THE END OF DOLLAR HEGEMONY, PART I

by Hon. Ron Paul of Texas

A hundred years ago it was called "dollar diplomacy." After World War II,
and especially after the fall of the Soviet Union in 1989, that policy
evolved into "dollar hegemony." But after all these many years of great
success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules. In
earlier times it was readily accepted that fair and honest trade required
an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold held
a universal attraction, and was a convenient substitute for more
cumbersome barter transactions. Not only did gold facilitate exchange of
goods and services, it served as a store of value for those who wanted to
save for a rainy day.

Though money developed naturally in the marketplace, as governments grew
in power they assumed monopoly control over money. Sometimes governments
succeeded in guaranteeing the quality and purity of gold, but in time
governments learned to outspend their revenues. New or higher taxes always
incurred the disapproval of the people, so it wasn't long before Kings and
Caesars learned how to inflate their currencies by reducing the amount of
gold in each coin - always hoping their subjects wouldn't discover the
fraud. But the people always did, and they strenuously objected.

This helped pressure leaders to seek more gold by conquering other
nations. The people became accustomed to living beyond their means, and
enjoyed the circuses and bread. Financing extravagances by conquering
foreign lands seemed a logical alternative to working harder and producing
more. Besides, conquering nations not only brought home gold, they brought
home slaves as well. Taxing the people in conquered territories also
provided an incentive to build empires. This system of government worked
well for a while, but the moral decline of the people led to an
unwillingness to produce for themselves. There was a limit to the number
of countries that could be sacked for their wealth, and this always
brought empires to an end. When gold no longer could be obtained, their
military might crumbled. In those days those who held the gold truly wrote
the rules and lived well.

That general rule has held fast throughout the ages. When gold was used,
and the rules protected honest commerce, productive nations thrived.
Whenever wealthy nations - those with powerful armies and gold - strived
only for empire and easy fortunes to support welfare at home, those
nations failed.

Today the principles are the same, but the process is quite different.
Gold no longer is the currency of the realm; paper is. The truth now is:
"He who prints the money makes the rules" - at least for the time being.
Although gold is not used, the goals are the same: compel foreign
countries to produce and subsidize the country with military superiority
and control over the monetary printing presses.

Since printing paper money is nothing short of counterfeiting, the issuer
of the international currency must always be the country with the military
might to guarantee control over the system. This magnificent scheme seems
the perfect system for obtaining perpetual wealth for the country that
issues the de facto world currency. The one problem, however, is that such
a system destroys the character of the counterfeiting nation's people -
just as was the case when gold was the currency and it was obtained by
conquering other nations. And this destroys the incentive to save and
produce, while encouraging debt and runaway welfare.

The pressure at home to inflate the currency comes from the corporate
welfare recipients, as well as those who demand handouts as compensation
for their needs and perceived injuries by others. In both cases personal
responsibility for one's actions is rejected.

When paper money is rejected, or when gold runs out, wealth and political
stability are lost. The country then must go from living beyond its means
to living beneath its means, until the economic and political systems
adjust to the new rules - rules no longer written by those who ran the now
defunct printing press.

"Dollar Diplomacy," a policy instituted by William Howard Taft and his
Secretary of State Philander C. Knox, was designed to enhance U.S.
commercial investments in Latin America and the Far East. McKinley
concocted a war against Spain in 1898, and (Teddy) Roosevelt's corollary
to the Monroe Doctrine preceded Taft's aggressive approach to using the
U.S. dollar and diplomatic influence to secure U.S. investments abroad.
This earned the popular title of "Dollar Diplomacy." The significance of
Roosevelt's change was that our intervention now could be justified by the
mere "appearance" that a country of interest to us was politically or
fiscally vulnerable to European control. Not only did we claim a right,
but even an official U.S. government "obligation" to protect our
commercial interests from Europeans.

This new policy came on the heels of the "gunboat" diplomacy of the late
19th century, and it meant we could buy influence before resorting to the
threat of force. By the time the "dollar diplomacy" of William Howard Taft
was clearly articulated, the seeds of American empire were planted. And
they were destined to grow in the fertile political soil of a country that
lost its love and respect for the republic bequeathed to us by the authors
of the Constitution. And indeed they did. It wasn't too long before dollar
"diplomacy" became dollar "hegemony" in the second half of the 20th
century.

This transition only could have occurred with a dramatic change in
monetary policy and the nature of the dollar itself.

Congress created the Federal Reserve System in 1913. Between then and 1971
the principle of sound money was systematically undermined. Between 1913
and 1971, the Federal Reserve found it much easier to expand the money
supply at will for financing war or manipulating the economy with little
resistance from Congress - while benefiting the special interests that
influence government.

Dollar dominance got a huge boost after World War II. We were spared the
destruction that so many other nations suffered, and our coffers were
filled with the world's gold. But the world chose not to return to the
discipline of the gold standard, and the politicians applauded. Printing
money to pay the bills was a lot more popular than taxing or restraining
unnecessary spending. In spite of the short-term benefits, imbalances were
institutionalized for decades to come.

The 1944 Bretton Woods agreement solidified the dollar as the preeminent
world reserve currency, replacing the British pound. Due to our political
and military muscle, and because we had a huge amount of physical gold,
the world readily accepted our dollar (defined as 1/35th of an ounce of
gold) as the world's reserve currency. The dollar was said to be "as good
as gold," and convertible to all foreign central banks at that rate. For
American citizens, however, it remained illegal to own. This was a
gold-exchange standard that from inception was doomed to fail.

The U.S. did exactly what many predicted she would do. She printed more
dollars for which there was no gold backing. But the world was content to
accept those dollars for more than 25 years with little question - until
the French and others in the late 1960s demanded we fulfill our promise to
pay one ounce of gold for each $35 they delivered to the U.S. Treasury.
This resulted in a huge gold drain that brought an end to a very poorly
devised pseudo-gold standard.

It all ended on August 15, 1971, when Nixon closed the gold window and
refused to pay out any of our remaining 280 million ounces of gold. In
essence, we declared our insolvency and everyone recognized some other
monetary system had to be devised in order to bring stability to the
markets.

Amazingly, a new system was devised which allowed the U.S. to operate the
printing presses for the world reserve currency with no restraints placed
on it - not even a pretense of gold convertibility, none whatsoever!
Though the new policy was even more deeply flawed, it nevertheless opened
the door for dollar hegemony to spread.

Realizing the world was embarking on something new and mind boggling,
elite money managers, with especially strong support from U.S.
authorities, struck an agreement with OPEC to price oil in U.S. dollars
exclusively for all worldwide transactions. This gave the dollar a special
place among world currencies and in essence "backed" the dollar with oil.
In return, the U.S. promised to protect the various oil-rich kingdoms in
the Persian Gulf against threat of invasion or domestic coup. This
arrangement helped ignite the radical Islamic movement among those who
resented our influence in the region. The arrangement gave the dollar
artificial strength, with tremendous financial benefits for the United
States. It allowed us to export our monetary inflation by buying oil and
other goods at a great discount as dollar influence flourished.

This post-Bretton Woods system was much more fragile than the system that
existed between 1945 and 1971. Though the dollar/oil arrangement was
helpful, it was not nearly as stable as the pseudo gold standard under
Bretton Woods. It certainly was less stable than the gold standard of the
late 19th century.

During the 1970s the dollar nearly collapsed, as oil prices surged and
gold skyrocketed to $800 an ounce. By 1979 interest rates of 21% were
required to rescue the system. The pressure on the dollar in the 1970s, in
spite of the benefits accrued to it, reflected reckless budget deficits
and monetary inflation during the 1960s. The markets were not fooled by
LBJ's claim that we could afford both "guns and butter."

Once again the dollar was rescued, and this ushered in the age of true
dollar hegemony lasting from the early 1980s to the present. With
tremendous cooperation coming from the central banks and international
commercial banks, the dollar was accepted as if it were gold.

Fed Chair Alan Greenspan, on several occasions before the House Banking
Committee, answered my challenges to him about his previously held
favorable views on gold by claiming that he and other central bankers had
gotten paper money - i.e. the dollar system - to respond as if it were
gold. Each time I strongly disagreed, and pointed out that if they had
achieved such a feat they would have defied centuries of economic history
regarding the need for money to be something of real value. He smugly and
confidently concurred with this.

In recent years central banks and various financial institutions, all with
vested interests in maintaining a workable fiat dollar standard, were not
secretive about selling and loaning large amounts of gold to the market
even while decreasing gold prices raised serious questions about the
wisdom of such a policy. They never admitted to gold price fixing, but the
evidence is abundant that they believed if the gold price fell it would
convey a sense of confidence to the market, confidence that they indeed
had achieved amazing success in turning paper into gold.

Increasing gold prices historically are viewed as an indicator of distrust
in paper currency. This recent effort was not a whole lot different than
the U.S. Treasury selling gold at $35 an ounce in the 1960s, in an attempt
to convince the world the dollar was sound and as good as gold. Even
during the Depression, one of Roosevelt's first acts was to remove free
market gold pricing as an indication of a flawed monetary system by making
it illegal for American citizens to own gold. Economic law eventually
limited that effort, as it did in the early 1970s when our Treasury and
the IMF tried to fix the price of gold by dumping tons into the market to
dampen the enthusiasm of those seeking a safe haven for a falling dollar
after gold ownership was re-legalized.

Once again the effort between 1980 and 2000 to fool the market as to the
true value of the dollar proved unsuccessful. In the past 5 years the
dollar has been devalued in terms of gold by more than 50%. You just can't
fool all the people all the time, even with the power of the mighty
printing press and money creating system of the Federal Reserve.

Even with all the shortcomings of the fiat monetary system, dollar
influence thrived. The results seemed beneficial, but gross distortions
built into the system remained. And true to form, Washington politicians
are only too anxious to solve the problems cropping up with window
dressing, while failing to understand and deal with the underlying flawed
policy. Protectionism, fixing exchange rates, punitive tariffs,
politically motivated sanctions, corporate subsidies, international trade
management, price controls, interest rate and wage controls,
super-nationalist sentiments, threats of force, and even war are resorted
to-all to solve the problems artificially created by deeply flawed
monetary and economic systems.

Regards,

Congressman Ron Paul
for The Daily Reckoning

THE LIFE AND DEATH OF GREAT CITIES

By Bill Bonner

"Funny how time changes...rearranges everything."
- The Supremes

"You can't go wrong with property in Central London," is an expression you
hear often on the banks of the Thames. "You can't go wrong with property
in central Detroit" has the same number of syllables. Eight out of nine
words are exactly the same. The final one, though, makes a big difference.
It changes the meaning, from delusional faith to desperate comedy.

Detroit was once one of the world's great English-speaking cities. But
then, Kaifeng, China, was once a great city too. A thousand years ago, it
was the world's most important city. While London had only 15,000 soggy
inhabitants...Kaifeng was the capital of the Song Dynasty, with more than
a million people. At the time, Detroit didn't even exist.

Today, London is a great city...Kaifeng is a now a small, grimy, poor
city...not even a provincial capital...without an airport. But look at
Detroit:

A friend reports:

"Detroit is a contrarian utopia - needles, drug baggies, gangs on street
corners, boarded up businesses, empty office buildings, vacant mansions.
For Sale signs everywhere. It is a hellhole. Wayne County, Michigan, home
to Detroit, lost more people from the beginning of 2005 to the end of 2006
than any U.S. county except the four counties in Louisiana and Mississippi
devastated by Hurricane Katrina, according to Census figures released in
March. Since 2001, Michigan lost more jobs than any other state in the
Union.

"Away from downtown, things are not much better. Lots of homes in the
burbs have been on the market for 2, 3, and 4 years with NO offers, and
not even so much as a low ball offer. Larger existing homes in Macomb
County can be purchased for about 40% less than replacement cost. "

There was a time, of course, on the chilly shores of Lake Michigan, when
you could say "you can't go wrong buying property in central Detroit" with
a straight face. In the early 20th century, Detroit was on top of the
world, the capital of the auto age. The internal combustion engine was
developed at first for boats and the Great Lake region was a natural place
for an industry manufacturing boat engines to emerge. There was already a
thriving carriage-making center, too. From those beginnings, Detroit soon
became the Motor City, home to the biggest new industry since the
invention of the mechanical loom. Even during wartime, the assembly lines
didn't slack off - instead, they sped up, working around the clock to
provide trucks, jeeps, tanks, to armies all over the world. War or peace,
everyone seemed to want more and more vehicles. How could you go wrong
buying property in the city that made them?

There were once dozens of automakers in Coventry, England, too. Now, there
are only a handful in the whole country and every one of them is
foreign-owned. America's automakers consolidated sooner in Detroit. They
are still operating and still in American hands, but probably not for
long.

We remember, in our own lifetimes, when the first funny-looking cars came
into the U.S. market from Germany and Japan. Cheap and stingy on fuel
consumption, the little autos gained a beachhead in the United States
during the oil crisis and inflation of the '70s. I bought a Honda Accord
in 1975. My father, a Pearl Harbor veteran, saw the thing and was
appalled. "Those people tried to kill me for three years," he said.

Congress wanted to protect the U.S. automakers in the worst possible way -
by placing a per-car tariff on imports. Both the Japanese and the Germans
responded by moving up-market so as to make more profit per car sold.
Soon, the foreign automakers were going head-to-head with America's big
luxury models too - and winning. And now, the motor city is sputtering
and threatening to conk out completely.

But investors are an arrogant and opportunistic lot. Some speculators look
upon Detroit and think they see an overturned liquor truck; they imagine
they should help themselves before the cops come. After all, cities have
good times and bad times. Detroit might be suffering nothing more than a
cyclical setback in the life of a great city. People thought Harley
Davidson was finished too...and look how it's come back. Now, it's worth
more than GM.

Let the U.S. auto industry go broke, say the optimists, as soon as
possible. Then, new, more vigorous entrepreneurs, without all GM's and
Ford's baggage, can climb into the drivers seat. And Mo'town will rock and
roll again.

If you believe that, you should get on a plane to Detroit now. Whole
skyscrapers change hands for less than the price of a 3-bedroom apartment
in Mayfair. The 65-story David Stott building, for example, is on the
market for $3.5 million. For less than a million you can buy a 12,000
square foot Italian renaissance-style mansion, complete with an intricate,
hand-carved walnut main staircase and imported wood paneling throughout.

"That may seem like a bargain," says a CNBC reporter, "considering the
1915 limestone house sits on over 2 acres and is just 3 miles from the
city center. But then again, this is Detroit, Michigan."

Speculators hope that Murder City might once again become Motor City. But
they should ask instead why it is that last year, as rental rates across
the United States rose an average of more than 6%, in Detroit, rents
couldn't even climb 1%.

Investors might do better to look at Liuzhou, China, where GM is producing
its new Wuling Sunshine mini-van. In 2002, China made a million cars and
trucks. By 2020, it's expected to produce 15 million units, more than the
United States. How can Detroit stage a comeback with that kind of
competition?

Instead, maybe, the city will join the ranks of the dead, along with
Ctesiphon, Mesa Verde, Persepolis, Kish, Harappa, Babylon, Sodom, and
Gomorrah. Soon, its apartments and mansions may sell for no more than
places in Mapungubwe, Tiahuanaco, Tyre, Nineveh, Troy, Golconda and
hundreds of other defunct metropolises.

Meanwhile, back in modern world, financial services is where the money is.
And London and New York is where the financial service industries are.
Is there any better game to be in? And is there a better place to be than
in the capital cities of this new, new money-shuffling commerce? Not in
2007. Business is booming. All over the world, companies are getting set
up, financed, bought out, refinanced, IPO'ed, taken private, merged,
acquired, re-IPOed and leveraged in more ways than you can count. It will
be a cold day in Hell when the Chinese can compete in this industry.

London and New York are on top of the world - just like Detroit once was.
Just like Kaifeng once was. Prices can only go up, right?

Bill Bonner
The Daily Reckoning

We Want Solutions! by Howard Kunstler

May 28, 2007

Wherever the environmentally-informed gather these days (i.e., the clusterfuck-aware), a nervous impatience often mounts, and ends up expressing itself as an outcry for "solutions." For example, at the Telluride Mountain Film Festival, where I happened to be this past weekend, along with a couple of hundred other people who spewed airplane exhaust across the stratosphere to get there. This year's twin themes were the Castor-and-Pollux of Clusterfuck Nation, Global Warming and Peak Oil.
Many frightening documentary films and Powerpoint talks were served up in the opening symposium (including ones by Dennis Dimick, the editor of National Geographic, Daniel Nocera of MIT, and yours truly) and, as the morning wore on, the audience grew visibly impatient, until one speaker dropped the word "solutions," and the audience gave out a big whoop of approbation.
It only made me more nervous, because this longing for "solutions," strikes me as a free-floating wish for magical rescue remedies, for techno-fixes that will allow us to make a hassle-free switch from fossil hydrocarbon power to something less likely to destroy the Earth's ecosystems (and human civilization with it). And I think such a wish is, in itself, at the root of our problem -- certainly at the bottom of our incapacity to think clearly about these things.
I said so, of course, which seemed to piss off a substantial number of my fellow festival attendees.
My position on this can be easily misunderstood. I don't want civilization to collapse (I like Mozart and access to root canal). I don't want Homo sapiens to go extinct, or the planet to parboil. I certainly don't believe in doing nothing in the face of this emergency. But I also don't believe we are going to make any hassle-free switch in the way we run things -- or that we should want to. Would the USA be a better place if we could run Wal-Mart and Las Vegas on wind power? I don't think so. Would the public benefit from another hundred years of suburban living -- and an economy based largely on creating ever more of it? All the Prozac in the universe would not avail to offset the diminishing returns of that bullshit.
In my travels, I have noticed a disturbing theme among the educated minority of eco-advocates: they are every bit as dedicated to the status quo (in their own way) as the NASCAR morons and shopping mall developers. The eco-advocates want cars, too, and all the prerogatives (like free parking and country living) that go with them, just like the WalMart shoppers. If this were not so, then why do the eco-advocates cream in their jeans whenever somebody presents a snazzy new vehicle that runs on a fuel other than gasoline? Indeed, why are some of the eco-friendly pouring all their efforts into the invention of such things instead of into walkable communities and the reform of our stupid land-use laws?
I encountered this ethos most strikingly a few years back at Middlebury College in Vermont, where angry biodiesel advocates assailed my lack of enthusiasm for their particular "solution" -- which seemed geared mainly to allow them to continue to drive their dad's old cast-off SUVs to the snowboarding venues of that progressive little state. But the wish to keep running all our cars permeates what little public discussion there is of the global warming / energy crisis issues at all levels. Even the elder statesmen of the eco-movement talk it up incessantly. The first great victory will come when they shut up about it and put their minds to other tasks.
The eco-advocate community is still hooked into the Faustian bargain of technology with little consciousness of its diminishing returns, and to some extent have made themselves unwitting tools of the truly clueless and wicked who run business and politics in our land. With this particular group in Telluride, which was composed heavily of Boomer eco-adventurers (mountain climbers, trekkers, kayakers), the infatuation with ever-cooler adventuring techno-gear extended naturally, it seemed, to their uncritical view of magical techno-fixes aimed at "solving" the climate / oil mess.
And the setting of the festival -- the Rocky Mountain ski resort town of Telluride -- itself induced some eerie moments of reflex nausea as one contemplated the many 10,000 square-foot peeled-log dream palaces built by Hollywood producers, who derive their fortunes by selling violent masturbation fantasies to fourteen-year-olds. One couldn't fail to notice that three-quarters of the storefronts along the little main street were occupied by real estate sales offices.
But I don't want to be doubly or triply misunderstood as appearing to twang on the kind people who invited me there, or to evade the obvious fact that I went (by airplane and shuttle van). I thought it was worth going to carry this one little message: let's stop talking about making better cars and start talking about occupying the landscape differently -- which we're going to have to do anyway.

Neighborhood Swayed by 'Liar's Loans'

By Adam Geller, AP National Writer AP Impact: Drawn Into Real Estate Frenzy, a Neighborhood Finds Home Loans Too Good to Be True BOSTON (AP) -- Upstairs at Victory Chapel Church -- a cinderblock bunker converted from a long-ago Ford dealership -- the pews are reserved for praising heaven. But downstairs, in a basement rental hall, a pair of women preached of worldly wonders.

At 11 a.m. on alternating Saturdays, they set out rows of folding chairs and spread tables with urns of coffee and boxes of Dunkin' Donuts. And they offered testimony to the bounty of real estate, encouraging their growing flock to buy the wood-frame walk-ups and rowhouses surrounding this workaday stretch of Columbia Road, just down from the OJ Car Wash.

The key was trust, they told the faithful, as the voices of the practicing choir rang through the building.

Still, Valerie Hayes was a little skeptical.

"I really was thinking it would be at least a year before I'd get a mortgage," says Hayes, an executive secretary and mother of two. She was wary of borrowing because she was saddled with her own student loans.

But "on Saturday I went to the seminar," she says. By Sunday, she was preapproved to buy.

Soon after, Hayes did buy. The problem, prosecutors say, is that the women put Hayes and others into homes they couldn't possible afford. They did so by filling their loan applications with details of jobs, paychecks and bank accounts that were all so much fiction.

What happened in this church basement was no fluke; it happened elsewhere, too.

Much has been made of the very questionable lending that accompanied the rapid growth of subprime mortgages, a phenomenon that made homeowners of so many people. But less attention has been paid to the gimmickry and manipulation that delivered the loans an industry craved.

Some say this was nothing short of fraud. Those accused reject the charges. The case also raises tough questions of whether borrowers, too, should bear some responsibility.

But the bottom line is beyond dispute. Valerie Hayes can tell you about that. Just don't go looking for her at the home she bought, thanks to the women at Victory Chapel Church.

It's owned by the bank now, and there's a real estate agent's lockbox on the door.

Over the past decade, the mortgage industry has turned itself into a very big tent.

People who might have had trouble borrowing found it much easier to get a loan. Lenders devised new types of loans and eased standards to bring buyers into the market.

As a result, homeownership reached record levels. But as interest rates rise and the market cools, it becomes clear many people were put into punishing loans they couldn't afford.

That is particularly evident in the enormous growth of what the industry politely calls "stated income" loans -- also known as "liar's loans."

Stated loans -- whose borrowers list income and assets without having to prove anything -- were meant for solidly self-employed buyers. Then they "morphed into a huge monster," says Connie Wilson of Interthinx, a maker of mortgage fraud detection software. "Now we have stated income programs for everyone."

The loans have become a huge piece of the subprime market. Last year, nearly half of subprimes required little or no documentation of income, a share that has nearly tripled since the start of 2000, according to First American LoanPerformance.

But in its love of these quickly processed loans, the industry overlooked the pitfalls.

A study by the Mortgage Asset Research Institute Inc. of 100 stated loan applications last year found almost 60 percent exaggerated incomes by at least half. A study by BasePoint Analytics found that 70 percent of mortgage defaults were linked to "a significant misrepresentation on the original loan application."

Mortgage fraud is most visible in the spectacular cases that draw prosecutorial muscle, involving fake buyers, property flipping, vast amounts of money. But that overlooks smaller-scale foul play now costing many subprime borrowers their homes, experts say.

Often it's not considered fraud. It's pushing the envelope. It's a dollop of distortion topped with a measure of creative exaggeration. It's doing whatever it takes.

"There's a huge amount of broker fraud out there," says Kerstin Arusha of the Fair Housing Law Project in San Jose, Cal., which represents low-income homeowners stuck in such loans. "When you look at the applications of many of these borrowers, I see it reported that they make $10,000 or $12,000 a month, sometimes $20,000 a month. They always have $100,000 in personal assets ... You can see that these things are created by the broker."

Of course, most real estate agents and mortgage brokers are honest.

But there have been too many in the last few years "who stretch the truth ... that make deals happen that really shouldn't happen," says Jim Croft, founder of the Mortgage Asset Research Institute.

"And they always have the fallback that they're not dishonest," he says. "They're just helping Jill and Joe Six-pack get into the home -- and realize the American dream."

Frances Darden dreamed of buying a house. And not just any house.

It would be in Boston, because this was home now. But it would look and feel like her grandparents' place in the South Carolina of her childhood, because that's what home meant.

It would have a backyard for barbecues and a front porch for conversation. Its French doors would usher visitors from living room to dining room. It would not be a grand place, mind you, but thinking about it made Darden feel just grand.

Still, it was lot to imagine for a hair stylist on disability, reliant on a subsidized housing voucher and supporting two teenagers. Banks told Darden to scale back her dreams, offering to lend, but not enough to buy in her own neighborhood.

Then, in September 2004, she spotted an ad in the weekly Banner.

"Want to Buy a Home? Credit Less Than Perfect?" beckoned one of what would become a series of ads by Champagne & Associates, a real estate agency in her neighborhood of Dorchester. The slogan above the agency's name made Darden optimistic.

"Let's Make History," it said.

Darden went to Champagne's free seminar with her friend, Annie Neal. It was held in the agent's office, facing a traffic-filled avenue, between a storefront daycare center and Linda's African Braiding & Clothing. Agents had pushed the desks back to the green stucco to make room for an audience. The prospective buyers met two women who vowed to help them.

The first was Champagne's owner, Roberta Robinson, a former mortgage broker who'd started her own real estate shop.

"She had an answer for every question," Darden says.

The second was Rachel Noyes, a bartender-turned-mortgage broker who brought her toddler to some seminars, and promised to unlock the secrets of buying real estate.

"I really felt like I was helping people get into homes," Noyes said in a recent telephone interview. "The one question I always asked, to drill into your mind, is: How much can you afford?"

But those who attended the seminars -- describing the experience in interviews and court papers -- don't remember it that way.

"As long as you're honest with me," Valerie Hayes recalls Noyes saying, "I guarantee you I can you get you into a loan."

At session's end, organizers asked for Social Security numbers to run credit checks.

"We're not going to be approved to buy a home in Boston and I don't want to go out to Lowell," Darden recalls thinking.

But a couple of days later her phone rang. It was Robinson -- with good news.

Darden had been preapproved for a loan. Up to $360,000!

It only took a few weeks for Frances Darden to find her dream house -- a two-family set on a corner of Harvard Street with pale yellow siding, a small front porch and another on the back. But could she afford it?

Darden says Roberta Robinson calmly reassured her.

"I have always been about educating the consumer regarding real estate since I hit the scene," Robinson wrote of herself in an advertising directory. "I feel the first step in homeownership is working with an informed client."

Robinson did not return calls and her attorney declined to comment.

When another bidder pulled out of a deal for the house, Darden says Robinson called with more good news.

"She said, `You have some good credit, girl, because you got approved for two houses,'" Darden recalls.

"How is that possible?" wondered Darden, who says she first told the agents she could afford only $1,500 to $2,000 a month in payments.

Renters, she was told, would help her carry the load of her own home, and the costs would be further offset by a three-family rental property.

Soon, mortgage applications --almost entirely blank -- arrived in the mail. Darden signed and returned them. In November, Darden closed on the first house. In December, she closed on a second.

She'd been preapproved for $360,000. Now she was borrowing $894,000.

It would cost her $7,194 a month.

It wasn't until seven months later, though, after she struggled to find tenants and maintain the buildings, that Darden began to wonder just what had happened. It began to make sense only when she studied the finished paperwork.

When she bought, Darden was receiving $1,800 a month in disability payments -- as she recovered from a collapsed lung -- sometimes supplemented by child support of $150 a week.

But the mortgage application described a woman she did not recognize: an administration manager for a medical supply company, earning $114,000 a year.

Meanwhile, the real Frances Darden was quickly falling behind.

In June 2005, Darden says she went to the Champagne office to demand help in refinancing her loans. By now, though, the effort to recruit buyers had outgrown the space on Blue Hill Avenue and moved to the church. Some of the sessions were drawing 40 or 50 people.

Robinson tried to help her sell the second home. But Darden was going through a divorce, tying up the home's ownership. She was and falling farther behind.

Now it had been a year since she'd become a homeowner. Long enough for the lender to lay claim to the investment property and begin foreclosure.

One of the most notable things about Frances Darden's story is how much it echoes the others.

Valerie Hayes says she knew something was very wrong when she went to close on the $440,000 loan for her house, a two-family in East Boston. She'd agreed to $2,300 payments because of expected rental income. But the documents listed payments at $3,300 a month.

"I see the real mortgages and it's apparent to me I got robbed," Hayes says, "but I'm thinking I'm going to make this work."

Why didn't she walk out? Because she'd already given up her old apartment and had a tenant waiting to move in. Within months, though, maintaining the building depleted savings already strained by the mortgage payments. That's when she noticed the reference to a second job -- one she never had -- earning a fictional $1,846 a month working for Champagne.

Late last year, Hayes moved out and the lender began foreclosure.

Others are still trying to hold on.

There's Macdala Louis, a nursing assistant, who bought on Edwin Street. Her loan application said she had a second job working for a company, Hart Professional Cleaning, that does not appear to exist.

And Jennifer Stone, a medical assistant who bought a $489,000 home with her partner, a special police officer.

"They said we had accounts we didn't even have. They said we had $50,000 in the bank," Stone says. "I didn't even have $700 in my 401(k)."

Dorchester, a sprawling mostly black neighborhood where many families get by on tight paychecks, has many homeowners who struggle. So when Darden went to see a foreclosure prevention counselor at ESAC, a nonprofit chartered by a number of Boston churches, it was hardly out of the ordinary.

It looks like you make pretty good money, counselor Steve Bennett told her, studying the mortgage paperwork. No, Darden insisted, that's not me.

Bennett wondered. Then he heard the same story from a second homeowner. And a third.

"This was a huge learning curve," says Robert Pulster, the agency's executive director. "What the hell is going on here and how did this happen?"

In August, Massachusetts' attorney general filed a civil lawsuit in state Superior Court accusing Robinson, Noyes and their companies of using "unfair and deceptive tactics to target and deceive low-income consumers into committing to mortgages they could not qualify for or afford."

The women pocketed thousands of dollars in commissions and fees for putting together deals and loans bound to fail, the suit says.

Prosecutors have obtained court orders restricting the activities of the women and their companies, both of which have closed. While the case awaits trial, however, Robinson has resurrected her real estate business in a nearby Boston neighborhood under a new name -- Opulent Realty Inc.

Noyes, who moved to Florida, recently lost by default after she stopped appearing in court to contest the charges. But damages have not been set and she continues to deny any deception.

It was the real estate agents who "were pushing people into homes they shouldn't have been," Noyes says. Borrowers, too, bear responsibility, she says.

"With stated income loans ... because there's no documentation, you're going by what the buyer is saying," Noyes said. "Who am I to say: 'You're a liar. You don't make that.' Should I have had better judgment? I don't know."

The borrowers reject that argument outright. Darden rushes to her bedroom and returns with a bag full of documents, pulling out a copy of the mortgage application she signed. It is all but blank.

If they deserve blame, she and other buyers say, it's for being too willing to believe and too naive to ask questions.

On a cool spring evening, Hayes walks from the modest but tidy one-bedroom rental she shares with her college-age son and daughter, three blocks up to the home she lost. It takes just a few minutes, but confirms how far she has come.

If she gets another chance at ownership, she'll be wiser, Hayes says, recalling that Saturday morning listening to a pitch in the church basement.

Subprime loans?

When canary's sing

WASHINGTON (AP) - A former Justice Department official told House investigators Wednesday that Attorney General Alberto Gonzales tried to review his version of the prosecutor firings with her at a time when lawmakers were homing in on conflicting accounts. Gonzales has testified he hasn't spoken with witnesses.

``It made me a little uncomfortable,'' Monica Goodling, Gonzales' former White House liaison, said of her conversation with the attorney general just before she took a leave of absence in March. ``I just did not know if it was appropriate for us to both be discussing our recollections of what had happened.''

In a daylong appearance before the Democratic-led House Judiciary Committee, Goodling, 33, also acknowledged crossing a legal line herself by considering the party affiliations of candidates for career prosecutor jobs - a violation of law.

And she said that Gonzales' No. 2, Deputy Attorney General Paul McNulty, knew more than he let on when he did not disclose to Congress the extent of White House involvement in deciding which prosecutors to fire. McNulty strongly denied that he withheld information, saying Goodling did not fully brief him about the White House's involvement.

Goodling's dramatic story about her final conversation with Gonzales brought questions from panel members about whether he had tried to align her story with his and whether he was truthful in his own congressional testimony.

Gonzales told the Senate Judiciary Committee last month that he didn't know the answers to some questions about the firings because he was steering clear of aides - such as Goodling - who were likely to be questioned.

``I haven't talked to witnesses because of the fact that I haven't wanted to interfere with this investigation and department investigations,'' Gonzales told the panel.

Goodling said for the first time Wednesday that Gonzales did review the story of the firings with her at an impromptu meeting she requested in his office a few days before she took a leave of absence.

``I was somewhat paralyzed. I was distraught, and I felt like I wanted to make a transfer,'' Goodling recalled during a packed hearing of the House Judiciary Committee.

Gonzales, she said, indicated he would think about Goodling's request.

``He then proceeded to say, 'Let me tell you what I can remember,' and he laid out for me his general recollection ... of some of the process'' of the firings, Goodling added. When Gonzales finished, ``he asked me if I had any reaction to his iteration.''

Goodling said the conversation made her uncomfortable because she was aware that she, Gonzales and others would be called by Congress to testify.

``Was the attorney general trying to shake your recollection?'' asked Rep. Artur Davis, D-Ala.

Goodling paused.

``I just did not know if it was a conversation we should be having and so I just didn't say anything,'' she replied. She added that she thought Gonzales was trying to be kind.

Democrats pounced.

``It certainly has the flavor of trying to get their stories straight,'' said Rep. Adam Schiff, D-Calif., a member of the committee.

The Justice Department denied that Gonzales did anything at that meeting other than try to help Goodling.

``The attorney general has never attempted to influence or shape the testimony or public statements of any witness in this matter, including Ms. Goodling,'' said spokesman Brian Roehrkasse. ``The statements made by the attorney general during this meeting were intended only to comfort her in a very difficult period of her life.''

Gonzales' resignation is being demanded by Democrats and some Republicans in part over the firings. Bush is standing by his longtime friend, but Democrats have pressed ahead with their probe, contending the firings may have been an attempt to exploit a loophole in the Patriot Act to install GOP loyalists as prosecutors without Senate confirmation.

Gonzales has denied that. But the furor has been costly nonetheless - Goodling and Sampson have resigned over it. McNulty, too, is leaving later this year. And many lawmakers who have not directly demanded Gonzales' resignation say he has lost their confidence.

Air Force Combat Troops?!

for those of us who were in the army, how ridiculous is this?




The Air Force has long billed itself as the most glamorous of the service branches.

Nowadays, with the wars in Iraq and Afghanistan, and the shortage in infantry manpower, the Air Force is marching to a different beat.

At Fort Dix in New Jersey, members of the Air Force are training to fight on the ground. In one combat-training exercise, Airman Travis Neeley's sergeant is down, bleeding to death and straining to stay alive. The convoy they were riding in has been hit and, though he's only 20 years old with just two stripes on his sleeve, Airman Neely is suddenly the squad leader.

And his squad is under heavy enemy fire.

Travis Neely signed up for the Air Force fresh out of high school in his hometown of Greenback, Tenn. He's an air transporter by training, which means he moves cargo and passengers, and rigs air drops.

Or as he whimsically describes it, "I tie knots and string all day long and make parachutes."

But within 10 days, Neeley and 200 other airmen at the Air Force Expeditionary Center at Fort Dix will become expert marksmen on the M-4 rifle. In short, they'll become urban warriors.

The Expeditionary Center is now retraining about 5,000 airmen per year, preparing them to fight on the ground in Iraq.

"There's no doubt that we've been asked to come in and help out," says Maj. Gen. Scott Gray, commander of the Expeditionary Center.

Like most high-ranking airmen, Gray is a pilot by training, but he's now overseeing the largest Air Force retraining center in the United States. The Iraq war has strained the Army and the Marine Corps. The Air Force is increasingly helping fill the gaps.

"The Army has felt some pressure, there's no doubt about it," Gray says. "So the fact that we can aid the Army and Marines — I see that personally as a good thing."

Since 2003, more than 30,000 airmen and sailors have been retrained to do things they normally wouldn't be called on to do, like run vehicle convoys, take part in street patrols, and get used to the sound of an AK-47 — the weapon of choice for insurgents in Iraq.

During the two-week course at the Expeditionary Center, the airmen will hear thousands of rounds of AK-47 blanks. They'll also receive hand-to-hand combat training and will be shot at by semunitions, or rubber bullets.

"These rounds travel at 300 feet per second, which is about a third of a speed of a real bullet," says Staff Sgt. Daniel Williamson. "They won't pierce you … but they will tear your skin off."

Williamson trains his fellow airmen on how to clear a village. They haven't been trained in infantry tactics like their counterparts in the Army and Marines, so Williamson makes sure that each airman gets hit by a rubber bullet at some point.

"We believe pain is an excellent teacher, so if they make a bad tactical mistake — they're not behind cover or if they tuck their elbows out or flag their weapon or maybe they don't take cover — they're actually gonna get hit and they're gonna remember it because it actually stings a little bit," Williamson says.

The Iraq war has been, by and large, the Army's burden. About two-thirds of all casualties have been soldiers. And the administration's decision to increase the size of ground forces means that the Army and the Marines won't be able to fight it alone.

The Air Force has more than 350,000 active-duty airmen, and though many aren't yet trained in ground combat, it's manpower the Pentagon is after now.

Ashcroft and the Night Visitors

By Dana MilbankWednesday, May 16, 2007;

As if Attorney General Alberto Gonzales didn't have enough trouble, now comes word that, before coming to the Justice Department, Gonzales preyed on the infirm.
In hair-raising testimony before a Senate committee yesterday, Jim Comey, the former No. 2 official at the Justice Department, described what might be called the Wednesday Night Massacre of March 10, 2004. Gonzales, then the White House counsel, and White House Chief of Staff Andrew Card staged a bedside ambush of Attorney General John Ashcroft while he lay in intensive care. Comey, serving as acting attorney general during Ashcroft's incapacitation, testified about how, on a tip from Ashcroft's wife, he intercepted the pair in Ashcroft's hospital room.
"The door opened and in walked Mr. Gonzales, carrying an envelope, and Mr. Card," Comey told the spellbound senators. "They came over and stood by the bed." They wanted Ashcroft to sign off on an eavesdropping plan that Comey and others at the Justice Department had already called legally indefensible.
Ashcroft "lifted his head off the pillow and in very strong terms expressed his view of the matter" -- that Comey was right. "And as he laid back down, he said, 'But that doesn't matter, because I'm not the attorney general. There is the attorney general.' And he pointed to me."
Gonzales and Card "did not acknowledge me," Comey testified. "They turned and walked from the room."
The Democrats on the Senate Judiciary Committee stared. The lone Republican in attendance, Arlen Specter (Pa.), looked down. The 6-foot-8 Comey, slightly hunched in the witness chair, swallowed frequently and kept his hands in his lap as he spun a narrative worthy of Dashiell Hammett.
"I thought I just witnessed an effort to take advantage of a very sick man," Comey told the quiet chamber. His voice grew thick and he cleared his throat as he explained how he prepared to resign. "I couldn't stay, if the administration was going to engage in conduct that the Department of Justice had said had no legal basis."
Comey had come before the committee to discuss Gonzales's botched firing of U.S. attorneys. Instead, under questioning from Sen. Charles Schumer (D-N.Y.), he gave his account of Gonzales's dark-of-night attempt to emasculate the department he would soon lead. The testimony had all the more impact because it came the morning after Deputy Attorney General Paul McNulty became the fourth senior official to resign in the prosecutor mess.
If Comey's testimony had the grip of mystery yesterday, Gonzales's defense had the feel of farce, as he heaped blame on McNulty for the mishandled firings. "The deputy attorney general is the direct supervisor of the United States attorneys," Gonzales volunteered at a National Press Club breakfast. He added: "I went back to the deputy attorney general and I asked Paul, 'Do you still stand by the recommendations?' And he said, 'Yes.' "
At the hearing, Specter offered a different view of McNulty's departure. "It's embarrassing for a professional to work for the Department of Justice today," he said, calling the resignation "evidence that the department really cannot function with the continued leadership or lack of leadership of Attorney General Gonzales."
Despite public pleas from a "lonely" Specter, the other Republicans on the committee didn't risk an appearance. Even the White House declined to counter Comey, who has a reputation for honesty. "You've got somebody who has splashy testimony on Capitol Hill -- good for him," presidential press secretary Tony Snow dodged.
In truth, nothing Snow could have said would have matched Comey's testimony. Comey recounted how, while driving home at 8 p.m. on that day in 2004, he got word that Mrs. Ashcroft had received a call -- possibly from President Bush himself -- to say Gonzales and Card were coming.
"I told my security detail that I needed to get to George Washington Hospital immediately. They turned on the emergency equipment and drove very quickly," Comey testified. "I got out of the car and ran up -- literally ran up the stairs with my security detail. . . . I raced to the hospital room, entered." The room was dark, and Ashcroft was "pretty bad off."
In Comey's account, he got FBI Director Robert Mueller to tell his agents guarding Ashcroft not to let Card and Gonzales evict Comey from the room. A few minutes after the bedside confrontation, Card called the hospital. He "demanded that I come to the White House immediately," Comey testified. "I responded that, after the conduct I had just witnessed, I would not meet with him without a witness present."
"He replied, 'What conduct? We were just there to wish him well.' " After Card demanded to know if Comey was "refusing to come to the White House," Comey, with the solicitor general, finally arrived at the West Wing at 11 p.m. His narrative covered the next two days, ending when Bush intervened and avoided a spate of resignations.
The senators had some trouble finding words for what they had heard. "This story makes me gulp," Schumer said.
Specter invoked the firing of the Watergate prosecutor. "It has some characteristics of the Saturday Night Massacre," he said. And the senator left little doubt about whom he blamed.
"Can you give us an example of an exercise of good judgment by Alberto Gonzales?" he asked.
This time, Comey had no narrative. "Let the record show a very long pause," Specter said.

Senate blocks bid to allow prescription drug imports, a victory for drug companies

By Andrew Bridges

ASSOCIATED PRESS

3:59 p.m. May 7, 2007

WASHINGTON – Prescription drug prices in the United States probably will remain among the highest in the world.

Overseas, brand-name prescription drugs can cost two-thirds less than they do in the United States. In many industrialized countries, prices are lower because they are either controlled or partially controlled by government regulation.

Lawmakers have pushed for years to allow drug imports, saying they would drive down prices in the U.S. Experts disagree by just how much, however.

Consumers won't have a chance to find out. The Senate on Monday killed a bid to allow competition from lower-priced imports.

In a triumph for the pharmaceutical industry, the Senate, on a 49-40 vote, neutralized the latest push to allow drug imports. The measure required the administration to certify the safety and effectiveness of imported drugs before they can be brought into the country. That's something officials have said they cannot do.

“Well, once again the big drug companies have proved that they are the most powerful and best financed lobby in Washington,” said Sen. David Vitter, a Louisiana Republican.

The vote nullified a second amendment, later passed on a voice vote, that would legalize the importation of prescription drugs manufactured in Canada, Australia, Europe, Japan and New Zealand.

Sen. Bernie Sanders, I-Vt., called the certification amendment, introduced by Sen. Thad Cochran, R-Miss., a “poison pill” for the drug-imports legislation. Sen. Byron Dorgan, D-N.D., acknowledged it nullified his bid to allow the purchase of drugs abroad.

“This is a setback for us. But the drug industry is one of the strongest industries in this town,” Dorgan said.

Sen. Mike Enzi, a Wyoming Republican, said the requirement for a safety certification was essential to protect the public.

“Under both Democratic and Republican administrations, secretaries of Health and Human Services have declined to certify that foreign drugs – like those allowed under the Dorgan Foreign Drug Act – are safe for American consumers. They realized, as I do, that close enough isn't good enough,” Enzi said.

The maneuvering occurred on broader legislation to renew the FDA's ability to collect fees from the drug industry to defray the cost of reviewing new drugs. Lawmakers have seized on the bill to overhaul the agency, including its handling of drug-safety issues highlighted in the wake of the withdrawal of the painkiller Vioxx.

Advocates of drug importation have argued for years that an existing ban is more a protection for the drug industry than a safety issue.

Dorgan held out Lipitor, saying 90 doses of the cholesterol drug cost $321 in the U.S. – about twice the cost in Canada.

The idea of allowing prescription drug imports enjoys broad popular support. However, lower prices overseas would not automatically translate into large savings for domestic consumers, according to a 2004 study by the Congressional Budget Office.

The study found that allowing drug imports from a broad set of countries would cut U.S. drug spending by $40 billion over 10 years, about a 1 percent savings. It said foreign governments could limit drug exports to protect their own domestic supplies, and that U.S. drug companies could respond to an importation bill by increasing prices abroad.

The pharmaceutical industry vehemently opposes allowing drug imports, arguing that they could leave the nation vulnerable to dangerous counterfeits.

Similar drug-import legislation is pending in the House.

Corzine Fined, at His Request, for Not Wearing a Seat Belt

May 2, 2007

By DAVID W. CHEN

TRENTON, May 1 — Gov. Jon S. Corzine voluntarily paid a $46 fine on Tuesday for failing to wear a seat belt, as required by law, on the day when his state vehicle crashed on the Garden State Parkway last month, state officials said.

Mr. Corzine, 60, a Democrat in his first term, was seriously hurt in the accident, losing half his blood and breaking more than a dozen bones. But his failure to wear a seat belt — and the question of whether he would be fined — became an obsessive water-cooler topic, as some people in even the staunchest Democratic neighborhoods criticized his behavior.

So on Tuesday, when Mr. Corzine met with Col. Joseph R. Fuentes, the state police superintendent; Attorney General Stuart Rabner; and two other officials investigating the April 12 accident, he asked for a summons. Colonel Fuentes wrote a ticket on the spot; Mr. Corzine, a multimillionaire and former co-chairman of the investment bank Goldman Sachs, paid by personal check, covering the $20 fine and related court costs.

“It’s been a good amount of time since the superintendent issued a summons,” said Capt. Al Della Fave, a spokesman for the state police.

Mr. Corzine’s decision came hours after a New Jersey resident dropped a complaint demanding that the governor be ticketed and not receive preferential treatment.

Larry Angel, a lifeguard from Egg Harbor Township who is known for his long speeches at public meetings, had originally filed a complaint in Municipal Court in Galloway Township, where the accident took place. But he told reporters on Tuesday that he had dropped the complaint because Mr. Corzine’s apology on Monday on his release from the hospital seemed sincere.

Mr. Corzine, who was discharged on Monday, is expected to spend the next few weeks, if not months, recovering from his injuries at Drumthwacket, the governor’s mansion in Princeton, and not the Hoboken apartment where he previously spent most of his time. As of Tuesday evening, officials said, he had not yet left the private second-floor residence of the mansion, since a hospital bed and assorted equipment related to his rehabilitation and physical therapy are all there.

He has spent most of the last two days with his family, closest aides and medical personnel, aides said. But when he met with law enforcement officials on Tuesday to talk about the accident, he told them that “he remembered some details, but not all of them,” said Anthony Coley, his communications director.

For now, two separate panels are investigating the accident. One, organized by Mr. Rabner and including such dignitaries as former Gov. Christie Whitman, will focus on reviewing the Executive Protection Unit, the elite cadre of state troopers assigned to drive the governor and provide security for him. The panel is scheduled to meet for the first time on Friday in Trenton.

The other panel consists of an internal state police review, to determine whether the accident could have been prevented. If so, disciplinary action may be meted out against the state trooper, Robert J. Rasinski, who was driving Mr. Corzine at 91 miles per hour when the crash occurred.

State officials expect both panels to produce findings within the next two months.

Overkill in New Orleans

By Daniela Crespo and Jeremy Scahill, AlterNet. Posted September 12, 2005.

Heavily armed paramilitary mercenaries from the Blackwater private security firm, infamous for its work in Iraq, are openly patrolling the streets of New Orleans. Some of the mercenaries say they have been "deputized" by the Louisiana governor; indeed some are wearing gold Louisiana state law enforcement badges on their chests and Blackwater photo identification cards on their arms. They say they are on contract with the Department of Homeland Security and have been given the authority to use lethal force. Several mercenaries we spoke with said they had served in Iraq on the personal security details of the former head of the U.S. occupation, L. Paul Bremer and the former U.S. ambassador to Iraq, John Negroponte.

"This is a totally new thing to have guys like us working CONUS (Continental United States)," a heavily armed Blackwater mercenary told us as we stood on Bourbon Street in the French Quarter. "We're much better equipped to deal with the situation in Iraq."

Blackwater mercenaries are some of the most feared professional killers in the world and they are accustomed to operating without worry of legal consequences. Their presence on the streets of New Orleans should be a cause for serious concern for the remaining residents of the city and raises alarming questions about why the government would allow men trained to kill with impunity in places like Iraq and Afghanistan to operate here. Some of the men now patrolling the streets of New Orleans returned from Iraq as recently as two weeks ago.

What is most disturbing is the claim of several Blackwater mercenaries we spoke with that they are here under contract from the federal government and the state of Louisiana. Blackwater is one of the leading private security firms servicing the occupations of Iraq and Afghanistan. It has several U.S. government contracts and has provided security for many senior U.S. diplomats, foreign dignitaries and corporations. The company rose to international prominence after four of its men were killed in Fallujah and two of their charred bodies were hung from a bridge in March 2004. Those killings sparked the massive U.S. retaliation against the civilian population of Fallujah that resulted in scores of deaths and tens of thousands of refugees.

Who Sent In the Mercs?

As the threat of forced evictions now looms in New Orleans and the city confiscates even legally registered weapons from civilians, the private mercenaries of Blackwater patrol the streets openly wielding M-16s and other assault weapons. This despite Police Commissioner Eddie Compass' claim that, "Only law enforcement are allowed to have weapons."

Officially, Blackwater says its forces are in New Orleans to "join the Hurricane relief effort." A statement on the company's website, dated Sept. 1, advertises airlift services, security services and crowd control. The company, according to news reports, has since begun taking private contracts to guard hotels, businesses and other properties. But what has not been publicly acknowledged is the claim, made to us by two Blackwater mercenaries, that they are actually engaged in general law enforcement activities including "securing neighborhoods" and "confronting criminals."

That raises a key question: under what authority are Blackwater's men operating? A spokesperson for the Homeland Security Department, Russ Knocke, told the Washington Post he knows of no federal plans to hire Blackwater or other private security. "We believe we've got the right mix of personnel in law enforcement for the federal government to meet the demands of public safety," he said.

But in an hour-long conversation with several Blackwater mercenaries, we heard a different story. The men we spoke with said they are indeed on contract with the Department of Homeland Security and the Louisiana governor's office and that some of them are sleeping in camps organized by Homeland Security in New Orleans and Baton Rouge. They told us they not only had authority to make arrests but also to use lethal force.

Where the Real Action Is

We encountered the Blackwater forces as we walked through the streets of the largely deserted French Quarter. We were talking with two New York City police officers when an unmarked car without license plates sped up next to us and stopped. Inside were three men, dressed in khaki uniforms, flak jackets and wielding automatic weapons. "Y'all know where the Blackwater guys are?" they asked. One of the police officers responded, "There are a bunch of them around here," and pointed down the road.

"Blackwater?" we asked. "The guys who are in Iraq?"

"Yeah," said the officer. "They're all over the place."

A short while later, as we continued down Bourbon Street, we ran into the men from the car. They wore Blackwater ID badges on their arms. "When they told me New Orleans, I said, 'What country is that in?'" one of the Blackwater men said. He was wearing his company ID around his neck in a carrying case with the phrase "Operation Iraqi Freedom" printed on it. After bragging about how he drives around Iraq in a "State Department issued level 5, explosion-proof BMW," he said he was "just trying to get back to Kirkuk [in the North of Iraq] where the real action is."

Later we overheard him on his cell phone complaining that Blackwater was only paying $350 a day plus per diem. That is much less than the men make serving in more dangerous conditions in Iraq.

Two men we spoke with said they plan on returning to Iraq in October. But, as one mercenary said, they've been told they could be in New Orleans for up to six months. "This is a trend," he told us. "You're going to see a lot more guys like us in these situations."

If Blackwater's reputation and record in Iraq are any indication of the kind of services the company offers, the people of New Orleans have much to fear.

What really happened in Atlanta

By RHONDA COOK
The Atlanta Journal-Constitution
Published on: 04/27/07

According to federal documents released Thursday, these are the events that led to Kathryn Johnston's death and the steps the officers took to cover their tracks.

Three narcotics agents were trolling the streets near the Bluffs in northwest Atlanta, a known market for drugs, midday on the Tuesday before Thanksgiving.

Eventually they set their sights on some apartments on Lanier Street, usually fertile when narcotics agents are looking for arrests and seizures.

Gregg Junnier and another narcotics officer went inside the apartments around 2 p.m. while Jason Smith checked the woods. Smith found dozens of bags of marijuana — in baggies that were clear, blue or various other colors and packaged to sell. With no one connected to the pot, Smith stashed the bags in the trunk of the patrol car. A use was found for Smith's stash 90 minutes later: A phone tip led the three officers to a man in a "gold-colored jacket" who might be dealing. The man, identified as X in the documents but known as Fabian Sheats, spotted the cops and put something in his mouth. They found no drugs on Sheats, but came up with a use for the pot they found earlier.

They wanted information or they would arrest Sheats for dealing.

While Junnier called for a drug-sniffing dog, Smith planted some bags under a rock, which the K-9 unit found.

But if Sheats gave them something, he could walk.

Sheats pointed out 933 Neal St., the home of 92-year-old Kathryn Johnston. That, he claimed, is where he spotted a kilogram of cocaine when he was there to buy crack from a man named "Sam."

They needed someone to go inside, but Sheats would not do for their purposes because he was not a certified confidential informant.

So about 5:05 p.m. they reached out by telephone to Alex White to make an undercover buy for them. They had experience with White and he had proved to be a reliable snitch.

But White had no transportation and could not help.

Still, Smith, Junnier and the other officer, Arthur Tesler, according to the state's case, ran with the information. They fabricated all the right answers to persuade a magistrate to give them a no-knock search warrant.

By 6 p.m., they had the legal document they needed to break into Kathryn Johnston's house, and within 40 minutes they were prying off the burglar bars and using a ram to burst through the elderly woman's front door. It took about two minutes to get inside, which gave Johnston time to retrieve her rusty .38 revolver.

Tesler was at the back door when Junnier, Smith and the other narcotics officers crashed through the front.

Johnston got off one shot, the bullet missing her target and hitting a porch roof. The three narcotics officers answered with 39 bullets.

Five or six bullets hit the terrified woman. Authorities never figured out who fired the fatal bullet, the one that hit Johnston in the chest. Some pieces of the other bullets — friendly fire — hit Junnier and two other cops.

The officers handcuffed the mortally wounded woman and searched the house.

There was no Sam.

There were no drugs.

There were no cameras that the officers had claimed was the reason for the no-knock warrant.

Just Johnston, handcuffed and bleeding on her living room floor.

That is when the officers took it to another level. Three baggies of marijuana were retrieved from the trunk of the car and planted in Johnston's basement. The rest of the pot from the trunk was dropped down a sewage drain and disappeared.

The three began getting their stories straight.

The next day, one of them, allegedly Tesler, completed the required incident report in which he wrote that the officers went to the house because their informant had bought crack at the Neal Street address. And Smith turned in two bags of crack to support that claim.

They plotted how they would cover up the lie.

They tried to line up one of their regular informants, Alex White, the reliable snitch with the unreliable transportation.

The officers' story would be that they met with White at an abandoned carwash Nov. 21 and gave him $50 to make the buy from Neal Street.

To add credibility to their story, they actually paid White his usual $30 fee for information and explained to him how he was to say the scenario played out if asked. An unidentified store owner kicked in another $100 to entice White to go along with the play.

The three cops spoke several times, assuring each other of the story they would tell.

But Junnier was the first to break.

On Dec. 11, three weeks after the shooting, Junnier told the FBI it was all a lie.

Ex-CIA boss charges White House twisted slam dunk comment

BY JAMES GORDON MEEK
DAILY NEWS WASHINGTON BUREAU

Posted Friday, April 27th 2007, 4:00 AM

Ex-CIA Director George Tenet

---

WASHINGTON - In his score-settling memoir, ex-CIA Director George Tenet blasts the Bush White House for manipulating his infamous "slam dunk" comment to scapegoat him for Iraq.

His book, "At the Center of the Storm," also seeks to shift the blame from his own agency to the FBI for not following leads that might have prevented 9/11.

Tenet, CIA chief from 1997 to 2004, says the White House leaked his remark to make it seem that he was claiming there was proof Saddam Hussein had weapons of mass destruction. What he really meant, he says, was that President Bush could make a "slam dunk case" to Americans for invading Iraq. "The hardest part," Tenet told CBS' "60 Minutes," in an interview being broadcast Sunday, was watching Vice President Cheney go on TV last year "and say, 'Well, George Tenet said slam dunk,' as if he needed me to say 'slam dunk' to go to war with Iraq."

Tenet said the administration hung him out to dry, ruining his career and his reputation.

"It's the most despicable thing that ever happened to me," he says on the program. "You don't do this. You don't throw somebody overboard just because it's a deflection. Is that honorable? It's not honorable to me."

In his book, due out Monday, Tenet spends an entire chapter denying that the CIA could have thwarted the Sept. 11 attacks, the Daily News has learned.

The chapter, titled "Missed Opportunities," takes the FBI to task for not chasing the CIA's strongest leads before the 2001 attacks.

That rankled FBI agents, who call Tenet's 575-page tome, written with Bill Harlow, "a novel."

Rising foreclosures reshaping communities

By Noelle Knox, USA TODAY

ATLANTA — If you're like most homeowners, you've probably never given much thought to whether your neighbors pay their mortgages on time. You've got enough to worry about.

Dannice Clark was like that. She'd skip newspaper articles about the trouble with "subprime" loans for people with risky credit. While fixing dinner, she'd tune out TV reports on how subprime defaults are accelerating the nationwide pace of foreclosures. Why should she care? She had a fixed-rate loan on a 5,000-square-foot home with two kitchens in Waters Edge, an upscale subdivision in Stone Mountain, just outside Atlanta.

WHAT'S YOUR STORY? Has your area been affected by foreclosures?

Here's why: Clark has been trying to sell her home for nearly five months and hasn't had one offer — even after cutting the price to $334,900 from $359,000. The problem is that her street is dotted with four foreclosed homes that lenders are trying to unload for less money.

"It's truly affecting the sale of my house," says Clark, 45, who works for the U.S. Postal Service. "Why pay full price for my house when you can pick up a foreclosure for $30,000 or $40,000 less?"

And as thousands of homeowners across the nation are learning, it's not only home values that are being affected by the foreclosure crisis. When foreclosures rise, as they have in Waters Edge and other middle-class areas amid the meltdown of the subprime mortgage market, they can unravel the social fabric and reshape neighborhoods.

The crime rate can rise while the quality of the schools goes down. Homeowner associations can see their treasuries drained. Nearby businesses close their doors, and local tax revenue suffers.

These problems used to be concentrated in poor, urban and minority neighborhoods where mortgage defaults are more common. The real estate boom, turbo-charged by looser lending standards that began in 2000, changed that.

Communities across the country, including some exclusive neighborhoods, have begun to feel the collateral damage of the pandemic use of adjustable-rate mortgages, or ARMs, that required little or no down payments or proof of income.

In the wealthy subdivision of Greenridge in Lithonia, Ga., for instance, 10 homes are for sale from $700,000 to $1.1 million. Six of the owners had interest-only mortgages and couldn't keep up with their rising payments. Four of the homes have gone through foreclosure, says Mike Grier, an agent at Century 21 A-Team.

"The foreclosure trends are definitely accelerating in middle-income suburban communities," says Dan Immergluck, associate professor of city and regional planning at Georgia Institute of Technology.

"What I'm still scared about is the interest-rate resets in the prime market," Immergluck says, referring to the exotic loans made to people with good credit that let them pay only the interest, or even less, until the loans reset to higher rates.

"I'm concerned that could really tip some of these middle- and upper-income neighborhoods, in terms of high foreclosure rates."

Foreclosures expensive

It's difficult to put a dollar figure on the problem. But one study in the Chicago metro area found that each foreclosure costs the municipal governments there more than $30,000, according to the Homeownership Preservation Foundation. One foreclosure will shave up to 1.5% off the value of the other homes on the same block, Immergluck's research found.

But there are other costs, harder to measure, such as feeling increasingly unsafe as foreclosures seep into your community, says Laura Walker, a retired human resource executive.

She fought for years to combat rampant mortgage fraud and foreclosures in Waters Edge by tracing the names of con artists who were buying and selling in the areas, as well as their accomplices, and lobbying authorities to take action.

"We saw evidence of insurgency from drug dealers and criminal activity we certainly did not want," as homes began to empty and thefts in the area increased, she recalls. "It added a sour note about what kind of community we were turning into. We had to get vigilant to let others know we care about our properties and we don't want these unsavory types of people in our communities."

Conditions in Waters Edge have improved recently, but 50 homes are for sale in the neighborhood, 21 of which are foreclosures, says Century 21's Grier.

Georgia wasn't even among the states with the most foreclosures at the end of last year. The most desperate stories are in Rust Belt cities and suburbs in Ohio, Michigan and Indiana, where job losses — the No. 1 reason people lose their homes — are magnifying the fallout.

What's perhaps most worrisome about the rise in loan defaults in the Atlanta area is that what's happening here is beginning to show up in dozens of economically vibrant cities, such as Miami, Sacramento and Boston. Foreclosure rates across the nation are likely to continue to rise through next year as homeowners with ARMs see their payments jump.

A projected 2 million subprime borrowers will lose their homes to foreclosure by the end of this year, according to the Center for Responsible Lending. And that estimate was made late last year, before tougher lending rules began shutting out some homeowners, who might be unable to refinance once their ARMs reset to higher rates.

The difficulties are worse in inner-city areas where poverty and joblessness have been compounded by the troubles that shadow foreclosures.

When John-Paul and Heidi Chandonia moved to Atlanta's Washington Park neighborhood in 2001, they thought it was enjoying an urban renaissance. But once the real estate boom arrived, many residents sold. Homes were flipped from one buyer to another and, in many cases, no one moved in.

Half the homes on the Chandonias' street are now vacant. Some have gone through foreclosure more than once.

A new, two-story home around the corner was vandalized around Christmas. The doors are off their hinges; the heating, ventilation and air-conditioning unit is gone — stolen for the copper coils, which are peddled on the black market. A few doors down, a heroin addict has moved into a vacant home, John-Paul says.

Heidi has called the city's building-code-enforcement department many times, but little has changed. She's contacted neighborhood groups and city officials. But the Chandonias' part of Washington Park continues to decline. In May, a neighbor was dragged behind a vacant house and raped.

That's when Heidi said, "I give up." They put their home on the market. It took a year to get an offer. They now have a buyer and could move by the end of the month.

"Our neighbors want to get out of there, too," says Heidi, 26, who works for an association that builds affordable housing. "It's been too much. It's gotten worse and worse and worse. … It's been extremely stressful just to watch it go downhill and feel that there's not anybody paying attention."

In the upper-middle-class neighborhood of Smoke Rise, 18 miles east of Washington Park, Ann Fulman has had the same feelings.

Her area was one of the early targets of mortgage fraudsters, and she remembers how hard it was convincing regulators and law enforcement that mortgage-paying residents like her were victims as much as the lenders.

"We started talking to law-enforcement agencies, saying, 'We're victims. Come help us,' " she recalls. "They said, 'You're not victims.' … And I said, 'What do you mean, I'm not a victim? I'm living with strippers and convicted arsonists and drug dealers. There are meth labs in my neighborhood. Hello!' "

As homes fall into foreclosure, a neighborhood frequently turns more transient. Investors often buy homes in foreclosure and rent them out if they can't sell them.

"You end up with a very fragmented community," Fulman says. "When investors buy them and turn them into rental property, it can be Section 8 (a government rental assistance program). Not that there's anything wrong with that, but folks come in from a different background with different expectations and don't have the means to keep up the place."

Local schools also suffer when people lose their homes in large numbers. Foreclosures can disrupt not only the tax base of an area, but also the classroom environment.

"It definitely affects education in many ways," says Deborah Crawford, a fourth-grade teacher at Pine Ridge Elementary in Stone Mountain. "This year is very transient. There's a teacher two doors down from me; he started with 22 students in August and only has 10 of the same kids now. How hard is that to adjust to?"

Teachers must spend more time with new students, who are "upset about moving," she says. "It's hard to merge kids in like that. You have to assess them to see where they are (academically). It's unfortunate, but sometimes they get lost" trying to keep up.

Many local governments have been caught off-guard by the economic and social domino effect of foreclosures.

At the end of January, Atlanta officials and non-profit organizations launched an ad campaign to make residents aware of a national foreclosure prevention program and toll-free hotline (888-995-HOPE or 888-995-4673). They hoped to get 5,000 calls from people in Atlanta this year. They blew past that figure last month.

In the suburbs of Gwinnett County, the police department recently created a Quality of Life unit to address problems often associated with foreclosures. Working with other government agencies, the unit targets such issues as building-code enforcement, vagrancy and graffiti. But their powers and resources are limited.

At a town hall meeting last week, residents in a Stone Mountain neighborhood were upset about a vacant home on their block, says Maj. Dan Branch, who heads the unit for the police department.

"Although it's in foreclosure, the bank is not taking ownership, and the people who own the house are not taking ownership, and this house is run down," Branch says. "There are nine (building-code) violations on the house. Teenagers are breaking into it. We can't legally go in. The house is vacant, run-down. It's horrible."

'It's a death spiral'

Last week, all the officers from the Quality of Life unit were temporarily reassigned to try to catch a rapist. Such steps make it difficult to focus resources on less-threatening neighborhood problems.

In some cases, the task of protecting a neighborhood falls to local groups and non-profits. "If you don't have a strong community association with leaders who care and roll up their sleeves and do something, it's a death spiral," Fulman says.

Some states, such as Ohio, have started funds to help cash-strapped homeowners restructure their loans to avoid foreclosure. In Congress, there are proposals to get the Federal Housing Administration to help homeowners with ARMs.

But there's no quick fix. And as foreclosures mount, the spillover effect on suburbanites could worsen before it improves. In Waters Edge, Clark is not only feeling like a victim of foreclosures in her neighborhood; she may soon be part of the problem in another.

She's got a fixed-rate loan on the home she lives in, but when she refinanced her second home 3½ years ago, the mortgage broker "pulled a bait-and-switch on me," she says, and gave her an ARM.

The house, in a nearby subdivision, also had an inflated appraisal, so she owes about $20,000 more than it's probably worth. Meantime, her monthly payment on the second home has jumped from $567 to $1,148, far more than the monthly rent she collects on it.

"I'm going to have to sell it," she laments. "I went out and bought a for-sale sign and am going to try to sell it myself, or it's going to have to go into foreclosure."

Has your community been affected by foreclosures? Are you worried about your mortgage? Tell us your experiences:

Missing E-Mail May Be Related to Prosecutors

---

April 13, 2007

By SHERYL GAY STOLBERG

WASHINGTON, April 12—The White House said Thursday that missing e-mail messages sent on Republican Party accounts may include some relating to the firing of eight United States attorneys.

The disclosure became a fresh political problem for the White House, as Democrats stepped up their inquiry into whether Karl Rove and other top aides to President Bush used the e-mail accounts maintained by the Republican National Committee to circumvent record-keeping requirements.

It also exposed the dual electronic lives led by Mr. Rove and 21 other White House officials who maintain separate e-mail accounts for government business and work on political campaigns — and raised serious questions, in the eyes of Democrats, about whether political accounts were used to conduct official work without leaving a paper trail.

The clash also seemed to push the White House and Democrats closer to a serious confrontation over executive privilege, with the White House counsel, Fred F. Fielding, asserting that the administration has control over countless other e-mail messages that the Republican National Committee has archived. Democrats are insisting that they are entitled to get the e-mail messages directly from the national committee.

Representative Henry A. Waxman, the California Democrat who is chairman of a House committee looking into the use of political e-mail accounts, wrote a letter to the attorney general on Thursday saying he had “particular concerns about Karl Rove” after a briefing his aides received from Rob Kelner, a lawyer for the Republican National Committee.

Mr. Rove uses several e-mail accounts, including one with the Republican National Committee, one with the White House and a private domain account that is registered to the political consulting company he once owned. Mr. Waxman said Mr. Kelner reported that in 2005, the national committee adopted a new policy, specifically aimed at Mr. Rove, which “removed Mr. Rove’s ability to personally delete his e-mails from the R.N.C. server.”

Mr. Waxman also said he now had “serious concerns about the White House’s compliance with the Presidential Records Act,” a 1978 law that requires administrations to keep records of deliberations, decisions and policies. The congressman asked for an inventory of all communications by White House officials on nongovernment e-mail accounts.

President Bush has directed the White House counsel’s office to try to recover any missing e-mail messages, but Scott Stanzel, the deputy White House press secretary, said it was unclear how much may have been lost. As to whether the missing e-mail related to the prosecutors’ dismissals, Mr. Stanzel said, “It can’t be ruled out.”

Democrats were skeptical that any e-mail messages are truly missing.

“We’re learning that off-book communications are being used by these people in the White House by using Republican political e-mail addresses and they say they have not been preserved,” Senator Patrick J. Leahy, Democrat of Vermont and chairman of the Senate Judiciary Committee, said in an impassioned speech on the Senate floor. “I don’t believe that! You can’t erase e-mails, not today.”

Richard M. Smith, an Internet security and privacy consultant in Boston, said Mr. Leahy’s surmise that the missing e-mail messages are preserved somewhere could be right. But he said there was no way to know without a thorough examination of all the computers the messages passed through.

The Democrats’ investigation into the political e-mail accounts grows directly out of the inquiry into the firing of the United States attorneys. When the Justice Department turned over documents to Congress, they showed that, contrary to the White House’s initial assertions, Mr. Rove and Harriet E. Miers, the former White House counsel, seemed to be involved in planning the dismissals.

The documents also revealed that a deputy to Mr. Rove, Scott Jennings, who works in the White House Office of Political Affairs, had used his Republican National Committee e-mail account, ending in gwb43.com, to communicate about the dismissals with a top aide to Attorney General Alberto R. Gonzales.

The documents led to demands from Democrats for testimony from Mr. Rove and others; the White House agreed only to off-the-record interviews, and Democrats responded by threatening subpoenas.

Now that Democrats are also demanding access to the political e-mail, the White House took steps on Thursday to use those latest demands as leverage to force Democrats to accept the White House’s conditions for making Mr. Rove and the others available.

In a letter to Mr. Leahy and Representative John Conyers Jr., chairman of the House Judiciary Committee, Mr. Fielding, the White House counsel, said the administration was prepared to produce e-mail from the national committee, but only as part of a “carefully and thoughtfully considered package of accommodations” — in other words, only as part of the offer for Mr. Rove and the others to appear in private.

Mr. Conyers, a Michigan Democrat, issued a tart reply: “The White House position seems to be that executive privilege not only applies in the Oval Office, but to the R.N.C. as well. There is absolutely no basis in law or fact for such a claim.”

Senator Charles E. Schumer, the New York Democrat who is spearheading the Senate inquiry into the prosecutors’ dismissals, said the Fielding letter “can be summed up in three words: ‘We are stonewalling.’ ”

Mr. Waxman, meanwhile, spent Thursday pushing the committee to release the e-mail. According to the congressman’s account of Thursday’s meeting with Mr. Kelner, the R.N.C. lawyer, as well as an interview with a Republican official familiar with the committee’s e-mail practices, the committee has a large cache of communications from White House officials. But there are none before 2005, when the committee “began to treat Mr. Rove’s e-mails in a special fashion,” Mr. Waxman wrote.

The committee appears to have changed its e-mail retention policies twice, possibly in response to the investigation by a special prosecutor, Patrick J. Fitzgerald, into the leak of the name of a C.I.A. officer. When that inquiry began, in early 2004, the committee’s practice was to purge all e-mail from its servers after 30 days.

But in August of that year, according to the Republican official, the committee decided that e-mail sent by White House officials would be kept on the server. Still, the change did not prevent White House officials from manually deleting their e-mail, and some, including Mr. Rove, apparently did. So in 2005, the committee took steps to prevent Mr. Rove from doing so.

“Mr. Kelner did not provide many details about why this special policy was adopted for Mr. Rove,” Mr. Waxman wrote. “But he did indicate that one factor was the presence of investigative or discovery requests or other legal concerns.”

Now the question is whether the missing e-mail can be recovered. Mr. Smith, the Internet security consultant, said e-mail ordinarily is initially stored in at least four places: in the “sent” file of the computer used to send the message; on the computer server of the sender’s Internet service provider; on the computer server of the recipient’s provider; and on the recipient’s computer.

Even if the message is deleted, it may be recoverable from a computer’s hard drive. Eventually, however, the deleted file may be overwritten and lost, Mr. Smith said.

“If you keep sending e-mails, it will probably get overwritten pretty quickly, and then it’s really gone,” he said.

Scott Shane and David Johnston contributed reporting.