Wednesday, August 19, 2009

Federal regulators covered up Ponzi scheme at Stanford bank

Federal regulators covered up Ponzi scheme at Stanford bank

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The US Securities and Exchange Commission (SEC) ignored warnings from a former employee of Stanford Group six years before the federal regulatory agency seized the offshore investment firm and charged Texas billionaire Robert Allen Stanford with running an $8 billion Ponzi scheme. The implosion of the company in February 2009 hit 20,000 investors worldwide, including many who have lost their life savings, and sparked a wave of panic at the banks owned by the financier.

Earlier this year, Stanford Group was put under federal receivership after regulators accused Stanford of promising what the SEC described as “improbable and unsubstantiated” returns on Certificates of Deposits (CDs) at the company’s unregulated Stanford International Bank based on the Caribbean island of Antigua. Stanford, who is in jail awaiting trial on 21 criminal counts, paid off old investors with deposits from new investors, the government has charged.

On Wednesday, Leyla Wydler, a former Stanford Group financial adviser, told a Congressional field hearing in Baton Rouge, Louisiana that she informed security regulators at the SEC in 2003 and 2004 that Stanford was running an illegal scheme.

Wydler, who was hired in 2000, told the Senate Banking Committee that she was fired in 2002 for refusing to push the fraudulent CDs on her clients. “The financial advisers who sold CDs were praised and compensated for doing so, and those who did not sell the CDs were fired,” she said.

During this time, Wydler—a financial advisor and vice-president—repeatedly pressed company officials for an appraisal of the actual value of Stanford International Bank’s assets but was denied the information.

In late 2003, Wydler issued an anonymous complaint to the SEC, warning that Stanford was operating a Ponzi scheme “that will destroy the life savings of many, damage the reputation of all associated parties, ridicule securities and banking authorities, and shame the United States of America.”

The complaint also said it appeared that “returns and expenses are being paid out of clients’ monies, and by the size of the portfolio, this would be one of the largest Ponzi schemes ever discovered.”

In 2003, Wydler also made a claim of wrongful termination and under the Whistleblower Act requested that the finance industry’s own internal monitoring body—the Financial Industry Regulatory Authority (FINRA)—investigate her charges of fraud.

In 2004, she made another complaint to the SEC, without resorting to anonymity. During discussions in September and December 2004 with two SEC officials at the commission’s regional office in Fort Worth, Texas, Wydler provided the SEC with copies of many of her emails and other information. They also discussed the fact that CDs were actually securities, which gave the SEC jurisdiction over Stanford’s affairs.

It wasn’t until nearly four years later—in January 2009—that she was contacted by the SEC again. Stanford imploded a month later.

“Most of my concerns of 2003 have been confirmed,” she told the congressional hearing, making it clear that if the government had acted on her warnings thousands of investors could have avoided the catastrophe they are now confronting.

Some 400 Stanford investors in the crowded hearing room gave her a standing ovation as she testified. In Louisiana alone, primarily Baton Rouge and Lafayette, the losses are estimated to be $1 billion.

Several ruined investors also testified. “These agencies along with Stanford have robbed me of my American dream,” Craig Nelson, a 55-year-old resident of Magnolia Springs, Alabama, said. “I feel the US government is responsible for my loss.”

Troy Lillie, a retired Exxon Mobil refinery worker from Maurice, Louisiana, said he invested his retirement savings in Stanford CDs after getting recommendations from fellow workers at the refinery where he worked for decades. On top of the “humiliation” of losing the money, Lillie said he was deeply disappointed that regulators had failed to prevent it. “The system absolutely has failed us,” he said.

“I have been working 14 hours per day on an offshore oil platform in the Gulf of Mexico for two weeks at a time to try to make ends meet,” Lillie told a local news station WBRZ. “This is a difficult thing to do at this point in my life... with a heart condition and pacemaker.”

Adding insult to injury, Ralph Janvey, who was appointed at the request of the SEC to oversee the affairs of the Stanford group, has sought to sue 650 innocent investors, including Lillie, who retrieved some of their principal prior to February, in order to use it in an eventual monetary settlement in the case.

In addition, Janvey is asking a federal judge in Dallas to approve $27 million in salary and expenses for his receivership team of lawyers, accountants and investigators. That money would be paid out of the receivership estate.

All evidence points to the fact that federal regulators deliberately covered up the illegal and reckless operations carried out by the Stanford Group. Last month, the SEC’s internal regulatory agency claimed its efforts to pursue Stanford had been hampered by the “lack of cooperation” by the Texas billionaire and the head of Antigua’s financial regulator.

Such an explanation strains credulity. Baton Rouge lawyer Ed Gonzales represents several Lafayette-area Stanford investors and is demanding that the SEC release all of its records in the case. He was quoted by WBRZ as asking, “How is it that the SEC took five years and five months to shut down the securities dealer that was acquiring investor money for (Stanford International Bank) at the rate of more than $1 billion per year?”

The SEC’s collusion with Stanford is strikingly similar to its treatment of Bernard Madoff. Before the arrest and prosecution of the 70-year-old stockbroker and investment advisor, Madoff had been subjected to nearly a dozen SEC investigations. At least one Wall Street whistleblower had consistently urged a thorough probe of his operations, declaring in one letter that Madoff was operating “the world’s largest Ponzi scheme.” His fraud was uncovered only when he could no longer keep it going, and he decided to confess and turn himself in to the authorities.

Far from checking their activities, the SEC and every other government agency has encouraged the most reckless forms of financial speculation over the past two decades, of which the Ponzi schemes of Madoff and Stanford are only the logical outcome. The rise of such criminality to the heights of American capitalism is the inevitable result of decades in which the ruling elite has decimated basic industry, wiped out the jobs and living standards of millions of workers and consolidated the economic and political grip of a financial aristocracy.

Stock market gyrations reflect fears of protracted global slump

Stock market gyrations reflect fears of protracted global slump

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Stock markets in the US and internationally declined sharply Monday before recouping some of their losses on Tuesday. The volatility reflects concerns that despite recent gross domestic product (GDP) growth registered by several major economies, the global economic crisis continues to deepen.

The US Dow Jones Industrial Average index fell 0.8 percent Friday and another 2 percent Monday, before recovering somewhat with a 0.9 increase yesterday. Standard & Poor’s 500 index was up 1.0 percent yesterday after declining 2.4 percent Monday.

A similar trend was evident on world markets. On Monday, China’s Shanghai Composite index fell 5.8 percent—its largest one-day decline since November last year, Japan’s Nikkei 225 fell 3.1 percent, the German DAX lost 2 percent, France’s CAC 40 fell 2.2 percent, and London’s FTSE 100 declined 1.5 percent. These markets clawed back some ground yesterday, but all remain lower for the week.

The volatility coincided with Germany, France, and Japan reporting positive second quarter GDP growth. Many economists are also anticipating that US GDP will return to positive territory in the third quarter, in part due to the government’s “cash for clunkers” subsidy for new car purchases.

“Markets are reflecting fears the world economy will have trouble weaning itself off government stimulus,” the Wall Street Journal commented. Several economists noted that the return to positive GDP growth is due to coordinated multi-billion-dollar fiscal stimulus measures, rather than any rebound in private sector economic activity. There are widespread fears of a renewed downturn once the stimulus impact ends.

International Monetary Fund chief economist Olivier Blanchard warned that while there are signs of a “nascent recovery,” fiscal stimulus in most advanced economies cannot continue much longer because of mounting public debts. “The world is not in a run-of-the-mill recession,” he stated in a feature article for the IMF’s Finance and Development magazine. “The turnaround will not be simple. The crisis has left deep scars, which will affect both supply and demand for many years to come.”

Blanchard emphasised that there was little prospect of a return to the “old growth path,” and that the positive GDP forecasts for many advanced economies in the next few quarters “will not be quite strong enough to reduce unemployment, which is not expected to crest until some time next year.”

The IMF economist explained that a major reorganisation of the world economy remained necessary. China and other countries with large current account surpluses must lower net exports and boost growth through domestic demand, while the US and other advanced economies have to engineer “a shift from domestic to foreign demand”—that is, a permanent reduction in the populations’ consumption levels.

These shifts will be accompanied by the elimination of wide sections of industry in the leading capitalist countries. Blanchard stated: “Changes in the composition of world demand, as consumption shifts from advanced to emerging economies, may require changes in the structure of production.”

The IMF economist warned of the possibility that in the US, “fiscal deficits might be maintained for too long, leading to issues of debt sustainability, worries about US government bonds and the dollar, and causing large capital flows from the United States.” Blanchard insisted that the only way this scenario can be avoided, in the event further stimulus spending is required, is if “structural measures are taken to limit the future growth of entitlement programs—whether from rising health care costs or from the effect of ageing populations on retirement costs.” In other words, bedrock social programs must be gutted.

These conclusions point to the fact that whatever the immediate fluctuations on the world’s stock markets and ups and downs of business activity, there is not going to be a return to the pre-crisis status quo. The old regime of capital accumulation—based on shifting manufacturing production from advanced economies to low-wage platforms, the explosive growth of financial parasitism, and promotion of debt-fuelled consumption—has broken down. In its place, the financial elite in the US and internationally is attempting to engineer a new equilibrium by advancing a sweeping restructuring agenda involving the further destruction of “excess” productive capacity, elimination of countless jobs, and a permanent reduction in the living standards of the working class.

In this context, official discussion of a nascent economic recovery takes on an unreal character. Unemployment rises, consumer spending continues to decline, private investment remains depressed—and yet many leading US stocks have rebounded from record lows recorded last March. This is largely because corporations have been able to slash costs further than revenues have declined.

Computer giant Hewlett-Packard, for example, yesterday reported making a $1.6 billion quarterly profit, despite seeing sales decline by 2.1 percent on an annualised basis. Its returns this year have been boosted by its recent takeover of services firm EDS, involving 24,600 layoffs, as well as an announcement last May of an additional 6,400 job cuts.

At the same time, the financial system remains in crisis. No one knows whether the US banking system is solvent. The banks are holding on to massive volumes of toxic assets, declining to write them down or sell them off, while assigning them vastly inflated values to boost their balance sheets.

The crisis has worsened since the 2008 crash, with declining economic activity feeding back into the banking system in the form of mounting bad debts. A recent report by the Congressional Oversight Panel monitoring the Troubled Asset Relief Program (TARP) found that the value of one category of toxic assets on the books of the largest 19 US banks is up 14.3 percent since the beginning of the year.

In an extended comment on the US economy published August 10, David Rosenberg, chief economist and strategist with Canadian investment firm Gluskin Sheff, noted that the S&P 500 index’s 49 percent gain in the five months since its March 9 low is “unprecedented back to the 1930s.”

In the post-war period, Rosenberg continued, it has taken an average of 18 months for the stock market to rebound 49 percent after a recessionary low. Usually at the point of a 49 percent stock market rally, real GDP has expanded 4.5 percent, employment increased by 850,000, corporate profits recovered 12 percent, and bank lending increased by 5 percent.

Now, however, real GDP, employment, corporate profit, and bank lending are all still declining. “We have never before witnessed a stock market rally of this magnitude over such a short time frame and absent anything more than tentative signs of economic improvement,” the economist noted. “The only rally of this magnitude was the wild bear market rally ride in 1930, which was followed by a resumption of the decline that finally bottomed 82 percent lower in 1932.”

Rosenberg concluded: “This is the most speculative momentum-driven equity market since the early 1930s... What we have on our hands is a jobless, revenue-less, income-less, profitless and consumer-less recovery. It’s a one of a kind.”

Recent data on US economic activity has borne out this conclusion:

* The Labor Department reported yesterday that producer prices declined by 0.9 percent last month, reportedly due to lower food and energy prices. The decline in producer prices over the last twelve months is the sharpest since records were first kept 60 years ago. The latest monthly decline indicates persistent deflationary tendencies.

* A Federal Reserve survey found that 30 percent of banks are further tightening conditions on consumer and small business loans, exacerbating the credit crisis. The banks are continuing to hoard the federal government’s bailout money. The Fed and Treasury Department, refusing to take any measures to force the banks to free up credit, have announced an extension of the Term Asset-Backed Securities Lending Facility (TALF) until the end of the year. This program involves the Fed purchasing banks’ securities that are backed by auto loans, credit card debt, business credit and commercial real estate.

* Commerce Department figures released last week showed a 0.1 percent decline in retail sales from July to June, significantly worse than analysts’ estimates of a 0.8 increase. Excluding auto sales, retail activity fell 0.6 percent. Research company Retail Metrics has predicted that retailers will soon register a ninth consecutive quarter of falling sales.

* Data on housing starts released by the Commerce Department yesterday showed that new home construction fell by 1 percent in July, with building permits also down 1.8 percent and housing completions down 0.9 percent from a month before.

* RealtyTrac has reported that foreclosures hit a new record last month, marking the third monthly record set in the last five months. Foreclosure filings, comprised of default notices, auctions and repossessions, reached 360,000, up 7 percent from the previous month and 32 percent from a year earlier.

* According to the National Association of Realtors, more than one-third of all house sales in the second quarter were “distressed sales,” that is, either foreclosures or short sales. Property prices continue to decline, with median home values reaching $174,000 in the second quarter—down 15.6 percent from a year earlier.

Behind these figures is a growing tide of social misery. The strategy of President Barack Obama’s administration—like that of governments in advanced capitalist countries throughout the world—is to make the working class bear the entire burden of the economic crisis. At the same time, nationalist and protectionist tendencies are mounting as each national ruling elite seeks to outmanoeuvre its rivals—raising the spectre of militarism and war.

US income gap widest since 1917

US income gap widest since 1917

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The social chasm separating America’s financial oligarchy from working people, the vast majority of the population, is wider than at any time since 1917, according to the latest statistics from the Internal Revenue Service.

The income gap between the top 10 percent and the bottom 90 percent has reached “a level higher than any other year since 1917 and even surpasses 1928, the peak of the stock market bubble in the ‘roaring’ 1920s,” according to an analysis of the data published earlier this month by University of California economist Emmanuel Saez.

Saez’s report, entitled “Striking it Richer: The Evolution of Top Incomes in the United States,” shows that the real increase in the concentration of wealth has taken place at the pinnacle of the social pyramid—the top 1 percent, with annual incomes of $400,000 and above.

The figures released by the IRS are from 2007. They indicate that for most of the top 10 percent (families with incomes of $110,000 or more), there was little change in terms of income growth and share, but the top 1 percent increased their share of the national income to 23.5 percent, compared with 22.8 percent in 2006.

Between 2002 and 2006, this social layer, consisting of one out of 100 American households, accounted for 65 percent of income growth nationwide. This trend has held for the better part of the past decade.

During the period 2002-2007, the top one percent saw an annual growth in income of just over 10 percent annually. During the same period, the bottom 99 percent saw an increase of only 1.3 percent per year, falling well below the rate of inflation. As a result, the top one percent accounted for two thirds of income growth over the six-year period.

Bringing this income stratification into still sharper focus provides a staggering indication of the concentration of wealth in the US. The top .01 percent of the population, (less than 15,000 families) saw its share of total income rise from 5.46 percent in 2006 to 6.04 percent in 2007 (compared to just 0.9 percent in 1979). This 2007 figure amounts to roughly double the total combined income for the bottom 20 percent, some 30 million families.

As Saez comments, “2007 was an incredibly good year for the super rich.”

It was also, of course, the year preceding the greatest financial collapse since the Great Depression of the 1930s. This was no mere coincidence. The accumulation of obscene amounts of wealth by this tiny minority is a major factor in the bankrupting of the country and the plunging of the entire world into economic crisis and misery.

Professor Saez points to the dramatic changes in the economic landscape since 2007, noting that real income is falling across the board. He points out that in previous recessions, the income share of the top 1 percent has tended to decline because business profits, capital gains and stock option returns tend to fall faster than average income.

“Based on the US historical record, falls in income concentration due to recessions are temporary unless drastic policy changes such as financial regulation or significantly more progressive taxation are implemented and prevent income concentration from coming back,” Saez writes.

The present crisis, however, is not just another recession. Rather, it signals the final collapse of the post-World War II global capitalist order, which depended on the economic supremacy of the United States. The ruling elite, not just in the US but in all the major capitalist countries, aims to resolve this crisis through a drastic reduction in the income and social conditions of the working class, accompanied by attacks on basic democratic rights and an increasing turn to military aggression.

As part of this global process, the working class in the US has already suffered severe blows. Some 30 million are jobless or relegated to involuntary part-time work, while wage-cutting is rampant.

At the other end of the social spectrum, wealth accumulation continues unabated. Seven of America’s top ten CEOs took home total compensation of $100 million or more last year, according to a report by the independent research group The Corporate Library. This compares to just three who pocketed that much the year before.

Topping the list (which includes the heads of seven major oil companies) is Stephen Schwarzman of Blackstone Group LP, the private equity firm, who took in $702.4 million—nearly $2 million a day.

Meanwhile, Wall Street has set aside tens of billions of dollars for annual bonuses, with 2009 set to be the most lucrative year yet for the bankers and financial traders.

The Obama administration has no intention of imposing the kind of financial regulation or tax increases on the rich that Saez suggests could lessen social polarization and the concentration of wealth. On the contrary, all of its policies have been directed at bailing out the banks and the financial elite, while demanding that workers accept drastic pay and benefit cuts, the destruction of their jobs, and a series of counter-reforms in health care and other essential social programs.

Commenting on the controversy over Wall Street pay and benefits last week, White House spokesman Robert Gibbs defended the bankers’ plundering of the economy, telling the press “I don’t think the American people begrudge that people make big salaries, as long as they’re not jeopardizing the good will of the public in doing so.”

The only alternative to the destruction of working class living standards to maintain the wealth of the financial aristocracy requires a break with the Democratic Party and the building of an independent mass political movement of the working class fighting for an end to the domination of society by the financial parasites of Wall Street.

The banks and finance houses must be taken out of private hands and placed under public ownership and the democratic control of working people. The vast fortunes accumulated by the CEOs and financial speculators should be reclaimed to pay for jobs, education, health care, housing and other vital social needs.

US soldier sentenced to year in prison for refusing to fight in Afghanistan

US soldier sentenced to year in prison for refusing to fight in Afghanistan

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US Army Sergeant Travis Bishop, 26, a native of Louisville, Kentucky, was sentenced Friday to one year in prison after being convicted of going AWOL (Absent Without Leave) and disobeying lawful orders in connection with his refusal to be deployed to Afghanistan.

The sentencing of Sergeant Bishop follows closely on the heels of the conviction of Army Specialist Victor Agosto, 24, who was sentenced the previous week to 30 days in jail and demoted to private for his refusal to fight in Afghanistan on the grounds that the US occupation was immoral and unjust. Bishop and Agosto are both stationed in Fort Hood, Texas and share the same attorney, James Branum.

Bishop’s punishment proved to be more severe than Agosto’s. In addition to being sentenced to one year in prison and demoted from sergeant to private, Bishop will lose two-thirds of his pay for a full year and receive a bad conduct discharge from the military upon his release from prison. Branum has pledged to appeal the conviction.

Bishop’s doubts about his involvement in the military had been building for some time. In a statement released by Bishop in May, he describes returning home from Iraq, where he served for 14 months, to a hero’s welcome: “That was the first time I felt unsettled over what I had done overseas. My hand was shook, my back was patted, and every night my belly was burning, full of free alcohol. I was a veteran of a foreign war, hailed as a hero, and yet I felt ... unnerved, anxious.”

He went on to say, “I felt as if I had a big secret inside me that threatened to burst out of me at any moment, exposing what I really was to the rest of the world ... but I couldn’t figure out what the secret was. Not for a long, long time.”

Bishop describes no longer being able to understand why the US military was in Iraq. “Nothing sat right,” he said. The young sergeant turned toward religion in his crisis and began studying the Bible. He soon came to the conclusion that he could no longer place himself in a situation in which he could be ordered to kill another human being. When he was ordered to return to combat, this time to Afghanistan, Bishop decided not to go. He would file for Conscientious Objector status, going AWOL in order to do so.

Bishop maintains he was unaware of his right to apply for Conscientious Objector (CO) status until just days before his unit was set to deploy to Afghanistan. This assertion has been verified by Bishop’s commanding officer, Captain Christopher Hall, who testified that he had provided his soldiers with no information regarding CO status. Bishop, having discovered his rights too late to follow the standard CO procedure, made the decision to go AWOL for one week in order to prepare his application for CO status.

In a statement explaining his actions, Bishop said, “I left because I did not feel that I would have a sympathetic, understanding command structure to fully take my problems to, and also to give myself time to prepare for my CO application process, and the legal battle I’m currently fighting.” Following the completion of the application, Bishop turned himself in to authorities to answer for his absence from duty.

From the start, Bishop’s trial took on an anti-democratic character, with participants openly contemptuous toward the solider. One of the jurors fell asleep during the trial. Another repeatedly shook his head in disgust as Branum argued Bishop’s case.

Fort Hood chaplain Lt. Col. Ron Leininger testified against Bishop, asserting to the court that the sergeant’s religious convictions were not sincere enough to convince the chaplain to recommend him for CO status. The chaplain’s written report on Bishop contained errors, including calling Bishop by the wrong name. The chaplain told the court his interview with Bishop lasted for a period of 45 minutes. Challenging this claim, Bishop later told, “The Chaplain only spoke with me for 20 minutes, took two calls on his cell phone, and was texting the whole time.”

In his own defense, Bishop offered a statement to the court which reads, “[W]hat most Soldiers don’t realize is that CO is not only a regulation, it’s a right. To file for conscientious objector status is an individual right of every Soldier in the Army. This right ensures that Soldiers with the beliefs that I share have the opportunity to request to be discharged due to said beliefs. But, unlike other regulations in the military, this one remains unpublicized.”

Bishop’s statement discusses the military culture he struggles against. “Since day one of anyone’s career in the military,” says Bishop, “fierceness and bravado are pounded into every potential Soldier, and fear and doubt are viewed as weaknesses. This leaves Soldiers that feel as I feel in quite a predicament.

“Does a Soldier who feels as I feel tell someone in their Command? Or a peer? And risk persecution and ridicule? I have never heard the word ‘coward’ used more than when I say the words conscientious objector around a group of Soldiers.”

The rate of desertion in the US Army has risen 80 percent since the Iraq War began in 2003. Soldiers, many of them even younger than Bishop and Agosto, have been forced into bloody colonial wars in Iraq and Afghanistan, wars which have been associated with torture, rape, secret prison networks, the death of masses of Iraqis and an increasing number of Afghan civilians, and an assault on the most basic democratic rights. It is taking its toll, not only on the local populations, but on those rank and file soldiers who are engaged in its prosecution. Suicide rates among soldiers are at a record high. Large numbers of soldiers leave combat with Post Traumatic Stress Disorder.

It is difficult to gauge the level of resistance to the wars in Iraq and Afghanistan within the military, but it is safe to say Bishop and Agosto are far from alone in their sentiments. The Pentagon has chosen to make an example of Bishop, whose only “crime” has been to refuse to take part in an illegal war of aggression. His punishment is meant as a warning to any military personnel considering opposition.

Thousands attend free health clinic in Los Angeles

Thousands attend free health clinic in Los Angeles

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A clinic offering free medical services for the uninsured and underinsured is currently being held in the Los Angeles suburb of Inglewood, California.

Free medical clinic in Inglewood, CaliforniaFree medical clinic in Inglewood, California

The clinic began on August 11 and lasts through August 18. During its first four days of operation in the city, the non-profit Remote Area Medical (RAM) provided care to 3,010 attendees, at an estimated cost of about $500,000 a day.

According to RAM, the services it provided during the first four days of operation included 1,033 tooth extractions, 2,054 fillings, 236 mammograms, and 739 new pairs of eye glasses. Additionally other organizations not directly affiliated with RAM were also present to provide free HIV tests and other medical services and screenings.

The RAM organization, founded by former Mutual of Omaha’s Wild Kingdom host Stan Brock, was originally intended to bring free medical care to remote areas of South America. The organization has since expanded its operations to the United States, where for 47 million men, women and children, medical care is effectively as unavailable as it is to a villager in the farthest reaches of the Amazon.

The organization most notably provided services in New Orleans during the aftermath of Hurricane Katrina. Its current intervention in Los Angeles is its largest yet. In spite of these massive undertakings, both in the US and abroad, it is only able to provide medical treatment to a fraction of those in need.

World Socialist Web Site reporters visited the Los Angeles event on Saturday and spoke with both volunteers and patients.

Craig Baines attended with his daughter Tyler, a chemistry major at California State University Stanislaus. Craig spoke about his experience at the clinic and his reasons for attending.

Craig Baines and his daughter TylerCraig Baines and his daughter Tyler

“I worked at the same architectural firm for 27 years before being let go earlier this year. A number of younger employees were then brought in at lower salaries. I’m currently on unemployment now and am looking for work. But regardless, my responsibility is to make sure that my daughter has the medical care she needs.”

Asked about his experience obtaining a ticket for the event, Baines said that he had arrived at two in the morning on Thursday and waited until 10 am before he received one.

“I’m very happy with the work they did on me here. Everyone was very courteous and professional. Unfortunately, those who didn’t get in line quite as early as I did had to be turned away, which was sad. I think this event was beautiful but it shouldn’t be something that we have to wait five to ten years to receive. Free health care like this should be an established practice in our society.”

Viridiana Herera works at a local McDonald’s restaurant that doesn’t provide her with any health benefits. She attended the clinic with her mother and son.

“Right now my son is receiving dental care through Medi-Cal; however, he is only allowed to receive treatments twice a year. Right now he needs work done and I took advantage of the opportunity. Also, I have to receive treatment here because Medi-Cal only covers him and not me.”

When asked what she would do when faced with a serious medical condition as a member of the uninsured, Viridiana replied that she currently receives insurance through the ORSA program, which is a type of insurance provided by the county of Los Angeles to a small sector of low income workers to cover outpatient care.

“I actually got hit by a car a number of months ago and fortunately the driver’s insurance was able to pay for my medical costs. I don’t want to think where I’d be right now if it didn’t, and I don’t think ORSA would have been able to cover the treatments I received.”

ArnoldArnold Duale

WSWS reporters also spoke with Arnold Duale who was released from prison in October 2008 and is currently looking for work.

“I’m a truck driver but am currently unemployed. I was receiving unemployment benefits until last week when they stopped sending me checks, and they still haven’t given me any explanation as to why the checks stopped. I only received the checks for five months. I applied for an extension and the request wasn’t granted as far as I know.”

When asked what brought him to the clinic, Arnold said that he had severe dental problems along with a hernia, both of which the clinic providers weren’t able to treat.

“To make matters worse I got out of prison less than a year ago, and while I was there, they couldn’t operate on me. They would have had it become an absolute emergency, but since they didn’t think it was, all I got were pain killers. I’m going to try another place in West LA this coming Monday to see if they can help me, but I don’t exactly have my hopes up.

“The problem is that I have this condition and the best anyone can do for me is to give me pain killers and tell me not to lift anything heavy. Well, the line of work I’m in requires me to lift heavy things all the time. What am I supposed to do? My condition is so severe that I can’t even walk for very long without having to take a break. I just get so tired.

“I wish they could’ve done more to help me here but I’m grateful that they tried. Poor people should be able to get decent medical care just like everyone else. The funny thing is though, that poor people aren’t who you always expect them to be. I’ve seen a lot of people coming here to be treated driving some pretty nice cars. It’s a sign of the times I guess.”

At Free Clinic, Scenes From the Third World

At free clinic, scenes from the Third World

Doctors and dentists volunteering their services at the Forum see scenes like those in impoverished areas overseas.

Steve Lopez

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"Do you want to see the tooth?" Dr. Mehrdad Makhani asked me Friday morning at the free clinic being staged inside Inglewood's Fabulous Forum. "Come. I'll show you."

Jenny McLean, 36, opened her mouth and Makhani aimed a little flashlight in there.

"You see here?" he said.

The area around a back tooth was red and swollen, and McLean's eyes were teary with discomfort. She'd endured the pain for more than a year because she's had neither insurance nor the money for a dentist since losing her job as a social worker.

It was a story repeated hundreds of times last week at the Forum, where a nonprofit called Remote Area Medical had brought in volunteers to treat legions of the uninsured.

"Here, look at this," said Makhani, pointing to a second tooth that would have to be extracted and yet another that needed a root canal.

Makhani pointed me to another dentist. "Talk to him. He's worked in Brazil."

That would be Joseph Chamberlain, a Westwood dentist who said he's done charity work in Brazil, but not in conditions like this.

"They have a nice system of public hospitals and clinics," he said.

But don't patients have to wait for treatment?

"Yes," Chamberlain said. "But not like this. Not for a year."

Stan Brock, who founded RAM in 1985 to bring medical care to Third World countries, told me that in 1992 he began getting requests to do the same work in the United States.

"The people we're seeing here have teeth as bad as the people in the Upper Amazon," said Brock, who used to tangle with wild beasts on "Mutual of Omaha's Wild Kingdom."

It would be nice if we could send Brock to the nation's capital and have him grab the vipers and hyenas by their necks until they work out a healthcare reform plan. But Brock has a better idea: The nation's leaders should instead come spend a day at one of his clinics and learn a thing or two.

He pulled out a chart showing that at his last medical jamboree, in Virginia, volunteer dentists performed 4,304 tooth extractions in two days, among various other medical procedures.

"President Obama was just down the road somewhere a couple days later, talking about healthcare," Brock said. "I think it would have been a lot more interesting if he came to our clinic."

Eugene Taw, an ear, nose and throat specialist with the Buddhist Tzu Chi Free Clinic in Alhambra, was one of many Forum volunteers who has worked in other parts of the world. Yes, he said, there are far too many parallels between the uninsured in the United States and the residents of impoverished Third World nations.

At the Forum, his patients included a diabetic amputee who had not been able to buy his medicine for months, a retiree who couldn't afford an X-ray for a lung problem, and a 30ish female diabetic with a kidney ailment so serious that Taw called for an ambulance to take her to a hospital.

"This is great for helping people in need," Taw said of the Forum clinic. "But it's not a good way to do healthcare."

Diabetes and hypertension require regular maintenance, Taw said, rather than occasional urgent trips to an emergency room after the patient deteriorates and the treatment is more expensive. By some estimates, Taw said, 85% of the estimated 47 million uninsured Americans are members of working families. So why not divide the cost of their health insurance evenly among employer, employee and the government?

Taw said he'd seen the Friday headline in The Times about the latest cut in California's Healthy Families Program budget, which means nearly 670,000 children could lose medical coverage by next June. A disaster in the making, he said. Yes, and Brock told me the biggest difference between the Third World and the United States is that in our country, children have had far greater access to doctors.

The huge turnout each day at the Forum made it clear that although Southern California has quite a few free medical and dental clinics, there aren't enough to handle the demand. Among those waiting patiently for help was Walter Samwel, a 70-year-old Vietnam vet from Gardena who has been putting off a root canal for two years.

I asked Samwel why he didn't go to the VA and he said they're swamped with recently returning vets, and more severe dental problems take priority. He had arranged time off from his part-time job as a maintenance man at a Long Beach senior center to come to the Forum, but this was his third attempt to get help. The first two days, his number was too high, and the dental clinic shut down before he was called.

Would his Medicare cover the dental work?

No, he said. There's lots it doesn't cover.

There's something shamefully wrong, I told him, when a man who served his country overseas for seven years can't get basic dental care.

"This is true," Samwel said, "but nobody wants to hear it."

Across the Forum, Adrienne Teeguarden was waiting for her first eye exam in 2 1/2 years. Since her layoff as a clothes designer, she's been working as a part-time nanny and can't afford health insurance or glasses.

Greg Pearl, an optometrist who has done medical relief in Mexico and South America for Volunteer Optometric Services to Humanity, said it's outrageous that vision and dental care are not in most U.S. insurance plans and are rarely part of any conversation on healthcare reform.

When I asked him about differences in the patients he sees overseas and in clinics such as the one at the Forum, he had a quick answer.

"Here, the patients speak English."

I can't say I was surprised by the spectacle at the Forum, but with each of two visits, I knew I was witnessing the perfect distillation of an unconscionable societal failure. Whether the answer includes the public option Obama has pitched, or the clampdown on obscene insurance company profits proposed by a doctor friend of mine in Wednesday’s column, a civil society has no excuse for not finding a better way.

"I don't have the answers," said Makhani, the dentist who insisted I look closely at his patient's ailing mouth. "I'm not a politician. But I have people here with infected teeth, gums, abscesses. I saw a lady bus driver who lost her job and she's walking around here crying. Her tooth is infected, she's in pain and she can die from this. This is disastrous. This is a Third World country and people need to come and see this."

Like hundreds of other volunteers at the Forum, including roughly 20 dentists simultaneously working on patients while many, many more waited their turn, Makhani had but one motive.

"Why do I do this? What do you think? Look at the need," he said. "What would you have done? Just look at the need."

Obama pledges intensified war in Afghanistan and Pakistan

Obama pledges intensified war in Afghanistan and Pakistan

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In a speech delivered Monday to the annual convention of the Veterans of Foreign Wars (VFW) in Arizona, President Barack Obama promised to intensify the US military engagement in Afghanistan and Pakistan, wind down the war in Iraq, and create a new military that would be better-equipped to wage unconventional warfare.

The speech’s central purpose was to prepare public opinion for an escalation and prolongation of the US war in Afghanistan and its further expansion into neighboring Pakistan.

The president warned that the war in Afghanistan would be long and bloody, predicting “more difficult days ahead.”

“The insurgency in Afghanistan didn’t just happen overnight,” Obama said. “And we won’t defeat it overnight. This will not be quick. This will not be easy.”

Obama said that diminution of the conflict in Iraq would allow the US “to refocus on the war against Al Qaida and its extremist allies in Afghanistan and Pakistan.” In other words, there will be no lessening of US military violence. Whatever can be freed up from Iraq will simply be transferred to the “Af-Pak” theater.

“That’s why I announced a new, comprehensive strategy in March, a strategy that recognizes that Al Qaida and its allies had moved their base from the remote tribal areas—to the remote tribal areas of Pakistan,” Obama continued. This casual declaration demonstrates Obama’s indifference toward international law and the US constitution. Pakistan is technically a sovereign state, and no formal declaration of war has ever been made against it.

To defend the intensification of the war in Afghanistan, Obama used fear-mongering language that could just as easily have been uttered by his predecessor, George W. Bush. “[W]e must never forget,” Obama declared, “This is not a war of choice. This is a war of necessity. Those who attacked America on 9/11 are plotting to do so again. If left unchecked, the Taliban insurgency will mean an even larger safe haven from which Al Qaida would plot to kill more Americans. So this is not only a war worth fighting; this is a—this is fundamental to the defense of our people.”

The 9/11 terrorist attacks on the US—for which no credible official explanation has ever been given—provided the pretext for the US invasion of Afghanistan, which corresponded to longstanding US geo-strategic aims that held Afghanistan as critical for its proximity to essential oil and gas resources and for its key central position in the Eurasian land mass.

The choice of the VFW convention to signal an escalation of the Afghanistan war provided another echo of the Bush administration. Using much the same rhetoric, Vice President Dick Cheney used the same venue to deliver a speech in August 2002 that inaugurated the campaign that led to the invasion of Iraq, also under false pretexts, in March 2003.

Obama’s campaign to intensify the US military intervention in Central Asia comes under conditions in which the populations in the US, Afghanistan, and Pakistan are increasingly opposed to the war.

A recent poll by CNN/Opinion Research Corp of the US populations found that 54 percent of respondents are now opposed to the war in Afghanistan, with only 41 percent in favor, a dramatic reversal from May when 50 percent expressed support for the war. In Pakistan, a new Pew Global Attitudes survey found that about two thirds of the population, 64 per cent, view the US as “an enemy,” with only 9 percent describing it as a “partner.” And in Afghanistan, it is anticipated that national elections to be held Thursday will lack credibility due to fraud and voter abstentionism. There is a widespread understanding in the population that the election results will not end the US occupation.

In early October the war in Afghanistan will have entered its ninth year, making it the second-longest continuous military action in US history after the Vietnam War. At least 1,316 coalition soldiers have been killed, but the pace of the violence has steadily quickened, with July the bloodiest month for coalition forces since the war began. Beginning in 2005, each new year has outstripped the last as the war’s deadliest, with 2008 setting a record of 294 coalition deaths. The current year will far surpass that total, with 271 deaths having already taken place.

On Sunday and Monday, three British and two US soldiers, as well as an American civilian, died in gun battles and bombings in Afghanistan.

The war has killed tens of thousands in Afghanistan and the border regions of Pakistan, although no accurate count is available. The vast majority of these have been innocent civilians, with a far larger proportion than in Iraq slain in US aerial bombardments or through attacks from the unmanned Predator drones that terrorize the region’s villages on a daily basis.

As for Iraq, Obama asserted he would “remove all our troops from Iraq by the end of 2011,” a promise that has already been nullified by both the US military command and the Iraqi regime.

After six years and four months of war, there remain 130,000 American soldiers in Iraq. In the interim, more than one million Iraqis have been killed as a result of the invasion, according to the most credible estimate. About a fifth of the population, nearly five million people, have been displaced—two million as refugees in neighboring countries. Iraq has been destroyed as a functioning society; unemployment is widespread and basic social services, including education, transportation, water, sewerage, and electricity, are decimated. Oil production has scarcely reached pre-invasion levels.

Over 4,331 US soldiers have been killed in the conflict, and over 31,100 have been wounded. The cost of the Iraq war will surpass the US war in Vietnam, adjusted for inflation, by the year’s end, when it will reach nearly $700 billion.

Nonetheless, politicians of both parties have joined hands with the media to celebrate the supposed success of the Bush administration’s “surge” in Iraq, whose strategy combined overwhelming violence, assassinations, bribery, and the ethnic cleansing of Baghdad and other areas that previously contained mixed Shiite and Sunni populations.

This barbaric policy has temporarily diminished attacks on US soldiers. But hundreds of Iraqis continue to die every month through bombings and assassinations, and the nation remains a tinderbox, with tense ethnic, religious, and regional tensions set to reignite.

Further undermining Obama’s claim of an imminent withdrawal, the top US commander in Iraq, General Ray Odierno, on Monday said that he would request more US forces be stationed in Iraq’s northern Kurdish region, where ethnic violence among Arabs and Kurds has intensified in recent weeks.

Obama’s claims that he intends to “wind down” the military involvement in Iraq notwithstanding, it is an article of faith in Washington as well as Baghdad that a large-scale military presence must and will remain. The US has announced its real intentions through the construction of a series of “enduring” military bases and what will be the largest US embassy in the world in Baghdad’s Green Zone. There is agreement within the US ruling elite that the US must dominate Iraq and its oil wealth, the world’s second largest proven reserves.

Yet there is a growing consensus in the ruling class that Afghanistan is even more crucial to long-term US interests. This perspective last year coalesced behind the Obama campaign, and his ultimate ascension to the presidency represented, in no small measure, its triumph.

In his speech to the VFW, the president joined his bellicose statements on Afghanistan and Pakistan with a promise to maintain increased military spending and revamp the US military.

Obama boasted that his administration intends to increase the cost, size, and global superiority of the military, in spite of the economic crisis. “We need to keep our military the best trained, the best led, the best equipped fighting force in the world,” Obama said. “And that’s why, even with our current economic challenges, my budget increases defense spending ...why we’ve increased the size of the Army and the Marines Corps two years ahead of schedule and have approved another temporary increase in the Army.”

Obama offered a vision of a new military that could respond to multiple conflicts simultaneously, suggesting the armed forces have “yet to fully adapt to the post-Cold War world, with doctrine and weapons better suited to fight the Soviets on the plains of Europe than insurgents in the rugged terrain of Afghanistan.”

This would entail, the president said, “an Army that’s more mobile and expeditionary and missile defenses that protect our troops in the field; a Navy that not only projects power across the oceans, but operates nimbly in shallow, coastal waters; an Air Force that dominates the airspace with next-generation aircraft, both manned and unmanned; [and] a Marine Corps that can move ashore more rapidly in more places.”

Obama’s proposals for a lighter and more high-tech army ready to deploy quickly all over the world are entirely in line with the views of Bush administration holdover Defense Secretary Gates, and, for that matter, his predecessor Donald Rumsfeld.

White House drops public health care option

White House drops public health care option

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The Obama administration has indicated that it will not insist on a “public option” as part of its overhaul of the US health care system. The move signals the abandonment of the only fig leaf of “reform” in the administration’s cost-cutting health care scheme. It represents a complete capitulation to the insurance industry, which lobbied intensively against any government-run insurance plan.

“The public option, whether we have it or we don’t have it, is not the entirety of health care reform,” Obama stated at a town-hall meeting Saturday in Grand Junction, Colorado. “This is just one sliver of it, one aspect of it.”

A series of White House officials appeared on television interview programs Sunday and broadly hinted at the administration’s abandonment of the public option. Interviewed on CNN’s “State of the Union” program, Health and Human Services Secretary Kathleen Sebelius said that a government-run plan is “not the essential element” of Obama’s health care initiative.

White House Press Secretary Robert Gibbs, appearing on CBS News’ “Face the Nation” program, indicated that Obama could be “satisfied” without the public option.

In place of the public option, the White House is reportedly prepared to accept a proposal from the Senate Finance Committee to create “non-profit health insurance cooperatives.” The author of the measure, Democratic Senator Kent Conrad of North Dakota, appearing on “Fox News Sunday,” said, “The fact of the matter is there are not the votes in the United States Senate for a public option. There never have been.”

He neglected to explain that there are not sufficient votes in the Senate—which the Democrats control with a “veto-proof” 60 to 40 majority—because he and a sizable number of his fellow Democrats staunchly oppose even the token public plan proposed by Obama. They oppose it because it would cut into private insurers’ control of the health insurance market and reduce the windfall profits they stand to reap from the administration’s proposed overhaul.

The dropping of the public option only underscores the fact that the terms of the health care overhaul are being dictated by the insurance industry, the big hospital chains and the pharmaceutical companies. Obama himself in earlier statements and press conferences declared that a public insurance option was essential to rein in the insurance companies and prevent them from gouging the public.

He now stands condemned by his own words of aiding and abetting a corporate scheme to boost the profits of the health care industry—and slash labor costs for the rest of big business--by forcing working people to purchase bare-bones private insurance at inflated prices.

On the question of health care, as in every other aspect of public policy, the major financial and corporate interests exercise veto power.

Speaking Monday on NBC’s “Today Show,” the former chairman of the Democratic National Committee, Howard Dean, criticized the dropping of the public option, saying, “What’s going on in the health insurance industry is very much like what was going on, in my view, on Wall Street over the last eight years. People just basically taking money out of your pockets and putting it in theirs. None of that money goes to health care.”

The cave-in on the public option—which, in any event, was conceived of as a dumping ground for people unable to afford private insurance—is a continuation of the administration’s groveling before corporate interests. The White House has been in continual discussions with the pharmaceutical lobby. Recently, it publicly reassured the drug companies that it would follow through on a secret pledge to block any legislation that would allow the government to negotiate drug prices or import cheaper drugs from Canada.

The Obama administration is pushing for the elimination of the existing “fee-for-service” system, in which health care providers are reimbursed for each patient visit or procedure. It advocates replacing this with a “global payments” system, in which doctors and hospitals would be compensated for services performed over a period of time, thus imposing dollar limits on health care for working people.

This means rationing health care for most Americans, who would be denied access to more expensive tests, drugs or procedures unless they were able to pay high additional fees over and above their insurance premiums.

In the name of cost-cutting “efficiencies,” Obama has also proposed slashing $600 billion from the Medicare and Medicaid programs.

During the presidential campaign, Obama opposed the so-called “individual mandate,” under which every individual is legally required to have health insurance. This reactionary approach puts the onus on the consumer, rather than the health care companies, imposing fines on people who are not insured under an employer-provided plan and fail to purchase private insurance.

Early on in his health care drive, President Obama changed his position and adopted the individual mandate approach in order to assure the insurance giants that they stood to reap large profits under his scheme.

The health insurance co-ops proposed by the Senate Finance Committee are in no way a public alternative. Membership in these groups, a number of which already exist in states across the county, is not free of charge and the co-ops often reject prospective members. Costs are similar to premiums paid to private insurers.

The scrapping of the public option is one more indication of the reactionary character of the entire health care overhaul. The provision of quality health care as a basic human right is incompatible with a system based on corporate profit and administered by a political establishment beholden to a financial oligarchy.

The manifest failure of the present health care system in the US—which leaves some 50 million people (one sixth of the population) without any form of insurance—is precisely due to the subordination of health care to private profit.

The fight for a health care system that corresponds to the needs of the population requires a political struggle against the capitalist profit system and the two parties of big business that defend it. Socialist medicine—based on the nationalization of the hospital chains, pharmaceutical companies and insurance giants and their transformation into utilities democratically controlled by the working class—is the only basis for providing high quality health care for all.

Obama's Corporate Health Care Scam

Obama's Corporate Health Care Scam

by Timothy V. Gatto

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The health care debacle has gone exactly the way I pictured it would. It seems that every day that passes brings with it a new concession to the insurance companies, the pharmaceutical industry and the health providers. It probably would have been a less painful experience if the government just would have asked these interests to build a health care plan with no governmental interference. There is no doubt in my mind that we would have gotten essentially the same plan.

President Obama claims that “pressure” has forced him to reconsider the “public option”. I’d like to know exactly what pressures have made him rethink that strategy. Obviously the pressure must be coming from inside the Democratic Party because Republicans have no power. I wish he would let us in on exactly who is exerting this pressure. Maybe it is time Americans found out the truth about the Democrats and the Republicans. Let them see that they work to protect and enhance corporate power. Why would they do otherwise? The corporations pay for the political campaigns. The corporations bring jobs to the areas they represent. The corporations make sweetheart mortgage benefits as in the case of Countrywide and the Senate Banking and Finance Committee. The corporations will make or break a politician in today’s America.

The days of politicians representing the people are long gone; if in fact, they ever existed at all. The rest of the industrial world laughs at the American medical model. When I hear politicians claim we have “the best medical care in the world” I shake my head in wonder. The World Health Organization has a system of evaluating medical care. Some say the model is problematic because it relies heavily on the percentage of government supported programs. Still, it’s the one of the only ways we have to judge health care by nations. Here are the top 50 countries on the list.

1 France
2 Italy
3 San Marino
4 Andorra
5 Malta
6 Singapore
7 Spain
8 Oman
9 Austria
10 Japan
11 Norway
12 Portugal
13 Monaco
14 Greece
15 Iceland
16 Luxembourg
17 Netherlands
18 United Kingdom
19 Ireland
20 Switzerland
21 Belgium
22 Colombia
23 Sweden
24 Cyprus
25 Germany
26 Saudi Arabia
27 United Arab Emirates
28 Israel
29 Morocco
30 Canada
31 Finland
32 Australia
33 Chile
34 Denmark
35 Dominica
36 Costa Rica
37 United States of America
38 Slovenia
39 Cuba
40 Brunei
41 New Zealand
42 Bahrain
43 Croatia
44 Qatar
45 Kuwait
46 Barbados
47 Thailand
48 Czech Republic
49 Malaysia
50 Poland

I have had government-sponsored health care for most of my life. I spent 21 years in the Army and my retirement package included health care. I have had oral cancer and a heart bypass operation. I think that the medical care I received is fantastic. I don’t understand why Americans don’t demand the kind of bill Rep. Dennis Kucinich and Rep. John Conyers introduced, HR676 “Medicare for all”. God-forbid the insurance companies lose money! This is what they said about Obama’s plan and theirs;

“Unfortunately, under HR3200, the Government is choosing winners and losers in the private sector; proposing to spend public funds on subsidizing insurance companies who make money not providing health care. This process will insure only the expansion of profits. Gone is the debate over cost.”

When will Americans stop blindly trusting politicians that openly flaunt their corporate affiliations? The reality is that the majority of Obama’s cabinet (at least the ones that set financial policy, which is most of them) have all at one time or another, worked for Goldman Sachs, the largest corporate contributor of Obama’s Presidential Campaign. Don’t take my word for it, go look it up.

While you are looking things up, find out just how much money Goldman Sachs has invested in our Congressman and Senators. Check out what pharmaceutical firms and insurance companies have donated, and who they donated it too. You can see all the juicy details at, the website for The Center for Responsive Politics.

The politicians try their best to obfuscate the facts and get Americans “wrapped around the axle” with phony charges of socialism and death panels that would determine end of life care. These are scare tactics and unfortunately they work. I had a relative tell me that he doesn’t want to pay for someone else’s medical coverage. The truth is that we end up paying for the people that can’t pay through our property taxes and higher hospital bills. In the end, we all get to pay, and pay and pay and pay. Just for once, can’t we choose our health over the politicians and the insurance companies?

Are We Really Cattle?

Are We Really Cattle?

by Peter Chamberlin

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Have we really become “We the sheeple,” or are we still human beings? The planet is dying under the thrall of a small minority of men who think of the rest of the human race as “cattle,” livestock for them to buy and sell.

The ruling class behaves much like a spoiled child, if they don’t get to have everything their way all of the time, they throw this massive temper tantrum and threaten to upset the whole game. They have gotten their way in everything for so long that they have fallen under the spell of their own propaganda. They believe that we are sub-human animals, who should be herded into the best outcome possible. But, have the rest of us begun to accept this as well?

As members of the human herd, most of us recoil at the “bovinian” suggestion, but consider just how much we do behave like a herd. We willingly accept being treated like a herd, trusting our lives to politicians because we appreciate not having to make hard decisions for ourselves, being contented as cows, as our leaders and their hired hands drive us down a path to destruction, for the sake of them making a few dollars more in profit.

Preserving profits for the ruling elite is the only motivation (other than media-manipulated patriotism and nationalism) compelling us to fight our resource wars in Asia and Africa. The leaders of the entire world pretend that we are there to fight against terrorism, even though they know that the terrorism comes with us, their hope being their own little “piece of the action.” The American way is to wage war with dollars, as well as bombs.

What the hell is the matter with people? Has everyone so bought-in to the propaganda that leads them to their own deaths that they believe the lies that control us? Willfully following sell-out leaders, who are leading their own countries to death and slavery is more than merely suicidal, it’s something a dumb animal would do.

Does the herd even think of itself as human anymore? Would it really matter what the herd thought about anything, anyway? Nothing will change as long as we willingly accept this idiocy. We have not changed. We are still human beings. Our feelings and concerns for ourselves, our families and our friends are legitimate, and just as real and as valid as those shared by the ruling class elitists who send our sons and daughters into battle to control the gas and oil, just like everyone who is being targeted by our government as it sends forth Special Forces and their “Islamist” counterparts to kill, not in the name of freedom, but to seize unfair economic advantage!

The entire “conflict” within the “arc of crisis” that is schemed over by Brzezinski and friends is manufactured for our entertainment and distraction. It is foolishness to look at “militant Islamists” and the CIA Special Forces teams who are sent in to fight them as two separate entities, without realizing that they are one and the same.

In Central Asia, the scary “Islamists” appear, as if by magic, wherever the oil companies have an interest. Theories are floated that the sudden rush of militant extremists in western China and the former countries of the Soviet Union is explained as an unfortunate by-product of Pakistan’s anti-Taliban offensive, as militants trained in Pakistan’s FATA Region return to their native countries.

From Russia to China and southwards, attacks begin in targeted nations and then someone appears in the national media to warn of the “Islamist” threat. News stories begin to appear of running gun battles and explosions, linking all of them to the “militant” threat. Attacks are made upon adversaries of the United States and those countries then become blacklisted as unstable for development and the subservient, media dutifully reports that our enemies have been attacked our other enemies.

Whose interests does this serve—crazy militants, with their warped dreams of a “caliphate,” or American oil companies, who are trying to undermine China, Iran and Russia? The “powers that be” are playing a very dangerous game with all of our lives.

How long will the countries targeted by American/Islamist limited warfare continue to tolerate this bold assault? China, in particular, is presently bound by the economic chains that have been forged with the United States. How much longer will it continue to abide provocations in Xinjiang and other Chinese interests from Central Asia, to Pakistan, to Africa? It would be extremely unprofitable right now for China to haul the United States before the UN Security Council or to take military actions in retaliation for this low-intensity war that has been waged upon them. But that will not always be true. When the American house of cards finishes collapsing all bets will be off.

Our new administration in Washington has been empowered with as mandate for change, yet the only change that they have opted for is to accelerate the plans for world conquest in Central Asia. The only real impediment to that plan is the American people. Will the people continue to tolerate Obama’s impersonation of Bush and allow this obscene escalation of the neocon wars?

The ruling class fears an aware, vigilant majority. They know the people’s power and they tremble before it. It is only the people themselves, the “sheeple,” who fail to realize the awesome powers delegated into our hands. It upsets the self-appointed whenever anyone begins to regain any measure of that control back, depriving the secret rulers of their illegitimate power to dictate the terms of our lives. The worst thing of all for them would be if all people everywhere were suddenly allowed to start thinking for themselves, with everyone making their own decisions.

The human race finds itself in an extremely unusual dilemma; if the best-laid plans of mankind’s finest minds succeed, then humanity may cease to exist. If the plan that has been crafted by the finest minds, financed by the world’s greatest “benefactors” and supported by nearly every government on the face of the planet, succeeds, then “humankind” may cease to exist, to be replaced by a new master-race parasitic species and its new sub-human host species (the living remainder of the “useless eaters”).

A great moment of crisis has been manufactured for us. The decisions that have been made have maneuvered us into a kill box, so that the harvesting of the “useless eaters” may begin.

If mankind as a whole cannot embrace a new benevolent identity and move forward together, then, thanks to our enslavement to technological advancements, our old malevolent identities are positioned to destroy all life on this planet. A decision to change must be made on a societal level. The world cannot change, humanity cannot evolve to the next level, until someone leads the way. The self-appointed leadership of the “free world” has to either lead the way or get out of the path of others who understand the path to mankind’s salvation.

The way of force must be replaced by the path of cooperation. This is not a direction that is presently coming from the United States; it is entirely an Asian phenomenon. The Western Darwinian world of domination by the strongest has brought us to the point of economic collapse and unimaginable humanitarian catastrophe. The rulers of this old order have one solution to all problems—more force, the closed fist. There is a better way.

Wherever the models of supply and governance are breaking-down, force is the immediate solution, the only solution offered. If all the people cannot be fed, then obviously (only to inhuman thinkers) there must be too many people, therefore, we must thin-out the herd of “useless eaters” (non-productive members of society). Simply helping the people in need would not be “profitable.” The United States, as the leader of the developing world, must have more energy and other strategic resources available to it than the rest of the world, therefore, we are justified in moving those resources out of the Middle East and Central Asia into our hands, whatever is required to do so (taking by force).

Likewise, in domestic policies such as health care and education reform, it is “wasteful” of limited resources to supply high-dollar medical treatments to those patients whose health will never improve, or expensive educations to students who are less than “exceptional.” The way of force embraces such cost-cutting ideas, depicting them as moral choices, since limited funds are not “wasted” on life-supporting treatments for the terminally ill, or on educational opportunities for mediocre students ( those should be wasted the ignorant cousins of the elite).

This is the thinking of the old order that has put us in our current dilemma. The “selfish man” having his way when he really shouldn’t, has created a real threat to all mankind. The selfish must give way to the needs of the entire community.

A new generation of selfless leaders is arising to meet the challenge posed by the dying order. Where “selfish man” cannot conceive of anything but a profit-based international order, “new man” cannot accept thinking that does not contain a human element, a compassionate direction. The old malevolent thinking is violence based, whereas new man cannot conceive of killing his fellow man. Selfless leaders of the humanity movement have great difficulty in understanding the thinking of the heartless corporate extortionists. There is a basic disconnect between the thinking of the old man and the “new man” who is rising-up amongst them. This gives the new man the advantage, if he can only take advantage of it.

This brings the situation down to where we witness a rising minority of “new men” facing-off against a persevering minority of the super-wealthy, who are perhaps even more dedicated to preserving their old selfish order of mankind, whatever the potential costs. The leadership of the rising humanitarian order is trying every reasonable means at its disposal to overturn the old order, while the leadership of the house of profit is using every means in its limitless bag of tricks to destroy the threat.

Through economic and military coercion the United States has persuaded the world into allowing it almost free rein in shaping international institutions and the ideas that are acceptable to world opinion. We have created an illusory image of ourselves which hides American war crimes and crimes against humanity behind a hypocritical mask of humanitarianism and “foreign aid.”

Membership in America’s club requires a sell-out of their countrymen from the leaders of the nations that are seeking our “aid packages” or entrance into our economic system. The sell-out is to embrace our manufactured image, blinding themselves to the reality that our leaders create. The real image of America, one of double-dealings and secret wars, is hidden from the world by common consent. The pay-off for these leaders is the personal fortunes that each of them has acquired and gained notoriety for in their home countries.

By letting Americans determine which words and opinions are “politically correct” in acceptable discussion in the media, crimes are hidden and false realities become the foundation of public debate. In this way, internal debate bends to accommodate the false American reality. This American power to simultaneously bully and seduce their way in the world, extending into the basic rights of the Nations involved, has allowed our inept leaders to force upon the world the situation we face today. Further bullying and super-scheming by Obama and Brzezinski will not achieve American objectives of total power. Another way must be found.

It is only a matter of time before America is taken out of the world’s way. It is inevitable that the world will embrace the way of international cooperation, over the American way of secret and open conquests. The only alternative to a world centered on meeting its own needs is the present course we are trapped on, one wherein the victor claims all the spoils of war. That world cannot be attained within our technological environment (do the math). Nature will continue, either with us, or in spite of us.

The world needs a life-changing moment, one that will force all thinking humans to make life-changing decisions, so that we can all emerge from it as a different people, new men and women.

Everything is now black and white, not black or white as it should be. The way forward is for each of us to begin to see both sides, or all sides, of contentious issues. Life has conditioned us to divide everything new into categories, based on determinants of fear, greed, or other motivators. We have to understand that these are the motivators of children, or animals, not adult human beings. There are so many simple solutions to be found by those without blinders, with two eyes to see.

The world will solve its problems and go on, as long as we don’t prevent that from happening. The question of whether we will continue to seek to force the world to accept American domination, or if we will learn to play well with others, will determine whether or not we are accepted into the new order that is now emerging in Asia and beyond.

The energy supplies and other natural resources that are being fought over will be moved to markets, no matter what. Fighting to claim them, or to keep others from obtaining them, is a backwards policy, meant to enrich the few at the sake of the many. All of this will change.

Whether or not this Nation will be part of the new world alliance is a question that each of us must answer. Will we passively allow the United States to perish from the face of the earth or develop into the full-blown pariah nation that have been becoming, that we will deserve for impeding the advancement of the human race, or will we stop the madness and deception by altering our leaders’ commitment to their present path? Or, will we interfere with their petty plans?

Barack Obama has a very clear choice to make, whether he is going to be remembered as humanity’s emancipator from war or as history’s last tyrant? Obama has to decide what means more to him, pursuing a path that will engender hope in the entire human race, or pursuing his own ambition. Will he take a stand for freedom and human decency by ending all of our wars right now with the stroke of a pen, or will he continue to drag us down the path of total war in Central Asia, the path that we were bound to by the former tyrants, Bush and Cheney?

Recovering from Neoliberal Disaster

Recovering from Neoliberal Disaster

Why Iceland and Latvia Won’t (and Can’t) Pay the EU for the Kleptocrats’ Ripoffs

Can Iceland and Latvia pay the foreign debts run up by a fairly narrow layer of their population?

The European Union and International Monetary Fund have told them to replace private debts with public obligations, and to pay by raising taxes, slashing public spending and obliging citizens to deplete their savings.

Resentment is growing not only toward those who ran up these debts – Iceland’s bankrupt Kaupthing and Landsbanki with its Icesave accounts, and heavily debt-leveraged property owners and privatizers in the Baltics and Central Europe – but also toward the neoliberal foreign advisors and creditors who pressured these governments to sell off the banks and public infrastructure to insiders.

Support in Iceland for joining the EU has fallen to just over a third of the population, while Latvia’s Harmony Center party, the first since independence to include a large segment of the Russian-speaking population, has gained a majority in Riga and is becoming the most popular national party. Popular protests in both countries have triggered rising political pressure to limit the debt burden to a reasonable ability to pay.

This political pressure came to a head over the weekend in Reykjavik’s Parliament. The Althing agreed a deal, expected to be formalized today, which would severely restrict payments to the UK and Netherlands in compensation for their cost in bailing out their domestic Icesave depositors.

This agreement is, so far as I am aware, the first since the 1920s to subordinate foreign debt to the country’s ability to pay. Iceland’s payments will be limited to 6 per cent of growth in gross domestic product as of 2008. If creditors take actions that stifle the Icelandic economy with austerity and if emigration continues at current rates to escape from the debt-ridden economy, there will be no growth and they will not get paid.

A similar problem was debated eighty years ago over Germany’s World War I reparations. But policy makers are still confused over the distinction between squeezing out a domestic fiscal surplus and the ability to pay foreign debts. No matter how much a government may tax its economy, there is a problem of turning the money into foreign currency. As John Maynard Keynes explained, unless debtor countries can export more, they must pay either by borrowing (German states and municipalities borrowed dollars in New York and cashed them in for domestic currency with the Reichsbank, which paid the dollars to the Allies) or by selling off domestic assets. Iceland has rejected these self-destructive policies.

There is a limit to how much foreign payment an economy can make. Higher domestic taxes do not mean that a government can turn this revenue into foreign exchange. This reality is reflected in Iceland’s insistence that payments on its Icesave debts, and related obligations stemming from the failed privatization of its banking system, be limited to some percentage (say, 3 percent) of growth in gross domestic product (GDP). There is assumption that part of this growth can be reflected in exports, but if that is not the case, Iceland is insisting on “conditionalities” of its own to take its actual balance-of-payments position into account.

The foreign debt issue goes far beyond Iceland itself. Throughout Europe, political parties advocating EU membership face a problem that the Maastricht convergence criterion for membership limits public debt to 60 percent of GDP. But Iceland’s external public-sector debt – excluding domestic debt – would jump to an estimated 240 percent of GDP if it agrees to UK and Dutch demands to reimburse their governments for the Icesave bailouts. Meanwhile, EU and IMF lending to the Baltics to support their foreign currency – so that mortgages can be kept current rather than defaulting – likewise threaten to derail the membership process that seemed on track just a short time ago.

The problem for the post-Soviet economies is that independence in 1991 did not bring the hoped-for Western living standards. Like Iceland, these countries remain dependent on imports for their consumer goods and capital equipment. Their trade deficits have been financed by the global property bubble – borrowing in foreign currency against property that was free of debt at the time of independence. Now these assets are fully “loaned up,” the bubble has burst and payback time has arrived. No more credit is flowing to the Baltics from Swedish banks, to Hungary from Austrian banks, or to Iceland from Britain and the Netherlands. Unemployment is rising and governments are slashing healthcare and education budgets. The resulting economic shrinkage is leaving large swaths of real estate with negative equity.

Austerity programs were common in Third World countries from the 1970s to the 1990s, but European democracies have less tolerance for so destructive an acquiescence to foreign creditors for loans that were irresponsible at best, outright predatory at worst. Families are losing their homes and emigration is accelerating. This is not what neoliberals promised.

Populations are asking not only whether debts should be paid, but whether they can be paid! If they can’t be, then trying to pay will only shrink economics further, preventing them from becoming viable. This is what has led past structural adjustment programs to fail.

Will Britain and the Netherlands accept this new reality? Or will they cling to neoliberal – that is, pro-creditor – ideology and keep on stubbornly insisting that “a debt is a debt” and that is that. Trying to squeeze out more debt service than a country could pay requires an oppressive and extractive fiscal and financial regime, Keynes warned, which in turn would inspire a nationalistic political reaction to break free of creditor-nation demands. This is what happened in the 1920s when Germany’s economy was wrecked by imposing the rigid ideology of the sanctity of debt.

A similar dynamic is occurring from Iceland to the Baltics. The EU is telling Iceland that in order to join, it must pay Britain and Holland for last autumn’s Icesave debts. And in Latvia, the EU and IMF have told the government to borrow foreign currency to stabilize the exchange rate to help real estate debtors pay the foreign-currency mortgages taken out from Swedish and other banks to fuel its property bubble, raise taxes, and sharply cut back public spending on education, health care and other basic needs to “absorb” income. Higher taxes are to lower import demand and also domestic prices, as if this automatically will make output more competitive in export markets.

But neither Iceland nor Latvia produce much to export. The Baltic States have not put in place much production capacity since gaining independence in 1991. Iceland has fish, but many of its quota licenses have been pledged for loans bearing interest that absorbs much of the foreign exchange from the sale of code. Interest charges also absorb most of the revenue from its aluminum exports, geothermal and hydroelectric resources.

In such conditions a pragmatic economic principle is at work: Debts that can’t be paid, won’t be. What remains an open question is just how they won’t be paid. Will many be written off? Or will Iceland, Latvia and other debtors be plunged into austerity in an attempt to squeeze out an economic surplus to avoid default?

Failure to recognize the limited ability to pay runs the danger of driving over-indebted countries out of the Western orbit. Iceland’s population is upset at the EU’s backing of the bullying tactics of Britain and Holland trying to extract reimbursement for bailing out their Icesave depositors – €2.6 billion to Britain and €1.3 billion to Holland. Social Democrats won April’s Althing election on a platform of joining the EU, but burdening the country with these Icesave debts would prevent it from meeting the Maastricht criteria for joining the EU. This makes it appear as if Europe is more concerned with debt collection than with getting new members.

Of most serious concern are the long-term consequences of replacing defaults by debt pyramiders and outright kleptocrats with a new public debt to international government agencies – debt that is much less easy to write off. Eva Joly, the French prosecutor brought into sort out Iceland’s banking kleptocracy, warned earlier this month that if Iceland succumbs to current EU demands, “Just a few tens of thousands of retired fishermen will be left in Iceland, along with its natural resources and a key geostrategic position at the mercy of the highest bidder – Russia, for example, might well find it attractive.”1 The post-Soviet countries already are seeing voters shift away from Europe in reaction to the destructive policies the EU has been supporting.

Neither Britain nor Holland, neither the EU nor IMF have provided a scenario for just how Iceland is supposed to pay the debts that are being claimed. How much will personal income and living standards have to fall? What government programs must be cut back? How many defaults on domestic mortgages and personal debts will result, and how much unemployment? How much emigration will occur? The models being employed treat these dimensions of the economic problem as “externalities,” but they are central to how the economic system works in practice.

The question is whether neoliberal ideology will give way to economic reality, or whether economic policy will retain the blinders that typically characterize short-term creditor-oriented policies? What is blocking a more reasonable pro-growth policy, Ms. Joly observed, is that “the Swedish presidency of the EU does not seem to be in a hurry to improve regulation of the financial sectors, and the committees with an economic focus in the Parliament are, more than ever, dominated by liberals, particularly British liberals.” So Europe continues to impose a shortsighted economic ideology. Therefore, she concluded:

“Mr. Brown is wrong when he says that he and his government have no responsibility in the matter. Firstly, Mr. Brown has a moral responsibility, having been one of the main proponents of this model which we can now see has gone up the spout. ... Could anyone realistically think that a handful of people in Reykjavik could effectively control the activities of a bank in the heart of the City? ... the European directives concerning financial conglomerates seem to suggest that EU member states that allow such establishments into their territories from third countries must ensure that they are subject to the same level of control by the authorities of the country of origin as that provided for by European legislation. ... a failure on the part of the British authorities on this point ... would not be particularly surprising considering the ‘performance’ of other English banks ... during the financial crisis? If so, Mr. Brown’s activism in relation to this small country might be motivated by a wish to appear powerful in the eyes of his electorate and taxpayers ...”

Some inconvenient financial truths and ideological blind spots

Most deposit insurance settlements for insolvent institutions are merely technical in scope: how much are depositors insured for, and how soon will they get paid? But the Icesave problem is so large in magnitude that it raises more legally convoluted economy-wide questions. The Althing’s stance on Iceland’s foreign debt – and the abuses of its kleptocratic domestic bank privatizers – represents a quantum leap, a phase change in global debtor/creditor relations.

No doubt this is why creditors and neoliberals will fight Iceland’s brave show so vehemently, angrily, unfairly and extra-legally. For starters, Gordon Brown did not follow the proper agreed-upon legal procedures last October 6 when he closed down Landsbanki’s Icesave branches and the Kaupthing affiliates. Under normal conditions Iceland would have availed itself of the right under European law to pay out depositors in an orderly manner. But Mr. Brown prevented this by directing Britain’s deposit-insurance agency to pay Icesave depositors as if they were covered by UK insurance. It was a rash decision that could turn out to be one of the biggest blunders of his career. The Icesave branches were legally extensions of Landsbanki in Iceland, covered by Iceland’s deposit insurance scheme, not that of Britain.

Iceland’s Depositors’ and Investors’ Guarantee Fund (TIF) is privately funded by domestic banks, not public like America’s Federal Deposit Insurance Corp. (FDIC) or Britain’s Financial Services Agency (FSA). Reflecting Iceland’s neoliberal philosophy at the time the banks were privatized, the TIF lacked the capital to cover the losses that ensued. It was like America’s A.I.G. insurance conglomerate, whose premiums were set far too low to reflect the actual risk involved. The problem is typical of the neoliberal “rational market” idea that debts cannot create a problem, but merely reflect asset prices that in turn reflect prospective income.

In an environment that saw Northern Rock and the Royal Bank of Scotland fail, Iceland’s Commerce Ministry wrote to Clive Maxwell at Britain’s Treasury on October 5 to assure him that the government would stand behind the TIF in reimbursing Icesave depositors in accordance with EU directives. Yet three days later, Chancellor of the Exchequer Alistair Darling claimed that Iceland was refusing to pay. On this pretense Mr. Brown used emergency anti-terrorist laws enacted in 2001 to freeze Icelandic funds in Britain. He did so despite Iceland’s promise to abide by the EU rules. Icelandic authorities were given no voice in how to resolve the matter. Britain and the Netherlands (as they acknowledge in the proposed agreement with which they confronted Icelandic negotiators on June 5, 2009) merely “informed” Icelandic authorities, without following the rules and consulting with them to get permission for their quick bailout of depositors.

This affects the question of who is legally responsible for British and Dutch reimbursement of Icesave and Kaupthing depositors. The relevant EU law gives the responsible authorities a breathing space of three months to proceed with settlement – with a further six-month period where necessary. This would have enabled Iceland to collect from British bank clients such as the retail entrepreneur (and major Kaupthing stockholder) Kevin Stanford, who borrowed billions of euros, far in excess of what was proper under banking rules. It is now known that Icelandic banks in Britain were emptying out their deposits by making improper loans to British residents. But rather than helping Iceland move in a timely manner to recover deposits that Landsbanki and Kaupthing had lent out, Britain’s precipitous action plunged it into financial anarchy. The Serious Fraud team has started to help with the investigation and recovery process only in the past few weeks – now that the funds are long gone!

On November 4, ECOFIN, the EU’s financial oversight agency, held an informal ministerial meeting and “agreed, under very unusual circumstances,” to examine the financial crisis into which the Icebank and Kaupthing insolvencies had plunged the country. The EU proposed that the problem be resolved by five financial officials. But Iceland worried that such individuals tend to take a hard-line creditor-oriented position. Seeing how Britain and the Netherlands had acted on their own without regard for how their actions were hurting Iceland, Finance Minister Arni Mathiesen wisely wrote on November 7 to Christine Lagarde, President of the ECOFIN Council, that Iceland’s government would not participate in the review of Iceland’s obligations under Directive 94/19/EC.

The EU directive dealt only with the collapse of individual banks, assuming this problem to be merely marginal in scope and hence readily affordable by signatory governments. But “the amount involved could be up to 60% of Iceland’s GDP,” Mr. Mathiesen explained. The directive left Iceland in legal limbo regarding “the exact scope of a State’s obligations … in a situation where there is a complete meltdown of the financial system.” The directive simply did not envision systemic collapse of a developed Western European economy. Such is the state of today’s mainstream equilibrium theory – an ideological argument that economies automatically stabilize and hence no government policy is needed, no public oversight or regulation.

It is a set of assumptions and junk economics that kleptocrats, crooks and neoliberals love, as it has enabled them to get very, very wealthy and then run to government claiming that a Katrina-like accident has occurred that requires them to be fully bailed out or the economy will collapse without their self-serving wealth-seeking services. This “rational market” mysticism is what now passes for economic science. And it is in the name of this junk science that EU financial officials and indeed, central bankers throughout the world are indoctrinated with blinders that do indeed enable them to find every collapse of their theories “unanticipated.”

The question that needed to be confronted head-on was how to take account of Iceland’s “very unusual circumstances” stemming from its unwarranted faith in neoliberal theory that assumed finance and the debt overhead would never pose a structural problem, but would only serve to facilitate economic growth. At issue was the “sanctity of debt” ideology that took no account of the broad economic context and growth prospects. “Iceland has to make sure that its deposit-guarantee scheme has adequate means and is in a position to indemnify depositors,” the Finance Minister wrote. The problem was macroeconomic in character, but the bank insurance scheme was only for 1% of deposits – under conditions where the country’s main three banks all were driven under by the combination of bad or outright kleptocratic management and Britain’s freezing of Icelandic funds in the aftermath of the Icesave collapse. On November 25 an IMF team calculated that “A further depreciation of the exchange rate of 30 percent would cause a further precipitous rise in the debt ratio (to 240 percent of GDP in 2009) and would clearly be unsustainable.” 3

Gordon Brown has spent much of 2009 trying to pressure the IMF to collect for Kaupthing’s insolvency as well as that of Landesbanki’s Icesave accounts. In Parliament on May 6 he announced his intention to ask the IMF to pressure Iceland to reimburse depositors in Kaupthing affiliates. He was reminded that unlike the Icesave branches, these were incorporated as British entities, making their accounts the responsibility of British regulation and deposit insurance. What was improper was his crass treatment of the IMF as a debt collector for the creditor nations, using it as a supra-legal lever to pressure Iceland to pay money that its negotiators felt they did not owe under EU rules. This was the position even of the neoliberal former Prime Minister and Governor of the Central Bank, Mr. Oddson himself.

Why bring such pressure to bear if the obligation is clearly specified in the contract? It looked like Mr. Brown wanted to avoid blame by paying British bank depositors and assuring them that foreigners would pay. He proved to be incorrigible, pressuring the EU to tell Iceland that it could not negotiate to join until it settled “its” Icesave debt to Britain. And the Dutch Foreign Affairs Minister Maxime Verhagen was equally explicit on July 21. In an official statement he warned his Icelandic counterpart that it was “absolutely necessary” for Iceland to approve the compensation deal agreed for people who lost savings when internet bank Icesave went bankrupt. deal. “A solution to the problems round Icesave could lead to the speedy handling of Iceland’s request to join the European Union,” the minister hinted. “It could show that Iceland takes EU guidelines seriously.” 4 What it showed, of course, was that the EU was letting Britain and the Dutch use extortionate threats to veto membership if they did not get what they wanted: the nearly €4 billion in bailout reimbursement plus interest at 5.5%.

It would be hard to imagine what could have been more effective in deterring Icelandic desire for membership in the EU. On July 23 the Law Faculty at the University of Iceland discussed the details and criticized the confidential agreement – without even having access to it. Britain and the Netherlands insisted that the terms and details of the agreement not be published, on pain of the leakers facing prosecution. But apparently through a secretarial error it appeared on the Internet on July 27! The result was an explosion of anger, not only at Britain and the Dutch but at its own financial negotiators for not simply walking out when the authoritarian terms were dictated at political and financial gunpoint.

The flames were fanned further on July 31 when Wikileaks published a Kaupthing report from September 25, 2008, detailing the loans to insiders that had helped drive the bank into insolvency. Major stockholders had borrowed against their bank stock to bid it up in price and give the appearance of prosperity and solvency. (Evidently deciding that the time had come to take the money and run, the bank owners emptied out the coffers by making loans to themselves. This signaled the death knell for any further fantasies about “efficient markets” in today’s neoliberalized jungle of financial deregulation.

Despite the fact that Kaupthing had been nationalized by Iceland’s government, it sued to block Iceland’s national TV network from broadcasting the details. This backfired, being the equivalent of getting a book banned in Boston – every publisher’s publicity dream! The kafuffle got the entire nation fascinated, prompting so many Icelanders to go on-line to read the document that the gag order was lifted on August 4. The response was a shocked fury at the crooked behavior whose backwash threatened to engulf the nation in a bad foreign debt deal.

On August 1, Eva Joly, who had been hired as a federal prosecutor a half-year earlier, published her article in La Monde that appeared in many other countries, criticizing Britain’s behavior. But most disturbing of all was publication of the hard-line draft agreement that British and Dutch negotiators had handed to Iceland’s finance minister on June 5, 2009. It failed utterly to reflect the caveats that Icelandic negotiators had insist on the previous November. Bolstered by Gordon Brown’s shrill rhetoric and Britain’s insistence that the terms be kept secret, the EU’s harsh take-it-or-leave-it stance created an atmosphere in which the Althing had little choice but to draw a line and insist that any Icesave settlement had to reflect Iceland’s reasonable ability to pay. Icesave was caricatured as “Iceslave” signifying the debt peonage with which Iceland was threatened. The finance minister (a former Communist leader) seemed out of his depth in having knuckled under in the face of pressure to capitulate to unyielding British negotiators.

This episode’s legal twists probably will prompt the EU to clarify its financial laws. As for economic ideology, business cycle theory has not taken proper account of changes in government, nationalist backlashes or changes in the legal and political environment. So this would seem to be the year in which the world will break out of what was viewed merely as a “cycle” within a given system (that of the post-Bretton Woods transition era) to make the system itself the issue: how to treat countries with debts beyond their ability to pay.

Icelanders for their part feel that the EU has treated them as a financial colony while backing a neoliberal kleptocracy preying on an increasingly indebted population. In many ways Iceland is the tip of the iceberg – the proverbial canary in the coalmine showing the need to better cope with over-indebted economies. The EU and IMF-style austerity programs to pay off foreign debts that corrupt insiders have run up is not what was promised in 1991 the post-Soviet economies or Third World debtors. It is not the promise of industrial capitalism. It is a financialized post-industrial dystopia, an imperial neofeudalism.

Why Iceland's move is so important for international financial restructuring

For the past decade Iceland has been a kind of controlled experiment, an extreme test case of neoliberal free-market ideology. What has been tested has been whether there is a limit to how far a population can be pushed into debt-dependency. Is there a limit, a point at which government will draw a line against by taking on public responsibility for private debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

At issue is the relationship between the financial sector and the “real” economy. From the perspective of the “real” economy, the proper role of credit – that is, debt – is to fund tangible capital investment and economic growth. The objective is to create a tax system and financial regulatory system to maximize the latter.

After all, it is out of the economic surplus that interest is to be paid, if it is not to be extractive and outright predatory. But creditors have not shown much interest in economy-wide wellbeing. Bank managers and subprime mortgage brokers, corporate raiders and their bondholders, and especially the new breed of kleptocratic privatizers applauded so loudly by neoliberal economic ideologues simply (and crassly, I have found) ask how much of a surplus can be squeezed out and capitalized into debt service. From their perspective, an economy’s wealth is measured by the magnitude of debt obligations – mortgages, bonds and packaged bank loans – that capitalize income and even hoped-for capital gains at the going rate of interest.

Iceland has decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation, on the by-now discredited assumption that their self-dealing somehow will benefit the economy. From the vantage point of economic theory, was it not madness to imagine that Adam Smith’s quip about not relying on the benevolence of the butcher, brewer or baker for their products but on their self-interest is applicable to bankers. Their “product” is not a tangible consumption good, but debt – indeed, interest-bearing debt. And debts are a claim on output, revenue and wealth, not wealth itself.

This is what pro-financial neoliberals fail to understand. For them, debt creation is “wealth creation” (Alan Greenspan’s favorite euphemism), because it is credit – that is, debt – that bids up prices for property, stocks and bonds and thus increases financial balance sheets. The mathematically convoluted “equilibrium theory” that underlies neoliberal orthodoxy treats asset prices (wealth in the financial sense of the term) as reflecting prospective income. But in today’s Bubble Economy, asset prices reflect whatever bankers will lend – and rather than being based on rational calculation their loans are based merely on what investment bankers are able to package and sell to gullible financial institutions trying to pay pensions out of the process of running economies into debt, or otherwise disposing of credit that banks freely create.

There amount of debt that can be paid is limited by the size of the economic surplus – corporate profits and personal income for the private sector, and the net fiscal revenue paid to the tax collector for the public sector. But for the past generation neither financial theory nor global practice has recognized any capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards.

As an alternative is to such financial lawlessness, the Althing asserts the principle of sovereign debt at the outset in responding to British and Dutch demands for Iceland’s government to guarantee payment of the Icesave bailout:

The preconditions for the extension of government guarantee according to this Act are:

1. That ...account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system.

This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.

2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state.

Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay:

In evaluating the preconditions for a review of the agreements, account shall also be taken to the position of the national economy and government finances at any given time and the prospects in this respect, with special attention being given to foreign exchange issues, exchange rate developments and the balance on current account, economic growth and changes in gross domestic product as well as developments with respect to the size of the population and job market participation.

This weekend’s pushback is a quantum leap that promises (or to creditors, threatens) to change the world’s financial environment. For the first time since the 1920s the capacity-to-pay principle is being made the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in Iceland’s GDP (on the assumption that this can indeed be converted into export earnings). After Iceland recovers, the payment that the Treasury guarantees for Britain for the period 2017-2023 will be limited to no more than 4% of the growth of GDP since 2008, plus another 2% for the Dutch. If there is no growth in GDP, there will be no debt service. This means that if creditors take punitive actions whose effect is to strangle Iceland’s economy, they won’t get paid.

The moral is that Newton’s Third Law of motion – that every action has an equal and opposite reaction – is applicable to politics and economics as well as to physics. As the most thoroughly neoliberalized disaster area, Iceland is understandably the first economy to push back. The past two years have seen its status plunge from having the West’s highest living standards (debt-financed, as matters turn out) to the most deeply debt-leveraged. In such circumstances it is natural for a population and its elected officials to experience a culture shock – in this case, an awareness of the destructive ideology of neoliberal “free market” euphemisms that led to privatization of the nation’s banks and the ensuing debt binge.

Iceland promises to be merely the first sovereign nation to lead the pendulum swing away from an ostensibly “real economy” ideology of free markets to an awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors. Interest-bearing debt is the “product” that banks sell, after all. What seemed at first blush to be “wealth creation” was more accurately debt-creation, in which banks took no responsibility for the ability to pay. The resulting crash led the financial sector to suddenly believe that it did love centralized government control after all – to the extent of demanding public-sector bailouts that would reduce indebted economies to a generation of fiscal debt peonage and the resulting economic shrinkage.

As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle. The Althing’s proposal spells this out in clear legal terms as an alternative to the neoliberal idea that economies must pay willy-nilly (as Keynes would say), sacrificing their future and driving their population to emigrate in what turns out to be a vain attempt to pay debts that, in the end, can’t be paid but merely leave debtor economies hopelessly dependent on their creditors. In the end, democratic nations are not willing to relinquish political planning authority to an emerging financial oligarchy.

No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by the predatory austerity programs that IMF, World Bank and EU neoliberals imposed in recent decades. The post-Bretton Woods era is over. We should all celebrate.


Eva Joly, “Iceland: Lessons to be Learned from The Economic Meltdown,” Global Research, August 7, 2009.

[2] Article 10 of Directive 94/19/EC provides that “(1) Deposit-guarantee schemes shall be in a position to pay duly verified claims by depositors in respect of unavailable deposits within three months,” and “(2) In wholly exceptional circumstances and in special cases a guarantee scheme may apply to the competent authorities for an extension of the time limit. No such extension shall exceed three months. The competent authority may, at the request of the guarantee scheme, grant no more than two further extensions, neither of which shall exceed three months.” In other words, Iceland had nine months in which to settle matters.


[4] “Dutch minister urges Iceland to repay loans,” Radio Netherlands Worldwide, July 21, 2009,, andNetherlands warns Iceland over Icesave,”, 22 July 2009,