Thursday, October 2, 2008

600,000 jobs lost - and counting

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By Steve Hargreaves

Freeze in credit would only worsen unemployment as economic slowdown intensifies.

Job losses have been mounting, and the slowing economy and credit crunch is likely to take an even greater toll in the coming months.

Analysts on average forecast that the monthly employment report expected Friday will reveal that the economy shed 105,000 jobs in September - the largest monthly loss in five years. The economy already has lost 605,000 jobs this year.

Unemployment is expected to remain at a relatively high 6.1%.

What's more troubling is that hiring trends have deteriorated even further in recent weeks - and that won't be reflected in government statistics until later this year.

Failing mortgages and struggling banks have made it difficult for businesses and consumers alike to borrow money. If businesses can't borrow money, the thinking goes, they can't expand stores or hire more people.

"A complete lockup of the credit markets will reverberate throughout the economy in a very severe fashion," said Martin Regalia, chief economist at the U.S. Chamber of Commerce, a business lobby group. "If the economy weakens further, we'll see truly dramatic unemployment."

Regalia expects unemployment to reach 6.5% by the end of the first quarter next year, and 7% if nothing is done by the government to free up the capital markets. While the economy may stop shedding jobs at that point, he said those stubbornly high rates of unemployment could persist until the end of 2009.

Actual job losses are more difficult to predict. Regalia said 150,000 to 175,000 a month could be likely, significantly higher than today's levels but far below the rate of 250,000 to 300,000 lost during the last recession in 2002.

The government is still negotiating a package that would enable the purchase of distressed assets from banks in the hopes of getting them to lend again. The $700 billion bailout was rejected in the House of Representatives on Monday, and the Senate is going to vote on a revised version on Wednesday night.

"If we don't have measures to correct the situation, we will see more [job] losses," said Joyce Bastoli, a vice president at Ajilon Finance Solutions, part of the staffing company Adecco. "If companies don't have access to capital, we will see it trickle down."

The real problem: Slowing economy
Still, while there were some encouraging signs that the credit crisis is not having as devastating an impact as some fear, the slowing economy looms large.

"We're not seeing anything besides the normal tightening of credit you usually get at the end of an expansion," said Bill Dunkelberg, chief economist for the National Association of Independent Businesses.

Alan Tonelson, a research fellow at the U.S. Business and Industry Council, which represents smaller and mid-size manufacturers, said that most manufacturers are conservatively managed and have fairly low levels of debt. Tonelson is urging caution on any government bailout, saying banks should not be encouraged to resume their free-lending ways to consumers already overburdened with debt.

Even if businesses aren't yet impacted by the credit crunch, they are certainly planning for slowing sales as credit to consumers dries up. That could mean fewer orders for goods - and fewer people needed to manufacture, ship, stock and sell those goods.

"It's reasonable to expect not only job losses, but wage losses as well," said Tonelson.

Said Daniel Penrod, an industry analyst with the California Credit Union League, a trade association for credit unions: "We haven't really seen small businesses getting hurt because of access to money, but rather just because of the slowdown."

With the holiday shopping season just around the corner, the next sector ripe for a hit is retail, said John Challenger, chief executive of global outplacement firm Challenger, Gray & Christmas. A survey by Challenger released Wednesday said that the number of job cuts in September rose 7.2% to 95,094.

"Consumers are tapped, it's going to be a tough year," said Challenger. "Unemployment is going up by leaps and bounds."

Iraq Facing New Civil War, Insurgency

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By Robert Dreyfuss

What does the start of a new civil war in Iraq look like? It looks a lot like this:

The Times reports today matter-of-factly on the pattern of assassinations of Sunni members of the Sons of Iraq militia by Shiite death squads:

American military leaders disagree among themselves about whether the assassinations are increasing or whether some of the killings are merely criminal acts. But they are "watching the numbers closely," said a military official who attends briefings on attacks.

Yesterday I wrote a lengthy piece for The Nation about the likehihood of a new civil war and a new Sunni resistance movement stemming from the sectarian Shiite government's refusal to make a political deal with Iraq's Sunnis. The American military may indeed be "watching the numbers" of murdered Sunnis "closely," but there's not much that they intend to do about it. (Here's a clue for the vaunted US military intelligence people "watching" these assassinations: they're not "criminal." They're political.)

In a major feature this week on the handover of the Awakening movement and the Sons of Iraq to Prime Minister Maliki's bloodthirsty regime, the Post cited the fears of Ibrahim Suleiman al-Zoubaidi, one of the movement's leaders in Baghdad:

"They will kill us," Zoubaidi declared. "One by one."

Across Baghdad, leaders of the groups speak about the transition in similarly apocalyptic terms. Some have left Baghdad, saying they fear that the Iraqi government will conduct mass arrests after the handover. Others are obtaining passports and say they will flee to Syria.

Reports Leila Fadel of McClatchy, one of the very best reporters in Baghdad:

The Sons of Iraq worry that putting them under the control of Shiite Prime Minister Nouri al Maliki is a ploy to detain and disband them. Already, Sons of Iraq leaders in the northern province of Diyala are hiding in neighboring Syria.

Others aren't fleeing at all. They'll fight.

It's going to get uglier. Here's an excerpt of an important story in the of London on the Sons of Iraq handover:

The Sons of Iraq said they feared for their future. Mohammad Idan, 42, a former shopkeeper related a rumour he had heard about the Iraqi security forces kidnapping and "disappearing" a Sons of Iraq member.

"We will never feel safe with them," he said. ...

Alarm has spread through the militia group in recent weeks after the government issued arrest warrants for dozens of members around the country. Under US pressure, the Iraqi government has agreed not to arrest any members without a warrant issued during the past six months, and not to fire any without cause.

In The National, a newspaper in the United Arab Emirates, the warnings from the Awakening movement -- called sahwa in Arabic -- are a little more explicit:

Sunni fighters who once battled US troops in Baghdad, before turning their guns on al Qa'eda, have warned the Iraqi government it must continue to support them or risk a return to chaos. ...

The Sahwa themselves are concerned that the Iraqi government may simply disband the councils and push the former insurgents back into the role of active insurgents. In essence it would be a repeat of a former devastating mistake, when America disbanded the Iraqi army in 2003, leaving thousands of trained soldiers without jobs and a score to settle against the US military. ...

Sheikh Abdul Mohammad, a Sahwa fighter in Taji, to the west of Baghdad [said], "If we are treated properly we can stand with the government and Iraq will be strong, can stabilize and prosper. If not the country will fall again. The future is not in our hands it is in the government's." ...

In the notorious Diyala province, one Sahwa leader said government security forces contained too many people who took orders from Iran – again a reference to distrust many Sunnis have for the Shiite dominated security forces.

"The security services have too many elements which are loyal to Iran. We need to see those cleaned out, and then the Sahwa can think about being integrated."

He's right, in case you're wondering. Iran pretty much runs the show, through its teams of death squads, its influence of the powerful Badr Brigade of the Iranian-created Islamic Supreme Council of Iraq (ISCI), and its strong influence over Maliki.

It's having an effect, across Baghdad and much of Iraq. From an Italian source, here's one account about Adhamiya, a neighborhood in north central Iraq just east of the river:

In al-Adhamiya in recent days, gunfights have broken out of a sort not seen for some time: two people were killed at a checkpoint on Sunday, and a civilian was killed on Monday when a car bomb exploded. There have also been rising tensions between local leaders and government officials. The situation will have to be carefully managed to keep al-Adhamiya and similar neighborhoods from descending into sectarian violence once again.

Here's a conclusion from the Pentagon's own quarterly report on Iraq, in typical bureaucratese, about the Iraqi government's unwillingness to take responsibility for supporting (and paying) the Sons of Iraq--not to mention not assassinating them:

"The slow pace of transition is a concern. Continued GoI [Government of Iraq] commitment is required to ensure SoI [Sons of Iraq] are fully transitioned to permanent employment. Recent allegations of GoI targeting SoI leaders in Diyala Province are of concern if they are indicators of GoI reluctance to integrate SoI into the ISF or, more broadly, to reconcile a diverse province."

All this makes mincement of John McCain's assertion that his vaunted "surge" has led to "victory" in Iraq. It hasn't. The country is seething with violence and political fissures that are very deep. It's ready to explode. Barack Obama, who's been defensive about the surge, ought to slam McCain for his support, in 2006, for escalating the war. Obama -- along with the entire US military leadership back then, most of Congress, and the Baker-Hamilton Iraq Study Group -- wanted to start pulling US forces out of Iraq two years ago. Had they won, the war would be over. Instead, the next president will take office with more than 150,000 troops in Iraq.

"Grand Larceny" on a Monumental Scale: Does the Bailout Bill Mark the End of America as We Know It?

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By Richard C Cook

Tonight the Senate passed the $700 billion Wall Street bailout bill by a vote of 74-25. This follows the rejection of the bill by the House on Monday. In an MSNBC poll, 62 percent of Americans oppose the giveaway, but the lobbyists are doing everything possible to assure the rejection is overturned. According to Bob Borosage, co-director of The Campaign for America’s Future, House leaders "are bringing in the small business lobby and the banking lobby to buy the twelve Republican votes they need."

The Senate took up the bill in order to pressure House members who voted against it to change their positions when it returns to a vote on the House floor on Friday. This procedure may be unconstitutional, because revenue bills must originate in the House, but there is no time or political will for anyone to mount a challenge on constitutional grounds. As another means of inducement—or blackmail—the bill includes the repeal of the wildly unjust alternative minimum tax.

Every reputable economist commenting on the bill opposes it, including NYU’s Nouriel Roubini, who says the plan is "totally flawed." He says the plan is:

"a disgrace: a bailout of reckless bankers, lenders, and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer."

My own view is that the plan is worse than that: a crime; grand larceny on a monumental scale.

Here’s why: We know that the debacle started with homeowner defaults on subprime mortgages and that it has now spread to other types of mortgages as foreclosures spread. We know that the unhealthy use of subprime mortgages started during the Clinton administration, as did the bundling and sale of these mortgages into mortgage-backed securities sold in the financial markets.

What has not been reported is that the Bush administration turned these acts of reckless lending into a national program of mortgage fraud. Soon after George W. Bush became president in 2001, meetings at the White House between Federal Reserve Chairman Alan Greenspan and administration officials became more frequent. According to mortgage industry insiders I have interviewed, direction soon began to come down from the banks to mortgage brokers to falsify borrower income information to allow them to qualify for loans that were otherwise out of reach.

The FBI has investigations underway to prosecute some of these cases of mortgage fraud. But they are not reaching above the brokers’ level. The FBI is not gaining access—or at least they have not reported it publicly—to information about collusion at the political level or at the level of the banks which provided the leveraged funding for mortgage money.

But at the time the housing bubble was inflating, no one was watching. Note that when Secretary of the Treasury Henry Paulson testified before the Senate Banking Committee last week, he said he was shocked to learn when assuming office in June 2006 that no federal agency regulated mortgage lending. Rather this was an area left to the states.

What Paulson did not say was that when the states attempted to intervene, they were blocked by the Treasury Department’s Office of the Comptroller of the Currency. In a February 14 article in the Washington Post written before he resigned, New York governor Eliot Spitzer wrote:

"In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules. But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation."

Why did the Bush administration do this? The only possible answer is that it had every intention of producing the housing bubble, one that had the effect of not only inflating the cost of homes and real estate but also pumping billions of dollars of borrowed cash into the economy through mortgage and home equity loans.

The bubble enriched huge numbers of executives, managers, and shareholders throughout the financial and real estate industries, and provided jobs to millions of people. The bubble also brought back foreign capital to U.S. markets that had been scared away by the bust of 2000-2001.

Everyone seemed to benefit, but it was those at the top who skimmed the greatest profits. And for an economy that had already given away millions of its best manufacturing jobs through NAFTA, Most-Favored-Nation trading policies with China, World Trade Organization agreements, etc., the bubble acted as a kind of substitute economic engine.

It also resulted in tax revenues that allowed the Bush administration to implement its 2001 and 2003 tax cuts for the rich and provide funding for the Afghanistan and Iraq wars. Of course these tax revenues were not enough, as the national debt soared to over $9 trillion during the Bush years as well.

Economist Dean Baker of the Center for Economic and Policy Research makes the point:

"The near hysterical discussion (count the times ‘Great Depression’ appears in news stories) of the bailout still largely fails to recognize the roots of the economy's current problems in the collapse of the housing bubble. Much of the discussion assumes that the problem is just bad subprime loans and that house prices will bounce back once the credit markets are working properly."

The point is critical, because what the Senate and House leaders are telling us, as are President George W. Bush, presidential candidates Barack Obama and John McCain, and Federal Reserve Chairman Ben Bernanke, is that the bailout is to get the American economy moving again. Credit, they say, is the lifeblood of the economy, and without credit no one can make a move.

But credit is the lifeblood of the economy only because people are broke. Purchasing power in the U.S. has collapsed, and it is getting worse as the recession which has now begun worsens.

People can’t get loans, not because the credit markets are stalled, but because they have no savings for down payments and can’t afford to repay what they wish to borrow. If they could repay their loans, plenty of credit would be available. But there is no money—and no savings—within the economy for it to get moving again. The only possible source is more federal borrowing to prime the pump Keynesian-style. That is what the politicians claim the bailout will do. But it won’t.

Then what is happening?

What is happening is that the Bush administration is engineering a massive raid on the Federal treasury to pay off the people within the financial industry who have been operating the housing scam because the politicians told them to do it. This is hush money.

The people in the financial institutions who are getting the money will be passing it on to the big banks that leveraged their criminal lending practices. The giant sucking sound you hear is almost a trillion dollars of future taxpayer earnings going into the vaults of the nations’s biggest banks, such as Citibank, Bank of American, and—the pet bank of the Rockefeller family—J.P. Morgan Chase. Much will also go into the vaults of foreign investors such as the Bank of China.

And these banks have no intention of recycling the money into productive U.S. investments. Despite the political posturing, where much of it will go at the second or third tier is into executive salaries and bonuses. The fat cats are "gittin’ out while the gittin’s good."

What happens next?

Well, it is already happening. In the post-bubble era there will be no more economic engines for the American economy. A long term recession and depression are inevitable, and they are expected by those in the know. In fact, there has been a plan in the works for a very long time to bring down the U.S. economy, and it will be happening over the coming months.

This is why the government is also preparing to implement martial law, or something close to it, in case public unrest breaks out. We will likely also see a clampdown on free speech, the right to protest, and use of the internet. Federal facilities are being prepared all around the country to backstop state prisons and local jails that are already bursting at the seams.

This is the plan, so people need to begin to take whatever measures they can to cut their cost of living, get out of debt, and protect themselves and their families.

The Specter of Wall Street

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By Steve Fraser

Wall Street's Comeback as the Place Americans Love to Hate

Wall Street sits at the eye of a political hurricane. Its enemies converge from every point on the compass. What a stunning turn of events.

For well more than half a century Wall Street has enjoyed a remarkable political immunity, but matters were not always like that. Now, with history marching forward in seven league boots, we are about to revisit a time when the Street functioned as the country’s lightning rod, attracting its deepest animosities and most passionate desires for economic justice and democracy.

For the better part of a century, from the 1870s through the tumultuous years of the Great Depression and the New Deal, the specter of Wall Street haunted the popular political imagination. For Populists it was the "Great Satan," its stranglehold over the country’s credit system being held responsible for driving the family farmer to the edge of extinction and beyond.

For legions mobilized in the anti-monopoly movement, Wall Street was the prime engine house of monopoly capitalism, leaving behind it a trail of victimized businesses, consumers, captive municipalities, and crushed workers. For Progressive reformers around the turn of the twentieth century, Wall Street’s "money trust" was the mother of all trusts, its tentacles -- and the octopus was indeed a popular image of the time -- choking off economic opportunity for all but a favored few. Its political power in Congress, in presidential cabinets, in statehouses, in both major political parties was seen as so overwhelming as to threaten to suffocate democracy itself.

All the periodic panics and depressions -- 1873, 1884, 1893, 1907, and 1913 -- that, with numbing regularity, punctuated economic life until the Crash of ’29 and the Great Depression brought the house down seemed to begin on the Street. And whether they actually began there or not, all the misery that followed in their wake -- the homelessness, the armies of tramps and hobos, the starvation, the bankruptcies, the broken families, the crushing sense of dispossession -- was regularly laid at the feet of the Street.

Despite the hot-tempered invective directed its way, the "Great Satan" didn’t face its comeuppance until the New Deal in the 1930s. Then, all its transgressions -- its speculative greed, its felonious insider-dealing, its cynical manipulation of popular credulity, its extravagant incompetence and seemingly limitless capacity for self-delusion -- left Wall Street truly vulnerable. Its reputation had struck bottom.

Wall Street’s Invisible Decades

Just like our Wall Street heroes of the recent past, so, too, back in the 1920s the savants of the Street claimed credit for the rickety prosperity of the Jazz Age. With the Crash they took the blame for the disaster, just as they had taken the credit for the prosperity, and were despised for their hypocrisy as well. Just as seems to be starting to happen today, Congressmen, some of whom had spent their careers genuflecting before the titans of Wall Street, suddenly hauled them before investigating committees, there to be defrocked, treated to a withering storm of biblically-inspired injunctions and Shakespearean curses, and indicted in the court of public opinion. Wall Street was, as it now seems about to be again, excommunicated.

Suddenly weak beyond compare, the Street was powerless to resist Franklin D. Roosevelt’s regulatory state. In rapid succession came the Glass-Steagall banking act and the Federal Deposit Insurance Corporation, the two securities acts of 1933 and 1934, the creation of the Securities and Exchange Commission (SEC), the Public Utility Holding Company Act, and much more. When, in 1936, the President summoned the people to battle against the "economic royalists" everyone knew just who he was talking about.

It’s long been said that FDR’s New Deal saved capitalism from itself. That is true. One ironic consequence of that fateful turn of events was, politically speaking, to cloak Wall Street in invisibility. After all the shouting was over, after the installation of legislative reforms had further chastened an already cowed Street and constrained its penchant for financial wilding, it ceased to function as the magnetic north for all those troubled by the inequities, injustices, and deformations of capitalism.

During the long prosperity of the post-war years from 1945 to 1970, when the income and wealth inequalities that had always been associated with Wall Street narrowed dramatically -- economic historians know this as "the great compression" -- news of the Street retreated to the business pages and remained there. Except for an occasional act of street theater, even in the tumultuous 1960s, the Street remained largely exempt from sustained political criticism. Once the bête noire of all those who found themselves in opposition to the ravages of laissez-faire capitalism, Wall Street had been neutered.

Just as remarkable is how long that immunity from criticism lasted. After all, Wall Street’s record over the past quarter century is nothing to boast about -- unless, that is, you happened to have made your living on it or in its environs.

Beginning in the 1980s, the Street supervised and profited handsomely from the de-industrialization of America. "Lean and mean" capitalism, the watchword of the Reagan era, added up to the systematic dismantling of the core of American industry. This was done in the interests of "shareholder value," as well, of course, as the bounteous short-term returns offered by the merger, acquisition, and junk-bond mania of those years. Did the rise of a speculative economy of virtual wealth and the fall of an economy that had once employed millions productively at decent wages disturb the political equanimity of American public life? Barely.

When the financial regulatory apparatus of the New Deal was weakened, piece by piece, or simply eliminated by a triumphant conservatism, the economy began to re-experience the cycles of bubble and bust so familiar to previous generations of Americans. In 1987, the stock market briefly collapsed. Then, during the late 1980s, a large-scale savings and loan bailout was accompanied by the rescue of banks caught short holding shaky Latin American debt. Not long after that came the savaging of the "Asian tiger" economies by Thomas Friedman’s "electronic herd" of speculators, and the government-arranged bailout of that period’s biggest hedge fund, Long-Term Capital Management.

Before the country could catch its breath, matters got really serious with the popping of the bubble, Enronization, and finally, of course, our current catastrophe. Through all of this -- until now -- the political fallout was virtually nil. Sarbanes-Oxely, the act passed by Congress in 2002 in response to an avalanche of Wall Street and corporate scandals that began with Enron, was a remarkably tepid piece of reformist legislation, given the scale of the debauch; yet, within moments of its passage, howls of protest could be heard from our offended friends on the Street, grievous complaints treated with all due seriousness by the media, somehow still infatuated with Wall Street’s rain-makers.

The Return of the Repressed

No longer. There is a new agenda in America and it calls for re-regulation, recovery, and retribution. It is enough to make one gasp in disbelief, but nowadays there is practically universal agreement that the financial sector must be more or less rigorously reined in and regulated. (Hedge fund managers and some other hold-outs demur, of course.) Yet mere weeks ago, "government regulation" was still a phrase to be avoided like the plague, ranking right up there with "liberal" in the vocabulary of political obloquy.

It’s hard not to be reminded of just how quickly the political chemistry of the country changed at the end of the 1920s. The presiding figure who had loomed over that decade was Secretary of the Treasury Andrew Mellon -- then considered the greatest Treasury secretary since Hamilton. His insane faith in the free market led him to suggest to President Herbert Hoover that the way out of the Depression was to do nothing, except "liquidate stocks, liquidate labor, liquidate the farmer, liquidate real estate." That thought earned him the enmity of a once admiring country. So, too, laissez-faire has suddenly become much too French for Americans who, but moments ago, treated it like the Holy Grail. We are all regulators today.

Of course, the devil, as every politician on television now makes sure to say, will lie in the details of just what re-regulation consists of. If all it involves is transparency, that won’t be nearly enough. After all, that is precisely what Sarbanes-Oxley promised when it required financial institutions to make full disclosure of their activities. When it comes to circumventing the rules of information sharing so as to leave the insiders in the know and the rest of us out in the cold, where there’s a will, there will always be a way. The new regulatory regime must have powers that extend beyond umpiring. New rules need to be invented whose purpose is as much to assure economic recovery and equity as it is to police the borders of illegality.

Indeed, popular anger fueling the regulatory crusade now seems to be coupled with a deep-running fear of a coming depression and an urge to reverse course. This, too, is symptomatic of a shift in the axis of political debate, in the zeitgeist, if you will.

The meltdown of the financial system has called into question American economic behavior over the last generation. Wall Street has come to stand for a paper economy that produces nothing useful, nothing tangible the way it once did. It has frittered away resources on embarrassingly grotesque forms of conspicuous consumption and patently non-productive forms of investment. It has left the real economy underdeveloped, its infrastructure rotting away in plain sight, its wealth fractured by unprecedented inequalities, dependent on sweated labor, and its industries, across a broad spectrum, technologically second-rate. It has left the country lost in a sea of debt and headed for an abyss of unemployment, bankruptcy, and evictions. Somehow regulation -- although not all by itself -- must address this, or so, for the first time in a long while, large numbers of Americans hope and desire.

People are now looking to the government -- that ogre of the dying old order -- as the only power resourceful and strong enough to direct the flow of capital where it’s needed rather than where the discredited overlords of the financial system think may be most profitable. Conservatives, especially those who rightly balk at the mega-bailout now in the works as unfair to the American taxpayer, decry what they call financial socialism. But what then?

The Meaning of Retribution

As it did in 1929, the free market has failed beyond tolerance. Overwhelming popular sentiment (which each new poll registers with added vehemence) may, sooner or later, bring not only a full recognition of just how wrong-headed the country has been for how long, but how much in need it is of fresh institutions. New forms of public authority, closely overseen by the mechanisms of democracy rather than turned over to some autocrat on leave from his day job as an investment banker, might have a chance of doing what was once unthinkable: de-sanctifying private property and compelling it to perform in the general interest when its private misuse has placed us all in peril. The New Deal ventured in that direction. We need to venture further.

Here’s a first principle: Refuse to reward those institutions that have done us no service. If that entails their liquidation (to borrow a word from Andrew Mellon), so be it. The world won’t end, only the world as they have known it.

Let’s use what’s left of their grossly inflated assets to re-start the engines of real economic development. Compel investment in the re-industrialization of the country along lines that reward labor not parasitism, end the reign of the sweatshop, rescue the country from environmental suicide, revise the division of wealth and income so we can all live free of the indecencies of lavish piggery, and insist that social responsibility takes precedence over the bottom line.

Many will seek retribution as well, just as Americans used to do in the decades before the Great Depression. How could they not? That’s what happens when simple rage turns into moral outrage, when people are finally called to account for the damage they’ve done. The emotion fuels a chemical reaction even now at work in our cultural innards. It may prove the catalyst for an intellectual and emotional explosion that someday will add up to a genuine break with the past. It did so back in 1929.

However justifiable, cutting CEOs loose from the life-support systems they’ve used to drain corporate treasuries for decades is small potatoes. Do it, but let’s hope the instinct for retribution will be turned to better purposes -- to, in fact, reintroducing into our political life and our economic behavior an ethos of social solidarity. Let’s see where that might take us. We could do much worse.

What's in the Senate Financial Rescue Plan

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The bailout bill approved late Wednesday by the Senate not only provides $700 billion for rescuing financial markets but extends billions more in tax breaks for renewable energy, businesses and middle class workers.

There's help for film and TV producers, motorsports and the wool trust fund. There's even a tax break for makers of wooden practice arrows for children.

The roughly $150 billion cost of the tax package is partially offset by some revenue raising measures, including one that would change the tax treatment of deferred compensation paid through offshore tax haven accounts.

The sweeteners were added by the Senate to help it get through the House, though some members are already grumbling about all the add-ons.

Here are some of the major provisions of the bill:

—The Federal Deposit Insurance Corp's current insurance limit on bank deposits would rise to $250,000 per account from $100,000. The FDIC also would receive temporary unlimited borrowing authority from the Treasury under the bill. The measure is intended to boost banking system confidence and could be well-received in wealthier Republican congressional districts.

—The Securities and Exchange Commission would get the authority to suspend "mark-to-market" accounting standards, which require companies to value assets at their current market value instead of their projected value. Wall Street firms have complained that the rule is impractical because it forces them to value billions of dollars of bad mortgage debt at "fire sale" prices.

—Millions of middle-class taxpayers would get a one-year delay from higher tax rates under the Alternative Minimum Tax. The issue comes up every year and temporary fixes routinely win broad support in Congress.

—The bill extends a provision allowing homeowners who do not itemize their taxes to take a deduction up to $1,000 for state and local property taxes.

—Extends a tax break for certain higher education expenses for taxpayers who do not itemize their deductions.

—Includes a provision that would require insurance plans that offer mental health benefits to offer those benefits at the same level as medical-surgical benefits.

—Provides tax exempt private activity bonds for Texas, Louisiana and Midwestern states hit by natural disasters.

—Other tax benefits to those areas to help develop low income housing and help businesses.

—Extends the research and development tax credit through 2009.

—Provides $18 billion in tax breaks for clean energy by continuing production tax credits for wind and refined coal and allowing facilities that generate electricity from waves and tides to qualify. Also extends tax breaks for solar energy.

—Provides new tax credits for carbon capture and sequestration demonstration projects for advanced coal electricity generation.

—Creates a new category of tax credit bonds to finance state and local government initiatives to cut greenhouse gas emissions.

—Creates new tax credit of up to $7,500 for plug-in electric drive vehicles.

—Extends tax credit for biodiesel production through 2009.

—Extends tax credits for homeowners who update with energy efficient products. Energy efficient biomass fuel stoves for the first time would qualify for a $300 credit.

—The bill includes extension of favorable business tax provisions, such as tax credits related to new markets and research and development as well as the tax treatment of costs for retail and restaurant improvements.

—Exemption for excise taxes of certain wooden arrows designed for use by children.

—Tax break for Puerto Rican and Virgin Island rum producers.

—More favorable tax treatment of income from litigation over the 1989 Exxon Valdez oil spill in Alaska. The latter provision is aimed squarely at Rep. Don Young, an Alaska Republican who voted against the bill on Monday.

Bailout Focus On House as Crisis Spreads

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By Eddie Evans and Ralph Boulton

Shockwaves from the global credit crisis spread on Thursday, threatening industry and jobs worldwide and putting pressure on Congress to finish up a $700 billion bailout of the U.S. financial sector.

The fate of the rescue plan, passed by the Senate 74-25 on Wednesday night, now lies with the House of Representatives, which is expected to vote on the bill on Friday.

The House rocked global markets on Monday by rejecting an earlier version of the bailout, which President George W. Bush has called the "essential to the financial security of every American."

European Central Bank President Jean-Claude Trichet said economic activity was weakening in Europe and opened the door to interest rate cuts, while in the United States data suggested a recession may be approaching.

U.S. factory orders fell 4 percent in August, on top of data on Wednesday that showed manufacturing activity in September at its weakest since the 2001 recession.

U.S. jobless claims rose last week to their highest level in seven years, ahead of September payrolls data due out on Friday.

Oil prices fell almost $3 a barrel on an expected slowdown in economic activity around the world. The dollar rose to a year high against the euro after Trichet's comments and major U.S. stock indexes fell more than 2 percent.

At the Paris Auto Show, top automakers including General Motors Corp and Ford Motor Co warned of tough times, as evaporating credit for consumers cuts demand and could force production cuts and job losses.

"The problems of subprime and credit crunch are now all over the world," Ford Chief Executive Alan Mulally said. "The downturn is longer and deeper than we foresaw a year ago," he said.

In a week marred by bank rescues across Europe, French President Nicolas Sarkozy's office said he would host the leaders of Britain, Italy, Germany and the ECB on Saturday to discuss a response to the credit crisis. Sarkozy denied reports a 300 billion euro ($415 billion) plan akin to the U.S. bailout was under consideration.

Market participants remained cautious about the U.S. bailout bill's prospects in the House.

"I'm not betting anything here because I don't know what the House is going to do," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "If this bill doesn't pass in the House, it's game over."

Even if the bill is passed, worries remain over the global economic outlook, said Masamichi Adachi, senior economist at JPMorgan in Tokyo. "It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown."


The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate credit markets and interbank lending that has frozen up while overleveraged financial institutions staggered under the weight of failed mortgages.

It has stirred fierce criticism from those who see it as help for a Wall Street guilty of taking reckless risks in pursuit of short-term profit.

Under the deal, the Treasury would take on illiquid assets held by banks, in the hope of restoring confidence and unfreezing credit markets vital to the wider economy.

Interbank lending rates remained high, a sign that banks were not lending to each other, despite the Senate vote and large injections of cash by central banks.

The Fed said the U.S. commercial paper market contracted for the third straight week, as business lending and borrowing effectively shut down.

President Bush, his authority eroded by the approaching end of his term in office, welcomed Senate passage of the package on Wednesday and urged the House to do the same, quickly.

"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement.

Senate leaders hope that sweetening the plan with a tax cut and extended federal protection for bank deposits can turn "no" voters in the House into supporters. On Monday, the House rejected the previous version of the plan by a 228-205 vote.

"It's still uncertain. I think it is likelier to pass than before," House Financial Services Committee Chairman Barney Frank said in an interview on CNN.

"The main change is reality. I think that it's not possible now to scoff at the predictions of doom if we don't do anything," the Massachusetts Democrat added.

Many Americans resent the idea that Wall Street is being "bailed out" at taxpayer expense, and have made their views clear in e-mails and calls to Washington, putting pressure in particular on vulnerable members of the House.

The crisis has become the biggest issue in forthcoming U.S. elections. Both presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, voted for the package. Obama, echoing Republican Bush's warnings, said the bailout was vital to "prevent a crisis turning into a catastrophe."

All 435 House seats will be contested in the election on November 4. Thirty-five seats are up for grabs in the Senate.

But Britain's Nationwide building society said house prices in August tumbled 12.4 percent from a year earlier, their biggest annual drop since records began in 1991, as higher interbank lending rates fed into a sharp increase in mortgage rates.

Treasury Secretary Henry Paulson, whose original three-page proposal grew to hundreds of pages when Congress got involved, urged the House to act swiftly to ratify it.

Should the House approve the bill, it would go to Bush to be signed into law.

"This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going," Paulson said.

A report in the Wall Street Journal said U.S. Federal Reserve officials are weighing cutting interest rates, even if Congress approves the bailout.

The tally for all the various rescue measures launched by U.S. authorities this year runs to about $1.8 trillion -- more than the total economic output of both Canada and Spain last year.

(Additional reporting by Reuters reporters in New York, London, Paris, Brussels, Hong Kong and Tokyo; Editing by Tom Hals)

Iraq: They Make It a Desert and Call It Peace

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By Eric Margolis

Those Wall Street financial alchemists who turned garbage into gold must have helped John McCain prepare for his debate with Barack Obama last Friday.

Senator McCain’s insistent claims that the US is winning the war in Iraq thanks to his "surge" strategy are the military-political equivalent of the junk securities that Wall Street’s shady financiers have been selling around the globe.

McCain successfully peddled this latest untruth about Iraq on Friday night with skill and verve. Sen. Barack Obama mostly let him get away with it. Obama should have skewered McCain over Iraq and all the lies he supported to ignite this unnecessary conflict. There is enough criminal behavior over the Iraq War to fill a phone book. Two out of three America’s think it was a terrible mistake.

But Obama’s gentle, professorial criticism of the Iraq war was tepid and ineffective, leaving McCain to capture the flag of patriotism with his reheated Cold War rhetoric.

Why didn’t Obama tell Americans that the ill-begotten Iraq War has played a key role in the nation’s current financial near-death experience?

Obama should also have riposted to McCain’s bombast over Georgia: "Senator McCain, are you ready to go to war with Russia over Georgia? That’s where your plans could lead."

The two candidates did reasonably well in the debates, and both emerged looking presidential. But McCain seized the jingoistic high ground by using carefully selected slogans like "victory" and "free world," and lambasting America’s favorite hobbyhorses, Iran’s Ahmadinejad and Russia’s Putin. The two vied over who could more fulsomely support Israel.

McCain’s claims that the US is heading toward victory in Iraq thanks to his inspired military leadership immediately recalled the epic words of Pyrrhus, King of Eprius. In 281 BC, after defeating a Roman army at Heraclea in an extremely bloody, hard-fought battle in which his forces suffered grave losses, Pyrrhus famously exclaimed, "one more such victory and we are ruined!"

The Red King of Epirus (modern Albania) might as well have been speaking of Iraq. Far from the victory described by McCain, the Roman historian Tacitus’s words are appropriate: "they make a desert and call it peace."

That is precisely what the US has so far done in Iraq, a small, devastated nation of only 25 million. After five years of war, over four thousand American GI’s are dead, and 30,000 seriously wounded (some figures say 75,000), many with incurable head injuries.

No one knows how many Iraqis have died, but estimates run as high as one million – and this does not include the 500,000 who died from hunger and disease as a result of the draconian US-led embargo of Iraq and the destruction of its national water purification and sewage system by the US Air Force in 1991.

The "surge," an addition of over 30,000 US troops to the Iraq conflict, was not the primary cause of the sharp drop in violence there over the past 12 months, as McCain claims, though it did play a supporting role.

The real reason for the drop in violence and attacks on US occupation forces lies in three other areas. First, ethnic cleansing. The US occupation quietly abetted the ethnic cleansing by Shia militias of millions of Sunni Iraqis. The US took yet another page from Israel’s West Bank occupation copybook by segregating off entire neighborhoods of Iraqi cities with high, concrete walls, and conducting round-the-clock house search operations.

Today, between four and five million Iraqis are either refugees in neighboring nations or internally displaced, one of the world’s biggest number of refugees. Most are Sunni Muslims. The United States is wholly responsible for this human disaster.

The US has done what it vowed to oppose: the partition of Iraq into three weak parts: Shia, Sunni, and Kurdish. There are now three Iraqi de facto mini-states. Breaking up Iraq and US-approved ethnic cleansing by Shia death squads – just the type of criminal behavior the US condemned in Bosnia and Kosovo – has put the damper on the Sunni-Shia conflict. But it has left Iraq a ruined state, with the Sunni region a no-man’s land, the Shia region dominated by Iran, and the Kurds under US and Israel tutelage.

Second, US occupation forces finally got smart and realized it’s cheaper to buy off your foes than try to kill them all. So the US now pays 80,000 Sunni gunmen, called Awakening Councils, to fight resistance forces. Attacks by al-Qaida fanatics in Iraq against fellow Sunnis opposing US occupation drove the more moderate resistance groups into the arms of the US.

But now, the US is handing control of these Sunni gunmen, which were patterned on death squads in El Salvador, over to Shia control. The US-armed Sunni militias who sought protection against Shia government forces by siding with the Americans are now likely to become a major new problem.

Third, the firebrand Shia militia leader, Muktada al-Sadr, whose ragtag Mehdi Army used to fight US forces, has gone to ground and ordered his gunmen to stack their arms. His volte-face reflects changes in internal Shia politics but also pressure from Iran which, fearing attack by the US, ordered Muktada to stop his attacks.

But less violence, at least for now, does not in any way mean victory. Polls show 75% of Iraqis want US troops to depart. Iraq remains a nation under foreign occupation. Its US-installed regime controls nothing but the Baghdad Green Zone. Real power remains in the hands of the Shia and Sunni militias, and the two Kurdish parties in their by now almost independent state. There is still no agreement on sharing oil.

The occupation is costing the US at least $10 billion per month, not counting depreciation, $67 billion replacement costs for equipment, and billions for medical care of wounded and veterans benefits. By the end of 2008, the supposed "cake walk" in Iraq will have cost US taxpayers $1 trillion, a good part of its borrowed from Japan and China, making it America’s second most expensive war in history.

Half the US Army is bogged down in Iraq. This war and Afghanistan have led the US ground and air forces "to the breaking point," in the words of senior American commanders. History shows that all occupation armies become brutalized, corrupted and demoralized.

At least 30,000 Iraqi prisoners are held by the US and routinely tortured or executed without trial. They should be considered political prisoners. Saddam Hussein’s prisons held less inmates. The brutality of the US occupation of Iraq has enraged the Muslim world against America and, according to US intelligence agencies, has created a whole new generation of anti-American militants.

The Bush administration’s torrent of lies about Iraq and ongoing occupation are seen around the globe as crude imperialism worthy of the 19th-century British Raj or old Soviet Union. Sen. Obama was at least right in the debate when he noted that America’s image is an important factor in national security. Today, America is hated around the globe, thank you George Bush and Dick Cheney.

Washington’s current plans to continue ruling Iraq by means of a puppet government and mercenary army backed by US air power are an attempt to copy the way the British Empire ruled Iraq and exploited its oil. But once most of the US forces are withdrawn, Iraq may dissolve once again into violence and chaos, or complete its process of splintering into three mini-states, inviting intervention from its covetous neighbors. Iran has already become the dominant power in eastern Iraq, and Turkey, hungry for Iraq’s oil, is watching menacingly.

I wish Obama had riposted: "Senator McCain, one more victory like this and America is ruined. You had better think about this as you and your neocon alter ego Joe Lieberman urge confrontation against Iran, Hezbullah, Pakistan, Taliban, al-Qaida, insubordinate Arabs, Russia and China."

PS: And don’t forget Venezuela, Cuba, Somalia, and Sudan.

Ron Paul, Dennis Kucinich: 'Lipstick' off

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By Mark Silva

The failure of the bailout, for now, perhaps, is "a teachable moment.'

Ron Paul and Dennis Kucinich are on top.

Let history record that, for one fleeting moment perhaps this week, the most anti-establishment candidates for either major parties' presidential nominations this year - two who stirred a lot of emotion but attracted few votes -- were riding the wave of the victorious majority of the House of Representatives.

They balked at the bailout.

Paul, the Republican congressman from Texas, delivered a scowling speech against the Bush administration's $700 billion bailout of the banks and other financial institutions stuck with bad mortgage debt on Monday - when it failed on the House floor by a vote of 229-205. And Kucinich, the Democratic congressman from Ohio, stood alongside him. Until now, opposition to the war in Iraq was largely what united these two occasional hotspurs of the political debate.

"The beneficiaries of the corrupt monetary system of the last three decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege,'' Paul argued on the House floor..

Kucinich calls this "a teachable moment'' in our times.

"Slowly, like the Titanic turning around, sentiments on the Hill shifted, and we heard congressmen capitulating and changing their tune a little, desperately trying to find ways to salvage the bailout without completely enraging their constituencies," Paul wrote on his Web site before the vote on the bailout, which he feared would succeed. "Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into.''

Inevitably, perhaps, the Bush administration will win some variant on the bailout, sweetened perhaps with some lures to make it more palatable to just a few holdouts in both parties.

"Lipstick on a bailout,'' Paul calls it.

But then, Paul and Kucinich will return to the vocal minority.

But for now, they are on top, and Kucinich's own explanation of the bailout, how the Treasury's purchase of $700 billion in bad mortgage debt - with money that ultimately the Treasury will have to borrow from the credit markets - is worth the reading, no matter what anyone thinks of the deal:

"Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system,'' Kucinich wrote in an email today.

"The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.


"This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.

"The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.

"Who could turn down a deal like this? I did.

"The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.

"Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized.

"We are at a teachable moment on matters of money and finance. In the coming days and weeks, I will share with you thoughts about what can be done to take us not just in a new direction, but in a new direction which is just.''

Bailout alternative offered by House Dems

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By Frank James

You know the failed but still alive $700 billion bailout proposal has scrambled politics in the nation's capital when a fairly liberal member of Congress offers a solution to the financial-markets crisis that looks like something a Reagan Administration official created.

Actually that's exactly who created it. Rep. Peter DeFazio, an Oregon Democrat, took the ideas of William Isaac, who served as Federal Deposit Insurance Corp. chairman during the Reagan Administration and created legislation meant to help the capsizing financial markets right themselves.

DeFazio, a vociferous opponent of the Bush Administration's $700 billion Wall Street bailout, calls his legislation the "No BAILOUTS Act" and he talked about it today at a Capitol Hill press conference. He was joined by several other House Democrats:

And the underlying concern we all share is, we question the Paulson premise.

That is that giving him 700, borrowing or printing $700 billion, giving it to him and having him buy bad assets, on Wall Street,somehow will solve the interbank loan problem and even less likely the underlying problems of the economy.

And the interesting thing is 400 economists last week questioned that premise. That was brushed off. But if you read today's New York Times, at the point in which the world market thought we were going to adopt the Paulson plan and roll over, it says here, "Other analysts noted that credit markets around the world were almost entirely dysfunctional on Monday morning when political leaders and investors alike assumed Congress had reached a firm deal and would easily approve the bailout." It goes on from there with some detail.

The point is the premise is faulty. And as much as the Democratic leadership has tried to improve it, it still is likely to fail. So we have an alternative. And we would like to talk a little bit about that today and then we're going to have further discussion from other members.

If there's a no-cost or low-cost alternative available for the taxpayers, we should take it. And we have a working paper -- it's not done yet. I'm going to be talking to Darrell Issa on the Republican side and John Shadegg later today. This is a common set of points we have so far, but it's a work in progress. We've tentatively called it the "No BAILOUTS Act" which would be bringing accounting, increased liquidity, oversight and upholding taxpayer security. You have to start with a spiffy name around here. We'll work out the details later. (Laughter.)

But the point is, folks would like to come together on something that doesn't put the taxpayers at risk. That's a common theme among members both who voted for the bill and who voted against the bill. Don't put the taxpayers at risk. The protections in that bill yesterday were nonexistent, in terms of the taxpayers.

So we're saying here, let's try a different approach....

The part of the legislation pretty much anyone would understand immediately is an increase in the size of bank deposits that are federally insured, from $250,000 from $100,000.

The bill would also mandate a new program meant to buttress eligible banks by allowing them to receive "net worth certificates" from the FDIC. Those certificates wuld count towards the banks' capital requirements, a form of borrowing that would increase their liquidity, the money they'd have on hand. The idea was used during the 1980s to recapitalize lending institutions to great effect.

There'd be other technical changes. The bill would change how banks and other financial companies account for their mortgage-backed securities, permitting them to value them not at what they could fetch in the market, which right now is nothing, but at a higher amount based on the "economic value" they could later receive.

It would also make changes to the practice of selling stocks short, that is borrowing a stock whose price you think is going to drop, selling it, then buying it back at the lower price to give back to the owner, while pocketing the profits.

The practice of selling the stock without first borrowing it is already illegal. But somehow DeFazio's legislation would make it more illegal. Not sure how that's going to work.

And it would end the uptick rule which require short sellers to sell stock on the "uptick" which, oversimplified, means the short seller would have to sell when the stock price ticked up, a rule meant to protect stocks from being driven into the ground by short sellers.

The beauty of it from DeFazio's perspective is that his bill wouldn't require taxpayer money to implement.

Here's the summary DeFazio provided reporters:


Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.

This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.

2) Require the Securities and Exchange Commission to restricting naked short sells permanently

This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.

3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.

This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.

3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.

This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.

4) "Net Worth Certificate Program"

This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.

Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.

In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.

5) Increase the FDIC Insurance limit from $100,000 to $250,000.

The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

Wall Street Bailout

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The Senate approved a $700 billion Wall Street bailout. Senator Bernie Sanders voted against the bill that would put Wall Street’s burden on the backs of the American middle class. “The bailout package is far better than the absurd proposal originally presented to us by the Bush administration, but is still short of where we should be,” Sanders said. “If a bailout is needed, if taxpayer money must be placed at risk, if we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from President Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation who should pick up the tab, not ordinary working people.”

Sanders proposed a five-year, 10 percent surtax on families with incomes of more than $1 million year and individuals earning over $500,00 to raise $300 billion to help bankroll the bailout. Senators, however, set aside the amendment on a voice vote.

In a Senate floor speech, Sanders elaborated on the bailout bill’s flaws:

"This country faces many serious problems in the financial market, in the stock market, in our economy. We must act, but we must act in a way that improves the situation. We can do better than the legislation now before Congress.

"This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight because the oversight board members have all been hand picked by the Bush administration. This bill does not effectively deal with the issue of foreclosures and addressing that very serious issue, which is impacting millions of low- and moderate-income Americans in the aggressive, effective way that we should be. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.

"This bill does not deal at all with how we got into this crisis in the first place and the need to undo the deregulatory fervor which created trillions of dollars in complicated and unregulated financial instruments such as credit default swaps and hedge funds. This bill does not address the issue that has taken us to where we are today, the concept of too big to fail. In fact, within the last several weeks we have sat idly by and watched gigantic financial institutions like the Bank of America swallow up other gigantic financial institutions like Countrywide and Merrill Lynch. Well, who is going to bail out the Bank of America if it begins to fail? There is not one word about the issue of too big to fail in this legislation at a time when that problem is in fact becoming even more serious.

"This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I'm the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I'm the only person in America who thinks that's a little bit weird, but that is what I think.

"This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.

"There is one issue that is even more profound and more basic than everything else that I have mentioned, and that is if a bailout is needed, if taxpayer money must be placed at risk, whose money should it be? In other words, who should be paying for this bailout which has been caused by the greed and recklessness of Wall Street operatives who have made billions in recent years?

"The American people are bitter. They are angry, and they are confused. Over the last seven and a half year, since George W. Bush has been President, 6 million Americans have slipped out of the middle class and are in poverty, and today working families are lining up at emergency food shelves in order to get the food they need to feed their families. Since President Bush has been in office, median family income for working-age families has declined by over $2,000. More than seven million Americans have lost their health insurance. Over four million have lost their pensions. Consumer debt has more than doubled. And foreclosures are the highest on record. Meanwhile, the cost of energy, food, health care, college and other basic necessities has soared.

"While the middle class has declined under President Bush's reckless economic policies, the people on top have never had it so good. For the first seven years of Bush's tenure, the wealthiest 400 individuals in our country saw a $670 billion increase in their wealth, and at the end of 2007 owned over $1.5 trillion in wealth. That is just 400 families, a $670 billion increase in wealth since Bush has been in office.

"In our country today, we have the most unequal distribution of income and wealth of any major country on earth, with the top 1 percent earning more income than the bottom 50 percent and the top 1 percent owning more wealth than the bottom 90 percent. We are living at a time when we have seen a massive transfer of wealth from the middle class to the very wealthiest people in this country, when, among others, CEOs of Wall Street firms received unbelievable amounts in bonuses, including $39 billion in bonuses in the year 2007 alone for just the five major investment houses. We have seen the incredible greed of the financial services industry manifested in the hundreds of millions of dollars they have spent on campaign contributions and lobbyists in order to deregulate their industry so that hedge funds and other unregulated financial institutions could flourish. We have seen them play with trillions and trillions dollars in esoteric financial instruments, in unregulated industries which no more than a handful of people even understand. We have seen the financial services industry charge 30 percent interest rates on credit card loans and tack on outrageous late fees and other costs to unsuspecting customers. We have seen them engaged in despicable predatory lending practices, taking advantage of the vulnerable and the uneducated. We have seen them send out billions of deceptive solicitations to almost every mailbox in America.

"Most importantly, we have seen the financial services industry lure people into mortgages they could not afford to pay, which is one of the basic reasons why we are here tonight.

"In the midst of all of this, we have a bailout package which says to the middle class that you are being asked to place at risk $700 billion, which is $2,200 for every man, woman, and child in this country. You're being asked to do that in order to undo the damage caused by this excessive Wall Street greed. In other words, the “Masters of the Universe,” those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse. Now, as the American and world financial systems teeter on the edge of a meltdown, these multimillionaires are demanding that the middle class, which has already suffered under Bush's disastrous economic policies, pick up the pieces that they broke. That is wrong, and that is something that I will not support.

"If we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people. I introduced an amendment which gave the Senate a very clear choice. We can pay for this bailout of Wall Street by asking people all across this country, small businesses on Main Street, homeowners on Maple Street, elderly couples on Oak Street, college students on Campus Avenue, working families on Sunrise Lane, we can ask them to pay for this bailout. That is one way we can go. Or, we can ask the people who have gained the most from the spasm of greed, the people whose incomes have been soaring under president bush, to pick up the tab.

"I proposed to raise the tax rate on any individual earning $500,000 a year or more or any family earning $1 million a year or more by 10 percent. That increase in the tax rate, from 35 percent to 45 percent, would raise more than $300 billion in the next five years, almost half the cost of the bailout. If what all the supporters of this legislation say is correct, that the government will get back some of its money when the market calms down and the government sells some of the assets it has purchased, then $300 billion should be sufficient to make sure that 99.7 percent of taxpayers do not have to pay one nickel for this bailout.

"Most of my constituents did not earn a $38 million bonus in 2005 or make over $100 million in total compensation in three years, as did Henry Paulson, the current secretary of the Treasury, and former CEO of Goldman Sachs. Most of my constituents did not make $354 million in total compensation over the past five years as did Richard Fuld of Lehman Brothers. Most of my constituents did not cash out $60 million in stock after a $29 billion bailout for Bear Stearns after that failing company was bought out by J.P. Morgan Chase. Most of my constituents did not get a $161 million severance package as E. Stanley O'Neill, former CEO Merrill Lynch did.

"Last week I placed on my Web site,, a letter to Secretary Paulson in support of my amendment. It said that it should be those people best able to pay for this bailout, those people who have made out like bandits in recent years, they should be asked to pay for this bailout. It should not be the middle class. To my amazement, some 48,000 people cosigned this petition, and the names keep coming in. The message is very simple: “We had nothing to do with causing this bailout. We are already under economic duress. Go to those people who have made out like bandits. Go to those people who have caused this crisis and ask them to pay for the bailout.”

"The time has come to assure our constituents in Vermont and all over this country that we are listening and understand their anger and their frustration. The time has come to say that we have the courage to stand up to all of the powerful financial institution lobbyists who are running amok all over the Capitol building, from the Chamber of Commerce to the American Bankers Association, to the Business Roundtable, all of these groups who make huge campaign contributions, spend all kinds of money on lobbyists, they're here loud and clear. They don't want to pay for this bailout, they want middle America to pay for it."

The Ho Chi Minh trail leads to Baghdad

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By Muhammad Cohen

John McCain's unwavering support for the Iraq war shows he has failed to learn the lessons of Vietnam

John McCain is trying to win the war in Vietnam on the streets on Baghdad. When asked in Friday's presidential debate to identify the lessons of Iraq, he reminded voters that he missed the lessons of Vietnam. "I think the lessons of Iraq are very clear that you cannot have a failed strategy that will then cause you to nearly lose a conflict," he said.

McCain still believes that in Iraq and Vietnam the problem was the wrong strategy, not the wrong war. It may be the last thing in this campaign McCain says that's true to his core beliefs and record, but he's wrong. Dead wrong.

As Jeffrey Goldberg reports in his cover story in the October issue of the Atlantic, McCain believes that Vietnam was winnable, and that politicians lost that war because they didn't let the military do its job. If only they would have let him and his fellow Navy flyers bomb North Vietnam back to the Stone Age, the US could have prevailed.

Colin Powell, who served two terms in Vietnam as mid-level officer, admits he too was troubled by his Vietnam experience. That led him to formulate the Powell Doctrine, eight questions to be answered before the US takes military action. The Iraq invasion failed at least six of the eight tests, including "Is a vital US security interest threatened?" and "Have the consequences of our action been fully considered?" After opposing an attack on Iraq from the dawn of the Bush administration, Powell got dragged along out of the loyalty to the president, but sees his support for the war as "a blot" on his record.

In contrast, McCain was a cheerleader for the Iraq invasion, remains proud of it and hasn't learned a thing that will help him make the right decision when the next war of choice comes along. "There is no such thing as containment," he tells Goldberg, underscoring the frightening doctrine of pre-emptive war while confirming his aversion to reflection and his Vietnam obsession.

McCain doesn't understand lesson number one of Vietnam: you can't win a political war with foreign military troops. Whatever the war in Iraq began as, it's a political war now. The presence of US troops undermines the legitimacy and appeal of the Iraqi government that needs to win hearts and minds to stop the violence and build credibility.

McCain claims that his troop surge strategy was successful, yet he denies the one metric that would indicate success. The surge was intended to provide a lull in violence that would enable Iraqis to get their political house in order. It may have been naïve to think they could do it in a few months after four years of dithering. The great irony is that Iraqis now say they're ready to stand on their own and want the US to leave, precisely the goal of the surge. But McCain and US military brass say the Iraqis aren't ready. The Bush administration has agreed to a 2011 deadline for withdrawal, but McCain can't even reconcile himself to that distant date. In the debate, he pretended that there is no timetable, no effective Iraqi government, and that Americans alone will determine when, if ever, they leave Iraq.

McCain tried to tie the war in Iraq to the fighting in Afghanistan and to Bush's global war on terrorism. Vietnam taught the lesson that not every conflict fits into the global struggle of the moment. In the 1960s, the US was deep in its cold war against the Soviet Union. The North Vietnamese government called itself communist, but fighting in Vietnam did the US more harm than good in its struggle with the Soviets, costing the US status and goodwill around the world. Developing countries rejected US aid programmes such as the Peace Corps over Vietnam, and US allies had to moderate their support in the face of strong domestic antiwar sentiment. Similarly, the US invasion of Iraq has made it harder for those who share US values, including moderates in the Muslim world, to stand up to radicals. The Iraq fiasco has given solid evidence to support the worst accusations of America's enemies.

Republicans also persist with their myth that fighting in Iraq helps keep the US homeland safe. This is moronic. The invasion created new enemies for the US, and every day that the US stays in Iraq is one more day terrorist recruiters can say the US occupies a Muslim country that it invaded without justification. But that's not the worst of it.

As Barack Obama pointed out during the debate, in the midst of the Wall Street crisis, the US is still spending $10bn a month in Iraq. Vietnam demonstrated that the US couldn't have guns and butter without consequences. President Lyndon Johnson tried to press ahead with his Great Society agenda while escalating in Vietnam. He wound up resurrecting the deadly beast of inflation and saw his other war, the war on poverty, mired in the swamps of the Mekong Delta.

Vietnam also demonstrated that even wars in faraway places that don't directly threaten the US carry grave risks at home. Because of the military draft and far larger number of US troops involved, Vietnam polarised the country. That hasn't happened over Iraq, at least not yet. Republicans like to scream class warfare whenever anyone questions the innate wisdom of tax cuts for rich. But the US risks real class warfare waging the Iraq war with a volunteer force comprised largely of poor people and compels re-enlistments through obscure contract clauses, while troops' parents lose their homes and pay more taxes so the government can rescue big banks and politicians' egos.

It's understandable that McCain missed the lessons of Vietnam at home because, as he said during a Republican primary debate in response to a question about skipping Woodstock: "I was tied up." McCain can be excused for not understanding what he didn't live through. But he remains haunted by what he did live through. "A war that I was in, where we had an army, that it wasn't through any fault of their own, but they were defeated," he said at Friday's debate. "And I know how hard it is for an army and a military to recover from that. And it did, and we will win this one, and we won't come home in defeat and dishonour and probably have to go back if we fail."

McCain is trying to win in Iraq to wipe away that defeat. It's to his credit that Lieutenant Commander McCain was willing to put life on the line to win in Vietnam. But there's nothing honourable about senator or President McCain committing unlimited numbers of other lives to defeat Ho Chi Minh now on whatever battlefield he can find.

What McCain should have learned from his Vietnam experience, as Colin Powell did, is that the US needs to choose its fights carefully. Even miles offshore and hundreds of metres in the air, there's no safe or easy war. Yet, last month, McCain was seemingly spoiling for a fight with the Russians over Georgia, even though a third combat front for the US military would be a nightmare scenario. In the past, he's sung about bombing Iran as if it's a laughing matter. When George Bush blustered "Bring it on", he just didn't know better. McCain has no excuse.

McCain and his supporters are right that it's now pointless to debate the wisdom of invading Iraq, just as it's pointless to debate sending 535,000 US troops to Vietnam. History has judged McCain wrong on both fronts. Voters need to ask which presidential candidate has learned history's lessons to avoid the next mistake. With Hanoi's Red River dykes still in his bomb sights, McCain is ready to grasp with both hands, not the lessons of the Vietnam, but the next tar baby our dangerous times produce. Rather than slay his Vietnam demons, McCain appears destined for the fate of those who don't learn from history.

Bailing Out The Oil Market

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By William Pentland

Government Assistance

While everyone knows the U.S. government is looking to bail Wall Street banks, few people realize that it's also bailing out speculative oil and commodities traders in the process, fueling a sharp rise in energy prices. Lehman Brothers (nyse: LEH - news - people ) and AIG (nyse: AIG - news - people ) held enormous trading positions in commodities markets. If those positions had been liquidated suddenly, the price of everything from wheat to oil would have collapsed. The Commodity Futures Trading Commission, the main regulator of U.S. commodity markets, allowed Wall Street's investment banks and trading companies to take control of massive positions in commodities markets called swaps held by Lehman Brothers and AIG.

The result: Oil prices spiked by a whopping $16 per barrel on Monday, the largest single-day rise in oil prices ever.

"If speculators were forced to liquidate their positions, oil would easily be $65 to $75 per barrel by the time the liquidation was complete," said Michael Masters, the founder of Atlanta-based hedge fund Masters Capital Management. Tuesday, oil was trading at $108.74 in midday trading in New York.

For all the talk of OPEC, the biggest threat to high oil prices in the short term might be the implosion of Morgan Stanley (nyse: MS - news - people ) or Goldman Sachs (nyse: GS - news - people ), which would trigger a massive number of low-priced oil-futures contracts to flood the market all at once in search of buyers to liquidate those contracts.

"If either of these entities were to collapse, we believe the downside for commodities would be tremendous as these companies unwind positions," Valerie Wood, president and owner of Energy Solutions, told Platts on Monday. "In particular, we know Goldman Sachs has large investments in crude oil and natural gas commodities because its own Goldman Sachs Commodity Index fund [comprises] about 39% crude oil commodities and about 6% natural gas commodities. A liquidation of GSCI shares would directly result in the selling of these commodities, and selling pushes prices lower."

Ironically, the biggest losers turned out to be the traders who bet that at least one of the victims from this month's financial chaos would be forced to liquidate a major long position in oil prices. When they avoided that fate, the race to unwind those bets that oil prices would fall before the end of the trading month caused a massive rally in oil prices.

The market meltdown has revealed the full extent of Wall Street's influence on commodities prices and, especially, their role in energy markets. More than $40 billion in cash has poured into commodity markets since the start of 2008, according to a report by Standard & Poor's. The total amount of investments in commodity indexes is estimated at between $150 billion and $270 billion. In other words, new investments in the market have climbed by 15% to 25% in less than a year.

In 2006, the U.S. Senate's Subcommittee for Permanent Investigations had already reported "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices." The trouble is that so much of the trading happens in so-called "dark markets," unregulated over-the-counter electronic exchanges where trading companies buy and sell energy derivatives, that this role is hard to document.

Investment banks make money off commodities speculation, but are just conduits for hedge funds and institutional investors that have taken large positions in commodities markets as a long-term investment.

"The market dynamics induced more and more financial players to move into commodities markets," said Fadel Gheit, a senior oil analyst at Oppenheimer & Co. "It was a perfect storm. The Federal Reserve was cutting interest rates and people were running away from the dollar as it lost value. Hedge funds, pension funds and mutual funds started pumping money into commodities because they were the safest place and the safest of them all was crude oil. There were too many dollars chasing too few physical assets. That's the bottom line."

Will Cities Soon Be Able to Feed Themselves?

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By Emily Wilson

Skyrocketing food costs, worries about food security and an urge to do things ourselves have led to a huge surge in urban farming -- gardens in backyards, on roofs, in abandoned lots and even, in the dream of a Columbia professor and his students, in high-rise buildings in the middle of cities.

During World Wars I and II, victory gardens were considered a patriotic effort to take the pressure off the food supply and to boost morale by having people see their labor translated into produce.

An urban farmer in Oakland, Esperanza Pallana, doesn't necessarily garden as a patriotic effort, but she does enjoy what her work in the garden gives her.

"There are so many things I like about it, besides just having a food supply, though it is like magic to go out in backyard and get eggs that are fresh and delicious and to have a source of honey," she says. "It's so satisfying when I sit down to a meal and 75 percent is straight out of the backyard."

Pallana didn't start her garden with the thought of growing anything edible -- she merely wanted to fix up her front yard, which was so messy that people routinely threw trash in it. A peach tree in the yard inspired her to plant more food, but she says she just bought things at the nursery and put them in the ground; she had no idea about harvesting the food. After birds ate the broccoli she had planted, she determined to learn what she was doing and started again. Now her garden, along with produce, includes bees, turkeys and chickens.

Pallana's interest in soil and food systems has taken over her life. She now works at Urban Sprouts, a nonprofit school gardens organization, and she says she has seen the interest in urban farming grow in the four years she has been doing it.

"When we built our chicken coop, we had to design it ourselves -- I couldn't find anything about how to do it," she says. "Now there are all these books and designs online. I just see a lot of excitement and enthusiasm about this."

Barbara Finnin, the executive director of Oakland's City Slicker Farm, also sees that excitement with the people she works with in the organization's Backyard Garden Program, which helps low-income people start their own gardens.

"They tell us they didn't think it was possible to get this from a dirt patch full of weeds," Finnin says. "People feel like they have access in their backyard and they can go to pick some lettuce and collards and cook. They are really engaged with, literally, the fruits of their labor."

Having accessible healthy food is particularly important in West Oakland, where City Slicker Farm is located, Finnin says. The 21,000 residents have to leave their neighborhood to get to a grocery store, and many of them, she adds, don't have a car. To meet that immediate need for fresh food, City Slicker started in 2001 by setting up a stand and giving away food; now the organization has six lots that produce about 10,000 pounds of produce, which is sold on a sliding scale.

More and more urban agriculture projects are springing up throughout the country. When Taja Sevelle moved to Detroit in 2005 and saw the hunger, vacant lots and health problems associated with lack of fresh food, she decided that growing food on unused land was the answer. Her organization, Urban Farming, now has about 600 community gardens, many of them in Detroit, but throughout the United States and the world as well. Its lofty mission is to "eradicate hunger."

This may seem daunting, but Executive Director Sevelle, who studied to be a botanist before signing a record contract with Prince, thinks this is a reachable goal. She points to the success of the victory gardens and says her organization fed about a quarter of a million people in Detroit last year.

"This is absolutely doable. It needs to be solved and can be solved," she says. "More and more I'm seeing and hearing people making bold statements. Look at the amazing things we've done as humans. If we're able to go to the moon, certainly we can solve the problem of hunger."

Sevelle says a standard size garden of 20 feet by 20 feet will produce a quarter to a third of a ton of food and that food banks define a meal as one pound of food. Savelle sees opportunity to grow that food everywhere: Her organization plants school and rooftop gardens, and works with corporations to do edible landscaping.

But we don't live by produce alone. Kristin Reynolds, from the Small Farm Program at the University of California, applauds people's efforts to grow food for themselves, but she thinks people wouldn't be able to really feed themselves without growing grains.

"I think it would be very difficult to be self-sufficient," she says. "And I question whether that is the best use of space."

Urban farming the way Columbia University professor Dickson Despommier envisions it includes grains. Despommier and his graduate students in a medical ecology class came up with a plan they call vertical farming, which would allow farming in high-rises. It's estimated that by 2050, the population will grow by at least 3 billion and about 80 percent of the world will live in urban centers. That means we need to find a new way to produce more food, Despommier says. And corn, wheat and rice are easy to grow indoors, says the professor of environmental health sciences and microbiology.

There would be no soil in a vertical farm -- things would be grown using in the air with a method called aeroponics; or hydroponically, where plants are grown in a mineral nutrient. The energy would come from a variety of sources, including geothermal, wind, solar and incinerated sewage, and the water would be recycled.

Despommier says there are all sorts of reasons why his plan is the way to go. He cites the advantages of growing food indoors: no weather-related disasters, no plant diseases, no chemical sprays, lower water usage and lower food miles. All that is needed to make it happen is money and political will, he says. And Despommier is confident that we'll see vertical farming within the next decade, as governments get more concerned about food.

"I can guarantee you there are city councils meeting right now about this," Dickson says. "Dubai is very interested, and Shanghai and Las Vegas. Manhattan Borough President Scott Stringer is pursuing this idea, and the Department of the Environment in San Francisco is interested."

Kevin Drew, the special projects coordinator at that department, says he and his colleagues are intrigued by the possibilities, particularly Despommier's projection of the land now used for farming going back to nature.

"His notion that you could replace a lot or all farming on the land is one of the most radical," he says. "Then you'd let the earth go back to forests and wetlands, which are some of the most efficient climate drivers in the right direction."

Drew says San Francisco already has community and school gardens that grow food, but vertical farming would increase the amount of food the city could produce. He admits to being slightly skeptical at the thought of a 30-story building supplying enough food for 50,000, as Despommier suggests, but says it's an idea he wants to explore.

"Given state of pot farming in California, there is ample evidence extremely effective farming can be done inside, not growing in soil," he says.

Drew says the agency is looking at trying to retrofit existing buildings or perhaps putting a vertical farming building in some of the more toxic areas of San Francisco.

"You could spend umpty-umph million trying to get the toxicity out of soil, or you could pour six feet of concrete over it and call it done," he says.

Sadhu Johnston, the chief environmental officer for the city of Chicago, says city officials there are committed to urban agricultural and locally produced food. And with the constraints of weather and land in the city, Johnston says he would like to see food grown in high-rises -- he believes doing so could revitalize neighborhoods and employ people. Vertical farming would also cut down on water use by not spraying and save transportation costs of food being shipped in, Johnston says.

Growing food locally would undoubtedly save on transportation, says Bruce Bugbee, a professor of crop physiology at Utah State University. But he scoffs at the rice-in-the-sky idea because he believes the energy costs of growing food indoors are far too great.

"It can't work. That's the quick answer," Bugbee says. "The electric bill will make it far more expensive than what you can buy in the stores, and the produce is of lesser quality. And I'm saying that from 25 years of working with NASA, growing food in controlled environments."

Bugbee argues that we won't, as Despommier suggests, run out of land to grow food on.

"China has five times the population of the U.S., and they feed themselves," he says. "This is a horrible ecological idea because it takes such massive amounts of energy to run it whereas sunlight is free. It looks good to somebody who's never tried it."

But Despommier is undaunted by criticism. He says there are all kinds of alternative sources of energy to be tried, such as sun and wind. Despommier also wants to recycle waste, the way he says cities in Europe do.

"We're not behaving very ecologically," he says. "Today, Germany incinerates everything. Why don't we do that? Because we're living in the 19th century."

Despommier cheerfully admits that at first vertical farming will need to be subsidized -- the way farms are now, he says.

"At first nobody is going to make any money whatsoever doing vertical farming," he says. "But what you will make is food, and tell me you don't need that."