Saturday, June 6, 2009

The Rape of Gaza

The Rape of Gaza

Roane Carey

Go To Original

How would you feel if you found out that an American school, paid for with your tax dollars, was bombed and completely destroyed by a US ally? This happened in Gaza just a few months ago, during Israel's now-infamous Operation Cast Lead.

I've been touring Gaza for the past three days as part of a Code Pink delegation, and the concrete rubble and twisted rebar of the American International School in Gaza is just one of the many horrifying images we've seen on this trip. The school, which taught American progressive values to Palestinian kids in grades K-12, was bombed by US-supplied Israeli F-16s in early January. The Israelis claimed, without supplying evidence, that Hamas fighters had fired rockets from the school. Now several hundred kids have not only lost the school they dearly loved; they have been given a very different lesson in American values, one no doubt unintended by the school's founders and teachers.

The people of Gaza suffered immensely from the Israeli assault, which not only killed some 1,400 and injured 5,000 but destroyed or heavily damaged mosques, schools, hospitals, universities, and industrial and other business establishments, in addition to thousands of private homes. Dr. Marwan Sultan, who practices at Kamal Adwan Hospital in Beit Lahiya, told me his hospital was so damaged they had to send all patients to al-Shifa Hospital in Gaza City--which was itself damaged. The bombing of one school in Beit Lahiya killed about forty kids and injured a hundred, Sultan told me. He saw scenes of death and mutilation that still give him nightmares. Thousands are living in tent cities all over the Strip, and the entire population of Gaza is being strangled to this day by a blockade that is choking off any possibility of reconstruction or recovery.

Make no mistake about it: the blockade, directly enforced by Israel and Egypt but conspired in by their superpower patron in Washington, is a continuing act of war against an entire civilian population of 1.5 million, a form of collective punishment and a crime against humanity. John Ging, director of operations for the United Nations Relief and Works Agency (UNRWA), which officially invited Code Pink to come to Gaza, told our delegation that billions in aid had been promised in the wake of Israel's massacre, but so far nothing had arrived. Our delegation, he said, is the first concrete action of solidarity with an oppressed, long-suffering population. Four months after a devastating conflict, he added, the siege continues. "The first thing we need to see is the opening up of crossing points and an end to collective punishment because of the political failures and security problems created by a few." It's a matter of life and death, he said, "and we're running out of time…. The people of Gaza are asking for help, justice and the rule of law."

Code Pink--whose organizers, I might add, have done a fabulous job in arranging this tour--is urging Obama to break the siege himself by visiting Gaza on his Middle East tour. That's not likely to happen, of course, but the least he could do is demand an end to the blockade. He's more likely to do so if Americans put on the pressure. Readers: it's your turn.

Policymakers Have Created A Perfect Storm

Policymakers Have Created A Perfect Storm

By Paul Craig Roberts

Go To Original

Economic news remains focused on banks and housing, while the threat mounts to the US dollar from massive federal budget deficits in fiscal years 2009 and 2010.

Earlier this year the dollar’s exchange value rose against currencies, such as the euro. UK pound, and Swiss franc, against which the dollar had been steadily falling. The dollar’s rise made US policymakers complacent, even though the rise was due to flight from over-leveraged financial instruments and falling stock markets into “safe” Treasuries. Since April, however, the dollar has steadily declined as investors and foreign central banks realize that the massive federal budget deficits are likely to be monetized.

What happens to the dollar will be the key driver of what lies ahead. The likely scenario could be nasty.

America’s trading partners do not have large enough trade surpluses to finance a federal budget deficit swollen to $2 trillion by gratuitous wars, recession, bailouts, and stimulus programs. Moreover, concern over the dollar’s future is causing America’s foreign creditors to seek alternatives to US debt in which to hold their foreign reserves.

According to a recent report in the online edition of Pravda, Russia’s central bank now holds a larger proportion of its reserves in euros than in US dollars. On May 18 the Financial Times reported that China and Brazil are considering bypassing the dollar and conducting their mutual trade in their own currencies. Other reports say that China has increased its gold reserves by 75% in recent years.

China’s premier, Wen Jiabao, has publicly expressed his concern about the future of the dollar. Arrogant, hubris-filled American officials and their yes-men economists discount Chinese warnings, arguing that the Chinese have no choice but to support the dollar by purchasing Washington’s red ink. Otherwise, they say, China stands to lose the value of its large dollar portfolio.

China sees it differently. It is obvious to Chinese officials that neither China nor the entire world has enough spare money to purchase $4 trillion of US Treasuries over the next two years. According to the London Telegraph on May 27, Dallas Federal Reserve Bank president Richard Fisher was repeatedly grilled by senior officials of the Chinese government during his recent visit about whether the Federal Reserve was going to finance the US budget deficit by printing money. According to Fisher, “I must have been asked about that a hundred times in China. I was asked at every single meeting about our purchases of Treasuries. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States.”

US Treasury Secretary Timothy Geithner has gone to China to calm the fears. However, even before he arrived, a Chinese central bank spokesman gave Geithner the message that the US should not assume China will continue to finance Washington’s extravagant budgets. The governor of China’s central bank is calling for the abandonment of the dollar as reserve currency, using the International Monetary Fund’s Special Drawing Rights in its place.

President Lyndon Johnson’s “guns and butter” policy during the 1960s forced president Richard Nixon to eliminate the gold backing that the dollar had as world reserve currency, putting foreign central banks on the same fiat money standard as the US economy. In its first four months, the Obama administration has outdone president Johnson. Instead of ending war, Obama has expanded America’s war of aggression in Afghanistan and spread it into Pakistan. War, bailouts, and stimulus plans have pushed the government’s annual operating budget 50% into the red.

Washington’s financial irresponsibility has brought pressure on the dollar and the US bond market. Federal Reserve Chairman Bernanke thought he could push down interest rates on Treasuries by purchasing $300 billion of them. However, the result was to cause a sharp drop in Treasury prices and a rise in interest rates.

As monetization of federal debt goes forward, US interest rates will continue to rise, worsening the problems in the real estate sector. The dollar will continue to lose value, making it harder for the US to finance its budget and trade deficits. Domestic inflation will raise its ugly head despite high unemployment.

The incompetents who manage US economic policy have created a perfect storm.

The Obama-Federal Reserve-Wall Street plan for the US to spend its way out of its problems is coming unglued. The reckless spending is pushing the dollar down and interest rates up.

Every sector of the US economy is in trouble. Former US manufacturing firms have been turned into marketing companies trying to sell their foreign-made goods to domestic consumers who have seen their jobs be moved offshore. Much of what is left of US manufacturing--the auto industry--is in bankruptcy. More decline awaits housing and commercial real estate. The dollar is sliding, and interest rates are rising, despite the Federal Reserve’s attempts to hold interest rates down.

When the Reagan administration cured stagflation, the result was a secular bull-market in US Treasuries that lasted 28 years. That bull market is over. Americans’ living standards are headed down. The American standard of living has been destroyed by wars, by offshoring of jobs, by financial deregulation, by trillion dollar handouts to financial gangsters who have, so far, destroyed half of Americans’ retirement savings, and by the monetization of debt.

The next shoe to drop will be the dollar’s loss of the reserve currency role. Then the US, an import-dependent country, will no longer be able to pay for its imports. Shortages will worsen price inflation and disrupt deliveries.

Life for most Americans will become truly stressful.

Bond Market Blowout

Bond Market Blowout

By Mike Whitney

Go To Original

Last week's ructions in the bond market, leave little doubt that the financial crisis has entered a new and more lethal phase. Of particular concern is the spike in long-term Treasuries which are used to set interest rates on mortgages and other loans. On Thursday, the average rate for a 30-year fixed loan jumped from 5.03% to 5.44% in just two days. The sudden move put the mortgage market in a panic and stopped the refinancing of billions of dollars in loans. The yields on Treasuries are going up because investors see hopeful signs of recovery in the economy and are moving into riskier investments. More money is moving into equities which is why the stock markets have been surging lately. (The Federal Reserve's multi-trillion dollar monetary stimulus has played a large part, as well.) The bottom line is that investors are looking for better returns than the paltry yields on government debt. That will make it harder for the Fed to sell up to $3 trillion in Treasuries in the next year to finance Obama's proposed economic recovery plan. For now, foreign central banks are still buying enough short-term Treasuries to cover the current account deficit, but that could change in a flash, especially given Fed chief Bernanke's propensity to print more money at the drop of a hat. That's making foreign holders of dollar-based assets more jittery than ever.

Bernanke is in a bit of a pickle. He needs to sell boatloads of US debt, but if he raises interest rates; he'll kill the recovery and send the stock market reeling. What to do? Eventually the Fed chief will arrive at the conclusion that there's only two ways out of a credit bust of this magnitude; either raise rates and crush the economy or print more money and face a funding crisis. Either way, there's a world of hurt ahead.

Here's how economists Christian Broda, Piero Ghezzi and Eduardo Levy-Yeyati sum it up in their report "The New Global Balance: Financial de-globalisation, savings drain, and the US Dollar":

"In a new financial landscape in which leverage is limited by worldwide regulation, and where the gradual digestion of toxic assets will weigh on bank’s balance sheets for some time, limiting the availability of credit, the US will face tougher terms to finance its external imbalance. In our view, these tougher terms, together with the sharp increase in US household savings, could have gone a long way towards unwinding the global imbalances in a non-traumatic way. However, that would have entailed passive fiscal and monetary policies and a politically unpalatable economic contraction. Instead, a massive fiscal stimulus partially financed directly by the Fed through the purchase of Treasuries should ultimately lead to a reversal of the dollar bonanza. Perfectly at odds with the global imbalance premonitions of the early 2000s, the dollar’s weakness will likely be the best gauge of the turnaround of the global crisis." ("The new global balance: Financial de-globalisation, savings drain, and the US dollar", Christian Broda, Piero Ghezzi and Eduardo Levy-Yeyati)

The factors which strengthened the dollar earlier in the crisis have now run their course. Treasuries no longer attract "flight-to-safety" investors, because most people don't think that another Lehman Bros-type meltdown is likely. Investors are shifting to emerging markets, corporate bonds and securities. Commodities are on the upswing because speculators think that Fed's quantitative easing (QE) will end in hyperinflation. More important, cross-border flows have either stopped entirely or been significantly reduced due to the need for fiscal stimulus at home to counter falling demand and rising unemployment. In 2006, 65% of global surplus capital flowed to US markets. No more. Now the US will have to fight tooth-and-nail for a smaller and smaller share of the same pool. It will be uphill all the way.

The US economy is facing other headwinds, too; like a banking system that is hobbled by hundreds of billions in non performing loans and toxic assets, and a wholesale credit system that's still in a deep coma. The Fed and Treasury had plenty of time to take insolvent institutions into government conservatorship and restructure their debt (as they have with General Motors), but have chosen to pursue the same failed approach of providing unlimited funding via the Fed's lending facilities to any institution with a license and a begging bowl. Now time is running out and nothing has been done to address the underlying problems. Bernanke clings to the misguided notion that he can firehose the financial system with liquidity and the troubles will instantly vanish, but that's just more wishful thinking. Insolvency can't be fixed by adding more debt, that just puts off the inevitable day of reckoning and increases the likelihood of a run on the dollar.

Here's how the World Bank put it in their 2002 analysis titled, "Managing the Real and Fiscal Costs of Banking Crises," which examined similar banking crises over the last half century:

"Accommodating measures such as open-ended liquidity support, blanket deposit guarantees, regulatory forbearance, repeated recapitalizations and debtor bailouts appear to increase significantly the costs of banking crises. Did these accommodating policies achieve faster economic recovery? We failed to uncover evidence that they did. Indeed, they seem to have prolonged crises because recovery took longer."

Bernanke's no fool; he knows his strategy won't work. He's just following orders from the banking establishment. Remember, the IMF has a long history of recapitalizing or winding-down failed banks. It's not rocket science. There are tried-and-true methods for resolving underwater financial institutions and they are rigorously followed. The IMF would never give the banks a blank check and simply hope-for-the-best like Bernanke and pal, Geithner. They've created a situation where the banks will be a drain on public resources for years to come, diverting capital from productive sectors of the economy and choking off credit expansion. Credit derivatives expert Satyajit Das pinpoints the real problem in an article posted on his blogsite:

"Mancur Olson, the American economist, in his books (The Logic of Collective Action and The Rise and Decline of Nations), speculated that small distributional coalitions tend to form over time in developed nations and influence policies in their favor through intensive, well funded lobbying. The policies result in benefits for the coalitions and its members but large costs borne by the rest of population. Over time, the incentive structure means that more distributional coalitions accumulate burdening and ultimately paralysing the economic system causing inevitable and irretrievable economic decline.

Government attempts to deal with the problems of the financial system, especially in the U.S.A., Great Britain and other countries, may illustrate Olson’s thesis. Active well funded lobbying efforts and “regulatory capture” is impeding necessary actions to make needed changes in the financial system. For example, the Centre of Public Integrity reported that the expenditure on lobbying and political contribution of the top 25 sub-prime mortgage originators, most linked to large U.S. banks, was around $380 million (the Economist (9 May 2009).(The finance government Complex & The End of US economic Dominance", Satyajit Das's blog)

The institutional bias of the Fed is obvious in every decision they make. Consider the fact that the Fed has provided over $12.8 trillion in loans and other commitments to shore up wobbly financial institutions while the two-year fiscal stimulus for 320 million Americans is a paltry $787 billion. Its goose liver and Cabernet for the bank mandarins and breadcrumbs for the working stiff. Unlike General Motors--where bondholders and workers sustained huge losses and were forced to dramatically slash the size of their business---the banks and brokerage houses have been given carte blanche and are free to use their loans any way they choose, including commodities speculation which has driven the price of oil from $33.98 per barrel on Feb 12 to more than $68 per bbl. today. The taxpayer is literally paying for the rope to hang himself. And Wall Street is only too happy to oblige.

Despite the Fed's best efforts, the oversized financial system will have to shrink to meet the new reality of falling demand and persistent high unemployment. Household deleveraging is ongoing cutting into discretionary spending and changing attitudes towards saving. That means corporate profits will falter while and layoffs continue for the foreseeable future. The economy will probably bump along the bottom for a decade or so before household balance sheets are patched up enough to stage a comeback. The Fed's job is to hasten the recovery by forcing weak players to write-down their losses or declare bankruptcy so their dodgy assets can be put up for auction. That gives the system a chance rebuild on a solid "debt-free" foundation. Bernanke's plan just puts off the pain by keeping asset prices artificially high so losses aren't realized. It's pointless. Author and economist Henry C.K. Liu explains the implications of the Fed's actions like this:

"When financial institutions deleverage with free money from the central bank, the creditors receive the money while the Fed assumes the toxic liability by expanding its balance sheet. Deleverage reduces financial costs while increasing cash flow to allow zombie financial institutions to return to nominal profitability with unearned income and while laying off workers to cut operational cost. Thus we have financial profit inflation with price deflation in a shrinking economy.

What we will have going forward is not Wiemar Republic-type price hyperinflation, but a financial profit inflation in which zombie financial institutions turn nominally profitable in a collapsing economy. The danger is that this unearned nominal financial profit is mistaken as a sign of economic recovery, inducing the public to invest what remaining wealth they still hold, only to lose more of it at the next market meltdown, which will come when the profit bubble bursts. ("Liquidity drowns meaning of 'inflation", by Henry C. K. Liu Asia Times)

"What we have is...financial profit inflation in which zombie financial institutions turn nominally profitable in a collapsing economy." Has anyone given a more lucid description of the wacky goings-on in today's market than that?

Bernanke has shown that he'll do whatever he can to avoid simple price discovery on the illiquid, hard-to-value assets which are at the heart of the crisis. He's underwritten the entire financial system and shifted 100% of the liability for losses onto the taxpayer. He's also managed to keep the banks in private hands, although the cost has been substantial. The so-called "free market" exists only in theory now. The truth is that without the Fed's support, the financial system would collapse in an instant. The transition to state capitalism has taken place without public hearings or input. The line that distiguishes the banks from the government has disappeared.

For $10 trillion, Bernanke could have guaranteed every mortgage in the country, thereby stopping the decline in housing prices, the deluge of foreclosures, and the deep cutbacks in consumer spending. Such a move would have defrosted the secondary market (where mortgage-backed securities (MBS) are traded) because investors would know that the collateral was backed by "the full faith and credit" of the US government. Instead, millions of homeowners have been forced from their homes and onto the streets while Wall Street kingpins debate whether they should be allowed to issue themselves fat bonuses from the TARP funds.

DOOMSDAY FOR THE GREENBACK?

Last week's sudden rise in Treasury yields indicates that Bernanke is nearing the end of the line. The benchmark 10-year T-bill zoomed to a 6-month high of 3.75 percent. Investors want better returns for lending their money to Uncle Sam. That means that funding the multi-trillion dollar deficits will get harder and harder. Bernanke can purchase more long-bonds and keep interest rates low, but investors will see that he's monetizing the debt and head for the exits. Or he can raise rates to attract foreign capital and risk putting the struggling economy into a death spiral. Either way, the consequences will be dire.

Torturing Democracy

Torturing Democracy

The Documentary PBS Does Not Want You to See Before Jan 21, 2009

Posted 12/09/2009

Video and Transcript

"Torturing Democracy" is a new documentary which details how the government set aside the rule of law in its pursuit of harsh interrogations of suspected terrorists.

…“I really found this documentary, ‘Torturing Democracy,’ very, very disturbing.

“Americans who've been waiting for someone to graphically connect the dots between the legal memos justifying torture, abuse of prisoners at Guantanamo and beyond, and the consequences for the moral standing of this nation, need look no further. It's all here. ‘Torturing Democracy’ should engender the same mass outrage as the 2004 photos from Abu Ghraib.” - Dahlia Lithwick, Slate

Annotated Transcript

The annotated transcript of "Torturing Democracy" provides the script of every word spoken during the 90-minute documentary, backed up with specific citations, footnotes and links, and includes documentation for the dramatizations in the film. Posting the annotated transcript allows viewers to check the facts for themselves, and enables researchers to build on the reporting to take the story even further. To download this 385k file in PDF format, click here.

Part 2

Part 3

Part 4

Part 5

Part 6 - 10 Here

Time to Break Up the Banks

Time to Break Up the Banks

By Peter Rothberg

Go To Original

Last April, I wrote about A New Way Forward, a new and growing movement organized via the web and founded by young people who want to take back the power of the ordinary citizen to affect our economic structure. The organization's coming-out party took place last April 11 with more than sixty coordinated events coast to coast all making the case for alternative bailout plans based on the public's interest.

This new video, which neatly breaks down the causes and effects of the economic crisis, is the basis for the next day of action staged by A New Way Forward.

Next week on June 10, at small and large events nationwide, there'll be numerous screenings of the video along with panels, workshops, teach-ins, protests and rallies. As the banking industry continues its secret lobbying in DC, A New Way Forward advocates using antitrust laws and competition to limit the influence of big banks and shed light on the shadow banking sector. These events are part of a continuing effort to forge a serious grassroots discussion of the economy ad how to leverage antitrust law toward a more populist bailout. Find an event near you. If there's nothing near you, click here for tips on how to host your own event.

Organizers are planning many different events, from small group house parties to large group public gatherings. In Washington DC, Former Chief Economist of the IMF Simon Johnson will be keynoting what's expected to be a large event in the Gold Room of the Rayburn House Building. The organizers hope to attract citizens with a disparate range of views who will hold one idea in common: our current economic trends must be reversed. Join ANWF's Facebook group for updates, and learn more about the plan for structural change and what we can achieve.

Securitization: The Biggest Rip-off Ever

Securitization: The Biggest Rip-off Ever

By Mike Whitney

Go To Original

Is it possible to make hundreds of billions of dollars in profits on securities that are backed by nothing more than cyber-entries into a loan book?

It's not only possible; it's been done. And now the scoundrels who cashed in on the swindle have lined up outside the Federal Reserve building to trade their garbage paper for billions of dollars of taxpayer-funded loans. Where's the justice? Meanwhile, the credit bust has left the financial system in a shambles and driven the economy into the ground like a tent stake. The unemployment lines are growing longer and consumers are cutting back on everything from nights-on-the-town to trips to the grocery store. And it's all due to a Ponzi-finance scam that was concocted on Wall Street and spread through the global system like an aggressive strain of Bird Flu. The isn't a normal recession; the financial system was blown up by greedy bankers who used "financial innovation" game the system and inflate the biggest speculative bubble of all time. And they did it all legally, using a little-known process called securitization.

Securitization--which is the conversion of pools of loans into securities that are sold in the secondary market--provides a means for massive debt-leveraging. The banks use off-balance sheet operations to create securities so they can avoid normal reserve requirements and bothersome regulatory oversight. Oddly enough, the quality of the loan makes no difference at all, since the banks make their money on loan originations and other related fees. What matters is quantity, quantity, quantity; an industrial-scale assembly line of fetid loans dumped on unsuspecting investors to fatten the bottom line. And, boy, can Wall Street grind out the rotten paper when there's no cop on the beat and the Fed is cheering from the bleachers. In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. How much of that debt will turn out to be worthless as foreclosures skyrocket and the banks balance sheets come under greater and greater pressure?

Deregulation opened Pandora's box, unleashing a weird mix of shady off-book operations (SPVs, SIVs) and dodgy, odd-sounding derivatives that were used to amplify leverage and stack debt on tinier and tinier scraps of capital. It's easy to make money, when one has no skin in the game. That's how hedge fund managers and private equity sharpies get rich. Securitization gave the banks the opportunity to take substandard loans from applicants who had no way of paying them back, and magically transform them into Triple A securities. "Abra-kadabra". The Wall Street public relations throng boasted that securitization "democratized" credit because more people could borrow at better rates since funding came from investors rather than banks. But it was all a hoax. The real objective was to turbo-charge profits by skimming hefty salaries and bonuses on the front end, before people found out they'd been hosed. The former head of the FDIC, William Seidman, figured it all out back in 1993 when he was cleaning up after the S&L fiasco. Here's what he said in his memoirs:

“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.” (Bloomberg)

That's it in a nutshell. The banks never expected the loans would be paid back, which is why they issued them to ninjas; applicants with no income, no collateral, no job, and a bad credit history. It made no sense at all, especially to anyone who's ever sat through a nerve-wracking credit check with a sneering banker. Trust me, bankers know how to get their money back, if that's their real intention. In this case, it didn't matter. They just wanted to keep their counterfeiting racket zooming ahead at full-throttle for as long as possible. Meanwhile, Maestro Greenspan waved pom-poms from the sidelines, extolling the virtues of the "new economy" and the permanent high plateau of prosperity that had been achieved through laissez faire capitalism.

Now that the securitization bubble has burst, 40% of the credit which had been coursing into the economy has been cut off triggering a 1930's-type meltdown. Fed chief Bernanke has stepped into the breach and provided a $13 trillion dollar backstop to keep the financial system from collapsing, but the broader economy has continued its historic nosedive. Bernanke is trying to fill the chasm that opened up when securitization ground to a halt and gas started exiting the credit bubble in one mighty whooosh. The deleveraging is ongoing, despite the Fed's many programs to rev up securitization and restore speculative bubblenomics. Bernanke's latest brainstorm, the Term Asset-backed securities Lending Facility (TALF), provides 94 percent public funding for investors willing to buy loans backed by credit card debt, student loans, auto loans or commercial real estate loans. It's a "no lose" situation for big investors who think that securitized debt will stage a comeback. But that's the problem; no one does. Attractive, non recourse (nearly) risk free loans have failed to entice the big brokerage houses and hedge fund managers. Bernanke has peddled less than $30 billion in a program that's designed to lend up to $1 trillion. It's been a complete bust.

To understand securitization, one must think like a banker. Bankers believe that profits are constrained by reserve requirements. So, what they really want is to expand credit with no reserves; the equivalent of spinning flax into gold. Securitization and derivatives contracts achieve that objective. They create a confusing netherworld of odd-sounding instruments and bizarre processes which obscure the simple fact that they are creating money out of thin air. That's what securitization really is; undercapitalized junk masquerading as precious jewels. Here's how economist Henry CK Liu sums it up in his article "Mark-to-Market vs. Mark-to-Model":

"The shadow banking system has deviously evaded the reserve requirements of the traditional regulated banking regime and institutions and has promoted a chain-letter-like inverted pyramid scheme of escalating leverage, based in many cases on nonexistent reserve cushion. This was revealed by the AIG collapse in 2008 caused by its insurance on financial derivatives known as credit default swaps (CDS).....

The Office of the Comptroller of the Currency and the Federal Reserve jointly allowed banks with credit default swaps (CDS) insurance to keep super-senior risk assets on their books without adding capital because the risk was insured. Normally, if the banks held the super-senior risk on their books, they would need to post capital at 8% of the liability. But capital could be reduced to one-fifth the normal amount (20% of 8%, meaning $160 for every $10,000 of risk on the books) if banks could prove to the regulators that the risk of default on the super-senior portion of the deals was truly negligible, and if the securities being issued via a collateral debt obligation (CDO) structure carried a Triple-A credit rating from a “nationally recognized credit rating agency”, such as Standard and Poor’s rating on AIG.

With CDS insurance, banks then could cut the normal $800 million capital for every $10 billion of corporate loans on their books to just $160 million, meaning banks with CDS insurance can loan up to five times more on the same capital. The CDS-insured CDO deals could then bypass international banking rules on capital. (Henry CK Liu, "Mark-to-Market vs. Mark-to-Model" http://www.henryckliu.com/page191.html )


The same rule applies to derivatives (CDS) as securitized instruments; neither is sufficiently capitalized because setting aside reserves impairs one's ability to maximize profits. It's all about the bottom line. The reason credit default swaps are so cheap, compared to conventional insurance, is that there's no way of knowing whether the dealer has the ability to pay claims. It's fraud, on a gigantic scale, which is why the financial system went into full-blown paralysis when Lehman Bros defaulted. No one knew whether trillions of dollars in counterparty contracts would be paid out or not. There are simply more claims on wealth than there is money in the system. Bogus mortgages and phony counterparty promises mean nothing. "Show me the money". The system is underwater, and it cannot be fixed by more of the Fed's presto liquidity. Here's what Gary Gorton says later in the same article:

"A banking panic means that the banking system is insolvent. The banking system cannot honor contractual demands; there are no private agents who can buy the amount of assets necessary to recapitalize the banking system, even if they knew the value of the assets, because of the sheer size of the banking system. When the banking system is insolvent, many markets stop functioning and this leads to very significant effects on the real economy...."

Indeed. The shadow banking system has collapsed, not because the market is "frozen" or because investors are in a state of panic after Lehman, but because derivatives and securitization have been exposed as a fraud propped up on insufficient capital. It's snake oil sold by charlatans. That's why European policymakers are resisting the Fed's requests to create a facility similar to the TALF to start up securitization again. Here's a revealing clip from the Wall Street Journal which explains what's going on behind the scenes:

"Bankers are pushing European policy makers to consider a U.S.-style program to aid the region's economy by reviving the moribund market for bundled consumer loans. Officials at the European Securitisation Forum, a trade group representing banks and other market participants, said Tuesday that central bankers should consider stepping in with a program similar to the U.S. Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF, which provides loans to private investors who buy new securities tied to consumer loans...

After suffering heavy losses on securities stuffed with poorly made loans, investors are reluctant to wade back in, and Europe lacks big players like the Pacific Investment Management Co. in the U.S., whose buying can mobilize other investors....The market also faces uncertainty over how European regulators will change the rules of the game, in part by imposing tougher capital requirements on banks, the main buyers of securitized assets in Europe.

One European Commission proposal would dramatically hike the capital required of banks holding a securitized asset if the originator allowed its share of that asset to fall below a 5% threshold....

Paul Sharma of Britain's Financial Services Authority said regulatory action is likely to shrink the investor base for ABS, in part by increasing the capital cushions banks will have to hold against ABS holdings in their trading books. He also argued that ABS were inappropriate for banks to hold as liquid assets, because they have proven difficult to sell in a market crisis.

"There is very much a query in the minds of regulators as to whether there is a significant future for securitization," said Mr. Sharma, though he added his own view was that the market did have a future role." ("In Europe, a U.S. Way To Fix ABS Market?" Neil Shah and Stephen Fidler, Wall Street Journal)

See? In Europe regulators still do their jobs and make sure that financial institutions have money before they create trillions of dollars in credit. They don't stick with their heads in the sand while crooked bankers fleece the public. Bernanke's job is to step in and put an end to the hanky-panky, not add to the problems by restoring a credit-generating regime that transferred hundreds of billions of dollars from hard-working people to fatcat banksters and Wall Street flim-flammers.

The Grim Picture of Obama's Middle East

The Grim Picture of Obama's Middle East

By Noam Chomsky

Go To Original

"A CNN headline, reporting Obama's plans for his June 4 Cairo address, reads 'Obama looks to reach the soul of the Muslim world.' Perhaps that captures his intent, but more significant is the content hidden in the rhetorical stance, or more accurately, omitted.

Keeping just to Israel-Palestine -- there was nothing substantive about anything else -- Obama called on Arabs and Israelis not to 'point fingers' at each other or to 'see this conflict only from one side or the other.' There is, however, a third side, that of the United States, which has played a decisive role in sustaining the current conflict. Obama gave no indication that its role should change or even be considered.

Those familiar with the history will rationally conclude, then, that Obama will continue in the path of unilateral U.S. rejectionism.

Obama once again praised the Arab Peace Initiative, saying only that Arabs should see it as 'an important beginning, but not the end of their responsibilities.' How should the Obama administration see it? Obama and his advisers are surely aware that the Initiative reiterates the long-standing international consensus calling for a two-state settlement on the international (pre-June '67) border, perhaps with 'minor and mutual modifications,' to borrow U.S. government usage before it departed sharply from world opinion in the 1970s, vetoing a Security Council resolution backed by the Arab 'confrontation states' (Egypt, Iran, Syria), and tacitly by the PLO, with the same essential content as the Arab Peace Initiative except that the latter goes beyond by calling on Arab states to normalize relations with Israel in the context of this political settlement. Obama has called on the Arab states to proceed with normalization, studiously ignoring, however, the crucial political settlement that is its precondition. The Initiative cannot be a 'beginning' if the U.S. continues to refuse to accept its core principles, even to acknowledge them.

In the background is the Obama administration's goal, enunciated most clearly by Senator John Kerry, chair of the Senate Foreign Relations Committee, to forge an alliance of Israel and the 'moderate' Arab states against Iran. The term 'moderate' has nothing to do with the character of the state, but rather signals its willingness to conform to U.S. demands.

What is Israel to do in return for Arab steps to normalize relations? The strongest position so far enunciated by the Obama administration is that Israel should conform to Phase I of the 2003 Road Map, which states: 'Israel freezes all settlement activity (including natural growth of settlements).' All sides claim to accept the Road Map, overlooking the fact that Israel instantly added 14 reservations that render it inoperable.

Overlooked in the debate over settlements is that even if Israel were to accept Phase I of the Road Map, that would leave in place the entire settlement project that has already been developed, with decisive U.S. support, to ensure that Israel will take over the valuable land within the illegal 'separation wall' (including the primary water supplies of the region) as well as the Jordan Valley, thus imprisoning what is left, which is being broken up into cantons by settlement/infrastructure salients extending far to the East. Unmentioned as well is that Israel is taking over Greater Jerusalem, the site of its major current development programs, displacing many Arabs, so that what remains to Palestinians will be separated from the center of their cultural, economic, and sociopolitical life. Also unmentioned is that all of this is in violation of international law, as conceded by the government of Israel after the 1967 conquest, and reaffirmed by Security Council resolutions and the International Court of Justice. Also unmentioned are Israel's successful operations since 1991 to separate the West Bank from Gaza, since turned into a prison where survival is barely possible, further undermining the hopes for a viable Palestinian state.

It is worth remembering that there has been one break in U.S.-Israeli rejectionism. President Clinton recognized that the terms he had offered at the failed 2000 Camp David meetings were not acceptable to any Palestinians, and in December, proposed his 'parameters,' vague but more forthcoming. He then announced that both sides had accepted the parameters, though both had reservations. Israeli and Palestinian negotiators met in Taba, Egypt to iron out the differences, and made considerable progress. A full resolution could have been reached in a few more days, they announced in their final joint press conference. But Israel called off the negotiations prematurely, and they have not been formally resumed. The single exception indicates that if an American president is willing to tolerate a meaningful diplomatic settlement, it can very likely be reached.

It is also worth remembering that the Bush I administration went a bit beyond words in objecting to illegal Israeli settlement projects, namely, by withholding U.S. economic support for them. In contrast, Obama administration officials stated that such measures are 'not under discussion' and that any pressures on Israel to conform to the Road Map will be 'largely symbolic,' so the New York Times reported (Helene Cooper, June 1).

There is more to say, but it does not relieve the grim picture that Obama has been painting, with a few extra touches in his widely-heralded address to the Muslim World in Cairo on June 4.

America’s Violent Extremism

America’s Violent Extremism

By Paul Craig Roberts

Go To Original

What are we to make of Obama’s speech at Cairo University in Egypt?

"I’ve come here to Cairo to seek a new beginning between the United States and Muslims around the world, one based on mutual interest and mutual respect."

Cairo is the capital of Egypt, an American puppet state whose ruler suppresses the aspirations of Egyptian Muslims and cooperates with Israel in the blockade of Gaza.

In contrast to the Islamic University of Al-Azhar, Cairo University was founded as a civil university. Obama’s Cairo University audience was secular.

Nevertheless, Obama said startling words that many Muslims found hopeful. He said that colonialism and the Cold War had denied rights and opportunities to Muslims and resulted in Muslim countries being treated as proxies without regard to their own aspirations. The resulting blowback from "violent extremists" bred fear and mistrust between the Western and Muslim worlds.

Obama spoke of the Koran, his middle name, and his family connections to Islam.

Obama praised Islam’s contributions to civilization.

Obama declared his "responsibility as president of the United States to fight against negative stereotypes of Islam wherever they appear."

Obama acknowledged "the responsibility we have to one another as human beings."

Obama acknowledged Iran’s "right to access peaceful nuclear power."

Obama declared that "no system of government can or should be imposed by one nation on any other."

Obama’s most explosive words pertained to Israel and Palestine: "Israelis must acknowledge that just as Israel’s right to exist cannot be denied, neither can Palestine’s. The United States does not accept the legitimacy of continued Israeli settlements."

Obama declared that "the only resolution [to the conflict] is for the aspirations of both sides to be met through two states, where Israelis and Palestinians each live in peace and security. That is in Israel’s interest, Palestine’s interest, America’s interest, and the world’s interest. That is why I intend to personally pursue this outcome with all the patience that the task requires." For Obama’s commitment to be fulfilled, Israel would have to give back the stolen West Bank lands, dismantle the wall, accept the right to return, and release 1.5 million Palestinians from the Gaza Ghetto. As this seems an unlikely collection of events, the nature of the "two-state solution" endorsed by Obama remains to be seen.

After the euphoric attention to idealistic rhetoric dies down, Obama will be criticized for extravagant words that create unrealizable expectations. But were the extravagant words other than a premier act of schmoozing Muslims designed to quiet the Muslim Brotherhood in our Egyptian puppet state and to get Muslims to accept US aggression in Iraq, Afghanistan and Pakistan?

Obama decries regime change, but continues to practice it, invoking women’s rights to gain support from secularized Arabs. He admits that Iraq was a war of choice but claims that al-Qaeda, the Taliban, and 9/11 make Afghanistan a war of necessity.

Obama said that "the events of 9/11" and al-Qaeda’s responsibility, not America’s desire for military bases and hegemony, are the reasons America’s commitment to combating violent extremism in Afghanistan will not weaken. Will Muslims notice that Obama’s case for America’s violent extremism in Afghanistan and now Pakistan is hypocritical?

Al-Qaeda, Obama says, "chose to ruthlessly murder" nearly 3,000 people on 9/11 "and even now states their determination to kill on a massive scale." These deaths are a mere drop in the buckets of blood that America’s invasions have brought to the Muslim world. Moreover, the overwhelming majority of the Muslims America has slaughtered are civilians, just as are the unarmed Palestinians slaughtered by the American-equipped Israeli military.

Against al-Qaeda, whose "actions are irreconcilable with the rights of human beings," Obama invokes the Koran’s prohibition against killing an innocent. Does Obama not realize that the stricture applies to the US and its "coalition of forty-six countries" in spades?

America’s wars are all wars of choice. The more than one million dead Iraqis are not al-Qaeda. Neither are Iraq’s four million refugees. Yet, Obama says Iraqis are better off now, with their country in ruins and a fifth of their population lost, because they are rid of Saddam Hussein, a secular ruler.

No one has a good tally of the dead and refugees America has produced in Afghanistan. Nevertheless, declared Obama, "The situation in Afghanistan demonstrates America’s goals and our need to work together."

In his first 100 days, Obama managed to create two million Pakistani refugees. It took Israel 60 years to create 3.5 million Palestinian refugees.

What Obama has really done is his speech is to accept responsibility for the neoconservative agenda of extending Western hegemony by eliminating "Muslim extremists," that is, Muslims who want to rule themselves in keeping with Islam, not in keeping with some secularized, Westernized faux Islam.

Muslim extremists are the creation of decades of Western colonization and secularization that has created an elite, which is Muslim in name only, to rule over religious people and to suppress Islamic mores. All experts know this, and most of them hail it as bringing progress and development to the Muslim world.

Obama said that "human progress cannot be denied," but "there need not be contradiction between development and tradition." However, the West defines development and education. These terms mean what they mean in the West. Muslim extremists understand that these terms mean the extermination of Islam.

In typical American fashion, Obama offered Muslims money, "technological development," and "centers of scientific excellence."

All the Muslims have to do is to cooperate with America and be peaceful, and America will "respect the dignity of all human beings."

Official jobless rate hits 9.4 percent in US

Official jobless rate hits 9.4 percent in US

By Tom Eley

Go To Original

The US unemployment rate climbed to 9.4 percent in May, the highest level in more than a quarter century, according to statistics released by the Department of Labor on Friday. The jobless rate jumped by a half a percentage point over April, as employers shed 345,000 positions overall.

Over 14.5 million US workers are now officially unemployed. Seven million of these, or 4.5 percent of the workforce, have been without work for 15 weeks or longer—the largest proportion of the workforce since before 1948, when the government began tracking the figure. The official US jobless rate does not include those forced to work part-time, “discouraged workers” (those no longer actively seeking work), and other “marginally attached workers.” Adding these categories, the jobless rate now stands at 16.4 percent—the highest figure since at least 1994, when the Labor Department began to track the statistic. A staggering one of every six American workers is now unemployed or underemployed.

The US economy has purged more than six million jobs since the recession began in December 2007, and racked up seventeen straight months of job losses, equaling the record set during the 1981-82 recession. Since 2007, the US has lost 4.3 percent of its jobs and 5.4 percent of its private sector positions. These are also records, exceeding “the peaks since 1950 of 4.2 percent and 5.2 percent, respectively, set in that 1958 recession,” according to Floyd Norris of the New York Times.

The scale of the increase in the jobless rate had not been anticipated. Economists had expected the unemployment rate to rise to 9.2 percent from 8.9 percent in April.

What the Times called a “statistcal puzzle”—the unemployment rate exceeding economists’ expectations while job losses came in lower than anticipated—is explained by a larger than expected flow of discouraged workers back into the job hunt. The two statistics are also gathered in different ways. The overall unemployment rate is based on a survey of households; the monthly jobs tally is based on a survey of employers.

Job losses for the current year are in the neighborhood of 3 million. During the first quarter, the US lost an average of more than 700,000 jobs per month. The downwardly revised figure for April is now 504,000.

The figures make clear that the so-called recovery being touted by the Obama administration and the media would entail a decline in the pace of the economic free-fall, only to be followed by a protracted period of high unemployment, declining wages and growing poverty. This is not a temporary downturn to be followed by a return to pre-crash conditions.

The data brings into focus the true meaning of the Obama administration’s calls for fiscal discipline and lower consumption: a much poorer general population and even greater economic inequality between the financial aristocracy and the people.

The new statistics do not take into account the plant closures and dealership closings recently announced by General Motors and Chrysler. These measures and related layoffs among auto parts makers and small businesses, will add tens of thousands to the ranks of the jobless over the next year.

Job losses hammered nearly every sector of the economy. Factories purged the most jobs in May—156,000 in all. About 1.8 million manufacturing jobs have been lost since the recession began, and more than 300,000 in the last two months alone.

Earlier in the week, the Commerce Department announced that orders for manufactured goods increased by only 0.7 percent in April, after a 1.9 percent March decline, and that factory shipments fell 0.2 percent—the ninth consecutive monthly decline. In March, shipments fell 1.8 percent.

Showing that the housing sector has yet to hit bottom, construction firms cut 59,000 jobs, about half the level from April. Construction job losses are being driven by the crisis engulfing the commercial and home real estate markets, which shows no signs of abating.

The first quarter saw a record number of homeowners enter into mortgage delinquency or foreclosure, at just over 12 percent of all mortgage loans, according to a recent analysis by the Mortgage Bankers Association. For the first time, the majority of these “troubled loans” are outside of the sub-prime market.

On Friday, the Federal Deposit Insurance Corporation (FDIC) reported that the value of troubled commercial real estate loans has more than doubled in the past year, with most of the increase taking place in the first quarter of 2009. FDIC-insured banks now carry about $30 billion in bad commercial real estate loans.

The service sector lost 120,000 jobs, with retailers eliminating 17,500. A survey by Thomson Reuters, published earlier in the week, showed that same-store sales fell 4.8 percent in May—far more than the 4.1 percent decline anticipated by economists. Of 30 major retailers, 19 missed sales projections—not counting industry leader Wal-Mart, which this month ceased publishing its monthly sales data. Ken Perkins, president of Retail Metrics, noted that the decline was across-the-board. “The high end continues to struggle,” he said. “Those in the discretionary spend segment are really continuing to get clocked.”

There are also tens of thousands of newly-unemployed white collar workers, with the financial services industry eliminating 30,000 and business and professional services firms cutting 51,000. Temporary employment fell by 6,500 jobs in May.

Among college graduates, unemployment has more than doubled in one year to 4.8 percent.

Even the government sector reported eliminating 7,000 jobs, an indication that President Barack Obama’s economic stimulus package has done little to relieve states and localities facing mounting budget deficits.

Education and health care added 44,000 jobs. Leisure and hospitality, in anticipation of the summer vacation months, added a mere 3,000.

Just to keep pace with population growth—the entry of young workers into the job market—the US economy must add 150,000 jobs overall per month. Instead, it has been losing hundreds of thousands of jobs per month for nearly a year, and will continue to do so for months to come. Those fortunate enough to keep their jobs have seen their hours and wages cut. Over April and May, average hourly wages were stagnant—growing at just 0.1 percent, and falling 0.1 percent for manufacturing workers.

The average work week fell to 33.1 hours, the lowest since authorities began compiling such statistics in 1964, according to the Labor Department. Steven Ricchiuto, chief economist for Mizuho Securities, noted that May’s “smaller loss in employment ... came at the expense of hours worked, which dropped across the board.” The shrunken hourly work week means that employers can, in the event of a rebound, increase the hours of their current workforce without hiring anew.

Those still working are being driven harder. Workers’ hourly output, or non-farm business productivity, rose at a 1.6 percent annualized rate during the first quarter, according to statistics released by the Labor Department on Thursday. This was double the predicted rate, and unusual for a recession, economists said.

“Generally, in a recession you have productivity move down,” Michael Feroli, an economist with JPMorgan Chase, told the Wall Street Journal.

Job losses have spared no major urban area or region.

Canada, which also issued its jobs report Friday, once again mirrored the catastrophe south of the border. The unemployment rate increased 0.4 percent to 8.4 percent, its highest level in eleven years. In Ontario, Canada’s largest province, the figure climbed to 9.4 percent, a result of declining exports to the US market and a near-collapse in industrial production. Canada has lost 363,000 jobs since October.

On Wednesday, the US Labor Department reported that 93 metropolitan areas surpassed the 10 percent unemployment mark in April, an astonishing 13-fold increase in one year. Nine of the 13 metropolitan areas that have unemployment rates higher than 15 percent are in California. El Centro, California had an unemployment rate of nearly 27 percent in April—the highest in the nation. Among big cities, Detroit-Warren-Livonia had the highest unemployment rate at 13.6 percent.

Economists and policy makers have predicted that the recession will gradually tail off late this year or early next. But there is broad agreement that this would be “the mother of all jobless recoveries,” as one economist put it. While business activity, profits and stock values may increase, the working class will not share in the rebound.

The most striking reaction to the employment report came in the US Treasury bonds market, which was thrown into “cardiac arrest,” wrote Tom Petruno of the Los Angeles Times. On Friday, the yield on ten-year Treasury notes increased 0.13 percentage points to 3.84 percent, and yields on two-year Treasury notes “rocketed” from 0.96 percent to 1.25 percent.

“Yields are soaring ... threatening another big jump in mortgage rates,” Petruno wrote. “If rising home loan rates price more buyers out of the market, sellers will have to respond by cutting asking prices,” thus further depressing the housing market and home values.

US consumers also confront a sharp increase in the cost of fueling their cars. Oil prices hit a six-month high of over $70 per barrel before closing slightly lower at $68.44 on Friday. Industry analysts maintain that there is still a glut of oil on the market. The recent rise in prices is attributed largely to the declining value of the dollar and commodities speculation.

High unemployment, stagnating wages and rising prices will combine in the coming months to intensify the social crisis. Household and commercial bankruptcies are expected to reach 1.5 million this year, according to data from the Automated Access to Court Electronic Records, which surveys bankruptcy data for lenders and attorneys. The figure would be the highest since 2005, when Congress passed Wall Street-backed “reforms” to the bankruptcy code making it more difficult for consumers to seek protection from their creditors in bankruptcy court.

Poverty and unemployment are stretching the US social safety net, according to a study released this week by the Bureau of Economic Analysis. During the first quarter of 2009, one sixth, or 16.2 percent, of Americans’ personal income came through federal or state checks and vouchers such as Social Security, unemployment insurance, and food stamps. This marks the highest proportion since the government began keeping data in 1929.

A record number of Americans, 33.2 million, relied on food stamps in March, an increase of 5.2 million in one year.

These figures give an indication of the devastating social implications of the austerity policies being prepared by the Obama administration, which has made reducing health care costs and slashing Medicare and Social Security the centerpieces of its plans to reduce soaring budget deficits.

Ruling allowing Taser use to get DNA may be nation's first

Ruling allowing Taser use to get DNA may be nation’s first

By Thomas J. Prohaska

Go To Original

It is legally permissible for police to zap a suspect with a Taser to obtain a DNA sample, as long as it’s not done “maliciously, or to an excessive extent, or with resulting injury,” a county judge has ruled in the first case of its kind in New York State, and possibly the nation.

Niagara County Judge Sara Sheldon Sperrazza decided that the DNA sample obtained Sept. 29 from Ryan S. Smith of Niagara Falls — which ties him to a shooting and a gas station robbery— is legally valid and can be used at his trial.

Smith was handcuffed and sitting on the floor of Niagara Falls Police Headquarters when he was zapped with the 50,000- volt electronic stun gun after he insisted he would not give a DNA sample.

He already had given a sample, a swab of the inside of his cheek, without protest the previous month. But police sent it to the wrong lab, where it was opened and spoiled. Prosecutors who had obtained a court order for the first sample went back to Sperrazza, who signed another order without consulting the defense.

Defense lawyer Patrick M. Balkin denounced the ruling in an interview with The Buffalo News.

“They have now given the Niagara Falls police discretion to Taser anybody anytime they think it’s reasonable,” he asserted. “Her decision says you can enforce a court order by force. If you extrapolate that, we no longer have to have child support hearings; you can just Taser the parent.”

A police officer said that when Smith was ordered by officers to give his DNA, he adamantly refused.

“I ain’t giving up my DNA again. I already gave it up once. I’ll sit in jail. I ain’t giving it up. You’re going to have to Tase me,” the officer’s report stated.

The officer wrote that he then applied the stun gun to Smith’s left shoulder, a “drive stun” that is regarded as less painful than shooting electric prongs into a person, which is the usual Taser approach. Smith then consented to the sample, and he was arrested on a contempt of court charge.

In her ruling, Sperrazza cited numerous legal precedents and the state’s Criminal Procedure Law, allowing the use of reasonable force to carry out a court order.

Although there are no New York cases specifically dealing with using a Taser to accomplish that, the judge did find a Wyoming case where a court ruled it was legal to use a Taser to force a suspect to open his hand for a search.

Balkin and other lawyers familiar with the case say they know of no other case in the country in which a Taser was used to gather DNA.

The decision Wednesday in Niagara County stunned Balkin, who admitted in court that he hadn’t been carrying out trial preparation, such as seeking an expert to review the DNA test results.

“It’s my fault,” Balkin told Sperrazza. “I truly thought it was going to be suppressed.”

Balkin thought a victory on the Taser issue would lead to the dismissal of the 24-count indictment against Smith, 21, of Grove Avenue.

Sperrazza granted a postponement of Smith’s trial to Aug. 10.

Smith is charged with shooting a man in the groin July 27, 2006, after allegedly invading his ex-girlfriend’s home, tying up her two children and forcing the woman to take him to the shooting victim’s home.

He is also accused of taking part in the Dec. 24, 2006, armed robbery of a Sunoco station in Niagara Falls. A codefendant in the robbery, Christopher T. Walker Jr., now 21, pleaded guilty and is serving a 10-year state prison sentence.

DNA was found on a can of pop taken from Smith’s ex-girlfriend’s refrigerator and on a glove dropped at the gas station. It matched a sample he had to give after a previous assault conviction, and prosecutors sought another sample from Smith to confirm the findings.

“Our case is mostly DNA,” Deputy District Attorney Doreen M. Hoffmann said.

She also said she didn’t agree with Balkin that suppressing the DNA sample would have led to the dismissal of the indictment.

There is a surveillance video of the gas station robbery, Hoffmann revealed in court.

Balkin said he also was most concerned about Sperrazza’s reasoning that she didn’t have to go through a courtroom procedure for the second DNA sample because Smith had not objected to the first one.

“The court waived my client’s due process,” the defense lawyer said.

Testimony at a hearing last month partially contradicted the incident report written by Officer George McDonell, who used the Taser on Smith.

Sperrazza wrote in her ruling, based on police testimony, that when Smith refused to give another sample, Detective Lt. William Thomson phoned Hoffmann about it, and Hoffmann “instructed him that they could use the minimum force necessary to obtain the sample.”

But McDonell wrote in his report, “It was relayed that officers could use any means necessary to secure the sample.”

Sperrazza said the police should have arrested Smith first and brought him to court to be warned about the penalties for noncompliance with a court order.

McDonell testified that he used the Taser for 1z to two seconds. Another officer testified that the data readout on the Taser showed it was on for as long as four seconds.

Court papers filed by Smith’s civil attorney, Christopher O’Brien, assert that Smith was zapped three times and lost consciousness. McDonell’s report says, “Suspect complained of no injury and none was observed.”

Obama's support for the new Graham-Lieberman secrecy law

Obama's support for the new Graham-Lieberman secrecy law

Go To Original

It was one thing when President Obama reversed himself last month by announcing that he would appeal the Second Circuit's ruling that the Freedom of Information Act (FOIA) compelled disclosure of various photographs of detainee abuse sought by the ACLU. Agree or disagree with Obama's decision, at least the basic legal framework of transparency was being respected, since Obama's actions amounted to nothing more than a request that the Supreme Court review whether the mandates of FOIA actually required disclosure in this case. But now -- obviously anticipating that the Government is likely to lose in court again (.pdf) -- Obama wants Congress to change FOIA by retroactively narrowing its disclosure requirements, prevent a legal ruling by the courts, and vest himself with brand new secrecy powers under the law which, just as a factual matter, not even George Bush sought for himself.

The White House is actively supporting a new bill jointly sponsored by Sens. Lindsey Graham and Joe Lieberman -- called The Detainee Photographic Records Protection Act of 2009 -- that literally has no purpose other than to allow the government to suppress any "photograph taken between September 11, 2001 and January 22, 2009 relating to the treatment of individuals engaged, captured, or detained after September 11, 2001, by the Armed Forces of the United States in operations outside of the United States." As long as the Defense Secretary certifies -- with no review possible -- that disclosure would "endanger" American citizens or our troops, then the photographs can be suppressed even if FOIA requires disclosure. The certification lasts 3 years and can be renewed indefinitely. The Senate passed the bill as an amendment last week.

Just imagine if any other country did this. Imagine if a foreign government were accused of systematically torturing and otherwise brutally abusing detainees in its custody for years, and there was ample photographic evidence proving the extent and brutality of the abuse. Further imagine that the country's judiciary -- applying decades-old transparency laws -- ruled that the government was legally required to make that evidence public. But in response, that country's President demanded that those transparency laws be retroactively changed for no reason other than to explicitly empower him to keep the photographic evidence suppressed, and a compliant Congress then immediately passed a new law empowering the President to suppress that evidence. What kind of a country passes a law that has no purpose other than to empower its leader to suppress evidence of the torture it inflicted on people? Read the language of the bill; it doesn't even hide the fact that its only objective is to empower the President to conceal evidence of war crimes.

That this exact scenario is now happening in the U.S. is all the more remarkable given that the President who is demanding these new suppression powers is the same one who repeatedly vowed "to make his administration the most open and transparent in history." After noting the tentative steps Obama has taken to increase transparency, the generally pro-Obama Washington Post Editorial Page today observed: "what makes the administration's support for the photographic records act so regrettable" is that "Mr. Obama runs the risk of taking two steps back in his quest for more open government."

What makes all of this even worse is that it is part of a broader trend whereby the Government simply retroactively changes the law whenever it decides it does not want to abide by it. For decades, we had laws in place authorizing citizens to sue their telecommunication carriers if the telecoms allowed government spying on their communications in violation of the law, but when it was revealed that the telecoms did exactly this, the Congress simply changed the law retroactively so that it no longer applied. For decades, we had laws imposing civil and criminal liability on government officials who engaged in or authorized torture, but when it was revealed that our government did that, the Congress just retroactively changed the law to protect the torturers. And now that courts have ruled that our decades-old transparency law compels disclosure of this torture evidence, the Congress is just going to retroactively change the law -- again -- this time to empower the President to suppress that evidence anyway.

Other than creating an illusion of transparency and accountability, what's the point of having laws that purport to restrict what the Government can do if political officials just retroactively waive those laws whenever they want? What's the point of having a FOIA law if the Government will simply pass a new law exempting itself from FOIA's mandates any time it loses in court and wants to conceal evidence anyway? And what conceivable rationale is there for limiting the President's new secrecy powers to post-9/11 photographs? Given that anything which reflects poorly on our Government can be said to endanger our troops and American citizens, why stop here? Why not just have a general power of suppression whereby the President can keep any evidence secret as long as his Defense Secretary decrees that its disclosure will "endanger" the troops?

The debate over whether there is value in disclosing these specific photographs is entirely misplaced. That isn't how open government works. The burden isn't on citizens to prove that there is value in disclosure. Everything that government does is supposed to be transparent to the public unless there is a compelling reason for secrecy -- and the whole point of FOIA always has been that mere embarrassment, the mere fact that information reflects poorly on our government, isn't a legitimate ground for concealment. That's a critical principle for open government. This new law explicitly guts that principle. It institutionalizes the pernicious notion that secrecy is justified where disclosure would reflect badly on the Government and thus "endanger" American citizens and/or our troops.

Combine all of this with the increasingly disturbing spectacle taking place in a California federal court in the Al-Haramain case -- where the Obama DOJ is on the verge of being sanctioned by a federal judge for defying the court's order to make available documents relating to Bush's illegal eavesdropping activities -- and the infatuation with excessive presidential secrecy, the linchpin of government abuse, appears alive and well in the new administration. Is there really anyone who wants to argue that defiance of a federal court's order and enacting a new law authorizing suppression of torture evidence -- the disclosure of which is compelled both by courts and FOIA -- are remotely consistent with anything Obama said he would do, or remotely consistent with what a healthy democratic government would do?

Privatizing 'Obama's War'

Privatizing 'Obama's War'

Editor’s Note: President Barack Obama is making some moves on the international chess board – reaching out to the Muslim world, chastising Israel for its harsh treatment of Palestinians and seeking to bring Iran and hard-line Arab states into regional peace talks.

However, even as Obama makes those rhetorical and diplomatic moves, the wars in Iraq and, especially, Afghanistan grind on, with some disturbing similarities to George W. Bush’s approach, writes Michal Winship in this guest essay:

The sudden reappearance of former Vice President Dick Cheney over the last few months - seeming to emerge from his famous undisclosed location more frequently now than he ever did when he was in office - does not mean six more weeks of winter.

But it does bring to mind that classic country and western song, "How Can I Miss You When You Won't Go Away?" Or, maybe, "If You Won't Leave Me, I'll Find Someone Who Will."

In his self-appointed role as voice of the opposition, Mr. Cheney has been playing Nostradamus, gloomily predicting doom if the Obama White House continues to set aside Bush administration policy, setting the stage for recrimination and finger-pointing should there be another terrorist attack on America.

Cheney's grouchy legacy is the gift that keeps on giving. Just this week, The Washington Post reported for the first time that while vice president, Cheney oversaw "at least" four of those briefings given to senior members of Congress about enhanced interrogation techniques; "part of a secretive and forceful defense he mounted throughout 2005 in an effort to maintain support for the harsh techniques used on detainees...

"An official who witnessed one of Cheney's briefing sessions with lawmakers said the vice president's presence appeared to be calculated to give additional heft to the CIA's case for maintaining the program."

And remember Halliburton, the international energy services company of which Cheney used to be the CEO? After the fall of Baghdad, Halliburton and its then-subsidiary KBR were the happy recipients of billions of dollars in outside contracts to take care of the military and rebuild Iraq's petroleum industry.

Waste, shoddy workmanship (like faulty wiring that caused fatal electric shocks) and corruption ran wild, Pentagon investigators allege, even as Vice President Cheney was still receiving deferred compensation and stock options.

Reporting for TomDispatch.com, Pratap Chatterjee, author of the book, Halliburton's Army, writes, "In early May, at a hearing on Capitol Hill, DCAA [Defense Contract Audit Agency] director April G. Stephenson told the independent, bipartisan, congressionally mandated Commission on Wartime Contracting in Iraq and Afghanistan that, since 2004, her staff had sent 32 cases of suspected overbilling, bribery and other possible violations of the law to the Pentagon inspector general.

“The 'vast majority' of these cases, she testified, were linked to KBR, which accounts for a staggering 43 percent of the dollars the Pentagon has spent in Iraq."

In one instance, KBR was charging an average $38,000 apiece for "prefabricated living units" on bases in Iraq; another contractor offered to provide them for $18,000. But of a questionable $553 million in payments to KBR that the DCCA blocked or suspended, the Pentagon has gone ahead and agreed to pay $439 million, accepting KBR's explanations.

KBR, Halliburton and the private security firm Blackwater have come to symbolize the excesses of outsourcing warfare. So you'd think that with a new sheriff like Barack Obama in town, such practices would be on the "Things Not to Do" list. Not so.

According to new Pentagon statistics, in the second quarter of this year, there has been a 23 percent increase in the number of private security contractors working for the Pentagon in Iraq and a 29 percent hike in Afghanistan. In fact, outside contractors now make up approximately half of our forces fighting in the two countries.

"This means," according to Jeremy Scahill, author of the book, Blackwater: The Rise of the World's Most Powerful Mercenary Army, "there are a whopping 242,647 contractors working on these two U.S. wars."

Scahill, who runs an excellent new website called "Rebel Reports," spoke with my colleague Bill Moyers on the current edition of Bill Moyers Journal on PBS.

"What we have seen happen, as a result of this incredible reliance on private military contractors, is that the United States has created a new system for waging war," he said.

By hiring foreign nationals as mercenaries, "You turn the entire world into your recruiting ground. You intricately link corporate profits to an escalation of warfare and make it profitable for companies to participate in your wars.

"In the process of doing that you undermine US democratic policies. And you also violate the sovereignty of other nations, because you're making their citizens combatants in a war to which their country is not a party.

"I feel that the end game of all of this could well be the disintegration of the nation-state apparatus in the world. And it could be replaced by a scenario where you have corporations with their own private armies. To me, that would be a devastating development. But it's happening on a micro level. And I fear it will start to happen on a much bigger scale."

Jeremy Scahill's comments come just as Lt. General Stanley McChrystal, the man slated to be the new commander of our troops in Afghanistan says the cost of our strategy there is going to cost America and its NATO allies billions of additional dollars for years to come.

In fact, according to budget documents released by the Pentagon last month, as of next year, the cost of the war in Afghanistan - more and more known as "Obama's War" - will exceed the cost of the war in Iraq.

The President asserted in his Cairo speech on Thursday that he has no desire to keep troops or establish permanent military bases in Afghanistan.

But according to Jeremy Scahill, "I think what we're seeing, under President Barack Obama, is sort of old wine in a new bottle. Obama is sending one message to the world," he told Moyers, "but the reality on the ground, particularly when it comes to private military contractors, is that the status quo remains from the Bush era."

Maybe that's one more reason Dick Cheney, private contractor emeritus, won't go away.

Obama Fuzzed Up Reality in Speech

Obama Fuzzed Up Reality in Speech

Editor’s Note: There were some head-scratching moments in Barack Obama’s speech to the Muslim world, like when the President claimed that American blacks overcame slavery and segregation without the need for violence (there was, however, that event called the Civil War in which black regiments played an important part).

There was also the condemnation of small Hamas rockets threatening children in southern Israel, when he and various predecessors have fired remote-controlled missiles which have had far more deadly consequences for Afghan and other children. In this guest essay, David Swanson of AfterDowningStreet.org looks at other anomalies:

If we treated people around the world with "respect," would we continue occupying their nations against their adamant desires?

If we truly "seek no military bases" in Afghanistan, why are we building them on such massive scale?

And why are we locking up hundreds of people there whom Obama hopes to keep outside the rule of law and never bring to trial (or at least he's fighting for that power in court and recently declared that he possessed it), people who will not all die any time soon?

If we respect the Iraqi people, why must our president tell them they are better off now? Why not ask them whether they think they are better off?

If we have a "dual responsibility" to help Iraq and to leave Iraq, is it relevant that the people of Iraq reject that idea, and that we would reject it if imposed on our own nation by another?

If we "pursue no bases" in Iraq and will remove "combat brigades by next August" and will "remove combat troops from Iraqi cities by July" and "remove all our troops from Iraq by 2012," why are we renaming troops "non-combat troops", why are we redrawing city boundaries to avoid withdrawing, why are we in fact creating exceptions in order to remain in cities?

And why do the Commander in Chief's immediate subordinates keep telling reporters that the United States will never leave Iraq?

If we were "respectful of the sovereignty of nations and the rule of law," would we occupy other nations, would we use preventive detention, would we decline to prosecute torturers, assassins, and war criminals, would we object to Iran's possible future nuclear power while refusing to acknowledge that of Israel?

If we do not "accept the legitimacy of continued Israeli settlements," why do we fund them, and why do we accept every existing one?

If we respected the people of Gaza, wouldn't our president accept an invitation to visit there and acknowledge the responsibility of having paid for the weapons that caused the destruction?

Imagine if we truly supported "governments that reflect the will of the people." Does the king of Saudi Arabia reflect the will of his people better than Hamas reflects the will of their people?

And what about here at home? If the will of the American people were at all relevant, we'd end the wars, end the super-militarism, close bases, fund schools and green energy, throw corporations out of government, create single-payer healthcare, pass the Employee Free Choice Act, and so forth.
I'm not blaming Obama for the Senate, but the idea that our own government reflects the basic will of its people is absurd.

The speech, of course, was better than I've made it sound. It's good for Obama to have said we don't want bases and that we'll leave.

That's better than had he not said those things. It's tremendous for him to have acknowledged our overthrow of Iran's democratically elected president. It's important that he acknowledged the good and the admirable in Muslim culture.

But I do wish his interfaith closing had not kicked sand in the teeth of those of us who are not religious, and I wish the best of what he said were being acted on rather than spoken about.