Tuesday, July 1, 2008

High gas prices threaten to drain small towns’ populations

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LEETON, Mo. | In this small town south of Warrensburg, directions usually begin with, “From Casey’s, you go …”

That would be Casey’s General Store, the only gas station in town. It’s where folks fill up while talking about goings-on, politics, weather and who’s got the best-looking tomatoes.

These days, they’re also cussing and shaking their heads about the price of that gasoline. People are doing that everywhere, but in small towns such as Leeton, population 619, it’s even more of a gut punch because nearly every working adult commutes to jobs elsewhere.

These days, there had better be a really good job on the other end of that trip.

Don Campbell’s daily commute to Kansas City — about 100 miles each way — costs him roughly $866 a month at $3.90 per gallon. But he’s a union iron worker and says he can make the math work.

Most of his neighbors can’t. For them and thousands of other small-town residents across the country who drive long distances to jobs that pay little more than minimum wage, the high cost of gas is making that daily commute cost-prohibitive.

So much so that economists predict that over the next few years, the country could see a migration that would greatly reduce the population of Small Town America — resulting in a painful shift away from lifestyle, family roots, traditions and school ties.

“This town’s the only place I know,” said Louie Rector, who drives 35 miles to his job at a window factory from his home in tiny Dixon, Mo., about 20 miles west of Rolla.

“I grew up here … raised my kids here. I got my family and friends all here. I don’t want to pack up and leave. But it’s getting to the point where a fella can’t afford to drive to work, and that don’t seem right to me.”

A common fate

Towns such as Dixon and Leeton are everywhere in America. Many don’t have much beyond a post office, a grocery and maybe a school. Economists use Wymore, Neb., as an example in that 68 percent of working adults in town commute to jobs elsewhere, most to Beatrice, Neb.

The expected exodus from small towns, said Don Macke, a widely considered authority on rural economics and head of the Center for Rural Entrepreneurship in Lincoln, Neb., will be far more profound than the gradual erosion that has been going on since World War II. That decline was due to the country’s shift away from an agrarian economy and a choice for convenience: People wanted to be closer to jobs, shopping and entertainment.

The new flight, Macke thinks, will be more out of necessity.

Most commuters from small towns are high school graduates. They are driving 50 miles or more to work as school cooks, hospital aides, office workers, dental assistants and unskilled factory workers.

“The reality is that those jobs don’t pay all that well,” said Macke, who is also a visiting scholar with the Rural Policy Research Institute at the University of Missouri. “They’re spending up to $500 a month on gas. A third to half is already technically working poor.

“And as gas goes higher, they will get poorer and these towns will soon struggle to hold on to these people.”

David McGranahan, a senior economist with the Economic Research Service of the U.S. Department of Agriculture, added that the decline would not be entirely longtime residents moving away.

“Young people who leave these towns to go off to college or the military may decide not to go back — as many have always done in years past,” McGranahan said. “Also, fewer people will leave the city to move to small towns in search of a quiet life.”

But nobody is writing off small towns. Who knows what type of vehicle will come along next? There’s carpooling. Computer technology increasingly allows people to work from home. And some communities are working on ways to provide jobs in town.

“I have a lot of faith in ingenuity and the entrepreneurial spirit,” Macke said.

That rescue better happen fast, said Leeton Mayor Larry Mudd. He has lived all his 62 years there and used to commute to Kansas City to work as a school administrator — back when gas was cheap.

He hears the talk around town and he expects to see people, particularly young families, move away.

“People are mad as hell, but they don’t know who to blame,” Mudd said. “I know we got people here who are buying gas instead of paying bills.

“What a lot of towns are going to end up with is a bunch of empty buildings and empty houses.”

Open space, cheap gas

Since the advent of the automobile in the early 20th century, the American rural landscape has been one of spacious land and cheap fuel.

It was commonplace for people to drive long distances for jobs. In isolated areas, such as western Kansas, the drive could be 100 miles or more. Those commuters may have complained about the time in the car, but seldom about the price of gas.

Throughout that period, too, many towns had a factory, and mom-and-pop stores lined main streets.

That has all changed.

Factories in many towns closed years ago as small companies folded or manufacturers sent jobs overseas. Mom-and-pop stores gave way to Wal-Marts in bigger towns. When those changes occurred, jobs and shopping required trips out of town.

And now, gas prices are at all-time highs.

Brian Dabson, co-director of the Truman School of Public Affairs at the University of Missouri, said the new financial reality has changed the parameters of “rural poor.”

The term used to apply mainly to pockets of poverty in Appalachia, the Mississippi Delta, Indian reservations, and the Texas-Mexico border area.

“Now, it’s everywhere — Missouri, Kansas, Nebraska,” Dabson said. “The price of gas has redefined a ‘sustainable wage.’ ”

There is little public transportation in these rural areas. And there is less pubic assistance today. Farmers make more money from corn because of its use to make ethanol, but towns aren’t sharing in any windfall because the cost of farming has gone up, too, and there are fewer farmers.

No question that gas prices will chase some people closer to urban areas, Dabson predicted.

“There is no hiding place from global pressure,” he said.

So why isn’t the same thing happening in Europe, where gas prices are even higher?

Because trains connect almost every town there, Macke said. And yes, some people in urban and suburban areas in this country drive 30 miles to work, too, but they tend to be more affluent.

It is in rural America where lives are being turned upside down.

“This country had not planned on a big jump in fuel costs,” Macke said.

‘No jobs here’

Well I was born in a small town,

and I can breathe in a small town.

Gonna die in this small town,

and that’s probably where they’ll bury me.

— John Mellencamp, “Small Town,” 1985

US: Bear Stearns hedge fund managers indicted

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By Andre Damon

Federal prosecutors indicted two former Bear Stearns hedge fund managers on charges of securities, mail, and wire fraud last Thursday. Funds operated by the two executives, Ralph Cioffi and Mathew Tannin, folded in June of last year, taking some $1.6 billion of investor funds down with them.

Cioffi and Tannin are the first Wall Street executives to be prosecuted in connection with the credit crisis. The collapse of their funds came relatively early in the crisis, during the spring of 2007, and their failure helped set off a fire sale that led ultimately to the Federal Reserve bailout of Bear Stearns in March of this year.

The legal charges against the two are based on their having misled wealthy investors as to the real values of the funds shortly before they collapsed. The managers sought to add additional capital to ensure their solvency, and allegedly sought to paint the opportunity in the best possible light for prospective investors. “Believe it or not I’ve been able to convince people to add more money,” Tannin wrote in an email exchange with a colleague.

Ralph Cioffi also faces insider-trading charges after allegedly moving $2 million of his own assets out of the fund before warning other investors. Bear Stearns has already settled over a dozen shareholder lawsuits against the two men.

The funds generated profits by borrowing money in the short term to make investments in longer-term mortgage-backed securities. These obscure assets were given very high credit ratings by rating agencies, and subsequently were valued independently of market pricing by the hedge funds’ own models. This strategy led to massive short-term gains; one of the funds saw a 40 percent return in 2006 alone.

But these gains—representing little more than leveraged speculation on the real estate bubble—concealed equally great risk. The funds’ assets plunged in value when sub-prime mortgage borrowers started defaulting on their loans in record numbers, and, despite the alleged concealment of the funds’ real value by their managers, they could not raise enough capital to cover their obligations.

Cioffi’s attorney noted that, although the two funds were among the first to suffer from the crisis, “dozens of the largest financial institutions have lost over $300 billion to date on the same investments.”

“Matt Tannin is innocent, he is being made a scapegoat for a widespread market crisis,” said his attorney Susan Brune.

Indeed, prosecutors subjected the two defendants to the “perp walk,” parading them in handcuffs before the television cameras outside the federal courthouse in Brooklyn. The scene was broadcast on the nightly news by all the major networks.

To the extent that the two are “scapegoats,” it is because their case is emblematic of the thoroughgoing rot that pervades the whole financial system. Following the hedge funds’ collapse, it has become evident that their strategy was semi-fraudulent, and that its leadership likely crossed over the line of legality. But this could be said about a great deal of Wall Street activity in recent years.

A hedge fund manager recently wrote in to the Financial Times’ advice column, saying, “I genuinely don’t believe it is possible to do [my] job—outperforming other fund managers and equity indices—with any consistency. I believe the industry is based on the lie that fund managers add value through skill, rather than luck.” There are, of course, ways to “force” luck, and Wall Street found many such measures. After all, how could hedge funds—such as those run by Cioffi and Tannin—consistently outperform expectations by a margin of 20 percent?

The answer—to put it bluntly—was to inflate returns by hiding risk. This is what the two funds specialized in, and what brought them huge returns and plaudits from analysts. But, ultimately, the Bear hedge funds—together with others that sprung up to create, distribute, and buy mortgage-backed securities—could only be profitable so long as housing prices continued to rise, and imploded after the bubble began to deflate.

The indictment of the two managers is among the most high profile of numerous cases of “rogue” and illegal trading that have come out in recent months. Morgan Stanley announced last week that it had lost some $120 million after a rogue trader’s deals went sour. This follows announcements from Credit Suisse and Lehman Brothers along similar lines. In January, Société Générale, the French Bank, accused low-level trader Jérôme Kerviel of contributing to the loss of some €4.9 billion ($7.6 billion).

The reality is that, if these unauthorized trades had turned out to be profitable, the traders who organized them would have been branded as “innovators” and handed huge bonuses. Wall Street has become a place where the line between legitimacy and illegality, violation and compliance is routinely blurred, where unimaginable sums are awarded for “risk-takers” who get lucky. As one trader who made a great deal of money in mortgage-backed securities recently told this writer: “Was what I did wrong? I hope not.”

The indictments came alongside a continued influx of reported bank losses. Lehman brothers confirmed this week that it suffered a $2.8 billion loss in the second quarter, and Morgan Stanley announced Wednesday that its profits fell by 58 percent compared to the second quarter of 2007. A large section of the losses—$1.7 billion—came in the form of debt write-offs, but a significant portion came from trading in commodities prices. “We made a contrarian bet on energy that went wrong,” said the firm’s chief financial officer, sounding more like an apologetic gambler than a major executive. “But we will make bets where we feel they are warranted,” he continued.

Meanwhile the overall economic outlook has continued to worsen. After predicting a deepening of the US slowdown, the Royal Bank of Scotland observed in a report last week that “People are beginning to wake up to the view that 2009 growth will be stagnant and weaker than 2008.”

John Paulson, a top-earning hedge fund manager in 2007, observed, “We’re only about a third of the way through the writedowns,” adding, “There are a lot of problems out there and it will continue to be felt through the year. We don’t see any signs of stabilizing.” Paulson predicts that total write-offs stemming from the credit crisis may total $1.3 trillion. A recent report by the IMF echoed these sentiments, noting that the US economy would likely “stagnate” despite tax rebates and low interest rates.

Under these conditions, the banks are working to curb their speculative excesses, smooth out their balance sheets and purge bad debt. As the super-rich make a show of getting their house in order, they will move to condemn those executives and fund managers who committed the most flagrant offenses against billionaire shareholders. But the people most responsible for the crisis— the senior executives of Bear Stearns, Morgan Stanley, Goldman Sachs, etc.—and the massive public harm that it caused, not to mention the system of financial parasitism itself, have remained essentially free of public scrutiny.

Lawmakers Cash In As Lobbyists

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By Jim Hightower

Old Congress critters never die; they just flitter away to K Street.

Take Dennis Hastert. Actually, he’s already taken. The longtime Republican lawmaker retired last November, but rather than return to Illinois, he has alighted just a few blocks from the Capital at the blue-chip lobbying firm of Dickstein Shapiro. The firm lured Hastert with more than half a million bucks in annual pay, designating him “strategic counselor” on the legislative needs of its corporate clientele.

Dickstein Shapiro brags that it lobbies for more than 100 of the Fortune 500 corporations – a lineup that includes tobacco giants, drug companies, the nuclear industry, mercenaries like Triple Canopy, and such brand names as AT&T and Time Warner. Hastert will feel right at home in this crowd, for he was always a faithful legislative errand runner for corporate America. Indeed, corporate interests essentially ran the place when Hastert was Speaker of the House, with the likes of super-lobbyist Jack Abramoff given a free hand to cut corrupt deals. While Dennis no longer has the muscle to ram through a corporation’s agenda, he certainly has his old buddy network and insider knowledge to get favors done – this time for personal gain.

Hastert is hardly the only Capital Hill alum to cash in on his public trust. In recent years, more than 200 former members have made the lucrative metamorphosis from lawmaker to lobbyist, and Congress’s feeble ethics rules even let members openly shop for lobbying jobs while they’re supposed to be doing their legislative work. This is a revolving door system that special interests are happy to exploit – last year, they paid nearly $3 billion to hire Washington influence peddlers. That’s $17 million for every day Congress was in session.

And Congress critters wonder why their public approval rating is a humiliating 11 percent.

Ex-Agent Says CIA Ignored Iran Facts

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By Joby Warrick

A former CIA operative who says he tried to warn the agency about faulty intelligence on Iraqi weapons programs now contends that CIA officials also ignored evidence that Iran had suspended work on a nuclear bomb.

The onetime undercover agent, who has been barred by the CIA from using his real name, filed a motion in federal court late Friday asking the government to declassify legal documents describing what he says was a deliberate suppression of findings on Iran that were contrary to agency views at the time.

The former operative alleged in a 2004 lawsuit that the CIA fired him after he repeatedly clashed with senior managers over his attempts to file reports that challenged the conventional wisdom about weapons of mass destruction in the Middle East. Key details of his claim have not been made public because they describe events the CIA deems secret.

The consensus view on Iran's nuclear program shifted dramatically last December with the release of a landmark intelligence report that concluded that Iran halted work on nuclear weapons design in 2003. The publication of the National Intelligence Estimate on Iran undermined the CIA's rationale for censoring the former officer's lawsuit, said his attorney, Roy Krieger.

"On five occasions he was ordered to either falsify his reporting on WMD in the Near East, or not to file his reports at all," Krieger said in an interview.

In court documents and in statements by his attorney, the former officer contends that his 22-year CIA career collapsed after he questioned CIA doctrine about the nuclear programs of Iraq and Iran. As a native of the Middle East and a fluent speaker of both Farsi and Arabic, he had been assigned undercover work in the Persian Gulf region, where he successfully recruited an informant with access to

sensitive information about Iran's nuclear program, Krieger said.

The informant provided secret evidence that Tehran had halted its research into designing and building a nuclear weapon. Yet, when the operative sought to file reports on the findings, his attempts were "thwarted by CIA employees," according to court papers. Later he was told to "remove himself from any further handling" of the informant, the documents say.

In the months after the conflict, the operative became the target of two internal investigations, one of them alleging an improper sexual relationship with a female informant, and the other alleging financial improprieties. Krieger said his client cooperated with investigators in both cases and the allegations of wrongdoing were never substantiated. Krieger contends in court documents that the investigations were a "pretext to discredit."

Krieger maintains that his client is being further punished by the agency's decision prohibiting him from fully regaining his identity. "He is not even allowed to attend court hearings about his own case," Krieger said.

CIA spokesman Paul Gimigliano declined to comment on the specifics of the case but flatly rejected the allegation that the agency had suppressed reports. "It would be wrong to suggest that agency managers direct their officers to falsify the intelligence they collect or to suppress it for political reasons," he said. "That's not our policy. That's not what we're about."

Bush's 'Wonderland' Logic

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By Robert Parry

The first Guantanamo Bay “enemy combatant” review case to go before a federal appeals court has offered a peek down the rabbit hole of capricious irrationality that underlies George W. Bush’s “war on terror.”

The rabbit-hole analogy follows a three-judge panel comparing the Bush administration’s assertion of “evidence” to the writings of Lewis Carroll, the author of Alice’s Adventures in Wonderland and Through the Looking Glass.

The judges from the U.S. Court of Appeal in the District of Columbia cited one of Carroll’s poem, “The Hunting of the Snark,” in which a character declares, “I have said it thrice; What I tell you three times is true.”

In this case, the three-time repetition of unsupported evidence was the basis for one of Bush’s military tribunals to label Huzaifa Parhat an “enemy combatant” – and lock him up for six years at the U.S. naval base in Guantanamo Bay, Cuba.

Although the evidence behind the claims was not spelled out in any of the documents, Bush’s lawyers asserted that the fact that the allegations appeared in three separate government documents was proof of reliability.

In their sharply worded ruling, the judges likened the administration’s logic to the writing of Carroll, the 19th Century English author whose stories famously pilloried up-is-down reasoning.

Enemy of China

Parhat’s journey to Guantanamo Bay, via the Bush administration’s looking glass, was a curious one. An ethnic Uighur, Parhat was part of a community of Muslims in western China who have resisted Chinese domination, including the central government’s strict policies against large families.

Having fled his home, Parhat moved to a camp in Afghanistan that was dominated by an Uighur resistance group known as the East Turkistan Islamic Movement. According to his testimony, he received rudimentary military training and helped guard the camp.

However, when the United States invaded Afghanistan after 9/11 to root out al-Qaeda terrorists and their Taliban hosts, American planes also bombed the Uighur camp, driving Parhat and other survivors into Pakistan where some, including Parhat, were eventually turned over to the United States.

Sent to Guantanamo, Parhat was designated an “enemy combatant,” even though – as the judges wrote – “it is undisputed that he is not a member of al-Qaida or the Taliban, and that he has never participated in any hostile action against the United States or its allies.

“The Tribunal’s determination that Parhat is an enemy combatant is based on its finding that he is ‘affiliated’ with a Uighur independence group, and the further finding that the group was ‘associated’ with al-Qaida and the Taliban.

“The Tribunal’s findings regarding the Uighur group rest, in key respects, on statements in classified State and Defense Department documents that provide no information regarding the sources of the reporting upon which the statements are based, and otherwise lack sufficient indicia of the statements’ reliability.

“Parhat contends, with support of his own, that the Chinese government is the source of several of the key statements.”

In other words, the evidence that led to Parhat’s imprisonment for six years appears to have been a daisy chain of vague associations, including some information possibly inserted by the Chinese government.

Parhat and the 16 other Uighurs at Guantanamo insist they are not enemies of the United States or its coalition partners, that their only enemy is the Chinese government. The three-judge panel ruled that there was no evidence to contradict Parhat’s testimony on this point.

‘Worst of the Worst’

Overturning Parhat’s “enemy combatant” designation is the latest blow to the Bush administration’s fearful claims about the Guantanamo detainees, whom Defense Secretary Donald Rumsfeld once called “the worst of the worst.”

It also has been standard fare for the Bush administration to disparage Americans, who favor respecting the basic human rights of detainees at Guantanamo, as soft-headed and reflecting a foolish “pre-9/11 mindset.”

Along those lines, Sen. John McCain, the presumptive Republican presidential nominee, lashed out at a 5-4 ruling by the U.S. Supreme Court on June 12 recognizing the habeas corpus rights of Guantanamo detainees to challenge their arbitrary imprisonment.

McCain called the ruling “one of the worst decisions in history,” reminding voters of his vow to nominate more justices like George W. Bush’s appointees, John Roberts and Samuel Alito, who were part of the four-justice minority.

One of the striking elements of the Parhat ruling, which was released on June 30, was that it was backed by two Republican appointees, including Judge David Sentelle, who was put on the bench by President Ronald Reagan and is considered one of the federal courts’ most right-wing jurists.

In the early 1990s, Sentelle voted to overturn the convictions of Iran-Contra convicts Oliver North and John Poindexter. In 1992, though considered then a junior judge, Sentelle was tapped by then-Chief Justice William Rehnquist to replace a moderate Republican senior judge in selecting special prosecutors.

Sentelle made sure that partisan Republicans, such as Kenneth Starr, were assigned to investigate alleged wrongdoing by the Clinton administration, contributing to the "scandals" that swirled around Bill Clinton’s presidency and ended with his impeachment by a Republican-controlled House in 1998 (although Clinton was acquitted by the Senate in 1999).

Many conservatives considered Sentelle’s choice of right-wing special prosecutors as well-deserved payback for the investigators who examined the Watergate and Iran-Contra scandals. [For details, see Robert Parry’s Secrecy & Privilege.]

That Sentelle would join a sharply worded opinion chastising the Bush administration for its Through the Looking Glass logic was eyebrow-raising in Washington’s legal circles, a sign of how far President Bush has gone in stretching legal logic.

The Appeals Court ruling did stop short of ordering Parhat’s immediate release. Instead it gave the government a choice of releasing him, transferring him to a country other than China, or conducting a prompt new hearing on his “enemy combatant” status.

Parhat has worried about the interminable delays in his case – and even has freed his wife to re-marry – but the court warned the Bush administration against repeating the status review process simply as a stalling tactic.

Granting the administration another chance to establish Parhat’s “enemy combatant” status “is not to suggest … that we will countenance the ‘endless do-overs’ that Parhat fears,” the court wrote.

The broader point from the Parhat case is that it is further evidence that – over the past six-plus years – the Bush administration has played on the fears and biases of Americans to justify the indefinite incarceration of Muslims despite a lack of serious evidence against them.