How Sweet It Is! (If you're KBR)

June 17, 2008

Lost Army Job Tied to Doubts on Contractor

By JAMES RISEN

WASHINGTON — The Army official who managed the Pentagon’s largest contract in Iraq says he was ousted from his job when he refused to approve paying more than $1 billion in questionable charges to KBR, the Houston-based company that has provided food, housing and other services to American troops.

The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.

Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”

But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR’s claims — approved most of the payments he had tried to block.

Army officials denied that Mr. Smith had been removed because of the dispute, but confirmed that they had reversed his decision, arguing that blocking the payments to KBR would have eroded basic services to troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services.

“You have to understand the circumstances at the time,” said Jeffrey P. Parsons, executive director of the Army Contracting Command. “We could not let operational support suffer because of some other things.”

Mr. Smith’s account fills in important gaps about the Pentagon’s handling of the KBR contract, which has cost more than $20 billion so far and has come under fierce criticism from lawmakers.

While it was previously reported that the Army had held up large payments to the company and then switched course, Mr. Smith has provided a glimpse of what happened inside the Army during the biggest showdown between the government and KBR. He is giving his account just as the Pentagon has recently awarded KBR part of a 10-year, $150 billion contract in Iraq.

Heather Browne, a spokeswoman for KBR, said in a statement that the company “conducts its operations in a manner that is compliant with the terms of the contract.” She added that it had not engaged in any improper behavior.

Ever since KBR emerged as the dominant contractor in Iraq, critics have questioned whether the company has benefited from its political connections to the Bush administration. Until last year, KBR was known as Kellogg, Brown and Root and was a subsidiary of Halliburton, the Texas oil services giant, where Vice President Dick Cheney previously served as chief executive.

When told of Mr. Smith’s account, Representative Henry A. Waxman, the California Democrat who is chairman of the House Oversight and Government Reform Committee, said it “is startling, and it confirms the committee’s worst fears. KBR has repeatedly gouged the taxpayer, and the Bush administration has looked the other way every time.”

Mr. Smith, a civilian employee of the Army for 31 years, spent his entire career at the Rock Island Arsenal, the Army’s headquarters for much of its contracting work, near Davenport, Iowa. He said he had waited to speak out until after he retired in February.

As chief of the Field Support Contracting Division of the Army Field Support Command, he was in charge of the KBR contract from the start. Mr. Smith soon came to believe that KBR’s business operations in Iraq were a mess. By the end of 2003, the Defense Contract Audit Agency told him that about $1 billion in cost estimates were not credible and should not be used as the basis for Army payments to the contractor.

“KBR didn’t move proper business systems into Iraq,” Mr. Smith said.

Along with the auditors, he said, he pushed for months to get KBR to provide data to justify the spending, including approximately $200 million for food services. Mr. Smith soon felt under pressure to ease up on KBR, he said. He and his boss, Maj. Gen. Wade H. McManus Jr., then the commander of the Army Field Support Command, were called to Pentagon meetings with Tina Ballard, then the deputy assistant secretary of the Army for policy and procurement.

Ms. Ballard urged them to clear up KBR’s contract problems quickly, but General McManus ignored the request, Mr. Smith said. Ms. Ballard declined to comment for this article, as did General McManus.

Eventually, Mr. Smith began warning KBR that he would withhold payments and performance bonuses until the company provided the Army with adequate data to justify the expenses. The bonuses — worth up to 2 percent of the value of the work — had to be approved by special boards of Army officials, and Mr. Smith made it clear that he would not set up the boards without the information.

Mr. Smith also told KBR that, until the information was received, he would withhold 15 percent of all payments on its future work in Iraq.

“KBR really did not like that, and they told me they were going to fight it,” Mr. Smith recalled.

In August 2004, he told one of his deputies, Mary Beth Watkins, to hand deliver a letter about the threatened penalties to a KBR official visiting Rock Island. That official, whose name Mr. Smith said he could not recall, responded by saying, “This is going to get turned around,” Mr. Smith said.

Two officials familiar with the episode confirmed that account, but would speak only on the condition of anonymity out of concern for their jobs.

The next morning, Mr. Smith said he got a call from Brig. Gen. Jerome Johnson, who succeeded General McManus when he retired the month before. “He told me, “You’ve got to pull back that letter,”’ Mr. Smith recalled. General Johnson declined to comment for this article.

A day later, Mr. Smith discovered that he had been replaced when he went to a meeting with KBR officials and found a colleague there in his place. Mr. Smith was moved into a job planning for future contracts with Iraq. Ms. Watkins, who also declined to comment, was reassigned as well.

Mr. Parsons, the contracting director, confirmed the personnel changes. But he denied that pressure from KBR was a factor in the Army’s decision making about the payments. “This issue was not decided overnight, and had been discussed all the way up to the office of the secretary of defense,” he said.

Soon after Mr. Smith was replaced, the Army hired a contractor, RCI Holding Corporation, to review KBR’s costs. “They came up with estimates, using very weak data from KBR,” Mr. Smith said. “They ignored D.C.A.A.’s auditors,” he said, referring to the Defense Contract Audit Agency.

Lt. Col. Brian Maka, a Pentagon spokesman, disputed that. He said in a statement that the Army auditing agency “does not believe that RCI was used to circumvent” the Army audits.

Paul Heagen, a spokesman for RCI’s parent company, the Serco Group, said his firm had insisted on working with the Army auditors. While KBR did not provide all of the data Mr. Smith had been seeking, Mr. Heagen said his company had used “best practices” and sound methodology to determine KBR’s costs.

Bob Bauman, a former Pentagon fraud investigator and contracting expert, said that was unusual. “I have never seen a contractor given that position, of estimating costs and scrubbing D.C.A.A.’s numbers,” he said. “I believe they are treading on dangerous ground.”

The Army also convened boards that awarded KBR high performance bonuses, according to Mr. Smith.

High grades on its work in Iraq also allowed KBR to win more work from the Pentagon, and this spring, KBR was awarded a share in the new 10-year contract. The Army also announced that Serco, RCI’s parent, will help oversee the Army’s new contract with KBR.

“In the end,” Mr. Smith said, “KBR got what it wanted.”

Gas hits national average of $4 for first time

Sunday June 8, 9:13 am ET Gasoline prices hit national average of $4 for first time, expected to go higher NEW YORK (AP) -- Drivers are paying an average of $4 for a gallon of gasoline for the first time. AAA and the Oil Price Information Service say the national average price for a gallon of regular gas rose to $4.005 overnight from $3.988. But consumers in many parts of the country have already been paying well above that price for some time.

Gas is expected to keep climbing, putting greater pressure on consumers and businesses, because the price of oil is soaring in futures markets. Light, sweet crude shot up nearly $11 a barrel Friday and approached $140 for the first time.

Along with higher fuel costs, consumers are also contending with higher prices for food and other goods because of rising transportation costs.

Biggest jobless jump since '86 -- Wall Street sinks

Friday June 6, 4:17 pm ET
By Jeannine Aversa, AP Economics Writer Jobless rate zooms to biggest increase in decades; stocks plunge nearly 400 points WASHINGTON (AP) -- Pink slips piled up and jobs disappeared into thin air in May as the nation's unemployment rate zoomed to 5.5 percent in the biggest one-month jump in decades. Wall Street swooned, and the White House said President Bush was considering new proposals to revive the economy.

Help-wanted signs are vanishing along with jobs, so the unemployment rate is likely to keep climbing, a government report indicated, underscoring the toll the housing and credit crises are taking on jobseekers, employers and the economy as a whole.

Adding to the pain, oil prices soared to a new record high, while the value of the dollar fell.

The Dow Jones industrials tumbled almost 400 points.

Oil Prices Skyrocket, Taking Biggest Jump Ever

June 7, 2008

By JAD MOUAWAD

Oil prices had their biggest-ever jump on Friday, after a senior Israeli politician raised the specter of an attack on Iran and the dollar fell against the euro.

The gains on Friday capped a second day of strong gains on energy markets, and fueled suspicions that commodities might be caught in a speculative bubble.

Oil futures surged more than $10, or almost 8 percent, to $138 a barrel, in afternoon trading on the New York Mercantile Exchange. Friday’s rise followed a 5.5 percent jump on Thursday.

Even as uncertainties abound about the fundamentals of the market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable.” Iran is the second-largest oil producer within the OPEC cartel and any interruptions in its exports could push prices higher levels.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker.

The strong volatility in energy markets in recent weeks have continued to puzzle investors and traders. Prices keep rising despite a lack of shortages in the market, and strong evidence of lower consumption in industrialized countries. But investors seem to be caught in a bullish mood, focusing instead on perceived risks to future oil supplies and continued growth in oil demand from emerging economies that subsidize fuels.

The latest jump in oil prices also came as the dollar lost almost 1 percent against the euro amid bleak economic news that fanned recession fears on Friday. The unemployment rate surged to 5.5 percent last month, the government said, the biggest increase in more than two decades.

Investors reacted to the latest forecast by a large Wall Street bank that oil prices would spike to $150 a barrel in the next month because of strong demand from Asian economies. Morgan Stanley said “an unprecedented share” of Middle East oil exports are headed to Asia.

Some analysts also said that the threat of a strike by Chevron’s workers in Nigeria could lead to “considerable” shutdowns of Nigerian production. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike might delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is slated for June 15.

One view that has been gaining ground in recent months is that the commodity market is caught in a speculative bubble akin to the housing or technology bubble of the late 1990s. The notion is buffered by the fact the oil prices have doubled in 12 months despite a slowing economy.

That theory was raised by politicians in Washington and a slew of OPEC producers, who blame speculators for the staggering rally in oil prices. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said earlier this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before another Senate committee last month, said he saw no evidence of a speculative bubble in the commodity market. Instead, Mr. Harris pointed out to a confluence of trends that have contributed to the oil price rally, including a weak dollar, strong energy demand from emerging-market economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Oil prices had been weakening in recent days but reversed dramatically after the president of the European Central Bank, Jean-Claude Trichet, suggested on Thursday that the bank might raise interest rates. That pushed up the euro against the dollar and prompted investors to buy into commodities to hedge against the weaker American currency.

Gasoline prices have also been rising steadily. American drivers are now paying an average of $3.99 for a gallon of gasoline nationwide, according to AAA, the automobile group. In many parts of the country, like California, Connecticut and New York, consumers are already paying well over $4. Diesel costs $4.76 a gallon on average.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. But I don’t see who would buy at these prices unless they need to.”

Not-So-Safe-Deposit Boxes: States Seize Citizens' Property to Balance Their Budgets

Resources to Search for Unclaimed Property in Your Name

By ELISABETH LEAMY

May 12, 2008 —

The 50 U.S. states are holding more than $32 billion worth of unclaimed property that they're supposed to safeguard for their citizens. But a "Good Morning America" investigation found some states aggressively seize property that isn't really unclaimed and then use the money -- your money -- to balance their budgets.

Unclaimed property consists of things like forgotten apartment security deposits, uncashed dividend checks and safe-deposit boxes abandoned when an elderly relative dies.

Banks and other businesses are required to turn that property over to the state for safekeeping. The problem is that the states return less than a quarter of unclaimed property to the rightful owners.

Not-So-Safe-Deposit Boxes

San Francisco resident Carla Ruff's safe-deposit box was drilled, seized, and turned over to the state of California, marked "owner unknown."

"I was appalled," Ruff said. "I felt violated."

Unknown? Carla's name was right on documents in the box at the Noe Valley Bank of America location. So was her address -- a house about six blocks from the bank. Carla had a checking account at the bank, too -- still does -- and receives regular statements. Plus, she has receipts showing she's the kind of person who paid her box rental fee. And yet, she says nobody ever notified her.

"They are zealously uncovering accounts that are not unclaimed," Ruff said.

To make matters worse, Ruff discovered the loss when she went to her box to retrieve important paperwork she needed because her husband was dying. Those papers had been shredded.

And that's not all. Her great-grandmother's precious natural pearls and other jewelry had been auctioned off. They were sold for just $1,800, even though they were appraised for $82,500.

"These things were things that she gave to me," Ruff said. "I valued them because I loved her."

Bank of America told ABC News it deeply regrets the situation and appreciates the difficulty of what Mrs. Ruff was going through. The bank has reached a settlement with Ruff and continues to update its unclaimed property procedures as laws change.

California's Class Action Lawsuit

Ruff is not alone. Attorney Bill Palmer represents her and countless other citizens in a class action lawsuit against the state of California.

"They figured the safety-deposit box was safer than keeping it under the mattress," Palmer said. "In the case of a lot of citizens, they were wrong, weren't they?"

California law used to say property was unclaimed if the rightful owner had had no contact with the business for 15 years. But during various state budget crises, the waiting period was reduced to seven years, and then five, and then three. Legislators even tried for one year. Why? Because the state wanted to use that free money.

"That's absolutely correct," said California State Controller John Chiang, who inherited the situation when he came into office. "What we've done here over the last two decades has been dead wrong. We've kept the property and not provided owners with the opportunities -- the best opportunities -- to get their property back."

Chiang now faces the daunting task of returning $5.1 billion worth of unclaimed property to people. Some states keep their unclaimed property in a special trust fund and only tap into the interest they earn on it. But California dumps the money into the general fund -- and spends it.

"It's supposed to be segregated and protected," Palmer said. "California has taken all of that $5.1 billion and has used it as a massive loan."

California became so addicted to spending people's money, that, for years, it simply stopped sending notices to the rightful owners. ABC News obtained a 1996 internal memo in which the lawyer for the Bureau of Unclaimed Property argued against expanding programs to notify rightful owners. He wrote, "It could well result in additional claims of monies that would otherwise flow into the general fund."

Seizing More Than Safe-Deposit Boxes

It's not just safe-deposit boxes. A British man went to retire and discovered the $4 million in U.S. stock he had been counting on had been seized and sold for $200,000 years earlier -- even though he was in touch with the company about other matters.

A Sacramento family lost out on railroad land rights their ancestors had owned for generations -- also sold off as unclaimed property.

"If I had hung onto it, I would be a millionaire, multimillionaire," said John Whitley. "But that didn't happen because we didn't get to hold it."

State Reforms

California's unclaimed property program was so out of control that, last year, the courts issued injunctions barring the state from seizing any more property until it made reforms. Since then, Chiang has taken several steps to try to clean up the program.

For example, the state now sends notices alerting citizens about unclaimed property before it is handed over to the state -- the only state to do so. Once unclaimed property is delivered to the state, it is now held for several months while the state tries to contact the owners, rather than it being immediately sold off or destroyed.

Which raises the question, in the Internet era, is anybody really lost anymore? California and other states are just beginning to make use of modern databases that can find most anyone in minutes. Unfortunately, California only uses those databases to search after it has already seized a citizen's property.

If California does get better at locating people, that could present another challenge. Remember, right now, the state spends the money.

"It's like the last guy in line at a pizza parlor," Palmer criticized. "There is only so much pizza. At the end, when I get up to the counter to claim my pizza, there may be no pizza for me."

California's fiscal problems are legendary and once again in the news, so it's reasonable to question whether the state can afford to repay its citizens if a bunch of them surface at once.

"There is always going to be money to give the owners when they make their claim, " Chiang insisted. "I don't want my legacy to say I continued a broken program. I want my legacy to be 'this guy was the guy who truly cared about the people and returned their money.'"

California is not the only state to come under fire for its handling of unclaimed property. In Delaware, unclaimed property is the third largest source of state revenue. Idaho recently passed an unprecedented law that says the state gets to keep unclaimed property permanently if the rightful owners don't claim it within 10 short years. And all 50 states pay private contractors 10 to 12 percent commissions to locate and seize accounts for them. It's an inherent conflict of interest: the more rightful owners are found, the less money the contractors make.

Of course, there are some states who handle their people's property with respect. Oregon never takes title to unclaimed property. Instead, it holds it in a perpetual trust fund.

Colorado uses the interest on its unclaimed property fund to pay for some state programs, but leaves the principal untouched.

Missouri, Iowa and Kansas make extra efforts to reunite people with their property even setting up booths at state fairs to get the word out. The State of Maryland actively compares the names on unclaimed accounts with state income tax records. If it finds a match, the state simply cuts a check and sends it to the citizen.

Protecting Your Property

So, the question for citizens is, how do you protect yourself?

Make contact with your bank, your brokerage firm, etc. at least once a year, in a way that creates a paper trail. Make sure they have your current address.

If you own stock, occasionally vote your proxies or take other steps to keep your stock ownership active. Stay in touch with your broker.

Write a list of all your accounts and keep it with your will, so your heirs will know where to look.

Consider insuring valuables even if you keep them in your safe-deposit box. That way, you're covered financially if the bank or state makes a mistake and empties your box. Plus, safe-deposit contents have been known to be destroyed by fire or flooding.

If you want to search for unclaimed property in your name, you do not need to pay other people to do it for you. Check out the following links for more information:

National Association of Unclaimed Property Administrators

www.missingmoney.com

Copyright © 2008 ABC News Internet Ventures

Gotta love it!

State seizing federal stimulus checks for back taxes

By JAMES SALZER
The Atlanta Journal-Constitution
Published on: 06/04/08

Thousands of Georgians who owe back state income taxes are seeing their federal stimulus checks go back to the government.

So far, at least part of 16,000 stimulus payments to Georgians have been intercepted by the state because the recipients owe back state taxes.

In all, the state has collected $4.66 million worth of federal stimulus money from Georgians owing back taxes through the end of May. That's second only to the state of New York, which has collected $4.71 million in back taxes from the stimulus payouts, according to the Georgia Department of Revenue.

"I knew we'd get something, but I've been surprised by the number, and it takes a lot to surprise me," said Revenue Commissioner Bart Graham. "16,000 people. That's a college basketball arena full of people."

The state hooked into the federal "offset" system almost five years ago that allows it to get all or part of federal tax refunds if a Georgians owes back state income taxes. Graham said the state has collected $122.2 million in back taxes from the program since then.

"We could have never gotten enough people to chase that down by ourselves," he said. "Even if we had, it would have taken years."

Spreading Freedom across the globe...one prison at a time

May 17, 2008

U.S. Planning Big New Prison in Afghanistan

By ERIC SCHMITT and TIM GOLDEN

WASHINGTON — The Pentagon is moving forward with plans to build a new, 40-acre detention complex on the main American military base in Afghanistan, officials said, in a stark acknowledgment that the United States is likely to continue to hold prisoners overseas for years to come.

The proposed detention center would replace the cavernous, makeshift American prison on the Bagram military base north of Kabul, which is now typically packed with about 630 prisoners, compared with the 270 held at Guantánamo Bay, Cuba.

Until now, the Bush administration had signaled that it intended to scale back American involvement in detention operations in Afghanistan. It had planned to transfer a large majority of the prisoners to Afghan custody, in an American-financed, high-security prison outside Kabul to be guarded by Afghan soldiers.

But American officials now concede that the new Afghan-run prison cannot absorb all the Afghans now detained by the United States, much less the waves of new prisoners from the escalating fight against Al Qaeda and the Taliban.

The proposal for a new American prison at Bagram underscores the daunting scope and persistence of the United States military’s detention problem, at a time when Bush administration officials continue to say they want to close down the facility at Guantánamo Bay.

Military officials have long been aware of serious problems with the existing detention center in Afghanistan, the Bagram Theater Internment Facility. After the prison was set up in early 2002, it became a primary site for screening prisoners captured in the fighting. Harsh interrogation methods and sleep deprivation were used widely, and two Afghan detainees died there in December 2002, after being repeatedly struck by American soldiers.

Conditions and treatment have improved markedly since then, but hundreds of Afghans and other men are still held in wire-mesh pens surrounded by coils of razor wire. There are only minimal areas for the prisoners to exercise, and kitchen, shower and bathroom space is also inadequate.

Faced with that, American officials said they wanted to replace the Bagram prison, a converted aircraft hangar that still holds some of the decrepit aircraft-repair machinery left by the Soviet troops who occupied the country in the 1980s. In its place the United States will build what officials described as a more modern and humane detention center that would usually accommodate about 600 detainees — or as many as 1,100 in a surge — and cost more than $60 million.

“Our existing theater internment facility is deteriorating,” said Sandra L. Hodgkinson, the senior Pentagon official for detention policy, in a telephone interview. “It was renovated to do a temporary mission. There is a sense that this is the right time to build a new facility.”

American officials also acknowledged that there are serious health risks to detainees and American military personnel who work at the Bagram prison, because of their exposure to heavy metals from the aircraft-repair machinery and asbestos.

“It’s just not suitable,” another Pentagon official said. “At some point, you have to say, ‘That’s it. This place was not made to keep people there indefinitely.’ ”

That point came about six months ago. It became clear to Pentagon officials that the original plan of releasing some Afghan prisoners outright and transferring other detainees to Afghan custody would not come close to emptying the existing detention center.

Although a special Afghan court has been established to prosecute detainees formerly held at Bagram and Guantánamo, American officials have been hesitant to turn over those prisoners they consider most dangerous. In late February the head of detainee operations in Iraq, Maj. Gen. Douglas M. Stone, traveled to Bagram to assess conditions there.

In Iraq, General Stone has encouraged prison officials to build ties to tribal leaders, families and communities, said a Congressional official who has been briefed on the general’s work. As a result, American officials are giving Iraqi detainees job training and engaging them in religious discussions to help prepare them to re-enter Iraqi society.

About 8,000 detainees have been released in Iraq since last September. Fewer than 1 percent of them have been returned to the prison, said Lt. Cmdr. K. C. Marshall, General Stone’s spokesman.

The new detention center at Bagram will incorporate some of the lessons learned by the United States in Iraq. Classrooms will be built for vocational training and religious discussion, and there will be more space for recreation and family visits, officials said. After years of entreaties by the International Committee of the Red Cross, the United States recently began to allow relatives to speak with prisoners at Bagram through video hookups.

“The driving factor behind this is to ensure that in all instances we are giving the highest standards of treatment and care,” said Ms. Hodgkinson, who has briefed Senate and House officials on the construction plans.

The Pentagon is planning to use $60 million in emergency construction funds this fiscal year to build a complex of 6 to 10 semi-permanent structures resembling Quonset huts, each the size of a football field, a Defense Department official said. The structures will have more natural light, and each will have its own recreation area. There will be a half-dozen other buildings for administration, medical care and other purposes, the official said.

The new Bagram compound is expected to be built away from the existing center of operations on the base, on the other side of a long airfield from the headquarters building that now sits almost directly adjacent to the detention center, one military official said.

It will have its own perimeter security wall, and its own perimeter security guards, a change that will increase the number of soldiers required to operate the detention center.

The military plans to request $24 million in fiscal year 2009 and $7.4 million in fiscal year 2010 to pay for educational programs, job training and other parts of what American officials call a reintegration plan. After that, the Pentagon plans to pay about $7 million a year in training and operational costs.

There has been mixed support for the project on Capitol Hill. Two prominent Senate Democrats, Robert C. Byrd of West Virginia and Tim Johnson of South Dakota, have been briefed on the new American-run prison, and have praised the decision to make conditions there more humane.

But the senators, in a May 15 letter to the deputy defense secretary, Gordon England, demanded that the Pentagon explain its long-term plans for detention in Afghanistan and consult the Afghan government on the project.

The population at Bagram began to swell after administration officials halted the flow of prisoners to Guantánamo in September 2004, a cutoff that largely remains in effect. At the same time, the population of detainees at Bagram also began to rise with the resurgence of the Taliban.

Military personnel who know both Bagram and Guantánamo describe the Afghan site, 40 miles north of Kabul, as far more spartan. Bagram prisoners have fewer privileges, less ability to contest their detention and no access to lawyers.

Some detainees have been held without charge for more than five years, officials said. As of April, about 10 juveniles were being held at Bagram, according to a recent American report to a United Nations committee.

The Great Depression of the 2010s
Economics is not rocket science. Neither is power

Darryl Robert Schoon
May 6, 2008

Depressions are monetary phenomena caused by central bank issuance of excessive credit. In 1913, the newly created US central bank, the Federal Reserve, began issuing credit-based money in the US. Within ten years, the central bank flow of credit ignited the 1920s US stock market bubble; and shortly thereafter, following the collapse of the bubble in 1929, the world entered its first Great Depression in 1933.

Investment banks are the undoing of central banking. While all banks, central, commercial and investment, view credit as the opportunity to exploit society's growth and productivity, investment bank exploitation of growth and productivity exposes society to extreme risks - for investment banks use society's savings to make their volatile and speculative bets.

The speculative risks undertaken by investment banks is done by leveraging the savings of society; and, when investment bank bets are sufficiently large enough and the bets go bad - as they inevitably do as the luck of investment bankers is due more to their proximity to credit than to their ability to foresee the future - it is society that will bear the brunt of the pain in the loss of its savings.

Inevitably, investment bankers cannot resist the temptations of excessive credit and, like the buyers of teaser-rate home mortgages, they will always overreach themselves - an overreaching that will have disastrous consequences for the society whose savings they bet.

The leveraged overreaching by investment banks in the 1920s caused the Great Depression of the 1930s and their more recent overreaching in this decade, the 2000s, is about to cause another Great Depression in the next, the 2010s.

It is the proximity of investment banks to the pools of savings that allows investment banks to profit. By their access to society's savings, investment banks use society's wealth as the foundation of their highly leveraged bets in financial markets; and in so doing, they have now placed all of us in harms way.

GOVERNMENT - THE DEVICE BY WHICH THE FEW CONTROL THE MANY

The collapse of financial markets in the first Great Depression led to the US Congress to enact laws that would hopefully insure that such a collapse would never again happen. To that end, in 1933 the Glass-Steagall Act was passed by Congress and signed into law.

Acknowledging the role that investment banks had played in the Great Depression, the passage of the Glass-Steagall Act in 1933 separated investment banking and commercial banking to insure that investment bank speculation would not again destabilize commercial banks as it did during the Great Depression leading to the loss of America's savings.

What bankers hath joined together let no man put asunder

However, in 1999, the US Congress repealed the Glass-Steagall Act and America was once again vulnerable to the highly leveraged shenanigans of Wall Street. This time, however, it was not only the US but the entire world whose futures were to be bet and lost by Wall Street gamblers.

The globalization of financial markets had spread the dangers of US investment banking to banks, insurance companies, and pension funds around the world. Now, the savings of Europe and Asia as well as the US were to be impacted by the wagers of Wall Street who in the 2000s literally bet the house on the possibility that subprime CDOs were actually worth their AAA ratings.

Glass-Steagall, the law enacted in1933 to prevent another Great Depression was repealed at the behest of bankers. While it is true that at certain times the US government will act in the best interest of society, usually (and usually in the guise of so doing) the US government is the pawn of the special interests that benefit from the trough of government largesse and regulation. The repealing of the Glass-Steagall Act in 1999 was therefore a reversion to the mean.

We are today in the initial stages of another collapse that will lead to another Great Depression. The safeguards put in place to prevent such from happening were not only disassembled in 1999; but, now in 2008, the US government has moved even closer to exposing its citizenry and indeed the world to the speculative carnage and folly of investment banking excess.

THE RULE OF LAW IS A WONDROUS THING - ESPECIALLY IF YOU WRITE THEM.

Bloomberg.com April 8, 2008
"As credit markets seized up, the Fed gave the 20 primary dealers in U.S. government bonds the same access to discount-window loans that had previously been reserved for banks. The central bank now auctions as much as $100 billion to lenders a month, and has cut the cost on direct loans to just a quarter-point above the overnight rate on loans between banks."

The US Federal Reserve is now underwriting, i.e. subsidizing, the commercial activities of global private investment banks. The 20 primary dealers in US government bonds include the world's largest investment banks - BNP Paribas Securities Corp. (French), Barclays Capital Inc (British), Banc of America Securities LLC (USA), UBS Securities LLC (Swiss), Dresdner Kleinwort Wasserstein Securities LLC (German), Daiwa Securities US Inc. (Japan) etc.

In truth, these investment banks are global entities and have no actual nationality no matter what jurisdiction in which they are legally domiciled. As such, they also have no allegiance except to their own self-interests.

QUESTION:
Why is the US government allocating public resources for the benefit of private international investment banks?

ANSWER:
US resources are subsidizing international investment banks through the Federal Reserve Bank, a quasi private entity which was given governmental powers in 1913 (some allege in violation of the US Constitution). That a quasi private bank is bailing out private banks with public monies does make sense. What doesn't make sense is why the public allows it.

There is much discussion as to the justification and reasons for US, UK, European, and Japanese central banks bailing out private banks with public money. Issues such as moral hazard are now being raised in questioning the right and consequence of so doing.

In truth, such issues are irrelevant. Not that they are in themselves not important, but issues such as moral hazard will have no effect whatsoever on what is going to happen.

Intent is the underlying motive that explains what is about to occur. The intent of private bankers is not public stability, nor growth, nor productivity - it is the pursuit of private profit via the use of public credit and debt.

Today, most governments, especially the US and UK, are controlled by private bankers - which is why government policy continues and will continue to favor the interests of private bankers over the public good.

THE MELTDOWN OF MAMMON

I am sure that in some quarters of the Catholic Church objections were raised (perhaps even on theological grounds) about the torture used by the Church during the Spanish Inquisition; just as today, there have been objections raised by some in the US in regards to the use of torture in its "war on terror".

Objections are always tolerated by those in power as long as the objections do not rise to the level of action. The objection to central bank credit and influence in our monetary affairs is therefore rhetorical. The influence of private bankers and central banking in our monetary affairs will not change until their influence has run its course - which is now about to happen.

The present epoch of central banking will perhaps be known as the period when bankers roamed the earth. Just as during the Jurassic Age, when dinosaurs roamed freely eating whatever and whomever they encountered, bankers did much the same in the present epoch that is now about to end - profiting by the productivity of society and the public and private debts incurred as a result of bankers' induced credit-based spending.

Bankers achieved their immense power during this era by exploiting flaws in human nature and systemic flaws in the economic system they constructed for their own benefit. But as with all flaws, human or economic, the consequences of so doing are exposed over time. That time has now arrived.

Money is not credit, nor is money created de jure by circulating paper coupons imprinted with a government stamp stating the coupons are now legal tender to be used in the settlement of debts.

The idea that central bank coupons/paper money, sic debt, can be used to settle another debt is astounding. That we have been led to accept it is so is even more astounding. Throughout history, every experiment with paper "money" as a settlement of debt has failed. Our experiment with paper money towards that end will be no different.

The recent correction in the price of gold and silver is just that, a correction in an otherwise direct repudiation of the on-going attempt by governments and bankers to substitute paper coupons for real money.

A paper yen, a paper euro, a paper dollar, when no longer backed and convertible to gold or silver is but a paper coupon masquerading as money - a coupon with an expiration date in invisible ink.

In truth, the bankers' real gambit is not their bet that paper money can be substituted for gold and silver or that subprime mortgages can be passed off as AAA securities. Their real gambit is that central bank issuance of debt as money and their control of governments will never be discovered by the public.

HUBRIS FOLLY AND DISASTER

The world of credit and debt and all it has created has been made possible by bankers and their debt based system of money and central banking. Its cost, however, will be born by future generations who were not present when the debts were incurred.

Those who utter in pious simplicity those wonderful words, "our children are our future", have no idea what they have done to those very children and their future by spending today what future generations will have to earn tomorrow.

Here, in the US, an entire generation has grown up on the suspect promises of easy credit and paper money. That generation is now beginning to suspect that something is wrong, that the price of their gas, food and healthcare is rapidly rising and their dream of home ownership is a trap from which bankruptcy is increasingly their only escape.

Still, this generation has no idea of how terribly wrong it actually is and why it has happened; and their ignorance of such will give them little comfort during the Great Depression that lies directly ahead.

The chickens are coming home to roost; and they closer they come, the more they are looking like vultures.

Note: I will be speaking at Professor Antal E. Fekete's Session IV of Gold Standard University Live (GSUL) July 3-6, 2008 in Szombathely, Hungary. If you are interested in monetary matters and gold, the opportunity to hear Professor Fekete should not be missed. A perusal of Professor Fekete's topics may convince you to attend (see http://www.professorfekete.com/gsul.asp).Professor Fekete, in my opinion, is a giant in a time of small men.

Darryl Robert Schoon

Bats Perish, and No One Knows Why

March 25, 2008

By TINA KELLEY

Al Hicks was standing outside an old mine in the Adirondacks, the largest bat hibernaculum, or winter resting place, in New York State.

It was broad daylight in the middle of winter, and bats flew out of the mine about one a minute. Some had fallen to the ground where they flailed around on the snow like tiny wind-broken umbrellas, using the thumbs at the top joint of their wings to gain their balance.

All would be dead by nightfall. Mr. Hicks, a mammal specialist with the state’s Environmental Conservation Department, said: “Bats don’t fly in the daytime, and bats don’t fly in the winter. Every bat you see out here is a ‘dead bat flying,’ so to speak.”

They have plenty of company. In what is one of the worst calamities to hit bat populations in the United States, on average 90 percent of the hibernating bats in four caves and mines in New York have died since last winter.

Wildlife biologists fear a significant die-off in about 15 caves and mines in New York, as well as at sites in Massachusetts and Vermont. Whatever is killing the bats leaves them unusually thin and, in some cases, dotted with a white fungus. Bat experts fear that what they call White Nose Syndrome may spell doom for several species that keep insect pests under control.

Researchers have yet to determine whether the bats are being killed by a virus, bacteria, toxin, environmental hazard, metabolic disorder or fungus. Some have been found with pneumonia, but that and the fungus are believed to be secondary symptoms.

“This is probably one of the strangest and most puzzling problems we have had with bats,” said Paul Cryan, a bat ecologist with the United States Geological Survey. “It’s really startling that we’ve not come up with a smoking gun yet.”

Merlin Tuttle, the president of Bat Conservation International, an education and research group in Austin, Tex., said: “So far as we can tell at this point, this may be the most serious threat to North American bats we’ve experienced in recorded history. “It definitely warrants immediate and careful attention.”

This month, Mr. Hicks took a team from the Environmental Conservation Department into the hibernaculum that has sheltered 200,000 bats in past years, mostly little brown bats (Myotis lucifugus) and federally endangered Indiana bats (Myotis sodalis), with the world’s second largest concentration of small-footed bats (Myotis leibii).

He asked that the mine location not be published, for fear that visitors could spread the syndrome or harm the bats or themselves.

Other visitors do not need directions. The day before, Mr. Hicks saw eight hawks circling the parking lot of another mine, waiting to kill and eat the bats that flew out.

In a dank galley of the mine, Mr. Hicks asked everyone to count how many out of 100 bats had white noses. About half the bats in one galley did. They would be dead by April, he said.

Mr. Hicks, who was the first person to begin studying the deaths, said more than 10 laboratories were trying to solve the mystery.

In January 2007, a cave explorer reported an unusual number of bats flying near the entrance of a cavern near Albany. In March and April, thousands of dead bats were found in three other mines and caves. In one case, half the dead or living bats had the fungus.

One cave had 15,584 bats in 2005, 6,735 in 2007 and an estimated 1,500 this winter. Another went from 1,329 bats in 2006 to 38 this winter. Some biologists fear that 250,000 bats could die this year.

Since September, when hibernation began, dead or dying bats have been found at 15 sites in New York. Most of them had been visited by people who had been at the original four sites last winter, leading researchers to suspect that humans could transmit the problem.

Details on the problem in neighboring states are sketchier. “In the Berkshires in Massachusetts, we are getting reports of dying/dead bats in areas where we do not have known bat hibernacula, so we may have more sites than we will ever be able to identify,” said Susi von Oettingen, an endangered species biologist with the United States Fish and Wildlife Service.

In Vermont, Scott Darling, a wildlife biologist with the Fish and Wildlife Department, said: “The last tally that I have is approximately 20 sites in New York, 4 in Vermont and 2 in Massachusetts. We only have estimates of the numbers of bats in the affected sites — more or less 500,000. It is impossible for us to count the dead bats, as many have flown away from the caves and died — we have over 90 reports from citizens across Vermont — as well as many are still dying.”

People are not believed to be susceptible to the affliction. But New Jersey, New York and Vermont have advised everyone to stay out of all caverns that might have bats. Visitors to affected caves and mines are asked to decontaminate all clothing, boots, ropes and other gear, as well as the car trunks that transport them.

One affected mine is the winter home to a third of the Indiana bats between Virginia and Maine. These pink-nosed bats, two inches long and weighing a quarter-ounce, are particularly social and cluster together as tightly as 300 a square foot.

“It’s ironic, until last year most of my time was spent trying to delist it,” or take it off the endangered species list, Mr. Hicks said, after the state’s Indiana bat population grew, to 52,000 from 1,500 in the 1960s.

“It’s very scary and a little overwhelming from a biologist’s perspective,” Ms. von Oettingen said. “If we can’t contain it, we’re going to see extinctions of listed species, and some of species that are not even listed.”

Neighbors of mines and caves in the region have notified state wildlife officials of many affected sites when they have noticed bats dead in the snow, latched onto houses or even flying in a recent snowstorm.

Biologists are concerned that if the bats are being killed by something contagious either in the caves or elsewhere, it could spread rapidly, because bats can migrate hundreds of miles in any direction to their summer homes, known as maternity roosts. At those sites, females usually give birth to one pup a year, an added challenge for dropping populations.

Nursing females can eat up to half their weight in insects a day, Mr. Hicks said.

Researchers from institutions like the Centers for Disease Control and Prevention, the United States Geological Survey’s National Wildlife Health Center, Boston University, the New York State Health Department and even Disney’s Animal World are addressing the problem. Some are considering trying to feed underweight wild bats to help them survive the remaining weeks before spring. Some are putting temperature sensors on bats to monitor how often they wake up, and others are making thermal images of hibernating bats.

Other researchers want to know whether recently introduced pesticides, including those released to stop West Nile virus, may be contributing to the problem, either through a toxin or by greatly reducing the bat’s food source.

Dr. Thomas H. Kunz, a biology professor at Boston University, said the body composition of the bats would also be studied, partly to determine the ratio of white to brown fat. Of particular interest is the brown fat between the shoulder blades, known to assist the bats in warming up when they begin to leave deep hibernation in April.

“It appears the white nose bats do not have enough fat, either brown or white, to arouse,” Dr. Kunz said. “They’re dying in situ and do not have the ability to arouse from their deep torpor.”

His researchers’ cameras have shown that bats in the caves that do wake up when disturbed take hours longer to do so, as was the case in the Adirondack mine. He also notes that if females become too emaciated, they will not have the hormonal reactions necessary to ovulate and reproduce.

In searching for a cause of the syndrome, researchers are hampered by the lack of baseline knowledge about habits like how much bats should weigh in the fall, where they hibernate and even how many bats live in the region.

“We’re going to learn an awful lot about bats in a comprehensive way that very few animal species have been looked at,” said Dr. Elizabeth Buckles, an assistant professor at Cornell who coordinates bat research efforts. “That’s good. But it’s unfortunate it has to be under these circumstances.”

The die-offs are big enough that they may have economic effects. A study of Brazilian free-tailed bats in southwestern Texas found that their presence saved cotton farmers a sixth to an eighth of the cash value of their crops by consuming insect pests.

“Logic dictates when you are potentially losing as many as a half a million bats in this region, there are going to be ramifications for insect abundance in the coming summer,” Mr. Darling, the Vermont wildlife biologist, said.

As Mr. Hicks traveled deeper in the cave, the concentrations of bats hanging from the ceiling increased. They hung like fruit, generally so still that they appeared dead. In some tightly packed groups, just individual noses or elbows peeked through. A few bats had a wing around their nearest cavemates. Their white bellies mostly faced downhill. When they awoke, they made high squeaks, like someone sucking a tooth.

The mine floors were not covered with carcasses, Mr. Hicks said, because raccoons come in and feed on them. Raccoon scat dotted the rocks along the trail left by their footprints.

In the six hours in the cave taking samples, nose counts and photographs, Mr. Hicks said that for him trying for the perfect picture was a form of therapy. “It’s just that I know I’m never going to see these guys again,” he said. “We’re the last to see this concentration of bats in our lifetime.”

Army, Marines give waivers to more felons

• Story Highlights
• Recruits convicted of assault, drug possession, making terrorist threats allowed in
  
• Rep. Henry Waxman: Defense Department has month to explain waivers
  
• Army granted 511 felony waivers in 2007; Marines granted 350 in 2007
  
• Army defended waivers, saying fewer recruits today meet their standards
  

WASHINGTON (CNN) -- The Army and Marine Corps are allowing convicted felons to serve in increasing numbers, newly released Department of Defense statistics show.

Recruits were allowed to enlist after having been convicted of crimes including assault, burglary, drug possession and making terrorist threats.

The statistics were released by Rep. Henry Waxman, a California Democrat who chairs the House Committee on Oversight and Government Reform.

He has given the Pentagon a month to hand over up-to-date details on the number of waivers granted, reports on how the recruits have performed and information about how the waivers are related to meeting recruitment goals.

Pentagon statistics show the Army granted 511 felony waivers in 2007, just over twice the 249 it granted the year before. The Army aims to recruit more than 80,000 new soldiers a year.

The Marines -- which recruits fewer new service members each year than the Army -- also reported a rise in waivers for felonies, with 350 granted in 2007, compared with 208 in 2006.

"There was a rapid rise in 2007 in the number of waivers the Army and Marine Corps granted to recruits convicted of serious felonies," Waxman said in a letter Monday to David Chu, the under-secretary of defense for personnel and readiness.

"I understand that there can be valid reasons for personnel waivers and recognize the importance of providing opportunities to individuals who have served their sentences and rehabilitated themselves.

"At the same time, concerns have been raised that the significant increase in the recruitment of persons with criminal records is a result of the strain put on the military by the Iraq war and may be undermining military readiness," he charged.

The Army defended its use of waivers as a response to a changing American society, arguing that only three in 10 Americans of military age "meet all our stringent medical, moral, aptitude or administrative requirements."

"Today's young men and women are more overweight, have a greater incidence of asthma, and are being charged for offenses that in earlier years wouldn't have been considered a serious offense, and might not have resulted in charges in the first place," John P. Boyce Jr. of Army Public Affairs said in a statement to CNN.

He said the Army never issues waivers for some types of offenses, including sexual violence, alcoholism and drug trafficking.

But the Pentagon statistics showed the Army allowed 106 convicted burglars to enlist in 2007, up from 36 the year before. It also granted waivers to 43 recruits convicted of aggravated assault that year, up from 33 a year before; and to 130 people convicted of possession of drugs other than marijuana, a rise from 71 in 2006.

It also allowed two people convicted of making terrorist or bomb threats to enlist in 2007, up from one the year before.

The Marines did not immediately respond to request for comment.

The Navy reported a slight decline in felony waivers, from 48 in 2006 to 42 in 2007. The Air Force said it granted no felony waivers in either year.

worldwide

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April 14, 2008

Housing Woes in U.S. Spread Around Globe

By MARK LANDLER

DUBLIN — The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices swooning from the Irish countryside and the Spanish coast to Baltic seaports and even parts of northern India.

This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes but jobs as well.

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the last decade are falling back to earth. Property analysts predict that some countries, like this one, will face an even more wrenching adjustment than that of the United States, including the possibility that the downturn could become a wholesale collapse.

To some extent, the world’s problems are a result of American contagion. As home financing and credit tightens in response to the crisis that began in the subprime mortgage market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.

Citing the reverberations of the American housing bust and credit squeeze, the International Monetary Fund last Wednesday cut its forecast for global economic growth this year and warned that the malaise could extend into 2009.

“The problems in the U.S. are being transmitted to Europe,” said Michael Ball, professor of urban and property economics at the University of Reading in Britain, who studies housing prices. “What’s happening now is an awful lot more grief than we expected.”

For countries like Ireland, where prices were even more inflated than in the United States, it has been a painful education, as homeowners learn the American vocabulary of misery.

“We know we’re already in negative equity,” said Emma Linnane, a 31-year-old university administrator.

She bought a cozy, one-bedroom apartment in the Dublin suburbs with her fiancé, Paul Colgan, in May 2006, at the peak of the market. They paid $575,000 — at least $100,000 more than it would fetch today. “I sometimes get shivers thinking about it,” Ms. Linnane said, “but I’ll let the reality hit me when I go to sell it.”

That reality is spreading. Once-sizzling housing markets in Eastern Europe and the Baltic states are cooling rapidly, as nervous Western Europeans stop buying investment properties in Warsaw, Tallinn, Estonia and other real estate Klondikes.

Further east, in India and southern China, prices are no longer surging. With stock markets down sharply after reaching heady levels, people do not have as much cash to buy property. Sales of apartments in Hong Kong, a normally hyperactive market, have slowed recently, with prices for mass-market flats starting to drop.

In New Delhi and other parts of northern India, prices have fallen 20 percent over the last year. Sanjay Dutt, an executive director in the Mumbai office of Cushman & Wakefield, the real estate firm, describes it as an erosion of confidence.

Much of the retrenchment seems to be following the basic law of gravity: what goes up must come down. With low interest rates helping to inflate housing bubbles in many countries, economists said the confluence of falling prices was predictable, if unsettling.

This is not the first housing downturn to cross borders, but its reverberations have been amplified by the integration of financial markets. When faulty American mortgages end up on the books of European banks, the problems of the United States aggravate the world’s problems.

Consider Britain, which had one of Europe’s most robust housing markets, with less of an oversupply than in Ireland or Spain. Then last summer came the subprime crisis across the Atlantic.

Within two months, mortgage approvals dropped 31 percent, compared with the previous year. And by March, average housing prices had fallen 2.5 percent, the largest monthly decline since 1992.

“The boom in house prices was actually much bigger here than in the U.S.,” said Kelvin Davidson, an economist at Capital Economics in London. “If anything, people should be more worried than in the U.S.”

Britain has one of the most developed home-financing industries, not far behind that of the United States. The amount of outstanding mortgage debt, as a share of total economic output, is higher there than in the United States, according to a study by the International Monetary Fund.

“The U.K. followed the U.S. into never-never land, pushing mortgages out the door, believing that prices would go up forever,” said Allan Saunderson, the managing editor of Property Finance Europe, a newsletter for investors.

Still, the problems in Britain pale next to those of Spain and Ireland. Residential investment accounts for 12 percent of the Irish economy and 9 percent of the Spanish economy, compared with 5 percent in Britain and 4 percent in the United States, according to the I.M.F.

The glut of housing has brought new construction to a standstill, driving up unemployment and dimming the prospects for two of Europe’s stellar performers over the last decade.

“We’re waking up from the property dream and finding ourselves in a situation where prices are falling in Spain for the first time,” said Fernando Encinar, a founder of Idealista.com, a real estate Web site.

In Spain, more than four million homes were built in the last decade, more than in Germany, Britain and France combined. Average house prices tripled in parts of the country, as Spain’s torrid economy attracted immigrants and Northern Europeans snapped up holiday homes along the Costa del Sol.

Now, though, thousands of those houses stand empty. The I.M.F. estimates that property is overvalued by more than 15 percent. With mortgages drying up and prices swooning, speculators who once viewed Spanish property as a no-lose proposition are confronting hard reality.

In 2005, Julian Felipe Fernandez bought three small apartments, as an investment, in a huge development being built outside Madrid. He paid 100,000 euros as a deposit for the units, and now he is eager to sell them to avoid having to taking on a costly mortgage. But with the market stalled, Mr. Fernandez’s asking price is what he paid for them.

“Three years ago, it looked like I would be able to flip them for a nice profit before they were finished,” he said. “I just want to get them off my hands, to get rid of this headache.”

If he unloads them, he will be lucky. Enric Bueno, head of marketing for Ibusa, a real estate company in Barcelona, said his firm was closing six or seven sales a month, compared with 40 a month a year ago.

“Things are really bad,” Mr. Bueno said. “If this goes on for five years, we won’t make it.”

Economists have been busy cutting their growth forecasts for Spain, with a few saying that it may stagnate this summer. BBVA, a leading Spanish bank, forecasts that unemployment will rise to an average of 11 percent this year, from 8.6 percent in 2007.

Such cutbacks are well under way in Ireland, where the taxi drivers complain that their ranks are being swollen by laid-off home builders. The housing collapse has brought an abrupt end to more than a decade of pell-mell growth that earned Ireland the nickname “the Celtic tiger.”

Today, the mood in this country feels like a wake, and not an Irish one. Average house prices fell 7 percent last year, the most in Europe, according to the Royal Institution of Chartered Surveyors, a British real estate group. They are likely to fall by a similar amount this year.

After a 16-year boom that was interrupted only briefly after the Sept. 11 terrorist attacks, Ireland has the most overvalued housing market among developed countries, according to the I.M.F. In its recent economic outlook, the fund calculated that prices are 30 percent higher than they should be, given Ireland’s economic fundamentals.

For many Irish, accepting that reality is like passing through the seven stages of grief. Some homeowners are still in denial, brokers said, asking $5 million for houses worth no more than $4 million. But developers have begun cutting prices for smaller apartments like the one owned by Emma Linnane.

“Last year was our ‘wake up in the middle of the night with sweat pouring down your face’ period,” said David Bewley, a director at the Lisney real estate agency. “Now we’ve grown up.”

Not all the omens are negative. Mr. Bewley said houses were selling again, albeit for 25 percent less. Ireland has not yet suffered widespread incidences of defaulting mortgages or foreclosures in this downturn, in part because lenders have not been as aggressive as those in the United States.

But some worry that the housing meltdown could spoil Ireland’s recipe for success. Like Spain, it attracted lots of foreign workers, many of whom came for well-paying jobs in the construction industry. That fueled the Irish rental market, which has remained buoyant and been a source of income for Ireland’s many real estate speculators.

“If the immigrants go back home, will this hurt the rental market?” asked Ronan O’Driscoll, a director in the Dublin office of Savills, a real estate firm. “If that happens, it would definitely cause foreclosures.”

Got popcorn?

Largest U.S. Municipal Bankruptcy Looms in Alabama: Joe Mysak

Commentary by Joe Mysak

April 11 (Bloomberg) -- They're talking more about Chapter 9 municipal bankruptcy in Jefferson County, Alabama, the home of the largest city in the state, Birmingham.

Who can blame them?

The county is now being whipsawed by an ill-thought-out debt policy and the collapse of the bond insurers. Credit-rating downgrades all around have triggered a series of events that are no longer in the county's control, leaving it at the mercy of securities firms that have little room for maneuver themselves.

This has produced a steady series of stories in my new favorite newspaper, the Birmingham News, all about how the county is preparing to declare bankruptcy any day.

Perhaps the best article ran on Sunday, April 6. It began: ``Jefferson County officials have laid the groundwork for the largest municipal bankruptcy in the nation's history while publicly saying they have no imminent plans for a filing.''

The one that ran on Wednesday, April 9, was no less compelling: ``Talks on the sewer system's debt crisis aren't making progress, increasing the odds that the county will file municipal bankruptcy, Jefferson County Commission President Bettye Fine Collins said Tuesday.''

This is how it ends for the little county that was going to teach America how to use interest-rate swaps.

Make no mistake. This is a story all about public finance and ``derivatives,'' whose use by states and localities exploded during the past decade.

Orange County

The Jefferson County bankruptcy, if it comes, and it's hard to see how it can be avoided, will eclipse that of the 1994 filing by Orange County, California. ``Derivatives'' are at the center of both death-spirals.

Orange County invested in them -- securities whose value was tied to other securities and markets. The county investment pool, which for years spun off handsome returns for the school districts and local governments that were its participants, found itself holding a bunch of junk when its investors asked for their money back.

Jefferson County played the derivatives game as part of financing a $3.2 billion sewer cleanup. The county engaged in a batch of interest-rate swaps with the banks that helped underwrite the debt, in a strategy designed to save the county and its taxpayers some money. The strategy backfired, demonstrating the speculative, risky nature of swaps.

Two Acts

The bankruptcy will be the biggest in the municipal market's history by virtue of the county's debt load, according to the News. Jefferson County has $3.2 billion in sewer debt; Orange County lost $1.6 billion in its investment pool. I'm sure the matter will be debated. I'm also sure Orange County will be happy to pass the crown to Jefferson County.

There are going to be two acts to this drama.

First, of course, is the actual filing itself. The county seems to think that this will allow it to hold its creditors at bay and proceed in a business-as-usual fashion.

County officials have stated they have no intention of cutting back services or raising taxes or sewer fees. The most the county seems willing to do is to earmark part of a school construction sales tax to pay off its now-overdue debt.

``We are dealing with a virtual immovable force on Wall Street,'' the News quoted Commissioner Collins as saying.

I have a feeling that it's not going to work out precisely this way for Jefferson County and its residents. Every municipal bankruptcy is different, as is everything else in Muniland, but go ask Orange County how Chapter 9 worked. It's not going to be painless, no matter how well it's planned out.

The Bottom

The first act is humiliation. The second is recrimination.

The second act of the Jefferson County bankruptcy is going to focus on Wall Street and all the banks, law firms, advisers and consulting firms that helped put the county where it is today. The county was not well-served, for all the money that changed hands. In this act, the county sues to get some of that money back.

And there was a lot of money, which seems to be at the heart of the Securities and Exchange Commission's inquiry into the county and its infatuation with swaps and derivatives. The agency has said it is looking at pay to play, or bankers and others forking over cash in exchange for jobs.

The SEC's investigation is just part of a larger probe into the reinvestment-of-proceeds business across the municipal market in general. This has been going on for years, but there are signs it will erupt with a barrage of criminal prosecutions.

The stock-market guys say you have to reach a bottom before you can recover, and that a bottom is often signaled by the collapse of some big entity. Many people thought it was Bear Stearns Cos. In reality, it's Jefferson County.

Scientists find host of antibiotic-eating germs

By Julie SteenhuysenThu Apr 3, 5:48 PM ET

Several strains of bacteria in the soil can make a meal of the world's most potent antibiotics, researchers said on Thursday, in a startling finding that illustrates the extent to which these germ-fighting drugs are losing the war against superbugs.

A study of soil microbes taken from 11 sites uncovered bacteria that could withstand antibiotics 50 times stronger than the standard for bacterial resistance.

"It certainly was very surprising to us," said George Church, a geneticist at Harvard Medical School in Boston, whose research appears in the journal Science.

"Many bacteria in many different soil isolates can not only tolerate antibiotics, they can actually live on them as their sole source of nutrition," Church said in an audio interview on the journal's Web site.

Other researchers have found antibiotic-eating strains of bacteria, but Church's study is among the most systematic. It offers more clues about why bacteria quickly develop resistance to antibiotics, and why drug companies must constantly develop new antibiotics to defeat them.

Church's team initially set out to find organisms in the soil that remove toxins from cellulose, the material that gives plants structure. They took samples from a variety of sites, including a cornfield fertilized by manure from cows that were fed antibiotics.

Microbes taken from these soil samples could easily defeat toxins from cellulose, which they expected. Then the researchers tested the microbes against antibiotics, something they thought would be toxic.

"We were expecting them to grow on cellulose and we weren't expecting them to grow on antibiotics," Church said.

Surprised by how easily the microbes devoured the antibiotics, Church and colleagues did a broader test, exposing hundreds of microbes to 18 antibiotics representing most of the major classes of naturally occurring and synthetic antibiotics, including penicillin and the widely prescribed antibiotic ciprofloxacin.

"We could find ... bacteria that could grow on almost all of them," depending on the bacteria and the source of the soil, Church said.

The bacteria were not known to attack humans, but some were close relatives, such as members of the Burkholderia cepacia complex, a group of bacteria that infect people with cystic fibrosis, and Serratia marcescens, which can cause blood infections in people with compromised immune systems.

Church said the finding underscores the extent to which bacteria have developed resistance to antibiotics, a process that started almost as soon as penicillin was introduced in the 1940s. Overuse and misuse of antibiotics have since fueled the rise of drug-resistant superbugs.

"This is yet another way of looking at resistance," Church said of the study. He said the microbes he found may be using a new way to disarm the antibiotics, but it may take some time to figure that out.

One antibiotic resistant infection, caused by a strain known as methicillin-resistant Staphylococcus aureus, or MRSA, is blamed for killing 19,000 people in the United States in 2005.

As Jobs Vanish and Prices Rise, Food Stamp Use Nears Record

March 31, 2008

By ERIK ECKHOLM

Driven by a painful mix of layoffs and rising food and fuel prices, the number of Americans receiving food stamps is projected to reach 28 million in the coming year, the highest level since the aid program began in the 1960s.

The number of recipients, who must have near-poverty incomes to qualify for benefits averaging $100 a month per family member, has fluctuated over the years along with economic conditions, eligibility rules, enlistment drives and natural disasters like Hurricane Katrina, which led to a spike in the South.

But recent rises in many states appear to be resulting mainly from the economic slowdown, officials and experts say, as well as inflation in prices of basic goods that leave more families feeling pinched. Citing expected growth in unemployment, the Congressional Budget Office this month projected a continued increase in the monthly number of recipients in the next fiscal year, starting Oct. 1 — to 28 million, up from 27.8 million in 2008, and 26.5 million in 2007.

The percentage of Americans receiving food stamps was higher after a recession in the 1990s, but actual numbers are expected to be higher this year.

Federal benefit costs are projected to rise to $36 billion in the 2009 fiscal year from $34 billion this year.

“People sign up for food stamps when they lose their jobs, or their wages go down because their hours are cut,” said Stacy Dean, director of food stamp policy at the Center on Budget and Policy Priorities in Washington, who noted that 14 states saw their rolls reach record numbers by last December.

One example is Michigan, where one in eight residents now receives food stamps. “Our caseload has more than doubled since 2000, and we’re at an all-time record level,” said Maureen Sorbet, spokeswoman for the Michigan Department of Human Services.

The climb in food stamp recipients there has been relentless, through economic upturns and downturns, reflecting a steady loss of industrial jobs that has pushed recipient levels to new highs in Ohio and Illinois as well.

“We’ve had poverty here for a good while,” Ms. Sorbet said. Contributing to the rise, she added, Michigan, like many other states, has also worked to make more low-end workers aware of their eligibility, and a switch from coupons to electronic debit cards has reduced the stigma.

Some states have experienced more recent surges. From December 2006 to December 2007, more than 40 states saw recipient numbers rise, and in several — Arizona, Florida, Maryland, Nevada, North Dakota and Rhode Island — the one-year growth was 10 percent or more.

In Rhode Island, the number of recipients climbed by 18 percent over the last two years, to more than 84,000 as of February, or about 8.4 percent of the population. This is the highest total in the last dozen years or more, said Bob McDonough, the state’s administrator of family and adult services, and reflects both a strong enlistment effort and an upward creep in unemployment.

In New York, a program to promote enrollment increased food stamp rolls earlier in the decade, but the current climb in applications appears in part to reflect economic hardship, said Michael Hayes, spokesman for the Office of Temporary and Disability Assistance. The additional 67,000 clients added from July 2007 to January of this year brought total recipients to 1.86 million, about one in 10 New Yorkers.

Nutrition and poverty experts praise food stamps as a vital safety net that helped eliminate the severe malnutrition seen in the country as recently as the 1960s. But they also express concern about what they called the gradual erosion of their value.

Food stamps are an entitlement program, with eligibility guidelines set by Congress and the federal government paying for benefits while states pay most administrative costs.

Eligibility is determined by a complex formula, but basically recipients must have few assets and incomes below 130 percent of the poverty line, or less than $27,560 for a family of four.

As a share of the national population, food stamp use was highest in 1994, after several years of poor economic growth, with an average of 27.5 million recipients per month from a lower total of residents. The numbers plummeted in the late 1990s as the economy grew and legal immigrants and certain others were excluded.

But access by legal immigrants has been partly restored and, in the current decade, the federal and state governments have used advertising and other measures to inform people of their eligibility and have often simplified application procedures.

Because they spend a higher share of their incomes on basic needs like food and fuel, low-income Americans have been hit hard by soaring gasoline and heating costs and jumps in the prices of staples like milk, eggs and bread.

At the same time, average family incomes among the bottom fifth of the population have been stagnant or have declined in recent years at levels around $15,500, said Jared Bernstein, an economist at the Economic Policy Institute in Washington.

The benefit levels, which can amount to many hundreds of dollars for families with several children, are adjusted each June according to the price of a bare-bones “thrifty food plan,” as calculated by the Department of Agriculture. Because food prices have risen by about 5 percent this year, benefit levels will rise similarly in June — months after the increase in costs for consumers.

Advocates worry more about the small but steady decline in real benefits since 1996, when the “standard deduction” for living costs, which is subtracted from family income to determine eligibility and benefit levels, was frozen. If that deduction had continued to rise with inflation, the average mother with two children would be receiving an additional $37 a month, according to the private Center on Budget and Policy Priorities.

Both houses of Congress have passed bills that would index the deduction to the cost of living, but the measures are part of broader agriculture bills that appear unlikely to pass this year because of disagreements with the White House over farm policy.

Another important federal nutrition program known as WIC, for women, infants and children, is struggling with rising prices of milk and cheese, and growing enrollment.

The program, for households with incomes no higher than 185 percent of the federal poverty level, provides healthy food and nutrition counseling to 8.5 million pregnant women, and children through the age of 4. WIC is not an entitlement like food stamps, and for the fiscal year starting in October, Congress may have to approve a large increase over its current budget of $6 billion if states are to avoid waiting lists for needy mothers and babies.