The Daily Obfuscation

White Chick U

2011-03-15T12:29:00.000-02:00

In many ways, the University of Georgia is a time machine.

When UGA senior Katie Weekly walks to class, she says "Hi, y'all" in a sweet-as-molasses accent to her Kappa Alpha Theta sorority sisters she meets along the way. A 5-foot-4 blonde with blue eyes, she's dressed in J. Crew jeans and a ribbed sweater, and looks and sounds as if she could've stepped off the campus 20 years ago. She has a boyfriend of three years. She wants to be a child psychologist and to raise a family in the South.

Katie is the classic UGA female student, a type that has changed little since the 1980s, but really has its roots in the 1950s - during the post-war boom at the then-all-white university 60 miles northeast of Atlanta.

Katie parties on football Saturdays the way girls did decades ago, perhaps dressed more daringly in strapless dresses but still formally, with pearls. She drinks Pabst Blue Ribbon and grills burgers. She flirts with boys dressed in polo shirts and khaki pants, with curved baseball caps covering their shaggy yet carefully groomed hair. She walks across the tree-shrouded North Campus, which looks much as it did in centuries past, and sips on mint juleps at General Beauregard's, a downtown Athens bar adorned with a Confederate flag.

And, like most UGA students, she only encounters black students sporadically. Forty-four years after the court-ordered integration of the university, UGA remains one of the least-integrated institutions in the state. Only 6 percent of the students are black.

But while so much is the same, something drastic has happened at UGA. Katie Weekly, a student from Duluth who came to UGA with a 3.8 GPA and attends tuition-free on a HOPE scholarship, represents the trend. What used to be a university that served as a geographical melting pot for all Georgians has now become an elite finishing school for white suburban girls.

Black students remain a distinct minority. But rural whites, especially males, are rapidly joining them. Those "country boys" were the very ones who dominated the school when it was all-white.

Now, while the university has skyrocketed in national rankings and academic prestige, its student body has shed any semblance of diversity. Blacks and rural whites are becoming as rare at UGA as Florida Gator bumper stickers. The benefits of the academic improvements are available primarily to a look-alike slice of the population.

Today, 60 percent of UGA students are women and 78 percent of the women are white. Out of a total of 33,405 students, 14,711 are white women. They often come from families that have just moved to Georgia from other parts of the country. The fashions they follow and the products they use have become the campus standards — they wear chic Seven jeans and preppy North Face jackets, and drive SUVs, Mercedes and Beamers. "UGA only represents metro Atlanta," says Bobbie Bagley, a UGA alum and resident of Leslie, a small town in Sumter County. "Anyone from south of Macon is doomed."

Last year, only seven students from Sumter County went to UGA. In 1964, 23 students from that county attended the university.

The phenomenon has caught the attention of the Legislature. At a budget hearing in mid-January, state senators voiced their concern about the lack of rural students attending UGA. University System Chancellor Thomas Meredith told the Atlanta Journal-Constitution he understood the lawmakers' concerns, but that it's a good problem to have. Since the advent of the HOPE scholarship in 1993, the rankings of UGA and other state institutions have soared.

But not everyone thinks better rankings at the expense of shrinking diversity is a good thing.

"UGA is becoming a suburban bedroom university," says Sen. George Hooks, D-Americus. "But the suburban students aren't the brick and mortar of the university. It's the native Georgians who go to every football game and invest a lot of money into the school. Now their children aren't getting in."

Some alumni now tell their children to look elsewhere, that they'll have trouble getting into UGA. College counselors urge high school students - well aware of the competitiveness and high standards at UGA - to apply to similar schools such as Alabama, Auburn and LSU, or in-state universities like Georgia Southern and Valdosta State.

The suburbs with the best schools get the most students into UGA. In the 2004 UGA incoming class, more than 880 students came from Gwinnett and Cobb counties. Of that class, 300 students came from three high schools: Chattahoochee and Milton in Alpharetta, and Walton in east Cobb. In 1985, 965 students at UGA came from Gwinnett. Today, 3,274 students come from there.

Hooks acknowledges that suburban students are multiplying partly because of the growing population of metro Atlanta. But he argues that newcomer families don't share the same loyalty to the school felt by generations of Georgia natives. They're not lifelong patriots in the Bulldog Nation.

The trend toward white girls has become so pronounced that the school's mascot, Uga, could be replaced by "Bulldog Barbie." Mattel markets a perky blond doll called "University Barbie" that's clad in cheerleading clothes. It could be interchangeable with thousands of young women walking around the Georgia campus.

Many of the UGA chicks are, indeed, blond and blue-eyed girls who grew up in the wholesome, affluent suburbs - just, presumably, like Barbie. But their brains, not their looks, account for their admissions success.

"Everyone knows girls are smarter than boys anyway," says Chuck Byrd of Perry, who has a daughter at UGA. "They work a lot harder in high school while the boys just sit around and drive their red pickup trucks."

UGA has transformed from a sleepy university that only loved football and would admit anyone who could breathe, to a national academic powerhouse that attracts some of the top faculty in the world. Ranked 19th among public universities by U.S. News & World Report, UGA now boasts an average SAT score for incoming freshmen of 1212. The school's rise has created a quandary. Most of Georgia's counties are now underrepresented in Athens.

The problem started in 1991 when then-Gov. Zell Miller pushed through the creation of a state lottery to pay for the new HOPE scholarship. Under his plan, Georgia students with a B average or higher could apply for the HOPE scholarship, which would cover full tuition for four years and give students a stipend — now at $300 — toward books annually. In 1993, the first student received the HOPE scholarship, and in its first 12 years, HOPE has generated $2.5 billion to help more than 800,000 students like Katie Weekly go to college. It's also raised the bar at Georgia's institutions, especially UGA. "The advent of HOPE has increased the academic rigor," says Douglas Bachtel, a rural sociologist at UGA. "When you increase the standards, you shrink the pool."

Since HOPE is based on merit, the kids who usually qualify are the affluent ones from the suburbs. In many cases, Bachtel notes, children who grow up in rural communities aren't instilled with the idea that education is important, or don't have access to tools to further their learning.

"A lot of it has to do with the history and culture of rural Georgia and the community a kid grows up in," Bachtel says. "For the kids in the suburbs, it's expected of them."

Many students at the university drive nice cars bought with the money their parents saved on tuition. Certainly, they can save a bundle. Katie chose UGA over the University of Southern California, which would've cost her parents $156,000 for four years. At UGA, she's able to live off-campus in a downtown apartment and drive a champagne Toyota 4Runner.

While HOPE lets Katie breeze through college financially, it's limited the options for others. What's more, a 2001 federal Appeals Court ruling made it more difficult to increase the student body's diversity. UGA's affirmative action admissions program - a program that gave students a statistical boost if they met any of 12 criteria, in which being non-white was one - was ruled unconstitutional.

The case, brought by three white women who weren't accepted to the university, alleged reverse discrimination. The court sided with the women, saying the admissions policy didn't "represent a compelling state interest for which the university could constitutionally defend its racial preferences."

It proved to be a victory for the "Bulldog Barbies." The admissions office would have to admit students strictly on merit, and that meant, in most cases, admitting those students who aced the SATs and earned high grade-point averages. Critics claimed the decision would decrease the representation of the state population at the school, and that's exactly what has happened: An influx of white women has left minorities and Georgia's small-town folks in the dust.

Albany's Victor Sullivan bleeds red and black. The son and grandson of UGA alumni, he grew up in Sanford Stadium. He watched the Bulldogs from the best seat in the house — UGA Athletic Director Vince Dooley's box — and threw a football around in President Michael Adams' yard. Victor's father, who served as president of the UGA Alumni Association, golfed with Adams and George Benson, dean of the business school. Victor heard his aunts and uncles reminisce about outdoor band parties and ridiculous drunken brawls at Georgia. Even before he was in high school, he told people he was going to UGA, just like his daddy and granddaddy. "I had my heart set on UGA," Victor says. "I thought I'd die if I didn't go there."

But during his senior year at Deerfield-Windsor, a private academy in Albany, Victor started to realize he might not have the grades to get into UGA. With solid B's and a 1050 SAT score, Victor was a good student, but not great. The average GPA of an incoming freshman at UGA these days is 3.7. So he applied to Auburn, Alabama and Valdosta State, as well. In April of his senior year, a letter arrived denying him admission to UGA. Victor says he was disappointed, but understood.

"Athens is a great place and I can see why the school would rather take kids with a 4.0," Victor says. "They have so many students to choose from, so why not take the best?"

Now a freshman at Valdosta State, Victor's working hard to keep his grades up so he can transfer to UGA in the next year or two. He says many of his friends didn't get into UGA and chose Auburn instead.

Victor's plight concerns much of his community: If a private school student whose father and grandfather are alumni and who grew up knowing the top dogs at UGA can't get in, who can?

Public school students stand an even worse chance. Bobbie Bagley, the UGA alum from Leslie, says one of the primary problems is the dismal public school system in rural Georgia. Most of the best teachers don't want to live in rural Georgia or deal with the small-town students, who for the most part, are out of control, she contends. Bagley, who sent her son and daughter to UGA, said they wouldn't have been admitted if she hadn't sent them to Baylor and McCallie, two prestigious private high schools in Chattanooga.

"Until people get control of the public school system, nothing is going to change," Bagley says. "There's got to be a political push to address these problems."

Chuck Byrd of Perry says everyone in the state - black, white, male, female, urban and rural - should be represented at UGA.

"Success is sometimes as dangerous as failure," Byrd says. "When you reach a point where it becomes impossible for a large segment of children graduating from high schools in parts of the state to get in, there's a problem. That's where we're at right now."

The irony is that white, rural Southerners are now in the same boat as African-Americans. Both are minorities on campus.

In June 2003, an opportunity to revise the strictly merit-based method of UGA's admissions arose. That summer, the U.S. Supreme Court ruled that race could be used as a factor in admission decisions in a University of Michigan case.

The court saw a need to diversify universities and recognized that affirmative action was needed to achieve that goal. Justice Sandra Day O'Connor wrote in the opinion, "We expect that 25 years from now, the use of racial preferences will no longer be necessary to further the interest approved today."

Some Georgians got their hopes up - a Supreme Court precedent meant the school might be able to make race, or any minority factor, a component in admissions - but little has been done to promote that notion. When it comes to race, nothing ever seems to change at UGA.

"The administration is just placating the public," says Christopher Johnson, an African-American sophomore at UGA. "They're getting good sound bites to the outside and that's about it."

Johnson is referring to the task force UGA created to figure out a way to promote diversity on campus and add minority-conscious criteria back into the admissions process. There was talk of implementing affirmative action for students applying for this upcoming fall, but last month the task force decided to hold off until 2006.

Steve Shewmaker, the university's attorney, told the Atlanta Journal-Constitution that the school needed more time to work through the proposed policy to ensure the school wouldn't get sued again. Black students at UGA scorned the administration's passive effort and claimed it didn't address the issue.

Johnson notes that the issues go deeper than admission policies. Last year, of the 538 African-Americans accepted to UGA, only 202 decided to attend because many black students don't feel welcome at the state's flagship university, even if they're qualified to enroll.

"It's not that we aren't getting in," Johnson says. "It's that no one wants to come to a school that's racially insensitive. Most minority students would rather go to a college that desires their presence and embraces diversity."

Johnson, editor of the minority student magazine InfUSion, says the university puts on a happy face for the press and then sits back and watches. With several racial incidents - including racial slurs being written on dorm room doors and a racially insensitive political cartoon being printed in the student newspaper - Johnson says it's no surprise that minorities would rather go elsewhere.

Keith Parker, associate provost for institutional diversity at UGA, says the school is working hard to recruit minorities and promote diversity forums on campus. Already the admissions office has accepted more black students for next year under the early-admission program than the previous year.

The school is hosting a series of forums beginning this month and encouraging prospective minority students to shadow current minority students during weekend visits. Parker says UGA is also working to recruit in rural Georgia, as the number of rural students in the student body has dwindled.

"We need to give more attention to communities in rural settings," Parker says. "We need to be more aggressive and find ways to bring people from across Georgia to the university."

Parker believes rural students are getting into the university but choosing not to come because of distance. The growth of other state schools, from Georgia Southern to West Georgia, into full-fledged universities, has diverted some rural students.

"Many students want to be able to visit family and friends on a regular basis," Parker says. "But when they spend four to five hours traveling one-way, they choose to go to schools closer to home."

For Katie Weekly, the 40-minute drive home is perfect, and she couldn't imagine herself at any other college. She loves spritzing on perfume, dabbing on lip gloss and brushing her hair before heading downtown to sip on rum and Cokes. She loves chatting about cute clothes and cute boys with her sorority sisters. And she loves cheering until she loses her voice at home football games.

"I love going to Georgia and living in the South," Katie says.

But for others, the sameness that Katie represents at the university is too much - even for other suburban white chicks.

Megan Fraley is one of them. She grew up in the part of Smyrna that's now called Vinings. Megan went to Campbell High School, played the viola and was on the softball team. During her junior year of high school, she started looking at colleges. A HOPE scholarship recipient, she seriously considered UGA and Georgia Southern. But something in Athens made her feel uncomfortable. She found a majority of white suburban kids driving around campus in their BMWs with Greek bumper stickers plastered to the windows. That made her nervous. "I didn't want to be just another white kid from suburban Atlanta," Megan says.

She solidified her decision during a 'Dawg football game. In the fall of her senior year in high school, Megan traveled to Sanford Stadium. She wore a UGA football T-shirt, jeans and sneakers. Megan says when she arrived, she got funny looks, and the looks came from females in "their heels and red and black cocktail dresses."

"I couldn't believe I was an outcast for not dressing up for a football game," Megan says. "I mean, it was a football game!"

Without a second thought, she chose Georgia Southern. She realized there was no diversity at UGA, and that she didn't want to be a preppy Greek. Even though only 34 percent of UGA students go Greek, their influence outweighs their numbers.

At Georgia Southern, Megan says her peers came from across all of Georgia, and weren't just suburban, Atlanta-born, upper-middle-class snobs.

Now an operations manager with a transportation company in Atlanta, Megan says she's happy she didn't attend UGA.

"When I run into old high school classmates that went to UGA, it reminds me that I made the right decision," she says. "They're all annoyingly bubbly and snobby."

Daylight Saving

2011-03-13T11:43:00.001-02:00

Brian Handwerk

for National Geographic News

Updated March 13, 2011

With daylight saving time (also called daylight savings time) kicking off again, clock confusion is once again ticking away: Why do we spring forward? Does daylight saving time really save energy? Is it bad for your health? Get expert answers below.

When Did Daylight Savings Begin in 2011?

For most Americans, daylight saving time 2011 started at 2 a.m. on Sunday, March 13, when most states sprang forward an hour. Time will fall back to standard time again on Sunday, November 6, 2011, when daylight saving time ends.

The federal government doesn't require U.S. states or territories to observe daylight saving time, which is why residents of Arizona, Hawaii, Puerto Rico, the Virgin Islands, American Samoa, Guam, and the Northern Marianas Islands won't need to change their clocks this weekend.

Where it is observed, daylight savings has been known to cause some problems.

National surveys by Rasmussen Reports, for example, show that 83 percent of respondents knew when to move their clocks ahead in spring 2010. Twenty-seven percent, though, admitted they'd been an hour early or late at least once in their lives because they hadn't changed their clocks correctly.

It's enough to make you wonder—why do we do use daylight saving time in the first place?

How and When Did Daylight Saving Time Start?

Ben Franklin—of "early to bed and early to rise" fame—was apparently the first person to suggest the concept of daylight savings, according to computer scientistDavid Prerau, author of the book Seize the Daylight: The Curious and Contentious Story of Daylight Saving Time.

While serving as U.S. ambassador to France in Paris, Franklin wrote of being awakened at 6 a.m. and realizing, to his surprise, that the sun would rise far earlier than he usually did. Imagine the resources that might be saved if he and others rose before noon and burned less midnight oil, Franklin, tongue half in cheek, wrote to a newspaper.

"Franklin seriously realized it would be beneficial to make better use of daylight but he didn't really know how to implement it," Prerau said.

It wasn't until World War I that daylight savings were realized on a grand scale. Germany was the first state to adopt the time changes, to reduce artificial lighting and thereby save coal for the war effort. Friends and foes soon followed suit.

In the U.S. a federal law standardized the yearly start and end of daylight saving time in 1918—for the states that chose to observe it.

During World War II the U.S. made daylight saving time mandatory for the whole country, as a way to save wartime resources. Between February 9, 1942, and September 30, 1945, the government took it a step further. During this period daylight saving time was observed year-round, essentially making it the new standard time, if only for a few years.

Since the end of World War II, though, daylight saving time has always been optional for U.S. states. But its beginning and end have shifted—and occasionally disappeared.

During the 1973-74 Arab oil embargo, the U.S. once again extended daylight saving time through the winter, resulting in a one percent decrease in the country's electrical load, according to federal studies cited by Prerau.

Thirty years later the Energy Policy Act of 2005 was enacted, mandating a controversial monthlong extension of daylight saving time, starting in 2007.

But does daylight saving time really save any energy?

Daylight Saving Time: Energy Saver or Just Time Suck?

In recent years several studies have suggested that daylight saving time doesn't actually save energy—and might even result in a net loss.

Environmental economist Hendrik Wolff, of the University of Washington, co-authored a paper that studied Australian power-use data when parts of the country extended daylight saving time for the 2000 Sydney Olympics and others did not. The researchers found that the practice reduced lighting and electricity consumption in the evening but increased energy use in the now dark mornings—wiping out the evening gains.

Likewise, Matthew Kotchen, an economist at the University of California, saw inIndiana a situation ripe for study.

Prior to 2006 only 15 of the state's 92 counties observed daylight saving time. So when the whole state adopted daylight saving time, it became possible to compare before-and-after energy use. While use of artificial lights dropped, increased air-conditioning use more than offset any energy gains, according to the daylight saving time research Kotchen led for the National Bureau of Economic Research[PDF] in 2008.

That's because the extra hour that daylight saving time adds in the evening is a hotter hour. "So if people get home an hour earlier in a warmer house, they turn on their air conditioning," the University of Washington's Wolff said.

In fact, Hoosier consumers paid more on their electric bills than before they made the annual switch to daylight saving time, the study found.

But other studies do show energy gains.

In an October 2008 daylight saving time report to Congress (PDF), mandated by the same 2005 energy act that extended daylight saving time, the U.S. Department of Energy asserted that springing forward does save energy.

Extended daylight saving time—still in practice in 2011—saved 1.3 terawatt hours of electricity. That figure suggests that daylight saving time reduces annual U.S. electricity consumption by 0.03 percent and overall energy consumption by 0.02 percent.

While those percentages seem small, they could represent significant savings because of the nation's enormous total energy use.

What's more, savings in some regions are apparently greater than in others.

California, for instance, appears to benefit most from daylight saving time—perhaps because its relatively mild weather encourages people to stay outdoors later. The Energy Department report found that daylight saving time resulted in an energy savings of one percent daily in the state.

But Wolff, one of many scholars who contributed to the federal report, suggested that the numbers were subject to statistical variability and shouldn't be taken as hard facts.

And daylight savings' energy gains in the U.S. largely depend on your location in relation to the Mason-Dixon Line, Wolff said.

"The North might be a slight winner, because the North doesn't have as much air conditioning," he said. "But the South is a definite loser in terms of energy consumption. The South has more energy consumption under daylight saving."

(See in-depth energy coverage from National Geographic News.)

Daylight Saving Time: Healthy or Harmful?

For decades advocates of daylight savings have argued that, energy savings or no, daylight saving time boosts health by encouraging active lifestyles—a claim Wolff and colleagues are currently putting to the test.

"In a nationwide American time-use study, we're clearly seeing that, at the time of daylight saving time extension in the spring, television watching is substantially reduced and outdoor behaviors like jogging, walking, or going to the park are substantially increased," Wolff said. "That's remarkable, because of course the total amount of daylight in a given day is the same."

But others warn of ill effects.

Till Roenneberg, a chronobiologist at Ludwig-Maximilians University in Munich, Germany, said his studies show that our circadian body clocks—set by light and darkness—never adjust to gaining an "extra" hour of sunlight to the end of the day during daylight saving time.

"The consequence of that is that the majority of the population has drastically decreased productivity, decreased quality of life, increasing susceptibility to illness, and is just plain tired," Roenneberg said.

One reason so many people in the developed world are chronically overtired, he said, is that they suffer from "social jet lag." In other words, their optimal circadian sleep periods are out of whack with their actual sleep schedules.

Shifting daylight from morning to evening only increases this lag, he said.

"Light doesn't do the same things to the body in the morning and the evening. More light in the morning would advance the body clock, and that would be good. But more light in the evening would even further delay the body clock."

Other research hints at even more serious health risks.

A 2008 study in the New England Journal of Medicine concluded that, at least in Sweden, heart attack risks go up in the days just after the spring time change. "The most likely explanation to our findings are disturbed sleep and disruption of biological rhythms," lead author Imre Janszky, of the Karolinska Institute's Department of Public Health Sciences in Stockholm, told National Geographic News via email.

Daylight Savings Lovers, Haters

With verdicts on the benefits, or costs, of daylight savings so split, it may be no surprise that the yearly time changes inspire polarized reactions.

In the U.K., for instance, the Lighter Later movement—part of 10:10, a group advocating cutting carbon emissions—argues for a sort of extreme daylight savings. First, they say, move standard time forward an hour, then keep observing daylight saving time as usual—adding two hours of evening daylight to what we currently consider standard time.

The folks behind Standardtime.com, on the other hand, want to abolish daylight saving time altogether. Calling energy-efficiency claims "unproven," they write: "If we are saving energy let's go year round with Daylight Saving Time. If we are not saving energy let's drop Daylight Saving Time!"

But don't most people enjoy that extra evening sun every summer? Even that remains in doubt.

National telephone surveys by Rasmussen Reports from spring 2010 and fall 2009 deliver the same answer. Most people just "don't think the time change is worth the hassle." Forty-seven percent agreed with that statement, while only 40 percent disagreed.

But Seize the Daylight author David Prerau said his research on daylight saving time suggests most people are fond of it.

"I think the first day of daylight saving time is really like the first day of spring for a lot of people," Prerau said. "It's the first time that they have some time after work to make use of the springtime weather.

"I think if you ask most people if they enjoy having an extra hour of daylight in the evening eight months a year, the response would be pretty positive."

Statin's...Recipe for disaster

2011-02-20T12:43:00.001-02:00

Dr. Graveline has an interesting background that makes him particularly suited to speak on the topic of statin drugs. He's a medical doctor with 23 years of experience whose health was seriously damaged by a statin drug. His personal questions brought him out of retirement to investigate statins, which he's been doing for the past 10 years.
As a former astronaut, he would get annual physicals at the Johnson Space Center in Houston. In 1999 his cholesterol hit 280 and he was given a prescription for Lipitor.
"When they suggested Lipitor (10 mg), I went along with it because I had no reason to be particularly worried about statin drugs," he says. "I had used it a year or so before my retirement, but I wasn't a big user."
However, it quickly became apparent that something was seriously wrong.
"It was six weeks later when I experienced my first episode of what was later diagnosed as transient global amnesia," Dr. Graveline says.
"This is an unusual form of amnesia wherein you immediately, without the slightest warning, are unable to formulate new memory and you can no longer communicate. Not because you cannot talk, but you can't remember the last syllable that was spoken to you. So nothing you say is relevant anymore. In addition, you have a retrograde loss of memory, sometimes decades into the past."
He "woke up" about six hours later in the office of a neurologist, who gave him the diagnosis: transient global amnesia. He quit taking the Lipitor despite the reassurances from his doctors that the drug was not of concern, and that it was just a coincidence.
He had no relapses during the remainder of the year, but his cholesterol was still around 280 at his next physical. He was again urged to take Lipitor, and he relented.
"I admit I was concerned, but I had talked to maybe 30 doctors and a few pharmacologists during the interval," Dr. Graveline says. "They all said "statins don't do that." So I allowed myself to go back on statins but this time I took just 5 mg.
…[E]ight weeks later, I had my second, and my worst episode. In this one, I was a 13-year-old high school student for 12 hours... This is what convinced me, when I finally woke up, that something was wrong with the statin drugs. And yet, the doctors were, for years after that, still saying that this was just a remarkable coincidence.
This took me out of retirement and I've been actively involved in researching statin drugs ever since."

Statin Drugs: Not Nearly as Safe as You're Told

Dr. Graveline has since published a book about his discoveries called Lipitor: Thief of Memory.
"In trying to reach an explanation, I called Joe Graedon and asked him if he had ever heard of any unusual reactions associated with statins," Dr. Graveline says of his initial investigations.
He was directed to the statin effects study by Beatrice Golomb in San Diego, California, and his story was also published in a syndicated newspaper column. Within weeks, the web site he had created received reports of 22 cases of transient global amnesia, along with hundreds of cases of cognitive damage. At present, over 2,000 cases of transient global amnesia associated with the use of statins have been reported to FDA's MedWatch.
But cognitive problems are not the only harmful aspect of these drugs. Other serious adverse reactions include:
Personality changes / mood disorders
Muscle problems, polyneuropathy (nerve damage in the hands and feet), and rhabdomyolysis (a serious degenerative muscle tissue condition)
Sexual dysfunction
Immune suppression
Pancreas or liver dysfunction, including a potential increase in liver enzymes
Cataracts
According to Dr. Graveline, a form of Lou Gehrig's disease or ALS may also be a side effect, although the US FDA is resistant to accept the link found by their Swedish counterpart, and has so far refused to issue a warning.
"The World Health Organization (WHO) reported on this in July 2007 when Ralph Edwards, who directs the Vigibase in Sweden (the equivalent of the US MedWatch), reported ALS-like conditions in statin users worldwide," Dr. Graveline says.
He has since forwarded hundreds of cases to MedWatch, but the FDA still has not been moved to act, and doctors are therefore unaware of the connection between this deadly disease and statin use.
"[W]e have anecdotal evidence that if you stop the statin drug early enough, some of these cases regress. That's why we thought it was important that FDA issue a warning, but they haven't," Dr. Graveline says.
Today, all of these adverse effects, including the cognitive problems Dr. Graveline warned about 10 years ago, are supported by published research. MedWatch has received about 80,000 reports of adverse events related to statin drugs, and remember, only an estimated one to 10 percent of side effects are ever reported, so the true scope of statins' adverse effects are still greatly underestimated.
For a more in-depth explanation of how statins damage your mitochondria and DNA, resulting in a variety of health problems, please listen to the interview in its entirety or read through the transcript as he discusses far more than I can include here.

How Statins Harm Your Brain Function

As is often the case with pharmaceutical drugs, the side effects end up teaching us new things about how the human body works. When statins first hit the market, conventional medicine was unaware of the importance of cholesterol for proper brain function. Now, researchers believe that statins' adverse effects on cognition are due to cholesterol insufficiency.
Research also began to emerge in 2001 showing the importance of cholesterol in the formation of memories.
"Then we have… dolichols," Dr. Graveline says. "[W]hen a statin is used, it blocks the mevalonate pathway to get at cholesterol inhibition. It works very beautifully. But in so doing, it blocks CoQ10, dolichols, as well as other major biochemicals…
[D]olichol is one that most doctors have never even heard of before, but it just so happens that dolichols are almost as important as CoQ10 and cholesterol in cell processing."
In fact, dolichols are vital to a number of cellular processes, including:
Glycoprotein synthesis
Cell identification
Cell communication
Immunodefense
Neurohormone formation
Dr. Graveline goes on to explain that dolichols influence all the hormones involved with your mental condition, including your emotions and moods. And if you do not have sufficient dolichol, your entire process of neurohormone production will be altered—with potentially devastating results.
"[T]here are thousands of reports of aggressiveness and hostility, increased sensitivity, paranoia, depression and homicidal ideation," Dr. Graveline says.
There are also numerous reports of suicide.
"This whole range of what I call personality- or emotion and behavioral responses have to do with the dolichol deficiency brought on by the mevalonate blockade," Dr. Graveline explains.
"It's not just something that occurs in an occasional person… You know we're all the same and yet we're all different… You give one medicine to 10 people and if you're really lucky, in six of them it will do what it's supposed to do. That's the way it is with this. I expect there are some people that won't get any effects of dolichol suppression because they have alternative pathways. The same thing probably holds for CoQ10."
That said, it's important to realize that your brain also requires cholesterol in order for memory formation to function normally. In essence, statins suppress a number of vital elements for proper brain functioning, including cholesterol, antioxidants and co-factors like CoQ10, and dolichol.
At the same time, statins also create mitochondrial DNA and cellular damage, including in your brain.
Your brain uses glial cells as factories for producing its own cholesterol on demand. Unfortunately, glial cells are affected by statins in the same way as your liver cells, or any other cell in our body. So if you take a statin, you're also harming your glial cells and when they cease to function normally, that on-demand cholesterol capability also ceases and your brain can no longer function properly.

The Importance of CoQ10 or, if You're Over 40, Ubiquinol

It's now clear that if you take statin drugs without taking CoQ10, your health is at serious risk as statin drugs deplete your body of this essential co-enzyme. As your body gets more and more depleted of CoQ10, you may suffer from fatigue, muscle weakness and soreness, and eventually heart failure. Coenzyme Q10 is also very important in the process of neutralizing free radicals.
So when your CoQ10 is depleted, you enter a vicious cycle of increased free radicals, loss of cellular energy, and damaged mitochondrial DNA.
Unfortunately, the majority of people who take statins are unaware of their need for CoQ10, and physicians rarely advise their patients to take this supplement along with their statin—at least in the United States. It's also important to supplement right from the start. According to Dr. Graveline, once the mitochondrial damage and mutations are formed they cannot be reversed—no matter how much CoQ10 you take.
So early intervention is key. (Dr. Graveline goes into further detail of how CoQ10 offers protection against mitochondrial DNA damage in this interview, so for more information, please listen to it in its entirety.)If you decide to take a CoQ10 supplement and are over the age of 40, it's important to choose the reduced version, called ubiquinol.
Ubiquinol is a FAR more effective form—I personally take 1-3 a day as it has far-ranging health benefits. Dr. Graveline concurs with this recommendation.
As for dosage, Dr. Graveline makes the following recommendation:
If you have symptoms of statin damage such as muscle pain, take anywhere from 200 to 500 mg
If you just want to use it preventively, 200 mg or less should be sufficient
There's also evidence that CoQ10/ubiquinol is beneficial for Parkinson's disease and Alzheimer's disease, and even cancer, and that large doses may be justified in those cases as well.
In addition, CoQ10 is believed to play an important role in preventing premature aging in general by preventing telomere shortening, which can slow or potentially even reverse the aging process. This is just one of the additional benefits of CoQ10, and one of the reasons why I take ubiquinol daily even though I've never been on a statin drug.
There are no reported side effects of CoQ10 supplementation, and neither I nor Dr. Graveline have ever heard of anyone overdosing on it. The only drawback is cost.
However, if you're taking ubiquinol, here's some cost-saving information for you.
Certified reduced ubiquinol is only manufactured by one company in the entire world, a Japanese company called Kaneca. They own the patent. So, as long as it's certified ubiquinol, you can buy the cheapest brand you can find, because they're all the same.

Other Valuable Antioxidants for Optimal Health—Especially if You're Taking a Statin

CoQ10, or preferably the reduced version, ubiquinol, is at the top of the list of important supplements when you're taking a statin drug. But there are also other antioxidants and nutrients that can be helpful. For example, selenium is also seriously inhibited by statin drugs, and selenium, along with magnesium, are commonly involved as co-factors in a variety of biological functions.
Other important nutrients include:
Vitamin C
Vitamin D
Vitamin E—An emerging form of vitamin E called tocotrienol is 50 times more powerful than tocopherol, which has been used for the past 60 years. It also helps produce cholesterol and has other biochemical advantages
Alpha-lipoic acid
L-carnitine—which helps metabolize fats properly. Since about 70 percent of your muscles' energy comes from fats, it's important to have the ability to metabolize them. INSERT LINE BREAK According to Dr. Graveline: "If you take L-carnitine and find that you suddenly feel much better, then you've just proven you need it for the rest of your life because you're one of those people who have a dysfunction in this capability; you don't have the means to properly burn fats at our muscle level… naturally you would then get weak when exercising. So it's useful for making a diagnosis. If nothing happens after three months of a good dose, then I would say you can forget about L-carnitine."

The Sad Truth: Even Your Doctor has Been Mislead About Cholesterol

That said, aside from taking CoQ10 if you're on a statin, your diet really should be your primary source of nutrients. (For vitamin D, you'd ideally get it from sun exposure.) Supplements are just that; supplemental to an otherwise healthy diet.
"I think that when you have a statin associated muscle or nerve or even brain dysfunction, this is where you've got to go because that's where the trouble is," Dr. Graveline agrees.
"[I]f it's cholesterol inhibition, you just eat more eggs… I can't believe I went 17 years and never ate an egg. I can't believe how gullible I was. I was this young medical doctor; I marched to that band of the cholesterol-causation people… I did everything I was supposed to do, and it was all wrong. I can't believe that I was led astray, maybe for 25 years of my practice! It's so bad to have to look back and realize you've been treating cardiovascular disease erroneously because you were doing what you were asked to do.The sad truth is that cholesterol, our supposed enemy for 35 years, has nothing to do with cardiovascular disease. it is the most important biochemical in your body.
… We all listened to what amounts to brainwashing. The brainwashing that we got from 1955 on, to just recently… They have liberalized the diet stuff recently though, so people are back to eating eggs and drinking whole milk and eating butter. I went around recommending margarine for so long, and margarine is what's causing disease—butter is what's helping to cure it. It's incredible!"
This is true for the majority of our conventional medical professionals. They simply do not know better… which is all the more reason to arm yourself with the information you need to take control of your own health. Shunning statin drugs and addressing your lifestyle is theway to go if you have high cholesterol. For more information, please see my statin index page which includes a plethora of free guidance and clear advice.

More Information

Dr. Graveline covers a lot of information in this interview, so I highly recommend you listen to the entire interview, or read through the transcript. You can also find more information on his web site: www.SpaceDoc.net .
Dr. Graveline's site serves both as a tool for reporting statin complications, and a database of adverse effects, which are then forwarded to the appropriate agencies.

Only In America do we burn our food in Cars

2011-02-10T00:23:00.003-02:00

Americans should brace for higher food prices this year now that demand for corn has pushed U.S. supplies to their lowest point in 15 years.

Higher projected orders from the ethanol industry sent corn futures soaring Wednesday, as corn supplies became the latest commodity to plummet. Low levels of wheat, coffee, soybeans and other food staples have already sent prices surging on the global market.

As those reserves decline, U.S. food companies are warning of retail price increases. (Too late!)

The ethanol industry's projected corn orders this year have risen 8 percent, to 13 billion bushels, after record-high production in December and January, the Agriculture Department said Wednesday.

That means the United States will have a reserve of 675 million bushels left over in late August when this year's harvest begins. That's roughly 5 percent of all corn that will be consumed, the lowest surplus level since 1996. (if the harvest isn't hurt by weather conditions)

The price of corn affects most food products in supermarkets. It's used to feed the cattle, hogs and chickens that fill the meat aisle. It is the main ingredient in Cap'n Crunch and Doritos. Turned into corn syrup, it sweetens most soft drinks. (And we put it in gasoline to keep prices down....ha-ha-ha-ha)

The decline in reserves caused corn futures to surge, with prices rising 3 percent to settle at $6.98. Corn prices have already doubled in the last six months, rising from $3.50 a bushel to nearly $7 a bushel. Analysts expect the price increases to continue in coming months.

Major food makers and some restaurants have already said they'll be raising prices this year because they're paying more for corn, wheat, sugar, coffee and chocolate, all of which are at historically high prices. Weather, such as flooding in Australia and droughts elsewhere, has affected many crops this year.

A severe drought in China, the world's largest wheat grower, could force prices even higher. The U.N.'s food agency has warned that the drought is driving up the country's wheat prices, and now the focus is on whether China will buy more from the global market, where prices have already risen about 35 percent since mid-November.

Consumers will likely see price hikes as early as three months from now, though most of the impact won't be felt for another six months, said Scott Irwin an agriculture economics professor at the University of Illinois. Chicken prices are among the first to rise because the bird's life span is so short that higher feed costs get factored in quickly, he said. Price hikes for hogs take about a year and cattle two years, while packaged foods take six or seven months to start rising. (except that we don't factor in fuel or food into inflation, remember?)

Some food makers already began selectively raising prices within the past few quarters. (Really?!)

Those higher prices are filtering into stores. (As in present tense) Supermarkets have resisted price increases for some time, hoping to hold onto their cost-conscious customers in the tough economy. But chains such as Kroger now also say higher prices are coming.

Cereal maker Kellogg Co. said last week it plans to raise prices by 3 to 4 percentage points. Sara Lee Corp. said Tuesday that it will continue (as in past tense) its price increases as it copes with higher commodity costs. The company said the price it pays for coffee beans alone is up 60 percent compared with last year.

And J.M. Smucker Co. said Tuesday that it would raise prices again on Folgers and Dunkin Donuts coffee for the third time this year, by 10 percent on average. A large can of Folgers is already going for around $12 at many markets. (well that's probably a blessing in disguise for the fat-asses out there)

It's not just playing out in the grocery store. McDonald's Corp. said last month that it may raise prices this year as its own food tab rises. The company already raised prices in some markets, including the United Kingdom.

Good Riddance!

2011-02-10T00:11:00.002-02:00

NEW YORK (AP) -- These days, guns are more popular than guitars, at least when it comes to video games. The company behind "Guitar Hero" said Wednesday that it is pulling the plug on one of the most influential video game titles of the new century.

Activision Blizzard Inc., which also produces the "Call of Duty" series, is ending the "Guitar Hero" franchise after a run of more than five years. The move follows Viacom Inc.'s decision in November to sell its money-losing unit behind the "Rock Band" video games. Harmonix was sold to an investment firm for an undisclosed sum. Harmonix, incidentally, was behind the first "Guitar Hero" game.

Game industry analysts have long lamented the "weakness in the music genre," as they call it -- that is, the inability of game makers to drum up demand for the products after an initial surge in popularity in the mid-2000s. Music games are often more expensive than your typical shoot-'em-up game because they require guitars, microphones and other musical equipment. While extra songs can be purchased for download, this hasn't been enough to keep the games profitable.

Activision's shares tumbled after the announcement, but investors appear more concerned with the company's disappointing revenue forecast than the demise of the rocker game. As far as investors go, discontinuing an unprofitable product isn't the end of the world, even if "Guitar Hero" fans disagree.

"In retrospect it was a $3 billion or more business that everybody needed to buy, so they did, but they only needed to buy it once," said Wedbush Morgan analyst Michael Pachter. "It's much like 'Wii Fit.' Once you have it, you don't need to buy another one."

"Guitar Hero" was iconic and often praised for getting a generation weaned on video games into music. But its end after a mere half a decade is a big contrast to other influential video game franchises, such as the 25-year-old Mario series from Nintendo. "Call of Duty" first launched in 2003, two years before "Guitar Hero."

Out of the closet....again

2010-11-17T11:20:00.000-02:00

http://www.huffingtonpost.com/2010/11/14/jim-swilley-gay-pastor_n_783279.html

Jim Swilley, the pastor of a Georgia megachurch, recently revealed to his congregation that he is gay. The 52-year-old father of four said that his wife, to whom he was married for more than 20 years, encouraged him to come out years ago, but at the time, he told her: "These words will never come out of my mouth."

However, the recent spate of teen suicides, particularly that of Rutgers student Tyler Clementi, prompted him to change his mind. "For some reason his situation was kind of the tipping point with me," Swilley told CNN's Don Lemon this weekend.

"There comes a point in your life where you say 'How much time do we have left in our lives? Are we going to be authentic or not?'"

Clemens Indicted

2010-09-04T11:37:00.001-02:00

Clemens pleads not guilty

Former pitcher will stand trial in federal court starting April 5 on charges of lying to Congress.

August 31, 2010|Kim Geiger

WASHINGTON — More than two years after Roger Clemens told Congress that he had never taken steroids or human growth hormone, the seven-time Cy Young Award winner pleaded not guilty Monday in federal court to charges that he lied about the alleged doping.

Clemens uttered only one phrase to U.S. District Judge Reggie B. Walton: "Not guilty, Your Honor." He had arrived at the courthouse more than four hours before his 2 p.m. arraignment. Walton set a trial date of April 5.

The charges stem from a 2007 report on doping in baseball that alleged Clemens had used anabolic steroids on multiple occasions in 1998, 2000 and 2001, and human growth hormone on multiple occasions in 2000.

Clemens repeatedly told lawmakers and congressional staff that the allegations in the report were false. On Aug. 19, he was indicted on three counts of making false statements, two counts of perjury and one count of obstruction of justice.

The indictment does not offer specific proof that Clemens used the banned drugs but alleges that he lied to Congress when he rebutted the claims of others who said he had used the substances. Federal prosecutors said Monday that they have agreed to provide the defense with a 34-page master index of evidence, computer disks and "scientific evidence."

Clemens, 48, pitched for the Boston Red Sox, Toronto Blue Jays, New York Yankees and Houston Astros. In 23 seasons, he was an 11-time All-Star who had 354 victories, 4,672 strikeouts and a 3.12 earned-run average. His statistics would make him a cinch for the Hall of Fame when he is eligible in 2013, but a conviction related to the steroid scandal would cast doubt on his accomplishments.

If convicted, he faces up to a $1.5-million fine and 30 years in prison, though under federal sentencing guidelines he is more likely to face a sentence of 15 to 21 months.

A status hearing on the defense's review of the evidence was set for Dec. 8, with a preliminary hearing on the case scheduled for March 28.

Former San Francisco Giants slugger Barry Bonds has been charged with obstruction of justice and lying to a federal grand jury when he testified in 2003 that he had never knowingly used steroids. His trial is scheduled to begin March 21.

The allegations in the report were based largely on statements from Clemens' former trainer, Brian McNamee, who cooperated with investigators in exchange for assurance that he would not be prosecuted. McNamee also produced needles, gauze pads and syringes that he said were used to inject Clemens.

In February 2008, Clemens repeatedly denied the allegations in sworn testimony at a public hearing of the House Committee on Oversight and Government Reform and in a deposition with congressional staff. In both instances, he testified voluntarily.

"Let me be clear," Clemens said at the hearing. "I have never taken steroids or HGH."

Clemens was offered a plea deal before his indictment was handed down, but he declined the offer.

"I never took HGH or steroids," he wrote in a Twitter message hours after the indictment was made public. "And I did not lie to Congress."

kim.geiger@latimes.com

Ken Mehlman comes out of the closet

2010-08-29T15:45:00.000-02:00

WASHINGTON—News that a former campaign chairman for George W. Bush is gay and now a champion for same-sex marriage is pleasing, angering and perplexing gay rights activists and politicians alike in the United States.

Ken Mehlman, Bush’s campaign kingpin in 2004 and one-time chairman of the Republican National Committee, has announced he’s gay and is helping to raise significant funds in support of same-sex marriage. This despite presiding over an election strategy that pushed anti-same sex marriage amendments in 11 states just six years ago.

“At least for me, it wasn’t like there was a light-bulb moment,” he said in an interview with The Atlantic magazine released earlier this week.

“It was an evolutionary process. The reality is, it’s taken me 43 years to come to terms with this part of my life. The process has been something that has made me a happier and better person. It’s something I wish I had done years ago.”

Mehlman is among a string of conservatives who have either fully advocated same-sex marriage in recent months or have opined that it doesn’t pose a threat to traditional marriage, including political wives Laura Bush and Cindy McCain and right-wing commentators Glenn Beck and Elisabeth Hasselbeck.

Many welcomed the announcement, saying it proves the time has come for marriage equality in the United States.

“He’s the latest in a wave of self-identified conservatives speaking up in support of the freedom to marry,” said Evan Wilson, author of Why Marriage Matters and director of the Freedom to Marry advocacy group.

“They’re all speaking out, and it’s in part because the more people have had a chance to see marriage for real in places like Canada, South Africa, Spain and states like Iowa and Massachusetts, the more they very quickly realize that there’s a complete lack of evidence that such a basic human right should be denied.

“Canada passed that threshold a long time ago, but we’re getting there as well. And Mehlman and others are reflecting this growing understanding of the lack of any good reason for denying the freedom of marriage.”

That’s not how some Republicans see it.

Brian Brown, president of the National Organization for Marriage, told the gay publication The Advocate that Mehlman was “abdicating core Republican beliefs” in supporting an effort to challenge California’s anti-same-sex marriage law.

Brown added that same-sex marriage advocates were using high-profile conservatives to “create an impression that there is an inevitability to same-sex marriage. The facts strongly go against that idea.”

Some in the gay and lesbian community are also finding it difficult to forget that Mehlman was the architect of much of the anti-gay rhetoric and policies of Bush’s presidency.

Blogger Joe Jervis has been unforgiving in the wake of Mehlman’s coming out, noting that public records show the Republican continues to donate funds to politicians who are opposed to same-sex marriage.

Those Republican politicians include Ben Quayle, son of former vice-president Dan Quayle, who’s running for U.S. Congress in Arizona, and Missouri’s Roy Blunt, who has voted to add an amendment to the U.S. Constitution that would ban gay marriage.

“If you live in any of the 21 states (where civil unions and same-sex marriage are illegal) . . . you can credit your second-class citizenship to fellow homosexual Ken Mehlman,” Jervis wrote on his blog Joe. My. God.

Mehlman, for his part, has told The Advocate that he understands the enduring resentment.

“I have a lot of friends who ask questions and who are angry about it. I understand that folks are angry, I don’t know that you can change the past,” he said.

“One thing I regret a lot is the fact that I wasn’t in the position I am today where I was comfortable with this part of my life . . . I can’t change that. It is something I wish I could and I can only try to be helpful in the future.”

Mehlman has significant work ahead of him to convince many in the gay and lesbian community that he’s truly contrite after years spent working for a political party that has historically fought against same-sex marriage, Wilson said.

“He’s started down that road, and of course time will tell how much heavy lifting he does,” he said.

“He sure has a lot of damage to clean up.”

GOP state senator comes out of closet in aftermath of drunk driving arrest

2010-03-08T19:28:00.000-02:00

« Previous Post | PolitiCal Home | Next Post »

March 8, 2010 | 11:38 am

A Republican state senator from Bakersfield came out of the closet in a radio interview Monday morning in the wake of a report that he had been at a gay club in Sacramento before he was arrested on drunk driving charges last week.

Sen. Roy Ashburn has been on personal leave since his arrest early Wednesday morning in his state car not far from the Capitol. The arrest touched off rampant speculation about his sexuality after a Sacramento television station reported he had been at a gay nightclub in Sacramento just before he was pulled over by California Highway Patrol officers. But Ashburn had declined to comment.

He broke his silence in an interview on Bakersfield radio station KERN (1180 AM) with talk-show host Inga Barks on Monday morning, saying the incident had led to "restless nights" and "soul searching." Ashburn said he had "brought this on myself." When he told Barks he owed his constituents an explanation, she responded, "Do you want me to ask you … the question, or do you want to just tell people?"

"I am gay,'' Ashburn answered, "and so I … those are the words that have been so difficult for me for so long. But I am gay. But it is something that is personal and …. I felt with my heart that being gay didn't affect -- wouldn't affect -- how I did my job." He did not express any resentment that his sexuality had come under scrutiny, saying, "Through my own actions, I made my personal life public."

The episode, widely discussed on Internet blogs, in newspapers and on TV, spurred charges of hypocrisy against the senator from gay-rights activists who noted that Ashburn, a divorced father of four, had voted several times against legislation favoring gays and lesbians.

On Sept. 1, 2005, Ashburn voted against a bill that would have allowed same-sex marriages in California. The bill was later vetoed by the governor. Ashburn also was among the minority in voting against legislation last year that designated May 22 of each year as Harvey Milk Day.

"It is unfortunate he helped spread the bigotry that forced him to stay in the closet," said Geoff Kors, executive director of Equality California, a group supporting gay marriage. "We hope he now takes this opportunity to educate people in his district and throughout the state that his sexual orientation is irrelevant.''

Ashburn defended his votes against gay-rights legislation, saying he was reflecting how the voters in his district felt.

"I believe firmly that my responsibility is to my constituents," Ashburn said.

-- Patrick McGreevy in Sacramento

Massachusetts throws law out the window

2009-09-25T01:18:00.001-02:00

Governor to name replacement

BOSTON — Massachusetts lawmakers fulfilled Sen. Edward Kennedy’s dying wish Wednesday, granting the governor the power to appoint an interim replacement for him so President Barack Obama can regain a crucial 60th U.S. Senate vote he needs to pass a healthcare overhaul this year. Gov. Deval Patrick vowed to fill the seat "very, very soon," proclaiming that he will send a letter to the Massachusetts secretary of state to declare an emergency. That would let him override a legislative vote Wednesday that defeated his administration’s effort to make the bill take effect immediately. Normally, legislation faces a 90-day wait. "I recognize the gravity of this decision and I will make it very soon, and tell you just as soon as I do," the governor told reporters Wednesday night. Patrick would not discuss potential appointees, though a top aide confirmed earlier that Kennedy’s sons lobbied for former Democratic National Committee Chairman Paul G. Kirk Jr. The Boston attorney was close friends with Kennedy. Kirk, 71, and his wife, Gail, live on Cape Cod, and he was among the few regular visitors allowed at Kennedy’s Hyannis Port home before Kennedy died Aug. 25. — The Associated Press

Ridge pressured to raise terror level

2009-08-21T10:31:00.000-02:00

After Osama bin Laden released a threatening videotape four days before the election, Attorney General John Ashcroft and Defense Secretary Donald H. Rumsfeld pushed Mr. Ridge to elevate the public threat posture but he refused, according to the book. Mr. Ridge calls it a “dramatic and inconceivable” event that “proved most troublesome” and reinforced his decision to resign.

The provocative allegation provides fresh ammunition for critics who have accused the Bush administration of politicizing national security. Mr. Bush and his Democratic challenger, Senator John Kerry of Massachusetts, were locked in a tight race heading into that final weekend, and some analysts concluded that even without a higher threat level, the bin Laden tape helped the president win re-election by reminding voters of the danger of Al Qaeda.

Keith M. Urbahn, a spokesman for Mr. Rumsfeld, said the defense secretary supported letting the public know if intelligence agencies believed there was a greater threat, and pointed to a variety of chilling Qaeda warnings in those days, including one tape vowing that “the streets of America will run red with blood.”

“Given those facts,” Mr. Urbahn said, “it would seem reasonable for senior administration officials to discuss the threat level. Indeed, it would have been irresponsible had that discussion not taken place.”

Mr. Urbahn said “the storyline advanced by his publisher seemingly to sell copies of the book is nonsense.”

Mr. Ashcroft could not be reached for comment. But Mark Corallo, who was his spokesman at the Justice Department, dismissed Mr. Ridge’s account. “Didn’t happen,” he said. “Now would be a good time for Mr. Ridge to use his emergency duct tape.”

Frances Fragos Townsend, who was Mr. Bush’s homeland security adviser, said that “there was a fulsome debate” about the threat level but that “the politics of it were not ever a factor.”

Mr. Ridge’s book, called “The Test of Our Times” and due out Sept. 1 from Thomas Dunne Books, is the latest by a Bush adviser to disclose internal disagreements and establish distance from an unpopular administration. Mr. Ridge complains that he was never invited to National Security Council meetings, that Mr. Rumsfeld would rarely meet with him and that the White House pressured him to include a justification for the Iraq war in a speech.

He also writes that he lobbied unsuccessfully before Hurricane Katrina in 2005 to replace Michael D. Brown as head of the Federal Emergency Management Agency and that the White House killed his proposal to open a homeland security regional office in New Orleans.

The most sensational assertion was the pre-election debate in 2004 about the threat level, first reported by U.S. News & World Report. Mr. Ridge writes that the bin Laden tape alone did not justify a change in the nation’s security posture but describes “a vigorous, some might say dramatic, discussion” on Oct. 30 to do so.

“There was absolutely no support for that position within our department. None,” he writes. “I wondered, ‘Is this about security or politics?’ Post-election analysis demonstrated a significant increase in the president’s approval rating in the days after the raising of the threat level.”

Mr. Ridge provides no evidence that politics motivated the discussion. Until now, he has denied politics played a role in threat levels. Asked by Eric Lichtblau of The New York Times if politics ever influenced decisions on threat warnings, he volunteered to take a lie-detector test. “Wire me up,” Mr. Ridge said, according to Mr. Lichtblau’s book, “Bush’s Law.” “Not a chance. Politics played no part.”

Papers Show Bush Aides’ Role in Firings of Prosecutors

2009-08-11T22:45:00.001-02:00

August 12, 2009

By ERIC LICHTBLAU

WASHINGTON — Thousands of pages of once-secret congressional testimony and e-mail messages released on Tuesday showed that Karl Rove and other senior aides in the Bush White House played an earlier and more active role than previously known in the 2006 firings of a number of federal prosecutors.

Early discussions at the White House in the spring of 2005 were focused on unhappiness with David C. Iglesias, a United States attorney in New Mexico who was later among eight prosecutors who were fired in a purge that created a political firestorm for the White House. A top aide to Mr. Rove wrote in an internal e-mail message in June 2005, a year and a half before Mr. Iglesias was fired, that Republicans in New Mexico were “really angry” over what they saw as the prosecutor’s inaction in pursuing voter fraud charges against Democrats in the state in tight elections.”

“Iglesias has done nothing,” the Rove aide, Scott Jennings, wrote to another White House staff member. ”We are getting killed out there,” he added, urging that the White House “move forward with getting rid of the NM USATTY.”

White House aides to former President George W. Bush have long maintained that the White House played only a limited role in the firings of Mr. Iglesias and the seven other United States attorneys and that the Justice Department took the lead in the review that led to their dismissals. Mr. Rove and Harriet E. Miers, the former White House counsel, played down their roles in congressional testimony last month as part of an agreement to resolve a years-long dispute with Congressional Democrats.

Transcripts of their testimony — including many instances in which the two aides said they could not remember important details of the debate over the United States attorneys — were among the materials released Tuesday by the House Judiciary Committee.

A lawyer for Mr. Rove could not be reached immediately for comment.

The e-mail messages, in particular, raise questions about the Bush White House’s assertion that it played only a limited role in the firings. A federal prosecutor is continuing to investigate accusations that officials may have acted criminally in the firings or in their testimony to Congress about the incident, which led to the resignation of former Attorney General Alberto R. Gonzales and many of his top aides at the Justice Department.

Representative John Conyers Jr., the Michigan Democrat who leads the Judiciary Committee and has led the push to examine the Bush White House’s role in the firings, said the e-mail messages and testimony contradicted major claims by Bush aides.

“This basic truth can no longer be denied: Karl Rove and his cohorts at the Bush White House were the driving force behind several of these firings, which were done for improper reasons,” Mr. Conyers said. “Under the Bush regime, honest and well-performing U.S. attorneys were fired for petty patronage, political horse trading and, in the most egregious case of political abuse of the U.S. attorney corps — that of U.S. Attorney Iglesias — because he refused to use his office to help Republicans win elections.”

Sanford Case a New Dose of Bad News for Republicans

2009-06-25T09:22:00.001-02:00

June 25, 2009

By JIM RUTENBERG

WASHINGTON — Republicans were just starting to breathe a little easier.

The news that Senator John Ensign had had an affair with a former aide who was married to another former aide was fading. Polls showed some voter impatience with President Obama’s policies, if not with the president himself. And the Politico, the insidery Web site that is widely read in the capital’s political precincts, even featured an article exploring the possibility of a Republican Party comeback.

Then Gov. Mark Sanford of South Carolina, a fiscal conservative seen by many Republicans as an attractive standard-bearer for the next presidential campaign, went missing. Worse, he returned.

His confession on Wednesday that he had been in Argentina with a woman not his wife — and not hiking the Appalachian Trail as his staff had said Monday — was another jolt of bad news for a party that has struggled to get off the ropes all year.

That it was the second such confession in little more than a week from a potential Republican presidential contender — Mr. Ensign had been exploring a run in 2012 as well — left party leaders dazed. They spent Wednesday alternating between gallows humor and yet another round of conversations about what the party stands for and who will give it its best shot to retake the White House.

“Personal circumstances over the course of the last week have managed to shrink the front line of the 2012 possible-contender list by 30 percent,” said Phil Musser, a former executive director of the Republican Governors Association.

Speaking of Mr. Sanford’s confession, Mr. Musser said, “The concern here is that this continues a broader narrative that is completely unhelpful to the Republican Party’s rebuilding — that’s life, but it’s a personal tragedy that fairly or unfairly compounds a series of problems.”

That series of problems has become so chronic that even the party’s most pragmatic members could be forgiven for wondering whether being named “possible 2012 contender” is like winning the movie role of Superman, long believed by some to carry a curse for those actors who don his blue tights.

One by one, those who have been publicly discussed as possible Republican candidates in 2012 have stumbled.

Gov. Bobby Jindal of Louisiana suffered a political setback after even his fellow conservatives harshly critiqued his televised response to Mr. Obama’s prime-time address to Congress in February. The speech, which was supposed to provide a moment to shine in front of a national audience, instead became fodder for late-night comedy.

Gov. Sarah Palin of Alaska, the former Republican vice-presidential nominee who was eviscerated by some of her own political aides at the end of last year’s presidential race, continued to get national attention, but hardly the kind likely to help convince voters that she would be a substantive candidate. The father of her unwed teenage daughter’s baby feuded openly with the Palin family, and the governor exasperated some Republicans in Washington with her off-again, on-again plans for headlining a fund-raiser there.

After basking in glowing reviews among political pundits this year, Newt Gingrich, the former House speaker, had to apologize for a post on Twitter in which he called Mr. Obama’s Supreme Court nominee, Sonia Sotomayor, “racist” for saying that she hoped Latinas would be generally better equipped to make judicial decisions than their white male counterparts.

Another possible Republican presidential candidate in 2012, Gov. Jon M. Huntsman Jr. of Utah, fell out of contention when he accepted Mr. Obama’s offer to become ambassador to China, robbing the party of a rising star.

All of their troubles have served to improve the prospects of other contenders who have generally stayed out of the spotlight this year, or have ventured into it only gingerly, like former Gov. Mitt Romney of Massachusetts, Gov. Tim Pawlenty of Minnesota and Gov. Haley Barbour of Mississippi.

Some prominent party members argued that criticism in the mainstream news media of Ms. Palin, Mr. Gingrich and Mr. Jindal did not reflect their standing among the conservative voters who decide primaries and caucuses — and that the confessions of Mr. Ensign and Mr. Sanford would be viewed in isolation.

“I disagree with the idea that this shows problems for the modern Republican Party,” said Grover Norquist, the president of Americans for Tax Reform, a group that applauded Mr. Sanford’s attempt to refuse some federal stimulus funds earlier this year. In reference to the fiscally conservative philosophies of Mr. Ensign and Mr. Sanford, he joked, “I think instead it shows that sexual attractiveness of limited-government conservatism.”

As television pundits noted on Wednesday, confessions by former Gov. Eliot Spitzer of New York that he had been involved with a prostitute and by former Gov. Jim McGreevey of New Jersey that he had been unfaithful to his wife with a gay lover did not hurt Democrats nationally, although both men resigned.

But other senior Republican strategists and leaders said they were concerned that their party’s large segment of evangelical voters makes the party more vulnerable to political damage from scandal, especially when it involves politicians like Mr. Sanford and Mr. Ensign, who had both been harshly critical of the infidelities of former President Bill Clinton and others.

“When we do these kinds of things like what happened with Ensign and now with Sanford it hurts our credibility as a party of good governing and of values,” said Ron Kaufman, a Republican lobbyist who is close to Mr. Romney. Mr. Kaufman is among those in his party who believe that the news that former Representative Mark Foley of Florida had sent sexually explicit e-mail messages to male Congressional pages cost the party in 2006 and 2008.

“I think there is somewhat of an identity crisis in the Republican Party,” said Tony Perkins, president of the Family Research Council, an evangelical group in Washington. “Are they going to be a party that attracts values voters, and are they going to be the party that lives by those values?”

Obama’s 48-Hour Makeover

2009-05-16T12:26:00.000-02:00

Obama’s 48-Hour Makeover

Posted By Jason Ditz On May 15, 2009 @ 5:15 pm In Uncategorized | 1 Comment

President Obama’s tenuous claim to the antiwar community was already unraveling long before he formally took office. Shortly after the election his national security team’s extremely hawkish makeup was drawing concern. Two days after his inauguration, he had backed off his campaign promise to have all US troops out of Iraq in 16 months. Still, his supporters could find some measure of solace in his halting of the military tribunals at Guantanamo Bay and his promises of a more transparent administration.

Or at least they used to be able to. In the past 48 hours the administration has backed off of the few scraps of significant policy revisions thrown to an electorate hungry for his campaign’s mantra of change. First, he overruled the Pentagon’s decision that undisclosed photos of detainee abuse could be released. Perplexingly, he insisted that the photos did not contain anything “particularly sensational,” before cautioning that making them public would imperil the troops and inflame anti-American opinion.

It was less than 48 hours later that the president confirmed that he was going to resume the military tribunals against detainees at Guantanamo Bay. He had previously ordered such tribunals halted when pledging to close the facility. Now instead of the rule of law, the administration is offering a modest selection of new “rights” detainees will enjoy, none of them particularly earth-shattering.

Even the pledge to close the detention center has become something of a hollow victory, amid reports that the administration is floating to Congress the idea of holding many of the detainees on American soil indefinitely and without trial. This legal sleight of hand would be accomplished through the creation of National Security Courts, which would be empowered to try detainees without the legal rights enjoyed in US criminal courts. The new courts would also provide an aegis for holding the detainees without trial while still appearing to have some measure of legal oversight on their captivity.

At the end of the day the only group really satisfied with President Obama’s new policies are the hawkish wing of the Republican Party. And why shouldn’t they? After all they supported them when President Bush introduced the notion of keeping people imprisoned without charging them with a crime, and was the architect of much of the secrecy-obsessed culture President Obama was so quick to dismiss on taking office, and is now so quick to embrace. For human rights groups, antiwar factions and even much of his own party’s base, the disappointment is becoming palpable.

Obama Considers Detaining Terror Suspects Indefinitely

2009-05-16T12:11:00.000-02:00

By EVAN PEREZ

WASHINGTON -- The Obama administration is weighing plans to detain some terror suspects on U.S. soil -- indefinitely and without trial -- as part of a plan to retool military commission trials that were conducted for prisoners held in Guantanamo Bay, Cuba.

The proposal being floated with members of Congress is another indication of President Barack Obama's struggles to establish his counter-terrorism policies, balancing security concerns against attempts to alter Bush-administration practices he has harshly criticized.

Video: Obama Reverses Decision on Abuse Photos

On Wednesday, the president reversed a recent administration decision to release photos showing purported abuse of prisoners at U.S. military facilities in Iraq and Afghanistan. Mr. Obama cited concern that releasing the pictures could endanger U.S. troops. Mr. Obama ordered government lawyers to pull back an earlier court filing promising to release hundreds of photos by month's end as part a lawsuit brought by the American Civil Liberties Union.

The decision to block the detainee photos contrasts with the administration's release last month of Bush-era Justice Department memorandums outlining the interrogation tactics used on prisoners by the Central Intelligence Agency. The release of the memos set off a heated political fight, with supporters of the Bush administration accusing the Obama White House of endangering the country and some of the current president's supporters calling for criminal probes of those responsible for the interrogation policies.

Question of the Day

Should the U.S. release the photos showing alleged detainee abuse?

The administration's internal deliberations on how to deal with Guantanamo detainees are continuing, as the White House wrestles with how to fulfill the president's promise to shutter the controversial prison. But some elements of the plans are emerging as the administration consults with key members of Congress, as well as with military officials, about what to do with Guantanamo detainees.

Sen. Lindsey Graham (R., S.C.), who met this week with White House Counsel Greg Craig to discuss the administration's plans, said among the proposals being studied is seeking authority for indefinite detentions, with the imprimatur of some type of national-security court.

Sen. Graham said he wants to work with the administration to pass legislation to increase judicial oversight of military commissions, but noted the legal difficulties that would arise.

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U.S. President Barack Obama makes a statement at the White House on Wednesday.

"This is a difficult question. How do you hold someone in prison without a trial indefinitely?" Sen. Graham said.

The White House had no comment Wednesday about its detainee deliberations.

The idea of a new national security court has been discussed widely in legal circles, including by Bush administration Attorney General Michael Mukasey and Neal Katyal, a former Georgetown law professor and now Obama Justice Department official.

Defense Secretary Robert Gates, at a hearing last month, hinted at the administration's deliberations, saying that there were "50 to 100 [detainees] probably in that ballpark who we cannot release and cannot trust, either in Article 3 [civilian] courts or military commissions."

The administration's move to block the release of military detainee photos was welcomed by Republicans in Congress and by some military family groups but condemned by the ACLU and others.

Mr. Gates, Gen. David Petraeus and Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, had all raised concerns with the White House about releasing the detainee photos. Mr. Gates and the commanders worried that the pictures would spur new anti-American violence in Iraq and Afghanistan.

—Yochi J. Dreazen contributed to this article.

Just Gotta Laugh

2009-05-13T20:44:00.000-02:00

In reversal, Obama seeks to block abuse photos

By JENNIFER LOVEN – 27 minutes ago

WASHINGTON (AP) — President Barack Obama declared Wednesday he would try to block the court-ordered release of photos showing U.S. troops abusing prisoners, abruptly reversing his position out of concern the pictures would "further inflame anti-American opinion" and endanger U.S. forces in Iraq and Afghanistan.

The White House had said last month it would not oppose the release of dozens of photos from military investigations of alleged misconduct. But American commanders in the war zones have expressed deep concern about fresh damage the photos might do, especially as the U.S. tries to wind down the Iraq war and step up operations against the Taliban and al-Qaida in Afghanistan.

Obama, realizing how high emotions run on detainee treatment during the Bush administration and now, made it a point to personally explain his change of heart, stopping to address TV cameras late in the day as he left the White House for a flight to Arizona.

He said the photos had already served their purpose in investigations of "a small number of individuals." Those cases were all concluded by 2004, and the president said "the individuals who were involved have been identified, and appropriate actions have been taken."

When photos emerged in 2004 from the infamous U.S.-run Abu Ghraib prison in Iraq, showing grinning American soldiers posing with detainees — some of the prisoners naked, some being held on leashes — the pictures caused a huge anti-American backlash around the globe, particularly in the Muslim world.

The Pentagon conducted 200 investigations into alleged abuse connected with the photos that are now in question. The administration did not provide an immediate accounting of how they turned out.

"This is not a situation in which the Pentagon has concealed or sought to justify inappropriate action," Obama said of the photos. "In fact, the most direct consequence of releasing them, I believe, would be to further inflame anti-American opinion and to put our troops in greater danger."

The Justice Department filed a notice of its new position on the release, including that it was considering an appeal with the Supreme Court. The government has until June 9 to do so.

Spokesman Robert Gibbs said release of the new batch of photos from the Pentagon cases would merely "provide, in some ways, a sensationalistic portion of that investigation."

Obama said later, "I want to emphasize that these photos that were requested in this case are not particularly sensational, especially when compared to the painful images that we remember from Abu Ghraib."

Still, he said he had made it newly clear: "Any abuse of detainees is unacceptable. It is against our values. It endangers our security. It will not be tolerated."

The effort to keep the photos from becoming public represented a sharp reversal from Obama's repeated pledges for open government, and in particular from his promise to be forthcoming with information that courts have ruled should be publicly available.

As such, it invited criticism from the more liberal segments of the Democratic Party, which want a full accounting — and even redress — for what they see as the misdeeds of the Bush administration.

"The decision to not release the photographs makes a mockery of President Obama's promise of transparency and accountability," said ACLU attorney Amrit Singh, who had argued and won the case in question before the 2nd U.S. Circuit Court of Appeals in New York. "It is essential that these photographs be released so that the public can examine for itself the full scale and scope of prisoner abuse that was conducted in its name."

Human Rights Watch called the decision a blow to transparency and accountability.

On Capitol Hill, Republicans welcomed the change, however. A military group also said it was relieved.

"These photos represent isolated incidents where the offending servicemen and women have already been prosecuted," said Brian Wise, executive director of Military Families United.

The reactions were a reverse of what happened after Obama's decision last month to voluntarily release documents that detailed brutal interrogation techniques used by the CIA against terror suspects. Those also came out in response to an ACLU lawsuit, and his decision then brought harsh and still-continuing criticism from Republicans.

This time he's kicking the decision back into court, where his administration still may be forced into releasing the photos.

Indeed, there is some evidence that the administration has little case left.

Gibbs said the president instructed administration lawyers to challenge the photos' release based on national security implications. He said the argument was not used before.

But the Bush administration already argued against the release on national security grounds — and lost.

"It is plainly insufficient to claim that releasing documents could reasonably be expected to endanger some unspecified member of a group so vast as to encompass all United States troops, coalition forces, and civilians in Iraq and Afghanistan," the three-judge appeals panel wrote in September 2008.

The Justice Department had concluded that further appeal would probably be fruitless, and last month, Gibbs said the president had concurred with that conclusion, though without commenting on whether Obama would support the release if not pressed by a court case.

Thus, the administration assured a federal judge that it would turn over the material by May 28, including one batch of 21 photos and another of 23 images. The government also told the judge it was "processing for release a substantial number of other images," for a total expected to be in the hundreds.

The lower court also has already rejected another argument the president and his spokesman made, that the photos add little of value to the public's understanding of the issue. "This contention disregards FOIA's central purpose of furthering governmental accountability," the appeals court panel concluded in the same decision.

Obama's own Jan. 21 memorandum on honoring the Freedom of Information Act also takes a different line. "The government should not keep information confidential merely because public officials might be embarrassed by disclosure, because errors and failures might be revealed, or because of speculative or abstract fears," it said.

The president informed Gen. Ray Odierno, commander of U.S. troops in Iraq, of his decision during a White House meeting on Tuesday.

Gen. David Petraeus, the senior commander for both wars, had also weighed in against the release, as had Gen. David McKiernan, the outgoing top general in Afghanistan.

Military commanders' concerns were most intense with respect to Afghanistan. The release would coincide with the spring thaw that usually heralds the year's toughest fighting there — and as thousands of new U.S. troops head into Afghanistan's volatile south.

Defense Secretary Robert Gates said he had once held the view that it might be best to "go through the pain once" and release a large batch of images now, since so many are at issue in multiple lawsuits. But he — and the president — changed their minds when Odierno and McKiernan expressed "very great worry that release of these photographs will cost American lives," Gates said before the House Armed Services Committee.

"That's all it took for me," Gates said.

Specter leaves a shrinking GOP tent

2009-04-29T00:55:00.001-02:00

Analysis: Specter leaves a shrinking GOP tent

By CHARLES BABINGTON – 2 hours ago

WASHINGTON (AP) — With Sen. Arlen Specter's switch to the Democrats, the Republican Party is increasingly at risk of being viewed as a mostly Southern and solidly conservative party, an identity that might take years to overcome.

Specter's move, which rocked Congress and the political world Tuesday, is the latest blow to Republicans, especially in the Northeast, once a GOP stronghold. The region's Republicans now have been reduced to a scant presence in the House and a dwindling influence in the Senate.

But Specter's defection has symbolic and immediate ramifications for the GOP nationwide. It makes it easier for Democrats, fairly or not, to paint the party as ideologically rigid and alien to large swaths of the country.

Olympia Snowe of Maine, one of the Senate's few remaining moderate Republicans, called Specter's decision another sign that her party must move toward the center.

"Ultimately, we're heading to having the smallest political tent in history," Snowe said. "If the Republican Party fully intends to become a majority party in the future, it must move from the far right back toward the middle."

But Senate Republican leader Mitch McConnell of Kentucky was defiant.

"I do not accept that we are going to be a regional party," he said. "We're working very hard to compete throughout the country."

Specter's departure follows recent Republican losses in once-reliable states. While Barack Obama was cruising to the White House last fall, Republicans were losing long-held Senate seats in Alaska, Colorado, New Mexico, North Carolina and Virginia. A moderate Republican lost his seat in Oregon, and the same seems likely to happen when Minnesota's long recount is settled.

In the House, Republicans have suffered deep losses in the last two elections, especially in the Northeast. Last week, Democrat Scott Murphy won a special election in a heavily Republican congressional district in upstate New York. Murphy will be sworn in Wednesday, giving Democrats' 256 House seats to 178 for Republicans with one vacancy.

The congressional Republicans' base is shrinking, leaving them with strongholds only in the South and parts of the mountain West.

With the departure of each centrist, including Pennsylvania's Specter, the party also appears more firmly right-of-center. Polls show most Americans nearer the political center, and Democratic leaders were happy Tuesday to promote the GOP's image as narrow-minded.

"This is now officially a Republican Party where moderates need not apply," said Sen. John Kerry, D-Mass.

Specter made similar remarks. "The Republican Party has moved farther and farther to the right," he said, adding to the trend with his switch.

Specter accused party leaders of abandoning moderate Republicans in tough races, saying, "there ought to be an uprising."

In the 1970s, '80s and early '90s, the nation's political realignment favored the GOP. Voters in many of the 11 former Confederate states ousted Democrats by the dozens, no longer accepting the old odd-bedfellows alliance of Southern conservatives and more dominant Northern liberals.

With the Northeast still home to many "Rockefeller Republicans" — centrists in the mold of former New York Gov. Nelson Rockefeller — the realignment pinched Democrats hard.

In recent years, however, the tide has reversed. Moderate-to-liberal voters in the Northeast and Pacific West felt increasingly at odds with the national Republican Party, and they began electing more Democrats to local and federal posts. Obama won surprising victories in Virginia, North Carolina and Indiana, though it's far from clear that Democrats can hold those states.

The result is a shrinking and increasingly right-leaning GOP, throughout the nation and in Congress. There, moderate Republicans are almost an endangered species. While lonely, they may play pivotal roles in brokering legislative deals, especially in the Senate.

Snowe and her Republican colleague from Maine, Susan M. Collins, now are the Senate's most prominent GOP moderates.

Collins said she was "very, very disappointed and surprised" by Specter's defection. "It's something I would never do," she said, but she called on her party to be more inclusive.

"The Republican Party has been most successful when it has adopted the big tent approach that was favored by Ronald Reagan, by Gerald Ford" and others, Collins said.

Obama hailed Specter's switch, but its blessing may prove mixed. The president vowed a more bipartisan era in Washington, and the loss of another GOP centrist will make Congress more partisan than before.

Republican leaders, meanwhile, faced an uphill battle in next year's Pennsylvania Senate race even before Specter made the switch. In that sense, they probably have lost little. Besides, only 15 years ago some pundits predicted permanent minority status for Democrats, following their huge losses in the 1994 elections.

Political fortunes can change rapidly, and unexpectedly. But for now, Republicans hold distinct minority status in the House and Senate, where Democrats and independents hold 59 seats to 40 for the GOP. They confront a popular Democratic president, and they face numerous ill-timed retirements in next year's Senate races.

Tuesday was another bad day in a political season that some Republicans must feel cannot possibly get worse.

You by-God don't fuck with Ted Stevens!

2009-04-07T21:53:00.001-02:00

A federal judge this morning tossed out the conviction of former senator Ted Stevens and assigned an outside lawyer to investigate allegations of misconduct by the prosecutors who tried him on public corruption charges.

In throwing out the October conviction, U.S. District Judge Emmet G. Sullivan called accusations that prosecutors mishandled evidence and witnesses "shocking and disturbing." In his 25 years on the bench, the judge said he had "never seen anything approaching the mishandling and misconduct in this case." He then urged Attorney General Eric H. Holder to better train prosecutors about the requirements for turning over evidence to defense lawyers that may help their case.

Stevens, 85, who narrowly lost reelection eight days after being found guilty of seven counts of lying on financial disclosure forms, said the actions of prosecutors had "nearly destroyed" his faith in the criminal justice system. But he thanked the judge and a new team of Justice Department lawyers for pressing to uncover the truth.

One of those Justice Department lawyers, Paul O'Brien, told Sullivan that "we deeply, deeply regret that this occurred."

Last week, the Justice Department asked Sullivan to throw out the conviction after officials discovered prosecutors' notes of an April 2008 interview that contradicted testimony of a key witness. It was the latest of several revelations of potential misconduct by prosecutors with the Justice Department's Public Integrity Unit in connection with this trial. Sullivan chastised them several times during the trial for how they handled witnesses and evidence.

At least twice, the judge instructed the jury to ignore evidence introduced by the prosecution. After the trial, the problems didn't end. A witness complained about being lied to by federal authorities about an immunity deal. And an FBI agent filed a report that accused prosecutors and fellow agents of misconduct.

In February, Sullivan held three prosecutors -- William Welch II, Brenda Morris and Patricia Stemler -- in contempt for failing to comply with a court order. Welch is the head of the public corruption unit, and Morris was the lead prosecutor. Six members of the prosecution team eventually withdrew from the case.

Much of the hearing today focused on what transpired during an April 15, 2008, interview with the key witness, Bill Allen. During that interview, according to notes taken by two of the prosecutors, Allen said he did not recall talking to a friend of Stevens's about sending the senator a bill for work on his home, according to Sullivan.

Under oath at trial, however, Allen testified that he was told by the friend to ignore a note Stevens sent seeking a bill for the remodeling work.

"Bill, don't worry about getting a bill" for Stevens, Allen said the friend told him. "Ted is just covering his [expletive]."

It was an explosive moment at the trial and buttressed prosecutors' arguments that Stevens knew he was receiving gifts and was trying to create a paper trial as a cover story if anyone ever asked about them. But defense attorneys have argued that Allen lied on the stand. They have noted in court papers that Allen did not mention that conversation during at least 20 interviews with agents and prosecutors.

Prosecutors who took the notes and participated in the interview have not been identified. Stevens's attorney, Brendan Sullivan, said that Brenda Morris, the lead prosecutor on the case, did not take part in the interview, which was conducted in Alaska. Two prosecutors participated from Washington by telephone, Brendan Sullivan said.

During the two-hour hearing, the judge said he couldn't trust the Justice Department to conduct an internal probe into the actions of prosecutors. So, the judge said, he was taking the rare step of starting criminal contempt proceedings and appointed an outside attorney, Henry F. Schuelke III, to investigate the misconduct allegations. After gathering evidence, Schuelke will submit a report to the judge with a recommendation on whether to hold the prosecutors in contempt for violating court rules.

The judge can then hold a trial to examine the allegations and decide what sanctions to impose. He can fine them or send them to jail. Those being investigated are Welch, Morris, Joseph Bottini, Nicholas Marsh, Edward Sullivan and James Goeke. Morris has declined to comment in the past. Other prosecutors could not be reached or did not return phone calls seeking comment.

After a month-long trial, Stevens was convicted of not reporting on Senate disclosure forms that he accepted about $250,000 in gifts and free renovations to his home in Girdwood, Alaska. Most of the gifts and free remodeling work were supplied by Bill Allen, chief executive of Veco, a now-defunct oil services company. Stevens testified in his own defense, but jurors said he came off as evasive, arrogant and combative. His testimony also did not jibe with the evidence, they have said.

His legal team said the result would have been different if they knew about the results of prosecutors' interview with Allen. "It is clear from the evidence that the government engaged in intentional misconduct," Brendan Sullivan told the judge.

Pressure on Daschle reaches tipping point

2009-02-03T21:27:00.000-02:00

Story Highlights
NEW: Political climate tripped up Daschle, says CNN's Ed Henry
Source says Daschle was worried about what his confirmation would do to Obama
Senators say they did not see the withdrawal coming
Daschle's nomination questioned due to tax problems, work in recent years

(CNN) -- The White House insists that it was entirely former Sen. Tom Daschle's decision to withdraw his nomination, but some observers say he didn't have a choice.

Despite the controversy over his tax records and his work in a field that some consider lobbying, Daschle was expected to be confirmed.

His withdrawal shocked Capitol Hill, and Democratic colleagues expressed regret over his decision.

"I think one of the major factors had to be that the political climate has changed radically just in the last couple of weeks," CNN Senior White House Correspondent Ed Henry said.

President Obama ripped Wall Street executives last week for their "shameful" decision to hand out $18 billion in bonuses in 2008 while accepting federal bailout money.

The next day, news broke that Daschle hadn't paid his taxes in full. Daschle said Monday that he was "deeply embarrassed" for a series of errors that included failing to report $15,000 in charitable donations, unreported car service and more than $80,000 in unreported income from consulting.

Daschle recently filed amended tax returns and paid more than $140,000 in back taxes and interest for 2005-07.

"That, in this political climate, really tripped up Tom Daschle because it looked awful politically for this White House," Henry said.

At a news conference Tuesday afternoon, press secretary Robert Gibbs insisted that the White House did not pressure Daschle to step down. Watch Gibbs answer questions about Daschle's move »

Pressed on whether Daschle was given any sort of signal to resign, Gibbs said, "I don't know how much more clear I could be. The decision was Sen. Daschle's."

A Daschle ally familiar with his thinking said Tuesday that he was not aware of any White House pressure on the former Senate majority leader to withdraw his nomination.

Asked whether Daschle was pushed, the source said, "things don't work that cleanly."

The issue was not whether Daschle could "survive"; it was what that process "would do to Obama" and his health care reform and economic agenda. It's a question of the "price of that confirmation," he said.

The source said Daschle read the Tuesday New York Times editorial urging him to withdraw from consideration but would not say whether that might have played a part in his decision.

"Tom has been a politician for a very long time," the source said. "He understands this town. He made a mistake; he apologized, but timing matters. There was a critical mass building."

Obama senior adviser David Axelrod said he thought Daschle made the decision Tuesday morning.

"I have to believe that Sen. Daschle having spent as many years as he has up here had a clear picture that there was going to be a delay, and I think he didn't want to contribute to that.

In announcing his withdrawal, Daschle said it was an honor to be chosen to lead the reform of America's health care system.

"But if 30 years of exposure to the challenges inherent in our system has taught me anything, it has taught me that this work will require a leader who can operate with the full faith of Congress and the American people, and without distraction," he said in a statement.

"Right now, I am not that leader and will not be a distraction."

Mark Preston, CNN's political editor, pointed out that Daschle has a "history of making 11th-hour decisions."

Six years ago, Daschle made a last-minute decision not to run for president after he had been all set to go.

"I think that the Tom Daschle we saw yesterday was all set to go, and then the pressure started mounting ... and then he decided to pull out," Preston said.

Although he was expected to be confirmed, it was also expected that he'd have to undergo a bruising confirmation hearing that could have led to negative headlines for Obama.

As news broke of the withdrawal, some senators said they were sad to see Daschle step aside, but others said it was the right thing to do.

"I'm in shock. I didn't know that. I don't know what happened," said Sen. Dianne Feinstein, D-California. "I talked to him ... the night before last, and he showed no signs of withdrawing."

Feinstein praised Daschle as rare person who could get something like health care through the Senate and said she wishes he had not withdrawn. "I have great faith in him."

Sen. John Cornyn, R-Texas, said Daschle "did a service to President Obama" by stepping aside.

"I think it really would have looked bad for the Senate to close ranks around a fellow member and sort of reinforce the idea that they were going to protect a member as part of the good ol' boys club," he said.

Daschle has a lengthy history with members of Congress. He represented South Dakota in the House of Representatives for four terms, and he served in the Senate for three terms. He was the Senate majority leader from June 2001 to January 2003 and served as the minority leader before losing his re-election bid in 2005.

Sen. John Ensign, R-Nevada, said Daschle "saved the president from being embarrassed" by withdrawing.Watch Republicans weigh in on the move »

Sen. Max Baucus, chairman of the Senate Finance Committee, said he was "a little stunned" by Daschle's decision.

"I thought he was going to get confirmed. I thought -- he's a good man, and I thought he'd be confirmed. I'm surprised," said Baucus, D-Montana.

Sen. John Kerry, D-Massachusetts, insisted that Daschle had owned up to his mistakes.

"He's made his decision, I respect his decision, and we go on from there," Kerry said.

Daschle's resignation came hours after Nancy Killefer's withdrawal as Obama's chief performance officer, a new post in the administration. Officials said privately the reason for Killefer's withdrawal was unspecified tax issues. The much-touted post was designed to scrub the federal budget.

CNN's Lisa Desjardins, Candy Crowley and Kristi Keck contributed to this report.

All AboutThomas Daschle • Barack Obama

Obama's Lobbyist Ban Meets a Loophole: William Lynn

2009-01-30T02:54:00.001-02:00

Tuesday, Jan. 27, 2009

By Mark Thompson / Washington

Last year the Pentagon paid the Raytheon Corp., its fifth largest contractor, a cool $10 billion for its missiles, missile shields and a constellation of electronics. This year President Barack Obama is putting Raytheon's recently departed top lobbyist in charge of the Pentagon's day-to-day management.

In Washington that almost qualifies as business as usual, except for a small detail: on the campaign trail, Obama vowed to stop the revolving door that lets onetime lobbyists go to work for the Federal Government and oversee contracts that could harm — or help — their former employer. And one of the first things the new President did in office was seemingly make good on that promise, signing an Executive Order barring former lobbyists from joining his Administration to work at agencies they recently lobbied. (See pictures of Obama's Inauguration.)

Not surprisingly, Obama's good-government backers were less than pleased to see the President, only a few days after signing the blanket ban, issue a waiver permitting William Lynn to serve as Deputy Secretary of Defense. The lobbying loophole was allowed, Administration officials explain, because Lynn is "uniquely qualified" for the job. Realists at the Pentagon and elsewhere put it slightly differently, saying the President was simply acknowledging that people who know how to run the Pentagon generally have been involved in the process.

The episode is a painful lesson for Obama. Even though his team asserts that it has put into place the toughest rules ever against lobbyists going to work for the Federal Government, the only thing most folks will remember is that Obama made an exception to that rule for one of his top officials. (See who's who in Obama's White House.)

As with most Federal Government arcana, there are arguments on both sides of Obama's leaky lobbyist ban. Lynn, Obama's choice to serve as the Pentagon's No. 2 civilian, got high marks for struggling to bring some accountability to Pentagon spending when he served as its top money manager from 1997 to 2001. By one account, he reduced the amount of undocumented Pentagon spending from $2.3 trillion to $1.3 trillion (before the federal banking bailout, only at the Pentagon could $1.3 trillion in undocumented spending be deemed progress).

But the idea that Lynn is "uniquely qualified" — the White House's language — for the post is simply bogus. The phrase doesn't mean merely good or talented; it means that Lynn, of all the possible candidates for the position, is the only person who could fill it.

"While Lynn may be well qualified, it is absurd to argue that he is uniquely qualified," says Danielle Brian, head of the nonprofit Project on Government Oversight, a watchdog group in Washington. "There are plenty of people with far greater business-management experience than that of a lobbyist." Nonetheless, Lynn, who during his confirmation hearing on Jan. 15 pledged to "maintain the highest ethical standards," appears headed for Senate confirmation. To ease some Senators' concerns, he has promised to sell all his Raytheon stock and have his dealings at the Pentagon for the first year subject to an ethics review.

Defense Secretary Robert Gates told reporters on Jan. 22 that he pushed for Lynn's hiring and the waiver it required. "I asked that an exception be made because I felt that he could play the role of the deputy in a better manner than anybody else that I saw," Gates said. The next day, Obama spokesman Robert Gibbs said Lynn would be getting one of a "very limited number of waivers" so he could assume the Pentagon post despite being a registered lobbyist for Raytheon from 2003 to mid-2008.

Lynn's defenders say it's wrong to paint all lobbyists as evil. He has "precisely the kinds of skills required," says William Cohen, who served as Lynn's boss when Cohen ran the Pentagon during President Clinton's second term. "The fact that he lobbied for a defense contractor should not lead anyone to conclude that he is now rendered incapable of exercising his duties with complete fidelity to Secretary Gates or President Obama."

John Hamre, who was Cohen's deputy at the Pentagon, says Lynn "didn't do lobbying on a day-to-day basis" and is being unfairly lumped in with "bottom feeders" who have given lobbying a bad reputation. "Representing the interests of American citizens in Washington is a necessary attribute of our democracy," Hamre adds. "People are conflating 'lobbying' with unethical behavior, and that is unfair." Of course, when one of those people is the President, the argument tends to carry more weight.

Obama Team Has Forged Another Link With Clintons

2008-12-17T10:23:00.000-02:00

December 17, 2008

Obama Team Has Forged Another Link With Clintons

By PETER BAKER

WASHINGTON — It’s official. The old Clinton gang really is back together again. Answering the phones these days for the co-chairman of President-elect Barack Obama’s transition, John D. Podesta, is none other than Betty Currie.

Emerging from retirement in southern Maryland to volunteer at Obama headquarters, Ms. Currie was the personal secretary to President Bill Clinton, who became caught up in an independent counsel investigation into his trysts with the White House intern Monica Lewinsky. Since leaving the White House, Ms. Currie, 69, has shied from publicity and kept a low profile in Hollywood, Md., where she lives with her husband, Bob, and Socks, the presidential cat, which she took with her after Mr. Clinton left office.

Ms. Currie, who works with local nonprofit organizations and serves on the Alcohol Beverage Board of St. Mary’s County, declined to discuss her work for Mr. Obama or her recent life, citing a transition office policy against volunteers giving interviews.

Compelled to testify to a grand jury five times about Mr. Clinton’s relationship with Ms. Lewinsky, Ms. Currie is widely admired in Clinton circles for her loyalty and effectiveness.

Mr. Podesta, who was Mr. Clinton’s last White House chief of staff, said it was natural for him to call Ms. Currie back to service.

“Of course I asked her because in the 30 years we have worked together, I have never known anyone with more grace, dedication and public spirit than Betty,” he said. “And she has one mean Rolodex.”

Ms. Currie is the latest familiar face from the Clinton era to assist Mr. Obama’s team. In addition to Mr. Podesta, Mr. Obama’s chief of staff, his White House counsel and his economics, energy and environmental advisers all served in the Clinton administration. So did most of the cabinet officers he has chosen and many of the transition aides conducting agency reviews. And the newly designated secretary of state is Hillary Rodham Clinton.

A longtime secretary in agencies like the Peace Corps, Ms. Currie left government to work for Democratic presidential campaigns in 1984 and 1988 before joining Mr. Clinton in 1992. She then served in Mr. Clinton’s transition until he picked her to be his secretary. She stayed through all eight years, calmly managing the intersection of power and policy.

Other Obama aides said they expected Ms. Currie to help out through the transition but not to return to the White House after the inauguration.

Ms. Currie has kept in touch with the Clintons and donated $750 to Mrs. Clinton’s campaign for the Democratic presidential nomination this year. When she ran into Mrs. Clinton last spring, she told a writer from Southern Maryland Newspapers, Mrs. Clinton asked about Socks.

U.S. News & World Report has reported that Socks, now 19, has cancer.

NY Fed hires former Bear Stearns chief risk officer

2008-11-05T01:29:00.001-02:00

Tue Nov 4, 2008 9:29am EST

NEW YORK, Nov 4 (Reuters) - The Federal Reserve Bank of New York has hired the former chief risk officer of Bear Stearns Cos, Michael Alix, to advise on bank supervision, according to a release in the Fed's Web site.

Alix will serve as a senior advisor to William Rutledge in the Bank Supervision Group and his appointment is effective Nov. 3, according to the release dated Oct. 31

At Bear Stearns, an investment bank that collapsed in March and has become hallmark of the global credit crisis, Alix served as chief risk officer from 2006 to 2008 and global head of credit risk management from 1996 to 2006.

Morgan Stanley's Bonuses Get Saved By You and Me: Jonathan Weil

2008-11-05T01:26:00.000-02:00

Commentary by Jonathan Weil

Oct. 21 (Bloomberg) -- Wall Street had it wrong: An investment bank's most precious asset isn't the army of employees who head down the elevators each day. It's the paychecks they take with them out the door.

You can imagine the devilish grins on the faces of Morgan Stanley employees last week, after the Treasury Department said it would pump $10 billion into the bank. Not only did we, the taxpayers, save their company, with the help of a Japanese bank named Mitsubishi UFJ Financial Group Inc. More importantly, we funded their 2008 bonus pool.

Morgan Stanley has accrued $10.7 billion of employee- compensation expense this year, almost twice as much as its pretax earnings. The vast majority of this remuneration hasn't been paid yet. Now it probably will be, assuming the firm survives through next month. Meantime, Morgan Stanley's stock- market value has dropped $34.7 billion, to $21 billion, since the company's fiscal year began.

The rescue of Morgan Stanley's bonus pool is an unpleasant downside of Treasury Secretary Hank Paulson's decision to inject $250 billion of cash into U.S. banks in exchange for preferred stock. It is one thing for a company to pay much more to employees than it earns for its shareholders. It's quite another to keep doing it while receiving taxpayer bailout bucks.

Before securities firms were public companies, a brokerage in need of capital would have called on its partners to pony up. That's how it still works at private partnerships, such as law firms. The reason they don't get taxpayer rescues is they can't credibly threaten to take down the world's financial system.

Global Threats

Morgan Stanley can. So can Paulson's old firm, Goldman Sachs Group Inc., which also is getting a $10 billion infusion from Treasury. Year-to-date, Goldman has reported $11.4 billion of compensation expense, almost twice its $5.9 billion of pretax earnings. During the same span, its market capitalization has fallen $41.7 billion, to $57.7 billion.

Morgan Stanley needed Treasury's cash. Goldman didn't, but got it anyway. As long as Paulson can't think of any better ideas, the government will keep throwing money at an industry that pays too many people more than they're worth, to perform services the world has too much of already. The bright side is we avoid a global meltdown, for now.

Here's all you really need to know to see who lost and who benefited most at the Five Families of Wall Street, otherwise known as Goldman, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. From the start of their 2004 fiscal years through yesterday, the big standalone investment banks lost about $83 billion of stock-market value. During the same period, they reported about $239 billion of employee-compensation expense.

Lined Pockets

So, for every dollar of shareholder value destroyed, the employees got paid almost three. Only a sliver of that money went to chief executives such as Goldman's Lloyd Blankfein, who got a $70.3 million package last year, and Lehman's Richard Fuld, who made $34.4 million. Morgan Stanley's John Mack, by the way, received $1.6 million for 2007.

The Five Families -- now down to just Goldman and Morgan Stanley -- weren't alone. Citigroup Inc., which is getting a $25 billion injection from Treasury, has reported $139.3 billion of compensation expense since the start of 2004, more than double its $62.8 billion of pretax earnings. Its market cap, by comparison, has declined by about $168 billion, to $82 billion.

For all the complaints about outrageous executive pay and how little Paulson is doing to curb it, a big reason why these firms have been scrounging for capital is they keep blowing huge wads of it on their rank-and-file, too. The Paulson plan will do nothing to change that.

In the interim, we continue propping up an industry that's bloated with overcapacity, because we're all too scared to let the market fix it. That's good for the people getting bonus checks at Morgan Stanley and Goldman Sachs. It's not so great for the rest of us.

Goldman partners’ reduced

2008-11-05T01:20:00.001-02:00

By Greg Farrell in New York

Published: October 29 2008 20:37 | Last updated: October 29 2008 20:37

Goldman Sachs unveiled its new class of 94 partners, proving that even in the most tumultuous times on Wall Street, the company’s biannual ritual of bringing up-and-comers to its innermost circle would continue.

The class will join Goldman’s elite at a time when a partnership at the firm is no longer a guarantee of a multi-million payday. By the end of this year, the bank’s 349 partners stand to divvy up the smallest bonus pool that Goldman has produced, on a per capita basis, since going public in 1999.

While Goldman was willing to confirm the announcement of the partners, it would not comment on the other biannual tradition that goes hand-in-hand with the process: the “de-partnering” of a comparable number of its partner-managing directors.

The bank tries to keep the number of partners at about 1 per cent of employees.

At the end of the third quarter, the firm had 349 partners and 32,600 employees worldwide. With plans to lay off some 10 per cent of its workforce, Goldman will probably try to hold its number of partners at its current level, or shrink it slightly.

That means that with the addition of 94 names in December, the new total of 443 partners will have to be reduced, through attrition and the removal of the designation of “partner” from close to 100 members of the inner circle.

Charles Ellis, author of The Partnership, The Making of Goldman Sachs, likens the culling process to a Darwinian exercise. “It’s entirely rational, ruthless and unemotional,” he says. “There’s no softness and no sentiment to it. The firm just gets the best people and empowers them. Some people react badly to that, but it’s survival of the fittest.”

In many ways, Ellis says, Goldman’s focus on recruiting the best people, promoting them and pushing them ever harder, is what separates it from its rivals. “At most places, once you become a partner, you have tenure,” he says. “You’re a superstar. At Goldman Sachs, that’s not it. You’re expected to accelerate.”

For the first three quarters of 2008, Goldman has reported profits of $4.4bn, down by almost half from last year’s sum. According to SEC filings, it has set aside $11.4bn for pay and benefits, (from the bailout money) a decline of 32 per cent over 2007. Barring a big change in the firm’s performance, the current partners can expect bonuses, on the average, of $1m or less, according to people familiar with the matter.

Goldman Sachs ready to hand out £7bn salary and bonus package... after its £6bn bail-out

2008-11-05T01:15:00.002-02:00

By Simon Duke
Last updated at 8:55 AM on 30th October 2008

U.S. investment bank Goldman Sachs HQ which has set aside £7bn for bonuses and salaries this year

Goldman Sachs is on course to pay its top City bankers multimillion-pound bonuses - despite asking the U.S. government for an emergency bail-out.

The struggling Wall Street bank has set aside £7billion for salaries and 2008 year-end bonuses, it emerged yesterday.

Each of the firm's 443 partners is on course to pocket an average Christmas bonus of more than £3million.

The size of the pay pool comfortably dwarfs the £6.1billion lifeline which the U.S. government is throwing to Goldman as part of its £430billion bail-out.

As Washington pours money into the bank, the cash will immediately be channelled to Goldman's already well-heeled employees.

News of the firm's largesse will revive the anger over the 'rewards for failure' culture endemic in the world of high finance.

The same bankers who have brought the global economy to its knees seem to pocketing the same kind of rewards they got during the boom years.

Gordon Brown has vowed to crack down on the culture of greed in the City as part of his £500billion bail-out of the UK banking industry.

But that won't affect the estimated 100 London partners working at Goldman Sachs's London headquarters.

The firm - known as Golden Sacks for the bumper bonuses it pay its top bankers - is expected to cut the payouts by a third this year. However, profits are

falling much faster. Earnings have plunged 47 per cent so far this year amid the worst financial crisis since the Great Depression.

This has wiped more than 50 per cent off the company's market value.

More...

The news comes after it was revealed that even bankers working for collapsed Wall Street giant, Lehman Brothers, could receive huge payouts.

Its 10,000 U.S. staff are expected to share a £1.5billion bonus pool. The payouts were agreed as part of the rescue takeover of Lehman's American arm by Barclays last month.

The blockbuster handouts caused consternation among London employees of the firm, many of whom have now lost their jobs.

Even workers at the nationalised Northern Rock will scoop bonuses worth up to £50million over the next three years.

The extraordinary handouts include more than £400,000 for Rock's boss, Gary Hoffman, who is likely to become Britain's best-paid public sector worker.

The majority of Northern Rock's 4,000 workers will receive four separate bonus payments - the first of

which will be made next March. Staff will get an extra 10 per cent on top of their basic salary.

Lloyds TSB also intends to pay its employees bonuses despite taking a £5.5 billion emergency cash injection from the taxpayer.

News of Goldman's bonus plan came as the firm promoted 92 of its bankers to partner level. A quarter are based in Fleet Street, London.

Partnership is the holy grail of the investment banking world as the exclusive club shares around a fifth of the firm's total bonus pool.

New York Attorney General Andrew Cuomo last night warned that Wall Street firms taking government-money risk breaking the law if they hand the cash straight back to employees.

Cash-strapped workers are being penalised by pay rises which are far below the soaring cost of living, research reveals today.

Despite inflation soaring to a 16-year-high of 5.2 per cent, the average worker got a pay rise of just 3.8 per cent in September.

The research, from the pay specialists Incomes Data Services, highlights the financial problems facing millions of workers.

Most of their household bills, particularly food and fuel, are rocketing by up to 35 per cent. However, their meagre pay rise does not begin to cover the extra cost.

The majority of the 50 pay settlements investigated by IDS were in the private sector covering around 1.1million employees.

They range from just 2 per cent for workers at the BBC to 5.3 per cent for workers at a firm of dockyard workers.

Incomes Data Services warned pay rises are likely to fall even further over the coming year as inflation is expected to drop sharply.

Economists predict inflation will fall below the Government's 2 per cent target next year.

Effectiveness of AIG's $143 Billion Rescue Questioned

2008-11-03T11:32:00.003-02:00

By Carol D. Leonnig

Washington Post Staff Writer
Monday, November 3, 2008; A18

A number of financial experts now fear that the federal government's $143 billion attempt to rescue troubled insurance giant American International Group may not work, and some argue that company shareholders and taxpayers would have been better served by a bankruptcy filing.

The Treasury Department leapt to keep AIG from going bankrupt on Sept. 16, and in the past seven weeks, AIG has drawn down $90 billion in federal bailout loans. But some key AIG players argue that bankruptcy would have offered more structure and greater protections during a time of intense market volatility.

AIG declined to comment on the matter.

Echoing some other experts, Ann Rutledge, a credit derivatives expert and founding principal of R&R Consulting, said she is not sure how badly the financial system would have been rocked if the government had let AIG file for bankruptcy protection. But she fears that the government is papering over the problem with a quick fix that was not well planned.

"What we see now are a lot of games by the government to keep these institutions going with a lot of cash," she said. "This is to fill holes in companies' balance sheets, and they're trying to hold at bay the charges that our financial system is insolvent."

The deal that the Treasury and the Federal Reserve Bank of New York pressed upon AIG was intended to stop any domino effect of financial institutions falling because of their business ties to AIG. The rescue allowed AIG to provide cash to huge banks and other players who had invested in rapidly souring mortgages insured by the company.

Early this year, investors had begun privately demanding that AIG pay off its billion-dollar guarantees. But in mid-September, when the demands for cash reached a public crescendo, AIG had to admit that it didn't have enough cash on hand to meet the obligations.

In the first weeks of its federal rescue, AIG has used the loan money to post collateral demanded by these firms, sources close to those deals say.

"No one else benefits," former AIG chief executive and major shareholder Maurice R. "Hank" Greenberg wrote to AIG's current chief executive on Thursday. "Unless there is immediate change to the structure of the Federal loan, the American taxpayer will likely suffer a significant financial loss."

Another concern is that in this depressed market, AIG, and the taxpayers that now own 80 percent of the company, will lose coming and going.

The company may be forced to borrow additional federal funds for rising payouts to counterparties. Neither the government nor AIG is releasing information about the specific amounts paid to individual firms, but numerous credit experts say that the value of those mortgage assets is probably declining every week. That means AIG has to pay a higher price as part of its guarantees.

The company also may be forced to sell many more assets at low, fire-sale prices. As part of its loan deal, AIG was to sell some assets -- valued at $1 trillion before the crisis -- to raise cash to pay off the loan.

AIG's Financial Products division is the primary villain in the company's free-fall. It made tens of billions of disastrously bad bets on mortgage investments but may not have carefully hedged those bets or properly estimated its risk. The company's rapid burn of $90 billion also suggests that it grossly undervalued its obligations to counterparties in a worst-case scenario.

In February, internal notes show, board members discussed a growing dispute between AIG Financial Products and Goldman Sachs about the value of those assets when Goldman called for AIG to post collateral. AIG's chief financial officer warned of "Goldman's acknowledged desire to obtain as much cash as possible." But AIG's external accountants warned that it was they who alerted management to the dispute, not AIG Financial Products, and that the division was not properly considering the market in its pricing.

Rutledge warns that because there has been no public disclosure of AIG's payments to counterparties, it is impossible to know whether the pricing it is using now is proper.

The Federal Reserve and its advisers have acknowledged privately that things are not going according to plan.

As AIG has rapidly eaten through the loan money, the Fed has twice expanded its original $85 billion bailout -- which itself was the largest government bailout of a private company in U.S. history. Earlier last month, the Fed reluctantly gave AIG $38 billion more in credit for securities lending to try to keep the firm from drawing down its first Fed loan too quickly.

Then on Thursday, the Fed agreed to let AIG borrow $20 billion from a larger commercial paper bailout fund it had set up days earlier for all institutions that lend money to each other.

If the company had filed for Chapter 11 bankruptcy protection, AIG could have frozen the crippling collateral calls, and shareholders would have had a chance at recovering some value from the company's 80 percent drop in stock price from earlier this year, said Lee Wolosky, a lawyer for AIG's largest shareholder, Starr International.

"AIG is nothing more than a pass-through being charged 14 percent interest," Wolosky said. "Company assets are eroding on a daily basis; asset sales have not begun and can only be at fire-sale prices in the current market. "

But David Schiff of Schiff's Insurance Observer said he could not see how bankruptcy would have been a better solution.

"The point isn't to save AIG; it's to save the U.S. financial system. I think they were afraid to find out who else goes under if you let AIG fail," he said. "But right now, no one knows if this is going to work."

The Bush gang's parting gift: a final, frantic looting of public wealth

2008-11-03T00:35:00.002-02:00

The US bail-out amounts to a strings-free, public-funded windfall for big business. Welcome to no-risk capitalism

In the final days of the election many Republicans seem to have given up the fight for power. But don't be fooled: that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700bn bail-out out the door. At a recent Senate banking committee hearing, the Republican Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bail-out.

When European colonialists realised that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.

Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as "distressed asset" auctions and the "equity purchase program". But make no mistake: the goal is the same as it was for the defeated Portuguese - a final, frantic looting of the public wealth before they hand over the keys to the safe.

How else to make sense of the bizarre decisions that have governed the allocation of the bail-out money? When the Bush administration announced it would be injecting $250bn into US banks in exchange for equity, the plan was widely referred to as "partial nationalisation" - a radical measure required to get banks lending again. Henry Paulson, the treasury secretary, had seen the light, we were told, and was following the lead of Gordon Brown.

In fact, there has been no nationalisation, partial or otherwise. American taxpayers have gained no meaningful control over the banks, which is why the banks are free to spend the new money as they wish. At Morgan Stanley, it looks as if much of the windfall will cover this year's bonuses. Citigroup has been hinting it will use its $25bn buying other banks, while John Thain, the chief executive of Merrill Lynch, told analysts: "At least for the next quarter, it's just going to be a cushion." The US government, meanwhile, is reduced to pleading with the banks that they at least spend a portion of the taxpayer windfall for loans - officially, the reason for the entire programme.

What, then, is the real purpose of the bail-out? My fear is this rush of dealmaking is something much more ambitious than a one-off gift to big business: that the Bush version of "partial nationalisation" is rigged to turn the US treasury into a bottomless cash machine for the banks for years to come. Remember, the main concern among the big market players, particularly banks, is not the lack of credit but their battered share prices. Investors have lost confidence in the honesty of the big financial players, and with good reason.

This is where the treasury's equity pays off big time. By purchasing stakes in these financial institutions, the treasury is sending a signal to the market that they are a safe bet. Why safe? Not because their level of risk has been accurately assessed at last. Not because they have renounced the kind of exotic instruments and outrageous leverage rates that created the crisis. But because the market will now be banking on the fact that the US government won't let these particular companies fail. If they get themselves into trouble, investors will now assume that the government will keep finding more cash to bail them out, since allowing them to go down would mean losing the initial equity investments, many of them in the billions. (Just look at the insurance giant AIG, which has already gone back to taxpayers for a top-up, and seems likely to ask for a third.)

This tethering of the public interest to private companies is the real purpose of the bail-out plan: Paulson is handing all the companies admitted to the programme - a number potentially in the thousands - an implicit treasury department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a triple-A from Moody's rating agency.

Insurance like that is priceless. But for the banks, the best part is that the government is paying them to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson's original idea of buying up $700bn in toxic debts. Now taxpayers aren't just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.

Interestingly, mortgage fund giants Fannie Mae and Freddie Mac both enjoyed this kind of unspoken guarantee before they were nationalised at the start of this crisis. For decades the market understood that, since these private players were enmeshed with the government, Uncle Sam could be counted on to always save the day. It was, as many have pointed out, the worst of all worlds. Not only were profits privatised while risks were socialised, but the implicit government backing created powerful incentives for reckless business practices.

With the new equity purchase programme Paulson has taken the discredited Fannie and Freddie model and applied it to a huge swath of the private banking industry. Again, there is no reason to shy away from risky bets, especially since the treasury has made no such demands of the banks (apparently it doesn't want to "micromanage".)

To further boost market confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this were not enough, the treasury has been encouraging the banks to merge, ensuring that the only institutions left will be "too big to fail", thereby guaranteed a bail-out. In three ways, the market is being told loud and clear that Washington will not allow the financial institutions to bear the consequences of their behaviour. This may be Bush's most creative innovation: no-risk capitalism.

There is a glimmer of hope. In answer to Senator Corker's question, the treasury is indeed having trouble dispersing the bail-out funds. So far it has requested about $350bn of the $700bn, but most of this hasn't yet made it out the door. Meanwhile, every day it becomes clearer that the bail-out was sold to the public on false pretences. Clearly, it was never really about getting loans flowing. It was always about doing what it is doing: turning the state into a giant insurance agency for Wall Street, a safety net for the people who need it least, subsidised by the people who will most need state protections in the economic storms ahead.

This duplicity is a political opportunity. Whoever wins on November 4 will have enormous moral authority. It should be used to call for a freeze on the dispersal of bail-out funds, not after the inauguration but right away. All deals should be renegotiated, this time with the public getting the guarantees.

It is risky, of course, to interrupt the bail-out process. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business - the gift that will keep on taking.

Who Runs the show?

2008-10-29T23:24:00.001-02:00

War, as the liberal intellectual Randolph Bourne famously explained, is the health of the state. That is, it benefits state officials and their dependents, clients, and assorted sycophants at the expense of the rest of us. Many are impoverished by our policies, but a few are enriched. The beneficiaries are the growing administrative, corporate, and military bureaucracies that oversee our ever expanding global presence, in effect a colonial class. This class pursues and secures its economic and social interests by means of directly influencing government policy, operating as an organized force on behalf of the policy of imperialism, so far with remarkable success.

When John McCain sneered at Mitt Romney's business experience as lacking in honor and the spirit of self-sacrifice, he was expressing the "noble" and highly stagy sentiments of this rising class. Forget the free market fervor of the Reagan era, when entrepreneurs were valorized. The new Republican hero is the swaggering caesar.

Is the Iraq war good for the economy?

Well, whose economy? Who benefits from this war, and who loses? Once the American people realize that they're among this war's biggest losers – aside from the Iraqi people, and perhaps the Iranians, too – they'll turn on the beneficiaries with a vengeance. As their savings are eaten up by inflation, and the equity they labored to preserve and increase evaporates into thin air, ordinary Americans are likely to be quite interested in the question: who's responsible?

As the Federal Reserve pumps more funny money into circulation, in a desperate and vain attempt to postpone the crisis of the Warfare State, the single biggest winners are the banks, the most government-protected industry of all, who are the first to be bailed out of any crisis. Oh, perhaps a few will be allowed to go under, but the big ones will be too big to fall, like Bear Stearns. The economic elite will golden parachute its way out of the crisis.

The main beneficiaries of the present system – what Murray Rothbard, the late libertarian theorist and polemicist, called the Welfare-Warfare State – are the new plutocrats. Think of what Ayn Rand referred to as "the aristocracy of pull," the principal villains of her famous novel Atlas Shrugged, i.e., corrupt businessmen who succeeded on account of their political connections rather than their entrepreneurial skill.

Today's aristocracy of pull is the militarized sector of the economy, which is completely dependent on government contracts. Their political Praetorian Guard is represented in Washington by both parties, and, what's more, their partisans dominate think-tanks of the ostensible Left as well as the Right.

The task of those who oppose the new colonialism, which masquerades as global altruism of one sort or another, is to unmask the real motives and connections of a self-interested colonial class, which, in spite of its claim to the mantle of honor and duty to country, is supremely successful at promoting its own interests over and above those of the nation.

~ Justin Raimondo

Bridge to Prison - Stevens Convicted all counts

2008-10-27T20:52:00.000-02:00

WASHINGTON (CNN) -- A jury found U.S. Sen. Ted Stevens of Alaska guilty Monday of all seven counts in his federal corruption trial.

The jury found Stevens guilty of "knowingly and willfully" scheming to conceal on Senate disclosure forms more than $250,000 in home renovations and other gifts from an Alaska-based oil industry contractor.

Stevens faces a maximum sentence of up to to 35 years in prison -- five years for each of the seven counts.

Legal experts note the judge has the discretion to give Stevens as little as no jail time and probation when he is sentenced.

He sat expressionless as the seven verdicts were read out at the end of his trial, less than a day after the jury began deliberations from scratch because of a change in jurors.

After the second guilty verdict was read, Stevens' lead defense attorney, Brendan Sullivan, patted his back, leaving his hand there.

As Stevens left the defense area, he and his wife exchanged a kiss on the cheek. Stevens said: "It's not over yet." Stevens' defense team said they will move for a new trial.

Stevens left the courthouse without comment.

"This is a sad day for Alaska and a sad day for Senator Stevens and his family," Alaska Gov. and vice presidential candidate Sarah Palin said Monday.

"The verdict shines a light on the corrupting influence of the big oil service company up there in Alaska that was allowed to control too much of our state. And that control was part of the culture of corruption that I was elected to fight, and that fight must always move forward regardless of party affiliation or seniority or even past service," she said.

Stevens accepted "hundreds of thousands of dollars of freebies" from a major oil services company in his state, acting assistant Attorney General Matthew Friedrich said after the verdict.

"This company was not a charity," he said, saying it solicited Stevens for help in Washington at the same time it was transforming Stevens' single-story A-frame Alaska house into a two-story structure with a deck, new gas grill and other accouterments.

The 84-year-old senator is locked in a tight race for re-election against his Democratic challenger, Mark Begich. Stevens hopes to retain the seat he has held since 1968.

A poll by Ivan Moore Research conducted October 17-19 found Begich slightly leading the race 46-45, within the poll's margin of error of plus-or-minus 4.4 percentage points.

The longest-serving Republican senator in history, Stevens becomes the first senator to be convicted of a felony since 1981.

Judge Emmet Sullivan has scheduled a hearing on any pending motions for February 25.

The charges against Stevens related to renovations on his family home in Girdwood, Alaska. The remodeling was done by his longtime friend, Bill Allen, and Allen's oil industry services company, VECO Corp.

The prosecution accused Stevens of knowingly failing to declare hundreds of thousands of dollars worth of gifts and work on his house in Alaska between 1999 and 2006. Members of the Senate are required to fill out forms each year stating what gifts they have received and from whom.

Stevens' defense said Allen, the senator's friend, had quashed bills without the senator's knowledge. Allen testified that he had done so because he "liked Ted."

The defense said Stevens had paid the bills he received, thinking they covered the full cost of renovating the house in Girdwood, Alaska.

Allen, the government's star witness, earlier pleaded guilty to trying to bribe a number of Alaska state lawmakers, not including Stevens. He is awaiting sentencing.

The jury began deliberations at noon Wednesday, but started anew Monday morning when an alternate replaced a juror who left town abruptly last week because of the death of her father.

The verdict comes after jurors spotted a discrepancy Monday between the government's indictment and a key piece of evidence. The judge declined to throw out the related charge against Stevens

The indictment accuses Stevens of checking "No" in response to a question about whether Stevens or his family had "any reportable gift ... more than $260" in 2001. But the form introduced as evidence in court shows he checked "Yes."

The jury sent out a note on the issue, prompting a debate between defense and prosecution attorneys about what instructions Sullivan should send the jury.

Prosecutors said the error was simply a "typo" on the indictment, and that other charges and evidence covered Steven's alleged failure to disclose the home renovations at issue in the case.

Stevens' defense said the judge should toss out the count that no longer matched the evidence.

The juror who left last week was Juror No. 4, a paralegal in her 40s. She told a U.S. marshal that she had to leave the state for a family emergency after the jury was dismissed Thursday.

Judge Sullivan dismissed the jury Friday morning after the woman left for California, hoping to resume with her on the panel as soon as possible.

Since then, court officials made several unsuccessful attempts to reach the woman. Defense attorneys for Stevens, who was in court Sunday, had asked the judge to put off deliberations another day as they awaited the return of the juror, arguing against inserting an alternate in the middle of the process.

Last week, the judge dealt with another juror issue after the panel sent him a note Thursday accusing juror No. 9 of "violent outbursts" and other misconduct. They asked that she be dismissed, but Sullivan gave what he called a "pep talk" to the 12 and told them to resume their deliberations.

Wall Street Monsters & Meat

2008-10-18T11:17:00.000-02:00

Jim Willie

The tag team of JPMorgan as the monster and Goldman Sachs as its harlot represent a powerful pair that is more responsible for destroying the entire US financial system than 95% of the American public has any awareness. The colossus of JPMorgan is a monster, a predator, nurtured by pond scum. It has gobbled up Chase Manhattan, Manufacturers Hanover, Chemical Bank, Bank One, and more over the past two decades. Their profound presence in keeping the USTreasury Bond yields down can never be understated. They do so by managing 85% of the credit derivatives on the planet. They distorted usury prices, as in price of borrowed money, thus aggravating the LIBOR (London InterBank Offered Rate) market in a very visible manner. The oblong usury prices have contributed mightily to the destruction of the USEconomy itself, created bubbles, killed jobs, and wrecked savings. The ugliest hidden activity for the JPMorgan monster is to manage the Bank of Baghdad, where they manipulate the crude oil price, where drug trafficking money is funneled from Afghan sales, under management by the USMilitary aegis (guys with no uniform stripes or markings). Maybe such illicit money offsets Credit Default Swap losses, making America strong for freedom and liberty. Goldman Sachs is clearly the investment banking agent for the USGovt, given the privilege of insider trading in unspeakable proportions. They manage the Plunge Protection Team efforts to intervene in financial markets, making America strong for freedom and liberty. The new kid on the block is the FDIC. The Federal Deposit Insurance Corp is steering fresh meat into the corralled JPMorgan stockyards for slaughterhouse feeding. The label of harlot might be too kind, especially from the perspective of senior bond holders. But JPMorgan requires fresh meat (capital) periodically, thus making America strong for freedom and liberty. Nevermind the fires caused after its hearty meals and flatulence.

This article discusses the JPMorgan monster, its behavior, and teeth revealed. Robb Kirby (see his website, click HERE) often covers JPMorgan illicit behavior. This article discusses banking system realignments to destroy savings accounts owned by the people, and the Coup d'Etat just completed. The criminals on Wall Street have taken full control of the USGovt financial management, with blank check written by a thoroughly intimidated USCongress, deceived steadily and easily. Threats and intimidation are central to the successful coup. The Ponzi Scheme has been revealed, even as the frail and tattered Shadow Banking System has been revealed. The key to the bailouts is its continued Top Down approach, which favors the Ruling Elite and denies all but crumbs to the people, who have been subjected to a foreclosure revolving door on mortgage loan assistance. Since nothing has been solved from this approach, a total systemic breakdown is assured, whose climax will be the current Administration and the Wall Street executives in charge of the criminal syndicate riding off into the sunset in retirement. Rome burns. Much more detail is provided in the upcoming October report due this weekend. The theme is this subset synopsis article is of criminality, deception, monster exploitation, market corruption, and the collapse of a failed system, whose crescendo represents the greatest financial crimes ever witnessed in modern history. Americans do it big! The proprietary Hat Trick Letter covers much more of recent events, interpretation, and analysis, but here, focus on impropriety.

THE MONSTER, ITS BROKER & HARLOT

JPMorgan will require fresh asset meat every several weeks in order to survive, but the process will result in a sequence of severely damaging CDSwap fires. Perversely, the FDIC is their investment banker agent. Two mergers of questionable nature highlight the altered role of the Federal Deposit Insurance Corp (FDIC), which no longer protects bank depositors or their investors, but rather serves JPMorgan Chase. When Bank of America merged with Merrill Lynch, a trend started, one that exposed private stock brokerage accounts. Officially they can be legally borrowed across subsidiary lines. The FDIC averted a failure of Merrill Lynch without the credit default implications. The other event was more blatant, as the FDIC steered Washington Mutual out of bankruptcy failure and into the JPMorgan slaughterhouse. Inside its chambers, JPM gobbled up the WaMu deposits and benefited from ratio improvements. Senior bond holders were crushed, fully denied due process from bankruptcy. The FDIC has become an ugly investment banker lookalike, serving JPM and not the US public. The FDIC owns a pitifully small $45 billion in funds available for bank bailouts, at June count. When the dust clears a year or more from now, many multiples more will be necessary for many bank failures.

The path of JPMorgan growth into a FRANKENSTEIN took radical changes in course after both the failures of Lehman Brothers and recognition that Fannie Mae & Fannie Mae had to be taken over by the USGovt. To halt the run on their bonds, the USGovt acquired the entire F&F Cesspool. The impact hit the Credit Default Swap market immediately. AIG had been weakened one week earlier from the technical default of Fannie & Freddie, which resulted in broad CDSwap payouts. Ripple effects from the Lehman Brothers failure that followed were deep and broad throughout the system, killing AIG. The Wall Street central harlot (Goldman Sachs) advised the USGovt to assume full control and risk of AIG, as GSachs avoided $20 billion in sudden losses in the nick of time, a pure coincidence!

The entire episode with Wells Fargo bidding for Wachovia, in competition from Citigroup, is steeped in comedy with vampire stars. The grapevine in Washington and Wall Street passes word that the Citigroup versus Wachovia wrestling match was actually a sponsored backdoor bailout attempt to save Citigroup, not just Wachovia. Again, the FDIC was the matchmaker. My term has been 'Dead Marrying the Dead' which still holds true, since Citigroup has been dead for one year. Under the original Citigroup proposal, the FDIC had arranged for guarantees of $42 billion for Wachovia debt by the USFed. The new Wells Fargo deal enabled the US taxpayers to get off the hook. The reversal by the FDIC to serve the public has caused gigantic Wall Street problems, as Citigroup now finds itself in a position more perilous than anyone believed. This battle has flip-flopped once, and might again. Citigroup would probably have died if not for the USGovt purchase of bank stocks.

THE TEETH OF THE MONSTER REVEALED

JPMorgan is a monster predator at work, hidden from view. After the Fannie Mae experience, covering their giant raft of CDSwap contracts, making huge payouts, JPMorgan was close to a bankruptcy. They needed to feed off another bank, to consume private deposits and thus shore up the balance sheet. Lehman Brothers was let go to fail, but its failure would surely trigger a gigantic wave of credit market fires. The Lehman CDSwap resolution has cost roughly $300 billion, paying 91 cents per dollar of coverage on their failed bonds. The Wall Street Powerz permitted Lehman to fail, so as to prevent a JPMorgan failure, thus risking that the fires caused could be contained in CDSwap fallout. The irony is that JPMorgan undoubtedly suffered considerably from that fire in fallout. Now JPMorgan might need another Wall Street failure, for to consume another block of assets, but with yet another ensuing CDSwap fire. JPMorgan is a monster predator at work, soon hungry again. It might be eyeing Morgan Stanley. We might discover a failure in an unexpected place, like a big insurance firm, whose sector condition is not well advertised.

With each big bank failure, whether a commercial bank or investment bank, heavy damage is done to the system. The CDSwap destruction is mostly hidden, with large pillars burned out. We the people hear of the destruction only if and when a major bank fails as a result. No death, no news, however but with potentially significant hidden structural damage. As financial firms pay out vast sums on CDSwaps as in the Lehman case, and the Fannie Mae case, and the Freddie Mac case, the system bleeds capital. Lending suffers. The sequence corresponds to a powerful vicious cycle. JPMorgan will need more deaths to survive, but each death causes more deadly CDSwap fires. JPMorgan is a monster predator at work, which leaves fires on pathways where it last stepped. The best analogy is that CDSwap contract payouts from bond failures are like mini-Hiroshima events that might lead to a bigger such event. Ironically, to save JPM the financial system must destroy the shadow banking system centered in New York City, since Wall Street firms, plus Bank of America are at its center. The system lacks disclosure and transparency, just like Wall Street likes it.

Permit the pathogenesis to proceed further, and the majority of Western bank system must be burned in order to leave JPMorgan as prominent survivor to rule over a scorched empire. This process is a sick consolidation. The bank conglomerate is a major crime syndicate colossus, and center of the drug traffic money laundering, coordinated by security agencies, fully condoned by the US Federal Reserve itself. The AIG story is nowhere complete, the latest being their expensive parties. AIG has caused major complications, another monster that will resurface periodically at feeding time. Personally, my wish is to see the RICO law brought forward, at least to deposit the monster in a cage. In done my way, not a single additional USCongressional bill would be approved and granted for a bailout or rescue without rapid investigation, prosecution, turn to state's evidence, asset seizure, restitution, and imprisonment for dozens of Wall Street executives, starting with Hank Paulson.

STOCK MANIPULATION WITH DEEP MOTIVE

Few analysts, pundits, or anchors are aware of the mammoth conflict of interest involved with the USTreasury Bond sales required to pay for all the bailouts. JPMorgan, with the essential aid of Goldman Sachs, plot to bring down the DJIA index and the S&P500 index whenever the USTreasury conducts auctions or needs Congressional passage of key bailout bills. They have sold $194 billion of Cash Mgmt Bills (CMB) in the last two weeks, today $70B, tomorrow another $60B. The big stock declines seen recently work to the BENEFIT of the USTreasury and USFed as agent for auctions. TBill yields are down near zero, in case you have not noticed, with principal prices corresponding almost as high as the bond permits. The USGovt is conducting auctions for TBills at top dollar prices, when its credit rating should be caving in radically upon downgrades. These USTreasurys are destined to enter default at a later date, where the loss to foreign investors will be maximized. Most of the US public has savings dominated by stocks, with little in bonds. So the US public is being fleeced, coming and going, since even money markets contain toxic mortgage bonds. Look for the stock market decline to come to a surprising end when the USGovt has completed the majority of their planned emergency supply sales via auction.

The Wall Street tactics have recently turned more vicious and devious, actually creating volatility, producing fear for political purpose. They accuse hedge funds of driving up the crude oil price, rendering great harm to the USEconomy and US citizens. So they urged unsuccessfully the Securities & Exchange Commission to force hedge funds to reveal their speculative positions. The Wall Street thieves and conmen wish to learn details on hedge fund positions so as to target them illicitly. In a queer twist, JPMorgan has benefited from an interesting double kill. They exploit hedge funds, wreck them, then encourage them into the fold at JPM in brokerage accounts, where their private accounts are rendered vulnerable under the new USFed rules. JPMorgan is a monster predator at work, which is permitted to manipulate markets and clients with total impunity.

There is one more detail. Lest one forget, Goldman Sachs was exempt from the short rule restriction placed on a few hundred financial stocks traded. The reason had something to do with market stability and integrity assurance! Goldman Sachs clearly profited from the ups & down in the Dow and S&P500, lifting stocks after Congressional agreements, pulling them down before those agreements. JPMorgan and Goldman Sachs profit handsomely when the USGovt Plunge Protection Team pushes the stock indexes up with their usual methods. Of course JPM and GSachs are the managers of the PPT efforts. YES, IT IS TIME TO PUKE NOW!!!

HIDDEN USGOVT COUP BY WALL STREET

The USCongress has been subverted by intimidation and ignorance, maybe bribery. Regulators and law enforcement bodies are mere accomplices. The entire US banking system has undergone an unprecedented grand nationalize initiative, including the financial system, when considering the mortgage and insurance giants. The total bailouts are huge when put into perspective. This is a hidden coup, complete with deep fraud, corruption, and ruin for both prosecutors and whistle blowers. The USDollar is caught in the middle of a black hole scrambled with fraud. Paulson is the new Chancellor of US Inc, Bernanke the new Currency Lithography Manager, and Sheila Bair the Investment Banker (a la Goldman Suchs). Paulson assumes all powers over the financial state from the president, via the banking industry control. The government bailout redemption of $trillion past fraud closes the loop. Bernanke manages all efforts to use printed money for the purpose of buying worthless counterfeited and fraud-laced bonds, buying commercial bonds and posted collateral among businesses, as well as making printed paper products available to foreign central banks in relief of past fraud. Bair will act as the director of slaughterhouse traffic for JPMorgan, which needs a steady supply of bank deposits to offset their destroyed balance sheet from continued credit derivative implosion, thereby betraying the chartered FDIC pledge to protect bank depositors and senior bank bond holders through liquidation procedures, with full recognition of expedience. Hail to the king, long live the king! The US public seems so dumbstruck that it cannot demand even full disclosure of the process, let alone private offshore bank accounts for the new leaders of the successful coup.

The coup formalizes a climax to a Ponzi Scheme. A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service bearing true value delivered. With the ongoing steadfast support offered by Alan Greenspan, they were able to maintain an incredible Ponzi scheme. They sold financial toxic waste products in the form of Mortgage Backed Securities (MBS), Collateralized Debt Obligations (CDO), Structured Investment Vehicles (SIV), Unidentified Financial Objects (UFO), and Credit Default Swaps (CDS). My favorite remains the UFOs. The corruption of politicians in Congress enabled the process, with relaxed guidance by the Financial Accounting Standards Board (FASB). The two key ingredients for the Ponzi Scheme are a mythological ideology and a high priest to endorse the game from a credible pulpit. Alan Greenspan claimed legitimacy of the US banking system, blessed credit growth and fractional bank practices as beneficial, and praised risk pricing systems using credit derivatives as sophisticated. The high priest used to be Greenspan, but now a tag team has replaced him. Hank Paulson is the spearhead for the great coup of the US financial system. Usage of short restrictions rules has been key to both instilling instability at necessary times, and raiding hedge funds. USFed Chairman Bernanke swaps USTBonds for any piece of bonded garbage known to mankind. Mammoth placements of leveraged trades by Wall Street firms make for some of the most grotesque insider trading in US history.

DECEIT & INTIMIDATION

The lies, deceit, backroom pressure, and fleecing of the American public is deep. Take the Emergency Economic Stability Act. Most of the initial $250 billion outlay was not devoted to American bankers, but rather to foreign bankers, primarily in Europe and England, and to purchase preferred US bank stocks. The US public was not told about this redirection, which constitutes misallocation, misappropriation, and fraud. Tremendous backroom pressure was exerted at every step. The underlying assets involved in swaps do not even have to be US-based mortgage bonds. The formerly submitted Paulson Manifesto was revived in a power grab, complete with considerable infighting and squabbles, since Morgan Stanley was given favor. The usage of funds to buy investment stakes in the giant US banks is yet another direct Fascist Business Model tactic, assisting banks close to the power center, yet reeking with corruption. The sickening irony is that they have no more money to disseminate and distribute. They cannot reveal their lies until they formally request more Congressional funds. Much discussion has come that the USGovt should adopt the Swedish model in the resolution of the current crisis. Not in a New York minute!! That would require heavy stock and bond losses, and more transparency of scum. Interestingly, the market discounts words as worthless, while bailout actions fail to produce even a positive reaction for a full day, until Monday last week when the Dow Jones Industrial index rose over 900 points. That was clearly Wall Street engineering a profitable short cover rally. Check S&P futures positions beforehand, if you can. The credibility of the USFed is close to being destroyed. On October 15, the same Dow Jones index fell over 700 points, almost 8%. Even the global rate cut was rejected by stock markets, a major insult.

Intimidation of the USCongress has been huge and powerful, similar to when the Patriot Act was passed in 2002. The Congress was actually threatened by martial law in the cities of the United States if the big bailout package was not passed two weeks ago! This was not reported on CNN or CNBC, but C-Span did cover it. The mobilization of the USArmy for civilian control is well known in the past couple weeks. See the Third Brigade back from combat duty in Iraq. This account came from Rep Brad Sherman of California. To achieve supposed financial stability, the nation succumbed to totalitarianism by Wall Street thieves, conmen, fraud kings, and criminals. Instead, the bailout only covered up $trillion fraud. My position has been very stable and consistent, that such tactics are typical characteristics of the Fascist Business Model. The state merges with the large corporations, who proceed to terrorize the citizenry after unspeakable protected corruption and theft. To object is to be labeled unpatriotic!

TOP DOWN SOLUTION FAVORS THE ELITE

The top-down approach used to date aids the wealthy bankers, while the homeowners are denied aid. That aid is promised but rarely arrives. The fundamental problem here is that billion$ are devoted to shore up insolvent banks, to redeem their worthless (or nearly worthless) bonds, and to give a giant pass to the executives. Trust has eroded throughout the system. Banks distrust each other's collateral. The result is that eventually the USEconomy will enter not a recession, not a depression, but a DISINTEGRATION PHASE. Despite Bernanke's studious efforts, borrowing from revisionist history, his liquidity is nothing more than bailouts at the top for the perpetrators of the housing bubble and mortgage debacle. The bank system benefits little inside the US walls of finance. A bottom-up approach might have had a chance to succeed, but a top-down approach is a sham. To expect a top-down solution that actually relieves the housing inventory logjam is insane. That is like feeding a teenager with meals placed inside the human rectum, expecting nutrients to find their way to the rest of the body! The credit mechanisms do not travel upward within the pyramid, but rather in the downward direction, starting with a borrower, a good collateralized risk, and an underwritten loan, when plenty of lending capital is available. The US public has bought this stupid 'Trickle Down' philosophy for years, learning nothing. The USEconomy is on the verge of collapsing. Short-term credit is being denied at key supplier intermediary steps, soon to result in recognized disintegration.

The primary practical objective of this corrupt trio (JPM, GSax, FDIC) is to avoid Credit Default Swap fires, which would bring an end to their reign of terror. This USEconomic failure is in progress and is unstoppable. The 1930 Depression resulted after monumental credit abuse from the bottom up, as hundreds of thousands of people leveraged investments 10:1 with stocks primarily. The 2000 Depression will come after monumental credit abuse from the top down, as hundreds of big financial firms leveraged investments by 7:1 and 20:1 with bonds primarily. The most absurd of all is the CDO-squared, leveraging upon leverage. Total seizures have crippled the banking system. Short-term credit has largely vanished, as letters of credit are routinely not honored at ports in the United States. The panic will continue, especially when supplies dry up.

GOLD & SILVER AWAIT THEIR EXALTED STATUS

We are witnessing the disintegration cited in my recent forecasts. It is a systemic failure, marred by lost confidence and trust in the entire financial system. Expect foreigners soon to pull the rug from under the American syndicates in control. Several key meetings have already concluded, totally unreported in the US press, which occurred in Berlin Germany. Consider it the Anti-G7 Meeting. Implications are profound, and involved the Shanghai Coop Org tangentially, since its member nations possess so much new commodity supply. Consider it the Anti-NATO group. An important and powerful alternative financial system is soon to spring into action, including high-level bilateral barter. Those who expect the current US Regime to continue their financial terror are in for a big surprise.

Expect defaults in the COMEX with gold & silver, whose prices for paper vastly diverge from physical, to the anger of foreigners watching. They hold massive precious metals assets. Disparities now contribute to powerful forces, sure to break the current system. Grand systemic changes come. THE RESULT WILL BE A BREATH-TAKING DISCONTINUITY EVENT.

Ironically, the more inner anguish felt on the falling gold & silver prices, the closer we are to a new financial framework, with the USDollar relegated to a Third World role. A REPLACEMENT GLOBAL RESERVE CURRENCY HAS ALREADY BEEN DECIDED UPON. Its launch awaits the proper moment. The Americans are last to know, as usual. The US leaders are under the illusion of being in control!

A £516 trillion derivatives 'time-bomb'

2008-10-14T00:43:00.000-02:00

Not for nothing did US billionaire Warren Buffett call them the real 'weapons of mass destruction'

By Margareta Pagano and Simon Evans
Sunday, 12 October 2008

The market is worth more than $516 trillion, (£303 trillion), roughly 10 times the value of the entire world's output: it's been called the "ticking time-bomb".

It's a market in which the lead protagonists – typically aggressive, highly educated, and now wealthy young men – have flourished in the derivatives boom. But it's a market that is set to come to a crashing halt – the Great Unwind has begun.

Last week the beginning of the end started for many hedge funds with the combination of diving market values and worried investors pulling out their cash for safer climes.

Some of the world's biggest hedge funds – SAC Capital, Lone Pine and Tiger Global – all revealed they were sitting on double-digit losses this year. September's falls wiped out any profits made in the rest of the year. Polygon, once a darling of the London hedge fund circuit, last week said it was capping the basic salaries of its managers to £100,000 each. Not bad for the average punter but some way off the tens of millions plundered by these hotshots during the good times. But few will be shedding any tears.

The complex and opaque derivatives markets in which these hedge funds played has been dubbed the world's biggest black hole because they operate outside of the grasp of governments, tax inspectors and regulators. They operate in a parallel, shadow world to the rest of the banking system. They are private contracts between two companies or institutions which can't be controlled or properly assessed. In themselves derivative contracts are not dangerous, but if one of them should go wrong – the bad 2 per cent as it's been called – then it is the domino effect which could be so enormous and scary.

Most markets have something behind them. Central banks require reserves – something that backs up the transaction. But derivatives don't have anything – because they are not real money, but paper money. It is also impossible to establish their worth – the $516 trillion number is actually only a notional one. In the mid-Nineties, Nick Leeson lost Barings £1.3bn trading in derivatives, and the bank went bust. In 1998 hedge fund LTCM's $5bn loss nearly brought down the entire system. In fragile times like this, another LTCM could have catastrophic results.

That is why everyone is now so frightened, even the traders, who are desperately trying to unwind their positions but finding it impossible because trading is so volatile and it's difficult to find counterparties. Nor have the hedge funds been in the slightest bit interested in succumbing to normal rules: of the world's thousands of hedge funds only 24 have volunteered to sign up to a code of conduct.

Few understand how this world operates. The US Federal Reserve chairman, Ben Bernanke, tapped up some of Wall Street's best for a primer on their workings when he took the job a few years ago. Britain's financial regulator, the Financial Services Authority, has long talked about the problems the markets could face on the back of derivative complexity. Unfortunately it did little to curb the products' growth.

In America the naysayers have been rather more vocal for longer. Famously, Warren Buffett, the billionaire who made his money the old-fashioned way, called them "weapons of mass destruction". In the late 1990s when confidence was roaring in the midst of the dotcom boom, a small band of politicians, uncomfortable with the ease with which banks would be allowed to play in these burgeoning markets, were painted as Luddites failing to move with the times.

Little-known Democratic senator Byron Dorgan from North Dakota was one of the most vociferous refuseniks, telling his supposedly more savvy New York peers of the dangers. "If you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you," he said. He was ignored.

What is a Derivative?

Warren Buffett, the American investment guru, dubbed them "financial weapons of mass destruction", but for the once-great-and-good of Wall Street they were the currency that enabled banks, hedge funds and other speculators to make billions.

Anything that carries a price can spawn a derivatives market. They are financial contracts sold to pass on risk to others. The credit or bond derivatives market is one such example. It is thought that speculation in this area alone is worth more than $56 trillion (£33 trillion), although that probably underestimates the true figure since lax regulation has seen the market explode over the past two years.

At the core of this market is the credit derivative swap, effectively an insurance policy against the default in the interest payment on a corporate bond. One doesn't even need to own the bond itself. It is like Joe Public buying an insurance policy on someone else's house and pocketing the full value if it burns down.

As markets slid into crisis, and banks and corporations began to default on bond payments, many of these policies have proved worthless.

Emilio Botin, the chairman of Santander, the Spanish bank that has enjoyed phenomenal success during the credit crunch, once said: "I never invest in something I don't understand." A wise man, you may think.

Simon Evans

Taking Hard New Look at a Greenspan Legacy

2008-10-13T17:28:00.000-02:00

October 9, 2008

The Reckoning

By PETER S. GOODMAN

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004

George Soros, the prominent financier, avoids using the financial contracts known as derivatives “because we don’t really understand how they work.” Felix G. Rohatyn, the investment banker who saved New York from financial catastrophe in the 1970s, described derivatives as potential “hydrogen bombs.”

And Warren E. Buffett presciently observed five years ago that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

One prominent financial figure, however, has long thought otherwise. And his views held the greatest sway in debates about the regulation and use of derivatives — exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest.

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

The derivatives market is $531 trillion, up from $106 trillion in 2002 and a relative pittance just two decades ago. Theoretically intended to limit risk and ward off financial problems, the contracts instead have stoked uncertainty and actually spread risk amid doubts about how companies value them.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences.

Derivatives were created to soften — or in the argot of Wall Street, “hedge” — investment losses. For example, some of the contracts protect debt holders against losses on mortgage securities. (Their name comes from the fact that their value “derives” from underlying assets like stocks, bonds and commodities.) Many individuals own a common derivative: the insurance contract on their homes.

On a grander scale, such contracts allow financial services firms and corporations to take more complex risks that they might otherwise avoid — for example, issuing more mortgages or corporate debt. And the contracts can be traded, further limiting risk but also increasing the number of parties exposed if problems occur.

Throughout the 1990s, some argued that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system. In meetings with federal officials, celebrated appearances on Capitol Hill and heavily attended speeches, Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off restrictions.

Ever since housing began to collapse, Mr. Greenspan’s record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation’s real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates. Others have criticized Mr. Greenspan for not disciplining institutions that lent indiscriminately.

But whatever history ends up saying about those decisions, Mr. Greenspan’s legacy may ultimately rest on a more deeply embedded and much less scrutinized phenomenon: the spectacular boom and calamitous bust in derivatives trading.

Faith in the System

Some analysts say it is unfair to blame Mr. Greenspan because the crisis is so sprawling. “The notion that Greenspan could have generated a totally different outcome is naïve,” said Robert E. Hall, an economist at the conservative Hoover Institution, a research group at Stanford.

Mr. Greenspan declined requests for an interview. His spokeswoman referred questions about his record to his memoir, “The Age of Turbulence,” in which he outlines his beliefs.

“It seems superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade,” Mr. Greenspan writes. “The worst have failed; investors no longer fund them and are not likely to in the future.”

In his Georgetown speech, he entertained no talk of regulation, describing the financial turmoil as the failure of Wall Street to behave honorably.

“In a market system based on trust, reputation has a significant economic value,” Mr. Greenspan told the audience. “I am therefore distressed at how far we have let concerns for reputation slip in recent years.”

As the long-serving chairman of the Fed, the nation’s most powerful economic policy maker, Mr. Greenspan preached the transcendent, wealth-creating powers of the market.

A professed libertarian, he counted among his formative influences the novelist Ayn Rand, who portrayed collective power as an evil force set against the enlightened self-interest of individuals. In turn, he showed a resolute faith that those participating in financial markets would act responsibly.

An examination of more than two decades of Mr. Greenspan’s record on financial regulation and derivatives in particular reveals the degree to which he tethered the health of the nation’s economy to that faith.

As the nascent derivatives market took hold in the early 1990s, and in subsequent years, critics denounced an absence of rules forcing institutions to disclose their positions and set aside funds as a reserve against bad bets.

Time and again, Mr. Greenspan — a revered figure affectionately nicknamed the Oracle — proclaimed that risks could be handled by the markets themselves.

“Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury,” recalled Alan S. Blinder, a former Federal Reserve board member and an economist at Princeton University. “I think of him as consistently cheerleading on derivatives.”

Arthur Levitt Jr., a former chairman of the Securities and Exchange Commission, says Mr. Greenspan opposes regulating derivatives because of a fundamental disdain for government.

Mr. Levitt said that Mr. Greenspan’s authority and grasp of global finance consistently persuaded less financially sophisticated lawmakers to follow his lead.

“I always felt that the titans of our legislature didn’t want to reveal their own inability to understand some of the concepts that Mr. Greenspan was setting forth,” Mr. Levitt said. “I don’t recall anyone ever saying, ‘What do you mean by that, Alan?’ ”

Still, over a long stretch of time, some did pose questions. In 1992, Edward J. Markey, a Democrat from Massachusetts who led the House subcommittee on telecommunications and finance, asked what was then the General Accounting Office to study derivatives risks.

Two years later, the office released its report, identifying “significant gaps and weaknesses” in the regulatory oversight of derivatives.

“The sudden failure or abrupt withdrawal from trading of any of these large U.S. dealers could cause liquidity problems in the markets and could also pose risks to others, including federally insured banks and the financial system as a whole,” Charles A. Bowsher, head of the accounting office, said when he testified before Mr. Markey’s committee in 1994. “In some cases intervention has and could result in a financial bailout paid for or guaranteed by taxpayers.”

In his testimony at the time, Mr. Greenspan was reassuring. “Risks in financial markets, including derivatives markets, are being regulated by private parties,” he said.

“There is nothing involved in federal regulation per se which makes it superior to market regulation.”

Mr. Greenspan warned that derivatives could amplify crises because they tied together the fortunes of many seemingly independent institutions. “The very efficiency that is involved here means that if a crisis were to occur, that that crisis is transmitted at a far faster pace and with some greater virulence,” he said.

But he called that possibility “extremely remote,” adding that “risk is part of life.”

Later that year, Mr. Markey introduced a bill requiring greater derivatives regulation. It never passed.

Resistance to Warnings

In 1997, the Commodity Futures Trading Commission, a federal agency that regulates options and futures trading, began exploring derivatives regulation. The commission, then led by a lawyer named Brooksley E. Born, invited comments about how best to oversee certain derivatives.

Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.

Ms. Born’s views incited fierce opposition from Mr. Greenspan and Robert E. Rubin, the Treasury secretary then. Treasury lawyers concluded that merely discussing new rules threatened the derivatives market. Mr. Greenspan warned that too many rules would damage Wall Street, prompting traders to take their business overseas.

“Greenspan told Brooksley that she essentially didn’t know what she was doing and she’d cause a financial crisis,” said Michael Greenberger, who was a senior director at the commission. “Brooksley was this woman who was not playing tennis with these guys and not having lunch with these guys. There was a little bit of the feeling that this woman was not of Wall Street.”

Ms. Born declined to comment. Mr. Rubin, now a senior executive at the banking giant Citigroup, says that he favored regulating derivatives — particularly increasing potential loss reserves — but that he saw no way of doing so while he was running the Treasury.

“All of the forces in the system were arrayed against it,” he said. “The industry certainly didn’t want any increase in these requirements. There was no potential for mobilizing public opinion.”

Mr. Greenberger asserts that the political climate would have been different had Mr. Rubin called for regulation.

In early 1998, Mr. Rubin’s deputy, Lawrence H. Summers, called Ms. Born and chastised her for taking steps he said would lead to a financial crisis, according to Mr. Greenberger. Mr. Summers said he could not recall the conversation but agreed with Mr. Greenspan and Mr. Rubin that Ms. Born’s proposal was “highly problematic.”

On April 21, 1998, senior federal financial regulators convened in a wood-paneled conference room at the Treasury to discuss Ms. Born’s proposal. Mr. Rubin and Mr. Greenspan implored her to reconsider, according to both Mr. Greenberger and Mr. Levitt.

Ms. Born pushed ahead. On June 5, 1998, Mr. Greenspan, Mr. Rubin and Mr. Levitt called on Congress to prevent Ms. Born from acting until more senior regulators developed their own recommendations. Mr. Levitt says he now regrets that decision. Mr. Greenspan and Mr. Rubin were “joined at the hip on this,” he said. “They were certainly very fiercely opposed to this and persuaded me that this would cause chaos.”

Ms. Born soon gained a potent example. In the fall of 1998, the hedge fund Long Term Capital Management nearly collapsed, dragged down by disastrous bets on, among other things, derivatives. More than a dozen banks pooled $3.6 billion for a private rescue to prevent the fund from slipping into bankruptcy and endangering other firms.

Despite that event, Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed.

In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.

Mr. Greenspan, according to lawmakers, then used his prestige to make sure Congress followed through. “Alan was held in very high regard,” said Jim Leach, an Iowa Republican who led the House Banking and Financial Services Committee at the time. “You’ve got an area of judgment in which members of Congress have nonexistent expertise.”

As the stock market roared forward on the heels of a historic bull market, the dominant view was that the good times largely stemmed from Mr. Greenspan’s steady hand at the Fed.

“You will go down as the greatest chairman in the history of the Federal Reserve Bank,” declared Senator Phil Gramm, the Texas Republican who was chairman of the Senate Banking Committee when Mr. Greenspan appeared there in February 1999.

Mr. Greenspan’s credentials and confidence reinforced his reputation — helping him to persuade Congress to repeal Depression-era laws that separated commercial and investment banking in order to reduce overall risk in the financial system.

“He had a way of speaking that made you think he knew exactly what he was talking about at all times,” said Senator Tom Harkin, a Democrat from Iowa. “He was able to say things in a way that made people not want to question him on anything, like he knew it all. He was the Oracle, and who were you to question him?”

In 2000, Mr. Harkin asked what might happen if Congress weakened the C.F.T.C.’s authority.

“If you have this exclusion and something unforeseen happens, who does something about it?” he asked Mr. Greenspan in a hearing.

Mr. Greenspan said that Wall Street could be trusted. “There is a very fundamental trade-off of what type of economy you wish to have,” he said. “You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either,” he said.

Later that year, at a Congressional hearing on the merger boom, he argued that Wall Street had tamed risk.

“Aren’t you concerned with such a growing concentration of wealth that if one of these huge institutions fails that it will have a horrendous impact on the national and global economy?” asked Representative Bernard Sanders, an independent from Vermont.

“No, I’m not,” Mr. Greenspan replied. “I believe that the general growth in large institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.”

The House overwhelmingly passed the bill that kept derivatives clear of C.F.T.C. oversight. Senator Gramm attached a rider limiting the C.F.T.C.’s authority to an 11,000-page appropriations bill. The Senate passed it. President Clinton signed it into law.

Pressing Forward

Still, savvy investors like Mr. Buffett continued to raise alarms about derivatives, as he did in 2003, in his annual letter to shareholders of his company, Berkshire Hathaway.

“Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers,” he wrote. “The troubles of one could quickly infect the others.”

But business continued.

And when Mr. Greenspan began to hear of a housing bubble, he dismissed the threat. Wall Street was using derivatives, he said in a 2004 speech, to share risks with other firms.

Shared risk has since evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn.

The Wall Street debacle that swallowed firms like Bear Stearns and Lehman Brothers, and imperiled the insurance giant American International Group, has been driven by the fact that they and their customers were linked to one another by derivatives.

In recent months, as the financial crisis has gathered momentum, Mr. Greenspan’s public appearances have become less frequent.

His memoir was released in the middle of 2007, as the disaster was unfolding, and his book tour suddenly became a referendum on his policies. When the paperback version came out this year, Mr. Greenspan wrote an epilogue that offers a rebuttal of sorts.

“Risk management can never achieve perfection,” he wrote. The villains, he wrote, were the bankers whose self-interest he had once bet upon.

“They gambled that they could keep adding to their risky positions and still sell them out before the deluge,” he wrote. “Most were wrong.”

No federal intervention was marshaled to try to stop them, but Mr. Greenspan has no regrets.

“Governments and central banks,” he wrote, “could not have altered the course of the boom.”

Fed to start buying commercial paper

2008-10-07T21:33:00.001-02:00

By Chris Giles in London,Tony Barber in Brussels, Michael Mackenzie in New York and James Politi in Washington

Published: October 7 2008 14:33 | Last updated: October 7 2008 18:47

Ben Bernanke on Tuesday opened the door to further US interest rate cuts on a day that saw the Federal Reserve moving to bypass banks and lend directly to American companies in an unprecedented attempt to unfreeze the money markets.

The Fed’s move into the market for commercial paper – short term debt issued by companies and others to fund day-to-day operations – represents a dramatic expansion of its role of lender of last resort, but its extraordinary action failed to calm nerves in feverish markets.

Although global stock markets initially regained some poise after Monday’s severe falls, the Fed’s action had little initial effect on money markets and the S&P 500 index was down a further 2.47 per cent in afternoon trading in New York. Overnight bank-borrowing costs jumped and bank shares in Europe slumped for a second day, partly on talk that European governments would soon take individual action to recapitalise banks at the expense of shareholders.

In a speech in Washington DC, Mr Bernanke, Fed chairman also appeared to signal further rate cuts to tackle the financial crisis, saying it would “need to consider whether the current stance of policy remains appropriate” although he stopped short of explicitly signalling that the main US interest rate would be cut from 2 per cent.

Earlier, the Fed said it would set up a new Commercial Paper Funding Facility to buy three-month debt from banks and non-financial companies.

“This facility should encourage investors to once again engage in term lending in the commercial paper market...[and] lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper,” the Fed said in a statement.

After the news, overnight rates on commercial paper eased, but interest rates for longer-term lending remained elevated. Analysts welcomed the Fed’s move to kickstart lending in the $1,600bn commercial paper market which has shrunk by an eighth in the past three weeks.

”This action will help mitigate the risks of an even sharper deterioration in the economy,” said TJ Marta, strategist at RBC Capital Markets.

One of the more positive signs after the announcement was a sign that some of the flight to the safety of government bonds was diminishing. The yield on the two-year US Treasury note rose 9bp to 1.49 per cent, but this level still well below the current Fed funds rate of 2 per cent.

In Europe the sense of crisis deepened as EU finance ministers, meeting in Luxembourg, agreed that governments should be free to take part in bank rescues, so long as support is temporary, shareholders’ rights are diluted, and the effects of rescues do not spill over from one country to another.

In Britain, the prime minister, chancellor, Bank of England governor and chairman of the Financial Services Authority met last night to finalise plans for a publicly backed recapitalisation plan for Britain’s banks to be announced before the markets opened on Wednesday.

Britain’s bank shares suffered a second terrible day with Royal Bank of Scotland and HBOS equities plunging 39 and 42 per cent respectively.

Iceland‘s national crisis intensified as the government nationalised Landsbanki, its second largest bank, guaranteeing domestic deposits but international creditors, sought a €4bn loan from Russia and tried to peg its currency. An team from the International Monetary Fund is already in the Reykjavik but the Fund has not yet been approached by the government.

Spain announces emergency fund

2008-10-07T21:32:00.001-02:00

By Victor Mallet and Mark Mulligan in Madrid

Published: October 7 2008 18:57 | Last updated: October 7 2008 18:57

Spain on Tuesday became the latest European nation to take unilateral measures to deal with the world’s deepening financial crisis, announcing a €30-50bn emergency fund to provide liquidity to the financial system by buying Spanish bank assets.

José Luis Rodríguez Zapatero, the prime minister, told a hastily convened news conference that the temporary fund was designed to provide credit for borrowers starved of funds by the seizing up of interbank lending.

He also announced a fivefold increase in the Spanish government guarantee for bank deposits, raising the amount to €100,000 from €20,000 so that “individuals and companies can have full confidence in the security of their savings”.

The fund, whose details will be fleshed out during the regular cabinet meeting on Friday, will be managed by the Spanish treasury to buy the assets of financial institutions.

He stressed that the idea was not to rescue or restore to health the domestic financial system – where institutions were both solvent and solid, even in the current crisis – but to make financing available for companies and individuals so that economic activity and job creation could continue.

The fund, he said, would complement the European Central Bank’s weekly funding auctions, which have been heavily used by Spanish banks, and would buy “healthy assets, not toxic ones”.

Mr Zapatero added: “Credit makes the economy work. Without credit, there is no investment. And without investment there is no economic activity today, nor growth and job creation tomorrow.”

Spanish ministers have called for a concerted European approach to restore confidence in the banks and unblock the interbank market, and have privately criticised the unilateral moves of countries such as Germany and Ireland to provide support to their own banks.

On Tuesday, however, Spain’s Socialist government decided to join the rest and make its own national plan, although Mr Zapatero claimed it was in keeping with European guidelines.

“All European economies are being affected by the fact that the interbank and credit markets are not working properly,” he said. “This makes it difficult for financial institutions to capture resources and restricts the flow of credit to companies and families.

“It is therefore essential that this government helps make credit available to citizens and companies through Spain’s financial institutions.”

Mr Zapatero, who has already met senior commercial bankers and was due to meet trade union leaders on Tuesday night, said he would discuss the matter with the opposition Popular party.

Iceland acts to guarantee deposits

2008-10-07T21:29:00.001-02:00

By Tom Braithwaite in Reykjavik

Published: October 6 2008 11:01 | Last updated: October 7 2008 07:21

Iceland on Monday drew up sweeping powers allowing it to nationalise banks and sack executives as the government said it would not flirt with national bankruptcy by taking on debt to prop up the ailing financial sector.

Geir Haarde, prime minister, said in a national address that the financial regulator would be given authority to dictate a bank’s operations and could force mergers and bankruptcies.

”We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy,” he said. It would not be responsible for the country to take on debt to shore up banks in their current form.

The krona fell as much as 45 per cent against the euro in advance of Mr Haarde’s speech and shares in Iceland’s banks were suspended from trading.

”We’re taking the interests of the population as a whole ahead of the interest of the banks and their shareholders and providing the economy with a functioning payments and liquidity system,” Mr Haarde said.

Bankers at Kaupthing and Landsbanki, the country’s two biggest banks, reacted with shock. ”At the moment we are just trying to evaluate what it all means,” Sigurjon Arnason, joint chief executive of Landsbanki, told the Financial Times. He said he did not know if Landsbanki would be nationalised.

”It’s conceivable that some [banks] will not be able to function without our... intervening,” Mr Haarde said. The government last week took a 75 per cent stake in Glitnir, the third largest bank, in what may be a template for further part-nationalisations.

However, Kaupthing said on Monday night that it had been granted a loan by the central bank – believed to be about €500m – suggesting that it may continue as the only Icelandic bank with significant international operations.

Mr Haarde had approached other world leaders for help – among them Gordon Brown, UK prime minister – to solve a liquidity emergency in Iceland’s banking system, but the global problems meant no feasible proposals were forthcoming.

”In a situation like this it’s turning out that it’s every man for himself, every country for itself... That’s what we’re doing,” he said.

As the currency plummeted, Antje Praefcke, analyst at Commerzbank, said Iceland faced a ”balance of payments crisis”. ”We would also not be surprised to see the Icelandic krona lose its function as a medium of payment,” she said.

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U.S. Sheds 159,000 Jobs; 9th Straight Monthly Drop

2008-10-03T22:54:00.001-02:00

October 4, 2008

By PETER S. GOODMAN

The American economy lost 159,000 jobs in September, the worst month of retrenchment in five years, the government reported on Friday, enhancing fears that an already pronounced downturn had entered a more painful stage that could last well into next year.

Employment has diminished for nine consecutive months, resulting in the elimination of 760,000 jobs, according to the Labor Department report. Most of that occurred before the trauma of recent weeks, when a string of prominent Wall Street institutions nearly collapsed, prompting the government to propose a $700 billion rescue package.

“It’s a dismal report and the worst thing about it is that it does not reflect the recent seizure that we’ve seen in the credit markets,” said Michael T. Darda, chief economist at MKM Partners, a research and trading firm in Greenwich, Conn. “There’s really nothing good about this report at all. We’ve lost jobs in nearly every area of the economy, and this is going to worse before it gets better because the credit markets have deteriorated basically on a daily basis for the last few weeks.”

Only a few weeks ago, some economists still held out hopes that the economy might recover late this year or early next. But with the job market now swiftly deteriorating and fear dogging the financial system, what optimism remained has given way to the broad assumption that 2008 is a lost cause.

Most economists have concluded that, even in the rosiest outlook, the economy will continue to struggle well into next year. As anxiety spreads that banks may continue to hoard their dollars regardless of a rescue package from Washington, depriving businesses of capital needed to expand, more pessimistic forecasts call for the economy to remain weak through all of next year, before a hesitant recovery in 2010.

“This is an economy in recession, and every dimension of the report confirms that,” said Ethan S. Harris, an economist at Barclays Capital. “This has been preceded by a slow-motion recession. Now we’re going into the full-speed recession that will last somewhere between three and five quarters.”

For the first eight months of the year, the economy lost an average of about 75,000 jobs each month. September’s report more than doubled the damage, heightening the sense that an already weak economy has become even more frail.

As real estate prices have fallen over the last two years, American households have tightened up, curbing their spending. Businesses have cut payrolls in response to weakening sales, taking more paychecks out of the economy and weakening spending power further. Now that downward spiral is turning faster.

“Before the crisis took hold, the deterioration was worsening, and it sets us up for some really grim news in the immediate future,” said Robert Barbera, chief economist at the research and trading firm ITG. “Credit was already hard to get in early September. But it’s really impossible to get now as we enter the fourth quarter of the year.”

The government’s monthly snapshot of the labor market detailed a relentless assortment of woes afflicting American working families.

Manufacturing lost 51,000 jobs in September, bringing the decline so far this year to 442,000 and more than 4 million since 1999. Retailers lost 35,000 jobs in September. The construction sector shed 35,000 jobs. Employment in transportation and warehousing slid by 16,000.

Jobs in financial services dropped by 17,000 in September and have slipped by 172,000 since employment peaked in that part of the economy in December 2006. And that was before the bankruptcy of the Wall Street titan, Lehman Brothers; the bailout of the mortgage financiers, Fannie Mae and Freddie Mac; the fire sale of Merrill Lynch to Bank of America; the near disintegration of the insurance giant American International Group; and the government takeover and sale of Washington Mutual.

Health care remained a rare bright spot in the economy, adding 17,000 jobs in September. Mining added 8,000 jobs.

The unemployment rate remained steady at 6.1 percent, but economists said this reflected the fact that the official jobless rate does not count people who have given up looking for work. Over the last year, the unemployment rolls have swelled by 2.2 million, to 9.5 million.

Unemployment rose to 11.4 percent among African-Americans in September, and to 19.1 percent among teenagers, after the worst summer job market on record.

Over all, the number of people officially considered unemployed who lost their jobs — as opposed to those on temporary layoffs or who left work voluntarily — increased by 347,000 in September, to 5.2 million.

In Charlotte, Mich., Sean Schwartz, 26, has been out of a job for nearly two months since his stint as a construction worker ended with the completion of a storage bin for a corn seed plant. His $750-a-week paycheck has been replaced by a $620.10 unemployment check, every other week.

The father of a 2-year-old girl, Mr. Schwartz and his wife — who works at Wal-Mart — are expecting a new baby, a boy, in December. As the weeks pass and his job search turns up little beyond fast-food jobs at a fraction of his previous earnings, they are becoming anxious.

“We’re not getting the bills paid,” Mr. Schwartz said, estimating that they are behind as much as $5,000 on medical bills for his daughter and his wife’s prenatal care.

He thinks about traveling to another state for work, but he does not want to be away for the birth of his son.

“It’s rough,” he said. “There’s nothing really out there.”

People who are out of work are staying jobless longer. More than 21 percent of those receiving unemployment checks have been without work for more than six months, up from 17.6 percent a year ago, according to the Labor Department’s report.

The report amplified the sense that the nation’s economic downturn is hacking away broadly at tens of millions of families — even those that have not suffered the loss of a job.

The number of Americans working part time because their hours were cut or they could not find a full-time job increased by 337,000 in September to 6.1 million — a jump of 1.6 million over the last year.

Over the last year, average weekly wages for some 80 percent of the American work force have risen by a meager 2.8 percent, with the gains more than reversed by increases in the prices of food and fuel.

“This economy is just not creating near enough economic activity to generate job wage or income growth,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “That has serious living standards implications.”

The pressures are worsening. On Friday morning, banks needing to borrow from other banks were having to pay nearly 4 percent more than the Treasury pays in interest on savings bonds, reflecting the unwillingness of financial institutions to part with their dollars as the reckoning from an age of speculative excess goes on. That spread was greater than in the last two recessions and greater than after the 1987 stock market crash.

Even as Washington remained consumed with bailing out troubled financial institutions to try to make money flow more freely, analysts said the jitters would probably remain, with banks continuing to hang on to their dollars and more jobs evaporating from American life.

“The economy is clearly going to get worse before it gets better, with or without the rescue plan,” said Stuart G. Hoffman, chief economist at PNC Financial Services in Pittsburgh. “The rescue plan prevents it from getting much worse, but it’s too late to prevent a recession.”

Dow in record drop on U.S. bailout rejection

2008-09-29T23:30:00.000-02:00

Dow in record drop on U.S. bailout rejection

Reuters

Tuesday, September 30, 2008

By Steven C. Johnson

The Dow industrials plunged on Monday in their biggest decline ever after U.S. lawmakers unexpectedly rejected a $700 billion (377 billion pound) financial bailout, spooking investors who fear for the future of global markets and the U.S. economy.

The Dow lost 778 points, its largest point decline in history, and posted its biggest daily percentage slide since the 1987 stock market crash. The benchmark S&P 500 also had its worst day in 21 years after the House voted down the bailout plan by a count of 228 to 205.

The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks in an effort to kick-start much needed lending, was seen as crucial to shielding the economy from an even deeper slowdown.

That further unnerved investors who on Monday saw the credit crisis claim several new victims, including Wachovia Corp and a bevy of European banks.

Fear ran deep and widespread, as investors dumped stocks for the relative safety of U.S. government bonds. The Chicago Board Options Exchange Volatility Index , Wall Street's main barometer of investor fear, jumped 39 percent to 48.40, a nearly six-year high, and ended at 46.72 -- a record high.

"I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix," said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.

The Dow Jones industrial average sank 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index dropped 106.59 points, or 8.79 percent, to 1,106.42. The Nasdaq Composite Index lost 199.61 points, or 9.14 percent, to 1,983.73.

The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed. U.S. stock index futures were unchanged.

An index of financial services shares lost 16 percent, while Bank of America Corp fell 17.6 percent to $30.25. Goldman Sachs slid 12.5 percent to $120.70.

"This is bad in a lot of different ways," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading, in Boston. "Short-term, the market is getting crushed, but more importantly, we are telling clients we could be at the beginning of a whole new down phase. There is the potential for the S&P 500 to go all the way down to 1,000."

The bailout's demise comes after U.S. bank Wachovia was forced to sell most of its assets to Citigroup in a deal brokered by the Federal Deposit Insurance Corp.

That followed fast upon fresh signs that financial market turmoil was spreading around the world. European authorities in recent days were forced to step in and rescue a group of banks in Britain, Belgium, Germany and elsewhere.

Global money markets remained paralyzed, even as central banks, including the Federal Reserve, pumped cash into world markets in an attempt to boost liquidity.

Although there were doubts that the government's rescue package would be sufficient to shelter the economy and stem the turmoil's spread, investors said it was a necessary first step to restoring confidence in financial markets.

"We know that whatever they do won't save all the ills from an economic perspective," said Kurt Brunner, portfolio manager at Swarthmore Group in Philadelphia. "But to sit and maintain this sort of limbo is not good, and financial markets are reflecting that."

Technology shares also took it on the chin with Apple Inc's 18 percent slide to $105.26 leading the way after several brokerages slashed their recommendations on the tech bellwether and maker of the iPod.

Shares of Google fell 11.6 percent to $381, near a two-year low hit earlier in the day.

The bailout plan met heavy resistance from Republicans, who balked at the price tag and voted against the bill by a margin of more than 2 to 1. A majority of Democrats voted in favour.

"The problem is the American public resoundingly said 'no,'" said Linda Duessel, market strategist at Federated Investors in Pittsburgh. "It's such a difficult, complex and unprecedented situation, and maybe the average American either doesn't understand it or accept the ramifications of what might happen if (Congress) doesn't come through."

Volume was heavy on the New York Stock Exchange, where about 2.03 billion shares changed hands, above last year's estimated daily average of roughly 1.90 billion. On Nasdaq, about 2.80 billion shares traded, well above last year's daily average of 2.17 billion.

Declining stocks trounced advancing ones on the NYSE by about 30 to 1. On the Nasdaq, decliners beat advancers by more than 6 to 1.

Ron Paul on the Banker's Bailout

2008-09-26T20:55:00.001-02:00

Today's commentary elicited a bunch of Ron Paul sightings, including this letter that the Congressmen sent out recently to 'Dear Friends':

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

Corruption, Whispers & Receivership

2008-09-24T23:41:00.001-02:00

Corruption, Whispers & Receivership

by Jim Willie, CB. Editor, Hat Trick Letter | September 24, 2008

The United States has transformed itself, the most radical degraded aspects having occurred in the last eight years. Many might object or cringe at repeated mention of the Fascist Business Model implemented by the Clinton Administration, and carried to extreme by the Bush II Administration. It is a harsh departure from Beacon of Freedom. Too bad, fact of life! This merger of state and big business in the midst of a climax, the biggest display of exported financial toxin in modern history, and the disintegration of the financial structure for the nation owning the world reserve currency. The Fascist Business Model has criminal fraud & corruption as its chief characteristic, alienation & resentment as its chief foreign effect, and systemic failure & collapse as its chief outcome. Broad war often follows. How anybody could think the sharing of bank and oil executives with federal government leadership as a move toward progress on the evolution chart, that is moronic. Surely, it is about political power and corruption. The military budget is sacred, and private contractor deals are made without bids. Now five to six energy giants will hog all Iraqi oil service contracts. The terrorism topic is untouchable for dispute. A Coup d’Etat is in progress as the Wall Street conmen and fraud kings have taken implicit control of the USGovt. This will be recognized in time, even while resistance is evident. To me the ongoing drama smacks of a comedy of corruption. US citizens are in shock & awe, while foreigners are aghast in disgust.

Hidden in the bowels of the Lehman Brothers failure cleanup process was a convenient provision. The JPMorgan firm was given $138 billion to settle ‘private accounts’ in what seems like a clear case of corruption, a handout of counterfeit money, enabling JPMorgan to reload for costly credit default swap losses or for costly gold suppression games, or both. Goldman Sachs and Merrill Lynch have succeeded in converting to private banks, just in time to benefit from the trough devised to benefit banks. Is there a secondary benefit of averting legal liability for bond fraud, since now a new financial firm? These are two more egregious examples of the deep collusion in the Fascist Business Model, a theme that has reached climax proportions. The Securities & Exchange Commission, the Commodities Futures Trading Commission, the Debt Ratings Agencies, the military contractors, and professional lobbyist groups work toward rounding out the collusion pentagrams. See a list of dumbfounding factors, angles, stories, and developments at the end of this article, in outline form. The bust continues.

The final battle is underway, for USGovt bailout of practically the entire US banking and mortgage system. Its ancillary businesses like insurance are next. The Credit Default Swap segment represents nitroglycerine soon to be brought under the crippled USGovt aegis. The mega bailout plan puts Wall Street firms first in line to benefit. The plan in my view is the culmination of arrogant criminality, as its architects and promoters are the primary agents for the banking system collapse itself. Only one or two senators in Congress had the stones to confront Treasury Secy Paulson and USFed Chairman Bernanke, calling them on their extreme gall to dictate to Congress on bailout responsibility, when failures by the collection of banksters caused the problems even as their cohorts stand in line for deep financial assistance. The claims by Paulson that taxpayer protection is first and foremost is another total lie. His first priority is to funnel as much public money into Wall Street balance sheets before the grand game is shut down. Another phony call, deep lie, pure nonsense!

The desire for punishment, prosecution, and avoidance for benefits has come like a wave. We will see if its legislative delays result in months of grandstanding debate as Rome burns. In haste, the nationalization of the banking and mortgage industry might achieve legislative passage in the same manner as the Patriot Act, without reading its provisions. Pressure builds for passage without examination, with questions and objections regarded as unpatriotic. The next step is for big bold lies of assurances to be given, enough for satisfying sleepy Congressional senators and representatives, few of whom are aware of the deep fraud laced into the banking and asset base being rescued. The plan is being sold as a pre-emptive maneuver to ward off a disaster, providing necessary liquidity ahead of the likely unfolding events instead of providing funds after a bank failure. Fraud’s best friend is amplified liquidity doled out during times of emergency expedience.

One should have noticed on Tuesday that Paulson totally overshadowed a confused bewildered Bernanke, as the seasoned Wall Street conman even answered questions directed at the university rookie. Gentle Ben is totally out of his league when dealing in financial crime syndicate circles. No college courses on syndicates! Bernanke himself is shocked at how wide the ‘Too Big To Fail’ umbrella has become, this from a man who once claimed the subprime mortgage crisis would be contained and not result in any contagion. My retort was to expect total systemic bond contagion, a correct forecast. Bernanke actually is telling Congress today that he expects no inflationary impact from the banking and mortgage bailout program, a truly gigantic package with monstrous inflation implications! The estimated $700 billion bailout cost is laughable, when it will ultimately cost between $1500 and $2000 billion. The entire mega bailout package (let’s be clear) covers the entire US banking industry.

Congressman Ron Paul made a great quote after lecturing the inept misguided and naïve USFed Chairman Bernanke on the high risks of price fixing. The bailout constitutes the quintessential price fix. Ron Paul said, “Most illiquid bond assets are illiquid because they are not worth anything.” The Wall Street fraud kings want the USGovt to pay inflated values for their illiquid worthless assets that clog and obstruct the banking industry. Bernanke actually regards the payment for bank bailouts can come from other funds. He implies the Exchange Stabilization Fund can use its funds. If Plunge Protection Team funds are co-mingled, these funds might be closely connected to USGovt security agency fraud associated with gutting of Fannie Mae. That is a perverse irony! By the way, where is Greenspan, whose fingerprints are on every object being dusted by intrepid examiners. He handed over the reins to a bagholder named Ben, just another dumb university economics professor. To succeed in academic economics circles, one must embrace heresy and weave logic like pretzels.

Paulson is attempting to shove a package down Congressional throats. Bernanke looks in body language like a boy caught in a disaster as his entire neighborhood burned down despite his best (but late) efforts to call in a district full of fire trucks. He actually looks like a man who has slept little in two weeks. To be sure, the Congress has been slow to react to the mortgage and banking crisis, choosing to delay until the new presidential term in office. Congress has become a den of irrelevant men and women owing more to lobbyists than to the people. Their chief function is to apply rubber stamps to directives crafted by others, usually from an array of bankers themselves. Why even GeorgeW himself is aghast!

Events are moving toward climax. The next sequence of events can no longer be regarded as coming from traditional ‘Inside the Box’ solutions. We are way beyond that arena, now firmly in the Twilight Zone. My past forecasts have been verified for bank system collapse, housing market’s unending decline, nationalization of soon everything under the US tainted sun, and finally the New Resolution Trust Corp. The New RTC is being argued as it takes shape. It is called the Troubled Asset Relief Program (TARP). That name conjures up images of the roof tarps that are dotted across the New Orleans landscape from federal programs to repair roofs after Hurricane Katrina. After numerous subcontractor steps, the $150 per square foot allotted by the USGovt resulted in cheap flimsy tarps instead of nice shingled roofs. A better title for the mortgage relief program would be the Securitized Housing Investment Trust (SHIT), offered by an emailer to CNBC. These bond assets are not troubled assets, but rather fraudulent assets. The new finance czar Paulson has asked for a blank check with trust given, laden with low-ball cost estimates, or else the system will surely fail. Why should representatives and elders of Congress trust Wall Street executives? They deserve prosecution, indictment, prison terms, and forced restitution instead. We are witnessing financial treason. Instead, some executives like at Fannie Mae and Freddie Mac received huge severance packages, and Lehman Brothers executives were granted the same. The events are moving toward some upcoming surprises of historical magnitude. Think default and receivership, with foreign control. The massive rollover and refunding requirements from USTreasury Bonds will put monumental strain on the system, which the monetization US$ printing press cannot alone manage. Unless and until foreign creditors step in, the US financial sector will continue to operate like a crime syndicate, since regulatory bodies and law enforcement officials are all part of the coordinated congame.

PREFACE

Many of the overwhelming impressions from the unfolding events are to appear in the October Hat Trick Letter report. First attention must go to paid subscribers. Events is in progress in an accelerated pace, enough to take my breath away on a given day. But rain and cheery faces in Costa Rica straighten me quickly. For more evidence in backing up my claim that private brokerage accounts being open for financial parent firm claim, see the October report also. Numerous (dozens) of emails came in request. The report will show the best information on this subject, with quotes freshly hidden within the US Federal Reserve website. No need to make such stuff up, since the US financial authorities are better than fiction! By the way, if my analysis and forecasts have any advantage over others, it is because my thought process comes from always thinking like a thief. Never think the best thoughts, hope for the best of human dignity, or expect fair play to emerge when forecasting the US financial markets. Their plan seems obviously to gut the system before it fails. Then they blame foreigners. False flag attacks then seal the deal, much like cauterizing a wound with a knife made hot in a bivouac fire.

Here is an outline of topics covered in the next report, due out in the next couple weeks. The date is not set, but the messages are becoming clear. Pardon the brevity of important points, but details are difficult to describe with brievity, and are saved for the next Hat Trick Letter. The ongoing format no longer will be continued as from past issues. Every report is a report of an emergency nature. We are observing the painful steps from failure of a system, with 330 million inhabitants, and commercial tentacles the world over. The four primary features that have pushed the United States into a certain position in Third World status are these:

globalization with deep Western investment in China
insolvency of four pillars of federal, trade, housing, banking
export of fraud with mortgage bonds, mainly to China, Europe, Russia, England
military aggression and annexation with continuous deceit and propaganda.

The many points describe a system broken without remedy, inviting default and receivership. Both are in progress behind the curtains, but on foreign soil. As Mohamed El-Erian of PIMCO (formerly Harvard Univ) said recently, “The unthinkable is thinkable.” Little known to the majority of Americans, foreign disgust grows. Their desire to isolate the United States is growing, in order to protect themselves from financial collapse and further spread of fraud. The German economics experts are saying “The World Shouldn't Have to Bear the Burden for America's Lapses” in Spiegel Online (click here) in a public article.

Listen to my interview this week handled by Contrary Investors Cafe Radio (click here), where we covered several of the topics mentioned throughout this article.

GOLD LAUNCH & USDOLLAR DEMISE

Not exactly mirror images of each other, the gold price and US$ index are moving in typical opposite directions. A peak in the USDollar occurred in early September, at the same time a bottom occurred for gold. The forewarned timing of events turning sharply around in the week of September 15th happened on schedule. Once again, the short rule restriction against bank stocks helped to stem the flow that favored the euro currency rise by 330 basis points on Monday. The USDollar fundamentals have begun to resemble those of a Third World. The USGovt federal deficits are accelerating. The US trade gap has turned toward a rise again. The housing market continues to hurtle down in its price decline, that being the primary force behind the bank collapse. Now finally comes the climax. USEconomic recession is intensifying, notwithstanding absurd USGovt statistics to the contrary. The nationalization movement for Fannie Mae, Freddie Mac, AIG, not to mention the steady handouts to JPMorgan, have assured of continued heavy red ink in deficits to the USGovt federal budget. Monetization under the table to firms like JPMorgan are happening somewhat in the open, but not properly understood by the masses, trained and untrained. The endless war is a sacred cow of bottomless costs, largely to support the other syndicate, the US security agency clandestine trafficking out of Afghanistan. Foreigners watch the heightened risk having become acute. The USDollar will be sold, and gold will be bought. A COMEX delivery default in gold is in progress.

Few are thinking in nonlinear or discontinuous terms. When (not if) the USTreasurys suffer a default, totally assured in my mind, confirmed by my sources of information, the gold price will launch onward and upward in huge steps. Even without a default, the strains on the USGovt budget will result in extraordinary risk either on the USTreasury Bond yield from added supply, OR on the USDollar from cowardly requisite monetization of debt. My conjecture is the first couple fundings for USGovt bailout debt obligations will be done with normal USTreasury auctions, not to mention some off-budget games. The next fundings will be done via pure monetization. The entire nationalization will cost another $1500 to $2000 billion for banks assets and mortgages, on top of another $1000 billion for an array of US industrial and financial giants outside the banking world. The failed US firms like General Motors are already lining up. So foreigners will be expected to foot the bill??? No way! They will pull the plug, or at least diversify in a huge way out of the USDollar and US$-based bonds.

NOTES & WHISPERS IN ILL WIND

The list of breakdown items, evidence, and criminal overtones is vast.

Money market funds almost caused a seizure earlier this week, which means the banking system almost went into a fatal cardiac arrest episode. The seizures spread across entire the financial system, even to brokerage funds, and extended to foreign banks. The commercial paper market was also affected. The Exchange Stabilization Fund was used, having possible currency implications.
Foreign entities were blocked from participation in both the Lehman Brothers and American Intl Group (AIG) busts, partly to retain control, but also most likely to limit opportunity for foreigners to obtain data, documents, and records of extreme fraud. The Germans pursued the AIG insurance units in a natural acquisition, far more prudent than inefficient USGovt conservatorship.
The USEconomy would move toward a centralized Soviet structure, not socialism, if liberties are curtailed further, especially if martial law is imposed. Rationing is a very real prospect. Watch freedom of speech, assembly, and more.
The nationalization of Fannie Mae puts the $1500 billion documented fraud since 1988 on the national tab. The New Jersey burnout home selling for $230k in a Fannie loan, the micro example, has played out on a national aggregate scale. The subprime mortgage movement used to be the visible portion of the mortgage crisis. The Fannie Mae gigantic fraud has been covered by the greater mortgage crisis, perhaps in a wildly successful multi-year project. Thanks to the intrepid Aaron Krowne of www.ML-implode.com for his shared ideas.
Final banking & mortgage system bailout by the USGovt might not occur until issues are addressed regarding prosecution, confessions, resignations, state’s evidence, and eventually restitution. The concept of RICO law enforcement against Wall Street would be both unprecedented and empty, since most assets have been gutted. No, on second thought, despite objections, the Congress will pass the bailout bill without reading it.
The move to halt home foreclosures is a typical stupid Congressional idea, which might result in civil disobedience and scoffing at mortgage payment on a broad scale. Worse, almost all cost estimates are wrong by a factor of 10x from reasonable forecasts. The pattern is to establish the plan, and deal with cost overruns later. Foreigners are still expected to pay the bills for American deficits anyway.
Watch the Lehman Brothers liquidation process, kept hidden. The dead are still trying to marry the dead in farcical ceremonies. The bond cemetery within the New RTC was crafted when it become clear the Lehman liquidation would kill all of Wall Street. Don’t expect any consummation of such necro-marriages to bear offspring. They will not make love with each, but rather EAT EACH OTHER.
Wall Street firms are now almost all aligned in similar fashion. If one fails, they all suffer the same risk from similar balance sheet of assets. Marking down one firm’s asset in liquidation would result in the failure of all of them. Any USGovt bank bailout has an unintended consequence of instant markdowns in market value of assets held widely throughout Wall Street and bank industry balance sheets. These banks have resisted writedowns in honest accounting, as only a small handful of financial firms have taken losses in earnest.
Any New Resolution Trust Corp for mortgage bailout rescues (a correct big forecast) would ostensibly be managed by the same Wall Street villains who are implicated in massive trillion$ fraud. Expect one in three dollars to be stolen by further fraud, just like the Hurricane Katrina relief efforts. To question their fraud in unpatriotic.
Private brokerage stock accounts can now be borrowed by financial firms, evidence produced in Federal Reserve documents. A gigantic final heist might be in the works, requiring a massive event that provides the cover of confusion like a World Trade Center attack. The Glass-Steagall Act was not repealed without a reason and plan! Its removal enables co-mingling of bank, brokerage, and insurance assets.
A pattern seems evident among failing Wall Street firms. It seems Wall Street firms without extensive stock brokerage accounts are permitted to fail first, leaving private accounts vulnerable. It seems Wall Street firms with big foreign equity ownership are set to fail last, leaving foreigners outside the loop.
The bank short rule restriction once more has been brought back. That emergency measure is as corrupt as possible, a horrible black eye to a nation that claims to be the home of free markets. The re-enacted rule has helped support the USDollar.
Tremendous strong high pressure zones are building on monetary inflation, while tremendous strong low pressure zones are building on asset price decline. The combination will surely make for some of the greatest financial storms in modern history, some already witnessed, and more sure to come.
Much talk has come of continuing independence of US financial firms, when they are beset by insolvency and worsening liquidity problems. The same applies to the USGovt, whose liquidity flow depends upon foreign credit supply. They have been defrauded, treated with hostility in trade and currency management issues, and in the case of Russia, subjected to military aggression and NATO treaty violation.
The totality of events has placed enormous concentrated risk on the USDollar, and consequently on the USTreasury Bond. Expect sharp decline in the US$ and default of the USTBond. Both fraud and nationalization has amplified the pressures.
The Global Energy War has opened a new front in the Global Capital War. Aggressive US actions to secure energy supply have endangered its capital supply. The backlash is not even on the American radar systems, as arrogance prevails. In high commerce and banking circles, the US is being isolated. Many European firms do not return phone calls to US bankers, on orders. An analogy of ‘glow candles for diesel engines’ has been stated for upcoming response to US bankers.
Reports have come from a London source that gold futures contracts are being settled in cash only at the COMEX, rather than with physical gold metal. That leaves would-be buyers without the metal they wish to take on delivery under contract. IS THAT NOT A DEFAULT?
The Hurricanes Gustav & Ike have hit the Southeast region hard, resulting in gasoline rationing. This trend might soon extend nationwide, and broaden to include more items. Hits to AIG and other insurance firms come at a bad time.

A solution comes from foreign creditors that does not require Congressional approval or vote, constituting an event to pull the rug from under the Americans. The avenue will be via bank channels. A receivership committee is being formed. More details are a main feature of the October HTL report. The accumulative debt held by US and foreign entities is so grand, that every single day interest of almost $1 billion is owed to them on a daily basis for the USGovt Treasury and Agency mortgage bonds. If the USGovt were to shut down all operations and provision of services, including military, the USGovt might achieve a balanced budget. It could balance its budget from tax revenue against just the interest expense on debt, with no other official function whatsoever. An interesting concept. Maybe that is part of the next Receivership Committee plan.

And the Band Played On

2008-09-23T00:11:00.000-02:00

And the Band Played On
BY ROB KIRBY

To say that events that unfolded in the world’s financial markets last week were ‘unprecedented’ is perhaps a little too cliché. So let us revisit some of the key events which reportedly unfolded in the wake of Lehman’s demise – a fate that was sealed last weekend [Sept. 13 / 14] when last attempts to rescue the storied U.S. Investment Bank hit-the-rocks [or ice, perhaps?].

Lehman’s Demise Was Most Assuredly All-About J.P. Morgan

First off, I found it perversely odd that there were allegedly serious suitors who got to take a peak at the state of Lehman’s finances. Institutions rumored to be involved were Korea Exchange Bank, Barclays and B of A. What stuck in my craw was the widely publicized revelation that,

The Lehman rescue failed because the US government was unwilling to issue guarantees to the potential purchasers.

Ladies and gentlemen, are we to believe that the U.S. Fed and Treasury preferred to shoulder, as it turns out, the bailout of the whole global financial system rather than provide some comfort for a would-be purchaser of Lehman?

This makes absolutely zero sense. But the following does:

Late last week, I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning.

This bears repeating.

The advance was reportedly “to allow” Lehman to settle securities trades with clients. J.P. Morgan was then immediately reimbursed by the Federal Reserve for the same 138 billion.

What was not originally reported, or likely not understood at the time due to the types of securities that Lehman did most of their business in [Credit Derivatives], it is a virtual certainty that J.P. Morgan [the largest derivatives player in the world with 8.1 Trillion in Credit Derivatives alone] was the “client” [the other side of the Lehman trades that needed to be settled].

The critical piece of information that completes the daisy-chain: The world only learned about J.P. Morgan’s 138 billion advance from a bankruptcy court document, where Lehman was asking the court for the authority to give the settlement of claims of J.P. Morgan “special status.”

Here’s how this flow-of-funds looks visually:

It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase.

This makes sense. Investment banks are dropping like flies, owing to their involvement in credit derivatives – this is a fact.

J. P. Morgan is – HANDS DOWN – the largest derivatives player in the world with a book of 90 Trillion in notional value on March 31, 2008 – with 9% of the book composed of Credit Derivatives. That amounts to a cool 8.1 Trillion worth of Credit Derivatives. We know this from the Office of the Comptroller of the Currency’s Quarterly Derivatives Report – pg. 24.

As to “how” J.P. Morgan could be insolvent without a public declaration, I remind you of something mentioned in this space on several occasions; it was Dawn Kopecki that reported in BusinessWeek Online, back in 2006, in a piece titled, Intelligence Czar Can Waive SEC Rules,

“President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”

In this space over the past 4 years, much has been reported concerning charges of interference [by the Federal Reserve and Government] in what are allegedly “free markets.” Officialdom, along with their agents in the controlled mainstream media, has long dismissed these claims as the work conspiracy minded kooks. Then, just last week, the Chicago Tribune published an article – citing a private meeting that economist David Hale had with Fed Chairman Ben Bernanke,

NAPLES, Fla. — Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.

The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.

"Ben, you are playing a very unique role in world economic history," Hale recalled telling Bernanke, an expert in the Great Depression. "You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices."

Bernanke could hypothetically limit inflation in commodities by raising interest rates, a policy that would restrict the flow of money but potentially lead to an avalanche of bank failures. At a financial conference in Florida on Tuesday, Hale, a Chicago-based economist for investment managers, hedge funds and multinational companies, paraphrased the Fed chairman's response.

"We have lost control," said Hale, quoting Bernanke. "We cannot stabilize the dollar. We cannot control commodity prices."…

Where I come from, when one “loses control” of things – it implicitly means that they previously HAD control of the same.

Ergo; this amounts to confirmation – from Ben Bernanke himself – the Fed and / or Treasury HAS BEEN preoccupied with and actively involved in price suppression in the commodity complex.

Make no mistake, these vain attempts to “rig” or control the global markets alluded to above are primarily responsible to the distortions and dislocations which have destabilized our current global financial order.

To help drive this point home, consider how the Washington Post reported the tone of deliberations between monetary officials on Capitol Hill on Thursday night – Sept. 18th,

Congressional leaders gave bipartisan support to the administration's efforts after a meeting last night with Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke

Paulson and Bernanke presented a "chilling" picture of the state of the financial system, according to a participant in the meeting who spoke on condition of anonymity. Lawmakers were told that the consequences would be grave if they failed to pass legislation by the end of next week. Sen. Harry Reid (D-Nev.) and Rep. Nancy Pelosi (D-Calif.) committed to meeting that deadline.

So it really should come as no surprise that, as the text of Messer’s Paulson and Bernake’s latest “bailout plan” emerged this past weekend, it included such “ripe” stanzas as,

"Treasury will have authority to issue up to $700 billion of Treasury securities to finance the purchase of troubled assets. Authority to Purchase.--The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States."

and,

“Treasury's actions may also not be reviewed by any court of law or any administrative agency.”

It would now appear that we’ve come full-circle; the duopoly of the Fed / Treasury who have led us into the abyss are now being granted a blank check with no recourse available to anyone. The money changers are now writing their own laws, so it’s all going to be legal [or tolerated, perhaps?] too – at least for now – in America.

Given that the fiat U.S. Dollar is the world’s reserve currency, the flagship brand of the global Central Banking Cabal, it is now likely that real “undisclosed” struggle we are all really facing is, perhaps, the global collapse of fiat currency.

Goldman Sachs and Morgan Stanley have been granted banking charters and drinks will be served promptly on the stern of the Titanic.

Even Gingrich Knows Better

2008-09-22T23:32:00.002-02:00

Gingrich On Why Bailout Plan Is 'Just Wrong'

Listen Now [5 min 4 sec] add to playlist

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J. Scott Applewhite/AP

Former House Speaker Newt Gingrich, pictured here in January 2008, calls the $700 billion bailout a "very, very bad idea."

Web Resources

Gingrich's National Review article

All Things Considered, September 22, 2008 · One prominent conservative urging Congress to step hard on the brakes in the $700 billion bailout plan is Newt Gingrich, the former speaker of the House of Representatives.

In Sunday's National Review online, Gingrich writes: "Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess."

In a conversation with NPR's Melissa Block, Gingrich says he thinks the bailout plan is "just wrong," and that "it's likely to fail, and it's likely to make the situation worse over time." A transcript of their conversation follows.

This $700 billion bailout plan, this potential 20-year mess that you're talking about, comes from a Republican administration, comes from your own party. What's happened to Republican faith in small government and free markets?

Well, I think you have a Goldman Sachs chief of staff to the president and the Goldman Sachs secretary of the Treasury. And they convinced the president that the American people ought to send $700 billion to Wall Street, which I think is a very, very bad idea, and I would argue is a very un-Republican idea. I don't understand what they think they're doing.

I think that it's likely to fail, and it's likely to make the situation worse over time. And I think that [U.S. Treasury] Secretary [Henry] Paulson has shown almost no understanding of how a democracy operates. His initial draft would have given him $700 billion of your tax money with no oversight, no judicial review, no accountability. I mean, we're not a dictatorship.

Well, the last time we were promised they were going to save us, it was $300 billion; it was a housing bill. Now we have brand-new liberal Democrats, many of whom — for example [Connecticut Sen.] Chris Dodd — was the largest single recipient of money from Fannie Mae and Freddie Mac, and he is the chairman of the Banking Committee. So the guy who got the most money is now going to write a bill to give taxpayers' money to the people who gave him money. Somehow, I am not reassured.

I don't think the taxpayers should be socked for $700 billion for welfare for Wall Street. I think it's fundamentally wrong, and I think that it is very likely to create a bureaucratic control of our financial system in a way that will cripple us for 20 years.

Secretary Paulson has been consistently wrong for a year-and-a-half. He told us for a year-and-a-half this wasn't a dire crisis; this wasn't going to happen. So the very people who told us for a long time not to worry about it are — I know they're panicked. Whether that means that we should be panicked, I'm not sure. And I think the purpose of the Congress, the purpose of the House and Senate, is to be a check and balance on the executive branch, not to automatically write blank checks.

if I'm wrong, then we're going to have a significant problem. And if I'm right, we're going to have a bigger problem. So I think part of the question is, why can't this be done out in an open debate, have an openly marked-up bill, have the American people know what's being asked of them?

I was just reading an analysis by a very sophisticated person who said that there's been at least one leak from a congressional staff briefing by Secretary Paulson, in which he clearly indicated he intended to buy assets at above their market value. And that — why should the taxpayer do that? I mean, why are we not saying, 'We'll provide enough capital to avoid collapse, but we're not going to provide enough capital to guarantee the profits of Wall Street people' — who, after all, last year, at Goldman Sachs alone had three people each earning $73 million a year. Now, why should we bail them out?

What are you saying the incentive would be for, say, Secretary Paulson or Ben Bernanke to be rushing something through if it weren't urgently needed? What would their motivation be for that?

A couple of things — first of all, they're probably genuinely panicked. And I think that's real. I think they're tired; I think they've been consistently wrong, and now they're looking at a precipice that's very frightening. I think, second, that they have a very Wall Street-centric view of the world. And I think that rather than saying, 'What are the big, profound changes we need to fix America?,' they are saying, 'What are the immediate quick fixes for Wall Street?' — which I think, in the long run, just makes us weaker and sicker.

I think, third, they know that if they don't rush it through, it has no hope, because as the American people learn the details, they're just going to scream at their House and Senate members.

Turn out the lights...

2008-09-22T00:56:00.000-02:00

The Party's Over

By Patrick J. Buchanan

19/09/08 "CS" -- - The Crash of 2008, which is now wiping out trillions of dollars of our people's wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.

The new era will see a more sober and much diminished America. The "Omnipower" and "Indispensable Nation" we heard about in all the hubris and braggadocio following our Cold War victory is history.

Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.

This is nonsense. What we are witnessing is the collapse of Gordon Gecko ("Greed Is Good!") capitalism. What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.

A true conservative cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic. He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.

Is that really what got Wall Street and us into this mess — that we followed too religiously the gospel of Robert Taft and Russell Kirk?

"Government must save us!" cries the left, as ever. Yet, who got us into this mess if not the government — the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

For years, we Americans have spent more than we earned. We save nothing. Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels. And with pensions and savings being wiped out, much of that debt will never be repaid.

Our standard of living is inevitably going to fall. For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

We are going to have to learn to live again without our means.

The party's over

Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.

But this generation decided that was yesterday's bromide and we must march bravely forward into a Global Economy, where we all depend on one another. American companies morphed into "global companies" and moved plants and factories to Mexico, Asia, China and India, and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.

As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.

At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise. The dollar began to sink, and gold began to soar.

Yet, still, the promises of the politicians come. Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.

John McCain is going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or "bomb, bomb, bomb," with Joe Lieberman as wartime consigliere.

Who are we kidding?

What we are witnessing today is how empires end.

The Last Superpower is unable to defend its borders, protect its currency, win its wars or balance its budget. Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

The Bi-Partisan Origins of the Financial Crisis

2008-09-21T01:41:00.000-02:00

The Bi-Partisan Origins of the Financial Crisis

Shattering the Glass-Steagall Act

By WILLIAM KAUFMAN

If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.

The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."

The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.

But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.

This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:

REPUBLICANS FOR (52): Abraham, Allard, Ashcroft, Bennett, Brownback, Bond, Bunning, Burns, Campbell, Chafee, Cochran, Collins, Coverdell, Craig, Crapo, DeWine, Domenici, Enzi, Frist, Gorton, Gramm (Tex.), Grams (Minn.), Grassley, Gregg, Hegel, Hatch, Helms, Hutchinson (Ark.), Hutchison (Tex.), Inhofe, Jeffords, Kyl, Lott, Lugar, Mack, McConnell, Murkowski, Nickles, Roberts, Roth, Santorum, Sessions, Smith (N.H.), Smith (Ore.), Snowe, Specter, Stevens, Thomas, Thompson, Thurmond, Voinovich and Warner. DEMOCRATS FOR (38): Akaka, Baucus, Bayh, Biden, Bingaman, Breaux, Byrd, Cleland, Conrad, Daschle, Dodd, Durbin, Edwards, Feinstein, Graham (Fla.), Hollings, Inouye, Johnson, Kennedy, Kerrey (Neb.), Kerry (Mass.), Kohl, Landrieu, Lautenberg, Leahy, Levin, Lieberman, Lincoln, Moynihan, Murray, Reed (R.L), Reid (Nev.), Robb, Rockefeller, Sarbanes, Schumer, Torricelli and Wyden.

REPUBLICANS AGAINST(1): Shelby.

DEMOCRATS AGAINST(7): Boxer, Bryan, Dorgan, Feingold, Harkin, Mikulski and Wellstone.

NOT VOTING: 2 REPUBLICANS (2): Fitzgerald (voted present) and McCain.

The House Democrats were no less enthusiastic in their endorsement of this invitation to plunder--the repeal passed there by a margin of 343-86, with the Donkey Party favoring the measure by a two-to-one margin, 138-69. Current House speaker Nancy Pelosi managed not to register a vote on this one, so great was her fear of offending her party's corporate paymasters even though she knew passage was a sure thing.

According to Wikipedia, many economists "have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis. The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities. Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before using loopholes in Glass-Steagall that allowed for temporary exemptions. With lobbying led by Roger Levy, the 'finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, ' according to the Center for Responsive Politics. ' These industries succeeded in their two decades long effort to repeal the act. ' "

This lust for banking largesse is as wanton among Democrats as Republicans--right up to the current presidential campaign. According to the Phoenix Business Journal,

Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.

Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.

Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors. JP Morgan acquired Bear Stearns with the federal government taking on as much as $30 billion Bear assets as part of the deal. McCain's top donor sources include Merrill Lynch, Goldman Sachs, Citigroup and Blank Rome and Greenberg Traurig LLP law firms.

So . . . the next time a mass-media-lulled Democrat ridicules Ralph Nader for arguing that there are few significant differences between the two major parties on the truly important issues, you might refer them to this atrocity, along with all the other ones.

Bonner

2008-09-20T19:18:00.000-02:00

*** “Is the United States no longer the global beacon of unfettered, free-market capitalism?” asks the International Herald Tribune .

“We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have imagined itself doing in its wildest dreams,” says Ron Chernow, a leading American financial historian.

Where has he been? Where have they all been? They might as well be a spider watching a couple make love; he sees the action but has no idea what is going on.

The Bush Administration has been the most liberal administration since Franklin Roosevelt. It has added more debt, more restrictions, more jackass programs, wars, spending, humbugs and bamboozles than any U.S. government in half a century. The one thing it hasn’t done is raise taxes to increase federal revenues; thank God. But it spent the money anyway!

Not that we’re complaining. Far from it. We’ve enjoyed the show.

Besides, our role here at The Daily Reckoning headquarters is not to gripe and moan...but merely to try to understand. How is it possible for a “conservative” government to nationalize the insurance business? What comes into the heads of “conservative” leaders that makes them want to spend a half trillion they don’t have bailing out investors? Why would any U.S. official with his wits about him want to raise the possibility of war with Russia...over Georgia? Maybe Atlanta would be worth defending...and even there we have our doubts. But Tbilisi?

How does it work? How do people come to think such things? We don’t know, but we have a theory:

People come to think what they must think when they must think it.

In other words, history follows certain patterns. Not predictable. Not exact. But broadly reflecting the inherent blockheadedness of the race...and generally in line with historical precedents.

America is in a period of imperial decline. Its economy is slipping. It citizens are getting poorer, both absolutely...and relative to the rest of the world. The “smart” thing to do would be to hunker down, cut costs, bring troops home, reduce Medicare and Medicaid, raise interest rates, encourage saving and give the country time to get back on its feet economically...so it could enjoy its relative decline with good grace.

But that’s not the way history works. Did Alexander stop at the Hellespont? Did Napoleon stop at the Rhine? Did Hitler stop at the Oder? George Bush I stopped at the border of Iraq. But George W. Bush, under the sway of the neocons, kept going. His mission: to destroy the U.S. empire.

No, of course...he doesn’t know that’s his mission. He’s an agent of change...a useful idiot, as Lenin would have said...a stooge...willing to do what isn’t so smart, but what helps the course of history along to its end.

And now, we have a financial crisis. Does the government respond like Andrew Mellon in the ’20s? “Liquidate labor...liquidate the banks...liquidate the farmer...” said Mellon, willing to let the chips fall where they may. No. That would be smart. Get it over with. Move on. But because the U.S. economy is in a long-term decline, moving on is the last thing people want. In the ’20s, the United States could let chips fall...because it had a growing, dynamic economy. Other chips would rise up quickly. But now it must try to keep the chips from falling...because it is mature...aging...decaying. It wants to hold on...to keep things together...to avoid change.

That’s why socialism is so attractive to Americans...it offers the illusion of safety and stability.

Goodnight Irene

2008-09-19T09:22:00.000-02:00

09/18/2008 12:44 PM

US FINANCIAL CRISIS

'The World As We Know It Is Going Down'

By Marc Pitzke in New York

Panic is the word of the hour on Wall Street. Now even Morgan Stanley is fighting for survival. The commercial bank Wachovia and China's Bank Citic are being discussed as possible rescuers. The crisis has led President Bush to cancel a trip.

REUTERS

For traders, now might just be the worst of times.

The original plan actually called for humor. On Wednesday evening, actress Christy Carlson Romano was supposed to ring the closing bell on the floor of the New York Stock Exchange (NYSE) to mark her debut in the Broadway musical "Avenue Q." She plays two roles on stage -- a romantic kindergarten assistant, and a slutty nightclub singer.

After that day on the floor, the stock traders could have used a bit of comic relief. But it was not to be. Instead of Christy Carlson Romano, a NYSE employee in a joyless gray suit stood on the balcony and silently pressed a button. The bell rang and he disappeared. No waving, no clapping, none of the usual jubilation.

By the end of Wednesday, no one here was in the mood for laughter. The bad news on Wall Street was coming thick and fast. All the US indexes were crashing again after Tuesday's brief and deceptive breather. In its wild, rollercoaster ride, the Dow Jones lost about 450 points, which was almost as much as it lost on Monday, the most catastrophic day on US markets since 2001.

Investors were turning their back to the market in droves and fleeing to safer pastures. The price of gold broke its record for the highest increase in a one-day period.

Panic Is the Word of the Hour

Traders abandoned the NYSE temple visually defeated and immune to the TV crews waiting. The disastrous closing prices were flickering on the ticker above the NYSE entrance: American Express -8.4 percent; Citigroup -10.9 percent; JPMorgan Chase -12.2 percent. American icons, abused like stray dogs. Even Apple took a hit.

"I don't know what else to say," stammered one broker, who was consoling himself with white wine and beer along with some colleagues at an outdoor bar called Beckett's. Ties and jackets were off, but despite the evening breeze, you could still make out the thin film of sweat on his forehead. His words captured the speechlessness of an industry.

Things got worse after the markets closed. Washington Mutual, America's fourth-largest bank, announced that it had started the process of putting itself up for sale. The Wall Street Journal reported that both Wells Fargo and the banking giant Citigroup were interested in taking over the battered American savings bank.

And then came the announcement that would dominate all of Thursday's market activities: Morgan Stanley -- the venerable Wall Street institution and one of the last two US investment banks left standing -- had lost massive amounts and was fighting for survival. Media reports were saying that it was even in talks about a possible bail-out or merger. Rumor had it that possible suitors might include Wachovia or China's Bank Citic.

China?

"Folks," economist Larry Kudlow, a host on the business channel CNBC begged his viewers that evening, "don't give up on this great country!"

End of an Era

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that's changing. Bear Stearns, Lehman Brothers, Merrill Lynch -- overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and -- at least in Morgan Stanley's case -- have prepared themselves for the end.

"Nothing will be like it was before," said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. "The world as we know it is going down."

Many are drawing comparisons with the Great Depression, the national trauma that has been the benchmark for everything since. "I think it has the chance to be the worst period of time since 1929," financing legend Donald Trump told CNN. And the Wall Street Journal seconds that opinion, giving one story the title: "Worst Crisis Since '30s, With No End Yet in Sight."

But what's really happening? Experts have so far been unable to agree on any conclusions. Is this the beginning of the end? Or is it just a painful, but normal cycle correcting the excesses of recent years? Does responsibility lie with the ratings agencies, which have been overvaluing financial institutions for a long time? Or did dubious short sellers manipulate stock prices -- after all, they were suspected of having caused the last stock market crisis in July.

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed -- at least for now. The near nationalization of AIG, America's largest insurance company, with an $85 billion cash infusion -- a bill footed by taxpayers -- was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March.

The most breathtaking aspect about this week's crisis, though, is that the life raft -- which Washington had only previously used to bail out the mortgage giants Fannie Mae and Freddie Mac -- is being handed out by a government whose party usually fights against any form of government intervention. The policy is anchored in its party platform.

"I fear the government has passed the point of no return," financial historian Ron Chernow told the New York Times. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

Bush Cancels Trip

The situation appears to be so serious that George W. Bush cancelled two domestic trips he had planned for Thursday on short notice. Instead, the president will remain in Washington to discuss the "serious challenges confronting US financial markets." He said the president remained focused on "taking action to stabilize and strengthen the markets." Bush had originally planned to travel to events in Florida and Alabama.

So far, the US presidential candidates have made few helpful remarks about the crisis other than the usual slogans. Both are vaguely calling for "regulation" and "reform" -- bland catchphrases almost universally welcomed with applause.

Republican Party presidential candidate John McCain had the most to say. On Monday, he said "the foundation of our economy" was "strong," adding that he opposed a government-led bailout of US insurer AIG. But now he's promising further government steps "to prevent the kind of wild speculation that can put our markets at risk." McCain's explanation for the current crisis: "unbridled corruption and greed."

But Democratic presidential hopeful Barack Obama didn't move past superficialities, either. "We're Americans. We've met tough challenges before and we can again."

What else are they supposed to say? After all, US presidents have very little influence on stockmarkets. And Wall Street is expecting the status quo for the next president. On Wednesday an almost palpable mix of tension and melancholy filled the air above New York's Financial District. The beloved trader bar Bull Run was half empty, and many tables were free at fine-dining establishments like Cipriani, Mangia and Bobby Van's, which are normally booked days in advance.

At the side entrance to Goldman Sachs on Pearl Street, limo chauffeurs sat waiting for their customers, still above in their office towers cowering over the accounts. "If they go under," said Rashid Amal, who works as a chauffeur for a firm called Excelsior, "then I will soon be out of a job, too."

Atlas Keeps on Shrugging

2008-09-14T07:10:00.001-02:00

SoCal train wreck toll rises to 17, with 135 hurt

By RAQUEL MARIA DILLON – 17 hours ago

LOS ANGELES (AP) — Emergency crews found more victims early Saturday in the mangled wreckage of a commuter train that smashed head-on into a freight train, raising the death toll to 17 in the deadliest U.S. passenger train accident in 15 years.

Distraught relatives and friends of passengers awaited word on their loved ones as rescue workers delicately dismantled a crushed Metrolink passenger car in search of victims.

The search was expected to last into Sunday.

"Clearly the injuries are going to mount and so are the fatalities," Mayor Antonio Villaraigosa said.

The cause of the Friday afternoon collision in suburban Chatsworth had not been determined.

A total of 135 people were injured with at least 82 taken to hospitals, many in serious or critical condition, fire officials said.

Worried relatives and friends gathered at nearby Chatsworth High School to wait for news, and the hallways occasionally erupted with sobbing as some learned that loved ones had died.

Debra Nieves was concerned about her sister, Donna Remata, 49, who worked in downtown Los Angeles.

"That was her train and she's not home," said Nieves, 41, of Long Beach. "But until I find out for sure that they found her, I'm not going to leave."

The impact rammed the Metrolink engine backward into a passenger car, which rested on its side with the engine still inside it early Saturday, and accordioned the freight train cars. Two other Metrolink cars remained upright. Crews had to put out a fire under part of the train.

During the night, the teams used hydraulic jacks to keep the passenger car from falling over and other specialized rescue equipment to gently tear apart the metal.

Bulldozers were used to raise the commuter train's engine and timbers were slid beneath it as firefighters worked to free a body pinned under the engine.

Fire Capt. Steve Ruda said the goal was to eliminate every piece of metal and gradually work into the passenger spaces of the double-decker rail car.

"There's human beings in there and it's going to be painstaking to get them out," Ruda said. "They'll have to surgically remove them."

His firefighters had never seen such carnage, he said.

"It's the worst feeling in the world because you know what you're going to find," said fire Capt. Alex Arriola, who had crawled into the bottom of the smashed passenger car. "You have to put aside the fact that it's someone's husband, daughter or friend."

Officials said there were 222 people on the Metrolink train and three Union Pacific employees aboard the freight train.

Asked how the two trains ended up on the same track, Steven Kulm, a spokesman for the Federal Railroad Administration: "We are nowhere near having any information on that."

Kulm said the federal investigation will be headed by the National Transportation Safety Board, while his agency will conduct a review of whether any federal rail safety regulations were violated.

Union Pacific spokeswoman Zoe Richmond said it is common in California for freight and commuter trains to use one track.

"You see it a lot in California where commuter trains share tracks with freight trains," Richmond said, adding she couldn't speculate about the cause of the crash.

Leslie Burnstein saw the crash from her home and heard screams of agony as she ran through a haze of smoke toward the wreckage. She pulled victims out one by one.

"It was horrendous," said Burnstein, a psychologist. "Blood was everywhere. ... I heard people yelling, screaming in pain, begging for help."

Metrolink spokeswoman Denise Tyrrell said the Metrolink train left Union Station in downtown Los Angeles and was headed northwest to Moorpark in Ventura County. The trains collided at about 4:30 p.m. in the Chatsworth area of the San Fernando Valley, near a 500-foot-long tunnel underneath Stoney Point Park.

On the north side of the tunnel, there is a siding, a length of track where one train can wait for another to pass, Tyrrell said.

"I do not know what caused the wreck," said Tyrrell who broke down crying and was shaking. "Obviously two trains are not supposed to be on the same track at the same time."

Until Friday, the worst disaster in Metrolink's history occurred on Jan. 26, 2005, in suburban Glendale when a man parked a gasoline-soaked SUV on railroad tracks. A Metrolink train struck the SUV and derailed, striking another Metrolink train traveling the other way, killing 11 people and injuring about 180 others. Juan Alvarez was convicted this year of murder for causing the crash.

That was the worst U.S. rail tragedy since March 15, 1999, when an Amtrak train hit a truck and derailed near Bourbonnais, Ill., killing 11 people and injuring more than 100.

The Sunset Limited was involved in the worst accident in Amtrak's 28-year history. On Sept. 22, 1993, 42 passengers and five crew members died when the train plunged off a trestle into a bayou near Mobile, Ala. The trestle had been damaged minutes earlier by a towboat.

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White Chick U

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Good Riddance!

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Clemens pleads not guilty

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GOP state senator comes out of closet in aftermath of drunk driving arrest

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Corruption, Whispers & Receivership

Corruption, Whispers & Receivership

by Jim Willie, CB. Editor, Hat Trick Letter | September 24, 2008

PREFACE

GOLD LAUNCH & USDOLLAR DEMISE

NOTES & WHISPERS IN ILL WIND

And the Band Played On

Even Gingrich Knows Better

Gingrich On Why Bailout Plan Is 'Just Wrong'

Web Resources

Turn out the lights...

The Bi-Partisan Origins of the Financial Crisis

The Bi-Partisan Origins of the Financial Crisis

Shattering the Glass-Steagall Act

Bonner

Goodnight Irene

SPIEGEL ONLINE

09/18/2008 12:44 PM

US FINANCIAL CRISIS

'The World As We Know It Is Going Down'

Atlas Keeps on Shrugging

SoCal train wreck toll rises to 17, with 135 hurt