Thursday, September 18, 2008

Voter Database Glitches Could Disenfranchise Thousands

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By Kim Zetter

Electronic voting machines have been the focus of much controversy the last few years. But another election technology has received little scrutiny yet could create numerous problems and disenfranchise thousands of voters in November, election experts say.

This year marks the first time that new, statewide, centralized voter-registration databases will be used in a federal election in a number of states.

The databases were mandated in the 2002 Help America Vote Act, which required all election districts in a state or U.S. territory to consolidate their lists into a single database electronically accessible to every election office in the state or territory.

But the databases, some created by the same companies that make electronic voting machines, aren't federally tested or certified and some have been plagued by missed deadlines, rushed production schedules, cost overruns, security problems, and design and reliability issues.

Last year, in Larimer County, Colorado, election workers got an error message when they tried to access the state's database to process absentee ballots, and had to log off for 20 minutes. In a mock election four months ago, clerks in other counties had trouble accessing the database from polling locations. Those who could connect said the system was sluggish.

Election officials in several counties said they didn't trust the system, and planned to load the database to county computers and use printed poll books on Election Day rather than access the central database in real time.

"The voter-registration databases are an underlying part of the voting technology revolution that has taken place in this country that has been the least noticed," says Kim Alexander, president and founder of the California Voter Foundation. "We don't know how much of a problem (they've) been across the country. My guess is that there have been technical problems with statewide databases all across the country that have gone unreported."

This year, during primaries in several states, longtime voters phoned a national voter hotline complaining their party affiliation had changed from Democrat or Republican to unaffiliated, preventing some from casting ballots in states without open primaries. Others complained they weren't on the voter roll, though they'd lived and voted at the same location for years. One Maryland woman said the birth date in her voter record was several decades off her real age. Others were listed as "inactive," although they'd voted in the previous federal election. And one woman who said she voted in 2006 was told she wasn't registered and couldn't cast a ballot. Election officials told her the voter ID number she had belonged to a man.

But election experts say the real concern is how states are conducting database matches of new voters under HAVA.

Big Three ask for billions

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By Ian Swanson and Jared Allen

The Big Three’s chief executive officers held a rare Capitol Hill meeting Wednesday with House Speaker Nancy Pelosi (D-Calif.) and other Democratic leaders to ask for $25 billion in government loans for the auto industry.

Detroit wants the loans, authorized by Congress in last year’s energy bill but not yet appropriated, to revamp plants in Michigan and other states so that they can produce more hybrid cars and other fuel-efficient vehicles.

“Clear from your mind any notion of a bailout,” Pelosi told reporters after the meeting. “This is about innovation.”

The Big Three need to start selling more hybrids, not only to compete with foreign competitors, but to meet tougher fuel-efficiency standards included in the 2007 energy bill. In a letter to Pelosi, the three CEOs said the cost of complying with the new standards would be more than $100 billion over the next decade.

The letter also said high gas prices, the housing crisis and other economic ills had cut into Detroit’s sales, leading to the worst economy for struggling automakers in decades.

“These factors have severely impacted our financial situation and have led to the most difficult business environment for our domestic auto industry in over 30 years,” said the letter, signed by Ford CEO Alan Mulally, General Motors (GM) CEO Richard Wagoner and Chrysler CEO Robert Nardelli.

After the meeting, Mulally said it had been a great day at the Capitol. “We’re very pleased with the bipartisan support we’ve received,” he said.

Nardelli said sessions on the Hill “went extremely well,” adding that “time is critically important.”
Momentum for the automakers appears to be growing.

House Republican Whip Roy Blunt (Mo.) and Conference Chairman Adam Putnam (Fla.) both struck positive notes on the loans on Wednesday, and both presidential candidates have offered support. The White House, however, has been noncommittal.

The Big Three cannot secure the loans without an appropriation from Congress to cover the risk of the companies defaulting on the loans. That will cost $7.5 billion, as the Congressional Budget Office has scored the program using an estimated 30 percent default rate.

The lobbying push by automakers comes amid a tumultuous week on Wall Street in which the government effectively nationalized one of the nation’s largest insurers, the American International Group (AIG), while allowing investment bank Lehman Brothers to go into bankruptcy.

Ford, GM and Chrysler, as a result, are fighting the perception that they are asking for a bailout. They argue Congress already authorized the loans in last year’s energy bill, and that providing the funding is in America’s national interest since it would help wean the U.S. off foreign sources of oil, since less foreign oil would be needed if more Americans could drive more fuel-efficient vehicles.

Asked about Detroit’s request, Mulally said, “I would characterize it as an enabler.”

“Our request of Congress is different than what it is being compared to by some observers,” said Bruce Andrews, a lobbyist for Ford, who noted the loans would be repaid with interest, and are not cash grants.

“Plus, these loans are part of legislation, passed by Congress and signed by the president, to help us transform to more fuel-efficient vehicles more quickly.”

Greg Martin, a spokesman in Washington for GM, said helping U.S. automakers compete with Asian manufacturers that are producing hybrids is in the national interest, and when it is explained in that way support is widespread and bipartisan for the loan programs.

“That’s the difference between us and the recent events,” he said.

The Big Three are getting backing from both presidential candidates, including Sen. John McCain (R-Ariz.), who in the past has been criticized for saying that some jobs lost to foreign producers will not return to the United States.

On Wednesday, McCain offered rousing support for the Big Three in a speech at a GM plant in Grand Rapids, Mich. He said Wall Street firms were receiving taxpayer support, and that the auto industry and autoworkers were also deserving of help.

“I’m here to send a message to Washington and Wall Street: We are not going to leave the workers here in Michigan hung out to dry while we give billions in taxpayer dollars to Wall Street,” McCain said, according to a transcript e-mailed to reporters by his campaign.

“It is time to get our auto industry back on its feet. It’s time for a new generation of cars and for loans to build the facilities that will make them.”

In January, McCain came under criticism during Michigan’s GOP primary for stating that some of the jobs that had left the state were not coming back. He later lost Michigan’s primary to former Massachusetts Gov. Mitt Romney, whose father was once governor of Michigan.

The White House has offered caution on the loan program, but it could be difficult for President Bush to vocally oppose it given McCain’s support. In addition, Michigan is a swing state that both McCain and Democratic presidential candidate Sen. Barack Obama (Ill.) hope to win.

“Obviously, we want to be very, very careful about the government’s role with private enterprise out there,” White House spokesman Tony Fratto said Friday. “There are lots of industries that are dealing with challenging economic conditions, and it’s always important to be very cautious about the federal government’s role.”

It may also be difficult for GOP leaders in the Senate and House to offer any criticism of the funding, since the loans would go into improvements in plants across the country, some of which are in swing districts. Ford plants in Ohio, Kentucky, Minnesota, Illinois, Missouri and Michigan could benefit, while GM plants in Kansas, Michigan and Ohio could get a boost.

Putnam on Wednesday said his colleagues had told him automakers were making a “persuasive” case that the loans were a wise use of taxpayer dollars.

It’s unclear what measure the loans could be attached to, although many think the continuing resolution that would allow the government to keep operating is the most likely.

Senate passes $612 bln defense spending bill

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By Jim Wolf

The U.S. Senate on Wednesday overwhelmingly approved a $612.5 billion defense spending bill for fiscal 2009, including $70 billion for operations in Iraq and Afghanistan.

As passed on an 88-8 vote, the measure would authorize $103.9 billion for Pentagon procurement, $1.2 billion more than President George W. Bush's request. Overall, Bush had asked for $611.1 billion for national defense.

The bill shifts more of the costs of Iraq's reconstruction onto Baghdad. It also puts further restrictions on contractors working in Iraq, including prohibitions on interrogations and the performance of "inherently governmental functions" in combat.

The measure must now be reconciled with the $612.5 billion version passed by the House of Representatives on May 22.

The Senate bill would let the Pentagon spend $70 billion in Iraq and Afghanistan in the fiscal year that starts October 1 and authorize a 3.9 percent pay raise for military personnel, half a percentage point more than sought by Bush.

House and Senate negotiators are due to meet next week on a compromise version that can be sent to Bush for signing into law.

Among sticking points is the Boeing Co-led Future Combat Systems, the centerpiece of Army modernization. The House cut $200 million from the $3.6 billion requested to continue development of a $160 billion system of digitally linked vehicles for air and ground combat.

The Senate approved without major change the Bush administration request for Future Combat Systems. SAIC Inc is Boeing's co-lead manager on the FCS program.

The Senate bill would authorize $8.9 billion for Missile Defense Agency programs, $411.8 million less than Bush's request.

Another U.S. missile strike in Pakistan provokes anger

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By Saeed Shah

A U.S. missile strike Wednesday in Pakistan further inflamed relations between the two anti-terrorism allies, just hours after the American military chief vowed to "respect Pakistan's sovereignty."

The strike against suspected militants in Pakistan's tribal area, which runs along the Afghan border, is thought to be the sixth such attack this month. It came as Washington is demanding that Islamabad do more to prevent Taliban and al Qaida extremists from using its territory.

Pakistani leaders have condemned the U.S. military interventions, which include the first documented American ground raid in the country earlier this month. The strikes have caused an uproar in Pakistan.

Four missiles were fired from unmanned U.S. aircraft Wednesday at a suspected militant hideout at around 7 p.m. local time in a village in South Waziristan, killing at least six people, according to a local security official, who spoke only on the condition of anonymity because he isn't authorized to talk to journalists.

American strikes were used infrequently in the tribal area in the past, but there's been an intensified bombardment over the last few weeks. Washington thinks that Taliban and al Qaida fighters allied against the coalition in Afghanistan are using Pakistan's tribal territory as a refuge. Some analysts think that the Bush administration is trying to land major al Qaida scalps before the end of his term. Osama bin Laden and his deputy, Ayman al Zawahri, are thought to be most likely hiding in the tribal area.

The target of Wednesday's strike is thought to be a compound used by Taliban and the Hezb-i-Islami, a militant group fighting in Afghanistan that's associated with the notorious veteran jihadist Gulbuddin Hekmatyar. The previous aerial assaults have killed militants, including senior al Qaida commanders, but also dozens of civilians.

Earlier in the day, U.S. Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, who was making a surprise visit to Pakistan, said in a statement released by the American Embassy in Islamabad that he "reiterated the U.S. commitment to respect Pakistan's sovereignty and to develop further U.S.-Pakistani cooperation" after talks with his Pakistani counterpart, Gen. Ashfaq Kayani, and Prime Minister Yousaf Raza Gilani. A separate statement from the Pentagon made no mention of respecting Pakistani sovereignty.

Mullen's arrival appeared to be a reaction to the furor caused by the American ground incursion.

It was Mullen's fifth trip to Pakistan since he took the top military job last October, not counting a leaked secret meeting at sea with Kayani last month.

"I have been encouraged by what General Kayani and the Pakistani army have been willing to do in the border regions," the Pentagon quoted Mullen as saying. "They recognize the threat they face internal to Pakistan and are improving their counterinsurgency capabilities. This is a critical part of the world."

The Pakistani army has been engaged since early August in what looks like its strongest operation against militants in another part of the tribal area, Bajaur, where it claims that more than 500 extremists have been killed.

"Pakistan would not allow anyone to take action on its soil, as it has capacity to deal with the terrorists," said Pakistan's defense minister, Ahmed Mukhtar, who spoke before the fresh strike. "But we can't pick up guns and say, 'We're coming.' We have to proceed diplomatically."

Without Pakistan's help, U.S. and coalition forces have little hope of stemming supplies and militants crossing into Afghanistan from the tribal area, analysts think. There also are signs that the American assaults could trigger a mass uprising by moderate tribesman living in the tribal territory.

"It's a very fundamental issue of Pakistani sovereignty," said Talat Masood, a retired Pakistani general turned analyst. "This just cannot be tolerated, that there are continued violations and we are still called an ally. I think this will have to be reviewed for the sake of both sides."

The United Nations mandate for Afghanistan, under which U.S. and other international forces operate, doesn't extend to Pakistan. Pakistan has tolerated occasional American missile strikes in its tribal areas for several years, but the scale of the current attacks, along with the first American boots on Pakistani soil, has pushed relations to a crisis point.

PNNL, Homeland Security team up for surveillance project

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By John Trumbo

Can high-tech infrared cameras and millimeter-wave cameras "see" terrorist threats coming from as far as 130 yards away?

Kennewick police and Hanford Patrol officers will test the effectiveness of the high-tech gear in a six-week tryout at the Toyota Center.

The experiment, which goes live Sept. 26 for six home games of the Tri-City Americans, will help the Department of Homeland Security's Science and Technology Directorate determine if the technologies are effective in the hands of local law enforcement.

The equipment, which consists of remote camera sensors that can track crowd movements, uses infrared and millimeter-wave radar to analyze images for potential explosive threats, said Jim Tuttle, explosives division director for Homeland Security.

"(The test) will help us improve standoff screening capability for our security systems," Tuttle said.

A series of cameras, some roof-mounted at the Toyota Center, and others that include infrared and millimeter-wave radar imaging, will watch the parking lots and various pedestrian approaches to the center.

"They will analyze for subtle changes, such as people forming in groups or loitering," said Nick Lombardo of the Pacific Northwest National Laboratory, project manager for the field test.

The cameras' images will help analysts located nearby look for left-behind bombs, suspicious backpacks or concealed objects such as suicide belts and vests, Lombardo said.

Rollout of the high-tech gear was demonstrated at the center for news media Tuesday by representatives of the Department of Homeland Security's Science and Technology Directorate.

Kennewick police and Hanford Patrol officers have spent a week learning to use the visual analytics system. They must learn to read the images well enough to spot a suspicious situation within seconds, said Kennewick Officer John Davis, one of the officers learning the system.

The tests will have people wearing simulated threat objects enter the surveillance area to see how quickly officers can detect the problem. Davis said he can pick out a mock threat within two seconds, but expects it will be much harder when the tests involve moving crowds.

"The purpose is to detect the threat at a distance," Tuttle said. It is relatively easy with few people and a clear view, but not so when people crowd together, he said.

Lombardo said the officers can direct the cameras and zoom in with millimeter-wave radar when the infrared indicates something suspicious.

"We want to know how many people can be tracked simultaneously," Lombardo said. That will be when the Americans have a sell-out game, he said.

Out of 20 or 30 situations, with only one being a mock threat, the goal is to see how often and how fast an operator can get it right.

"We train them to look for certain signatures," Lombardo said.

John Verrico of Homeland Security said the test at Toyota Center is the first roll-out in the nation of the integrated systems.

The tests at the Toyota Center will be announced to those who attend events at the center between Sept. 26 and Nov. 9 so they can opt out of the scanning if they choose.

China paper urges new currency order after "financial tsunami"

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Threatened by a "financial tsunami," the world must consider building a financial order no longer dependent on the United States, a leading Chinese state newspaper said on Wednesday.

The commentary in the overseas edition of the People's Daily said the collapse of Lehman Brothers Holdings Inc (LEH.P: Quote, Profile, Research, Stock Buzz) "may augur an even larger impending global 'financial tsunami'."

The People's Daily is the official newspaper of China's ruling Communist Party, and the overseas edition is a smaller circulation offshoot of the main paper.

Its pronouncements do not necessarily directly reflect leadership views, but this commentary by a professor at Shanghai's Tongji University suggested considerable official alarm at the strains buckling world financial markets.

China's central bank earlier this week cut its lending rate for the first time in six years, a move analysts said was aimed at bolstering the economy and the battered stock market.

"The eruption of the U.S. sub-prime crisis has exposed massive loopholes in the United States' financial oversight and supervision," writes the commentator, Shi Jianxun.

"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."

But Vice Premier Wang Qishan, on a visit to the United States, told U.S. trade officials in a meeting on Tuesday that China and the United States needed to maintain close economic ties with global markets going through such turbulence.

"The Chinese government is well aware of the fact that the United States, which is the world's largest developed country, and China, which is the world's largest developing country, should have constructive and cooperative economic and trade relations," he said.

China is a major buyer of U.S. Treasury bonds, and through its sovereign wealth fund it has taken stakes in two large U.S. financial institutions.

In July 2005, China revalued the yuan and freed it from a dollar peg to float within managed bands. But the yuan and China's trade remains tightly linked to the fortunes of the dollar.

The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.

"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.

Wall Street and Washington

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By Steve Fraser

How the Rules of the Game Have Changed

What is Washington to do as the financial system collapses? Clearly, stark differences in approach as well as in public policy have already emerged. Bail-out Bear Stearns and pump up the brokerage and investment business with new lines of credit. Nationalize Fannie Mae and Freddie Mac on the backs of the taxpayer -- but let Lehman drown. Tell the financial community to save itself, after which Bank of America salutes and buys Merrill Lynch. Then, the Fed gets cold feet and decides it can’t let an institution the size of the insurance giant AIG go under as well. Washington is left staring into the abyss. The old rules no longer apply.

And that’s the point. At moments of crisis since the mid-1980s, the relationship between Washington and Wall Street has changed fundamentally, at least when compared to anything that would have been recognizable in the previous century. As a result, the road ahead is dark and unknown.

During the nineteenth century, Washington was generally happy to do favors for Wall Street financiers. Railroad tycoons, who often used those railroads as vehicles of extravagant speculation, enjoyed subsidies, tax exemptions, loans, and a whole smorgasbord of financial fringe benefits supplied by pliable Congressmen and Senators (not to mention armadas of state and local officials).

Since the political establishment was committed to laissez-faire, legerdemain by greedy bankers was immune from public scrutiny, which was also useful (for them). But when panic struck, the mighty, as well as the meek, went down with the ship. Washington felt no obligation to rush to the rescue of the reckless. The bracing, if merciless, discipline of the free market did its work and there was blood on the floor.

By early in the twentieth century, however, the savage anarchy of the financial marketplace had been at least partially domesticated under the reign of the greatest financier of them all, J.P. Morgan. Ever since the panic of 1907, the legend of Morgan’s heroics in single-handedly stopping a meltdown that threatened to become worldwide, the iron discipline he imposed on more timorous bankers, has been told and re-told each time an analogous implosion looms.

Indeed, last week’s news carried its fair share of 1907-Morgan stories, trailing in their wake an implicit wistfulness. They all asked, in effect: Where is the old boy when we need him?

Back then, with Morgan performing his role as the nation’s unofficial private central banker, Teddy Roosevelt’s administration continued to keep its distance from Wall Street, still unready to offer salvation to desperate financial oligarchs. Not normally chummy with Morgan and his crowd, Roosevelt did cheer from the sidelines as the über-banker performed his rescue operation.

As it turned out, though, the days of Washington agnosticism about Wall Street were numbered. The economy had become too complex and delicate a mechanism and, in 1907, had come far too close to meltdown -- even Morgan’s efforts couldn’t prevent several years of recession -- to leave financial matters entirely in the hands of the private sector.

First came the Federal Reserve. It was established in 1913 under President Woodrow Wilson as a quasi-public authority meant to regulate the country’s credit markets -- albeit one heavily influenced by the viewpoints and interests of the country’s principal bankers. That worked well enough until the Great Crash of 1929 and the Great Depression that followed and lasted until World War II. The depth of the country’s trauma in those long years vastly expanded the scope of Washington’s involvement in the financial marketplace.

President Franklin D. Roosevelt’s New Deal did, as a start, engage in some bail-out operations. The Reconstruction Finance Corporation, actually created by President Herbert Hoover, continued to rescue major railroads and other key businesses, while some of the New Deal’s efforts to help homeowners also rewarded real estate interests. The main emphasis, however, now switched to regulation. The Glass-Steagall Banking Act, the two laws of 1933 and 1934 regulating the stock exchange, the creation of the Securities and Exchange Commission, and other similar measures subjected the financial sector to fairly rigorous public supervision.

This lasted for at least two political generations. Wall Street, after all, had been convicted in the court of public opinion of reckless, incompetent, self-interested, even felonious behavior with consequences so devastating for the rest of the country that government was licensed to make sure it didn’t happen again.

The undoing of that New Deal regulatory regime, and its replacement, largely under Republican administrations (although Glass-Steagall was repealed on Clinton’s watch), with what some have called the "socialization of risk" has contributed in a major way to the mess we’re in today. Beginning most emphatically with the massive bail-out of the savings and loan industry in the late 1980s, Washington committed itself, at least under conditions of acute crisis, to off-loading the risks taken by major financial institutions, no matter how irrationally speculative and wasteful, onto the backs of the American taxpaying public.

Despite free market/anti-big-government rhetoric, real-life Washington has tacitly acknowledged the degree to which our national economy has become dependent on the financial sector (Finance, Insurance, and Real Estate -- or FIRE). It will do whatever it takes to keep it afloat.

This applies not only to particular institutions like Bear Stearns, or even to mortgage mega-firms like Fannie and Freddie, but to finance in general. When it seemed necessary, public monies were indeed funneled in the general direction of the banking/brokerage community to shore up the whole rickety structure. This allowed one burst bubble -- the dot-com debacle -- to be replaced by another, namely our late, lamented mortgage/collaterized-debt-obligation bonanza, just now dramatically going down the tubes.

Backstopping the present bail-out is the ever-credulous, put-upon American public with its presumably inexhaustible resources. Even while Washington was instituting the periodic "socialization" of bad debts, it was systematically abandoning the New Deal’s commitment to regulation. That, of course, was in the very period when financial markets became ever more arcane, ever less comprehensible even to their Frankenstein-ian inventors, and ever more in need of monitoring. So the "socialization of risk" was accompanied by the "privatization of reward," which now is likely to prove a truly deadly combination.

That the crisis has now reached a newly terrifying stage is suggested by Washington’s sudden willingness to depart from the new orthodoxy and let the huge investment bank, Lehman Brothers, go under. Some may see in this a steely return to a laissez-faire faith. More likely, it represents wholesale confusion on the part of Bush administration and Federal Reserve policymakers about what to do, even as all endangered businesses have come to take it for granted that Washington will toss them a life-preserver when they need it.

The times call for a new departure. The next administration, which will surely enter office under the greatest economic pressure in memory, must confront reality. The financial system is out of control and has led the economy into a wildly turbulent sea of heavily leveraged speculation.

It’s time for a reversal of course. Stringent re-regulation of FIRE is not enough anymore. Washington’s mission may, at this late date, be an even greater one than Roosevelt’s New Deal faced. The government must figure out how to deploy its power to shift the flow of investment capital out of the mine-fields of speculative paper transactions and back into productive channels that will help meet the material needs of American society. Real value must be created in place of chimeras. In the meantime, we all have ringside seats -- in fact, far too close to the action for comfort -- as another gilded age is ending. What comes after is, in part, up to us.

The Meaning of the Collapse of Lehman Brothers

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By Sam Marcy

No matter what topics are discussed during the primary election campaign, attention inevitably turns to the issues of war, the capitalist crisis and national oppression. The three are so indissolubly bound together, it is impossible to isolate one from the other or disconnect them.

At the moment, the Reagan administration has been caught red-handed in an obvious act of piracy. This is so patently clear that even an ultrarightist like Senator Barry Goldwater (R-Ariz.) had to disassociate himself from the administration, while his not much milder counterpart on the Senate Intelligence Committee, Daniel Moynihan (D-N.Y.), felt obliged to resign his post on the committee in order to absolve himself of the guilt of mining Nicaraguan harbors.

But the Reagan administration, caught off guard completely by worldwide condemnation of this act of war, figures it will ride out the storm by harping ever so loudly on “the continuing upswing in the recovery.”

Reaganites hope for capitalist recovery

The capitalist recovery will save us, they are saying, notwithstanding the war in Central America, continued adventurism in the Middle East and underhanded efforts to undermine independent and sovereign African states and above all to try to wreck the national liberation struggle of the African National Congress (ANC) and Namibia’s liberation organization, SWAPO.

“If only the recovery sustains itself until after the elections, we will be saved,” so their thinking goes. “And then we will carry out the rest of our program—retrieve our predominant position in the world, speed up the arms buildup and be able to take on all our adversaries.”

The Democratic politicians are no less fearful that the ephemeral, limited capitalist recovery may continue. Uncertain about this, they began months ago to de-escalate their demagogy on the collapse of the economy. Slowly they stopped emphasizing the unemployment issue and decided to take another tack in the continuing rivalry between the two capitalist parties.

Instead of pushing hard on the unemployment issue—there are almost 11 million unemployed, at least as many partially employed, and plant closings are continuing—they have shifted their position significantly. They are now giving top billing to the federal deficit and high interest rates—issues which appeal more to the middle class than to the working class.

Also the attacks on Reaganomics have become more generalized, rarely spelling out nowadays the real hardships upon the working class and the oppressed people. Lately they have adopted a general plan to restructure the smokestack industries, bring in high tech more vigorously, and put the economy on a new footing. The whole thing is so vague and so ambiguous that hardly anyone among workers could find the slightest ray of hope.

It’s not to be wondered at that the Wall Street banker Felix Rohatyn is the loudest in proclaiming the need for such a plan, which has also been enthusiastically supported by AFL-CIO President Lane Kirkland.

Reagan and Rockefeller together

It’s to be noted that this scheme is also endorsed by David Rockefeller, who wants to “internationalize” it to include all the Western imperialist democracies. His Trilateral Commission, which has always been anathema to the Reaganites, got a warm greeting from Reagan himself when the Trilateralists met recently in Washington. There wasn’t a peep out of the ultrarightists that Reagan, formerly the staunchest warrior against the Eastern (Trilateralist) Establishment, had such a joyful get-together with Rockefeller, who runs this supernational body of imperialist politicians, bankers and industrialists.

The capitalist politicians and the ruling class as a whole are carefully watching the course of economic development in the U.S. Masses of statistics are released daily.

All the capitalist economists, especially those from bourgeois academia, all their statisticians, all the money managers of the multibillion dollar corporations, all the Wall Street speculators big and small, watch with the keenest interest every new available statistic which may reveal a clue on the course of the economy.

Never was interest in the state of the economy as high as it is now. Never before were all the lines between Wall Street and Washington so intimately tied together.

Shouldn’t the ruling class be happy, confident that their recovery can last at least until November? But they’re not.

Otherwise why the morbid concern with every small and insignificant indicator of the direction of the economy? It’s because they don’t think it’s real, solid, substantial.

‘Overheating’—what’s that?

Almost every other day a high priest from the bourgeois economists or from the Federal Reserve Board is likely to issue one of those reassuring but nervous press releases which in substance says, “We’re fearful that the economy may be overheating.” Reagan just the other day said that he was “glad to see there are some signs of a slowdown—that’s natural and normal. It will stop the economy from overheating.”

What do they mean by an overheated economy?

It’s supposed to mean the economy is in very good shape, going great guns, but it shouldn’t go too fast. The image is that of a rider on a horse galloping at high speed who has the will and capability to slow down. It’s as easy as all that.

So why the worry, the uncertainty?

In terms of the realities of the nature of the capitalist economy, whenever the bourgeois economists talk about overheating it’s a code word for a distasteful, dangerous, if not catastrophic development. It’s not like a rider on a horse who requires only skill and experience in handling the pace of the ride.

What overheating means, if translated into real, that is Marxist, terminology, is the possibility of imminent capitalist overproduction which inevitably leads to a capitalist bust, another catastrophic crisis.

Looking at it realistically, with some 20 million unemployed or on part time, can it be said by any stretch of the imagination that what is now in progress is a normal capitalist recovery?

When there are that many unemployed, the recovery is at best extremely limited and, considering its short duration, extremely unstable. By comparison with the 1960s and 1970s, the current recovery should have absorbed between six to eight million more unemployed to have reached the level of the earlier recoveries—which themselves were fueled by wars like Viet Nam and by inflation.

This, however, hasn’t happened.

Slowdown is uncontrollable

When the bourgeois economists say they are glad there are some signs that the economy is slowing down, they’re deliberately misinterpreting what is really a classic danger sign in the evolution of the capitalist cycle of development.

The slowdown is not a planned one, contrary to the assertions of the apologists and manipulators of the capitalist economy. It is spontaneous and uncontrolled. It’s not at all like a rider deliberately slowing down the pace.

The slowdown has historically been the precursor for a financial crisis followed by an epidemic of failures and then a sharp acceleration in industrial decline, more layoffs, more plant closings, and a greater and greater accumulation of bankruptcies, consolidations and mergers.

The Reagan administration is trying to whip its economic team into manipulating the economy by alternately using artificial stimulants and depressants—the tools that are used to help an unfortunate drug addict. What it means is alternately reigniting inflationary measures and then in panic applying heavy doses of depressants that haven’t worked for the last 30 years and have all ended in catastrophic crises.

But whether these methods will work until the election is over, no one on Wall Street is willing to bet on. Beneath the aura of optimism, there suddenly comes like a flood of light the grim reality of the state of the capitalist system.

This happened just last week when one of the most powerful investment and banking combines in this country—the 134-year-old firm of Lehman Brothers, Kuhn Loeb—was forced to sell out to an even larger financial octopus, the mammoth Shearson/American Express. This development sent a quake through the entire structure of finance capital.

The Lehman Brothers shockwave

The collapse or merger of a financial banking combine has more significance than a very large industrial failure. Strains in the nervous system, the circulatory system of the anatomy of capitalism, reveal the depth of the disease in the system and are much more dangerous.

When a financial giant like Lehman Brothers, known for its so-called stability, responsibility, and above all for its high profits, either decides to sell or is swallowed by an even larger finance capitalist conglomerate it is an unmistakable sign of danger in the system as a whole.

This is especially true because there have been in the recent period several other combinations of giant financial institutions.

The financial analysts of the bourgeoisie, whenever confronted with such phenomena, almost always point to the kind of superficial aspects which avoid fundamental causes—poor management, bickering and tensions within the summits of the company, cash flow problems, momentary weak capitalization, stretching resources too thin, and so on.

In the case of Lehman Brothers, the financial analysts have found a rather unique explanation for this portentous development. Having been hard put to explain how such a stable and respectable financial conglomerate, regarded as a paragon of capitalist virtues, could suddenly fold or be swallowed by another goliath, they have hit upon this explanation.

“Partnerships,” said Michael Tushman, a professor of organizational behavior at Columbia Business School, “are essentially forms of organized anarchies.” He is quoted in an article in the New York Times (April 15, page 24, Business Section) on the projected absorption of Lehman Brothers, Kuhn Loeb by Shearson/American Express.

There you have it in a nutshell! As succinctly summarized as one could possibly ask. But what did the good professor say?

Organized anarchies—isn’t this a contradiction in terms? If it is organized then it is not anarchy. If it is chaotic and anarchic, it is not organized. What the professor is really doing is consciously or unconsciously confusing organizational form with social content.

Partnerships, like corporations or associations, are a form of capitalist economic organization. They vary in each case and the form is chosen by the capitalists for the particular purpose of the accumulation of capital—profit. The form in which the capital is organized is like the package or container for the capital. The packaging can only incidentally affect the contents, that is, the capital itself.

Chaos goes deeper than mere packaging

The chaos, the anarchy, lies not with the form, the packaging, but with the content of capitalist production. There is where the anarchy lies; there is the chaos. Its reflection in the financially most powerful combines of investment banks and insurance companies is a most dangerous sign.

No amount of changing the form, the packaging, can change the fundamental contradiction inherent in capitalist production, which arises out of the irreconcilability of private ownership with the collective organization of capitalist industry and finance.

That’s where the contradiction is. That’s where the chaos and anarchy lie. And they grow and develop independently of the will of the capitalist. No matter how attractively or conveniently a can of worms may be packaged, it cannot be turned into a can of peas.

A capitalist recovery comes now and then but is inevitably followed by economic bust. In the imperialist epoch this takes on a more aggravated character because of the artificial bolstering of inflation and militarism.

Thus we see there is no permanency or stability, even among the most powerful investment banking houses which advise and manage the big industrial corporations.

Only the overthrow of the capitalist system, only the abolition of the system that puts the means of production in the hands of an ever smaller group of multimillionaires and billionaires, can abolish this anarchy.

Abolishing this anarchy of capitalist production will also abolish capitalist wars, unemployment, racism and all the other devastating evils which the continued existence of the system perpetuates and increases.

Washington Is Risking War with Pakistan

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By Robert Baer

As Wall Street collapsed with a bang, almost no one noticed that we're on the brink of war with Pakistan. And, unfortunately, that's not too much of an exaggeration. On Tuesday, the Pakistan's military ordered its forces along the Afghan border to repulse all future American military incursions into Pakistan. The story has been subsequently downplayed, and the chairman of the joint chiefs of staff, Mike Mullen, flew to Islamabad, Pakistan's capital, to try to ease tensions. But the fact remains that American forces have and are violating Pakistani sovereignty.

You have to wonder whether the Bush administration understands what it is getting into. In case anyone has forgotten, Pakistan has a hundred plus nuclear weapons. It's a country on the edge of civil war. Its political leadership is bitterly divided. In other words, it's the perfect recipe for a catastrophe.

All of which begs the question, is it worth the ghost hunt we've been on since September 11? There has not been a credible sighting of Osama bin Laden since he escaped from Tora Bora in October 2001. As for al-Qaeda, there are few signs it's even still alive, other than a dispersed leadership taking refuge with the Taliban. Al-Qaeda couldn't even manage to post a statement on the Internet marking September 11, let alone set off a bomb.

U.S. forces have been entering Pakistan for the last six years. But it was always very quietly, usually no more than a hundred yards in, and usually to meet a friendly tribal chieftain. Pakistan knew about these crossings, but it turned a blind eye because it was never splashed across the front page of the country's newspapers. This has all changed in the last month, as the Administration stepped up Predator missile attacks. And then, after the New York Times ran an article that U.S. forces were officially given the go-ahead to enter Pakistan without prior Pakistani permission, Pakistan had no choice but to react.

On another level the Bush Administration's decision to step up attacks in Pakistan is fatally reckless, because the cross-border operations' chances of capturing or killing al Qaeda's leadership are slim. American intelligence isn't good enough for precision raids like this. Pakistan's tribal regions are a black hole that even Pakistani operatives can't enter and come back alive. Overhead surveillance and intercepts do little good in tracking down people in a backward, rural part of the world like this.

On top of it, is al-Qaeda worth the candle? Yes, some deadender in New York or London could blow himself up in the subway and leave behind a video claiming the attack in the name of al-Qaeda. But our going into Pakistan, risking a full-fledged war with a nuclear power, isn't going to stop him.

Finally, there is Pakistan itself, a country that truly is on the edge of civil war. Should we be adding to the force of chaos? By indiscriminately bombing the tribal areas along the Afghan border, we in effect are going to war with Pakistan's ethnic Pashtuns. They make up 15% of Pakistan's 167 million people. They are well armed and among the most fierce and xenophobic people in the world. It is not beyond their military capabilities to cross the Indus and take Islamabad.

Before it is too late, someone needs to sit the President down and give him the bad news that Pakistan is a bridge too far in the "war on terror."

Bush could still attack Iran

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By Stefan Simanowitz

Despite the main finding in the latest report from the International Atomic Energy Agency that it "has been able to continue to verify the non-diversion of declared nuclear material in Iran", the western media has focused on the issue of Tehran's lack of transparency over the IAEA investigation into recent intelligence allegations (Report, September 12). These involve missile re-entry vehicle projects and have been rejected by the Iranians, who have not even been permitted to see the documents upon which the allegations are founded.

This week the US Congress is debating two non-binding resolutions which, if passed, will greatly increase the likelihood of military intervention against Iran. They call on the US president to "increase economic, political and diplomatic pressure on Iran to verifiably suspend its nuclear enrichment activities", and demand "stringent inspection requirements" of all goods entering or leaving Iran and an embargo of refined petroleum products to Iran. Although both resolutions exclude authorisation for military action, the embargo will require a naval blockade. Such a blockade could result in skirmishes with the Iranian navy which could rapidly escalate.

The US is massing the largest armada of warships in the Gulf since 2003. Two aircraft carrier task forces are already there and a third was dispatched on August 22. French and British warships and carrier groups are also reportedly on their way. This has increased speculation that George Bush might authorise military attacks against Iran before the end of his term in office in January, or before the November elections to boost to the likelihood of a McCain presidency.

Fed’s $85 Billion Loan Rescues Insurer

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Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.

What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe.

If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt. Small investors, including anyone who owned money market funds with A.I.G. securities, could have been hurt, too. And some insurance policy holders were worried, even though they have some protections.

“It would have been a chain reaction,” said Uwe Reinhardt, a professor of economics at Princeton University. “The spillover effects could have been incredible.”

Financial markets, which on Monday had plunged over worries about A.I.G.’s possible collapse and the bankruptcy of Lehman Brothers, reacted with relief to the news of the bailout. In anticipation of a deal, stocks rose about 1 percent in the United States on Tuesday. Asian stock markets opened with strong gains on Wednesday morning, but the rally lost steam as worries returned about the extent of harm to the global financial system.

Still, the move will likely start an intense political debate during the presidential election campaign over who is to blame for the financial crisis that prompted the rescue.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said Mr. Paulson and Mr. Bernanke had not requested any new legislative authority for the bailout at Tuesday night’s meeting. “The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”

House Speaker Nancy Pelosi quickly criticized the rescue, calling the $85 billion a "staggering sum." Ms. Pelosi said the bailout was "just too enormous for the American people to guarantee." Her comments suggested that the Bush administration and the Fed would face sharp questioning in Congressional hearings. President Bush was briefed earlier in the afternoon.

A major concern is that the A.I.G. rescue won’t be the last. At Tuesday night’s meeting. lawmakers asked if there was any way of knowing if this would be the final major government intervention. Mr. Bernanke and Mr. Paulson said there was not. Indeed, the markets remain worried about the financial condition of major regional banks as well as that of Washington Mutual, the nation’s largest thrift.

The decision was a remarkable turnaround by the Bush administration and Mr. Paulson, who had flatly refused over the weekend to risk taxpayer money to prevent the collapse of Lehman Brothers or the distressed sale of Merrill Lynch to Bank of America. Earlier this year, the government bailed out another investment bank, Bear Stearns, by engineering a sale to JPMorgan Chase that left taxpayers on the hook for up to $29 billion of bad investments by Bear Stearns. The government hoped at the time that this unusual step would both calm markets and lead to a recovery by the financial system. But critics warned at the time that it would only encourage others to seek bailouts, and the eventual costs to the government would be staggering.

The decision to rescue A.I.G. came on the same day that the Fed decided to leave its benchmark interest rate unchanged at 2 percent, turning aside hopes by many on Wall Street that the Fed would try to shore up confidence by cutting rates once again.

Fed and Treasury officials initially turned a cold shoulder to A.I.G. when company executives pleaded on Sunday night for the Fed to provide a $40 billion bridge loan to stave off a crippling downgrade of its credit ratings as a result of investment losses that totalled tens of billions of dollars.

But government officials reluctantly backed away from their tough-minded approach after a failed attempt to line up private financing with help from JPMorgan Chase and Goldman Sachs, which told federal officials they simply could not raise the money given both the general turmoil in credit markets and the specific fears of problems with A.I.G. The complexity of A.I.G.’s business, and the fact that it does business with thousands of companies around the globe, make its survival crucial at a time when there is stress throughout the financial system worldwide.

“It’s the interconnectedness and the fear of the unknown,” said Roger Altman, a former Treasury official under President Bill Clinton. “The prospect of the world’s largest insurer failing, together with the interconnectedness and the uncertainty about the collateral damage — that’s why it’s scaring people so much.”

Under the plan, the Fed will make a two-year loan to A.I.G. of up to $85 billion and, in return, will receive warrants that can be converted into common stock giving the government nearly 80 percent ownership of the insurer, if the existing shareholders approve. All of the company’s assets are being pledged to secure the loan. Existing stockholders have already seen the value of their stock drop more than 90 percent in the last year. Now they will suffer even more, although they will not be totally wiped out. The Fed was advised by Morgan Stanley, and A.I.G. by the Blackstone Group.

Fed staffers said that they expected A.I.G. would repay the loan before it comes due in two years, either through the sales of assets or through operations.

Asked why Lehman was allowed to fail, but A.I.G. was not, a Fed staffer said the markets were more prepared for the failure of an investment bank. Robert B. Willumstad, who became A.I.G.’s chief executive in June, will be succeeded by Edward M. Liddy, the former chairman of the Allstate Corporation. Under the terms of his employment contract with A.I.G., Mr. Willumstad could receive an exit package worth as much as $8.7 million if his removal is determined to be “without cause,” according to an analysis by James F. Reda and Associates.

A.I.G. is a sprawling empire built by Maurice R. Greenberg, who acquired hundreds of businesses all over the world until he was ousted amid an accounting scandal in 2005. Many of A.I.G.’s subsidiaries wrote insurance of various types. Others made home loans and leased aircraft. The diverse array of companies were more valuable under a single corporate parent like A.I.G., because their business cycles offset each other, giving A.I.G. a relatively smooth stream of revenue and income.

After Mr. Greenberg’s departure, A.I.G. restated its books over a five-year period and instituted conservative new accounting policies. But before the company could really rebuild itself, it became embroiled in the mortgage crisis. Some of its insurance companies ended up with mortgage-backed securities on their books, but the real trouble involved the insurance that its financial products unit offered investors for complex debt securities.

Its stock tumbled faster this year as first the debt securities lost value, and then the insurance contracts, called credit default swaps, came under a cloud.

The Fed’s extraordinary rescue of A.I.G. underscores how much fear remains about the destructive potential of the complex financial instruments, like credit default swaps, that brought A.I.G. to its knees. The market for such instruments has exploded in recent years, but it is almost entirely unregulated. When A.I.G. began to teeter in the last few days, it became clear that if it defaulted on its commitments under the swaps, it could set off a devastating chain reaction through the financial system.

“We are witnessing a rather unique event in the history of the United States,” said Suresh Sundaresan, the Chase Manhattan Bank professor of economics and finance at Columbia University. He thought the near brush with catastrophe would bring about an acceleration of efforts within the Treasury and the Fed to put safety controls on the use of credit default swaps.

“They’re going to tighten the screws and say, ‘We want some safeguards on this market,’ ” he said of the Fed and the Treasury.

The swaps are not securities and are not regulated by the Securities and Exchange Commission. And while they perform the same function as an insurance policy, they are not insurance in the conventional sense, so insurance regulators do not monitor them either.

That situation set the stage for deep losses for all the countless investors and other entities that had entered into A.I.G.’s swap contracts. Of the $441 billion in credit default swaps that A.I.G. listed at midyear, more than three-quarters were held by European banks.

“Suddenly banks would be holding a lot of bondlike instruments that were no longer insured,” Mr. Sundaresan said. “They would have to mark them down. And when they marked them down, they would require more capital. And then they would have to go out and raise capital in these markets, which is very difficult.”

Mr. Sundaresan said that for a new market arrangement to succeed, it would have to create a clearinghouse to track swaps trading, and daily requirements to post collateral, so that a huge counterparty would not suddenly find itself having to come up with billions of dollars overnight, the way A.I.G. did.

Health facilities flush estimated 250M pounds of drugs a year

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By Jeff Donn, Martha Mendoza And Justin

U.S. hospitals and long-term care facilities annually flush millions of pounds of unused pharmaceuticals down the drain, pumping contaminants into America's drinking water, according to an ongoing Associated Press investigation.
These discarded medications are expired, spoiled, over-prescribed or unneeded. Some are simply unused because patients refuse to take them, can't tolerate them or die with nearly full 90-day supplies of multiple prescriptions on their nightstands.

NARCOTICS: Heavily controlled -- until it's time to dump them
REPORT: More towns test water, find drugs

Few of the country's 5,700 hospitals and 45,000 long-term care homes keep data on the pharmaceutical waste they generate. Based on a small sample, though, the AP was able to project an annual national estimate of at least 250 million pounds of pharmaceuticals and contaminated packaging, with no way to separate out the drug volume.

One thing is clear: The massive amount of pharmaceuticals being flushed by the health services industry is aggravating an emerging problem documented by a series of AP investigative stories — the commonplace presence of minute concentrations of pharmaceuticals in the nation's drinking water supplies, affecting at least 46 million Americans.

FIND MORE STORIES IN: United States | Germany | Minnesota | France | South Carolina | Paris | Utah | Environmental Protection Agency | Carolinas | Oslo | Spartanburg | Davis County | REPORT More | Thomas Schwartz | National Association of Clean Water Agencies
Researchers are finding evidence that even extremely diluted concentrations of pharmaceutical residues harm fish, frogs and other aquatic species in the wild. Also, researchers report that human cells fail to grow normally in the laboratory when exposed to trace concentrations of certain drugs.

The original AP series in March prompted federal and local legislative hearings, brought about calls for mandatory testing and disclosure, and led officials in more than two dozen additional metropolitan areas to analyze their drinking water.

And while most pharmaceutical waste is unmetabolized medicine that is flushed into sewers and waterways through human excretion, the AP examined institutional drug disposal and its dangers because unused drugs add another substantial dimension to the problem.

"Obviously, we're flushing them — which is not ideal," acknowledges Mary Ludlow at White Oak Pharmacy, a Spartanburg, S.C., firm that serves 15 nursing homes and assisted-living residences in the Carolinas.

Such facilities, along with hospitals and hospices, pose distinct challenges because they handle large quantities of powerful and toxic drugs — often more powerful and more toxic than the medications people use at home. Tests of sewage from several hospitals in Paris and Oslo uncovered hormones, antibiotics, heart and skin medicines and pain relievers.

Hospital waste is particularly laden with both germs and antibiotics, says microbiologist Thomas Schwartz at Karlsruhe Research Center in Germany.

The mix is a scary one.

In tests of wastewater retrieved near other European hospitals and one in Davis County, Utah, scientists were able to link drug dumping to virulent antibiotic-resistant germs and genetic mutations that may promote cancers, according to scientific studies reviewed by the AP.

Researchers have focused on cell-poisoning anticancer drugs and fluoroquinolone class antibiotics, like anthrax fighter ciprofloxacin.

At the University of Rouen Medical Center in France, 31 of 38 wastewater samples showed the ability to mutate genes. A Swiss study of hospital wastewater suggested that fluoroquinolone antibiotics also can disfigure bacterial DNA, raising the question of whether such drug concoctions can heighten the risk of cancer in humans.

Pharmacist Boris Jolibois, one of the French researchers at Compiegne Medical Center, believes hospitals should act quickly, even before the effects are well understood. "Something should be done now," he said. "It's just common sense."

'Major pollutants of concern'

Some contaminated packaging and drug waste are incinerated; more is sent to landfills. But it is believed that most unused pharmaceuticals from health care facilities are dumped down sinks or toilets, usually without violating state or federal regulations.

The Environmental Protection Agency told assembled water experts last year that it believes nursing homes and other long-term care facilities use sewer systems to dispose of most of their unused drugs. A water utility surveyed 45 long-term care facilities in 2006 and calculated that two-thirds of their unused drugs were scrapped this way, according to the National Association of Clean Water Agencies.

An internal EPA memo last year included pharmaceuticals on a list of "major pollutants of concern" at health care businesses. Still, few medical centers keep comprehensive records of drugs they cast down toilets or into landfills. When data are kept, drugs and tainted packaging are combined in the same totals.

In an attempt to quantify the problem, the AP examined records in Minnesota, where state regulators have pushed hospital administrators to keep closer track than elsewhere. Fourteen facilities were surveyed, in a range of settings from rural to urban. The AP projected those annual totals onto the national patient population for hospitals and adjusted for the relatively lower pharmaceutical use of Minnesotans. Since long-term care facilities generate more drug waste than hospitals, the AP conservatively doubled the number.

That calculation produced an estimate of at least 250 million pounds of annual drug waste from hospitals and long-term care centers, further complicated by the fact experts say drugs might account for only up to half of pharmaceutical waste, while the rest is packaging.

The AP estimate excludes many other sources of health industry drug waste, from doctors' to veterinary offices. Smaller medical offices typically dispose of expired samples and unwanted drugs like ordinary consumers — with little forethought.

Alan Davidner, president of Vestara of Irvine, Calif., which sells systems to manage drug waste, says his limited sampling suggests the health care industry's contribution could even be higher.

Plus, untold amounts of pills and tablets are being thrown away each year at federal and state correctional institutions.

At a state prison in Oak Park Heights, Minn., nurse Linda Peterson says the hospital unit serving inmates statewide has been throwing away up to 12,000 pills a year. She says some heart medicines and antibiotics are simply chucked into the trash. Tightly regulated narcotics susceptible to abuse go down the toilet.

"We flush it and flush it and flush it — until we can't see any more pills," she says.

She notes the presence of nursing homes, a hospital and another prison in the same area. "So what are all these facilities doing, if we're throwing away about 700 to 1,000 pills a month?"

Seeking solutions

The EPA is considering whether to impose the first national standard for how much drug waste may be released into waterways by the medical services industry, but Ben Grumbles, the EPA's top water administrator, says a decision won't be made until next year, at the earliest.

So far, regulators have done little more than politely ask the medical care industry to stop pouring drugs into the wastewater system. "Treating the toilet as a trash can isn't a good option," says Grumbles.

Some think it's time to do more than ask. "It's strange that we have rules about the oil from your car; you're not allowed to simply flush it down the sewer," says U.S. Rep. Tim Murphy, R-Pa. "So why do we let these drugs, without any kind of regulation, continue to be flushed away in the water supply?"

Landfills are one alternative. At least they don't empty directly, and immediately, into waterways like some sewage.

Marjorie E. Powell, a lawyer for the Pharmaceutical Research and Manufacturers of America, says landfills are "more environmentally friendly," while EPA spokeswoman Roxanne Smith contends that landfilling of hazardous pharmaceutical waste "poses little threat to the public."

Still, Grumbles acknowledges that landfills, while safer, are not a permanent solution. That's because pharmaceuticals can eventually reach waterways from landfills through leaks or intentional releases of treated seepage known as leachate.

An agency staffer wrote in a memo last year: "EPA recognizes that residuals in the leachate could contaminate groundwater supplies and ultimately reach water treatment plants, but disposal into the trash is currently considered a BMP" — or best management practice.

Already, researchers have detected trace concentrations of drugs — including the pain reliever ibuprofen and seizure medicine carbamazepine — in seepage or groundwater near landfills.

Environmental professionals outside government are reaching a consensus that incinerators are the best disposal method.

"That's the best practice for today because we don't really know what the hell to do with the stuff," says industrial engineer Laura Brannen, an executive at Waste Management Healthcare Solutions, of Houston. She says burning destroys more drug waste than all other methods, though some contaminants may escape in smoke and ash.

On a recent day at Abbott Northwestern Hospital in Minneapolis, Mary Kuch was getting ready to squirt leftovers from a syringe of hydromorphone, a powerful morphine derivative, into a sink. When she started out in nursing 18 years ago, "I took it for granted, because I was a young nurse, and that's what other nurses did," she says. "But I did find it strange."

These days, only four gallons — drugs with high potential for abuse — go down the hospital's drains each year. Nearly all leftover medicine and contaminated packaging are instead tossed into black bins and rolled to a hospital storage room crammed with scores of 55-gallon drums.

There, waste-company employee Bryant Sears — dressed in a Teflon suit, rubber gloves and goggles — conducts a sorting operation. Pills, blister packs and liquid medicines collected in vials, along with syringes and IV bags, are separated out according to differing disposal standards and methods. Occasionally, he glances at a wall-sized placard with details on which drug goes where — hazardous waste in one barrel, nonhazardous in another. A roll of "hazardous waste" stickers hangs from a pole on the wall.

Sears points to some epinephrine, a heart drug, saying, "Now that it's past its expiration date, it's waste."

These leftovers and discards ultimately will be incinerated.

EPA's Smith says even municipal burners unapproved for hazardous waste "will destroy all but a minute fraction" of organic compounds — the kind found in pharmaceuticals.

But Stephen DiZio, a manager with the California Department of Toxic Substances Control, says not so fast. "I don't think we're encouraging incineration of anything. The public outcry would be so great."

The push for incineration hides an irony. Several decades ago, drug waste was routinely chucked into the trash and burned in hospital or city incinerators.

Then came a national campaign against air pollution. Most hospitals shut down their burners, and city incinerator managers became pickier about what they'd accept. With options restricted, hospitals began shipping more drug waste to landfills — and dumping more into toilets and sinks.

More options

A few choices are expanding. Some states have passed laws to make it easier to contribute unused drugs to charity pharmacies that supply low-income patients.

Also, a small share of unused drugs is shipped back to manufacturers for credit — and incineration, waste consultants say. But the drugs are supposed to be sent back in original packaging — sometimes impractical because the packaging is discarded or damaged.

Several long-term care residences want to deploy automatic drug-dispensing machines that suppliers would refill often to reduce waste.

While not yet practical, there are several experimental technologies, such as destroying trace drugs with an electrical arc, microwaves, or caustic chemicals.

Increasingly, some bureaucrats and health professionals are suggesting that drug makers help pay costs of managing drug waste. But the pharmaceutical industry says there's insufficient evidence of environmental harm to warrant the expense.

But impatience is mounting. Even the EPA has begun to take such suggestions seriously. Grumbles says drug makers "should do more for product stewardship and meds retrieval now." He says it would be unwise to wait for all the proof.

For now, many health facilities, especially small ones, are put off by the cost of proper handling. Drugs deemed hazardous by the EPA — about 5% of the market — might cost up to $2 a pound to incinerate in a certified hazardous waste incinerator, says Vestara's Davidner. A pound might cost 35 cents to burn in a regular trash incinerator.

Tom Clark, an executive at the American Society of Consultant Pharmacists, wonders: "When you can flush it down the toilet for free, why would you want to pay — unless there's some significant penalties?"

Stocks tumble after government bailout of AIG

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Wall Street plunged again in a crisis of confidence Wednesday as anxieties about the financial system still ran high after the government's bailout of insurer American International Group Inc. The Dow Jones industrial average dropped more than 400 points, and investors seeking the safety of hard assets and government debt sent gold, oil and short-term Treasurys soaring.

The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. The ramifications of the world's largest insurer going under likely would have far surpassed the demise of Lehman.

"People are scared to death," said Bill Stone, chief investment strategist for PNC Wealth Management. "Who would have imagined that AIG would have gotten into this position?"

He said the fear gripping the markets reflects investors' concerns that AIG wasn't able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter. Over the past year, companies including Lehman and AIG have sought to reassure investors that they weren't in trouble, and now the market isn't sure who can and can't be trusted.

"No one's going to be believing anybody now because AIG said they were OK along with everybody else," Stone said.

The two independent Wall Street investment banks left standing — Goldman Sachs Group Inc. and Morgan Stanley — remain under scrutiny, as does Washington Mutual Inc., the country's largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.

Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain's third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch & Co., the world's largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.

"It's still uncertain ground we're treading. We just have to move on a daily basis," said Jack A. Ablin, chief investment officer at Harris Private Bank.

Charges against Blackwater guards debated

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Defense attorneys for Blackwater Worldwide employees are trying to head off Justice Department charges against the company's bodyguards who were involved in the deadly shooting of 17 Iraqi civilians exactly one year ago.

In a meeting with prosecutors Tuesday, the Blackwater guards' legal team outlined legal and factual reasons the Justice Department would lose at trial if they are indicted, three people close to the investigation said. They spoke on condition of anonymity because of the sensitivity of the ongoing investigation.

Prosecutors agreed to take Blackwater's argument into consideration but did not indicate whether they would continue to pursue charges or drop the case. The company itself is not a target of the investigation and has pledged to cooperate with the probe.

Justice Department spokesman Dean Boyd declined to comment.

For months, a federal grand jury has been investigating the fatal shooting of the civilians, including several young children, in Baghdad's Nisoor Square on Sept. 16, 2007. As few as three bodyguards have been targeted for prosecution, according to lawyers close to the case.

Based in Moyock, N.C., Blackwater has played down suggestions that indictments could hurt the company.

In an interview with The Associated Press in July, Blackwater president Gary Jackson predicted that charges would have few negative effects.

"Our Internet sales will go through the roof," Jackson quipped. "There will be more people on our Web site than you can shake a stick at. And guess what? We're going to weather that one, too."

Blackwater maintains its convoy was under attack before it opened fire in self-defense. Follow-up investigations by the Iraqi government and the U.S. military, however, concluded that Blackwater's men were unprovoked.

Meanwhile, the government's investigation has hit several legal snags _ chief among them promises of limited immunity to the guards.

That issue was one of Blackwater's top defenses Tuesday, with lawyers arguing that the Justice Department investigation may have been influenced by information gathered during an initial probe by the State Department immediately after the shootings. The State Department agreed that the bodyguards' statements would only be used internally _ and not for criminal prosecutions.

That means the statements could not be used at trial, forcing prosecutors to build a case based on other evidence from a crime scene that was then weeks old.

Additionally, the Blackwater guards' attorneys argued that the Justice Department would not be able to prove it has jurisdiction to bring criminal charges.

Blackwater and other contractors operate in a legal gray area. They are immune from prosecution in Iraqi courts. If the Justice Department wants to bring criminal charges such as assault, manslaughter or murder in a U.S. court, prosecutors would have to do so under the Military Extraterritorial Jurisdiction Act.

That would require the government to show that State Department contractors were "supporting the mission of the Department of Defense overseas." Blackwater, however, claims that its contract guarding diplomats was a purely a State Department function, one independent from the Pentagon.

That could give Blackwater the legal cover it needs to avoid charges against its employees.

In a test case last month, a former Marine accused of war crimes in Iraq was acquitted on federal manslaughter charges. The civilian jurors said later the case should have been tried in a military court because they had no combat experience.

Rep. David Price, D-N.C., is seeking to close the law's loophole, but in a statement this week he blamed unidentified senators and Bush administration officials for blocking his efforts.

Human rights advocates said they were outraged that even after a year, the government so far has failed to charge the bodyguards.

"A year later, we are still waiting for justice in this case," said Larry Cox, executive director of Amnesty International USA. "Robust protections must be in place to guarantee that personnel are held accountable for indiscriminate shootings and killings of civilians."

Constitution in Crisis, Candidates in Denial

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By John Nichols

Constitution Day has arrived without major statements from Democrat Barack Obama or Republican John McCain on the need to restore this country's commitment to the rule of law.

In contrast, independent presidential candidate Ralph Nader's campaign produced a video statement detailing his commitment to constitutional renewal.

Here's Nader's video, in which he says, "You and I cannot turn our backs on the Constitution, as the two parties have done."

Even more powerful is the statement made by Senator Russ Feingold, the Wisconsin Democrat who chairs the Senate Judiciary Committee's Constitution subcommittee, at the opening of Tuesday's hearing -- which Obama and McCain should have attended -- on how to repair the damage done by the Bush-Cheney administration to the system of checks and balances and our fundamental liberties.

Decrying the administration's record as a "shameful legacy that will haunt our country for years to come," Feingold declared that America needs to "get started right away on this immense and extremely important job of restoring the rule of law."

The Wisconsinite pondered seeking the Democratic nomination for the presidency this year but instead backed Barack Obama.

Would that Obama was speaking up as Feingold is on the Constitution.

Here's the Constitution subcommittee chair said in his call to action:

Tomorrow, September 17, is the 221st anniversary of the day in 1787 when 39 members of the Constitutional Convention signed the Constitution in Philadelphia. It is a sad fact as we approach that anniversary that for the past seven and a half years, and especially since 9/11, the Bush Administration has treated the Constitution and the rule of law with a disrespect never before seen in the history of this country. By now, the public can be excused for being almost numb to new revelations of government wrongdoing and overreaching. The catalogue is breathtaking, even when immensely complicated and far reaching programs and events are reduced to simple catch phrases: torture, Guantanamo, ignoring the Geneva Conventions, warrantless wiretapping, data mining, destruction of emails, U.S. Attorney firings, stonewalling of congressional oversight, abuse of the state secrets doctrine and executive privilege, secret abrogation of executive orders, signing statements. This is a shameful legacy that will haunt our country for years to come.

There can be no dispute that the rule of law is central to our democracy and our system of government. But what does ‘the rule of law' really mean? Well, as Thomas Paine said in 1776: ‘In America, the law is king.' That, of course, was a truly revolutionary concept at a time when the King, quite literally, was the law.

Over 200 years later, we still must struggle to fulfill Paine's simply stated vision. It is not always easy, nor is it something that once done need not be carefully maintained. Justice Frankfurter wrote that law:

is an enveloping and permeating habituation of behavior, reflecting the counsels of reason on the part of those entrusted with power in reconciling the pressures of conflicting interests. Once we conceive ‘the rule of law' as embracing the whole range of presuppositions on which government is conducted . . ., the relevant question is not, has it been achieved, but, is it conscientiously and systematically pursued.

The post-September 11th period is not, of course, the first time that events have caused great stress for the checks and balances of our system of government. As Berkeley law professors Daniel Farber and Anne Joseph O'Connell write in testimony submitted for this hearing: ‘The greatest constitutional crisis in our history came with the Civil War, which tested the nature of the Union, the scope of presidential power, and the extent of liberty that can survive in war time.' But as legal scholar Louis Fisher of the Library of Congress describes in his testimony, President Lincoln pursued a much different approach than our current President when he believed he needed to act in an extra-constitutional manner to save the Union. He acted openly, and sought Congress's participation and ultimately approval of his actions. According to Dr. Fisher:

[Lincoln] took actions we are all familiar with, including withdrawing funds from the Treasury without an appropriation, calling up the troops, placing a blockade on the South, and suspending the writ of habeas corpus. In ordering those actions, Lincoln never claimed to be acting legally or constitutionally and never argued that Article II somehow allowed him to do what he did. Instead, Lincoln admitted to exceeding the constitutional boundaries of his office and therefore needed the sanction of Congress…. He recognized that the superior lawmaking body was Congress, not the President.

Each era brings its own challenges to the conscientious and systematic pursuit of the rule of law. How the leaders of our government respond to those challenges at the time they occur is, of course, critical. But recognizing that leaders do not always perform perfectly, that not every President is an Abraham Lincoln, the years that follow a crisis are perhaps even more important. And soon, this Administration will be over. So the obvious question is: ‘Where do we go from here?' I believe that one of the most important things that the next President must do, whoever he may be, is take immediate and concrete steps to restore the rule of law in this country. He must make sure that the excesses of this Administration don't become so ingrained in our system that they change the very notion of what the law is.

That, of course, is much easier said than done. It's not simply a matter of a new President saying, ‘Ok, I won't do that anymore.' This President's transgressions are so deep and the damage to our system of government so extensive that a concerted effort from the executive and legislative branches will be needed. And that means the new President will, in some respects, have to go against his institutional interests.

That is why I called this hearing – to hear from legal and historical experts on how the next President should go about tackling the wreckage that this President will leave. I've asked our two panels of experts who will testify to be forward-looking – to not only review what has gone wrong in the past seven or eight years, but to address very specifically what needs to be set right starting next year and how to go about doing it.

In addition to the testimony of the witnesses here today, I solicited written testimony from advocates, law professors, historians and other experts. So far we have received nearly two dozen submissions from a host of national groups and distinguished individuals. I want to thank each and every person who made the effort to prepare testimony for this hearing. You have done the country a real service.

All of this testimony will be included in the written record of the hearing, which I plan to present to the incoming Administration. The submissions we have received so far can be seen on my website at I hope that many of these recommendations, along with the testimony we will hear today, will serve as a blueprint for the new President so that he can get started right away on this immense and extremely important job of restoring the rule of law.

After AIG rescue, Fed may find more at its door

Go to Original
By Emily Kaiser

In one $85 billion (47 billion pound) fell swoop, the U.S. Federal Reserve may have wiped out what credibility it won resisting Lehman Brothers' rescue plea and opened its door to countless other companies to come calling for cash.

By providing a massive loan to American International Group on Tuesday, just two days after refusing to use public funds to save Lehman Brothers from bankruptcy, the central bank also invited tough questions on how exactly it determined whether a company was too big to fail.

Between the $29 billion the Fed pledged to swing the Bear Stearns sale to JPMorgan in March, $100 billion apiece to rescue mortgage finance firms Fannie Mae and Freddie Mac, up to $300 billion for the Federal Housing Authority, Tuesday's $85 billion loan to insurer AIG and various other rescue deals and loans, taxpayers are potentially on the hook for more than $900 billion.

"They pretended they were drawing a line in the sand with Lehman Brothers but now two days later they're doing another bailout," said Nouriel Roubini, a professor at New York University's Stern School of Business.

"We're essentially continuing a system where profits are privatized and...losses socialized," Roubini said, adding that auto makers, airlines and other struggling businesses would no doubt be asking for government help too.

The government was hard pressed to say no to AIG because of concerns that its collapse would harm thousands of companies around the world and cause chaos in the $62 trillion market for credit default swaps, where it is a big player.

Many on Wall Street were clamouring for a rescue earlier on Tuesday, and AIG's share price swung wildly throughout the day as rumours swirled of an on again, off again government rescue.

But Roubini said instead of handing out money to firms that made bad bets -- which could inadvertently encourage more risky behaviour if companies think they have a safety net -- the government should be buying up mortgages and rewriting the terms so that households are not buried in debt.


To be sure, the Fed attached quite a few strings to its AIG funding deal. The loan carries a high interest rate, the government can veto any dividends, and AIG is expected to sell assets over the next two years to repay its debt. Senior management will be replaced.

But the central bank also followed a pattern established with Bear Stearns in March and repeated with Fannie and Freddie earlier this month of essentially wiping out shareholders while protecting those who held debt.

Some economists warned that investors had caught on and were betting on future bailouts by selling stock and buying bonds in struggling firms. That ends up pushing down a company's share price, which can exacerbate its troubles.

"If the message is that any time something like this pops up we're going to wipe out the equity and coddle the bondholders, that is its own sort of moral hazard," said Michael Feroli, an economist with JPMorgan in New York.

"I don't think you have to be a die-hard free market advocate to be at least a little bit concerned."


Fed officials said that they needed to act because of AIG's extensive involvement in financial markets. Through its insurance, risk and asset management businesses, AIG has dealings with many thousands of companies all over the world, so a bankruptcy would have had huge global repercussions.

RBC Capital Markets analyst Hank Calenti pegged the market impact of an AIG failure at more than $180 billion, or about half of the total capital that financial firms have raised since the beginning of the credit crisis last year.

But JPMorgan's Feroli said the Fed could have chosen to let AIG fail, just as it had done with Lehman.

"We don't know if the disease would have been worse than the medicine," he said. "We'll never know. But we know we lived through Lehman."

He said the central bank needed to clearly explain when and why it would act to salvage a company in jeopardy or face the prospect of a long line of companies seeking bailouts.

Fed Chairman Ben Bernanke, who has stayed out of the public eye during the Lehman and AIG drama, is due to testify before a congressional committee next week and can expect some pointed questioning, Feroli said.

"He needs to provide some sort of clear demarcation of what is or is not a systemic risk."

"Of the many unconventional actions taken by the Fed in the current crisis, this may likely prove to be the most controversial and should make Bernanke's...testimony on Capitol Hill an interesting event."