Sunday, May 4, 2008

How Fraud Fueled the Mortgage Crisis

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By Mary Kane

Brokers pushed borrowers to lie, lenders misled and ratings agencies looked the other way.

The debate over what caused the mortgage mess and how best to fix it is now taking a sharp turn, as new problems surrounding liar's loans and payment-option mortgages reveal the pervasive fraud, lying and deceit that permeated the market at its height.

As loans made to borrowers with decent credit begin to fail at a surprisingly rapid rate, it's becoming clear that widespread fraud helped support the entire mortgage system - from borrowers who lied on their loans, to brokers who encouraged it, to lenders who misled some low income borrowers, to the many lenders, investors and ratings agencies that conveniently and deliberately looked the other way as profits rolled in.

Despite its widespread role, fraud hasn't yet been at the forefront of proposed rescue plans, which center on refinancing people out of loans now resetting to higher rates. That may begin to change as the mortgage market continues a meltdown that seems to have no end. As fraud becomes a focus, the question of who did most of the lying and cheating will be crucial in deciding who deserves help in any housing rescue plan.

And the search for causes of the crisis may challenge long-held but erroneous beliefs about what homeowners did and why. Many people think borrowers got in trouble by buying bigger houses than they could afford, but the numbers show the majority were refinancing their homes.

Fraud problems drew headlines this week, as Countrywide Financial Corp., announced an $893 million first quarter loss and a 36 percent delinquency rate on subprime loans. The lender that once led the subprime market is facing a federal probe involving allegations that sales executives purposely allowed for inflated income figures on many mortgage applications, The Wall Street Journal said Wednesday.

At the same time, delinquency rates are climbing for payment-option mortgages, or adjustable rate loans that allowed the borrower to choose the size of the monthly payment, the Journal said. Countrywide and other lenders are being hit by state investigations and lawsuits from borrowers who contend they were misled into taking out the complicated loans, which sometimes result in monthly payments going up even as house prices decline. Lenders deny responsibility, saying borrowers knew what they were getting into.

The meltdown of these mortgages is prompting a new spotlight on the extensive role that fraud played in loans gone bad, and who was responsible for it. Lending that required little proof clearly opened the door to widespread cheating, by borrowers who inflated their incomes, or by brokers who did it for them, with or without their knowledge.

A landmark study by the Mortgage Asset Research Institute concluded that almost 60 percent of stated income loans it examined were exaggerated by at least 50 percent. "They earned their name," MARI's Merle Sharick said of liar's loans.

Fraud concerns escalated recently when a task force of states attorneys general and the Conference of State Banking Supervisors found widespread mortgage fraud at the end of the housing boom. Their report said some 28.5 percent of subprime loans that don't face even their first reset to higher rates until next year are already delinquent. In addition, some 70 percent of subprime borrowers seriously delinquent on their loans aren't involved in any effort with lenders to modify the terms to prevent foreclosures. The report urged servicers to work harder on modifications and loan workouts.

At the influential housingwire site, publisher Paul Jackson pointed out that only massive fraud could be responsible for loans going sour so quickly, and that it's unfair to blame servicers for loan workout problems. Borrowers who may have cheated or lied to get a mortgage aren't going to be eager to call up their lender. "What incentive to they have?" Jackson asked. "Offering strong and credible proof that they were party to mortgage fraud?"

He represents a growing belief that mortgage fraud is a major problem yet to be recognized in the housing mess, and one that has been overshadowed by the attention to adjustable rate mortgages that reset to higher rates. Until the scope of the fraud is understood, adequately addressing the market's troubles isn't possible, according to Jackson:

It's time borrowers, consumer groups and erstwhile working groups stop floating a revisionist history of the "hapless borrower" - you know, the one where greedy, mean lenders duped those innocent and pure borrowers? - as a substitute for what's really going on in the real world.

Others familiar with the mortgage industry contend that pervasive fraud was, indeed, a problem - on the lender's side. At the peak of the housing boom, they say, the nation's mortgage system was set up to promote and encourage outright fraud in order to close a loan - and everyone, from brokers to loan officers to Wall Street, looked the other way. Borrowers also were put into products like payment-option arms that were unsuitable - and lenders knew it. "They were pushed like Vioxx, with very little regard for their dangers," said Kathleen Keest, senior policy counsel with the Center for Responsible Lending, a research group that investigates predatory lending.

Patrick Madigan, an Iowa assistant attorney general who has investigated mortgage fraud, said it makes no sense to conclude that lenders are somehow victims. Madigan's office engineered a settlement two years ago with Ameriquest over its subprime practices, including high-pressure "boiler room" sales tactics. Regardless, Madigan said, there is a movement to "blame the borrower."

"There's a perception out there that there's this hapless lender who got duped by middle class and lower income subprime borrowers," Madigan said. "It's ridiculous. Our investigations have shown that most of the fraud happens at the suggestion and direction of the loan originator, who had significant financial incentives to close the loan, no matter what misconduct was required."

The question of fraud and responsibility matters because it can tilt the direction of any plans to rescue the housing market from its freefall. So far, the largest government effort has been FHA Secure, which is supposed to help subprime borrowers facing higher rate resets get refinanced into new mortgages. But with loans going bad even prior to their rates going up, the program doesn't address fraud as the true cause of failing loans, noted Robert Simpson, president of Investors Mortgage Asset Recovery Co., in Irvine, Calif. "These problems are not related to reset issues," he said. "That's a ruse."

As the debate over bailout plans continues on Capitol Hill, borrowers perceived as victims of predatory lending might be more likely to be seen as sympathetic and in need of help than borrowers who took part in lying to buy an expensive house. Lenders under pressure to modify more mortgage loans might get themselves off the hook a bit if borrowers take the hit for lying on liar's loans. If lenders are looked at as the perpetrators of fraud, there might be support for ideas like the one just proposed by Federal Deposit Insurance Corp Chairwoman Sheila Bair, who wants the Treasury Department to make loans directly to troubled borrowers.

If the whole mortgage market is viewed as riddled with fraud on both ends, some, like Simpson, argue that nothing should be done except letting those house prices that have been artificially propped up because of inflated incomes begin to fall - and enduring the economic pain that will result.

Even if fraud has become a larger part of the mortgage meltdown picture than first realized, it's not simple to figure out who should take most of the blame. Many people point the finger at investors playing the market or homeowners who bought more expensive houses than they could afford - the "irresponsible" borrowers cited by both President George W. Bush and probable Republican nominee Sen. John McCain (R-Ariz.).

But the numbers don't exactly tell that story - which proves that much in this crisis taken as fact is poorly understood. That also makes a difference, when it comes to deciding whether it makes sense to bail out the market. At the request of The Washington Independent, the trade industry publication Inside Mortgage Finance in Bethesda, Md., ran some numbers and analyzed the resulting data.

Did most people simply buy big homes they couldn't afford? In 2007, 62 percent of all securitized Alt-A loans involved refinances, and 38 percent were for home purchases. In the subprime market, 64 percent were refinances and 36 percent, home purchases. The percentages were the same in 2006. Those borrowers may have been tapping equity for reasons as varied as fancy vacations to overdue medical bills, but the majority were not buying new homes.

Were they just trying to make a quick buck? Regarding investors versus homeowners, in 2007, about 5 percent of all securitized subprime loans and 14 percent of Alt-A loans were reported as investor loans. That compares to 5 percent of subprime loans and 13 percent of Alt-A loans in 2006. These numbers don't include second homes, so the percentages are probably higher, but not significantly so.

Then there's the question of who really lied on the liar's loans. Madigan, the Iowa assistant attorney general, cites repeated cases where borrowers were encouraged by brokers to suddenly create businesses in their basements, like day care centers, to boost their incomes. If they questioned it, brokers would say that lenders required it, or not to worry. Still, borrowers signed on the bottom line, some knowing the information was false. Consider this borrower's account in the San Francisco Chronicle of a sales conversation with a broker:

" He didn't say anything illegal out loud," she said. "He didn't say 'lie,' he just made a strong suggestion. He said, 'If you made $60,000, we could get you into the lowest interest level of this loan; did you make that much?' I said, 'Um, yes, about that much.' He went clickety clack on his computer and said, 'Are you sure you don't remember any more income, like alimony or consultancies, because if you made $80,000, we could get you into a better loan with a lower interest rate and no prepayment penalty.' It was such a big differential that I felt like I had to lie, I'm lying already so what the heck. I said, 'Come to think of it, you're right, I did have another job that I forgot about.'"

Countrywide, for example, had a loan program called "Fast and Easy" that required no pay stubs, tax forms or employment verification. The FBI investigation is finding extensive fraud on loans across the board at Countrywide that didn't require full documentation, The Wall Street Journal reported.

"It really is a case of everybody's at fault on this," said Guy Cecala, publisher of Inside Mortgage Finance. "There's clearly plenty of blame to go around."

The result is a housing market that still has a long way to go to reach the bottom. A report by Barclays Capital on Tuesday warned that half of all subprime and Alt-A borrowers soon could owe more than their homes are worth - meaning delinquencies are likely to increase, regardless of whether some loans reset.

How those delinquencies will influence the politics of any possible mortgage bailout is anyone's guess, especially as fraud and its part in the meltdown begin to draw more attention. As Cecala points out, finding the right people to blame can be a complicated issue. In some ways, he says, "it's just next to impossible" to solve a crisis that so many had a hand in creating. whether they are willing to admit to it or not.

Abbas Sends Forces to Northern West Bank

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By Adam Entous and Wael al-Ahmed

Jenin, West Bank - Hundreds of forces loyal to Palestinian President Mahmoud Abbas deployed to the northern West Bank city of Jenin on Saturday for a law-and-order campaign meant to show the government is laying the ground for statehood.

In a campaign dubbed "Operation Smile and Hope", jeeps and buses, which commanders said carried up to 600 security men, arrived in the city in coordination with Israel. Another 150 men already in Jenin, long a militant bastion, will join them.

Washington, whose efforts for a deal on a Palestinian state this year have shown little sign of progress, sees the Jenin push as a chance for Abbas to prove he can rein in militants - Israel’s main condition for implementing a peace agreement.

The deployment of the men, some of whom receive U.S.-funded training in Jordan, coincides with the start of U.S. Secretary of State Condoleezza Rice’s visit to the region on Saturday.

In comments to reporters travelling with her, Rice urged Israel not to undermine the Palestinian security efforts.

"There have to be very insistent efforts to make sure that they are not being undermined," Rice said.

General Diyab al-Ali, head of national security forces in the West Bank, told reporters in Jenin the deployment would lead to a Palestinian state.

"This is our country, our land and we will do our jobs regardless of what the Israelis do until we establish our own state," he said.

A similar security push last year in Nablus was marred by Israeli army raids, travel restrictions and Israel’s refusal to let the forces have certain equipment such as body armour.

Western officials hope the Jewish state will be more cooperative in Jenin, but Ali said he had not received any assurances from Israel.

The Israeli government has emphasized that "ultimate security responsibility will remain in Israel’s hands".


A senior Palestinian security official said the forces would target criminals such as car thieves, and had orders to confiscate illegal weapons, but stopped short of explicitly saying the campaign would target militants.

Security men gave out leaflets to residents asking for help on tackling troublemakers and underlining that they alone have the right to carry guns.

U.S.-backed peace talks were launched in November with the goal of reaching a deal before Bush leaves office in January, but Washington says neither side is doing enough to meet their obligations under a 2003 peace "road map."

Under the road-map, Israel is meant to halt settlement activity and remove Jewish outposts. The Palestinians are meant to combat militants in the West Bank, where Abbas holds sway, and in the Gaza Strip, which is controlled by Hamas Islamists.

Washington is keen to show security and economic progress in the West Bank before U.S. President George W. Bush visits Israel later this month. The Jenin operation will be accompanied by a series of economic development projects.

Rice arrives on Saturday for meetings with Abbas and Israeli Prime Minister Ehud Olmert. A senior Abbas aide said the two men would also meet on Monday and that the Palestinians expected Israel to produce maps showing the borders of a future state.

The Jenin forces are expected to take up positions on Sunday. The campaign is supposed to last three months.

Israel reoccupied West Bank cities - seven of which had been under Palestinian control after the 1993 Oslo peace accords - after the outbreak of the Palestinian uprising in 2000.

One Palestinian security source in Jenin said Abbas’s forces would be authorized to enter Jenin’s volatile refugee camp and other areas that have been off-limits to Palestinian forces.

Security has improved in Jenin over the last six months as militants from Abbas’s Fatah faction turned in weapons as part of an amnesty program coordinated with Israel.

Even the Insured Feel the Strain of Health Costs

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By Reed Abelson and Milt Freudenheim

The economic slowdown has swelled the ranks of people without health insurance. But now it is also threatening millions of people who have insurance but find that the coverage is too limited or that they cannot afford their own share of medical costs.

Many of the 158 million people covered by employer health insurance are struggling to meet medical expenses that are much higher than they used to be - often because of some combination of higher premiums, less extensive coverage, and bigger out-of-pocket deductibles and co-payments.

With medical costs soaring, the coverage many people have may not adequately protect them from the financial shock of an emergency room visit or a major surgery. For some, even routine doctor visits might now take a back seat to basic expenses like food and gasoline.

"It just keeps eating into people's income," said James Corbin, a former union official who works for the local utility in Tucson.

Mr. Corbin said that under their employer's health plan, he and his co-workers are now obliged to pay up to $4,000 of their families' annual medical bills, on top of about $1,600 a year in premiums. Five years ago, they paid no premiums and were responsible for only about $2,000 of their families' medical bills.

"That's a big jump," Mr. Corbin said. "You've just lost a month's pay."

Already, many doctors say, the soft economy is making some insured people hesitant to get care they need, reluctant to spend a $50 co-payment for an office visit. Parents "are waiting longer to bring in their children," said Dr. Richard Lander, a pediatrician in Livingston, N.J. "They say, 'The kid isn't that sick; her temperature is only 102.' "

The problem of affording health care is most acute for people with no insurance, a group expected to soon exceed 48 million, but those with insurance say they too are feeling the pain.

Since the recession of 2001, the employee's average cost of an annual health care premium for family coverage has nearly doubled - to $3,300, up from $1,800 - while incomes have come nowhere close to keeping up. Factor in other out-of-pocket medical costs, and the portion of the average American household's income that goes toward health care has risen about 12 percent, according to the consulting and accounting firm Deloitte, and is now approaching one-fifth of the average household's spending.

In a recent survey by Deloitte's health research center, only 7 percent of people said they felt financially prepared for their future health care needs.

Shirley Giarde of Walla Walla, Wash., was not prepared when her husband, Raymond, suddenly developed congestive heart failure last year and needed a pacemaker and defibrillator. Because his job did not provide health benefits, she has covered them both through a policy for the self-employed, which she obtained as the proprietor of a bridal and formal-wear store, the Purple Parasol.

But when Raymond had his medical problems, Ms. Giarde discovered that her insurance would cover only $22,000, leaving them with about $100,000 in unpaid hospital bills.

Even though the hospital agreed to reduce that debt to about $50,000, Ms. Giarde is still struggling to pay it - in part because the poor economy has meant slumping sales at the Purple Parasol. Her husband, now disabled and unable to work, will not qualify for Medicare for another year, and she cannot afford the $758 a month it would cost to enroll him in a state-run insurance plan for individuals who cannot find private insurance.

She recently refinanced her car, a 2002 Toyota Highlander, to help pay for her husband's heart medicines, which cost some $400 a month.

Experts say that too often for the underinsured, coverage can seem like health insurance in name only - adequate only as long as they have no medical problems.

"There's a real shift in the burden of health care to people who happen to be sick," said Paul B. Ginsburg, the president of the Center for Studying Health System Change, a research group in Washington.

Companies and policy makers have yet to focus on what the faltering economy means for employees' medical care, said Helen Darling, president of the National Business Group on Health, a Washington association of about 200 large employers.

"It's a bad-news situation when an individual or household has to pay out-of-pocket three, four or five times as much for their health plan as they would have at the time of the last recession," she said. "Americans have been giving their pay raise to the health care system."

Sage Holben, a 62-year-old library technician with diabetes who is active in her local union in St. Paul, says that in 2003 union members agreed to a two-year freeze on wages to protect their health care coverage. But for the union, which will begin talks on the next contract this fall, it may be difficult to continue that trade-off, Ms. Holben said. "It's at the point where we're losing, anyway," she said.

"I live paycheck to paycheck," said Ms. Holben, who makes close to $40,000 a year at Metropolitan State University.

When she took the job in 1999, she says, the health benefits required no co-payments for doctor visits. Now, her out-of-pocket cost per visit is $25, and she pays $38 a month for her diabetes medicine. She has not been to the eye doctor in two years, even though eye exams are crucial for people with diabetes and she knows she needs new glasses. Nor does she monitor her blood sugar as regularly as she should because of the cost of the supplies.

"It's not an extravagant expense," she said. "It just adds up." And it comes atop the increasing cost of utilities, gasoline and food - and the few hundred dollars of repairs her 1994 Chevrolet Cavalier needs.

Many employers do recognize that their workers are struggling financially even as they are asking them to pick up more of their health-care bills.

"It makes the work we have to do even more challenging," said Anne Silverman, the vice president in charge of benefits in North America for the publishing company Reed Elsevier. "Employees are being stretched in terms of their disposable income."

Even so, more companies may see themselves as having little choice but to require employees to pay even more of their health expenses, said Ted Nussbaum, a benefits consultant at the firm Watson Wyatt Worldwide. And when a weak economy undermines job security, he said, workers may simply have to accept reduced benefits.

While Mr. Nussbaum and other consultants say it is unlikely that significant numbers of employers will simply drop coverage for their workers, the weak economy could prompt more of them to push for so-called consumer-driven plans. Such plans tend to offset lower premiums with higher annual deductibles.

And while these plans often allow employees to put pre-tax savings into special health care accounts, they typically end up forcing the worker to assume a bigger share of overall medical costs. About six million people are now enrolled in these medical plans.

Among employers, the hardest pressed may be small businesses. Their insurance premiums tend to be proportionately higher than ones paid by large employers, because small companies have little bargaining clout with insurers.

Health costs are "burying small business," said Mike Roach, who owns a small clothing store in Portland, Ore. He recently testified on health coverage at a Senate hearing led by Ron Wyden, Democrat of Oregon.

Last year, Mr. Roach paid about $27,000 in health premiums for his eight employees. "It's a huge chunk of change," he said, noting that he was forced to raise his employees' yearly deductible by 50 percent, to $750.

Around the nation, some workers are simply priced out of their employee health plans.

After Brian Falacienski of Milton, Fla., was laid off last year from his job as a surveyor for a construction company, he found another position. But the cost of his new health plan - $800 a month for coverage with a $1,000 annual deductible - was beyond the means of Mr. Falacienski, 38, who is married and has a 2-year-old daughter.

His wife, Marianne, started researching individual insurance policies and was able to find policies for her husband and daughter offering basic, if minimal, coverage, costing $161 a month for father and daughter. But Ms. Falacienski, 32, who has arthritis and the severe digestive disorder Crohn's disease, is now uninsured. Because of her conditions, she said, four major insurers rejected her.

"I even applied for Medicaid," she said, "but I wasn't low-income enough."

Lawmakers Seek Probe of Pentagon PR Program

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By Andrew Miga

Forty-one House members are calling on the Defense Department inspector general to investigate a public relations effort that relied on retired military officers to defend the administration's Iraq war policies.

"When the Department of Defense misleads the American people by having them believe that they are listening to the views of objective military analysts when in fact these individuals are simply replaying DoD talking points, the department is clearly betraying the public trust," the lawmakers wrote in a joint letter to Defense Department Inspector General Claude M. Kicklighter on Friday.

Rep. Rosa DeLauro, D-Conn., who organized the letter, said it was important for the inspector general to find out how high-ranking officials within the Pentagon were allowed to operate a program aimed at deceiving the American people.

"Not only must the Inspector General now account for what it did and did not know about this state-sponsored propaganda effort, but they must also explain why, if they knew about the propaganda campaign, it was allowed to proceed," DeLauro said. "Additionally, we are calling for the Inspector General to launch an investigation to ensure no detail surrounding this program remains hidden."

Retired officers who acted as military analysts for major news outlets were given plum access to the Pentagon, with regular briefings by then-Defense Secretary Donald Rumsfeld and a sponsored trip to the Guant‡namo Bay military prison in Cuba.

The lawmakers are seeking information on whether the inspector general investigated the program or senior officials involved in the program. The House members also want to know if the inspector general considers the program to be illegal.

The operation, which has been halted, was first reported by The New York Times.

Multinationals make billions in profit out of growing global food crisis

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By Geoffrey Lean

Speculators blamed for driving up price of basic foods as 100 million face severe hunger

Giant agribusinesses are enjoying soaring earnings and profits out of the world food crisis which is driving millions of people towards starvation, The Independent on Sunday can reveal. And speculation is helping to drive the prices of basic foodstuffs out of the reach of the hungry.

The prices of wheat, corn and rice have soared over the past year driving the world's poor – who already spend about 80 per cent of their income on food – into hunger and destitution.

The World Bank says that 100 million more people are facing severe hunger. Yet some of the world's richest food companies are making record profits. Monsanto last month reported that its net income for the three months up to the end of February this year had more than doubled over the same period in 2007, from $543m (£275m) to $1.12bn. Its profits increased from $1.44bn to $2.22bn.

Cargill's net earnings soared by 86 per cent from $553m to $1.030bn over the same three months. And Archer Daniels Midland, one of the world's largest agricultural processors of soy, corn and wheat, increased its net earnings by 42 per cent in the first three months of this year from $363m to $517m. The operating profit of its grains merchandising and handling operations jumped 16-fold from $21m to $341m.

Similarly, the Mosaic Company, one of the world's largest fertiliser companies, saw its income for the three months ending 29 February rise more than 12-fold, from $42.2m to $520.8m, on the back of a shortage of fertiliser. The prices of some kinds of fertiliser have more than tripled over the past year as demand has outstripped supply. As a result, plans to increase harvests in developing countries have been hit hard.

The Food and Agriculture Organisation reports that 37 developing countries are in urgent need of food. And food riots are breaking out across the globe from Bangladesh to Burkina Faso, from China to Cameroon, and from Uzbekistan to the United Arab Emirates.

Benedict Southworth, director of the World Development Movement, called the escalating earnings and profits "immoral" late last week. He said that the benefits of the food price increases were being kept by the big companies, and were not finding their way down to farmers in the developing world.

The soaring prices of food and fertilisers mainly come from increased demand. This has partly been caused by the boom in biofuels, which require vast amounts of grain, but even more by increasing appetites for meat, especially in India and China; producing 1lb of beef in a feedlot, for example, takes 7lbs of grain.

World food stocks at record lows, export bans and a drought in Australia have contributed to the crisis, but experts are also fingering food speculation. Professor Bob Watson – chief scientist at the Department for Environment, Food and Rural Affairs, who led the giant International Assessment of Agricultural Science and Technology for Development – last week identified it as a factor.

Index-fund investment in grain and meat has increased almost fivefold to over $47bn in the past year, concludes AgResource Co, a Chicago-based research firm. And the official US Commodity Futures Trading Commission held special hearings in Washington two weeks ago to examine how much speculators were helping to push up food prices.

Cargill says that its results "reflect the cumulative effect of having invested more than $18bn in fixed and working capital over the past seven years to expand our physical facilities, service capabilities, and knowledge around the world".

The revelations are bound to increase outrage over multinational companies following last week's disclosure that Shell and BP between them recorded profits of £14bn in the first three months of the year – or £3m an hour – on the back of rising oil prices. Shell promptly attracted even greater condemnation by announcing that it was pulling out of plans to build the world's biggest wind farm off the Kent coast.

World leaders are to meet next month at a special summit on the food crisis, and it will be high on the agenda of the G8 summit of the world's richest countries in Hokkaido, Japan, in July.

‘Perhaps 60% of today’s oil price is pure speculation’

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By F. William Engdahl

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil—West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it’s also a key benchmark for US production.

‘The tail that wags the dog’

All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”

With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “…there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.

Enron has the last laugh…

As that US Senate report noted:

Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”

The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”

In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (“open interest”) at the end of each day.” 1

Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London – called “ICE Futures.”

Previously, the ICE Futures exchange in London had traded only in European energy commodities – Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.

The CFTC opens the door

Then, in January 2006, ICE Futures in London began trading a futures contract for

West Texas Intermediate (WTI) crude oil, a type of crude oil that is produced and delivered in

the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.

Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline, and heating oil futures contracts, the CFTC has until today refused to assert any jurisdiction over the trading of these contracts.

Persons within the United States seeking to trade key US energy commodities – US crude oil, gasoline, and heating oil futures – are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.

Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.

A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.

In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.

By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation. As the Senate report noted, “The CFTC’s ability to detect and deter energy price manipulation is suffering from critical information gaps, because traders on OTC electronic exchanges and the London ICE Futures are currently exempt from CFTC reporting requirements. Large trader reporting is also essential to analyze the effect of speculation on energy prices.”

The report added, “ICE’s filings with the Securities and Exchange Commission and other evidence indicate that its over-the-counter electronic exchange performs a price discovery function -- and thereby affects US energy prices -- in the cash market for the energy commodities traded on that exchange.”

Hedge Funds and Banks driving oil prices

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

The large purchases of crude oil futures contracts by speculators have, in effect, created an

additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

Perhaps 60% of oil prices today pure speculation

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures

prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.

Over the past couple of years global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”

Dollar and oil link

A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar “short” and oil “long.”

For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact.

In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.

Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.

The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs.

The Last War and the Next One

Go to Original
By Tom Engelhardt

Descending into Madness in Iraq -- and Beyond

The last war won’t end, but in the Pentagon they’re already arguing about the next one.

Let’s start with that "last war" and see if we can get things straight. Just over five years ago, American troops entered Baghdad in battle mode, felling the Sunni-dominated government of dictator Saddam Hussein and declaring Iraq "liberated." In the wake of the city’s fall, after widespread looting, the new American administrators dismantled the remains of Saddam’s government in its hollowed out, trashed ministries; disassembled the Sunni-dominated Baathist Party which had ruled Iraq since the 1960s, sending its members home with news that there was no coming back; dismantled Saddam’s 400,000 man army; and began to denationalize the economy. Soon, an insurgency of outraged Sunnis was raging against the American occupation.

After initially resisting democratic elections, American occupation administrators finally gave in to the will of the leading Shiite clergyman, Grand Ayatollah Ali Sistani, and agreed to sponsor them. In January 2005, these brought religious parties representing a long-oppressed Shiite majority to power, parties which had largely been in exile in neighboring Shiite Iran for years.

Now, skip a few years, and U.S. troops have once again entered Baghdad in battle mode. This time, they’ve been moving into the vast Sadr City Shiite slum "suburb" of eastern Baghdad, which houses perhaps two-and-a-half million closely packed inhabitants. If free-standing, Sadr City would be the second largest city in Iraq after the capital. This time, the forces facing American troops haven’t put down their weapons, packed up, and gone home. This time, no one is talking about "liberation," or "freedom," or "democracy." In fact, no one is talking about much of anything.

And no longer is the U.S. attacking Sunnis. In the wake of the President’s 2007 surge, the U.S. military is now officially allied with 90,000 Sunnis of the so-called Awakening Movement, mainly former insurgents, many of them undoubtedly once linked to the Baathist government U.S. forces overthrew in 2003. Meanwhile, American troops are fighting the Shiite militia of Muqtada al-Sadr, a cleric who seems now to be living in Iran, but whose spokesman in Najaf recently bitterly denounced that country for "seeking to share with the U.S. in influence over Iraq." And they are fighting the Sadrist Mahdi Army militia in the name of an Iraqi government dominated by another Shiite militia, the Badr Corps of the Islamic Supreme Council of Iraq, whose ties to Iran are even closer.

Ten thousand Badr Corps militia members were being inducted into the Iraqi army (just as the government of Prime Minister Nouri al-Maliki was demanding that the Mahdi Army militia disarm). This week, an official delegation from that government, which only recently received Iranian President Mahmoud Ahmadinejad with high honors in Baghdad, took off for Tehran at American bidding to present "evidence" that the Iranians are arming their Sadrist enemies.

At the heart of this intra-sectarian struggle may be the fear that, in upcoming provincial elections, the Sadrists, increasingly popular for their resistance to the American occupation, might actually win. For the last few weeks, American troops have been moving deeper into Sadr City, implanting the reluctant security forces of the Maliki government 500-600 meters ahead of them. This is called "standing them up," "part of a strategy to build up the capability of the Iraqi security forces by letting them operate semi-autonomously of the American troops." It’s clear, however, that, if Maliki’s military were behind them, many might well disappear. (A number have already either put down their weapons, fled, or gone over to the Sadrists.)

How the Reverse Body Count Came -- and Went

The fighting in the heavily populated urban slums of Sadr City has been fierce, murderous, and destructive. It has quieted most of the talk about the "lowering of casualties" and of "violence" that was the singular hallmark of the surge year in Iraq. Though never commented upon, that remarkable year-long emphasis on the ever lessening number of corpses actually represented the return, in perversely reverse form, of the Vietnam era "body count."

In a guerrilla war situation in which there was no obvious territory to be taken and no clear way to establish what our previous Secretary of Defense, Donald Rumsfeld, once called the "metrics" of victory or success, it was natural, as happened in Vietnam, to begin to count. If you couldn’t conquer a city or a country, then there was a certain logic to the thought that victory would come if, one by one, you could "obliterate" -- to use a word suddenly back in the news -- the enemy.

As the Vietnam conflict dragged on, however, as the counting of bodies continued and victory never materialized, that war gained the look of slaughter, and the body count (announced every day at a military press conference in Saigon that reporters labeled "the five o’clock follies") came to be seen by increasing numbers of Americans as evidence of atrocity. It became the symbol of the descent into madness in Indochina. No wonder the Bush administration, imagining itself once again capturing territory, carefully organized its Iraq War so that it would lack such official counting. (The President later described the process this way: "We have made a conscious effort not to be a body-count team.")

With the coming of the surge strategy in 2007, frustration over the President’s unaccomplished mission and his constant talk of victory meant that some other "metric," some other "benchmark," for success had to be established, and it proved to be the reverse body count. Over the last year, in fact, just about the only measure of success regularly trumpeted in the mainstream media has been that lowering of the death count. In reverse form, however, it still held some of the same dangers for the administration as its Vietnamese cousin.

As of April, bodies, in ever rising numbers, American and Iraqi, have been forcing their way back into the news as symbols not of success, but of failure. More than 1,000 Iraqis have, by semi-official estimate, died just in the last month (and experts know that these monstrous monthly totals of Iraqi dead are usually dramatic undercounts). Four hundred Iraqis, reportedly only 10% militia fighters, are estimated to have died in the onslaught on Sadr City alone.

American soldiers are also dying in and around Baghdad in elevated numbers. U.S. military spokesmen claim that none of this represents a weakening of the post-surge security situation. As Lieutenant General Carter Ham, Joint Staff director for operations at the Pentagon, put the matter: "While it is sad to see an increase in casualties, I don’t think it is necessarily indicative of a major change in the operating environment. When the level of fighting increases, then sadly the number of casualties does tend to rise." This is, of course, unmitigated nonsense.

In April, of the 51 American deaths in Iraq, more than twenty evidently took place in the ongoing battle for Sadr City or greater Baghdad. Among them were young men from Portland, Mesquite, Buchanan Dam, and Fresno (Texas), Billings (Montana), Fountain (Colorado), Bakersfield (California), Mount Airy (North Carolina), and Zephyrhills (Florida) -- all thousands of miles from home. And many of them have died under the circumstances most feared by American commanders (and thought for a time to have been avoided) before the invasion of Iraq -- in block to block, house to house fighting in the warren of streets in one of this planet’s many slum cities.

For the Iraqis of Sadr City, of course, this is a living hell. ("Sadr City right now is like a city of ghosts," Abu Haider al-Bahadili, a Mahdi Army fighter told Amit R. Paley of the Washington Post. "It has turned from a city into a field of battle.") As in all colonial wars, all wars on the peripheries, the "natives" always die in staggeringly higher numbers than the far better armed occupation or expeditionary forces.

This is no less true now, especially since the U.S. military has wheeled in its Abrams tanks, brought out its 200-pound guided rockets, and called in air power in a major way. Planes, helicopters, and Hellfire-missile-armed drones are now all regularly firing into the heavily populated urban neighborhoods of the east Baghdad slum. As Tina Susman of the Los Angeles Times wrote recently, "With many of Sadr City’s main roads peppered with roadside bombs and its side streets too narrow for U.S. tanks or other heavy vehicles to navigate, U.S. forces often call in airstrikes or use guided rockets to hit their targets."

Buried in a number of news stories from Sadr City are reports in which attacks on "insurgents," "criminals," or "known criminal elements" (now Shiite, not Sunni) destroy whole buildings, even rows of buildings, even in one case recently damaging a hospital and destroying ambulances. Every day now, civilians die and children are pulled from the rubble. This is brutal indeed.

And it no longer makes any particular sense, even by the standards of the Bush administration; nor, in the post-surge atmosphere, is anybody trying to make much sense of it. That rising body count has, after all, taken away the last metric by which to measure "success" in Iraq. Even the small explanations (and, these days, those are just about the only ones left) seem increasingly bizarre. Take, for instance, the convoluted explanation of who exactly is responsible for the devastation in Sadr City. Here’s how military spokesman Lt. Col. Steve Stover put it recently:

"’The sole burden of responsibility lies on the shoulders of the militants who care nothing for the Iraqi people…’ He said the militiamen purposely attack from buildings and alleyways in densely populated areas, hoping to protect themselves by hiding among civilians. ’What does that say about the enemy?... He is heartless and evil.’"

Mind you, this comes from the representative of a military that now claims to grasp the true nature of counterinsurgency warfare (and so of a guerrilla war); and you’re talking about a militia largely from Sadr City, fighting "a war of survival" for its own families, its own people, against foreign soldiers who have hopped continents to attack them. The Sadrist militiamen are defending their homes and, of course, with Predator drones and American helicopters constantly over their neighborhoods, it’s quite obvious what would happen to them if they "came out and fought" like typical good-hearted types. They would simply be blown away. (Out of curiosity, what descriptive adjectives would Lt. Col. Stover use to capture the style of fighting of the Predator pilots who "fly" their drones from an air base outside of Las Vegas?)

By the way, the last time such street fighting was seen, in the first six months of 2007, the U.S. military was clearing insurgents ("al-Qaeda") out of Sunni neighborhoods of the capital, which were then being further cleansed by Shiite militias (including the Sadrists).

So, to sum up, let me see if I have this straight: The Bush administration liberated Iraq in order to send U.S. troops against a ragtag militia that has nothing whatsoever to do with Saddam Hussein’s former government (and many of whose members were, in fact, oppressed by it, as were its leaders) in the name of another group of Iraqis, who have long been backed by Iran, and… uh…

Hmmm, let’s try that again… or, like the Bush administration, let’s not and pretend we did.

In the meantime, the U.S. military has tried to partially "seal off" Sadr City and, in the neighborhoods that they have partially occupied with their attendant Iraqi troops, they are building the usual vast, concrete walls, cordoning off the area. This is being done, so American spokespeople say, to keep the Sadrist militia fighters out and to clear the way for government hearts-and-minds "reconstruction" projects that everyone knows are unlikely to happen.

Soon enough, if the previous pattern in Sunni neighborhoods is applied, they and/or their Iraqi cohorts will start going door to door doing weapons searches. As a result, the American and Iraqi prisons now supposedly being substantially emptied -- part of a program of "national reconciliation" -- of many of the tens of thousands of Sunni prisoners swept up in raids in Sunni neighborhoods, are likely to be refilled with Shiite prisoners swept up in a similar way. Call it grim irony -- or call it a meaningless nightmare from which no one can awaken. Just don’t claim it makes much sense.

As in Vietnam, so four decades later, we are observing a full-scale descent into madness and, undoubtedly, into atrocity. At least in 2003, American troops were heading for Baghdad. They thought they had a goal, a city to take. Now, they are heading for nowhere, for the heart of a slum city which they cannot hold in a guerrilla war where the taking of territory and the occupying of neighborhoods is essentially beside the point. They are heading for oblivion, while trying to win hearts and minds by shooting missiles into homes and enclosing people in giant walls which break families and communities apart, while destroying livelihoods.

Oh, and while we’re at it, welcome to "the next war," the war in the slum cities of the planet.

"There Are No Exit Strategies"

Remember when the globe’s imperial policeman, its New Rome, was going to wield its unsurpassed military power by moving from country to country, using lightning strikes and shock-and-awe tactics? We’re talking about the now-unimaginably distant past of perhaps 2002-2003. Afghanistan had been "liberated" in a matter of weeks; "regime change" in Iraq was going to be a "cakewalk," and it would be followed by the reordering of what the neoconservatives liked to refer to as "the Greater Middle East." No one who mattered was talking about protracted guerrilla warfare; nor was there anything being said about counterinsurgency (nor, as in the Powell Doctrine, about exits either). The U.S. military was going to go into Iraq fast and hard, be victorious in short order, and then, of course, we would stay. We would, in fact, be welcomed with open arms by natives so eternally grateful that they would practically beg us to garrison their countries.

Every one of those assumptions about the new American way of war was absurd, even then. At the very least, the problem should have been obvious once American generals reached Baghdad and sat down at a marble table in one of Saddam Hussein’s overwrought palaces, grinning for a victory snapshot -- without any evidence of a defeated enemy on the other side of the table to sign a set of surrender documents. If this were a normal campaign and an obvious imperial triumph, then where was the other side? Where were those we had defeated? The next thing you knew, the Americans were printing up packs of cards with the faces of most of Saddam’s missing cronies on them.

Well, that was then. By now, fierce versions of guerrilla war have migrated to the narrow streets of the poorest districts of Baghdad and, in Afghanistan, are moving ever closer to the Afghan capital, Kabul. And even though the "last war" in Iraq won’t end (so that troops can be transferred to the even older war in Afghanistan that is, now, spiraling out of control), inside the Pentagon some are thinking not about how to get out, but about how to get in. They are pondering "the next war."

With that in mind, Secretary of Defense Robert Gates recently gave two sharp-edged speeches, one at Maxwell-Gunter Air Force Base, the other at West Point, each expressing his frustration with the slowness of the armed services to adapt to a counterinsurgency planet and to plan for the next war.

Now, there’s obviously nothing illogical about a country’s military preparing for future wars. That’s what it’s there for and every country has the right to defend itself. But it’s a different matter when you’re preparing for future "wars of choice" (which used to be called wars of aggression) -- for the next war(s) on what our secretary of defense now calls the "the 21st century’s global commons." By that, he means not just planet Earth in its entirety, but "space and cyberspace" as well. For the American military, it turns out, planning for a future "defense" of the United States means planning for planet-wide, over-the-horizon counterinsurgency. It will, of course, be done better, with a military that, as Gates put it, will no longer be "a smaller version of the Fulda Gap force." (It was at the Fulda Gap, a German plain, that the U.S. military once expected to meet Soviet forces invading Europe in full-scale battle.)

So the secretary of defense is calling for more foreign-language training, a better "expeditionary culture," and more nation building -- you know, all that "hearts and minds" stuff. In essence, he accepts that the future of American war will, indeed, be in the Sadr Cities and Afghan backlands of the planet; or, as he says, that "the asymmetric battlefields of the 21st century" will be "the dominant combat environment in the decades to come." And the American response will be high-tech indeed -- all those unmanned aerial vehicles that he can’t stop talking about.

Gates describes our war-fighting future in this way: "What has been called the ’Long War’ [i.e. Bush’s War on Terror, including the wars in Afghanistan and Iraq] is likely to be many years of persistent, engaged combat all around the world in differing degrees of size and intensity. This generational campaign cannot be wished away or put on a timetable. There are no exit strategies."

"There are no exit strategies." That’s a line to roll around on your tongue for a while. It’s a fancy way of saying that the U.S. military is likely to be in one, two, many Sadr Cities for a long time to come. This is Gates’s ultimate insight as secretary of defense, and his response is to urge the military to plan for more and better of the same. For this we give the Pentagon almost a trillion dollars a year.

The irony is that, in both speeches, Gates praises outside-the-box thinking in the military and calls upon the armed services to "think unconventionally." Yet his own thoughts couldn’t be more conventional, imperial, or potentially disastrous. Put in a nutshell: If the mission is heading into madness, then double the mission. Bring in yet more of those drones whose missiles are already so popular in Sadr City. This is brilliantly prosaic thinking, based on the assumption that the "global commons" should be ours and that the "next war" will be ours, and the one after that, and so on.

But I wouldn’t bet on it. John McCain got a lot of flak for saying that, as far as he was concerned, American troops could stay in Iraq for "100 years... as long as Americans are not being injured, harmed or killed." Our present secretary of defense, a "realist" in an administration of bizarre dreamers and inept gamblers, has just cast his vote for more and better Sadr Cities. In a Pentagon version of an old Maoist slogan: Let a hundred slum guerrilla struggles bloom!

It’s a recipe for being bogged down in such wars for 100 years -- with the piles of dead rising ever higher. No wonder some of the top military brass, whom he criticizes for their bureaucratic inertia, have been unenthusiastic. They don’t want to spend the rest of their careers fighting hopeless wars in Sadr City or its equivalent. Who would?

The rest of us should feel the same way. Every time you hear the phrase "the next war" -- and journalists already love it -- you should wince. It means endless war, eternal war, and it’s the path to madness.

Vietnam… Iraq… Afghanistan… Don’t we already have enough examples of American counterinsurgency operations under our belt? The American people evidently think so. For some time now, significant majorities have wanted out of Baghdad, out of Iraq. All the way out. In a major survey just released by the influential journal Foreign Affairs, similar majorities have, in essence, "voted" for demilitarizing U.S. foreign policy. In their responses, they offer quite a different approach to how the United States should operate in the world. According to journalist Jim Lobe, 69% of respondents believe "the U.S. government should put more emphasis on diplomatic and economic foreign policy tools in fighting terrorism," not "military efforts." (Sixty-five percent believe the U.S. should withdraw all its troops from Iraq either "immediately" or "over the next twelve months.") But, of course, no one who matters listens to them.

And yet, the path to Sadr City is one that even an imperialist should want to turn back from. It’s the road to Hell and it’s paved with the worst of intentions.

Tom Engelhardt, who runs the Nation Institute’s, is the co-founder of the American Empire Project. His book, The End of Victory Culture (University of Massachusetts Press), has been updated in a newly issued edition that deals with victory culture’s crash-and-burn sequel in Iraq.

[Note of thanks: Essays like this are only possible because I can draw on the spadework of other websites, especially, in this case (as in so many others), of Juan Cole’s Informed Comment,, Paul Woodward’s The War in Context, and]

A strangled people

Go to Original
By Sami Abdel-Shafi

It is a strange feeling: after working as a productive professional in Gaza for five years, I have become a black market junkie. I make several phone calls a day hunting for fuel for my car, diesel for the electricity generator waiting on standby to power the house, even cigarettes and vitamins. The only way to get hold of these things, to buy life-saving medicines, to purchase the essentials for a life of basic dignity, is through the black market, if at all. Today all Gaza suffers severe water shortages, with the fuel needed to pump and transport water (as well as sewage) dangerously scarce. The few cars seen on Gaza's mostly empty streets today almost invariably run on used cooking oil due to the lack of diesel.

That feeling of strangeness continued as I read the statement delivered by the Quartet in London yesterday. The four powers mediating in the Middle East - the United Nations, European Union, United States and Russia - spoke of "deep concern" and demanded "concrete steps by both sides". There was no sense, however, that they had properly grasped the depth of Gaza's plight or the realities in the West Bank and East Jerusalem. World politics seems to have morphed into a diplomacy of denial - a denial of how much more firm the international community must be towards the cause of an occupied and dying people.

This diplomacy of denial only gives succour to Israel's urge to exercise its will over Palestinians, and over besieged Gazans particularly. Israel's cabinet seeks to play God over Gaza by bluntly controlling every facet of civilian life. Tearing up the West Bank presents a threat of similarly terrible consequences. Israel's separation barrier and hundreds of checkpoints threaten to create numerous smaller Gazas in the West Bank. The villages and cities that are becoming increasingly isolated and economically strangled today could become hotspots of desperation and violence tomorrow.

Last week in Gaza, Israel not only continued depriving the people of fuel and cooking gas, it held back supplies to UN agencies such as Unrwa - the agency devoted to the health, education, food supplies and more of Gaza's poor and deprived population. In hindering the operations of the UN, Israel was hindering the Quartet, of which the UN is a part.

Israel's current policies are slowly expelling Palestinians from their land and pushing those who remain into indignity, desperation and extremism. The word "siege" no longer seems adequate to describe what is being done to Gaza. The territory's 1.5 million people have been thrust into a humanitarian catastrophe. It has become a nonsense to speak of peace negotiations while Israel creates more injustices on the ground in the West Bank and East Jerusalem.

In statements ahead of the Quartet's London meeting, Condoleezza Rice, the US secretary of state, acknowledged the "difficult" issues of borders and the fate of Jerusalem as well as Israel's responsibility to improve the lives of Palestinians. Rice insisted that the US does not regard Israel's settlement expansion as a fait accompli when it comes to a final agreement on borders.

If there was a glimmer of hope in the Quartet's statement and Rice's words, however, it is hard to foresee constructive action in its tow. The US administration is nearing the end of its term. The UN is undermined. Israel's prime minister, Ehud Olmert, is appeasing hawks in Israel's military establishment, the settlement movement and the Knesset itself - even as he extends what increasingly looks like an illusory hand of peace to Palestinians. Palestinian politicians, too, must recognise that their embarrassing and divisive standoff only diminishes the world's appreciation of the suffering of their people.

In the meantime, the Palestinian people are approaching something close to destitution. It is not enough for the Quartet to push for peace between Palestinians and Israelis. World politicians and delegates, including Israelis of all convictions, must be encouraged, and allowed, to come to Gaza and witness what is happening here today. Only then will observers be able to assess just how Palestinians are made to live, and to assess the world's moral obligation towards a people who surely deserve a chance of a dignified and peaceful life.

Ex-Iraq commander accuses Bush Administration of 'gross incompetence'

Go to Original

In a new memoir set to be published May 6, the former commander of US forces in Iraq provides new intimate details of the goings-on at high levels of the Bush Administration in the first year of the Iraq war.

His sharp tongued conclusion: "Hundreds of billions of taxpayer dollars were unnecessarily spent, and worse yet, too many of our most precious military resource, our American soldiers, were unnecessarily wounded, maimed, and killed as a result. In my mind, this action by the Bush administration amounts to gross incompetence and dereliction of duty."

An excerpt from Sanchez’s book, Wiser in Battle: A Soldier’s Story, published in TIME, buries the quotation on the third page of the article.

Sanchez commanded the US military in Iraq from 2003-2004. The three-star general was relieved of his commander in 2004 following the Abu Ghraib scandal, and in 2005, was told his career was over and he wouldn’t be promoted to a fourth star.

The primary reason appears to be his involvement in authorizing harsh tactics for the treatment of Iraqi prisoners.

In a memo acquired by the ACLU through a freedom of information act request, Sanchez authorized techniques to be used against prisoners which included "environmental manipulation," such as heating or cooling a room or using an "unpleasant smell," isolating prisoners, and disrupting sleep patterns. Sanchez later denied ever authorizing interrogators to "go to the outer limits" and called the ACLU "...a bunch of sensationalist liars, I mean lawyers, that will distort any and all information that they get to draw attention to their positions."

Six months after he was told he would not receive a promotion -- in April 2006 -- he says he was called in for a meeting with then-Secretary of Defense Donald Rumsfeld. In his book, he writes:

"Ric, it’s been a long time," Rumsfeld said, greeting me in a friendly manner. "I’m really sorry that your promotion didn’t work out. We just couldn’t make it work politically. Sending a nomination to the Senate would not be good for you, the Army, or the department."

"I understand, sir," I replied.

Rumsfeld then went on to offer Sanchez a post in Africa.

In what Sanchez maintains was an effort by Rumsfeld to shrug off blame for mistakes in Iraq’s first year, he says that the Secretary penned a memo which blamed failures on him.

"I stopped reading after I read that last statement, because I knew it was total BS," he writes. "After a deep breath, I said, "Well, Mr. Secretary, the problem as you’ve stated it is generally accurate, but your memo does not accurately capture the magnitude of the problem. Furthermore, I just can’t believe you didn’t know that Franks’s and McKiernan’s staffs had pulled out and that the orders had been issued to redeploy the forces."

Starting to get a little worked up," he adds, "I paused a moment, and then looked Rumsfeld straight in the eye. "Sir, I cannot believe that you didn’t know I was being left in charge in Iraq...."

After the meeting ended, I remember walking out of the Pentagon shaking my head and wondering how in the world Rumsfeld could have expected me to believe him. Everybody knew that CENTCOM had issued orders to drawdown the forces. The Department of Defense had printed public affairs guidance for how the military should answer press queries about the redeployment. There were victory parades being planned. And in mid-May 2003, Rumsfeld himself had sent out some of his famous "snowflake" memorandums to Gen. Franks asking how the general was going to redeploy all the forces in Kuwait. The Secretary knew. Everybody knew.

He goes on to detail a report prepared by the Pentagon’s Joint Warfighting Center. The Pentagon commissioned the report -- and it validated Sanchez’s assertions that he was not to blame and that decisions had been made at other levels.

"Say, did you guys ever complete that investigation?" I asked.

"Oh, yes sir. We sure did," came the reply. "And let me tell you, it was ugly."

"Ugly?" I asked.

"Yes, sir. Our report validated everything you told us — that Franks issued the orders to discard the original twelve-to-eighteen-month occupation deployment, that the forces were drawing down, that we were walking away from the mission, and that everybody knew about it. And let me tell you, the Secretary did not like that one bit. After we went in to brief him, he just shut us down. ’This is not going anywhere,’ he said. ’Oh, and by the way, leave all the copies right here and don’t talk to anybody about it.’"

"You mean he embargoed all the copies of the report?" I asked.

"Yes, sir, he did...’

...It turned out that the investigative team was so thorough, they had actually gone back and looked at the original operational concept that had been prepared by CENTCOM (led by Gen. Franks) before the invasion of Iraq was launched. It was standard procedure to present such a plan, which included such things as: timing for predeployment, deployment, staging for major combat operations, and postdeployment. The concept was briefed up to the highest levels of the U.S. government, including the Secretary of Defense, the National Security Council, and the President of the United States.

And the investigators were now telling me that the plan called for a Phase IV (after combat action) operation that would last twelve to eighteen months...

"That decision set up the United States for a failed first year in Iraq," he concludes. "There is no question about it. And I was supposed to believe that neither the Secretary of Defense nor anybody above him knew anything about it? Impossible! Rumsfeld knew about it. Everybody on the NSC knew about it, including Condoleezza Rice, George Tenet, and Colin Powell. Vice President Cheney knew about it. And President Bush knew about it."

"In the meantime," he adds, "hundreds of billions of taxpayer dollars were unnecessarily spent, and worse yet, too many of our most precious military resource, our American soldiers, were unnecessarily wounded, maimed, and killed as a result. In my mind, this action by the Bush administration amounts to gross incompetence and dereliction of duty."

Iraq says no hard evidence of Iran support for militia

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Iraq said on Sunday it has no evidence that Iran was supplying militias engaged in fierce street fighting with security forces in Baghdad.

Government spokesman Ali al-Dabbagh said there was no "hard evidence" of involvement by the neighbouring Shiite government of Iran in backing Shiite militiamen in the embattled country.

Asked about US reports that weapons captured from Shiite fighters bore 2008 markings suggesting Iranian involvement, Dabbagh said: "We don't have that kind of evidence... If there is hard evidence we will defend the country."

Tehran strongly opposes the US military presence in Iraq, while Washington has repeatedly accused Iranian groups of arming and training Shiite militia groups in its neighbour.

Iran, whose ties with Washington have been severed since 1980, strongly denies the allegations.

US military spokesman Rear Admiral Patrick Driscoll told reporters in the presence of Dabbagh that the Americans fully supported talks between Iran and Iraq on curbing the sectarian violence.

"We welcome all dialogue between Iran and Iraq," Driscoll said, adding that they supported any platform that could lead to an end to violence and ensure stability in Iraq where the US has deployed over 158,000 troops.

Dabbagh said an Iraqi parliamentary delegation which visited Iran last week had held useful discussions and secured assurances of support.

"They talked frankly about the fears and concerns in Iraq," he told reporters at a news conference in the tightly-guarded Green Zone of Baghdad where the Iraqi government and the US embassy are located.

He stressed that Iraq wanted closer relations with Iran. "What happend in the past is in the past," he said referring to the Iran-Iraq war in the 1980s.

Dabbagh said that Baghdad was keen to "reorganise" its relations with its former enemy, and that Tehran supported Baghdad government moves to curb violence.

"Iran supports the government and understands the need to eliminate all militia... and allow the rule of law," Dabbagh said, adding that the Iraqi team which went to Iran had the blessing of the government but was not "official."

Reports from Teheran on Sunday said Iran had warned Iraq against using excessive force in its crackdown against Shiite militias.

"We support the efforts of the Iraqi government to disarm the armed militia but we advise them not to confront the population," an official source, who was not named, told the student ISNA news agency in Tehran.

"The official position of the Islamic republic of Iran is to support the legal Iraqi government and we will do everything to ensure the security of the country," added the source.

Militiamen mostly loyal to Shiite cleric Moqtada al-Sadr, who according to his Najaf-based office is currently in Iran, have been battling US troops in Baghdad's Sadr City.

Sadr's Mahdi Army militants have fought running streetbattles with US and Iraqi forces since late March in the district, killing hundreds of people.

Mahdi Army fighters grateful for sand storm standstills in Sadr City

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By Hala Jaber

On a bare patch of ground outside the entrance to Sadr general hospital, 15 women clad from head to foot in black squatted in a sandstorm, wailing and waiting for their dead.

Lightning flashed, thunder rolled and the women’s robes were spattered with mud falling from a sky filled with rain and sand, but they did not notice.

“Ya’mma, Ya’ba” (“Oh mother, oh father”), cried Amira Zaydan, a 45-year-old spinster, slapping her face and chest as she grieved for her parents Jaleel, 65, and Hanounah, 60, whose house had exploded after apparently being hit by an American rocket.

“Where are you, my brothers?” she sobbed, lamenting Samir, 32, and Amir, 29, who had also perished along with their wives, one of whom was nine months pregnant.

“What wrong have you done, my children?” she howled to the spirits of four nephews and nieces who completed a toll of 10 family members in the disaster that struck last Tuesday. “Mothers, children, babies; all obliterated for nothing.”

The keening of Zaydan and her distraught circle of friends was drowned out briefly by sirens shrieking as ambulances sped through the hospital gateway with the latest consignment of casualties from a brutal battle that has been raging for the past month in Sadr City, a slum of more than 2m souls on the eastern side of Baghdad.

Doctors and nurses with pinched faces darted out of the dilapidated hospital to greet the wounded and dying, while administrators stared at the weeping women and saw that they were beyond comforting.

Zaydan had hardly moved from the hospital for 24 hours since her family’s home was demolished as she and her sister Samira, 43, prepared lunch. Neighbours were trying to dig bodies out of the debris when another rocket landed, killing at least six rescuers.

Apart from the two sisters, the family’s only survivor was their brother Ahmad, 25, who arrived at the hospital with leg injuries and shock. “I lost everybody,” was all he could say.

On Wednesday afternoon, Zaydan was still waiting for seven family members to be disinterred from the rubble and delivered to Sadr general. The other three were in the morgue, among them a nephew, aged three, lying on a trolley in a puddle of blood from a head wound.

The child was another helpless victim of a clash between titanic powers which has killed 935 people and wounded 2,605. Even by the callous standards of Iraq’s cruel war, this is a ruthless struggle. Most of the dead and injured have been civilians.

On one side is the Iranian-backed Mahdi Army of the radical Shi’ite cleric, Moqtada al-Sadr, which is defending Sadr City, its biggest stronghold, with a resilience it failed to show when it ceded parts of the southern port of Basra last month.

On the other is the American-backed Iraqi army of the prime minister, Nouri al-Maliki, which launched an offensive on March 30 with the aim of seizing control of the city but which took only one southern district before its advance was halted.

The fight between Sadr and Maliki, between the dirt-poor who look to the firebrand cleric for inspiration and the relatively secure who support the prime minister, is one that neither side can afford to lose.

Last week the Mahdi fighters took advantage of the sandstorms, which grounded US helicopters, to blast the Iraqi army’s front line positions with roadside bombs, mortar rounds, rocket-propelled grenades and machinegun fire.

Embedded with them for four days and three nights, I witnessed the fighting at close quarters, learnt of preparations being made by Mahdi special forces to spread the violence to other parts of Baghdad and heard their commanders swear to paralyse the government and destroy Maliki if their own leader authorises all-out war.

The battle of Sadr City, with all the human misery it entails, is in danger of spilling out across the capital, reversing the security gains that followed last summer’s American troop surge.

It is little wonder that US commanders say the Shi’ite militias backed by Iran now pose a greater threat than the Sunni insurgents who were their deadliest enemies when Al-Qaeda in Iraq was at its peak.

“We can bring Baghdad to a standstill,” boasted one Mahdi commander. “Be assured that when all-out war is eventually declared, we will be able to take over the city.”

No sooner had I arrived in Sadr City than my escorts received word that an attack was about to be launched on Al-Quds Road, the dividing line between the Mahdi forces to the north and the Iraqi army to the south.

Sand was swirling through the air as a fresh storm stirred and the men knew this presented them with an opportunity.

“Allah is on our side,” said one. “They bombard us with artillery, war planes and helicopters at will. Maliki has the entire US air force behind his army and all we need is a bit of sand to bring it to a standstill.”

As we reached the narrow streets that ran down to Al-Quds Road, nothing appeared to be out of the ordinary at first. But one by one, young men in western jeans and T-shirts appeared from the alleyways with machineguns or rifles slung across their shoulders. They grinned, patted each other’s backs and uttered the greeting “Peace be with you”, before getting down to the business of war.

Two snipers had already entered shattered buildings overlooking the highway beyond which the Iraqi army was hunkered down. The dozen or so gunmen who had congregated in front of me ran forwards 50 yards to take up their positions. Then one of them briefly broke cover to open fire with his AK47 assault rifle. Another stepped round a corner and unleashed a volley of bullets from a heavy-calibre machinegun, followed by another and another.

As the Mahdi positions came under equally heavy machinegun fire in turn, the noise reached a crescendo with an exchange of mortar rounds that smashed shops on either side of Al-Quds Road, showering the whole area with shards of debris. The cacophony faded, only to be replaced by the whizz of snipers’ bullets shooting up the street. It was time to take cover.

My escort hammered on the gates of the nearest house and a woman ushered me into her courtyard, introducing herself as Salma Jamila, an unmarried teacher aged 40 who lived with her elderly parents. When she heard that I had come to report on the fighting, she fetched a small plastic chair and propped it against the yard wall so that I could peep over it to see what was happening.

Evidently a cool hostess in a crisis, she disappeared into her kitchen and returned beaming with bottles of orange juice on a tray as mortar rounds crashed on to the road less than 100 yards away.

Stranger still, another guest arrived, a cousin and Mahdi Army commander named Abu Ali who was enjoying a day off. He hugged Jamila, explained that he had come to visit her father and chatted away about how he had been arrested a few days earlier.

“One of the officers with the Iraqi army is a Mahdi sympathiser and he arranged for me to be released within two hours,” he said with a smile. “We have quite a number of Mahdi people in the army and they tip us off about certain movements.”

The violence died down as suddenly as it had flared up and some of the fighters shouted that it was all over. A man with a relaxed manner and a Russian rifle on his back sauntered past. I asked him how old he was.

“Twenty-three,” he answered. “Young for a sniper,” I said. He shrugged.

“I killed two Iraqi soldiers,” he replied, and strolled away.

Another passing fighter, a well-built man with fair skin, said he had set fire to an Iraqi tank with a rocket. There was no way to verify either account.

The men exchanged information for a few moments before walking off in different directions. Some were collected by cars as they approached neighbouring streets incongruously thronged with shoppers inured to shooting and buying food for the evening meal.

It was around 6pm, as we were driving towards the centre of Sadr City, that another call came through and we headed back to the front line. This time Mahdi fighters were trying to push back Iraqi army and American forces.

Several people were said to be buried under collapsed buildings and the Mahdi Army – which, like Hezbollah in Lebanon, has made itself popular by providing welfare services to local people – had decided to take responsibility for rescuing them, even if that meant fighting its way to the scene.

Driving along roads lined with open sewers, past children playing football in winding alleys and old women peering out from their doorways, we reached a point where men on street corners were handing cold water to fighters taking a break from the front line.

We parked and moved forwards through ranks of Mahdi Army fighters who had lined an alleyway with rocket-launchers, rifles and machineguns. The sound of sniper fire intensified but the hardened militiamen who were accompanying me paid no attention.

The regular thud of mortars and the relentless clatter of machineguns indicated that the fighting here was far more intense than it had been earlier on Al-Quds Road.

As we rounded a corner, I noticed a school 100 yards ahead on the right-hand side. I was wondering how long it would be before the pupils could return when an explosion almost knocked us off our feet. An artillery shell had landed in the playground and the classrooms were shattered by shrapnel.

I froze with fear. For the second time that day, a fighter rapped on the nearest house gate and I was beckoned into a secluded courtyard. So shaken was I that my legs barely carried me into the house. I squatted on the floor to catch my breath.

Three spinsters produced a large bottle of fizzy drink from a shop they ran from their house. As before, the fighting subsided after about half an hour and we returned to our vehicle.

The inconclusive nature of both confrontations witnessed suggested that neither side could be confident of gaining the upper hand.

The Iraqi army may have the superior fire-power but Mahdi commanders were eager to show off their own arsenal. Seven of them gathered in a single-storey concrete house to display weapons ranging from mainly American-made guns, including M16 and M18 rifles, to homemade roadside bombs known as raaed, or thunder.

“Our bombs are not Iranian-made – they are produced locally,” said one commander. “Any Mahdi fighter can put one together.”

The plastic cylinders packed with gunpowder, TNT and C4 explosives came in four sizes, he explained: 5kg and 15kg for use against small military vehicles, and 25kg and 50kg against armoured personnel carriers.

Another commander, who gave his name as Abu Ahmad, was limping from an injury sustained one week into the battle when his unit set an American tank on fire, only to be wiped out by a helicopter gunship.

He spoke softly as he described seeing his best friend, Uday al-Dulemi, killed in front of him. Dulemi’s father refused to accept condolences and insisted that his “martyred” son’s burial be treated as his wedding day. He said that if his three other sons in the Mahdi Army were killed too, he would volunteer himself.

The Mahdi Army also claims to have a secret weapon at its disposal. Its elite special forces, called “The Nerves of the Righteous – the Islamic Resistance in Iraq”, are said to be lying in wait in sleeper cells across the country, ready to carry out unspecified “spectacular” attacks against coalition forces.

Many of the members, known as “shadows”, have been trained in Iran.

According to a senior aide to Moqtada al-Sadr, they are capable of raining down missiles on the heavily protected Green Zone where the Iraqi government and US military are based, causing disarray among Iraq’s security forces and halting the work of ministries.

They have also created a potential “ring of fire” around Sadr City that could be ignited in the event of a full-scale offensive by Maliki.

Whether Sadr or Maliki will order an escalation of the conflict in the days ahead depends on efforts to secure a resolution.

Sadr is understood to believe that his rival has set out to destroy his power bases in Baghdad and Basra to ensure that he is a spent force before local elections in the autumn. He is resisting demands by Maliki for 500 named Mahdi “criminals” to be handed over. In turn, Sadr is demanding that the Iraqi army stay out of Sadr City indefinitely.

The negotiations hang in the balance but one thing is certain: if the two Shi’ite leaders fail to resolve their differences, it is the civilians of Sadr City who will suffer for it.

At Sadr general hospital last week, Amira Zaydan was by no means the only woman mourning her family. Beside her sat her neighbour Um Aseel Ali, who had lost her husband and three boys, aged six, four and two, when their house was blown up by a rocket.

“As I ran to them, the second rocket dropped,” she cried. “I started shouting their names. I looked for them and tried to dig through the rubble. What fault did we commit for this? What wrong have we done to Maliki?”

While she spoke, another woman, Um Marwa Muntasser, wept softly. Her pregnant daughter Marwa survived the same attack but was being kept under sedation, unaware that her husband Samir, her four-year-old boy, Sajad, and her two-year-old girl, Ayat, had all been killed.

“Was my daughter a fighter?” asked Muntasser. “My daughter was not a fighter. She and her family were innocent civilians minding their own business and now they are dead.” The toll in the row of six houses inhabited by these families climbed to 25.

A spokesman for the US military, which has lost at least nine men in Sadr City, said a vehicle carrying an injured soldier had been hit by two roadside bombs, gunfire and rocket-propelled grenades, and at least 28 “extremists” had died in subsequent fighting. He said there had been no American air strikes that day but US ground forces had fired rockets at “militants firing from buildings, alleyways and roof-tops”. “We have every right to defend ourselves,” he added.

Witnesses in Sadr City, however, told of a second multiple rocket attack on four houses on the same afternoon in which at least five civilians died.

I found Lina Mohsen, 24, walking in a daze at the hospital, her face covered in brown dust. One minute she had been watching her 18-month-old toddler Ali play in the courtyard of their home, she said; the next, a rocket had struck.

“I began screaming for him, shouting his name, trying to find him, but I couldn’t see him for dust and smoke,” she said. Eventually, she saw that he was dead.

“I blame Maliki and his government and all those who are sitting in power and letting this happen,” she said. Then she burst into tears and walked away.