anonymity because of the sensitivity of the issue.

In Buner, the Pakistani military appears to be losing public support in a stridently anti-Taliban district whose residents had raised their own militia to defend themselves against the militants, who last month seized control of the district about 60 miles from Islamabad, the capital.

Mohammad, who'd walked for two days with his cattle to escape the offensive against the Taliban, and other farmers accused the military of using poorly directed artillery and air power to pound civilian areas.

"They shouldn't use the army in this (indiscriminate) way. They should be targeted at the Taliban," said Saed Afsar Khan, who was leaving Buner with 18 members of his family and two cows. He estimated that the army had destroyed 80 of the 400 houses in his village of Kawga, near the key battlefield of Ambela.

"I don't think they've killed even one Taliban," he said. "Only ordinary people."

As the fighting raged in Buner, a bigger battle appears likely to erupt in neighboring Swat. Late Monday, fierce gun battles broke out between the army and Taliban in the streets of Mingora, the district's main town, and a controversial three-month-old peace deal between the government and the Taliban in Swat is disintegrating.

The Taliban were reported to have surrounded 46 police officers at the local electrical grid station. Earlier in the day, they ambushed a military convoy in Swat, killing one soldier and wounding two others.

The Pakistani army waited some 25 days after the Taliban stormed into Buner from Swat before launching their response, which television pictures show involves tanks and helicopter gunships.

"Why did they not nip the evil in the bud? This is criminal negligence," said Sahibzada, a college teacher, who goes by one name, in Palodand village, just south of Buner, where he helps organize relief to those fleeing from the fighting.

"They have caused huge financial losses for those who've been forced to flee and caused hatred among those people for their government."

Locals said that a key grievance was an order given by the government commissioner for the Malakand area, which includes Buner, to disband the anti-Taliban militia soon after the insurgents entered Buner.

The delay in moving the armed forces against the extremists in Buner may have allowed them to entrench themselves and mass sufficient weapons and men to put up stiff resistance. The Taliban have managed to take hostage some 2,000 villagers in the Pir Baba area in the north of Buner, the army confirmed Monday.

The Pakistan army wouldn't confirm civilian casualties or damage to civilian villages.

"There are no reports I have of any civilian casualties," said Maj. Gen. Athar Abbas, the army's chief spokesman. "Or any collateral damage. We have made maximum efforts to avoid it."

One reason why civilian casualties are likely is that government officials gave no instructions to ordinary people about how to leave the district, and many were confused about the timing of the curfew, those fleeing said. A cause of further frustration was that little or no preparation was made to accommodate those who'd inevitably be displaced by the fighting.

In southern Buner, in the Khudokhel area, on the road out to the nearest town of Swabi, there was no sign of any government-sponsored relief effort. Residents of villages along the road turned out instead, offering food and drink to weary travelers, and help with transportation onward. Those with spare rooms or buildings offered them to the displaced. Villagers in Chinglai, about an hour's drive into Buner from Swabi, are housing 20 families.

There are no reliable figures so far for how many people have fled Buner. Evacuees describe the district, which had a population of some 500,000, as having practically been emptied.

According to the al Khidmat Foundation, an Islamic charity, more than 150,000 people have taken the road south to Swabi alone. The U.N. High Commissioner for Refugees, the refugee arm of the United Nations, has registered around 18,000 people, but counting is tricky because almost none of the displaced have gone into the camps that are being set up for them outside Buner.

US planes 'kill Afghan civilians'

US planes 'kill Afghan civilians'

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There are reports that US air strikes on militants in western Afghanistan killed more than 20 civilians, an Afghan official has told the BBC.

Fierce fighting in the Bala Boluk district of Farrah province also reportedly killed 25 Taleban militants.

The American military says it is investigating reports of civilians among the casualties.

The Afghan official spoke of seeing more than 20 bodies in two lorries outside the governor's house.

He said women and children were among the casualties.

Those who transported the bodies said they had been killed by American air strikes, according to the same official.

The issue of civilian casualties is hugely sensitive in Afghanistan, the BBC's Martin Patience reports from Kabul.

Afghan President Hamid Karzai has repeatedly urged international forces to take greater steps to avoid them.

In a separate development, US envoy Richard Holbrooke told Congress in Washington that America's vital national security interests were at stake in both Afghanistan and neighbouring Pakistan.

Police killed

In a statement, US military said it was currently operating in the area and was investigating the reports.

According to Afghan officials, the violence broke out after more than 100 Taleban militants attacked a police checkpoint, killing three Afghan police.

Insurgents then moved to a nearby village where they killed three civilians whom they accused of spying for the government.

As the fighting continued, American air strikes were carried out against militants sheltering in houses.

Violence has increased sharply in Afghanistan over the past year.

An estimated 7,000 people - including 2,000 civilians - were killed in fighting during that period, the UN and aid agencies say.

President Karzai, who is due to meet US President Barack Obama in Washington on Wednesday, has long pleaded with US officials to reduce the number of civilian casualties.

The US plans to double its forces to 68,000 by the year's end to fight the Taleban, who have been waging a deadly insurgency since they were ousted from power by US-led forces in 2001.

UN probe finds Israel guilty of war crimes

UN probe finds Israel guilty of war crimes

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A UN report has found Israel responsible for six major crimes committed against Palestinians during the three-week offensive in the Gaza Strip.

The report released on Tuesday blamed Israel for six serious incidents leading to death, injuries, or damage during the Gaza War, AFP reported.

"In six of the nine incidents the board concluded that the death, injuries and damage involved were caused by military actions, using munitions launched or dropped from the air or fired from the ground, by the Israel Defense Forces (IDF)," the report said.

United Nations Headquarters Board of Inquiry launched a probe into nine incidents after Israel bombed several UN schools and buildings in December's war against Palestinians.

Two UN schools were bombed in a single day which led to the death of at least 50 people most of them women and children who took refuge in the buildings. The 22-day war left at least 1,350 people killed in the strip.

Israel, however, denounced the UN report on its performance in Gaza and termed it biased and misleading.

The report now waits for the UN Security Council's decision.

The US has so far vetoed all but one Security Council's anti-Israeli resolutions.

Washington's reaction to the recent report could be considered as a test to determine whether the United States has changed its policy in the Middle East.

Chrysler bankruptcy sets stage for assault on GM workers

Chrysler bankruptcy sets stage for assault on GM workers

By Jerry White

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Last week’s decision by the Obama administration to drive Chrysler into bankruptcy was a deliberate political action aimed at ratcheting up the pressure on General Motors workers to accept even deeper job cuts and wage and benefit concessions. This fact has been acknowledged by administration officials, news commentators and the United Auto Workers president himself, in the days following the bankruptcy announcement by the third largest US automaker last Thursday.

Using the refusal of a handful of Chrysler bondholders to accept a reduction in debt payments as a pretext, the US president implemented a plan to push the company into bankruptcy that had long been advocated by his auto task force, which had spent months laying the financial and legal groundwork for such a filing.

From the beginning, the task force, led by wealthy investors Steven Rattner and Ron Bloom, has sought to use the crisis to fundamentally restructure the auto industry in order to guarantee large returns to Wall Street. The plan to “save” the industry has nothing to do with defending the jobs and living standards of auto workers. Instead it is intended to drastically reduce the size of the industry—in line with its sharply smaller market share—and eliminating so-called “legacy costs,” i.e., the higher wages and benefits won by auto workers through generations of struggle.

Since 2006, Chrysler has already eliminated 33,000 jobs in the US. Only 27,000 hourly workers remain, compared with a peak of 110,000 in 1978. In carrying out its planned restructuring of General Motors, however, the Obama administration is seeking to carry out even more ruthless and rapid downsizing.

Writing in a May 3 article, New York Times chief White House correspondent David Sanger said, “Fresh from pushing Chrysler into bankruptcy, President Obama and his economic team are hoping the hard line they took last week gives them leverage to force huge changes in General Motors, a far larger and more complex company.”

While noting that at Chrysler “the tough job-cutting decisions had already been made,” Sanger writes, in GM’s case “Mr. Obama will be forcing deeper cuts” and “overseeing the radical downsizing of G.M.’s workforce,” that will eliminate “tens of thousands of additional jobs and close factories and dealerships nationwide.”

The White House intends to use the example of Chrysler to intimidate auto workers and break their resistance to mass layoffs and an historic rollback in their living standards and working conditions.

To underscore this, Sanger quotes the remarks made by Obama’s chief of staff Rahm Emanuel the day after Chrysler’s bankruptcy filing. “G.M. is very different than Chrysler,” Emanuel said. “But I suppose the one lesson for G.M., and all the other players, is that this is a moment when a Democratic president said, ‘I am really willing to let a company dissolve, and there’s not going to be an open checkbook.’ There’s got to be real viability.”

At the end of March, Obama rejected GM’s turnaround plan, saying that its proposal to eliminate 47,000 jobs, shut more than a dozen plants, eliminate four brands and close 2,600 dealerships did not go far enough. The president gave GM until May 31 to impose far deeper cuts and impose sweeping concessions on auto workers or face the bankruptcy courts.

As in the case of Chrysler, however, the auto task force has long advocated the use of the courts to break GM into two companies in order to jettison its undesirable assets and create a “new company,” which after drastic downsizing and a new concessions contract from the UAW, would be a highly attractive investment.

The danger confronting GM workers is now being played out in the bankruptcy courts. Under the terms of Section 363 of the Bankruptcy Code, Chrysler will transfer its most profitable assets into a new holding company, while leaving at least eight plants—a third of its manufacturing facilities—and billions of dollars worth of machinery and equipment left to rust in the “old company.” The US Treasury will provide $200 million for the “safe, prudent, and orderly wind down” of the 83-year-old Detroit auto company, according to the filing in the US Bankruptcy Court for the Southern Division of New York.

Italian automaker Fiat, which Obama praised for its ruthless cost-cutting in Europe, will take a 20 percent stake in the company, with an option to acquire a majority stake. Fiat boss Sergio Marchionne, who is also making a bid for General Motor’s Opel Division, hopes to position his company for a ruthless wave of mergers, acquisitions and bankruptcies as the global auto industry reorganizes in the face of the worst global economic slump in nearly a century.

In carrying out its attack on Chrysler workers, the Obama administration has relied on the United Auto Workers to suppress rank-and-file opposition and use the threat of bankruptcy to intimidate workers. Last week, the UAW pushed through a contract that will reduce wages and benefits to the level of non-union workers in the Japanese-owned transplants in the US. It will strip workers of cost-of-living allowances and bonuses, slash break time and holidays, eliminate the right to strike until 2015, expand the use of low-wage workers and gut medical benefits for retirees and their families.

The day after the UAW rammed through these concessions—saying they would prevent bankruptcy—Chrysler filed in court, announcing it was closing all of its plants until it emerged from Chapter 11 reorganization.

In exchange for its services, the Obama administration gave the UAW a 55 percent ownership stake in the “New Chrysler,” along with a seat on the board of directors. This will give the UAW a direct financial incentive to continue slashing labor costs and reducing benefits to current and retired auto workers in order to boost the share values of the company and its own holdings. As Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., noted, “to make the company more stable, [the UAW] has to reduce health-care benefits of its own retirees.”

In the planned restructuring of GM, the UAW is set to get a 39 percent ownership stake in return for accepting $10 billion for the $20 billion the company owes a UAW trust fund for retiree health care benefits.

In an interview with National Public Radio, UAW President Ron Gettelfinger praised the president’s decision to throw Chrysler into bankruptcy. “We are going to have to go back in and do something similar as we did in Chrysler. I don’t know whether they can avoid bankruptcy. I do think this. That the president allowing Chrysler to go into bankruptcy shows that he means business here. When he gave his speech [on March 31] in the case of Chrysler and said their plan wasn’t viable and gave them 30 days, he stuck to it.”

In much of the media coverage, the decision by the Obama administration to hand over a substantial stake of the auto companies to the UAW has been presented as a masterstroke for the UAW and a payoff for its support to the Democratic president’s election campaign. The Wall Street Journal went so far as to argue that Obama was creating “Gettelfinger Motors,” and rewarding the UAW for the “restrictive work rules, enormous health-care obligations and generous retiree benefits” that have “burdened the Detroit companies for decades.”

In a more sober comment, Floyd Norris from the New York Times noted that the Chrysler deal was no payoff for ordinary UAW workers and retirees. “The retirees may have a little better chance of getting benefits they were promised, but the current workers are getting little more than being allowed to keep some of their jobs. Walter Reuther, the man who built the U.A.W., must be spinning in his grave at the concessions his successors are making.

“This may come to be seen as Mr. Obama’s ‘Nixon in China’ moment. Just as it took a conservative Republican to open relations with the largest Communist country in the world, it took a liberal Democrat to break the U.A.W.”

Joining in this conspiracy against auto workers is the UAW apparatus itself. While abandoning anything that in any sense might be traditionally associated with a “union,” the UAW has transformed itself into a business entity, which, in league with the Democratic Party, is seeking to enrich itself from the carve-up of the auto industry and impoverishment of its workers. This is the final stage in the long degeneration of the UAW, beginning with the 1980 Chrysler bailout and decades of labor-management “partnership” and economic nationalism, that has transformed the UAW into an open enemy of auto workers.

Any struggle by workers in defense of their jobs and living standards will require a break from this reactionary organization and the building of rank-and-file committees to throw the UAW out of the factories. Such a fight must be guided by a new, socialist and internationalist strategy that sets out to reorganize production, including the global auto industry, to meet human needs, not private profit.

Obama administration spearheads wage cuts for American workers

Obama administration spearheads wage cuts for American workers

By Patrick Martin

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The wage cuts imposed on auto workers at Chrysler and General Motors at the insistence of the Obama administration demonstrate the class strategy that American big business as a whole is carrying out: to impose a reduction in the living standards of American workers on a scale unprecedented since the Great Depression.

The White House has given the green light for nationwide wage-cutting with its demands on Chrysler and GM workers, who have seen wages for new-hires slashed by 50 percent, along with the abolition of cost-of-living raises and cuts in vacation pay.

Several new reports show that big business is following the example set in Washington with enthusiasm.

According to an account published Sunday by the Washington Post, recent wage cuts have included a 10 percent reduction for contractors working for Microsoft, cuts for hotel workers in New York City, and reductions for state and local government workers in many areas and in much of the newspaper industry.

The Society for Human Resource Management said that its index of wages for new-hires showed a decline and wage rates for temporary workers are also falling. A survey of young workers by the online advocacy group Qvisory found that 19 percent of adults 29 or younger were out of work, 41 percent had been affected by wage cuts or cuts in work hours, and 40 percent had skipped meals recently to save money. Overall, 62 percent said their economic circumstances were “poor” or only “fair.”

Among the well-known companies that have announced major wage cuts are Advanced Micro Devices, Honda, Hewlett-Packard, Best Buy and FedEx. A Watson Wyatt survey of 245 major corporations in February found that 7 percent had already cut salaries and another 4 percent expected to as the economic slump worsens.

The Federal Reserve Board, in the March edition of its “beige book,” which collates reports from regional Federal Reserve banks, noted “outright reductions in hourly compensation costs” for the first time in the current slump.

The spread of wage-cutting has already begun to impact consumer spending, which fell in March, the first monthly decline of the year. Incomes fell for the third consecutive month, by 0.3 percent in March, “reflecting wage cuts and layoffs as employers cut costs,” according to the Associated Press.

The employment cost index, a broad measure of combined wages and benefits published by the Bureau of Labor Statistics, showed a rise of only 0.3 percent in the first quarter of 2009. It was the smallest quarterly increase since the US Department of Labor began tracking such statistics in 1982. Given the more rapid rise in prices, this means that most working class families have suffered a decline in real wages.

The fall in workers’ real incomes and the growth of mass unemployment are driving a continuing increase in poverty, hunger and homelessness. US food stamp enrollment rose again in February, according to figures reported Monday by the US Department of Agriculture, to a staggering 32.55 million Americans. The number of people receiving food stamps has risen by one million since the financial crisis exploded last September, with more than ten percent of all working people compelled to seek food assistance from the federal government.

According to the Food Research and Action Center, a non-profit group, another 16 million people are eligible for food stamps but are not receiving them, either because they are unaware of their right to benefits, have not applied or have been wrongfully denied.

The sharp fall in wages comes after an economic “upturn,” from 2002 through 2007, that was the worst for the incomes of working people since the Census Bureau began tracking the real purchasing power of wages in the 1940s. For the first time, the real earnings of middle-income families were lower at the end of the “recovery” than they were at the beginning.

More than one-quarter of all American workers, 26.4 percent, earned poverty-level wages in 2007, before the beginning of the current recession. That figure has skyrocketed since.

Economist Paul Krugman called attention to what he termed the “Falling Wage Syndrome” in his Monday column in the New York Times. He warned, “Falling wages are a symptom of a sick economy. And they’re a symptom that can make the economy even sicker.” He pointed to the danger that wage cuts would accentuate the problem of defaults on mortgages and consumer debt payments, as well as depressing consumer spending, the principal engine of the US economy.

A supporter of the Obama administration who occasionally criticizes it from a liberal standpoint, Krugman glossed over the fundamental class issues involved in the ongoing assault on wages.

He wrote: “Some of the wage cuts, like the givebacks by Chrysler workers, are the price of federal aid. Others, like the tentative agreement on a salary cut here at the Times, are the result of discussions between employers and their union employees. Still others reflect the brute fact of a weak labor market: workers don’t dare protest when their wages are cut, because they don’t think they can find other jobs.”

Krugman makes arbitrary distinctions in what is in fact a single process. Cutting wages is the class strategy of the American corporate elite, imposed through all the agencies of the ruling class, starting with the Obama administration.

Just as the Reagan administration’s smashing of the PATCO strike in 1981 gave the signal for the orgy of union-busting and strikebreaking that followed, so the Obama administration’s wage-cutting at Chrysler and General Motors is giving the White House seal of approval to a similar policy by corporate America.

Significantly, one of Obama’s key economic advisers today is Paul Volcker, who served as chairman of the Federal Reserve Board from 1979 to 1987, playing a leading role in the corporate onslaught on the working class and hailing Reagan’s mass firing of the PATCO air traffic controllers.

It was President Obama himself who declared that in the new economy he seeks to create, Americans would “consume less and save more.” If one asks exactly which Americans will be consuming less, the figures cited above supply the answer: working class Americans, many of whom are already living on the edge of poverty and bankruptcy.

As for Krugman’s reference to “discussions between employers and their union employees,” this too is an evasion. Giant corporations like the New York Times Co. are demanding savage wage cuts—using, as at the Times-owned Boston Globe—the threat of outright closure and mass layoffs—while relying on the union apparatus to impose their dictates on the work force.

There is no end to the demands by big business that workers pay for the crisis of American and world capitalism. What is required is a movement from below that rejects the entire framework of the profit system and advances the independent social and class interests of working people, based on a socialist program.

What is the Unites States preparing in Pakistan?

What is the Unites States preparing in Pakistan?

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Pakistani President Asif Ali Zardari will undoubtedly come under renewed pressure to allow US military forces to wage war within Pakistan when he visits Washington this week for a trilateral summit meeting with President Obama and Afghanistan’s Hamid Karzai.

For weeks, the US political and military establishment and the American media have been mounting an increasingly shrill campaign to bully Islamabad into fully complying with US diktats in what Washington has redefined as the AfPak (Afghanistan-Pakistan) war theater.

At the US’s behest, the Pakistani military has for the past 10 days been mounting a bloody offensive—including strafing by warplanes and heavy artillery—against Pakistani Taliban militia in the North West Frontier Province (NWFP). The offensive has caused large numbers of civilian casualties and forced tens of thousands of poor villagers to flee.

Between 600,000 and a million Pakistanis have been turned into refugees by the Pakistani state’s drive to pacify the NWFP and the country’s traditionally autonomous Federally Administered Tribal Areas (FATA), so as to bolster the US occupation of Afghanistan.

The US ruling elite has welcomed the latest round of bloodletting, but it is far from satisfied. The flurry of threats, implicit and explicit, against Pakistan, its people and government has continued unabated in the run-up to Zardari’s Washington visit.

At an April 29th press conference, Obama described Pakistan’s civilian government as “very fragile” and not having “the capacity to deliver basic services” to its people, or to gain their “support and loyalty.” But he praised the Pakistani military and the “strong” US-Pakistani “military consultation and cooperation.”

Given Washington’s pivotal role in sustaining a succession of military dictatorships in Islamabad, Obama’s statement was widely interpreted both in Pakistan and within the US political establishment as signaling that Washington is considering sponsoring a military coup.

This was underscored by reports citing the chief of the US Central Command, General David Petraeus, as saying that if the Zardari government did not demonstrate over the next two weeks that it can crush the Taliban insurgency in the country’s northwest, the US will have to determine its “next course of action.” Petraeus went on to declare Pakistan’s military “superior” to the country’s civilian government.

Such was the outcry in Pakistan that State Department spokesman Robert Wood was forced to deny Friday that Islamabad faces a two-week “time frame.” Nonetheless, he bluntly asserted that Washington expects Pakistan to make a “110 percent effort” in the fight against the Taliban, and not for “two days, two weeks, two months,” but for the foreseeable future.

Obama’s special envoy to Afghanistan and Pakistan, Richard Holbrooke, denounced the apprehensions voiced in the Pakistani press that less than nine months after the last US-backed dictator, General Pervez Musharraf, was forced to relinquish the Pakistani presidency, Washington is considering supporting a military-led government. “This is journalistic garbage ... journalistic gobbledygook,” declared Holbrooke.

The evidence that the Obama administration is preparing some new crime in Pakistan so as to ratchet up its war in Central Asia is overwhelming.

With the transparent aim of intensifying the pressure on Zardari, the Obama administration, according to high-level administration officials cited last week in the Wall Street Journal and New York Times, is now courting his arch-rival, former prime minister and Pakistan Muslim League (N) leader Nawaz Sharif.

Obama, at his press conference last week, claimed that the US wants to respect Pakistani sovereignty. “But,” he added, “we also recognize that we have huge strategic interests, huge national security interests in making sure Pakistan is stable.”

In other words, the US will violate Pakistan’s sovereignty at will. Since last August, the US has mounted dozens of missile strikes within Pakistan and one Special Forces ground attack.

Last week, Defense Secretary Robert Gates announced that the Obama administration is asking the US Congress to give the Pentagon the same powers in relation to military aid to Pakistan that it has in respect to military assistance to the puppet governments in Iraq and Afghanistan. Under this “unique” arrangement, military aid to Pakistan would no longer flow through the State Department or be subject to Foreign Assistance Act restrictions, but rather be entirely controlled by the Pentagon.

Then there is the extraordinary lead article in yesterday’s New York Times, headlined “Pakistan Strife Raises US Doubts on Nuclear Arms.” Written by the newspaper’s White House correspondent, David Sanger, the article has all the markings of a CIA or Pentagon put-up job, concocted with the aim of manipulating public opinion and justifying a major escalation of the US political and military intervention in Pakistan.

The article is based entirely on the statements of unnamed “senior American officials.” It claims, notwithstanding Obama’s statement of last week affirming confidence in the Pakistani military’s control of the country’s nuclear arsenal, that there is a real and growing threat that Taliban or Al Qaeda operatives could snatch a Pakistani nuclear weapon or infiltrate its nuclear facilities.

To explain how the Islamicists could circumvent the elaborate controls the Pakistani military, with US assistance, has placed over its nuclear arsenal, the article advances a thriller-type scenario. Islamicists would first trigger a confrontation between India and Pakistan, then seize a weapon when Pakistan seeks to move it closer to the border with its eastern neighbor.

The Times, it should be recalled, played a major role in seeking to mobilize US public opinion behind the invasion of Iraq. Front and center in this campaign was the lie that the Iraqi government was in league with Al Qaeda and might give them access to nuclear weapons Saddam Hussein was supposedly developing.

That the Times’s article was part of a coordinated campaign was underscored by an interview given to the BBC by Obama’s national security adviser, Gen. James Jones, on Monday, the same day that the Times article appeared.

Jones singled out as the top US concern the safety of Pakistan’s nuclear arsenal, and made a thinly veiled threat against the Pakistani government, saying, “If Pakistan doesn’t continue in the direction that it presently is, and we’re not successful there, then, obviously, the nuclear question comes into view.”

He went on to say that Pakistan’s nuclear weapons falling into the hands of the Taliban would be “the very, very worst case scenario” and added, choosing his words carefully but pointedly, “We’re going to do anything we can within the construct of our bilateral relations and multilateral relations to make sure that doesn’t happen.”

The Obama administration and the Pentagon are clearly weighing their options in respect to Pakistan and its role in the US thrust for geo-political advantage in oil-rich Central Asia. One thing is certain: What they are preparing will lead to greater violence and suffering for the people of the region and will further subvert the democratic will and aspirations of the Pakistani people.

May Day of Pain and of Hope

May Day of Pain and of Hope

By Nikos Raptis

Go To Original

Suppose that the daughters of the Obamas picked up from somebody that "May Day" is an important, historic, and interesting holiday. Being young and curious, they decide to learn more about "May Day". So, they go to the "Britannica (Ages 8-11)". They read: "A holiday celebrated on May 1, May Day marks the start of spring. May Day is not an official holiday in the United States. The government, businesses, and schools do not usually close. Still, many people celebrate May Day with festivals or flowers. In some countries May Day is a holiday that honors workers, similar to Labor Day in the United States". [This is the "Britannica" after the fall of the Soviet Union.]

[Note: The entry in the Britannica (1984), before the fall of the Soviet Union, reads: "May Day was designated as an international labor day by the Socialist International congress of 1889. It is a major holiday in the Soviet Union and other Communist countries, and elsewhere it is the occasion for important political demonstrations".]

Now, let us take a Greek child, of 8-11 years old, and see what she or he could learn about "May Day" by reading a Greek newspaper, say "Eleftherotypia", a mainstream [centrist] daily that their parents brought home:

The first thing that the child shall see, in a two [tabloid] pages-long article, will be 10 photos or engravings of the persons or sites involved in the Chicago Haymarket incidents of May 1886:

- An engraving of August Spies (1855-1887). Its caption reads: "He was born in Germany. Went to the USA as an immigrant in 1872. An excellent writer both in German and in English... When Spies read a French article titled 'The Day After the Revolution' he asked a comrade of his what he would do the day after. The comrade answered: 'I would put you in prison until things had settled down, because your compassion would prevent us to take direct action'. Before he was hanged, with his head covered by a hood, Spies said: 'There will come a time when our silence will be more powerful than the voices you strangle today'".

- A photo of Albert R. Parsons (1848-1887). Its caption reads: "He was orphaned when he was five and he was sent to live with his older brother. He was raised by a black slave, aunt Esther. During the Civil War he fought on the side of the South... When he returned he was ashamed to face the black aunt Esther, who in essence had been his mother. After a long discussion with her, he changed deeply his life. He became politicized... He married Lucy Gathings [see below] had two children with her... His last words [on the scaffold] were: 'Let the voice of the people be heard'".

- A photo of Lucy Parsons (1853-1942). Its caption reads: "Lucy Parsons was a woman, black (with Indian blood), an anarchist, and of unknown parents. Therefore, she ought to be erased from History. This is why the forces of 'law and order' seized her personal papers after she died... Her writings and her activist work ranks her among the most important [and most ignored] personalities of the global Left. It is not an exaggeration to say that the recognition and the continuation of the Workers' May Day is due mainly to the efforts of that woman, who for 55 years after the execution of her husband, Albert R. Parsons, dedicated her life to this aim and to the struggle for ordinary people." [The writer (a Greek) of the Eleftherotypia article dedicates it to the memory of Lucy Parsons].

- A photo of Nina Van Zandt Spies. Its caption reads: "Daughter of a very wealthy Chicago family. As it was fashionable [at the time], she went with her mother to follow the trial of the Haymarket anarchists, as an amusement. However, a new world opened for her there. She began visiting the prisoners... and when she was prohibited to visit, she married Spies. She entered the movement of the Left and she died in 1936 in utter poverty, as an aunt of hers disinherited her of an inheritance of half a million dollars (of 1886)".

- An engraving of Julius Grinnel, State's Attorney: Its caption reads: "Make the raids first and look up the law afterwards". [Words of the person, Grinnel, who was the Prosecutor (!) in the Haymarket trial].

- A photo of the Monument of the Haymarket Martyrs. Its caption reads: "At the base of the monument engraved are the [above] words of August Spies... It is found in the Waldheim Cemetery in Chicago, since 1893. It is, arguably, the most important monument in the world history of the Left".

- A photo of a Chicago statue of a policeman. Its caption reads: "The statue of the policeman, photographed during a [May Day] commemoration in 1969 on the anniversary of Haymarket. A little time later it was blown up".

[Note: The text in the article, that includes the photos, has a short history of the statue of the Chicago policeman: "The monument was erected by the Chicago elites who spent 10,000 dollars for it. It was created by the sculptor John Gelert... who chose as his model the 'perfect policeman' an Irish-American, Thomas F. Birmingham. Later, Birmingham, was sacked from the police as a dealer in stolen goods and an accomplice of criminals. He died of heavy drinking as a petty thief in a seamy Chicago neighborhood.

The unveiling of the statue took place in 1889...On May 24, 1890, an unsuccessful attempt to blow up the statue was made. In May of 1903 the bronze plaques at its base were torn away. In 1927, the 41st anniversary of Haymarket, a streetcar driver, by the name O'Neil, derailed purposely the streetcar he was driving and threw it on the monument thus toppling over the statue of the policeman. On May 4, 1968 buckets of black paint were thrown on the statue during a demonstration against the Vietnam war. On October 6, 1969 the statue was blown up. It was blown up again on October 6, 1970... Finally in 1976 the statue was moved in the garden of the Police Academy". End of Note.]

The main body of the "Eleftherotypia" article offers a summary of the Haymarket events and adds the information that in 1911 in Japan Shusui Kotoku and 11 of his comrades were executed in Japan, because they carried on the struggle that began in Haymarket. [Source for the "Eleftherotypia" article had been mainly the "Haymarket Scrapbook", ed. Dave Roediger & Franklin Rosemont, Charles H. Kerr Publishing Company, Chicago, 1986.]

So, the daughters of the Obamas, for a "strange" reason, the only things that they will learn about Haymarket, the Waldheim monument, Lucy Parsons, the Chicago police statue, etc. will be that "May Day is not an official holiday in the United States. [And that] In some countries May Day is a holiday that honors workers...", while children in Greece will not only know what happened in Haymarket but they will grow up in a society that offers experiences and knowledge based on the Haymarket martyrs. Experiences and knowledge that are part of their culture and of their history. Here are a couple of these "experiences":

- The Haymarket events took place on May 3 and May 4 of 1886. The number of American workers killed by the Chicago police is unknown. On May 9 of 1936, in Salonica [or Thessaloniki], the second most important city of Greece [even for St. Paul's "travel" itinerary and epistles], there was a demonstration by the local Greek labor movement. The police killed 8 workers. The first death was that of Tasos Tousis, a 25-year-old worker. After a while his mother arrives at the site and she starts mourning over the dead body of her son. The Greek poet Giannis Ritzos writes a poem, "Epitafios" [Epitaph], inspired by the pain of the mother. Mikis Theodorakis, in 1958-59, composes an oratorio-type of musical work by the same name, "Epitafios". This composition, for the Greeks, is the "hymn" for May Day and the workers of the world.

[Parenthesis: About Mikis Theodorakis and his music, see my ZNet Commentary "Cultural Resistance", of December 14, 2005. By the way, given the discussion about torture, Cheney, ConDolcezza, et al, here is an interesting piece of information. A couple of weeks ago, in mid-April '09, during an interview on television, Mikis said that Mamalis, the notorious torturer of the security police during the 1967 dictatorship in Greece, boasted to him, while Mikis was under arrest, that he had "new methods of torture that he was taught in the US." Obviously, that was before 1967. After the "removal" of the dictatorship by the US, Mamalis was executed in an Athens street by unknown persons. End of Parenthesis]

- Entering Athens from the West one meets on his left an area called Haidari (the name probably is Turkish!). What follows about Haidari could be profitable for ConDolcezza Rice to do her "homework":

For all of us living in Athens during the 1941-1944 Nazi occupation the name of "Haidri" was a synonym for death. Haidari was a concentration camp run by the Nazi SS. There is quite extensive literature on Haidari, in Greek. To convey a faint idea of "life" in Hairdari under the Nazi SS, I chose a 24-page yellowed little booklet of 1944, printed a few weeks after the Nazis left Greece in 1944.The author, Iris Skaraveou, probably is a very conservative person as she uses a very "refined" language used only by conservative people or the authorities, in contrast to a "demotic" [people's] language used by the Left. As a matter of fact, I was almost arrested by the security police, while accompanying an American from Toledo, Ohio in the early '70s, to show him the Parthenon, because I supposedly used the "demotic" form for the genitive of a noun. "Ms" Rice can enrich her "homework" by checking the truth about this Orwellian use of language by her predecessors in "occupied" countries like Greece. All she has to do is ask the CIA to explain to her the procedure.

Iris Skaraveou writes: "Each morning the German Commander of the prison conducted an inspection of the prisoners and forced them, especially the women, to remove all their vestments, and present themselves in front of him stark naked ['in Adam's raiment', in Iris' refined Greek]. This was done without any requisite reason, but simply and only intending to humiliate the unfortunate detainees". [Does this remind Condi of any photos from recent activities of the US military in Iraq, Guantanamo, etc.?].

Iris continues: "The German soldiers did not need any instructions. They knew well what to do. They took a detainee and directed him to one of the corridors of the building and ordered him to stay standing close to the wall facing it and was not allowed to let his body or his hands touch the wall. The detainee remained in this position for many hours..." This was 1943-1944 in Nazi occupied Greece. The reader is [strongly] prompted to read my ZNet Commentary "Interrogation Methods and People" of March 11, 2006, describing the torture-through-standing of a Greek, Anastasios Minis, in July 1972, by the [US supervised] Greek military.

Finally, Iris describes the rape of the imprisoned women by the German soldiers "under the gaze and the lusty cheers of their officers...who attacked the detained women...in the same brazen manner". No need to go on. The picture is clear, even for Condi.

In the Haidari concentration camp there was a very important group of detainees. They were a group of 200 plus communists who were arrested between 1936 and 1940 by Metaxas, the pro-Nazi dictator of Greece at the time. When the Germans occupied Greece in 1941 the Greek police, probably with the acquiescence of the British, who were the enemies of the Nazis, handed the Greek prisoners to the Nazis!

On April 27, 1944 anti-Nazi Greek Resistance fighters in Peloponese killed a German general and three German soldiers. The Germans decided to kill 200 Greeks plus 100 Greeks in Peloponese [the latter finally killed by Greek collaborators of the Nazis].

On the evening of April 30, 1944, on the eve of May Day, the German commander of the Haidari concentration camp, read a list of 200 detainees who, supposedly were to be moved to another concentration camp. The 200 were the above mentioned communists. The 200 readily understood that they were chosen to be executed for the killing of the four Germans. Among the 200 there was Napoleon Soukatzidis, whom the Germans used as an interpreter in the camp, as he was fluent in the German language. The Commander told Napoleon that he was not going with the 200 and that he, the Commander, would substitute another detainee in Napoleon's place. Napoleon refused to allow the execution of another human in his place. The detainees started to sing and dance. A German soldier with tears in his eyes shouts "Bravo!" The next morning, on May Day the trucks that carried the 200 started through the streets of Athens towards the neighborhood of Kesariani, the site of the executions. At the site the 200 demand not to be shot in groups of ten but all of them together in one group. After a series of negotiations between the executioners and those to be executed it is agreed that the execution will be in groups of 20, so that the rest could load the dead bodies of the previous group to the trucks and not the German soldiers. Then, the 200 start to sing and dance once more and the execution begins. Finally, the last group of 20, inevitably, is loaded by the German soldiers on the trucks.

The execution took place on 10 a.m. The site of the executions was the "Shooting Range" where the Greek sportsmen and the Greek athletes prepared for the Olympic games, etc. It is situated smack in the middle of the Kesariani neighborhood. Thus, many of the people in the neighborhood were eyewitnesses of the slaughter from the roofs of their houses which were adjacent to the "Shooting Range." I rarely take American friends who visit Athens to the Parthenon. I take them to the Kesariani "Shooting Range." As a matter of fact, in 1985, a charming American lady from Los Osos of California, to thank me for showing her the site, managed to unearth a used copy of "Time" magazine, dated April 28, 1967, which I had never seen, as the US-instigated dictatorship had confiscated that particular issue of "Time".

The Nazis were killed, in Peloponese, on April 27. Usually, the Nazis "settled" the matter of the ratio, 1 German : 50 Greeks, in a matter of hours. It is not farfetched to think that they chose the "leftist" May Day, 4 days later, to execute the 200. Anyway, the Name of Napoleon [even a rather vulgar first name] is imprinted in the minds of the 2/3 of non-conservative Greeks and is part of the May Day holiday for them. Of course, for the 1/3 of "conservative" Greeks, as for Con Dolcezza and for the "conservatives" of the world, the Nazis were not that bad. Can any one imagine that W. Bush, Cheney, Rumsfeld, Condi, and the rest of the gang could ever have the moral greatness of Napoleon Soukatzidis, an atheist Greek?

As the trucks with the 200 were driving through the streets of Athens towards the execution site, the detainees threw pieces of paper or cloth on which they had written the address of their relatives and their last words. These pieces of paper were gathered by passersby and given to the relatives.Thirty years later, in 1974, they were published in book form. Here are a couple of them:

- Napoleon Soukatzidis, graduate of the Athens University of Economics, to his fiancee: "My last thoughts are with you. I would like to make you happy. Love my dad and my sister. Find the mate of your life. Some keepsakes will be given to you by Zisis". May 1, 1944

- Kostas Tsirkas, teacher: "May Day of 1944. Good-bye to all, we are going to the battle". May 1, 1944

To honor the dead of the May Day from 1886 to this day all over the world is a personal moral, political, and inspirational matter for each of us. To demand the punishment of the Bushes, the Blairs, the Cheneys, and the rest of the murderous individuals who carry on the barbarous tradition of the May Day killers, judges, executioners, etc. is a duty for all of us.

What To Do When the Bailout Fails

What To Do When the Bailout Fails By David Schweickart

Go To Original

Dear President Obama,

We have never met, although we are neighbors of sorts. I live a couple of blocks from your Hyde Park home. We vote at the same polling place, Beulah Shoesmith Elementary School.

My daughter Karen has met you. She took two classes from you when she was in law school at the University of Chicago. My granddaughter Lauryn has met you, too-although she doesn't remember the occasion. Karen brought her to class one day, shortly after her birth. Karen and Lauryn both attended your inauguration, ticketless but with much enthusiasm. I wasn't there, but I share their enthusiasm.

Which is why I am writing you this letter. You have somehow, against all odds, become president. You are in position to do things that few others on this planet are in position to do.

This is not a letter you'll want to show to your economic advisers anytime soon, certainly not to Paul Volcker or Robert Rubin or Larry Summers. They would find it crazy and/or hopelessly utopian, probably both. But if the policies they propose are implemented yet fail-as I fear they will-you might want to think about some of the things I'll be saying here. I'm proposing, if you will, a backup plan.

The Real Cause of the Present Crisis

First, let me explain to you why I think your stimulus package will fail, why the problem may be worse than even your most pessimistic advisers think.

It is important to grasp the real cause of the present crisis. It is not the subprime lending, nor the housing bubble. It is not Wall Street greed, nor the investment managers' feckless "innovations," nor even the reckless borrowing that has characterized almost all sectors of the economy. These factors have all played a role, but they are at best proximate causes.

Let me start with a picture, cribbed from a lecture by University of Massachusetts Amherst economist Rick Wolff-a Marxist. (I warned you about showing this to your advisers).

What we have here is a (simplified) graph showing a steady growth of output per worker in the U.S. economy since World War II, due to ever-increasing productivity. The corresponding wage trajectory, you will note, rose in tandem with output until the mid-1970s, then went flat. That first period, 1945-75, is sometimes referred to as capitalism's "Golden Age." As Paul Krugman noted in The Conscience of a Liberal:

Postwar America was, above all, a middle-class society. The great boom in wages that began with World War II had lifted tens of millions of Americans-my parents among them-from urban slums and rural poverty to a life of home ownership and unprecedented comfort. The rich, on the other hand, had lost ground. They were few in number and, relative to the prosperous middle, not all that rich. The poor were more numerous than the rich, but they were still a relatively small minority. As a result, there was a striking sense of economic commonality: Most people in America lived recognizably similar and remarkably decent material lives.

This, you will recall, was the heyday of "Keynesian liberalism," or, if you prefer, social democracy. Marx had been proven wrong. Workers were not consigned to increasing immiseration. They shared in the productivity growth that capitalist innovation produced (from publicly funded research, as well as private investment). But this "social democratic contract" expired in the mid-1970s. Please note, in the mid-1970s, not in 1980 with Ronald Reagan, but well before that. Why? I'll get to that later. First let's think about the consequences.

At first glance, it would seem that we should have gone back to what Marx predicted-a classic crisis of overproduction. With wages held down, who was going to buy the ever-increasing number of goods being produced? To be sure, we did get a nasty twenty-month recession beginning in 1980-"the most severe downturn since the Great Depression," as it was then described-when Paul Volcker, then Fed Chief, tightened the money supply. But this was a deliberate policy move, designed to "slay the dragon of inflation." Which it did. We came out of it during Reagan's first term; the economy began growing again, and, apart from some fairly minor interruptions, it kept on growing-until a year ago.

But how was that possible? With wages flat, who was buying the products? Well, as you know, the rich got very much richer in those days, creating a separate country (designated "Richistan" by Wall Street Journal columnist Robert Frank), chock-full of McMansions, multimillion-dollar yachts, private jets, etc. (Over the past thirty years the average annual salary in America has increased only 10 percent, whereas the real annual compensation of the top 100 CEOs has increased 3,000 percent.) But those expenditures weren't nearly enough to keep the economy on track. Ordinary people had to keep buying also, more and more. How? You know the answer to that question. We all do. By borrowing. Credit card debt has increased sevenfold (adjusted for inflation) since 1975, home equity loans have mushroomed, students have gone deeper into debt, and automobile loans have rocketed upward. All in all, outstanding household debt mushroomed from 47 percent of GDP in 1975 to 100 percent of GDP thirty years later.

Marx would probably have smiled, saying: "How clever those capitalists think they are. Instead of keeping up spending by raising wages (which I hadn't counted on them doing), they decided to loan the money to the working class instead. Much better, since they can collect interest on those loans. But, of course, they neglected one small fact. When it becomes clear that these debts are never going to be repaid, lending will stop. That big crisis I predicted ... well, hang on, folks, here it comes."

It was a long time coming, longer than one might have expected. Lots of money was made during the credit boom-more than could be loaned out again to the "real" economy-so it flowed into the stock market, setting off a bubble there, and then, later, into real estate. (The Dow Jones doubled during the Golden Age from 500 in 1956 to 1,000 in 1972, during which time wages doubled also. It increased fourteenfold during the ensuing flat-wage period, hitting 14,000 in 2007.) People felt richer, so they spent more and were able to borrow more against ever-rising asset values.

But what can't go on, doesn't. Credit lines max out, especially when compound interest and falling asset values kick in.

A Keynesian Remedy?

OK, we're in a bind. How do we get out? Your economic advisers call for a return to Keynesianism. Monetary stimulus: get the Fed to cut interest rates and get money to those banks that are in trouble. Fiscal stimulus: unbalance the budget (which was already badly unbalanced, but take no heed), cut taxes, and engage in direct job creation. Surely these are moves in the right direction. Don't be timid. You should take Paul Krugman's advice: you need to be bolder than FDR ever was. (You should be reading everything Krugman writes-which you probably are-and acting accordingly). Let's get universal health care while we're at it. With so many people in distress, the time could hardly be more right.

Maybe this will work. Honestly, I hope it does. But, as you know, Keynesianism has been tried before, with mixed results. We're all looking back to the Great Depression these days, and the New Deal that saved the day. Except it didn't. It wasn't FDR's job creation programs, noble though they were, that pulled us out of the last Great Depression. Unemployment was at 3 percent in 1929. It had jumped to 25 percent when the New Deal began-but was still at 17 percent in 1939. It took World War II to pull us out: that vast mobilization of millions of men to fight abroad and the mobilization of many millions more to supply them with the wherewithal to do so.

It's hardly bad news that there's not going to be World War III. The technologies are far too destructive for even the most insane neocon to advocate war with China. Thanks to our twin debacles in Afghanistan and Iraq, no one has illusions anymore about our military omnipotence. As it is, we are spending more on our military than all the other countries of the world combined spend on their militaries. Massive Cold War defense spending long after World War II was over was certainly a factor in keeping the Golden Age golden, but there's not much room left now, if any, for expanding military Keynesianism.

Keynesianism came to grief in the 1970s. Unions had become strong, and the government was committed to economic stimulus whenever unemployment worsened. But if productivity doesn't increase fast enough, then those union-negotiated wage increases and the additional government spending create inflation, not growth. We got stagflation, remember, which made everyone unhappy, including the workers themselves, who saw their gains nullified. So the stage was set for a war against inflation (initiated by Mr. Volcker) that caused unemployment to shoot up to 10 percent, making labor more docile than it had been in decades. Employers went on the offensive against the unions, relocating plants to the non-union Sunbelt, and then, as deregulated globalization took hold, to anywhere else they wanted. (Why did wages flatline? The short answer involves a one-two-three punch: inflation, fierce recession, and globalization.)

If I'm right-that ultimately it is too-low wages that are the problem-well, how are your programs going to fix that? We can't raise wages, can we? Companies will just move abroad. It is that threat-by no means idle-that has kept those wages flat for so long. Yes, by all means make it easier for working people to join unions. By all means let's have worker free choice. That will help some. But as the concessions just wrung out of the UAW so that their companies could get bailout money make clear, union bargaining power is but a shadow of what it once was.

Environmental Crisis

Let me throw one more grim consideration into the mix. Suppose I'm wrong. Suppose we do get the economy growing again-and are able to keep it growing. That will bring us face to face with a crisis of a different sort, a crisis based on the very fact of relentless, limitless growth: the environmental crisis. This one is real in a more profound sense than our current economic crisis, in that it has a material basis, as opposed to a "merely" structural one. We are running down our supply of fossil fuels, depleting our fisheries and forests, pouring too much carbon dioxide into the atmosphere, using way too much fresh water, etc. Sure, your advisers will tell you that we can "grow" our way out of this crisis by investing in green technologies, better insulating our homes and so on, but honestly, that's a fairy tale. You know that, don't you? To be sure, these things are important. They help. But it should be obvious that a long-term solution requires shifting our economy to one that does not depend for its health on ever-increasing consumption-a consumption that doesn't make us happier anyway.

Let's be clear: the fundamental problem isn't the consumer. If consumers were just naturally voracious, our businesses wouldn't have to spend $300 billion or so every year trying to persuade us to buy what we might not otherwise realize we "need." (Firms try to persuade us to buy X rather than Y, not goods in general, but the net effect is relentless, ubiquitous propagandizing on behalf of consumption.) The persuasion works-most of the time. As the present crisis makes crystal clear, when consumers cut back their spending, the economy nose-dives-and everyone suffers. Clearly, the ecological crisis is not so much about consumption as it is about our mode of production. It would be very hard to solve it by voluntary simplicity alone, when the whole economy is built on pushing products with sophisticated propaganda.

So we are in a tight corner. Those concerned about rising unemployment urge us to spend, spend, spend, while the environmentalists scream back that our consumption-addiction is killing the planet. And both sides are right. Moreover, both sides really want the same thing: a healthy, stable, full-employment economy that treads lightly enough on our fragile planet to be sustainable. It's what we all want, isn't it?

A Democratic Alternative to Capitalist Craziness

Here's where I make my pitch. A stable, sustainable, full-employment economy is possible. Its institutions are imaginable. It would be democratic and efficient. It would embrace market competition. There would be a place in it for entrepreneurial capitalists and for a small business sector like the one we already have. In fact, it wouldn't look too different from what our economy looks like today-and yet it would be very different.

This is something I've been thinking, speaking, and writing about for my entire academic life. Let me sketch briefly the basic institutions of what I call "economic democracy." (It is a form of socialism, but we might not want to use that word-not that it wouldn't be immediately branded as such by opponents terrified that, on its own merits, it might look too good to too many people.)

Workplace Democracy

Let's imagine a world in which most large enterprises are run democratically. They are communities-not properties to be bought or sold or "relocated" to lower-wage parts of the country or globe. When you join a firm, you get to vote for representatives who will serve on a Workers Council that serves the same function that a Board of Directors (representing shareholders) serves in a modern corporation: selecting top management, setting the terms of employment, and approving major business decisions.

You have a vested interest in voting for competent representatives, who will appoint competent management, since your income is tied directly to the fate of the company. You don't receive a fixed salary. Your income is a share of the company's profits. (Shares aren't equal. They will vary according to whatever criteria the enterprise chooses, e.g., seniority, levels of responsibility, special skills, etc.) This gives you and every other worker in the enterprise a major incentive to work hard and effectively-and to monitor your co-workers to see that they do the same.

These enterprises compete for customers in a free market constrained only by familiar regulations that compensate for market externalities and protect consumers from deception and avoidable harm. These enterprises will exist alongside a public sector providing certain services, which will include health care and investment banks (see below) in addition to infrastructure, education, and security services.

Social Control of Investment

Enterprise governance is one key structural difference between economic democracy and capitalism. The other concerns finance, specifically the mechanisms that generate, then allocate, funds for new investment. The "free market" has proven itself inadequate to the task of performing this function efficiently-to put it mildly. (Can any economist these days use the term "efficient markets hypothesis" with a straight face?)

There are two parts to our reform. The first involves the source of funds. Let's break the connection between saving and investment. We won't rely anymore on private savings, which, apart from pension funds, come overwhelmingly from the wealthy. Relying on this segment of society makes the whole economy hostage to their "animal spirits"-to use Keynes's term. How much societal investment we need, where and in what enterprises these funds should be invested-these decisions are vital to the long-term future of everyone. They are too important to be left to the hunches and intuitions of a small segment of the population that is largely invisible and wholly unaccountable to the general public.

People can still save. We'll have Savings and Loan Associations in our economy, where modest interest is paid on deposits, which are insured by the federal government. These regulated S&Ls will serve as source for home mortgages and other consumer loans-as they once did, in pre-deregulation days.

Business loans, however, are another matter altogether. We'll raise all the funds for business investment publicly, the way we raise funds now for public investment-namely, from taxes. Let's abolish the corporate income tax (which few corporations pay anymore anyway), and substitute a capital assets tax-a flat-rate tax on the value of an enterprise's tangible property. As it is now, we tax labor, via the payroll tax, but not capital. (As all economists know, but few bother to mention, this distorts the efficient allocation of resources, making labor more expensive than it need be, thus giving incentives for automation and making production more capital-intensive than it ought to be.) This tax redresses the balance.

Under the new system, the revenues from this tax are kept separate from general tax revenues. All go into the "investment fund." All are plowed back into the economy, as loans to existing businesses wanting to expand production or upgrade their technologies, or to individuals wanting to start up new businesses. (Just as payroll taxes are specifically earmarked for social security payouts, the capital-assets taxes are specifically earmarked for business investment.)

Once collected, these investment funds are allocated to a network of regional and local banks, each region getting its per capita share. (Congress can readjust this allocation, but since the allocation is a zero-sum game, any deviation will need solid justification.) Every year, each region of the country gets its fair share of the national investment fund. Regions don't compete for capital. They don't have to offer tax breaks and other incentives to attract investors. Citizens don't have to pick up and move from capital-starved regions to those into which the capital is flowing. Capital flows automatically to where the people are. Community stability is thus greatly enhanced.

Enterprises within regions do compete for capital. The investment banks are public institutions. Loan officers are public officials charged with allocating society's resources efficiently. Profitability is a major criterion of success, although a community might want to add some others-employment creation, for example, or the fostering of green technologies. In any event, the allocation process is open and transparent because these banks are public institutions loaning out public money. Loan officers whose portfolios perform well will be rewarded; those whose portfolios do not may lose their jobs. Thus we have incentive structures in place appropriate to the efficient allocation of capital in accordance with democratically decided priorities.

These are the basic institutions of economic democracy: a competitive market for goods and services, widespread workplace democracy, and what I call "social control of investment."

There are a few supplementary policies that an economic democracy should also adopt; full employment, "capitalism within socialism," and socialist protectionism.

Full Employment

We need the government to serve as the employer of last resort. Every person wanting to work should have a job. No market economy, capitalist or socialist, can guarantee full employment. The government has to do that. Every citizen should enjoy a genuine "right to work." These jobs will not be high paying, but they should involve decent, socially useful work. Involuntary unemployment is a scourge, a deepening, terrifying global trend that must be addressed head on. (To be unable to find work is a terrible thing. It's as if society is saying, "There is nothing you can do that we need. We may deign to keep you alive, but make no mistake: you are a parasite, living off the labor of others." Is it any wonder that unemployment breeds social pathologies?)

Capitalism within Socialism

Economic democracy does not require that every business be democratically run. Small businesses need not be. Nor larger businesses either, no matter what their size, so long as the entrepreneurial founders are still actively involved. Economic democracy values entrepreneurial ability. Society as a whole profits from the exercise of such talents. If capitalist incentives are useful in fostering such abilities, they should be retained.

Our economy will feature an entrepreneurial capitalist sector. Anyone who wants to can start a business, hire as many workers as she wants, introduce as much or as little worker-participation and profit sharing as she sees fit. However, when the entrepreneur wants to retire or move on, and the business exceeds a certain size, she or he must sell the business to the state, which will then turn it over to its workers to be run democratically. The entrepreneurial capitalist sector thus serves as an important source of democratic firms. Such capitalists play a valuable role in our socialist economy and are duly honored therein.

Socialist Protectionism

One final policy: economic democracy values healthy competition-competition among producers to find out and produce what consumers really want, to use their resources efficiently, and to innovate. But not all forms of competition are healthy. Wage competition is not. We do not want workers competing with one another to see who will work for less. This is race-to-the-bottom competition. In particular, we do not want our enterprises competing with those enterprises in poor countries whose competitive advantage derives from the fact that their workers earn substantially less than ours do. For this reason we should adopt a policy of "socialist protectionism."

The protectionist part: we will charge a tariff on goods imported from poor countries to bring the selling price of the goods up to what they would be if labor costs in the exporting counties were comparable to our own. We are thus protecting our workers from "unhealthy" competition.

The socialist part: we rebate the tariff back to the country of origin. This money may go to the government if we deem it progressive enough, or to labor unions or NGOs working to upgrade working conditions there. In effect, our consumers are paying higher prices for their imported goods than the price the free market would set, and this difference is going to the poor country. That is to say, we believe in fair trade, not free trade.

Economic Democracy, Stability, Sustainability

Mr. President, I've provided only a bare sketch of an alternative economic order. I won't try to defend here the claim I defend elsewhere, namely that economic democracy is not only economically viable, but it would also be vastly more democratic and egalitarian than our current economic system. I do want to say a few words, though, about the crises I discussed in the first part of this letter.

The first conclusion we can draw is a large one: economic democracy is not vulnerable to the kind of economic crisis we are now experiencing. The basic reason is simple. There are no private financial markets in economic democracy. Markets for goods and services remain, but there are no stock markets, bond markets, hedge funds, or private "investment banks" concocting collateralized debt obligations, currency swaps, and the myriad other sorts of derivatives that preoccupy investment bankers today. Hence, there is no possibility of engaging in financial leveraging and other forms of speculative gambling.

In particular, the kind of housing bubble we've just experienced, fueled by the massive demand for mortgage-backed securities couldn't happen, for there are no such securities to buy or sell. Mortgages stay with the Savings and Loans of origin. To be sure, if the demand for homes should rise, individuals might gamble that prices will keep going up, and hence buy in order to resell-but the S&Ls are well positioned to scrutinize loan applications. An individual S&L might make some bad loans, perhaps so many as to force it into bankruptcy, but there is little danger of contagion.

It is interesting to note that Krugman, in spelling out his own plan for economic recovery projects, admits, "it will come close to full temporary nationalization of a significant part of the financial system"-though he is quick to add, "This isn't a long term goal, a matter of seizing the economy's commanding heights: finance should be reprivatized as soon as it is safe to do so." He doesn't say why the reprivatization is necessary. (Why not seize the economy's "commanding heights" and democratize them?) Clearly, he wants to reassure everyone that he is not a closet socialist-"for nothing could be worse than failing to do what is necessary out of fear that acting to save the financial system is somehow ‘socialism.'"

Immunity to speculation is not the only strength of economic democracy. Even more important: it is not vulnerable to that deep problem confronting every capitalist economy, which I discussed above, namely insufficient effective demand, due ultimately to the fact that wages are a cost of production. (It is rational for each capitalist to keep his workers' wages down, and yet the wages of working people constitute the major source of consumer demand. Ideally, a capitalist would like to keep the wages of his own workers down, while those of all other workers remain high-but he has control only over what he pays his own workers. Individual rationality leads to collective irrationality-a classic collective-action problem.)

Wages are not a cost of production in a democratic firm. Workers get a specified share of the firm's profit, not a wage-so all productivity gains are captured by the firm's workforce.

What about the environmental crises, which derive from the fact that a capitalist economy must constantly grow to remain healthy? I've argued that contemporary capitalism is in a bind. If the economy doesn't grow, we get an economic crisis; if it does, we get an ecological crisis.

Economic democracy is not so immune to environmental crises as it is to economic crises, but it is far better positioned than capitalism to achieve sustainability.

It is a fundamental fact about a democratic firm, long recognized in the theoretical literature, that it lacks the expansionary dynamic of a capitalist firm. The reason is structural. Democratic firms tend to maximize profit-per-worker, not total profits. That is to say, doubling the size of a capitalist firm will double the owners' profits, whereas doubling the size of a democratic firm leaves everyone's per-capita share the same. (Doubling the size of the firm means doubling the size of the workforce.) Thus, democratic firms are not incentivized to grow. Unless there are serious economies of scale involved, bigger is not better.

Moreover, since funds for investment in an economic democracy come from the capital assets tax, not from private investors, the economy as a whole is not hostage to "investor confidence." We need not worry that an economic slowdown will panic investors, provoking them to pull their money out of the financial markets, triggering a recession. For there aren't any financial markets. Economic democracy can be a healthy, sustainable, "no-growth" economy, whereas capitalism cannot be.

Labor, Leisure, Virtue

Actually, "no-growth" is a misnomer. Productivity increases under economic democracy will more likely translate into increased leisure than increased consumption. The economy will continue to experience "growth," but the growth will be mostly in free time, not consumption. So we might be able, at long last, to slow down, spend time with our family and friends, read books, listen to music, see the films we've long wanted to see. We might even find time to smell the flowers. Keynes himself mused about such a state of affairs, when thinking about our vastly increased productivity and its bearing on the "Economic Possibilities for Our Grandchildren":

We shall use the new-found bounty of nature quite differently than the way the rich use it today, and will map out for ourselves a plan of life quite otherwise than theirs.... What work there still remains to be done will be as widely shared as possible-three-hour shifts, or a fifteen-hour week.... There will also be great changes in our morals.... I see us free to return to some of the most sure and certain principles of religion and traditional virtue-that avarice is a vice, that the extraction of usury is a misdemeanor, and the love of money is detestable, that those walk most truly in the paths of virtue and sane wisdom who take least thought for the morrow.... We shall honor those who can teach us how to pluck the hour and the day virtuously and well, the delightful people who are capable of taking direct enjoyment in things.

Keynes wrote these words in 1930, at a time when "the prevailing world depression, the enormous anomaly of unemployment, the disastrous mistakes we have made, blind us to what is going on under the surface." He was wrong, of course. The "rentiers" have not suffered euthanasia, as he had thought they would. The grandchildren of his generation may have lived in a post-war social democracy that looks good to us, mired as we now are in an anxiety-laden, ever-deepening recession, but they were still far from the Promised Land.

Keynes was wrong-or was he? The essay's title notwithstanding, he was not referring literally to his grandchildren. His projection was for "a hundred years hence," i.e., 2030. Might he be right after all? Might there be things "going on under the surface" right now, to which we are blind, that could bring us to a sustainable, democratic, human world?

I'm thinking of my own granddaughter now. She's eight years old, right between Sasha and Malia. What kind of a world will she inherit? It'll be the same world your daughters will inherit.

I've sketched an "economic possibility." Will we move toward something like that? Your presidency will likely shape the future as few other presidencies ever have. The world is going to be very different eight years from now.

Many of your programs are pointing in the direction of that "promised land." You are creating jobs. How about a job for everyone? You are nationalizing banks. This could serve as an opportunity for radical restructuring. You are bailing out the auto industry and will doubtless be called upon to bail out other troubled businesses. You could begin insisting on some workplace democracy.

Who knows how all this will turn out? It is important to realize that there does exist a viable, desirable, sustainable alternative to the current system. It has become suddenly, tantalizingly, visible on the horizon. That gives me hope. It might give hope to many.