Saturday, October 10, 2009

U.S. Mortgage Backer May Need Bailout, Experts Say

F.H.A. Problems Raising Concern of Policy Makers

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A year after Fannie Mae and Freddie Mac teetered, industry executives and Washington policy makers are worrying that another government mortgage giant could be the next housing domino.

Problems at the Federal Housing Administration, which guarantees mortgages with low down payments, are becoming so acute that some experts warn the agency might need a federal bailout.

Running questions about the F.H.A.’s future — underscored by interviews with policy makers, analysts and home buyers — came to the fore on Thursday on Capitol Hill. In testimony before a House subcommittee, the F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.

But he acknowledged that some 20 percent of F.H.A. loans insured last year — and as many as 24 percent of those from 2007 — faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency’s finances.

“Let me simply state at the outset that based on current projections, absent any catastrophic home price decline, F.H.A. will not need to ask Congress and the American taxpayer for extraordinary assistance — we will not need a bailout,” Mr. Stevens said in his testimony.

But to its critics, the F.H.A. looks like another Fannie Mae. The hearings on Thursday came on the same day that the federal agency charged with overseeing Fannie Mae and Freddie Mac provided a somber assessment of those giants’ health. In the year since the government stepped in to rescue them, the companies have taken $96 billion from the Treasury, and may need more.

Since the bottom fell out of the mortgage market, the F.H.A. has assumed a crucial role in the nation’s housing market. Created in 1934 to help lower-income and first-time buyers purchase homes, the agency now insures roughly 5.4 million single-family home mortgages, with a combined value of $675 billion.

In addition, these loans are bundled into mortgage-backed securities and guaranteed through the Government National Mortgage Association, known as Ginnie Mae. That means the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.

“It appears destined for a taxpayer bailout in the next 24 to 36 months,” Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.

The issue has polarized Congress. Republicans, who led efforts to rein in Fannie Mae and Freddie Mac before those companies ran into trouble, are now seeking to bridle the F.H.A. Many Democrats insist the F.H.A. is playing a vital role in the housing market, which is only just starting to stabilize.

“F.H.A. has stepped into the void left by the private market,” Representative Maxine Waters, Democrat from California, said at the hearing. “Let’s be clear; without F.H.A., there would be no mortgage market right now.”

That was the case for Bernadine Shimon. Like many Americans, Ms. Shimon has recently been through some rough times. She lost a house to foreclosure, declared bankruptcy, got divorced and is now a single mother, teaching high school English in a Denver suburb.

She wanted a house but no lender would touch her. The Federal Housing Administration was more obliging. With the F.H.A. insuring her mortgage, Ms. Shimon was able to buy a $134,000 fixer-upper in August.

“The government gave me another chance,” she said.

The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it. The F.H.A. is insuring about 6,000 loans a day, four times the amount in 2006. Its portfolio is growing so fast that even F.H.A. backers express amazement.

For decades it was an article of faith that helping people of limited means like Ms. Shimon get a house was good for the new owner, good for the neighborhood and good for American capitalism. Then came the housing bust, which demonstrated that when lenders allowed people to buy houses they ultimately could not afford, it hurt the parties — while putting the economy itself in a tailspin.

In the aftermath of the crash, there is wide divergence on how easy, or how hard, it should be to become a homeowner. Skittish lenders are asking for 20 percent down, which few prospective borrowers have to spare. As a result, private lending has dwindled.

The government has stepped into the breach, facilitating loans with down payments as low as 3.5 percent and offering other incentives to stabilize the market. Real estate agents in some hard-hit areas say every single one of their clients is using the F.H.A.

“They’re counting their pennies, scraping up that 3.5 percent,” Bonni Malone of Prudential Americana in Las Vegas said. “Mostly they’re buying foreclosed homes from banks, although I had one client who bought from a guy that was dying. It’s turning around the market.”

While the government’s actions have helped avert full-scale economic disaster, there is growing concern that it might have doled out its favors with too generous a hand.

Many of the loans the F.H.A. insured in 2007 and last year are now turning delinquent, agency officials acknowledge. The loans made in those two years are performing “far worse” than newer loans, dragging down the whole portfolio, Mr. Stevens of the F.H.A. said in an interview.

The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.

Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans to such borrowers as Ms. Shimon — the current rate is over a billion dollars a day — 7.77 percent of the portfolio is in default, up from 5.6 percent a year ago.

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

The troubled loans are nevertheless weighing on the agency’s capital reserve fund, which has fallen to below its Congressionally mandated minimum of 2 percent, from over 6 percent two years ago.

The optimism expressed by Mr. Stevens, the F.H.A. commissioner, places him at odds not only with some outside experts but with Kenneth Donohue, the inspector general of the Housing and Urban Development Department, who is also F.H.A.’s watchdog. Mr. Donohue said the drop in reserves was “a flashing red light” that the agency was not taking seriously enough.

“It might be we’ll get ourselves out of this and that everything will be fine, but I don’t paint that rosy a picture,” Mr. Donohue said. “They’re banking on the fact that the economy will continue to improve, that the housing market will begin to sustain itself.”

He noted that if private lenders had raised their down payment requirements in the last two years, it raised the question, “what does the F.H.A. think it is doing by asking only 3.5 percent?”

Any more than that and Ms. Shimon, 45, would still be a renter. As it was, she cashed in her retirement savings account to come up with the necessary funds. She did not have enough to spare for closing costs, so her mortgage broker arranged a deal where the charges were wrapped into the loan at the cost of a higher interest rate. She cried when the deal was done.

The house was empty and trashed. Slowly, she is trying to bring it back to life. She spent the first few weeks picking up garbage in the backyard.

Is Ms. Shimon a good bet? Even she has no easy answer. Her mortgage payment, $1,100, is half of what she takes home every month. It is not easy to make ends meet. Teachers can get laid off like everyone else.

“The government,” she said, “is doing what it needed to do — taking a risk on people.”

Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.

Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.

“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”

As the number of loans has soared, random quality control checks have decreased sharply, F.H.A. staff members say. Mr. Donohue, the inspector general, cited numerous examples of organized fraud in testimony to Congress earlier this year.

“They need to stop taking bad loans in the door,” he said in an interview. “They’re taking on all this volume, they have to have very active underwriting standards.”

Ten thousand unemployed apply for 90 jobs in Louisville, Kentucky

Ten thousand unemployed apply for 90 jobs in Louisville, Kentucky

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Reflecting the increasingly desperate economic situation faced by millions, this week 10,000 unemployed workers applied for 90 jobs at a Louisville, Kentucky, General Electric (GE) plant.

The enormous response came within the space of just three days. GE had announced its intentions to add a second shift to its plant manufacturing washing machines in Appliance Park last Friday and began accepting applications on Monday. An earlier announcement by the GE plant calling for 13 maintenance workers who would receive $23 per hour drew 700 applicants.

The GE jobs promised a mere $13 per hour, plus benefits including dental coverage and eye care. The same jobs had previously paid $19 per hour until the decision by the IUE-CWA Local 761 to accept concessions in May, which included cutting wages for new workers and future hires.

Unemployment in Kentucky reached 11.1 percent in August. A total of 3,200 manufacturing jobs were lost in the state in the same month. Over the year ending in August, some 35,300 manufacturing jobs were lost in Kentucky.

Dr. Justine Detzel, the chief labor market analyst for Kentucky’s Office of Unemployment and Training, commented after the release of these numbers, “This marks the 14th time in the last 15 months industrial employment has fallen. Job losses were concentrated in the durable goods subsector, reflecting layoffs at a number of automobile parts manufacturers, the closing of another automobile parts producer, and the start of a lengthy temporary shutdown of a durable goods plant.”

The loss of better-paying manufacturing jobs will have a sharp impact on poverty in the state, which already stood at 17.3 percent for 2008. According to the latest Census Bureau figures, one in eight families and one in four children live in poverty. Foreclosures, particularly in Louisville, continue to rise due to a spike in unemployment.

A testament to the destruction of the manufacturing sector, no less than 80 percent of the workers applying for the 90 GE jobs were able to claim factory experience on their applications.

The response of the Kentucky state government to widespread unemployment and a major crisis within the state budget has been entirely reckless and shortsighted. Social programs, made all the more necessary by the economic crisis, have been slashed. Upon entering office in 2007, Governor Steve Beshear, a Democrat, almost immediately began a fight to bring casino gambling to the state, a mercenary industry that would only prey on the poor and working class population. Short-term attempts to increase tax revenue include hosting the 2010 World Equestrian Games in the state, as well as a major Nascar racing event.

As federal stimulus funds will have run out by 2012, the governor is preparing the state for further hardships in the future. Hinting at further cuts to social programs, he spoke before a Downtown Rotary Club in Louisville in September, saying the budget crises yet to be faced will “make us decide what we consider sacred and what is expendable.”

The rush by 10,000 unemployed workers to claim the small number of jobs offered by GE is a phenomenon not unique to Kentucky. All over the country, workers are desperately trying to find jobs or secure assistance under conditions in which available jobs and resources are completely inadequate.

Thousands have flocked to free, temporary clinics set up in Texas and California in search of health care they could not otherwise afford. In Detroit this week, 50,000 residents sought housing aid, of which there was only enough to assist some 3,400 people in need.

These and similar incidents around the country have made clear the inability of the capitalist system to meet the most basic social needs of masses of people.

At a time when trillions of dollars are available to bail out the banks, workers are told there is no money to provide even the most elementary necessities of life.

Dollar plunge highlights fault lines in global economic "recovery"

Dollar plunge highlights fault lines in global economic “recovery”

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The US dollar fell to a 14-month low against other currencies Thursday, capping several days of downward volatility in the immediate aftermath of the semi-annual meetings of the International Monetary Fund (IMF) and World Bank, held in Istanbul.

The US currency, down 11.9 percent against a basket of currencies since President Barack Obama took office, fell an additional 0.7 percent on Thursday. Central banks in South Korea, Taiwan, the Philippines, Thailand, Indonesia and Hong Kong intervened to slow the dollar’s fall against their currencies.

In tandem with the fall in the dollar, gold prices soared to new records, hitting $1,056 an ounce on some futures markets.

Late Thursday, Federal Reserve Chairman Ben Bernanke stated that the US will have to raise interest rates once the economy has “sufficiently improved.” Although he gave no indication as to when that might be, his intervention had the desired effect of enabling the dollar to recover some of its losses.

The downward drift of the dollar had accelerated Tuesday, the first official day of the IMF meeting, after the British Independent newspaper published a report that secret discussions had been held between Arab oil-exporting countries and China, France, Japan and Russia on replacing the dollar with a basket of currencies for trade in oil. Most of the governments named subsequently denied the report.

Another factor in the burst of speculation against the dollar was the decision of the Australian central bank, announced Tuesday, to raise interest rates.

The increased pressure on the dollar is a telling sign of the systemic nature of the economic crisis and the heightened tensions among the major world economic powers. It provides a stark contrast to the official declarations coming from the IMF meeting forecasting a return to economic growth—albeit at a snail’s pace—and promising a new era of global economic collaboration and governance.

The weakening of the dollar reflects the breakdown of the global capitalist economic order that emerged after World War II, which was based on the unchallenged economic dominance of the US. Last year’s Wall Street crash and resulting global recession highlighted the immense decline in the world economic position of American capitalism and further compromised the prestige and influence of the US in world economic affairs.

Washington, however, is seeking to leverage its exploding budget deficit and soaring national debt—fueled in large part by trillions of dollars in government subsidies to Wall Street—to place the burden of the economic crisis on its major competitors. Its chief creditors, such as China and Japan, are increasingly concerned over the devaluation of their dollar holdings, but terrified at the prospect of a collapse of the dollar.

In order to boost US exports at the expense of rivals whose economies are highly dependent on exports, such as China, Japan and Germany, Washington has been tacitly favoring a steady fall in the dollar, which has the effect of cheapening US exports and making imports more expensive. This nationalist policy has already increased international tensions and runs the risk of leading to a full-blown dollar crisis, with devastating consequences for both the US and world economy. It is also further undermining the privileged position of the dollar as the major world reserve and trading currency.

Last week, World Bank President Robert Zoellick warned, “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.”

The Wall Street Journal, in a Friday editorial entitled “The Dollar Adrift,” bitterly commented: “The Fed is telling the world that it is concerned primarily—perhaps only—with the domestic US economy. If the dollar falls against other currencies, that’s their problem…

“The more immediate danger—in the coming months—would be if the fall of the dollar becomes a rout… But even if there is no dollar panic, the volatility of currency markets…could also lead to a round of competitive devaluations, as other nations try to placate their own domestic export constituencies.”

The IMF at its Istanbul meeting notably ignored the increasingly contentious question of US monetary policy. This was in keeping with an effort—reflected last month at the G20 summit of leading world economies in Pittsburgh and continued at this week’s IMF and World Bank meetings—to paper over growing trade and economic conflicts and promote vague guidelines for reviving the world economy and staving off another collapse.

In its latest forecast, the IMF estimates that global economic output will decline 1.1 percent this year and rise 3.1 percent in 2010. The projected growth for 2010 is far below pre-crisis rates and implies a continued rise in unemployment and poverty.

Moreover, the anemic growth that is projected is largely dependent on massive state subsidies to the banks and other stimulus measures, totaling thus far, according to the IMF, $2 trillion worldwide. No one knows what will happen when governments begin to pull back from these subsidies, which are fueling staggering and unsustainable levels of debt, stoking protectionist measures, and raising the specter of state bankruptcies.

At the meeting, the IMF endorsed the decision of the G20 summit to make the G20, which includes major “emerging” countries such as China, India and Brazil in addition to the established industrialized countries grouped in the G7, the chief forum for international economic collaboration.

The IMF also endorsed the “Framework for Strong, Sustainable and Balanced Growth” that was adopted at the G20 meeting. This plan, pushed by the United States over the resistance of economic rivals, principally Germany and China, calls for debtor countries, such as the US, to reduce their deficits by slashing domestic consumption and increasing their exports, and for surplus countries, such as China, Japan and Germany, to cut their surpluses by increasing domestic demand and carrying out structural “reforms,” including the gutting of remaining protections for workers, to further open their markets to US and international investment.

China, Germany and other countries signed on to the “framework” only because it avoids any sanctions or enforcement mechanisms against countries that fail to make the proposed changes. The IMF is assigned the job of providing analysis to facilitate the use of “peer pressure” to bring countries into line.

Notwithstanding formal agreement, the plan is widely seen as an attempt by the US to impose the brunt of its crisis on its rivals.

Another major component of the “framework” is an increase in the voting power within the IMF of emerging economies by “at least” 5 percent. This proposal sparked bitter resistance from Germany and France, which stand to see their influence within the IMF reduced.

At its meeting this week, the IMF endorsed the 5 percent increase in voting power for emerging countries, but put off any concrete proposal to implement it until January of 2011. As the New York Times commented, “This leaves ample room for friction between IMF members that stand to gain in influence and those losing it, as well as within the community of advanced countries.

“European countries, including France and Germany, are already quietly maneuvering to preserve their own leverage, possibly at the expense of their neighbors.

“Also, the IMF did not address one of the most contentious issues, that of the effective United States veto at the organization. With a 17 percent voting share in a body that requires 85 percent for major decisions, the United States can block any significant move.”

A third plank of the G20 “framework” endorsed by the IMF is tougher global regulation of the banks. The adopted recommendations, however, include no enforcement mechanisms or sanctions. At the G20, the US defeated proposals from France and Germany to impose caps on bankers’ compensation.

Commenting on this aspect of the recovery framework, the Financial Times noted on Tuesday that US banks have blocked all serious proposals to increase regulation, and concluded: “In short, an overhaul of international standards of bank regulation remains a clear but highly uncertain goal. It involves curbs on enormously wealthy individuals and institutions whose political influence appears as strong as it was before the credit crisis hit in 2007.”

While no measures are to be taken to rein in the speculative practices of the banks, the impact of the crisis which they precipitated is profound and spreading. The IMF reports that a staggering 10 percent of global output has been lost due to the crisis and will not be recovered. This means that the world’s population has grown significantly poorer.

The World Bank estimates that the crisis has thrown another 90 million people into “extreme poverty,” living on less than $1.25 a day.

According to the Organization for Economic Cooperation and Development, joblessness has already reached a high since World War II of 8.5 percent in the 30 high-income OECD countries. It warns that unemployment could rise further to nearly 10 percent in the developed world by the end of next year, meaning 25 million people will have lost their jobs since the recession began.

Noting the especially severe impact on young workers, the OECD speaks of the risk of a “lost generation.”

For its part, the IMF is warning of the likelihood of a “jobless recovery.” Many prominent economists predict that unemployment will not fall to pre-crisis levels until 2015 at the earliest. IHS Global Insight forecasts that unemployment in the US will still be at 8.1 percent in 2013.

As for the much vaunted restabilization of the financial system, the IMF estimates that total losses and write-downs within banks, insurers, hedge funds and other financial firms will amount to $2.8 trillion between 2007 and 2020 in the US, Europe and Asia. This represents 5 percent of all loans and securities held by these institutions. As only half of these losses have to date been acknowledged, the global financial system remains poised on the brink of a precipice.

IMF Managing Director Dominique Strauss-Kahn hailed this week’s meeting as “a unique opportunity to reshape the post-crisis world, to usher in a new era of collaborative global governance.”

Other prominent commentators were far less sanguine. The Chinese web site Xinhuanet.com wrote: “Unlike the rapidly-spreading and powerful crisis, the recovery is set to be slow and fragile. Financial markets remain far from stable, jobs are still diminishing, protectionism is on an alarming rise and poverty is exacerbated in low-income countries.”

Michael Geoghegan, chief executive of HSBC bank, told the Financial Times that he anticipated a new downturn in the coming months. Posing the question of whether the world was in a “V recovery or a W,” he said, “It’s the latter.”

Billionaire investor George Soros said in Istanbul that the US banks were “basically bankrupt,” and their insolvency would impede any significant recovery.

New York University Professor Nouriel Roubini, who predicted the market crash of last year, warned in an interview, “Markets have gone up too much, too soon, too fast.” Noting that stock markets have soared by around 50 percent since their lows last March, he added, “The real economy is barely recovering while markets are going this way.”

He warned that “easy money” had already created “asset bubbles in equities, commodities, credit and emerging markets,” and concluded, “… we may be planting the seeds of the next cycle of financial instability.”

Robert Prechter, founder of Elliott Wave International Inc., predicted that the Standard & Poor’s 500 Index would probably fall “substantially below” its 12-year low reached on March 9.

In an October 6 editorial entitled “Picking Through Economic Wreckage,” the Financial Times asked who would pay for the colossal loss of economic output. The answer was indicated by Carlo Cottarelli and Jose Vinals, two IMF staff economists, who wrote: “Addressing the fiscal problem will require clarity of intent and firm political resolve: health and pension entitlement reforms, cuts in the ratio between other spending and GDP, and tax increases will be necessary.”

In other words, the international working class is to pay for the crisis.

The Nobel War Prize

The Nobel War Prize

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Friday’s announcement by the Nobel committee in Norway that Barack Obama had been chosen to receive its 2009 Peace Prize was met with expressions of astonishment around the globe.

Many questioned how Obama could be chosen after less than ten months in office, with no discernable achievements on any front. He was inaugurated just 11 days before the cut-off date for nominations for the prize.

More significant, however, is what Obama has done in office, which has nothing to do with peace.

Obama appeared in the Rose Garden in the mid-morning to deliver remarks that began with a declaration that he was “surprised and deeply humbled” to receive the Peace Prize. He then marched back into the White House to meet with his war council and discuss sending tens of thousands more troops to Afghanistan and escalating the bombing in that country and across the border in Pakistan.

Using his statement to issue veiled threats against Iran, Obama went out of his way to declare himself the “commander-in-chief” and refer to the two wars and occupations over which he presides.

While the Nobel committee praised him for his “vision of a world free from nuclear arms,” Obama commented that this goal “may not be completed in my lifetime.” Given that in talks with Moscow his administration has demanded the right to keep a minimum of 1,500 nuclear warheads, he knows whereof he speaks.

“We have to confront the world as we know it,” said Obama, making a clear distinction between his supposed “vision” and the reality of his administration’s bellicose policies.

On the surface, awarding a peace prize to the US president is farcical. There are widespread warnings that the selection may well prove only an embarrassment for the Obama administration. How is it possible to proclaim a “commander-in-chief” who is responsible for war crimes, such as bombing the civilian population of Afghanistan—one such attack having claimed the lives of over 100 men, women and children just last May—as the champion of peace?

Yet, receiving the Nobel Peace Prize has always been a dubious distinction. Its reputation has never really recovered from the decision to award it in 1973 to Henry Kissinger, who is today unable to leave the United States for fear of being arrested as a war criminal. His co-recipient, Le Duc Tho, the Vietnamese leader who negotiated the Paris peace agreement with Kissinger, refused to accept the award, pointing out that the accord had brought no peace to his country.

A few years later, Menachem Begin was chosen for the prize. The Nobel committee chose to ignore his long career as a terrorist and killer, honoring him for reaching the Camp David deal with Anwar Sadat of Egypt, his co-recipient.

Jimmy Carter, whose administration instigated a war in Afghanistan that claimed a million lives, was given the same award in 2002.

The committee cannot be accused of violating its own principles, such as they are. The founder of the prize, Alfred Nobel, was the inventor of dynamite. He would no doubt be intrigued by the Pentagon’s efforts to speed up production of the Massive Ordnance Penetrator (MOP), a 30,000-pound bomb designed to obliterate underground targets. The weapon is being readied for possible use against Iran.

Despite its praise for Obama’s “vision” and for having “captured the world’s attention and given its people hope for a better future,” the Nobel committee did not choose Obama based on illusions in his campaign rhetoric.

The Nobel Peace Prize is, and always has been, a political award given with the aim of promoting definite policies.

The selection was made by a committee composed of five members of the Norwegian parliament drawn from the main parties, ranging from the far-right to the social democrats. Its decisions reflect positions prevailing within the European ruling elite as a whole.

Thorbjorn Jagland, the committee’s chairman and a former Norwegian prime minister, defended the choice of Obama in an interview with the New York Times Friday, expressing the cynicism underlying the choice. “It’s important for the committee to recognize people who are struggling and idealistic, but we cannot do that every year,” he said. “We must from time to time go into the realm of realpolitik.”

Realpolitik doubtless played the decisive role in the recent selection of two other prominent American politicians for the prize: Carter in 2002 and Al Gore in 2007. Carter was picked on the eve of the US war against Iraq in a rebuke to the belligerent unilateralism of the Bush administration. The prize went to Gore, the Democratic presidential candidate in 2000, in advance of the 2008 election, a not-so-subtle hint that Europe wanted a break from the Bush administration.

While in those years the prize was employed as a critique of US foreign policy, this time it represents an endorsement. As Jagland put it, “We hope this can contribute a little bit to enhance what he is trying to do.”

The glaring contradiction in giving the peace prize to Obama as he prepares to send more troops into Afghanistan is more apparent than real. The award is meant to legitimize Washington’s escalation in Afghanistan, its attacks on Pakistan and its continued occupation of Iraq, giving them Europe’s seal of approval as wars for peace.

It serves to undermine popular opposition within the United States and internationally to the wars being waged under the Obama administration, as well as to future ones still being planned.

The European powers support the war in Afghanistan, a position that is more frequently finding its expression in the press. The British daily Independent, for example, published an editorial Thursday declaring that it “in principle” supports the call for sending as many as 40,000 more US troops into the war.

Meanwhile, Germany, France and other countries have shifted their positions on Iran as well, backing Washington’s campaign for tougher measures.

What ruling circles in Europe see in Obama is not a champion of peace, but rather a shift away from the unilateralism of the Bush administration and a willingness to factor European support into the pursuit of US imperialism’s strategic aims.

No doubt, Europe’s governments calculate that their backing of the US military interventions will translate into a stake in the exploitation of the energy reserves of Central Asia and the Persian Gulf.

Moreover, in legitimizing these wars and promoting a return to multilateralism in US foreign policy, the European powers see a means to legitimize their own turn to militarism and to suppress opposition to war within their own populations.

Obama’s Nobel prize, far from signaling hope that the world’s greatest military power is turning toward peace, is itself an endorsement of war and serves as a warning that the intensifying crisis of world capitalism is creating the conditions for resurgent militarism and the threat of widening international conflicts.

Data-Mining Programs Resurrect "Total Information Awareness"

Data-Mining Programs Resurrect "Total Information Awareness"

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Like a vampire rising from it's grave each night to feed on the privacy rights of Americans, the Federal Bureau of Investigation is moving forward with programs that drain the life blood from our constitutional liberties.

From the wholesale use of informants and provocateurs to stifle political dissent, to Wi-Fi hacking and viral computer spyware to follow our every move, the FBI has turned massive data-mining of personal information into a growth industry. In the process they are building the surveillance state long been dreamed of by American securocrats.

A chilling new report by investigative journalist Ryan Singel provides startling details of how the FBI's National Security Branch Analysis Center (NSAC) is quietly morphing into the Total Information Awareness (TIA) system of convicted Iran-Contra felon, Admiral John M. Poindexter. According to documents obtained by Wired:

A fast-growing FBI data-mining system billed as a tool for hunting terrorists is being used in hacker and domestic criminal investigations, and now contains tens of thousands of records from private corporate databases, including car-rental companies, large hotel chains and at least one national department store. (Ryan Singel, "FBI's Data-Mining System Sifts Airline, Hotel, Car-Rental Records," Wired, September 23, 2009)


Among the latest revelations of out-of-control secret state spookery, Wired disclosed that personal details on customers have been provided to the Bureau by the Wyndham Worldwide hotel chain "which includes Ramada Inn, Days Inn, Super 8, Howard Johnson and Hawthorn Suites." Additional records were obtained from the Avis rental car company and Sears department stores.

Singel reports that the Bureau is planning a massive expansion of NSAC, one that would enlarge the scope, and mission, of the Foreign Terrorist Tracking Task Force (FTTTF) and the file-crunching, privacy-killing Investigative Data Warehouse (IDW).

"Among the items on its wish list," Singel writes, "is the database of the Airlines Reporting Corporation--a company that runs a backend system for travel agencies and airlines." If federal snoops should obtain ARC's data-sets, the FBI would have unlimited access to "billions of American's itineraries, as well as the information they give to travel agencies, such as date of birth, credit card numbers, names of friends and family, e-mail addresses, meal preferences and health information."

The publication reports that the system "is both a meta-search engine--querying many data sources at once--and a tool that performs pattern and link analysis." Internal FBI documents reveal that despite growing criticism of the alleged "science" of data-mining, including a stinging 2008 report by the prestigious National Research Council, for all intents and purposes the Bureau will transform NSAC into a low-key version of Adm. Poindexter's Information Awareness Office. An internal FBI document provides a preview of the direction NSAC will take.

According to the General Accounting Office (GAO) May 2004 report on federal data mining efforts, the GAO defined data mining as "the application of database technology--to uncover hidden patterns and subtle relationships in data and to infer rules that allow for the prediction of future results" (GAO-05-866, Data Mining p. 4). There are a number of security and privacy issues that government and private industry must address when contemplating the use of technology and data in these ways. While the current activities and efforts of the IDW and FTTTF programs do not provide NSB [National Security Branch] users with the full level of data mining services as defined above it is the intention of the NSAC to pursue and refine these capabilities where permitted by statute and policy. The implementation and responsible utilization of these services will advance the FBI's ability to address national security threats in a timely fashion, uncover previously unknown patterns and trends and empower agents and analysts to better "hunt between the cases" to find those persons, places or things of investigative and intelligence interest. (Federal Bureau of Investigation, "Fiscal Year (FY) 2008, Internal Planning & Budget Review, Program Narrative for Enhancements/Increases," p. 5, emphasis added)


Unsurprisingly, in their quest for increased funding FBI officials failed to mention that the 2004 GAO report raised significant and troubling questions glossed over by securocrats. To wit, GAO investigators averred:

Privacy concerns about mined or analyzed personal data also include concerns about the quality and accuracy of the mined data; the use of the data for other than the original purpose for which the data were collected without the consent of the individual; the protection of the data against unauthorized access, modification, or disclosure; and the right of individuals to know about the collection of personal information, how to access that information, and how to request a correction of inaccurate information. (General Accounting Office, Data Mining: Federal Efforts Cover a Wide Range of Uses, GAO-04-548, May 2004)


Despite these concerns, an FBI budget document released to Wired baldly states:

The NSAC will provide subject-based "link analysis" through utilization of the FBI's collection data sets, combined with public records on predicated subjects. Link analysis uses these data sets to find links between subjects, suspects, and addresses or other pieces of relevant information, and other persons, places, and things. This technique is currently being used on a limited basis by the FBI; the NSAC will provide improved processes and greater access to this technique to all NSB components. The NSAC will also pursue "pattern analysis" as part of its service to the NSB. "Pattern analysis" queries take a predictive model or pattern of behavior and search for that pattern in data sets. The FBI's efforts to define predictive models and patterns of behavior should improve efforts to identify "sleeper cells." Information produced through data exploitation will be processed by analysts who are experts in the use of this information and used to produce products that comply with requirements for the proper handling of the information. (Federal Bureau of Investigation, "National Security Branch Analytical Capabilities," November 12, 2008)


Four years after the GAO report cited the potential for abuse inherent in such techniques, The National Research Council's exhaustive study criticized the alleged ability of data-miners to discover hidden "patterns" and "trends" among disparate data-sets "precisely because so little is known about what patterns indicate terrorist activity; as a result, they are likely to generate huge numbers of false leads."

False leads that may very well land an innocent person on a terrorist watch-list or as a subject of a wide-ranging and unwarranted national security investigation. But as with all things relating to "counterterrorism," the guilt or innocence of the average citizen is a trifling matter while moves to "empower agents" to "find those persons, places or things of investigative and intelligence interest," is the paramount goal. "Justice" under such a system becomes another preemptive "tool" subject to the whims of our political masters.

The use of federal dollars for such a dubious and questionable enterprise has already had real-world consequences for political activists. Just ask RNC Welcoming Committee activists currently under indictment in Minnesota for their role in organizing legal protests against the far-right Republican National Convention last year in St. Paul.

As Antifascist Calling revealed earlier this year, one private security outfit, the now-defunct Highway Watch which worked closely with the FBI, used "social network theory" and "link analysis," and cited the group's legal political organizing, including "increased membership via the internet" and "public appearances at various locations across the US," as a significant factor that rendered the group a "legitimate" target for heightened surveillance and COINTELPRO-style disruption.

Singel also disclosed that NSAC shared data "with the Pentagon's controversial Counter-Intelligence Field Activity office, a secretive domestic-spying unit which collected data on peace groups, including the Quakers, until it was shut down in 2008. But the FBI told lawmakers it would be careful in its interactions with that group."

As journalists and congressional investigators subsequently revealed however, CIFA's dark heart--the office's mammoth databases--were off-loaded to other secret state security agencies, including the FBI.

CIFA: Closed Down or Farmed Out?

When CIFA ran aground after a series of media disclosures beginning in 2004, some critics believed that was the end of that. "From the beginning of its existence," investigative journalist Tim Shorrock revealed in Spies For Hire, "CIFA had extensive authority to conduct domestic counterintelligence."

Indeed, one CIFA official "was the deputy director of the FBI's multiagency Foreign Terrorist Tracking Task Force," Shorrock wrote, "and other CIFA officials were assigned to more than one hundred regional Joint Terrorism Task Forces where they served with other personnel from the Pentagon, as well as the FBI, state and local police, and the Department of Homeland Security."

Several investigative reports in Antifascist Calling have documented the close interconnections among Pentagon spy agencies, the FBI, DHS, private contractors, local and state police in what have come to be known as fusion centers, which rely heavily on extensive data-mining operations.

Their role as clearinghouses for domestic intelligence will expand even further under President Obama's purported "change" administration.

Federal Computer Week revealed September 30, that DHS "is establishing a new office to coordinate its intelligence-sharing efforts in state and local intelligence fusion centers."

According to the publication, a "new Joint Fusion Center Program Management Office will be part of DHS' Office of Intelligence and Analysis, [DHS Secretary Janet] Napolitano told the Senate Homeland Security and Governmental Affairs Committee. Napolitano said she strongly supports the centers."

Though little reported by the corporate media, domestic spying had become big business with some very powerful constituencies.

Take CIFA, for example. Ostensibly a Defense Department agency, the secretive office which once had a multi-billion dollar budget at its disposal, was a veritable cash cow for enterprising security grifters. Much has been made of the corrupt contracts forged by disgraced Pentagon contractor Mitchell Wade and his MZM corporation, caught up in the "Duke" Cunningham scandal that landed the San Diego Republican congressman an eight-year federal prison term in 2006. Untouched however, by the outcry over domestic Pentagon spying were top-flight defense and security firms who lent their considerable resources--at a steep price--to the office.

Among the corporations who contracted out analysts and operatives to CIFA were heavy hitters such as Lockheed Martin, Carlyle Group subsidiary U.S. Investigations Services, Analex, Inc., an intelligence contractor owned by the U.K.'s QinetiQ, ManTech International, the Harris Corporation, SRA International, as well as General Dynamics, CACI International and the Science Applications International Corporation (SAIC). All told, these corporations reap tens of billions of dollars annually in federal largesse.

As Shorrock revealed, by 2006 CIFA "had four hundred full-time employees and eight hundred to nine hundred contractors working for it." Many were military intelligence and security analysts who jumped ship to land lucrative six-figure contracts in the burgeoning homeland security market, as the whistleblowing web site Wikileaks revealed in July when they published a massive 1525-page file on just one fusion center.

Information illegally obtained on American citizens by CIFA came to reside in the office's Threat And Local Observation Notice (TALON) system and a related database known as CORNERSTONE.

In 2007, the National Security Archive published Pentagon documents outlining U.S. Northern Command's (USNORTHCOM) extensive surveillance activities that targeted legal political protests organized by antiwar activists. In April 2007, Undersecretary of Defense for Intelligence, Lt. General James Clapper, "reviewed the results of the TALON program" and concluded "he did not believe they merit continuing the program as currently constituted."

Despite revelations that CIFA and USNORTHCOM had illegally conducted prohibited activities in violation of the Posse Comitatus Act, which restricts the military from carrying out domestic law enforcement, not a single operative or program manager was brought to book. According to The National Security Archive:

In June 2007, the Department of Defense Inspector General released the results of his review of the TALON reporting program. Its findings included the observation that CIFA and the Northern Command "legally gathered and maintained U.S. person information on individuals or organizations involved in domestic protests and demonstrations against DOD"--information gathered for law enforcement and force protection purposes as permitted by Defense Department directive (5200.27) on the "Acquisition of Information Concerning Persons and Organizations Not Affiliated with the Department of Defense." However, CIFA did not comply with the 90-day retention review policy specified by that directive and the CORNERSTONE database did not have the capability to identify TALON reports with U.S. person information, to identify reports requiring a 90-day retention review, or allow analysts to edit or delete the TALON reports.

In August the Defense Department announced that it would shut down the CORNERSTONE database on September 17, with information subsequently collected on potential terror or security threats to Defense Department facilities or personnel being sent to an FBI data base known as GUARDIAN. A department spokesman said the database was being terminated because "the analytical value had declined," not due to public criticism, and that the Pentagon was hoping to establish a new system--not necessarily a database--to "streamline" threat reporting, according to a statement released by the Department's public affairs office. (Jeffrey Richelson, "The Pentagon's Counterspies: The Counterintelligence Field Activity," The National Security Archive, September 17, 2007)


Last year Antifascist Calling reported that when CIFA was shut down, that organization's TALON database was off-loaded to the Defense Intelligence Agency's Defense Counterintelligence and Human Intelligence Center and the FBI's GUARDIAN database that resides in the Bureau's Investigative Data Warehouse (IDW).

The IDW is a massive repository for data-mining. As I reported in May, citing the Electronic Frontier Foundation's revelations, the IDW possesses something on the order of 1.5 billion searchable files. In comparison, the entire Library of Congress contains 138 million unique documents.

EFF has called the IDW "the FBI's single largest repository of operational and intelligence information."

In 2005, FBI Section Chief Michael Morehart said that "IDW is a centralized, web-enabled, closed system repository for intelligence and investigative data." Unidentified FBI agents have described it as "one-stop shopping" for FBI agents and an "uber-Google." According to the Bureau, "[t]he IDW system provides data storage, database management, search, information presentation, and security services."

As the Wired investigation reveals, NSAC intends to expand these data-mining capabilities. Currently, NSAC employs "103 full-time employees and contractors, and the FBI was seeking budget approval for another 71 employees, plus more than $8 million for outside contractors to help analyze its growing pool of private and public data." Long-term, according to a planning document, the FBI "wants to expand the center to 439 people."

While John Poindexter's Total Information Awareness program may have disappeared along with the Bush administration, it's toxic heart lives on in the National Security Branch Analysis Center.

TIA, IDW, NSAC: What's in an Acronym? Plenty!

When the Pentagon's Defense Advanced Research Project Agency (DARPA) stood up the Information Awareness Office in 2002, the office's stated mission was to gather as much information on American citizens as possible and store it in a centralized, meta-database for perusal by secret state agencies.

Information included in the massive data-sets by IAO included internet activity, credit card purchase histories, airline ticket purchases and travel itineraries, rental car records, medical histories, educational transcripts, driver's licenses, social security numbers, utility bills, tax returns, indeed any searchable record imaginable.

As Wired reported, these are the data-sets that NSAC plans to exploit.

When Congress killed the DARPA program in 2004, most critics believed that was the end of the Pentagon's leap back into domestic intelligence. However, as we have since learned, the data-mining portion of the program was farmed out to a host of state agencies, including the National Security Agency, the Defense Intelligence Agency and the FBI.

Needless to say, private sector involvement--and lucrative contracts--for TIA projects included usual suspects such as Booz Allen Hamilton, Lockheed Martin, Raytheon, The Analysis Group and SAIC, as well as a number of low-key firms such as 21st Century Technologies, Inc., Evolving Logic, Global InfoTech, Inc., and the Orwellian-sounding Fund For Peace.

These firms, and many more, are current NSAC contractors; to all intents and purposes TIA now resides deep inside the Bureau's Investigative Data Warehouse and NSAC's Foreign Terrorist Tracking Task Force.

While the FBI claims that unlike TIA, NSAC is not "open-ended" and that a "mission is usually begun with a list of names or personal identifiers that have arisen during a threat assessment, preliminary or full investigation," Wired reports that "the FBI's pre-crime intentions are much wider that the bureau acknowledged."

This will inevitably change--and not for the better--as NSAC expands its brief and secures an ever-growing mountain of data at an exponential rate. In this endeavor, they will be aided by the U.S. Senate.

With three provisions of the draconian Patriot Act set to expire at years' end, the Senate Judiciary Committee, chaired by Sen. Patrick Leahy (D-VI) and Sen. Dianne Feinstein (D-CA), a member of the committee and chairwoman of the powerful Senate Intelligence Committee, stripped-away privacy protections to proposed legislation that would extend the provisions.

Caving-in to pressure from the FBI which claims that protecting Americans' privacy rights from out-of-control spooks would jeopardize "ongoing" terror investigations, Leahy gutted the safeguards he had espoused just last week!

Claiming that his own proposal might hinder open-ended "terror" investigations Leahy said at the hearing, "I'm trying to introduce balances on both sides." The original amendment would have curtailed Bureau fishing expeditions and would have required an actual connection of investigated parties to terrorism or foreign espionage.

Leahy was referring to Section 215 of the Patriot Act that allows the secretive Foreign Intelligence Surveillance Court (FISC) to authorize broad warrants for nearly any type of record, including those held by banks, libraries, internet service providers, credit card companies, even doctors of "persons of interest."

An amendment offered by Sen. Richard Durbin (D-IL) to repeal the Leahy-Feinstein amendment was defeated in committee by a 4-15 vote. As the Senator from the FBI, Feinstein said that the Bureau did not support Durbin's amendment. "It would end several classified and critical investigations," she said. Or perhaps Durbin's amendment would have lowered the boom on a host of illegal programs across the 16-agency U.S. "Intelligence Community."

As Antifascist Calling reported in July, a 38-page declassified report by inspectors general of the CIA, NSA, Department of Justice, Department of Defense and the Office of National Intelligence collectively called the acknowledged "Terrorist Surveillance Program" and cross-agency top secret "Other Intelligence Activities" the "President's Surveillance Program," PSP.

The IG's report failed to disclose what these programs actually did, and probably still do today under the Obama administration. Shrouded beneath impenetrable layers of secrecy and deceit, these undisclosed programs lie at the dark heart of the state's war against the American people.

The Department of Justice's Office of Inspector General (OIG) described FBI participation in the PSP as that of a passive "recipient of intelligence collected under the program" and efforts by the Bureau "to improve cooperation with the NSA to enhance the usefulness of PSP-derived information to FBI agents."

The OIG goes on to state that "further details about these topics are classified and therefore cannot be discussed here." As The New York Times revealed earlier this year in April and June, the NSA's STELLAR WIND and PINWALE internet and email text intercept programs are giant data-mining meta-databases that sift emails, faxes, and text messages of millions of people in the United States.

Far from being mere passive spectators, the FBI's Investigative Data Warehouse continues to be a major recipient of NSA's STELLAR WIND and PINWALE programs. As Marc Ambinder reported in The Atlantic PINWALE is "an unclassified proprietary term used to refer to advanced data-mining software that the government uses. Contractors who do SIGINT mining work often include a familiarity with Pinwale as a prerequisite for certain jobs."

As the Electronic Frontier Foundation's report on the IDW revealed, the FBI closely worked with SAIC, Convera and Chiliad to develop the project. Indeed, as EFF discovered "The FBI set up an Information Sharing Policy Group (ISPG), chaired by the Executive Assistant Directors of Administration and Intelligence, to review requests to ingest additional datasets into the IDW, in response to Congressional 'privacy concerns that may arise from FBI engaging in 'data mining.' In February 2005, the Counterterrorism Division asked for 8 more data sources." The names of the data sources were redacted in three of the eight datasets reviewed by EFF while three came from the Department of Homeland Security.

All of which begs the question: what is the FBI hiding behind it's reorganization of the FTTTF and IDW into the National Security Branch Analysis Center? What role does the National Security Agency and private contractors play in standing-up NSAC? And why, as EFF disclosed, is the Bureau fearful of including Privacy Impact Assessments (PIAs) that might raise "congressional consciousness levels and expectations" in the context of Bureau "national security systems"?

Indeed, as the American Civil Liberties Union stated, "once again, the FBI has been found to be using invasive 'counterterrorism' tools to collect personal information about innocent Americans," and it "appears that the FBI has continued its habit of gathering bulk amounts of personal information with little or no oversight."

Not that congressional grifters and their corporate cronies, who have much to gain from billions of federal dollars pumped into these intrusive programs, actually care to explore what becomes of data illegally collected on innocent Americans by NSAC.

The civil liberties watchdog concludes they have "long suspected that the congressional dissent over and public demise of the Pentagon's TIA program would result in a concealed and more invasive version of the program."

Plus ça change, plus c'est la même chose. Somewhere near Washington Admiral Poindexter is leaning back in his chair, filling his pipe and smiling...

Texas governor tries to cover up execution of innocent man

Texas governor tries to cover up execution of innocent man

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Texas Gov. Rick Perry not only executed an innocent Cameron Todd Willingham in 2004, Perry is now scrambling to cover it up until after his bid for reelection.

This scenario is now being put forth in the media, on blogs, in editorials and by lawyers, politicians and death penalty activists. The case has drawn national attention since the release of expert testimony solicited by the Texas Forensic Science Commission, followed by the September publication of a widely cited New Yorker article. The author of the TFSC report found no arson and therefore no murder.

“There can no longer be any doubt that an innocent person has been executed,” stated Barry Scheck, co-director of the Innocence Project, on Aug. 31.

But two days before the report by noted arson expert Dr. Craig Beyler was to be discussed at a meeting of the Texas Forensic Science Commission, Perry replaced the commission’s chair and two of its members.

The chair was replaced with Williamson County District Attorney John Bradley, who the Oct 1. Dallas Morning News calls “one of the most conservative, hard-line prosecutors in Texas.” The Sept. 30 Austin American Statesman called Bradley “a tough-on-crime, politically connected conservative.”

The new chair’s first action was to cancel the hearing scheduled for Oct. 2. There is no indication if the hearing will ever be held, after it commissioned Beyler and spent tens of thousands of dollars on the report.

The timing, according to the Oct. 1 Dallas Morning News, disturbed the replaced

chair, Austin lawyer Sam Bassett. “In my

view, we should not fail to investigate important forensic issues in cases simply because there might be political ramifications.”

Willingham’s case was detailed in the Sept. 7 New Yorker article “Trial by Fire.” Reporter David Grann leads readers through the case to the conclusion that an innocent man was executed for a crime he did not commit.

Willingham’s execution took place under Perry’s watch. It is now likely that this will be the first posthumous exoneration of a person put to death in the United States.

Todd Willingham was sent to death row for the murder of his 2-year-old daughter Amber and his 1-year-old twin daughters Kameron and Karmon, who died in a house fire two days before Christmas in 1991 in Corsicana, Texas. He and his daughters were asleep that morning when his wife left to pick up holiday presents for the girls from the Salvation Army.

Before Willingham went to trial, he was offered a plea deal, which he refused. His lawyer, who thought he was guilty, was shocked and pleaded with family members to persuade him to change his mind. Willingham refused: “I ain’t gonna plead to something I didn’t do, especially killing my own kids.” He went on trial in August 1992 and was sent to death row.

For 12 years Willingham tried to figure out how to prove his innocence and find out who had set the fire.

Months before his execution, Willingham’s case came to the attention of acclaimed scientist and fire investigator Dr. Gerald Hurst. Dr. Hurst, who is widely credited with setting the scientific standard in forensic arson investigations, reviewed the evidence and determined that the conclusions reached by prosecution experts about the fire’s origin were not supported by science.

This renowned scientist shredded the so-called scientific evidence and made it clear that Willingham was innocent. Hurst’s report was on Gov. Perry’s desk when Perry refused to stop the execution in 2004.

From CNN to the New York Times to the Houston Chronicle, Perry is being roundly criticized. But when his office was contacted about the removal of three people from the science commission, his spokesperson said it was “business as usual.”

“Executions in Texas are also business as usual, but that doesn’t make them acceptable,” said Njeri Shakur, an organizer with the Texas Death Penalty Abolition Movement. “Perry’s cover-up of the truth in Todd’s case is chilling.

“But the cover-up is also bringing more attention to the wrongs of the death penalty so the governor is inadvertently aiding the fight to abolish the death penalty. We have a slogan that says the death penalty system is broken and should be shut down. He is proving our slogan to be so true!”

Todd Willingham’s step-mother, Eugenia, and other family members will attend the 10th Annual March to Stop Executions on Oct. 24 at the state capitol in Austin, Texas.

For further information on Willingham’s case and the fight against the death penalty, visit www.camerontoddwillingham.com and www.marchforabolition.org.