Housing Boom Tied To Sham Mortgages

Lax Lending Aided Real Estate Fraud

By David Cho
Washington Post Staff Writer
Tuesday, April 10, 2007; A01

ATLANTA -- The man was one slick fraud artist.

Phillip Hill lured people to fancy cocktail parties in a $1.9 million mansion. He asked to use their names and credit histories in real estate deals, promising to make them rich. Most got $10,000 checks on the spot for signing up.

By the time the scam unraveled, the credit of those participants had been ruined, hundreds of upscale properties had fallen into foreclosure and real estate prices had plummeted in some of this city's most exclusive neighborhoods. Hill is about to go to federal prison.

Many experts have concluded that the nation's real estate boom of recent years was fueled in part by weakened lending standards that sparked excessive demand and drove up prices. Now, some are worried that the looser standards may have permitted a boom of another kind -- a big expansion of mortgage fraud.

No one knows exactly how extensive the crime has become, but new data from the federal government suggest that it has jumped tenfold since 2000. Prosecutors are finding cases all over the country in which sham transactions, based on fraudulent appraisals, led to homes changing hands at far above their real value. Mortgage lenders failed to carry out the most elementary safeguards.

In some neighborhoods, mortgage fraud became so extensive that it drove up overall home prices. That is what happened in Atlanta. Hill, 50, was convicted last month in what authorities call one of the biggest mortgage-fraud cases in U.S. history. It involved 400 fraudulent loan applications; nearly $100 million in mortgages; and 120 closing attorneys, appraisers, mortgage brokers and others who prosecutors say were in on the scam.

Federal prosecutors say this kind of fraud is hardly unique to Atlanta -- the lax lending standards that Hill exploited have existed throughout the country in recent years.

In Broomfield, Colo., Gerald Small pocketed $21.5 million and bought two jets after he got bogus home loans using personal information from people who responded to a help-wanted ad; he was convicted. In Kansas City last year, Brent Michael Barber was sentenced to 12 years in prison for paying residents of a low-income neighborhood $2,000 each to use their names in 300 fraudulent loan applications. In Jacksonville, mortgage broker J.R. Parker and closing attorney Dale Beardsley were convicted in 2005 for a fraud scheme in which they netted $14 million in cash, six luxury cars and two $1 million homes.

Federal law enforcement officers say that with heavy demands on them from homeland security, they have had the resources to shut down only the worst offenders.

"By the time we prosecute, the damage has been done, the neighborhoods are already destroyed and the money is gone," said David E. Nahmias, the U.S. attorney who oversaw the Hill case.

In Atlanta, entire neighborhoods and condominium developments, especially those in affluent areas, were hit by organized fraud rings. Initially, these schemes pumped up housing values for everyone as artificially high appraisals helped the swindlers get inflated loans. Legitimate home buyers rushed in to get a piece of what they thought was a soaring real estate market. Now as the fraud is being exposed, their home values are taking a hit.

As more of these cases come to light around the nation, the question is: How much did an epidemic of fraud contribute to the frenzied housing market of recent years?

Liar Loans and Straw Buyers

Thirty years ago, most Americans got their mortgages at a savings-and-loan association from bankers who obeyed conservative lending rules. But sweeping changes in the finance world have created a far different system. It has helped raise homeownership to record levels, but many real-estate professionals say it also has led to far looser lending standards.

Nowadays, instead of poring over paperwork for weeks, lenders often verify loans through electronic underwriting programs in which numbers can easily be tweaked. About 70 percent of Americans get their home loans from independent mortgage brokers, many of whom are paid bonuses for pushing higher-interest loans.

Close to 90,000 brokers have joined the profession since 2000, according to Wholesale Access, a research firm in Columbia. The field is lightly regulated. Eighteen states do not require criminal checks, the Conference of State Bank Supervisors reports. Undoubtedly, most mortgage brokers are honest, but some have played central roles in recent fraud cases.

The housing boom brought another change. Mortgages are no longer held for long by banks but are packaged together as massive bonds and sold on Wall Street. Propelled in part by demand for these bonds, companies began offering loans that required little or no documentation of borrowers' income.

These "stated income" loans were designed for a limited purpose: giving self-employed people a crack at homeownership. But during the boom, the number of such loans exploded to the point that they became a running joke in the industry, earning the nickname "liar loans." Estimates vary widely, but research suggests that they made up a significant portion of all mortgages during the boom -- 58 percent in a study by First American LoanPerformance.

Mortgage lenders in theory have a right to compare loan documents to a buyer's tax returns, but they rarely do. In the few cases where it has been done, results were startling. In a study published by the Mortgage Asset Research Institute, one lender sampled 100 stated-income loan applicants and found that 90 had exaggerated take-home pay by 5 percent or more and that nearly 60 inflated their pay by more than 50 percent.

Mortgage originators often neglected extensive document verification because it slowed loan approvals. "Everyone in the mortgage industry is trying to approve loans faster than their competitors," said James Croft, founder of MARI in Reston. "They all offer the same basic rates and the same basic mortgage products. But if I can get the loan faster, that gives me a competitive advantage."

Many industry experts say stated-income loans became an invitation to fraud, while mortgage brokers -- paid commissions to put loans through, not slow them down -- often looked the other way.

In this climate, industry people say, fraud of two types became easier.

In the first type, known to law enforcement as "fraud for housing," people lied on their mortgage applications to get into homes they otherwise could not afford. Even on a loan where the buyer is asked to provide no proof of income, lying about it on the application is a federal crime.

A more insidious type -- "fraud for profit" -- also spread. Involving scam artists taking advantage of the looser standards, many of these schemes drew in corrupt appraisers willing to overstate the value of properties, "straw buyers" who were paid to lend their names and credit histories to a transaction, and closing attorneys who kept banks in the dark.

The growth of mortgage fraud has outpaced other types of financial crimes, the Treasury Department reports. From 2002 to 2004, mortgage fraud reports nearly doubled each year. Over that period, mortgage fraud convictions by federal prosecutors fell.

The Treasury Department received a record 37,313 mortgage fraud reports in 2006, 10 times more than in 2000. But the true incidence is almost certainly higher because the government gets reports only from regulated institutions, not including the nation's 53,000 mortgage-broker firms.

"Nobody wants to go in there and expose how big this is," said Chris Klein, a finance manager at Howard Hanna Mortgage Services, a Pittsburgh mortgage broker, echoing the comments of several brokers around the country. "In the industry as a whole, it's a running joke. If you want to get a loan done, any loan, you can get it done."

Hill's 'Business Model'

Phillip Hill allegedly ran small-scale frauds in Florida and elsewhere for years, and he was caught and convicted in one case. But when he arrived in Atlanta in the late 1990s, that past was invisible. It is now apparent that he came to town with big plans.

Described as soft-spoken but charismatic, Hill broke into the city's elite circles by throwing lavish parties at an estate a few blocks from the Georgia governor's mansion. Influential people began coming to him for their housing needs. Hill rented homes to several prominent Atlanta figures, including Robert L. Nardelli, the former chief executive of Home Depot.

Prosecutors said Hill and his accomplices sought short-term loans from friends and associates, including business leaders and professional athletes. The ring bought homes, then transferred them to straw buyers Hill had recruited. Using inflated appraisals and other doctored papers, the group took out big mortgages that allowed it to repay the short-term loans and pocket hefty sums.

Some home prices were inflated by 100 percent or more. One estate was pumped from $1.9 million to $5.5 million in two weeks, according to court documents. Hill's personal take from the scheme is estimated at $14.5 million, prosecutors said.

Prosecutors think most of the straw buyers, some just college students, did not know what Hill was doing with their names and credit histories. Several later testified that Hill's attorney flipped through loan documents so fast at closing that they hardly read what they were signing. Most apparently thought they were becoming the owners of homes Hill would maintain and rent out to make the monthly payments.

In truth, neither happened. Most homes fell into disrepair. Others were stripped of their appliances and fixtures, including the mansion where Hill hosted his cocktail parties. As the scam unraveled, more than 300 homes fell into foreclosure.

Mortgage lenders later acknowledged that they failed to perform basic checks into hundreds of Hill loans. They estimated their losses at $41 million. Some of that will be absorbed by Fannie Mae and Freddie Mac, the huge government-created housing corporations in Washington that help package home loans into bonds for sale on Wall Street.

At trial, defense attorneys argued that Hill was unaware that his "business model" was against the law and that his underlings doctored loan applications without his knowledge. The jury did not buy it. On March 14, Hill was convicted of 166 counts of fraud and money laundering. He has not been sentenced, but after the verdict, Judge Thomas W. Thrash said Hill "is looking at spending the rest of his life in prison."

Hill's attorney, Bruce H. Morris, said his client maintains his innocence and plans to appeal.

Nine accomplices, including appraisers, real estate agents and closing attorneys, were convicted. Thirteen others pleaded guilty. Many straw buyers saw their credit ruined.

Hardest-hit by the scheme were honest homebuyers. Mortgage fraud experts estimate that Hill's scam, and others like it, have put several thousand homes into foreclosure, driving down values.

Bill Cleary was one of the first to buy a condo in Deere Lofts, in a bustling area in downtown Atlanta. He was lured by the amenities -- hardwood floors, high ceilings -- as well as advertisements glamorizing the area. In 2001, he paid $213,000 for a two-bedroom unit.

Then Hill bought 40 units at a discount from the builder and started flipping them for about $400,000. The non-Hill condos left on the market were quickly snatched up.

But all of Hill's units ended up in foreclosure. Because Hill stopped paying homeowner dues, the condo association nearly went bankrupt and the building went downhill. Three years after Cleary bought his place, comparable two-bedroom units were selling for $130,000. "All of the promises they made went up in smoke," Cleary said of the developers.

Anne Fulmer's neighborhood, in Atlanta's affluent northern suburbs, has been hit by four mortgage fraud rings since the late 1990s.

The scams motivated Fulmer and others to form a coalition of prosecutors, police, homeowners and real estate agents to fight back. The Georgia Real Estate Fraud Prevention and Awareness Coalition got a tough mortgage-fraud law through the state assembly.

In national surveys, Georgia has been identified as a fraud hot spot. But Fulmer says that is because people there have become so aggressive about identifying the problem. She says she wonders how many homeowners across the country bought in neighborhoods where values were driven up by fraud but don't know it yet.

"It happens everywhere and anywhere," said Fulmer, who is now vice president of Interthinx, an anti-mortgage-fraud company. "If the true scope was discovered, I think it would cause a major crisis."

Mass Stupidity

Will the last moron to pull his head out of his ass please turn out the lights; the real estate party is over. Real-estate is collapsing nationally, dimming the hopes of many idiots that their retirement will be funded by their house.

Where did they get this assumption in the first place? Why did this myth spring up so fervently and so recently?

Simple, it was concocted by the real-estate industry and their willing accomplices in the mortgage industry with any number of cronies like the appraisal industry aiding and abetting their devious scheme.

We were informed by the industry that you couldn’t go wrong in real estate because real estate never goes down. Suckers all around the country swallowed the bait. They’d get rich by buying and selling each others houses, as if Americans were just now owning houses for the first time ever.

What we’ve learned however was that most Americans weren’t using their house for retirement, they were actually using their houses to maintain their lifestyle. They were borrowing against the house to pay for the house. That’s like eating your own leg to stay alive, it might fill you up a couple of times but in the end it isn’t a very good idea.

How many of us have parents and grand parents who have paid off houses? Did their house make them rich? Why would people come to believe that it was different this time? Because the bubble turned into a mania and people threw good sense out of the window.

Historically, a house is nothing more than just a decent store of wealth. The average 3-4% gain reflects the devaluation of the dollar. The house remains constant.

Yes, some people made a killing selling their house to fools who were caught up in the hysteria. A few people will always make money, but most won’t. This time is no exception.

The benefits of global warming

If there is one thing I have learned over the past twenty years or so its that any time the government declares an emergency you’d better hang on to your wallet. So let me be the first to say, “hold on to your wallet” now that the current crop of legislators have taken up the mantel of global warming.

In the future, global warming and all the accoutrements that go along with it, is going to be the biggest cash cow in many a generation.

When the government starts doling out all of its subsidies and favored status to the myriad hucksters and schemers that are beginning to crop up like mushrooms, rest assured you as the tax payer and consumer will be the one who inevitably feels the pain.

As the national hysteria gains in volume the level of handouts will increase exponentially. Every quack concept or invention supposedly designed to decrease our level of energy dependence will be met with ringing endorsement by some Senator or congressman, with most of these boondoggles never showing any benefit or proof they actually perform the function they were sold to do.

Fortunes will be made in the alternative energy business and long after many of these harebrained schemes are uncovered as fraudulent the perpetrators will be sipping margaritas on a beach somewhere in the Bahamas.

A new boom will surely follow just like the tech boom which preceded it, this time instead of dot com it will be any stock with the word “alternative” in it that goes through the roof. Millionaires and billionaires will be created overnight who will then wind up in the poor house in the inevitable bust.

The ones for whom a few million in stock options aren’t enough will ride the wave all the way up until the point they end up doing the perp walk ala Bernie Ebbers and Ken Lay for bilking their companies retirement funds and assorted other larcenies. There will be a few of those for sure.

But the people who will suffer the most, as is always the case, will be the ones who can least afford it. Even now, because of the fraud that ethanol can lower the cost of gasoline; any product containing corn will be higher this year at the grocery store. Not only will products containing corn be higher (practically all soda contains corn syrup), but so will dairy products. The demand for corn has dramatically increased, since now it is seen as an alternative fuel and the increased pressure has in turn doubled the cost of feed for livestock. Increased feed costs equal increased production costs for milk, cheese and any other dairy product that ends up in the grocery store. This has already begun to happen.

With the demand for corn sure to escalate, more farmers will plant corn which means that less grain will be farmed, that will in turn send up the cost for bread and any other grain dependent products. The trivial amount of ethanol production will have little or no impact on the price of gasoline, but the impact of higher demand for corn will have a substantial impact on prices at grocery stores nationwide.

Ethanol is just the first of many usufructs that will be foisted onto the citizenry as the United States engages in it’s charade of weaning itself from oil and reducing CO2 emissions. None of these measures will be successful or even very serious until Americans are forced to change due to oil being altogether unavailable. But the issue as always will be dolled up in flowery language and will most assuredly be for the benefit of the children and big business will jog for position at the trough of government contracts and handouts while the taxpayer will take it in the wallet.

http://thedailyobfuscation.blogspot.com/2007/07/popcorn-prices-popping-thanks-to.html

Schools aid and abet kid's bad health

Removing Schools' Soda Is Sticky Point
Bottlers' Contracts Limit Cash-Strapped Districts

By Annys Shin
Washington Post Staff Writer
Thursday, March 22, 2007; D03

Less than a year after the nation's largest beverage companies pledged to remove high-calorie drinks and limit sugary beverages in all schools, districts across the country are finding that they may not be able to afford the switch because of contracts they signed several years ago with bottlers for the companies.

When Portland, Ore., recently wanted to remove diet soda and sports drinks from high school vending machines and cafeterias, school officials found that they would have to pay the local Coca-Cola bottling company $600,000 to do so. In Racine, Wis., officials decided not to remove high-calorie drinks from high schools earlier this year after they learned they would have to pay the local Pepsi bottler $200,000.

A majority of schools have exclusive marketing agreements with bottling companies -- almost 75 percent of high schools, 65 percent of middle schools, and 30 percent of elementary schools.

The contracts, which can last up to 10 years, typically grant the exclusive right to market a company's brands in school vending machines, on scoreboards and on cups at sporting events in exchange for a large upfront payment followed by yearly payments. There are penalties if a school does not meet sales targets or if a school changes the mix of beverages sold.

In the Washington area, most school districts have not had to choose between money from soda sales and meeting tougher nutrition standards because they did not enter into exclusive beverage contracts.

In Maryland, sodas are only sold after school and, thus, are not subject to new federal or state nutrition requirements, said district spokeswoman Katherine O'Malley-Simpson. Therefore, the contract did not require changing. An exception is in Charles County, where the public schools signed a 10-year contract with Coca-Cola that ends in 2010.

Last May, Coca-Cola, Pepsi and Cadbury Schweppes, the three largest companies in the industry, signed a voluntary agreement to remove high-calorie sodas from schools by 2009.

The agreement, brokered by the Alliance for a Healthier Generation, a project sponsored by the William J. Clinton Foundation and the American Heart Association, came in response to a tripling of child obesity rates among school-age children since 1980. Children consume 35 to 50 percent of their calories during the school day, the alliance said.

The three major beverage companies, which operate separately from local bottlers, said they would make "diligent efforts" to ensure that current and future contracts with bottlers abide by a set of voluntary guidelines.

The guidelines include offering elementary school students milk, water and fruit juice instead of high-calorie soda; and offering high school students water, no-calorie or low-calorie drinks, such as diet soda, milk and light juices, including sports drinks.

In most cases, carrying out the guidelines requires altering existing beverage contracts. Wisconsin's Racine Unified School District, for example, had to change its agreement with its Pepsi distributor.

After years of budget problems, school closings and teacher layoffs, the Racine school system signed a 10-year marketing agreement with the Pepsi bottler in 2000, which came with an upfront payment of $450,000 and an annual payment of about $200,000, which included a percentage of drink sales and $25,000 for items such as scoreboards.

The district wanted to apply its new nutrition guidelines to beverages in September but found that required repaying about $200,000 of the upfront payment, said Nicholas Alioto, the district's chief operating officer.

"Fiscally we're not in a position to give the money back," he said, and the school system would wait until the contract ends in 2010.

In Oregon, the Portland school district had received a $1.2 million payment in 2002 and would have had to repay about $600,000 if it changed the contract. The district has been in negotiations with the Coca-Cola Bottling Co. of Oregon about the contract.

Some consumer advocates contend that the contracts make the industry's voluntary agreement meaningless.

"Many school districts are stuck with a deal with the devil. . . . The schools could buy out the contract, but this is about kids and school districts that are strapped for cash" said Deborah Pinkas, a Portland lawyer who, along with another lawyer, Nicola Pinson, wrote a study on beverage contracts.

Kevin W. Keane, a spokesman for the American Beverage Association, said bottlers could not be expected to take a financial hit to implement the guidelines. "Schools ask for money upfront," Keane said. "So companies have made an investment. If you're going to alter that dramatically, the one side is going to bear the brunt of the financial pain, which isn't fair."

The industry is aware that changing existing contracts would take time and gave itself three years to implement the voluntary agreement, Keane said. The Alliance for a Healthier Generation estimates high-calorie sodas and drinks would be removed from 75 percent of school vending machines and cafeterias by the start of the 2008 school year and from every school by 2009.

Party on - Herald Tribune, FL

Party on

As the three-year-long real estate boom wound down, mortgage lenders such as New Century Financial Corp. came up with a bad idea: Instead of tightening lending criteria as the markets became less liquid, they loosened them in order to keep the party rolling.

It did, at least for a time.

As late as 2006, many subprime lenders were making loans with little or no cash-down requirements to credit-challenged borrowers.

Those decisions are now coming home to roost across the nation.

"Not only are we going to see massive foreclosures in the market, but as you can see, the subprime lenders are falling out like flies," said Priscilla Gratton, a 20-year Sarasota mortgage banking veteran who recently left AmSouth to open her own shop, the Gratton Mortgage Group, in downtown Sarasota.

"There are so many mortgage originators out there whose only goal was closing a transaction."

Too often, businesses making loans inflated incomes, fudged application data or simply did not tell customers the truth about the real costs, over time, of the loans they were being sold.

Particularly popular was the adjustable-rate mortgage, or ARM, which allowed some marginal buyers to get into a home for a couple of years before the rates reset, many times to unsustainable levels.

In the last six months, more than two-dozen subprime lenders have shut their doors.

The biggest player, New Century, filed for bankruptcy protection from its creditors last week.

It issued $51.6 billion worth of subprime mortgages last year, second only to HSBC.

During the past 10 years, New Century underwrote as many as 4,000 loans locally, property records show.

Some portion of those and other subprime defaults could eventually wind up among already bloated real estate inventories.

"It appears that as subprime and FHA (Federal Housing Assistance) loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we're going to continue to see a spike in the number of homeowners facing foreclosure," said James J. Saccacio, RealtyTrac's chief executive.

Fall-out from subprime

Some experts watching the unraveling of the subprime market think that lenders might foreclose on up to 2 million more homes in the next two years as defaults climb to about $225 billion.

Within that time, about $1 trillion in adjustable-rate mortgages will reset at higher rates. Of those, $650 billion, or 65 percent, are in the subprime category, meaning that as many as one-third of subprime borrowers could default if predictions hold.

The likely fallout will be that the lending industry will tighten its standards, and that will prevent many without sterling credit from buying a home. That, in turn, would boost inventory levels at a time when Southwest Florida already has an unusually high number of homes for sale.

A crunch is something that Zandi, the Moody's economist, worries about, too. A scenario where prime borrowers are less able to buy property might be the greatest threat right now to the economy, he said.

Add to that problem the reality that many investors, particularly hedge funds and foreign banks and governments -- the traditional secondary buyers of mortgage-backed securities -- are increasingly out of the game, Zandi said.

Intervention and hot lines

In a sign of the times, a Miami-based nonprofit entity called the Florida Foreclosure Prevention Hotline was launched recently as a resource for homeowners facing the prospect of losing their homes.

Damara Cohn, a real estate agent who works with the hot line, considers herself a foreclosure workout expert.

If after all avenues have been explored and tried, from refinancing to forbearance, Cohn steps in to "help those people who are upside down in their loans or have no chance to sell their property.

"I take the most aggressive position possible with lenders and work with them in order to create a win-win situation for everyone involved."

What Cohn is talking about is called a "short sale," where a lender agrees to take less money than it is owed.

With the softness in the market, many banks and lenders are likely to be more amenable to that kind of arrangement.

"Most borrowers have no idea the alternatives they have available to them," Cohn said. "For some, however, they are in a position where the sale of the property is the only choice.

"Act quickly," she advises. "Once you know you are in an impossible situation with regard to paying the loan, take action.

"This will protect not only your financial interests, but can keep that foreclosure off of your credit report."

Some of the nation's largest banks also are trying to help borrowers avoid foreclosures.

CitiMortgage is contacting ARM borrowers months ahead of reset dates.

Bank of America is using predictive computer models to identify and reach out to potential problem borrowers.

The bank will work with borrowers, even to the extent of "re-underwriting" the mortgage at reduced interest rates, said Bob Caruso, Bank of America's national mortgage servicing executive.

"We want to keep customers in their homes."

Staff writers Maurice Tamman and Cindy Allegretto contributed to this report

Last modified: April 08. 2007 4:58AM

Daily Reckoning - Bill Bonner

We opined the other day that it is not absolute wealth that the average
man cares about, but relative wealth. A man in an Indian village doesn't
envy the American with air-conditioning and two cars in his garage. He
envies the man down the street with a half-acre more of garden space.

An American may be perfectly content to vote Republican when Ronald Reagan
is in the White House and he thinks everyone is getting rich. But when the
slump comes, he looks around and sees things differently. He begins to
look for a New Deal. Not since the '20s, in America, have so many people
had so little while so few others have had so much. The many, pressing
their noses to their television screens and gaping at their rich neighbors
like the mob facing Marie Antoinette...are likely to want a change.

Then, the scoundrels and scalawags will have their day at last. The old
politics of envy will make a comeback. "Soak the rich," they will say.
"Hang the profiteers"... "Power to the people..."

Envy does not permit a free society. People say they value liberty, but
they can't stand what it produces. They can't stand the fact that - left
to their own devices - some people will have more than they do and some
will struggle to survive. Redistribute income, tax, control, regulate -
they will support almost any measure that promises to make the outcome
more to their liking. They will ask (and in some cases demand) that their
leaders control everything - income levels, interest rates, health care,
parking, handicapped access, what the schools teach, what language people
speak, who can marry whom, what goes into the sausages - even the
weather!

The rascals in every major political party all share the same basic
opportunistic creed. They differ in style, not in substance; one clown
wears patrician blue...the other a plebian red. One favors a plan whereby
government pays all medical expenses. Another offers reimbursements. Still
another offers subsidies and tax incentives to various favored projects.
Every one of them believes in taking something from one citizen and giving
it to another.

But envy is not the only reason for the triumph of collectivism. We are,
by nature, collective animals - like our monkey relatives. We may no
longer live in trees, but we still live in groups. And we look to our
neighbors - not to ourselves alone - for food, shelter, comfort,
companionship, direction, religion, opinions, and much more.

Yes, in theory, all of these relationships could be managed in a free,
consensual, collegial and civilized way - in which persuasion and honest
trade are used instead of violence and force. Most of our private lives
are run that way. We do not threaten the baker for a loaf of bread. Nor,
for the most part, do we take our wives like Sabine women; we are taken by
them...seduced, not stolen.

But public life is different. Without the iron hand of the state behind
him, mass man feels a little lost...vulnerable...and lonesome. How will he
eat, unless his neighbors are forced to give him bread? Who will look out
for him in his retirement, unless the younger generation is forced to pay
into Social Security? Who will protect him from terrorists, if his armed
forces are not properly locked and loaded? A little bit of humble
reflection might show him that he would be better off by relying on his
own wits...but not one man in ten is prepared to do it.

The world might be a better place if people were free...but it would not
be the place it is.

The 2008 Federal Budget

April 2, 2007

The fiscal year 2008 budget, passed in the House of Representatives last week, is a monument to irresponsibility and profligacy. It shows that Congress remains oblivious to the economic troubles facing the nation, and that political expediency trumps all common sense in Washington. To the extent that proponents and supporters of these unsustainable budget increases continue to win reelection, it also shows that many Americans unfortunately continue to believe government can provide them with a free lunch.

To summarize, Congress proposes spending roughly $3 trillion in 2008. When I first came to Congress in 1976, the federal government spent only about $300 billion. So spending has increased tenfold in thirty years, and tripled just since 1990.

About one-third of this $3 trillion is so-called discretionary spending; the remaining two-thirds is deemed “mandatory” entitlement spending, which means mostly Social Security and Medicare. I’m sure many American voters would be shocked to know their elected representatives essentially have no say over two-thirds of the federal budget, but that is indeed the case. In fact the most disturbing problem with the budget is the utter lack of concern for the coming entitlement meltdown.

For those who thought a Democratic congress would end the war in Iraq, think again: their new budget proposes supplemental funds totaling about $150 billion in 2008 and $50 billion in 2009 for Iraq. This is in addition to the ordinary Department of Defense budget of more than $500 billion, which the Democrats propose increasing each year just like the Republicans.

The substitute Republican budget is not much better: while it does call for freezing some discretionary spending next year, it increases military spending to make up the difference. The bottom line is that both the Democratic and Republican budget proposals call for more total spending in 2008 than 2007.

My message to my colleagues is simple: If you claim to support smaller government, don’t introduce budgets that increase spending over the previous year. Can any fiscal conservative in Congress honestly believe that overall federal spending cannot be cut 25%? We could cut spending by two-thirds and still have a federal government as large as it was in 1990.

Congressional budgets essentially are meaningless documents, with no force of law beyond the coming fiscal year. Thus budget projections are nothing more than political posturing, designed to justify deficit spending in the near term by promising fiscal restraint in the future. But the time for thrift never seems to arrive: there is always some new domestic or foreign emergency that requires more spending than projected.

The only certainty when it comes to federal budgets is that Congress will spend every penny budgeted and more during the fiscal year in question. All projections about revenues, tax rates, and spending in the future are nothing more than empty promises. Congress will pay no attention whatsoever to the 2008 budget in coming years.

Rep. Ron Paul

Gonzogate

The justice department scandal continues to unfold. The USS Gonzales is going down fast and the rats are jumping ship even faster.

“One of Gonzales' fellow Texans weighed in."This nation deserves better than to have an attorney general who cannot be forthright with Congress and misleads the citizens he has been sworn to protect," said Rep. Ted Poe, R-Texas. "He has a credibility issue." – AP

You don’t say? Does the nation deserve better than to have a president who cannot be forthright with Congress and misleads the citizens he has sworn to protect?

The facts that are emerging from the firings of the US attorneys is simply a microcosm of the rot that infects the entire administration.

They have systematically skirted any sort of checks and balances and rule of law since 911. Every controversy that has erupted such as the attorney firings, Plamegate, Hurricane Katrina, WMD’s, and the war itself, has been the result of repeated bungling.

The difference now is that Americans are no longer under the spell of the events of September 11. That event functioned as blinders for the American people. The people’s thirst for vengeance enabled the administration to begin going around the law, and Congress and whoever else happened to be in their way.

They came to think of this free pass from any scrutiny as an inherent right. So skirting the law became operational procedure. And we let them get away with it for far too long.

But from the outset, it was obvious to many that these people were not very bright, not particularly effective and were permeated with an arrogance which ultimately morphed into hubris.

The hubris reared it’s head early on when a forged document made it’s way into the State of the Union Address. The obvious attacks on Joe Wilson by Cheney and his goons soon followed.

The Katrina fiasco exposed the results of cronyism and ineptitude. Guantanamo and Abu Graib revealed the wanton disregard for the rule of law.

The attorney firings further illustrate the way the Bush administration has used it’s privilege as a kind spoils system that rewards loyalty over competence and integrity.

Yet it also reveals the shear stupidity that can only be the result of arrogance. Now people are no longer over looking the obvious, however.

The president belligerently proposed that Rove and other administration officials would be interviewed in secret without transcripts and without being under oath. This bellicosity practically assured that Congress would react negatively to the offer. They have now said they will subpoena people.

Gonzales first made statements that he had no knowledge of the firings when it was provable that he had attended meetings on exactly that topic. Arrogance or stupidity?

The administration released a huge document dump of four thousand pages of emails which under scrutiny showed a two week gap in time, as if no one would catch it.

They got away with it for so long that their modus operandi hasn’t changed. They still feel enabled to dictate any and all terms and that only hastens their unraveling.

This is clearly has to be one of the most feeble attempt at obfuscation an administration has every made. They are so used to not having any oversight they don’t even make an effort to cover their tracks. Now they are caught like deer in headlights stuttering and bumbling like morons.

They are exposed and finally Americans are taking off the blinders.

300 CRETINS

by Bill Bonner

Go tell the Cretins, you who read;
We took their orders, and are dead.
- Based on inscription at Thermopylae, with apologies

The Bush administration is hoping that the new film, 300, will give the
troop surge a lift with the public. The film glorifies the sacrifice of
300 Spartan warriors who held back an invading army of over 100,000
Persians in 480 B.C.

Choosing their terrain well, the Spartans managed to neutralize much of
the Persians advantage; while the Persians had many, many more troops,
they could only get a few of them to the line of battle at a time. But the
Greeks could see they were on the losing side of this fight. The
Thespians, fighting alongside the Spartans, withdrew while the Spartans
decided to stay and fight to the last man. They might have done so as a
purely military necessity, holding off the enemy so as to give their
allies time to retreat and regroup; or they might have fought on simply
for the glory of it. We don't know.

We do know that they managed to hold their ground for a couple more days,
until a fellow Greek, Ephialties, betrayed them by showing Xerxes how to
outflank his opponents. Then, the Persians got behind the Spartans and
rained down arrows upon them until they were all dead.

Leonidas's body was recovered, beheaded and crucified. But the rest of the
surviving Greeks were then able to take up the fight; and, in a number of
calamities and misadventures, the Easterners were finally driven back
across the straits to Asia Minor. Western civilization was saved.

According to today's neo-conservative apparatchiks, we are once again
involved in an epic struggle - a clash of civilizations between the free
West and the tyrannical East. Paul Wolfowitz, Douglas Feith, Richard
Perle, Philip Zelikow - this handful of men (probably no more than 300 of
them), pushed a bright, shining war on a dim yahoo of a president.
Together, they see themselves like Leonidas at the Pass of Thermopylae,
guarding our western way of life, without even getting their suits dirty.
The sacrifice of others is worthwhile, they believe.

But now, after four years with neither victory nor defeat in hand, it is
too late for earnest criticism; instead, the time has come for gratuitous
ridicule.

The targets are many. For instance, against whom the war in Iraq is being
waged (or why) has yet to be fully clarified. Every question on the
subject brings a response that only deepens the mystery.

But the costs are becoming clearer every day. So far, Britain's Ministry
of Defense admits to having spent 5 billion pounds on the war in direct
costs. Indirect costs are sure to be many times that figure. America's
total is much larger - $505 billion of U.S. 'taxpayers' money' has been
spent or approved. The biggest of all liar's loans?

Of course, we are already in the Land of Lies. Neither the British
taxpayer nor his American counterpart has any spare money; their taxes
were already earmarked for other boondoggles. Still, the U.S. President
asked for another $100 billion of it on Monday, and is expected to request
$140 billion more for 2008, bringing the total to over $700 billion.
Looking ahead, to the cost of caring for wounded and incapacitated
soldiers, the whole thing is expected to cost more than $1 trillion.

Since we're tallying, we cannot fail to mention the cost in lives. 3,205
U.S. soldiers have died, and 134 British soldiers. More than 24,000
Americans have been seriously wounded. Iraqi casualties, if anyone is
keeping score, may top half a million.

Meanwhile, George W. Bush asked Congress for the latest $100 billion draw,
without strings and without delay - or else the war might have to be
called off, he seemed to warn. The politicians bent over and checked under
the cushions, but the spare change they recovered came nowhere close to
$100 billion. They are already facing budget deficits of a half a trillion
over the next two years. Where would the extra money come from? What would
the extra strain do to the finances of the nation...or to the value of the
dollar? How was the investment expected to pay off? No one knew. No one
even asked.

But as for the strings, everyone knew exactly what the chief executive was
talking about -even the chief executive himself. Lawmakers have come to
see the war, not as a real war, but merely as just another spending
opportunity, with live ammunition. To the latest demand for cash, the
polls have attached a number of pork-barrel provisions, including $25
million for spinach growers, $100 million for citrus growers, $74 million
for peanut storage, $4 billion for 'emergency payments' to farmers, and
$283 million for milk subsidies. Who says there isn't progress in human
affairs? The U.S. congress has managed to improve upon the old Roman
formula - they've combined bread, circuses and war in a single spending
bill.

Every war has its profiteers. Neither in love, nor in war do you stop to
count the costs. But a phony war is a bigger opportunity than most,
because there is no patriotic necessity to win. Unlike the Spartans, the
Cretins know Iraq poses no real danger to the homeland. So everyone gets
into the spirit of the war as it really is.

Halliburton, Lockheed, and Bechtel inflate prices, take money for nothing,
and gouge taxpayers for useless weapons and unnecessary supplies. In one
report, truckers reported that they were asked to drive empty trucks back
and forth across the desert, carrying sailboat fuel so that contractors
could bill the government for delivery. A total of $9 billion has been
officially lost or unaccounted for.

War critics will complain about the waste of money involved. They will
point to this week's polls, showing the war to be so ineffective that the
average Iraqi now regards democracy with suspicion, and finds it
acceptable to kill U.S. and British troops. The more the U.S. government
tries to improve the lives of the Iraqis, the more Iraqis seem to want to
get even. Given the deadly drift of things, wasted spending may turn out
to be the best spending the Bush team did.

"There will be good days and there will be bad days," said the American
president, stoically. And he's right...but they won't be shared out
equally. The spinach growers, milk producers, and weapons contractors will
get the good days. The poor grunts, the Iraqis and the taxpayers will get
the bad ones.

But what about the Cretins? In the film, as in the battle, the Spartans
were wiped out. "Spartans. Tonight we dine in hell," Leonidas was said to
remark. Later, a shower of arrows so thick they blotted out the sun,
according to Herodotus, came down on them. The Spartans fell; but Greece
was saved.

We don't know how far the parallels go. The U.S. military presence in Iraq
hardly seems like 300 Spartans defending the homeland. Instead, it seems
more like the Persian Empire invading someone else's homeland.

And the 300 Cretins? Are they really protecting western civilization? Was
it worth the billions spent and the thousands of corpses? We don't know,
but we have a feeling that there is already a table reserved for them in
Hell.

Don't Blame the Market for Housing Bubble by Ron Paul

March 19, 2007

The U.S. housing market, long considered vulnerable by many economists, is now on the verge of suffering a serious collapse in many regions. Commodities guru and hedge fund manager Jim Rogers warns that real estate in expensive bubble areas will drop 40 or 50%. Mainstream media outlets like the New York Times are reporting breathlessly about the possibility of widespread defaults on subprime mortgages.

When the bubble finally bursts completely, millions of Americans will be looking for someone to blame. Look for Congress to hold hearings into subprime lending practices and “predatory” mortgages. We’ll hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat. It will be reminiscent of the Enron hearings, and the message will be explicitly or implicitly the same: free-market capitalism, left unchecked, leads to greed, fraud, and unethical if not illegal business practices.

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.

This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.

The actions of lenders are directly attributable to the policies of the Fed: when credit is cheap, why not loan money more recklessly to individuals who normally would not qualify? Even with higher default rates, lenders could make huge profits simply through volume. Subprime lending is a symptom of the housing bubble, not the cause of it.

Fed credit also distorts mortgage lending through Fannie Mae and Freddie Mac, two government schemes created by Congress supposedly to help poor people. Fannie and Freddie enjoy an implicit guarantee of a bailout by the federal government if their loans default, and thus are insulated from market forces. This insulation spurred investors to make funds available to Fannie and Freddie that otherwise would have been invested in other securities or more productive endeavors, thereby fueling the housing boom.

The Federal Reserve provides the mother’s milk for the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the last two decades. Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.

-Ron Paul

The Way it Was

One of our axioms here at the Daily Reckoning, is that information
degrades like magnetism or radiant heat - by the square of the distance
from the source.

We mention it today, because it helps explain the troubles in the subprime
mortgage market. The old fashioned banker used to sit at his oak desk, and
if a man wanted to borrow money, he'd have to sit down in the chair
opposite him and explain himself. The banker would then ask a lot of nosey
and awkward questions. And then, unless the two men knew each other, he'd
want to see some proof - tax forms, pay slips, deeds, etc.

The banker would already have the man's banking records in front of him,
because the man wouldn't dare to ask for a loan unless he'd been a good
customer for at least a few years. And the banker probably would have
driven by to take a look at the house, too, just to make sure it looked
solid.

The whole encounter was laced with suspicion and doubt. Would the borrower
lose his job? Did he have a drinking problem? Were things okay between him
and his wife? How much was the house really worth? In the unlikely event
that the bank had to sell it to get its money back, would there be enough
margin for error? Lend 100% of the purchase price? You'd have to take your
business elsewhere!

But in the great housing boom of 2006-2007, the suspicion and doubts
disappeared, along with the oak desks and nervous interviews. No credit?
No money? No job? No problem...

And then, the whole affair took two giant steps away from the basic
transaction. The loan originator, we suspect, may not have met his
borrower in some cases. But there is no doubt at all that the financier
who put the loan into a mortgage-backed security had never laid eyes on
him at any time.

And the math whiz who invented the collateralized debt obligation into
which the mortgage was eventually stuffed, could care less if there was
even a human being attached at the other end of his geekery. By the time
the mortgage finally came to rest in the hands of an investor he had no
idea what he actually had.

Fun with red light cameras

Ridiculous item

Here’s how a sinister son of a bitch can use these red light cameras to his advantage. Suppose you want to get somebody. Just borrow their car and ride around town running red lights where the cameras are. Since the person’s car is automatically guilty, not the person driving, you could really give that person an ass load of out of pocket fines, if one so desired….Muuhhuuhaahaaa

Somebody’s probably already done it.

Guess the Coca isn't out of the cola after all...

Bolivians want Coke to drop the 'Coca'

The Associated Press
Published on: 03/15/07

La Paz, Bolivia — Coca-Cola should drop the name of Bolivia's "sacred leaf" from its trademark soda, according to a resolution passed by a commission of coca industry representatives advising the assembly rewriting the Andean country's constitution.

During a three-day gathering in Sucre, 255 miles southeast of La Paz, more than 400 coca growers, traders, and politicians from Bolivia's coca-growing regions also called for the United Nations to decriminalize the leaf in its natural form and for its image to be included in Bolivia's national seal.

Though not directly affiliated with the Bolivian government, the commission is the latest step in a national effort spearheaded by President Evo Morales to rehabilitate the image of plant revered in the Andes for millenia but better known internationally as the base ingredient of cocaine.

Officials at Atlanta-based Coca-Cola released a statement Thursday saying their trademark is "the most valuable and recognized brand in the world" and is protected under Bolivian law.

Coca-Cola dropped cocaine from its ingredients a century ago, although the soda maker's secret formula still calls for a cocaine-free coca extract produced by the New Jersey-based Stepan Chemical. The company imports about 55 tons of coca leaves each year from Peru, according to the Peruvian state-run coca company Enaco.

Adios Gonzales

Alberto Gonzales, the US Attorney-General, appeared to have lost the confidence of both the White House and Republicans tonight amid a growing scandal over the firing of eight government lawyers.

He was in danger of becoming the highest profile casualty of the scandal amid mounting evidence that the eight Republican US attorneys were sacked for failing to toe the Bush Administration line.

Speculation that Mr Gonzales was on the verge of losing his job intensified as it was reported that Fred Fielding, Mr Bush’s White House counsel, was privately discussing the Attorney-General’s future with senior Republicans on Capitol Hill.

After initial denials, it emerged earlier this week that senior White House aides were deeply involved in the dismissals and worked closely with Kyle Sampson, Mr Gonzales’s chief of staff, to draw up what now appears to be a politically-motivated hit list.

Mr Sampson resigned on Monday after admitting that he withheld evidence from Congress over his communications with the White House. Several of the sacked attorneys testified on Capitol Hill last week that before they were dismissed, they were leant on by Republican politicians to pursue claims of Democratic voter fraud.

The “intimidating” calls were made shortly before November’s mid-term elections, when Republicans were desperate to dig up evidence of corruption against Democrats.

The White House aide most involved was Harriet Miers, Mr Bush’s former White House counsel. Karl Rove, Mr Bush’s chief adviser, also discussed the dismissals. One US attorney, in Arkansas, was replaced by a Rove protege.

The Judiciary Committee said it will debate issuing Ms Miers and Mr Rove with subpoenas next week.

On Wednesday, Mr Bush said he was “not happy” about how the dismissals were handled, and gave what a senior Administration official told The Times was a “less than ringing” endorsement of Mr Gonzales.

As the Democratic-controlled Senate Judiciary Committee cleared the way for Mr Gonzales’s top aides to be subpoenaed, a Republican senator became the first in his party to join Democrats and call for the Attorney-General’s resignation.

John Sununu, of New Hampshire, said: “Alberto Gonzales over the past 18 months has lost the confidence of the Congress and the American people, and he’s not in the position to serve the president effectively.” At a private meeting of Senate Judiciary Committee Republicans, nobody spoke up to defend Mr Gonzales.

“The US Attorney-General is probably facing the deepest crisis of his particular tenure,” said Senator John Ensign, a Nevada Republican.

Mr Gonzales was Mr Bush’s personal lawyer when he was Governor of Texas, but there is little affection for him among the Republican party at large.

Conservatives have never liked him - they believe his views on abortion are suspect - while moderates blame him for clearing the way for the alleged torture of terror suspects.

Despite their longstanding relationship, it appeared that Mr Bush might be willing to throw Mr Gonzales to the wolves. On Monday it emerged that Mr Bush himself passed on complaints about US attorneys to Mr Gonzales last October. Speaking to reporters on Wednesday, Mr Bush said: “I never brought up a specific case or gave him specific instructions.”

"Banks....really aided and abetted this [subprime] industry collapse,"

March 13, 2007 -- Bear Stearns is being blasted by a leading independent research shop that says the Wall Street titan's robust purchase of subprime mortgages has helped fuel the sector's meltdown.

Describing the firm's buying activity as an example of "the fee foxes guarding the mortgage hen house, " CreditSights, an independent firm specializing in corporate cash flow and balance sheet analysis, slammed Bear for having subprime loans that have experienced extensive payment troubles and defaults, and "stood out in terms of weaker performance."

Bear, like a number of Wall Street firms and some mortgage lenders themselves, buys loans in order to package them as collateral for debt securities sold to investors.

CreditSights' analysis was based on reviewing mortgage performance at lenders like Countrywide, Washington Mutual and GMAC's ResCap unit, as well as Bear.

In the subprime category, Bear had the highest percentage of borrowers who were more than 90 days' delinquent, at an eye-popping 4.57 percent, according to CreditSights' analysis. That compares with ResCap's rate of 0.92 percent, Countrywide's 1.42 percent and Washington Mutual's 1.48 percent.

"Bear, and a lot of other dealers - including Lehman Brothers and Morgan Stanley - really aided and abetted this [subprime] industry collapse," said David Hendler, the lead CreditSights analyst on the study. "They did nothing to ensure that the loans they were buying were kosher. There was no 'good guy' here, no voice of reason or advocate for conservative standards."

The controversial research has prompted many tongues to wag on Wall Street as bond trading floors, flush with four years' worth of mortgage bond trading profit, begin to worry about the subprime contagion cutting into their bonuses.

Over the past two weeks, two major subprime issuers, Fremont General and New Century Financial, have ceased issuing these loans, with New Century being seen as on the brink of failure. The pair represent around 14 percent of the subprime bond market.

Bear has long been a dominant player in trading debt securities backed by residential and commercial mortgages, and over the past few years has made an aggressive push into bonds backed by subprime loans. According to Inside Mortgage Finance, the firm is ranked 12th in selling subprime-backed paper, behind Merrill Lynch, Lehman Brothers and Morgan Stanley.

The CreditSights research has Bear's bond executives furious.

One senior mortgage executive told The Post that CreditSights sampled pools that were "scratch and dent" pools - in other words, groups of loans that were obviously in trouble to begin with. Also, he argued that pinning these troubled loans on Bear was wrong, since they bought them in the market and didn't originate them in the first place.

"I'd put the [loan] health and quality of what we sell and trade up against anyone else. CreditSights just got it wrong, period," said the Bear mortgage executive.

roddy.boyd@nypost.com

Dick Cheney in Twilight

Time Magazine

George Bush's sense of humor has always run more to frat-house gag than art-house irony, so he may not have appreciated the poetic justice any more than the legal justice on display in the Libby verdict.

Or, to be more precise, the Cheney verdict.

Bush stumped just about everyone seven years ago when he tapped the safe and solid Dick Cheney to be his running mate. But Bush didn't want any trouble. He didn't want a Vice President who preened before the cameras. He didn't want a policy sparring partner. And he didn't want someone who would check out after five years and run for President himself. And because Bush got exactly the kind of partner he wanted, he now faces the very problem he tried to avoid. Cheney has become the Administration's enemy within, the man whose single-minded pursuit of ideological goals, creaking political instincts and love of secrecy produced an independent operation inside the White House that has done more harm than good.

On an imaginary political balance sheet, Cheney is the Democrats' most valuable asset. And reversing that situation is getting close to impossible. Cheney recently made his weekly pilgrimage to the Senate, where he had lunch on March 6 with Republicans. He took his usual seat on one side of the stately Mike Mansfield Room and watched the proceedings quietly. Various Senators came by to ask him about his health after a blood-clot scare the day before. Others quietly lent support in the wake of that morning's four-count guilty verdict of Cheney's top aide, I. Lewis (Scooter) Libby. But for all the personal shows of support, more Republicans with each passing week have acknowledged privately what is felt across Washington when it comes to the Vice President: his time has passed.

And what a time it was. Back in the days of Bush's first term, aides to Cheney loved to regale journalists with tidbits about the scope of the Vice President's influence and the intensity of his commitment to protecting the U.S. from a terrorist attack. He was so driven and hands-on, the aides would say, that he and Libby would routinely ask to see raw intelligence rather than the processed analysis put together by the cia and other agencies. "He's a voracious consumer of intelligence," said an admiring aide to the Vice President. "Sometimes he asks for raw intelligence to make his own judgment. He wants it all."

He may have come across as deferential to the President in public, but friends and advisers in the fall of 2002 described Cheney as nothing less than the engine of the Administration. "There's no way in which he is not driving the train on this," said one, referring to Cheney's role in pushing Bush and the Administration inexorably toward an invasion of Iraq. "Analysis, advocacy-it's all done by Cheney or his protégés or his former mentor [Secretary of Defense Donald Rumsfeld]. It's about context. It's reflective not so much of Cheney's direct influence on the President as it is of his influence on-his dominance of-the decision-making process. It's about providing the facts and analysis to the decision maker that the decision maker needs. Bush is making the decision, but the Veep is directing the process toward the decision that he thinks is the right one." In other words, Cheney had so rigged the process that important decisions were foregone conclusions, ones that had been reached by the Vice President well in advance.

So when the verdict against Libby came down, it was also a rebuke to that hermetic power-sharing arrangement at the top of the White House. The legal outcome was never in doubt. Federal prosecutor Patrick Fitzgerald had been massing evidence of perjury for months and then unveiled it piece by piece until even the defendant chose not to testify in his own defense. Libby's highly touted defense lawyers, meanwhile, seemed weak and scattered. Their promise to reveal how the White House had left Libby to be the fall guy for higher-ups was introduced and then abandoned. And it would have taken them down a road Libby steadfastly refused to travel-the one that led to the Vice President's door.

From the start, the case was only marginally about Libby. What was really on trial was the whole culture of an Administration that treated the truth as a relative virtue, as something it could take or leave as it needed. Everyone knows now that Bush and Cheney took the country into a deadly, costly and open-ended war on flimsy evidence of weapons of mass destruction. Yes, Congress went along. And yes, the public on balance supported it. But no one was more responsible than the Vice President for pushing the limits of the prewar intelligence that did all the convincing. And when former ambassador Joseph Wilson questioned the credibility of that intelligence-and the motives that helped polish it-it was Cheney who led the fight to bring him down.

None of that was illegal. So four years later, the Libby trial still prompts the question, Why did Libby get into legal trouble in the first place? Why did the Vice President's top aide not simply admit to what everyone knew was true-that he discussed the identity of Wilson's wife Valerie Plame, a CIA officer, with at least one reporter? Since most experts agree that Libby was unlikely to be prosecuted on a charge of revealing her identity, it is hard not to conclude that Libby cooked up his stories to protect Cheney. If Libby had gone a different route and admitted in his grand jury testimony that he had told a reporter about the identity of Wilson's wife, Fitzgerald's next question would have been, Were you acting on Cheney's orders? And it would not have been long before Cheney was giving testimony under oath. There was, said Fitzgerald in his summation, "a cloud over what the Vice President did."

Libby's conviction comes at the end of a dreadful year for Cheney: last February he accidentally sprayed a friend with bird shot while hunting in Texas. A week before the midterms, in a gift to Democrats, he all but endorsed waterboarding on a North Dakota radio talk show as an interrogation technique. Mary Cheney, his openly gay daughter, ran afoul of conservative activists in December when it was revealed that she and her partner were expecting a baby. Late last month, while he was touring Bagram air base in Afghanistan, a suicide bomber attacked the camp's perimeter and killed at least 23 people in what the Taliban called an assassination attempt. Then on March 5, doctors found a blood clot in Cheney's leg, for which he will be treated with blood-thinning medication for several months.

But the personal setbacks have merely been the counterpoint to the larger policy reversals Cheney has suffered in internal debates in the past year. Secretary of State Condoleezza Rice is executing an unmistakable course correction in U.S. foreign policy, quietly stepping away from the strident and unilateral positions of the neoconservatives and cutting deals with — or opening lines to — the remaining members of the axis of evil. Backed by a strong new team of career diplomats, Rice prevailed on Iraq to invite Iran to a regional conference on security and then swiftly agreed to attend-unwinding Washington's vow just a few weeks ago that it would have no direct contact with Tehran until it stopped enriching uranium.

A few weeks earlier, after working for months with the Chinese, President Bush signed off on a deal with North Korea to freeze its primary nuclear reactor in exchange for economic aid and closer diplomatic ties. That deal was strikingly reminiscent of a controversial pact that Bill Clinton inked with North Korea in 1994 — and that the Bush team criticized in the first term. When hard-liners inside the government complained to reporters that the White House was selling out to a dictator, Bush backed Rice in public. Even in intelligence matters, the area in which Cheney was once most dominant and in which he invited the most trouble in the Libby case, his hand has been weakened. For example, in public testimony before Congress lately, intelligence officials have emphasized more ambiguities and uncertainties in their conclusions about threats overseas than was commonplace at the height of Cheney's power. Democratic Senators report that a refreshing new degree of candor has returned in classified sessions as well. "Cheney's influence on intelligence has declined markedly," said Democratic Senator John D. Rockefeller IV of West Virginia, chairman of the Senate Intelligence Committee.

Cheney is hardly unaware of Rice's new dominance. A senior Administration official told Time last week that Cheney has been part of all the arguments and has simply begun to lose some. But that alone means ideas that would have been unthinkable just a year or two ago — early engagement, muscular multilateralism, even patient negotiation — are becoming more acceptable in Bushland. American diplomats have asked the Jordanians for their notes on the Clinton-era negotiations between the Palestinians and Israelis, seeking to restart the Middle East peace talks that fell apart abruptly at the end of 2000. That's yet another turnabout for an Administration that lampooned those very talks in 2002.

Of course, some of the repositioning was inevitable, and most of it was long overdue. Even if Bush and Cheney didn't want to listen to the polls on the home front, they couldn't ignore the few allies they had left overseas. Britain's Tony Blair announced a partial pullout from Iraq last month, and then moderate Arab neighbors in the region began to clamor for Bush to pull up before he crashed. On Wednesday, King Abdullah II of Jordan made an impassioned public appeal in a joint meeting of Congress for Washington to take the lead on Middle East peace talks.

While Rice rewires foreign policy, White House chief of staff Joshua Bolten is showing signs that he can match Cheney on domestic matters. The Bush Administration has said it will retreat on the issue of domestic surveillance and abide by laws regulating wiretaps passed years ago by Congress. And the Democrats in Congress are finding Administration officials far more forthcoming with facts and figures about the conduct of the war in Iraq, in part because the White House knows that the next step-subpoenas-won't help their dwindling poll ratings. "There has been an ebb and flow," said Pennsylvania Republican Arlen Specter, "and the President has come to realize that the broader assertions of Executive power had to be tempered."

But there is another force driving the Bush team to pivot: the ticking of the clock. "It's very hard to do things at the very, very end," said Wendy Sherman, who coordinated North Korean policy in the Clinton State Department. "If the President wants to end eight years and have people say, 'You lost Iraq, you lost Iran, you lost North Korea, and you made the Middle East worse,' it's not a good moment in history. And so the pragmatists are predominant at the moment. This is their window."

How did cheney, a man once considered by members of both parties to have a feel for the golden mean, create a culture in which his top aide perjures himself? Some of it is his solitary roots: Cheney has never been a natural politician. He's more of a High Plains drifter who hailed from one of the least populated states in the nation, who took up the lonely job of utility lineman when he dropped out of college. Although he won a seat in Congress six times, he didn't have to work at it the way some lawmakers did. He easily rolled up huge margins in his Republican-tilted Wyoming district that literally covered the whole state. Personal charm wasn't so much Cheney's secret — the census was. In those days, everyone in Wyoming pretty much knew everyone else. Most years Cheney outpolled his rivals by more than 2 to 1.

So when he decided to give running for President a try in 1994, he soon realized he was unsuited for the big game. He raised a million dollars and built a good organization, but he found that the little things got to him. His fund-raising dinners, Cheney told aides, "weren't substantive enough." He didn't care to pal around with donors. He therefore called it off and never ran on his own again. This removal from people, from politics, from the sensors that make leaders responsive to people, turned into Cheney's Achilles' heel. And it actually deepened when he became Vice President. Bush picked Cheney because Cheney would never run again, but that also meant the newly minted Veep never had to put his ear to the ground.

Then came the war, which changed all of us but affected Cheney more than most. He was still wired in on everything, but that didn't mean he was in touch. He was convinced he was right about grave matters — that Saddam Hussein was a threat that had to be removed, that Iraq possessed weapons of mass destruction and was intent on using them, that critics of Administration policy were at best misguided and at worst traitorous. "It's always been a joke in his office that his staff is extraneous," said a staff member. "The only thing you can do is provide him with information he doesn't possess yet. He doesn't need your analytical skill and judgment. He has that already."

Even in his own family, Cheney has a reputation for simply not being there. At times he simply departs the room, not physically but mentally, says a family friend who has also worked for him. He loses himself in thought or a book or whatever he's doing and can't be raised or roused. When that happens, his daughters have a nickname for him: the Bull Walrus. And so they will wave their hands and affectionately call out their pet name for their dad — "Hey! Bull Walrus!" — as if he were sleeping on a big rock near the Arctic Sea. And then he'll come to.

So long as Bush remains Commander in Chief, however, and Cheney his faithful lieutenant, the Vice President's power will flow through the Oval Office. Cheney remains the Administration's point man in its war of words with Iran and helped persuade the President to send an extra carrier group to the Persian Gulf last month. He remains a force in White House debates about the conduct of the war, and though he has been forced to retreat in some areas, he has not walked away from the fight. He remains Bush's best messenger when delivering the tough love that Washington spoons out from time to time, as it did two weeks ago when the Administration pushed Pakistan's General Pervez Musharraf to take the war on al-Qaeda up a couple of notches.

Libby's four-count conviction guarantees that Cheney's White House role will remain in the news for most of the year. At the moment, Libby faces 18 months to three years in prison, though Judge Reggie Walton has discretion over the sentence he will hand down on June 5. In Libby's favor is the Columbia Law School grad's otherwise clean criminal record. Meanwhile, Libby's lawyers will try to argue for a new trial-something few observers expect Walton will permit-and then will ask the judge to allow Libby to postpone his jail sentence until an appeal can be heard. Retired Federal Judge Stanley Sporkin maintains that an appeal could be considered-and ruled on-in as little as six months, but it could stretch into 2008 if the appeal briefs are extensive. Given the way his lawyers tried to slow down the process with pretrial motions last year, they are likely to be.

And that's part of the plan. If his appeal fails, Libby's only recourse is a presidential pardon, and the chances of that go up as Bush's days in office dwindle. That means the longer Libby can keep the wheels of justice turning, the more likely he is to avoid spending any time in jail. Already the betting on a pardon is running at 65% by the end of Bush's term, and the Washington Post has announced a pool to predict the date. Democrats have called on Bush to swear off a pardon, but that outcome is not likely. If Bush ruled one out now, he might encourage Libby to seek leniency from Fitzgerald in his sentencing phase in return for cooperating with the prosecutor. In his first comments after the verdict was announced, Fitzgerald left the door open to such negotiations: "Mr. Libby is like any other defendant. If his counsel or he wish to pursue any options, they can contact us."

Then there is the argument that Bush should boot his Vice President before he strikes again. It's an often forgotten fact that three of the past six Presidents either dumped or tried to dump their Vice Presidents: Richard Nixon tossed Spiro Agnew for Gerald Ford in 1973, Ford tossed Nelson Rockefeller and tapped Bob Dole as a running mate in the 1976 campaign, and Bush's father George Herbert Walker Bush let his top aides try to give the heave-ho to Vice President Dan Quayle when he was dragging down the G.O.P. ticket by three or four points in 1992.

The father's instincts have never been the son's. Replacing the Veep now would create exactly the unpleasant succession scenario Bush had hoped to avoid when he chose Cheney in the first place. He didn't want someone soaking up all the attention and energy as he headed into his last 18 months in office. It seemed like a good idea at the time.

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March 7, 2007

Editorial

A Libby Verdict

There will be a great deal written and said in coming days about the frustrations of the Scooter Libby verdict — that it did not tell us whether someone deliberately blew Valerie Plame Wilson’s cover or erase serious concerns about the prosecutor’s abuse of the First Amendment. Let’s focus first on what the verdict does say.

One of the most senior officials in the White House, Lewis Libby, the chief of staff for Vice President Dick Cheney, was caught lying to the F.B.I. He appears to have been trying to cover up a smear campaign that was orchestrated by his boss against the first person to unmask one of the many untruths that President Bush used to justify invading Iraq. He was charged with those crimes, defended by the best lawyers he could get, tried in an open courtroom and convicted of serious felonies. Mr. Libby walked freely out of the court, had his say in public and will be allowed to appeal.

It was another reminder of how precious the American judicial system is, at a time when it is under serious attack from the same administration Mr. Libby served. That administration is systematically denying the right of counsel, the right to evidence and even the right to be tried to scores of prisoners who may have committed no crimes at all.

And although we still do not know the answer to the original mystery, the case provided a look at the methodical way that Mr. Cheney, Mr. Libby, Karl Rove and others in the Bush inner circle set out to discredit Ms. Wilson’s husband, Joseph Wilson IV. Mr. Wilson, a career diplomat, was sent by the State Department in 2002 to check out a British intelligence report that Iraq had tried to buy uranium from the government of Niger for a secret nuclear weapons program. In his 2003 State of the Union address, Mr. Bush said: “The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.”

In July 2003, Mr. Wilson wrote in an Op-Ed article in The Times that what he had found did not support that claim. The specter of a nuclear-armed Iraq was central to Mr. Bush’s case for rushing to war. So, the trial testimony showed, Mr. Cheney orchestrated an assault on Mr. Wilson’s credibility with the help of Mr. Libby and others. They whispered to journalists that Mr. Wilson’s wife worked at the C.I.A. and that nepotism was the reason he had been chosen for the trip.

That is what we know from the Libby trial, and it is some of the clearest evidence yet that this administration did not get duped by faulty intelligence; at the very least, it cherry-picked and hyped intelligence to justify the war. What Mr. Wilson found, and subsequent investigations confirmed, was that there was one trip in 1999 — not “recently,” but four years before Mr. Bush’s statement — by an Iraqi official to Niger and that during that trip, uranium was never discussed.

What we still do not know is whether a government official used Ms. Wilson’s name despite knowing that she worked undercover. That is a serious offense, which could have put her and all those who had worked with her in danger. We also do not understand why the federal prosecutor, Patrick Fitzgerald, chose to wage war with the news media in assembling his case, going so far as to jail a Times reporter, Judith Miller, for refusing to reveal the name of a confidential source.

The potential damage from that decision remains of real concern. But it was still a breath of fresh air to see someone in this administration, which specializes in secrecy, prevarication and evading blame, finally called to account.

Libby, Guilty!

Libby verdict a black eye for White HouseEwen MacAskill in Washington
Tuesday March 6, 2007

Guardian Unlimited

The downfall of Lewis "Scooter" Libby, one of the leading figures in the Bush administration, was complete today.

The man who had swaggered around the White House as chief of staff to the vice-president, Dick Cheney, was today subdued as he listened to the verdict in Courtroom 17 of the US district court, on Constitution Avenue, within walking distance of his former office.

Libby had appeared confident when he appeared in court to hear the verdict. But as he was found guilty on the first of five charges he blinked and appeared surprised. As each verdict was announced, the blinking became more pronounced.

And so ended the political career of one of the Bush ideologues, part of the original neo-conservative group, known as the Vulcans, who advocated an aggressive foreign policy, in particular the invasion of Iraq.

The six-week trial, which began in January, has been one of the main topics around the dinner tables and bars where Washington's political and media elite meet. The trial, with its parade of witnesses from the administration, offered a rare insight into the workings of the obsessively secretive White House.

It also provided more than a glimpse into the often-unsavoury relationship between the administration and the media insiders. But the real importance of the trial was the insight it offered into the run-up to the 2003 invasion of Iraq. The case coincided with a shift in US public opinion from support for the war to scepticism and outright hostility, and confirmed the growing suspicion that the public had been misled.

The case was complex but it began simply enough with 16 words uttered by Mr Bush in his state of the union speech two months before the invasion almost four years ago. He said: "The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa."

That statement was untrue. The CIA advised the president that it was sceptical about the claim - advice which Mr Bush ignored. British intelligence, however, insisted the information was accurate and the president preferred its assessment, which fitted the case he was making for war.

Joe Wilson, a former US ambassador opposed to war, went to Niger to check the claim. It is still not clear whether his visit was at the request of the US government or whether he went on his own. He concluded the claim was nonsense, and said so in an opinion page article in the New York Times soon after the invasion.

This appears to have enraged both Mr Bush and Mr Cheney, according to witnesses during the trial. In what could have been an act of retribution, there was a leak to the press that Mr Wilson's wife, Valerie Plame, was apparently a CIA covert agent. As a result of her identity being made public, she was out of a job.

Disclosing the identity of CIA agents is a criminal offence and the FBI and a grand jury conducted investigations. In speculation about who might have leaked Ms Plame's identity, Libby's name regularly came up.

The 56-year-old lawyer had long been involved with many of the individuals who would become key figures in the Bush adminstration. He been taught at Yale by Paul Wolfowitz, who would later become the intellectual powerhouse of the neoconservatives. Mr Wolfowitz later invited Libby to join him at the state department in the 1980s.

In 1997, Libby became a founding member of the Project for the New American Century, the neoconservative team that sought to reshape US policy in the Middle East, and he contributed to its now infamous 2000 report, Rebuilding America's Defences: Strategy, Forces, and Resources for a New Century.

He joined Mr Cheney, the most hawkish member of the Bush administration, as chief of staff in 2001. As well as his duties in that role, he was also his national security adviser, shaping policy on Afghanistan, Iraq, North Korea and other hotspots.

Libby was not the first official to leak Valerie Plame's name - that turned out to be Richard Armitage, the undersecretary of state, who was not being prosecuted, apparently because he was unaware Ms Plame's identity had been a secret. But, as with the Watergate hearing, it was not the original offence that created the problem. Libby told the investigators under oath that, far from leaking Ms Plame's identity, he learned it from a reporter, Tim Russert. The television presenter denied this.

Another reporter, Judith Miller, formerly of the New York Times, spent three months in jail for refusing to disclose her sources for Plame's identity. She was freed after Libby allowed her to name him as the source.

Libby was indicted on charges of perjury in 2005 and resigned as chief of staff.

During the trial, the prosecution built the case that Libby had lied. The defence claimed he had been a busy man at the White House and only suffered from the human frailty of a memory lapse. The jury today refused to give him the benefit of the doubt.

He faces up to 25 years in jail but he may never go to prison. His defence team can string out the appeal long enough for Mr Bush, before he leaves office in January 2009, to grant a pardon to his loyal follower. But his time as one of the leading advocates of the neoconservative revolution and a leading player at the White House are long over.

Guardian Unlimited © Guardian News and Media Limited 2007