Tuesday, October 14, 2008

Former Fed chief says U.S. now in recession

Go to Original

Former Federal Reserve Chairman Paul Volcker said on Tuesday the U.S. housing sector faced more losses and the economy was in recession even as authorities moved to stabilize the financial system.

Volcker said the priority for U.S. authorities in the credit crisis was to stabilize the financial system even though that meant heavy government intrusion.

"The first priority is to stabilize the financial system. It is necessary even though the cost involved is heavy government intrusion in markets that should be private," he said in a speech at a seminar in Singapore.

"House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession."

Volcker is chairman of the board of trustees of the Group of 30, an international body composed of central bank governors, leading economists and private financial sector experts.

He is credited for battling double-digit inflation that flared in the 1970s.

He was chairman of the U.S. central bank between 1979 and 1987, before handing the reins over to Alan Greenspan, and oversaw a sharp increase in interest rates to quell the price pressures.

Volcker was asked by a member of the audience if the massive infusion of liquidity by the Federal Reserve could lead to inflation or stagflation.

"It's not going to be a problem in the short run. Inflation doesn't flourish in the face of recession," he said.

"It's something we have to worry about when we get out of this recession."

The United States has announced various measures to combat a credit crisis that emanated from the U.S. housing market and which has spread globally.

U.S. authorities are expected to announce plans later on Tuesday to pump $250 billion into the country's banks following similar concerted measures in Europe to revive money markets and stave off a global recession.

"I have been around for a while. I have seen a lot of crises but I have never seen anything quite like this one," Volcker said.

"This crisis is an exception. I don't think we can escape damage to the real economy."

Foreclosure Victims May Lose Votes as Well

Go to Original
By Bankole Thompson

An alleged purge of registered voters, many of whom lost their homes to bank foreclosure, in the state of Michigan has prompted a lawsuit and calls in Congress for a Justice Department investigation.

At the centre of this possible election debacle in Michigan, where Democrat Sen. Barack Obama is leading his Republican opponent, Sen. John McCain, is Republican Secretary of State Terry Lynn Land, who has been criticised in the past by a federal judge for restricting access to 'provisional ballots' by voters uncertain about their voting precincts.

The American Civil Liberties Union (ACLU) and the Advancement Project filed a suit in U.S. District Court in Detroit last month against Land, her director of elections Christopher Thomas, and Ypsilanti City Clerk Frances McMullen for using two programmes to remove voters from the rolls without proper federal procedure.

The first programme used by the state, according to the lawsuit, is the immediate cancellation of the drivers' licenses of Michiganders who have obtained licenses in other states without the appropriate confirmation of registration notices.

Under the second removal programme, election clerks automatically eliminate names of voters from the files who may have moved from their registered addresses, instead of sending them a warning notice by forwarded mail.

'The National Voter Registration Act of 1993 states that, if a registrar receives information suggesting a voter has moved from their registration address, they should send them a confirmation of registration notice by forwarded mail, including a postage-prepaid return card, and ask them to confirm the address,' said Bradley Heard, the Advancement Project's lead attorney, in the lawsuit.

'The registrar also can flag the voter's record for confirmation if the voter appears to vote. If the voter does not either respond to that notice or appear to vote within two federal general elections from the date of the notice [the ones that occur in November of even-numbered years], the voter can be removed from the rolls.'

These removal programmes could have a devastating impact in minority and low-income areas hardest hit by the mortgage crisis like Wayne County, home to large African American and Hispanic communities -- key voting blocs for Democrats.

The federal lawsuit is before Judge Stephen Murphy, the immediate past U.S. Attorney for the Eastern District of Michigan. Murphy said he will review arguments from both sides before ruling whether to stop the two programmes.

IPS found that from January to September of this year, 17,691 homes have been foreclosed in Wayne County, the state's largest county which led the nation in 2007 in foreclosures for large metropolitan areas.

Recently, Macomb County, a swing county home to many conservative-leaning so-called Reagan Democrats, was in the news for the reported statements of its Republican Party chairman James Carabelli that the party is planning to use a list of foreclosed homes to prevent people from voting in the November presidential election.

'We will have a list of foreclosed homes and will make sure people aren't voting from those addresses,' Carabelli reportedly told the Michigan Messenger in a phone interview. He would later deny the comments.

In 2004, John Pappageorge, a Republican state senator from Oakland County, a Republican stronghold -- where polls now show Obama beating McCain among independents (48 percent to 25 percent) and women (55 percent to 37percent) -- called for suppression of the Detroit vote to win the election.

'We are deeply troubled by recent media reports that the chairman of the Michigan Republican Party in Macomb County is planning to use a list of foreclosed homes as a basis to challenge voters and block them from participating in the election,' House Judiciary Committee chairman John Conyers wrote to U.S. Attorney General Michael Mukasey.

'We are writing to request that the Department of Justice launch a full scale investigation into the matter. Given the number of voting rights complaints filed after the 2004 election it is critical that the Department take proactive steps now to prevent voting rights violations in November,' Conyers wrote.

The letter added, 'The plan should be investigated as a possible violation of the Voting Rights Act.'

The Justice Department will meet with Conyers this week to address concerns about voters being challenged on their foreclosure status.

The Centre for Responsible Lending said Michigan, California, Washington D.C., New Jersey, and Nevada have high mortgage defaults. The report estimated that 10 percent of African American borrowers and 8 percent of Hispanic borrowers will be affected by foreclosures compared to 4 percent of white borrowers.

It is not clear how many voters have been purged.

But Thomas, the state election director, said about 70,000 people are removed on an annual basis because of the change in their driver's license, and that about 1,400 people have been removed since the start of this year because of their returned ID card. 'We think the actual numbers will be higher, but that will be the subject of the discovery in the case,' Heard said.

The New York Times reported that based on its own findings Michigan removed 33,000 people from the voter roll.

Thomas denied the report and said overall only 11,000 were removed because of death or authorised change notifications.

The Times ranked Michigan among five other swing states -- Colorado, Indiana, Ohio, Nevada and North Carolina -- that unintentionally purged voters.

Detroit City Clerk Janice Winfrey, who has registered 28,000 new voters, told IPS that 1,567 records have been purged from the Detroit voter file because they are considered 'inactive', meaning the person is deceased or notified election officials they've moved out of state.

To date, Winfrey said Detroit has 634,444 registered voters for Nov. 4. and only 90,000 of that figure voted in the primary election.

'We need to make sure every vote counts and that people are registered to vote,' said Mildred Madison of the League of Women Voters in Detroit.

Michigan to combat claims of possible suppression of voters

Go to Original

Even as voter turnout in the Nov. 4 presidential election is expected to reach record levels, fear -- fed by rumor, innuendo and misinformation -- is running high that droves of eligible voters in Michigan and other battleground states could be turned away or tricked into not voting.

Suggestions of a massive Republican-led effort to suppress the Democratic vote -- mainly in urban areas of battleground states -- are rampant on liberal talk radio, the Internet and the streets of Detroit, Flint, Saginaw and Benton Harbor.

The Michigan Department of Civil Rights, which has been inundated with complaints and questions, will roll out a massive advertising campaign starting today and running until Election Day to inform voters of their rights and to try to dispel misinformation.

Among the myths on the streets: Voters will be turned away or ballots tossed out if they wear T-shirts supporting a candidate, have been convicted of a felony, foreclosed on their house, filed bankruptcy, owe child support, don't have valid photo identification, or have outstanding warrants or unpaid parking tickets.

None of these are true.

Civil rights department officials say they are alarmed because Democratic nominee Sen. Barack Obama's campaign and its surrogates attracted and registered record numbers of new, inexperienced and minority voters before the Oct. 6 deadline.

"There seems to be an extreme amount of confusion too close to this election," said Trevor Coleman, spokesman for the department. "We also expect there to be some serious challenging at the polls, and we want people to know what their rights are."

Republicans say there's good reason to challenge some voters. They say they believe many new voters may be ineligible, citing investigations in several states into questionable registration efforts by the community activist organization ACORN.

Democratic officials are concerned that the challenge process could intimidate some voters and discourage others by slowing down long voting lines.

This could be the first year that 5 million Michiganders vote in an election. In the 2004 presidential election, 4.9 million voted -- a record number, but at 64.7%, it's far below the 72.7% who voted in the 1960 presidential election.

The state had 7.2 million registered voters at the end of July. Officials have not finished counting the new voters registered the last few months.

Republicans sent more than 4,000 challengers to 1,800 polling places across the state in 2004 and are expected to head a similar effort this year.

Michigan GOP spokesman Bill Nowling, said the party isn't planning to specifically challenge ACORN-registered voters because there isn't an efficient way to determine which organization registered each voter.

But in cities with large minority populations, such as Detroit and Southfield, where GOP challengers are most prevalent, clerks have said that legitimate challenges of voters are rare.

"I have worked very closely with challengers in Southfield," Southfield Clerk Nancy Banks said. "And I've always told them, if they intimidate the voter or cause disruption in the precincts or create any type of uncomfortable situation, we will call the police."

Perhaps the most persistent rumor of the election season has been that Republican challengers will use foreclosure lists to attempt to challenge whether voters are casting ballots in the precinct where they live. The Republican Party has repeatedly denied any such plans, which were first reported by a liberal blog.

Banks said she got a call from a distressed woman in Bloomfield Hills whose home was in foreclosure, but she was still in her home. She said she was terrified that she would be pulled out of line at the polls and embarrassed in front of neighbors.

"I told her that there is no such law that if a house is foreclosed that you cannot vote," she said. "But I also told her that if you are in that situation and want to avoid any potential conflict at the polls to vote absentee."

The Obama campaign and Democratic National Committee has filed a lawsuit to prohibit the use of foreclosure lists, and GOP nominee Sen. John McCain has condemned the practice.

"Gov. Palin and I absolutely reject any plan to challenge voter eligibility based on lists of foreclosed homes," McCain wrote in a letter to U.S. Rep. John Conyers, D-Detroit, the House Judiciary Committee chairman who had raised concerns about the issue. "I do not believe there is any credible evidence any such plan ever existed in Michigan or elsewhere."

State election director Chris Thomas said last week that a foreclosure list alone does not provide sufficient evidence for partisan challengers to question voters' eligibility on Election Day.

The state House of Representatives unanimously passed a bill last week that prohibits challengers from using foreclosure lists to question voters' eligibility without any other evidence. The state Senate, which has only two days of work tentatively scheduled before Nov. 4, is expected to consider the bill, but probably not before the election, said Matt Marsden, spokesman for Senate Majority Leader Mike Bishop of Rochester.

The Election Assistance commission, a federal agency that studies the conduct of elections, said in a 2006 report -- which also included the 2004 presidential election -- that there were plenty of allegations of fraud and intimidation, especially in swing or battleground states, but little evidence to back up the allegations.

The national Commission on Federal Election Reform reviewed 55,000 calls made to a voter hotline on Election Day 2004 -- 44% of those calls had to do with voter registration or polling place issues, another 24% were concerns about absentee voting and 5% were calls about voter intimidation or harassment.

But Heaster Wheeler, executive director of the Detroit branch of the NAACP, said his nonpartisan organization is gearing up to protect voters who will, for the first time, cast votes for an African-American presidential candidate on a major party ticket.

"We're very clear about the historicity of this moment," Wheeler said. "There shall be no intimidation -- Detroit will be ready, and southeast Michigan will be ready. Anybody who wants to monitor this election is welcome because we, too, will be there to monitor the monitors."

Britain and Iceland in bitter conflict over banking collapse

Go to Original
By Jordan Shilton

The seizure of £4 billion in banking assets by the British government is the most extraordinary move in the escalating hostilities that opened up following the collapse of Iceland’s major banks last week.

With British investors faced with losses of up to £8 billion (€9.6 billion) in the failed institutions, including many local authorities and police services, the Brown government used anti-terror legislation to freeze the assets of Icelandic banks in Britain. The move was also in retaliation to the freezing of British investors’ assets in Iceland’s three main banks, Kaupthing, Landsbanki and Glitnir.

Prime Minister Gordon Brown appeared on television denouncing Iceland’s actions as “unacceptable”, following its move to freeze assets in all of the nationalised banks. He vowed to sue the state for any deposits lost by Britons in the failed banks and went on to declare, “I’ve been in touch with the Icelandic Prime Minister, and I’ve said that this is effectively illegal action that they’ve taken. They have failed not only the people of Iceland, they have failed people in Britain.”

Iceland’s Prime Minister Geir H. Haarde shot back, claiming that Britain had committed an “unfriendly act” and adding that it was “not very pleasant” to have legislation designed for terrorists employed against his administration.

On Monday he accused Britain of “bullying a small neighbour” over funds frozen in the online bank Icesave, and threatened to take legal action in response. He told the Financial Times that the British government’s reaction to the collapse of the bank, including Brown’s threat to sue, had worsened the banking crisis and that Iceland could counter-sue. The move to put part of Icelandic bank Kaupthing’s British operations into administration “led to the collapse” of its parent bank and he would support Kaupthing’s plans to sue the Brown government, Haarde said.

As the Icelandic government announced it was taking over Kaupthing, the last of the island’s three big banks to be taken into state control, it was revealed that its British subsidiary Singer and Friedlander would be placed in administration. Roughly 160,000 savers have deposits that had been managed by Singer and Friedlander and these were transferred by the UK financial Services authority (FSA) to Dutch banking group ING.

Britain’s central bank is lending Iceland’s Landsbanki up to £100 million to help it to repay Britons with money deposited at the bank, Chancellor Alistair Darling said on Monday. But no agreement has been reached with regard to institutions.

A further 100,000 savers in the Netherlands find themselves in the same position having placed deposits worth €1.7 billion in Icesave accounts. The Dutch government, which has had to deal with its own financial troubles, announced on Friday that it would guarantee deposits in Icesave accounts up to €100,000. On the same day, the central bank of Holland made available €20 billion to provide extra liquidity for struggling financial institutions.

In negotiations over the weekend, it appears that a deal has been agreed to between the two countries to re-fund some deposits, with the Icelandic authorities pledging to re-fund up to €20,887 of Dutch savers’ money. To facilitate this, the Dutch government will make available a loan to Iceland since the government in Reykjavik lacks funds of its own.

Back in Britain, the situation is serious for companies, particularly in the retail sector where Iceland’s three big banks have been heavily involved. It is believed that British companies have at least £10 billion of funds in the failed institutions which they are unable to access at present. British banks also have assets tied up in Icelandic banks, with the Royal Bank of Scotland reportedly threatened with the loss of half a billion pounds.

Numerous local authorities, charities, police authorities and other organisations began to reveal last Thursday the extent to which they had invested in Icelandic banks. Kent County Council, with £50 million (€60 million) was one of the largest hit, but councils across England, Wales and Scotland all suffered. At least 108 councils in England and Wales had some form of involvement with Icelandic banks which have now collapsed. Added to this, the London Transport Authority, which manages public transport in the Capital, revealed that it had £40 million invested in the same banks.

While councils have maintained that such a loss of funds will not impact upon core service delivery, the danger that vital public services could be at risk is very real given the sums involved. A report in the Independent raised the possibility that some authorities may struggle to pay wages this month due to the losses. Unlike the virtually unlimited funds provided by government to prop up the banks, Brown has refused to promise financial aid to the councils affected.

Various charities will also take a severe hit. One children’s hospice in Hampshire faces ruin with the loss of £5 million.

Officials from the finance ministry, the Financial Services Authority and the Bank of England were among the team which held talks over the weekend in Reykjavik. A statement was issued claiming that “significant progress” had been made, but a deal has not yet been finalised. Iceland has agreed “in principle” to fund the first £16,000 of retail deposits in Icesave accounts and to ensure a “swift” pay out. No information has yet been released on a deal regarding the funds invested by councils and other organisations.

British Chancellor Alistair Darling was also due to meet with his Icelandic counterpart Arni Mathiesen at the meeting of the International Monetary Fund (IMF).

The possibility that the International Monetary Fund could come to Iceland’s aid and provide a loan is now seriously being considered, although Haarde is still insisting they have other avenues to pursue. Earlier this year, the central banks of Sweden, Norway and Denmark provided the Icelandic central bank (Sedlabanki) with €1.5 billion to boost its currency reserves. Now this is barely a drop in the ocean as the country attempts to deal with banking assets up to 12 times greater than its GDP. To this end, negotiations with Russia over a €4 billion loan will commence today.

A team from the IMF has been in Reykjavik since last week.

Arsaell Valfells, a professor at the University of Iceland told the New York Times, “Iceland is bankrupt. The Icelandic Krona is history. The only sensible option is for the IMF to come and rescue us.”

Such a “rescue” would entail vast cuts in government spending, in order to reduce inflation, at a time when people are already struggling to get by. The collapse of the krona is already hitting the tiny economy hard, since firms relying on imports are seeing their costs skyrocket. At the end of last week, it was acknowledged that trading in the krona had ceased altogether, the last quoted value being 340 per euro, down from around 140 per euro at the start of last week. Predictions by some economists suggest that inflation could jump to 50 percent before the end of the year and that the Icelandic economy could contract by 10 percent.

Such a situation would be devastating for ordinary Icelanders, many of whom will be out of a job. Immediately after being nationalised, Landsbanki announced it would lay off 500 staff. Many who took out loans to purchase their homes or cars are already suffering. Particularly for those who took out loans in foreign currency, attempting to avoid the high interest levels at home, the collapse in the value of the krona could spell financial ruin.

In an illustration of just how precarious the current situation is, Haarde appealed to Icelanders not to withdraw their money from the banking system. “I want to emphasize ... that people remain calm and understand that the transaction system is fully functioning and deposits are safe,” he told a press conference. “I also ask the public not to withdraw large sums of money from the banks. It will make things more difficult.”

There is a real threat that other states could soon be in a similar position to Iceland as ever greater sums of money are directed towards failing financial institutions, leading to national bankruptcies. Even now, the reach of Iceland’s problems continues to grow. On Friday, Austrian bank Erste Bank revealed that it had €300 million tied up in the failed institutions. Trading in Vienna was suspended on Friday morning while the exposure of Austrian banks and firms to the financial crisis was assessed. In Prague, the stock exchange was forced to halt trading in Austrian firms shares, with Erste Bank having fallen by over 20 percent.

There is also exposure to Iceland in the Nordic region, with the Finnish financial monitor declaring that the country’s banks had at least €200 million invested in Iceland. The Finnish branch of Kaupthing asked the Finnish government for a loan on Friday in order to pay back depositors. On Thursday, regulators halted withdrawals from the bank, freezing more than 10,000 depositors’ funds.

In Norway, the country will have to use its own deposit guarantee fund to reimburse savers. It will need to pay out 1 billion Norwegian kronor (NOK) of its reserves of 18 billion NOK.

The possibility that Russia may step in to provide Iceland with a €4 billion loan is also viewed with concern. Bronwen Maddox, writing in the Times noted, “Declining to offer Iceland a quick €4 billion loan is one of the worst decisions the US and European countries have made in the financial turmoil. It is a false economy that will prove diplomatically expensive.”

Going on to claim that Russia may use the situation to attempt to gain geopolitical advantages in the Arctic in a bid to secure oil reserves, she concluded, “The US, European Union and NATO are in danger of taking its deep links to them (Iceland) for granted. They missed a trick in allowing in the Russian loan.”

A comment in the Telegraph was entitled “Iceland should turn to IMF, not Russia”. It hoped that Iceland would accept help from the IMF rather than negotiate a loan from Russia since the strings attached to such IMF assistance would be “sensible and financial rather than strategic and dangerous.” It threatened Iceland that “Unless it wants to become a pawn in a geopolitical power play, Iceland should welcome the fund with open arms.”

Banks dictate conditions of US financial bailout

Go to Original
By Alex Lantier

The 936 point rise on the US stock market yesterday was the American ruling elite’s initial verdict on the extraordinarily favorable terms the government is granting to financial firms in the $700 billion bailout passed by Congress on October 3. Far from heralding improving economic conditions for working people, the Wall Street surge reflects the financial establishment’s success in extorting massive sums of money from taxpayers.

Several factors played important roles in the market’s rise. A technical correction was likely after the massive falls of last week, when the Dow Jones Industrial Average fell 2,236 points, or 21.33 percent, to 8451.19. The announcement of bank bailouts in Europe totaling trillions of dollars—under conditions where national governments are competing to rescue their respective banks—contributed to expectations that Washington would continue to bail out its own banks. Another major factor was undoubtedly a series of announcements by US officials underscoring that US banks would essentially dictate the terms of the bailout.

Late yesterday morning, news broke that the CEOs of the largest US banks would meet with US Treasury Secretary Henry Paulson, the former CEO of Goldman Sachs, to discuss the terms of the bailout. The Wall Street Journal wrote, “Expected to attend were banking executives including Ken Lewis, CEO of Bank of America; Jamie Dimon, CEO of JPMorgan Chase; Lloyd Blankfein, CEO of Goldman Sachs Group; John Mack, CEO of Morgan Stanley; and Robert P. Kelly, CEO of Bank of New York Mellon.”

A Treasury spokeswoman said, “Treasury and [the Federal Reserve] are meeting today with leading financial market participants to finalize details on a financial market stabilization initiative.” The Journal wrote, “One person familiar with the matter said Mr. Paulson is expected to discuss details of his new plan to take equity stakes in financial firms, among other points.”

The meeting’s roster underscores the social character of the bailout. A handful of current and former top banking executives gathered for a meeting, publicly announced a few hours before it took place and closed to the public, to discuss the conditions under which they will receive hundreds of billions of dollars in public funds. The fact that, in a healthier political climate, these executives would face investigation and prosecution for overseeing the predatory lending practices that led to the housing and credit crises was simply ignored.

In this meeting of the godfathers of American finance, no one was present who represented the overwhelming majority of the American population. Indeed, the participants live in a world of wealth and power that has no resemblance to the existence of ordinary working people.

One could start with Paulson himself, whose former bank stands to benefit handsomely from the bailout which he has authored. While at Goldman Sachs, Paulson amassed a personal fortune of $700 million.

The list continues:

According to Forbes magazine, Ken Lewis last year brought in a salary of $20.13 million, and his holdings of Bank of America stock are worth an estimated $112 million.

Jamie Dimon received a 2007 Christmas bonus of $14.5 million and holds $190 million in JPMorgan stock.

Lloyd Blankfein received a Christmas bonus of $68 million and his holdings of Goldman Sachs stock were worth $414.5 million last year.

Vikram Pandit received a $165 million signing bonus from Citigroup last year, together with a $2.7 million salary for a few months of work and $48 million in stock options.

John Mack received $41.8 million in compensation last year, and his 2007 holdings in Morgan Stanley stock were worth $220 million.

These firms’ stock, and particularly that of Goldman Sachs and Morgan Stanley, rose rapidly on news of the meeting with Paulson. Goldman stock rose 25 percent to $111 a share, and Morgan Stanley stock rose 87 percent to $18.10 per share.

Other financial stocks also rose significantly. Citigroup rose 13.25 percent to $15.98, Bank of New York Mellon rose 15.77 percent to $30.68, and Bank of America rose 9.2 percent to $22.79. JPMorgan stock fell in initial trading on fears of further write-downs, but after the meeting announcement it rose from just over $40 per share to close at $41.64.

Neel Kashkari, the assistant secretary of the treasury and ex-Goldman Sachs executive who is overseeing the $700 billion bailout, confirmed in a speech yesterday that his goal—in purchasing both equity (shares of stock) and assets of financial corporations—is to concentrate money in the hands of the biggest banks.

Kashkari told a Washington DC meeting of the Institute of International Bankers: “We are designing a standardized program to purchase equity in a broad array of financial institutions. As with the other programs [in the bailout], the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions.”

This emphasis on bailing out supposedly “healthy” banks reflects the increasingly shaky position of many of the major banks. They are jockeying for influence over the government handouts that will determine which banks profit, which suffer, and which close.

Writing 125 years ago in the third volume of his masterwork, Capital, Marx noted, “So long as things go well, competition affects an operating fraternity of the capitalist class... But as soon as it is no longer a question of sharing profits, but of sharing losses, everyone tries to reduce his own share to a minimum and to shove it off upon another. The class, as such, must inevitably lose. How much the individual capitalist must bear of the loss, i.e., to what extent he must share it at all, is decided by strength and cunning, and competition then becomes a fight among hostile brothers. The antagonism between each individual capitalist’s interests and those of the capitalist class as a whole then comes to the surface...”

This anti-social struggle between the various factions of the bourgeoisie is expressed in the secretive and exclusive character of the planning of the bailout.

The Treasury has set up the bailout’s asset purchases—which are to be carried out by private firms—so that only the largest companies will be able to participate and rake in the lucrative fees the government will pay out. Kashkari said: “Our initial procurements set high capability standards: for example, securities asset managers had to have at least $100 billion of dollar-denominated fixed-income assets under management. This is critical given the magnitude of the program—up to $700 billion. Treasury believes it would not be fiscally prudent to ask a firm that only had experience managing only a few billion to manage $100 billion.”

The Treasury is reserving the other roles in the bailout for an elite group of financial and legal firms. Kashkari stated that the Treasury Department had considered only three candidates for the role of “master custodian firm,” whose function, according to Kashkari, would be to “hold and track the assets we purchase as well as run and report on the auctions we use to buy the assets.” The Treasury also contacted six law firms as potential consultants on the bailout’s stock-purchase program. Kashkari added, “We received two proposals, and selected [top New York law firm] Simpson Thatcher [& Bartlett] on Friday.”

The result of this bailout—a major consolidation and restructuring of the US banking industry—will be quite harmful to the interests of the population. The smaller number of surviving banks will have even more market power to set interest rates and control access to credit for working people, students and small businesses.

While the best-connected firms will profit immensely from the bailout, the bourgeoisie and its political representatives insist there is no money for elementary social needs of the working class, such as foreclosure relief, universal health care and the right to a secure retirement. The major presidential and vice presidential candidates have uniformly called for cuts in existing, already inadequate, programs such as Social Security and Medicare.

The stock market’s rise today is not the advent of a new era of prosperity for the American people. Rather, the bourgeoisie is celebrating the Great Heist of 2008.

The G7 and the Euro Group agree to pour billions into banks

Go to Original
By Peter Schwarz

Two summits of leading industrial nations decided last weekend to make unlimited sums of public funds available for the rescue of failing banks and financial markets.

The finance ministers and heads of the central banks of the US, Canada, Great Britain, France, Germany, Italy and Japan (G7) met in Washington on Friday evening, while the 15 heads of state and government of the Euro Group (the European Union countries sharing the euro as common currency) and Great Britain met in Paris on Sunday.

The meetings were preceded by a turbulent week on the global stock markets, which lost approximately a fifth of their value around the world. New York’s Dow Jones index plunged by over 18 percent between October 6 and 10, the London FTSE 100 by 21 percent, the Frankfurt DAX by 21.6 percent and the Tokyo Nikkei by 24.3 percent. Altogether, the world’s markets over the past four weeks saw $11 trillion worth of assets wiped out. This sum corresponds to virtually the entire annual gross national product of the US, or the European Union.

The governments of the leading industrial nations reacted to the panic on the stock exchanges by issuing a blank cheque from their treasuries made out to all of those who were responsible for the financial meltdown in the first place.

The G7 finance ministers in Washington adopted a five-point plan, which does not include precise figures or even estimates, but which will inevitably involve colossal sums of money.

In the first place, all the G7 governments pledged that they would ensure that no banks go to the wall. Secondly, they want to guarantee that financial institutions have sufficient access to liquidity by, for example, providing government guarantees for short-term interbank loans. Thirdly, they want to ensure that the banks have sufficient capital, through governments buying up bank shares. Fourthly, they are seeking to guarantee the savings of bank customers and lastly, they want to ease balance sheet regulations to ensure that toxic assets are not immediately written off.

The five-point plan fits on one side of a piece of paper. The details, practical execution and the financing of the plan are left to the individual states. The main concern of the plan is to ensure that any aid given by one state to its financial institutions does not provide it with a competitive advantage over its rivals.

On Sunday evening, the heads of state and government of the Euro group took up the suggestions of the G7 and agreed on a “tool kit” to support banks in Europe. Among the “tools” are liquidity assistance, injections of capital and new balance sheet regulations for the banks. Once again, the selection, execution and financing of the “tools” are left to national governments. The package, therefore, does not provide for any common European approach, or for joint financing.

The role model for the Euro group’s deal was the £500 billion (€635 billion) package to support British banks decided last week by the Labour government.

On Monday, the German government submitted its own package of €480 billion, which is to be rapidly pushed through parliament this week. Of this sum, €400 billion are intended as state endorsements for credits between the banks, the remaining €80 billion as fresh capital for the banks.

France plans its own support package of €360 billion—€320 billion for non performing loans and €40 billion for the supply of fresh capital to the banks. Spain intends to guarantee credits between its banks with a total of €100 billion.

These sums amount to double the annual national budget of these countries and, on a per capita basis, are three to four times larger than the $700 billion deal enacted by the US government.

On Monday, the European Central Bank (EZB) announced that together with the British and Swiss Central Banks it would place unlimited amounts of dollar liquidity at the disposal of commercial banks. So far it had only distributed dollars in a limited quantity.

A bottomless pit

The first striking feature of the deals concluded over the weekend is their naked class character.

For the past three decades, any demand for social improvements has been rudely turned down with the argument that the public purse was empty. Taxes on high incomes and huge fortunes were lowered, wages decreased and laws protecting workers’ rights were wiped out all because—as the argument went—only exorbitant rates of profit could guarantee prosperity for all. These arguments were eagerly taken up, expounded and put into practice by the British Labour Party, the German social democrats and trade unions across the globe.

Now, after an unprecedented orgy of enrichment and speculation has led to the biggest crisis of the capitalist system since 1929, we are told the treasuries can spend without limit. Hundreds of billions are being paid out to compensate the banks for their gambling losses. The millions and billions accumulated during recent decades due to speculation and low taxes are to be left untouched. In the long run, the bill will be paid by the working population—in the form of further social cuts, rising unemployment and inflation.

Governments have literally handed over the keys to their treasuries to the banks. The massive redistribution of wealth from working layers of the population to the rich elite during the last three decades is to be continued and accelerated in the course of the current financial crisis.

By pledging to guarantee that no important bank will be allowed to collapse, governments have publicly turned themselves into the hostages of the most powerful financial interests. Bankers and government officials have cooperated closely in all of the committees formed to prepare and implement the rescue packages.

In the US, the Treasury is headed by Henry Paulson, the former boss of Goldman Sachs—a bank that has been able to profit from the crisis. In Germany, the head of the Deutsche Bank Josef Ackermann, has worked hand-in-hand with government representatives.

Stock markets reacted positively on Monday to the deals struck at the weekend, largely compensating for Friday’s losses (not, however, for those of the whole week). In New York, the Dow Jones Industrials posted a 936-point gain in celebration of the new torrent of money being poured into the international financial markets. But the general mood is one of scepticism.

The Süddeutsche Zeitung rated the resolutions made in Washington positively. For the first time the G7 had given “a global answer to the global crisis of the finance system.” But, the paper continues, the weaknesses of the agreement are “so grave that the action plan of the G7 could go down in history as the last twitching by the international community of states before the implosion of their finance system.”

Spiegel-on-line quotes finance experts who refer to the Crash of 1987: “At that time the stock market fell deeper to a new low after an initial phase of recovery.”

Governments justify their multibillion-euro support packages with the argument that they are the only means to restore confidence and re-establish the flow of capital between banks, without which the entire economy would come to a halt. According to this line of thought, the present crisis is merely a crisis of liquidity and confidence, which will fade away as soon as the circulation of money is restored.

In reality, we are experiencing the bursting of a gigantic speculative bubble, which can rapidly lead to spiralling inflation under conditions in which huge sums of new money are being pumped into the finance system by governments and central banks.

During recent days and weeks, it has become increasingly evident that even the banks have no idea how much bad debt they are holding. The total sum of derivatives currently in circulation has been estimated at $516 trillion. The market for credit and loan derivatives, however, has a volume of $56 trillion. These are merely paper values, bets on future developments, which lie slumbering on the banks’ balance sheets.

The G7 and European governments have gone to great lengths to promote confidence and calm. They present the rescue packages prepared over the weekend as proof that they have everything under control. In fact, these packages are an expression of growing panic. What is being put forward in public as the “global answer to a global crisis” is in reality an expression of increasing conflict between individual nations.

Since the US government began to support its banks with hundreds of billions of dollars in taxpayers’ money, other countries fear competitive disadvantages if they do not adopt similar measures. In the general panic, a bank that has the support of a financially strong government has more chance of winning new investors than a bank lacking such support. Governments, therefore, are assuming a series of financial obligations, which they can never keep. In particular, smaller and economically weaker countries will stand to lose out.

In addition, the financial crisis is now rapidly spreading to the real economy. Die Zeit warns: “The next tsunami of the real economy is already on the roll.” This will contribute to the frictions and conflicts between the most powerful industrial nations.

In the Süddeutsche Zeitung, Stefan Kornelius already sees a crisis of the entire world order and writes: “The self-devaluation of the US unfolded in all of its dynamic in the vacuum of the pre-election period.... Europe, politically already eager to decouple is struggling with its own ties. The shining idea of the West has faded; new participants are standing in the wings. The financial crisis is turning into a crisis of the world order; this is shown by the panic-drive conferences in Washington and Paris.”

Such crises—the replacement of old power constellations by new ones—have never taken place peacefully in history. The current financial crisis is an expression and result of a profound crisis of the entire capitalist order.

The Fallacy of the 401(k)

Go to Original
By Marie Cocco

The essential fallacy of the 401(k) has been exposed. It took a historic market collapse -- one that threatens to impoverish workers already in retirement and those who are nearing it. But then, crushing hardship is often what's required to usher out an era of ideological illogic and unconscionable greed.

The advent of the 401(k) in the late 1970s and early 1980s was a leading indicator of what became a political mania for shifting the risk and responsibility for life's big challenges -- health care, an adequate income in retirement -- from employers and other broad-shouldered institutions to the narrower, weaker backs of individuals themselves.

It was never sold this way, of course. The pitch for the 401(k) was a contemporary version of the get-rich-quick scheme: The promise of strolling along a sun-dappled beach in retirement would be realized with ease, so long as workers regularly contributed modest amounts to the accounts, then let the compounding magic of the market work. To hear the mutual fund companies and the media tell it, only fuddy-duddies and dinosaur employers would be foolish enough to opt for the old-fashioned defined-benefit pension, the type employers paid for and professional managers oversaw, and which guaranteed monthly payments in old age. The type that gave the hard-boiled men and women of the industrial age security, but would never reward them with riches.

The offer seemed good to media observers, and to the politicians who nurtured the do-it-yourself retirement with successive legislative schemes. During the stock market boom of the 1990s, esteemed business publications published breathless articles featuring manufacturing workers who would use their lunch breaks to track their mutual fund balances and ponder the possibilities of the loan they would take out for a cabin on the lake or an anniversary trip to Hawaii.

But despite the hype, the data on 401(k)s have never -- ever -- shown that these accounts were creating a mass of workers who would be able to retire with security, let alone luxury.

The 401(k)s didn't expand the proportion of the work force with pension coverage, notwithstanding claims that shifting to accounts that required workers to contribute would make employers more willing to offer the benefit. Less than half of workers have any type of pension coverage from their current employer at all, according to the Center for Retirement Research at Boston College.

For those who do have retirement accounts, the bottom line has long been grim. In 2004, the last year for which data are available, the median balance in IRA and 401(k) retirement accounts was $35,000, according to the Federal Reserve. For those nearest to retirement -- households headed by someone between 55 and 64 -- the median balance in 2004 was $60,000. That's enough to generate about $400 a month in retirement income, according to the research center.

These numbers reflect balances before the current market meltdown, which wiped out about $2 trillion in retirement assets when losses in individual accounts as well as employer-based pension funds are tallied. How did this happen? Like so many other political experiments of the last three decades, it was good for the corporate bottom line -- and therefore, supposedly good for America. The 401(k) plan was first promoted to supplement, not replace, traditional pensions, according to Alicia Munnell, director of the Boston College center. Over time, as new businesses were formed, they opted to provide only these accounts, eschewing traditional plans.

More recently, even companies with healthy, traditional pension systems have frozen those plans (effectively abandoning their pledges to longtime workers) and replaced them with 401(k)s. Why? "Shifting from a defined-benefit plan to a 401(k) plan will reduce required employer contributions from 7 to 8 percent of payrolls to the 3 percent employer match," Munnell and a team of researchers wrote in a 2006 paper.

This was never about empowering workers to reap the rewards of financing their own retirement. It was about reducing corporate costs.

"I think what has become clear is that we just can't have a system where people are exposed to this type of market risk," Munnell told me in an interview. Nor, in the age of global competition, can American businesses solely shoulder pension costs that in other countries are at least partially borne by governments.

Some new system that might be called "Social Security-plus" must be developed. Remember that in a year or two, when politicians try to sell us on the supposed need to "reform" Social Security with something that really amounts to Social Security-minus.

Played Like a Fool: Campaign Manager Cashes in on McCain's Cold War Mentality

Go to Original
By Mark Ames and Ari Berman

Over the course of the presidential campaign, John McCain has repeatedly emphasized his willingness to stand up to Russian Prime Minister Vladimir Putin as proof that only he possesses the fortitude and judgment to become the next leader of the free world. In his acceptance speech at the Republican convention, McCain lashed out at Putin and the Russian oligarchs, who, "rich with oil wealth and corrupt with power[are] reassembling the old Russian Empire." McCain rushed to publicly support the Georgian republic during its recent conflict with Russia and amplified his threat to expel Moscow from the G-8 club of major powers. His running mate, Sarah Palin, suggested in her first major interview that the United States might have to go to war with Russia one day in order to protect Georgia -- the kind of apocalyptic scenario the United States avoided during the cold war.

Yet despite McCain’s tough talk, behind the scenes his top advisers have cultivated deep ties with Russia’s oligarchy -- indeed, they have promoted the Kremlin’s geopolitical and economic interests, as well as some of its most unsavory business figures, through greedy cynicism and geopolitical stupor. The most notable example is the tale of how McCain and his campaign manager, Rick Davis, advanced what became a key victory for the Kremlin: gaining control over the small but strategically important country of Montenegro.

According to two former senior US diplomats who served in the Balkans, Davis and his lobbying firm, Davis Manafort, received several million dollars to help run Montenegro’s independence referendum campaign of 2006. The terms of the agreement were never disclosed to the public, but top Montenegrin officials told the US diplomats that Davis’s work was underwritten by powerful Russian business interests connected to the Kremlin and operating in Montenegro. Neither Davis nor the McCain campaign responded to repeated requests for comment. (Davis’s extensive lobbying work, especially on behalf of collapsed mortgage giants Fannie Mae and Freddie Mac, has already attracted critical media scrutiny.)

At the time, Putin wanted to establish a Russian outpost in the Mediterranean, and Montenegro -- a coastal republic across the Adriatic from Italy -- was seen as his best hope. McCain also lobbied for Montenegro’s independence from Serbia, calling it "the greatest European democracy project since the end of the cold war." For McCain, the simplistic notion of "independence" from a country America had gone to war with in the late 1990s was all that mattered. What Montenegro looked like after independence seemed not to interest him. This suited Putin just fine. Russia had generally sided with Serbia against the West during the Balkan wars of the 1990s, but for the Kremlin, cutting Montenegro free from Serbia meant dealing with a Montenegro that could be more easily controlled. Indeed, today, after its "independence," Montenegro is nicknamed "Moscow by the Mediterranean." Russian oligarchs control huge chunks of the country’s industry and prized coastline -- and Russians exert a powerful influence over the country’s political culture. "Montenegro is almost a new Russian colony, as rubles flow in to buy property and business in the tiny state," Denis MacShane, Tony Blair’s former Europe minister, wrote in Newsweek in June. The takeover of Montenegro has been a Russian geostrategic victory -- quietly accomplished, paradoxically enough, with the help of McCain and his top aides.

In mid-September The Nation’s website published a photo of McCain celebrating his seventieth birthday in Montenegro in August 2006 at a yacht party hosted by convicted Italian felon Raffaello Follieri and his movie-star girlfriend Anne Hathaway. On the same day one of the largest mega-yachts in the world, the Queen K, was moored in the same bay of Kotor. This was where the real party was. The owner of the Queen K was known as "Putin’s oligarch": Oleg Deripaska, controlling shareholder of the Russian aluminum giant RusAl, currently listed as the ninth-richest man in the world, with a rap sheet as abundant as his wealth. By mid-2005 Deripaska had already virtually taken control of Montenegro’s economy by snapping up its aluminum plant, KAP -- which accounts for up to 40 percent of the country’s GDP and some 80 percent of its export earnings -- in a nontransparent privatization tender strongly criticized by NGO watchdogs, Montenegrin politicians and journalists. The Nation has learned that Deripaska told one of his closest associates that he bought the plant "because Putin encouraged him to do it." The reason: "the Kremlin wanted an area of influence in the Mediterranean."

In mid-2005 Ambassador Richard Sklar, the former lead US official in the Balkans, ceased advising the Montenegrin government (he’d worked as a pro bono adviser after leaving the US diplomatic service) when it became clear the plant was being handed to Deripaska under heavy Russian pressure. "I quit because it was a bad deal, not for any political reasons. The Russians scared all the other buyers off. They offered far too little money and got themselves a sweetheart deal."

Russia’s virtual takeover of Montenegro was well under way by January 2006, when Rick Davis introduced Deripaska to McCain at a villa in Davos, Switzerland. They met again seven months later, at a reception in Montenegro celebrating McCain’s birthday, as reported in the Washington Post.

The story of how Oleg Deripaska, 40, rose from a Cossack village to become a Putin-blessed aluminum tycoon with an estimated $40 billion fortune does not begin with a lemonade stand and old-fashioned elbow grease. Like most post-Soviet success stories, Deripaska’s rise began abruptly and violently, during the chaotic reign of Boris Yeltsin. Among all the battles for control of valuable state assets in the 1990s, none were as bloody as the "aluminum wars," in which organized-crime gangs hired by competing interests assassinated dozens of executives, shareholders and bankers. During a visit to the United States in 1995, Deripaska threatened the lives of two aluminum rivals, Yuri and Mikhail Zhivilo, according to a RICO lawsuit filed against Deripaska in New York district court in 2000. The RICO case is just one of many lawsuits, including one filed in Israel by a former business partner claiming that Deripaska illegally wiretapped an Israeli cabinet minister. In addition, German prosecutors have begun a criminal money-laundering investigation in Stuttgart. (Deripaska did not respond to requests for comment.)

Deripaska understands that success in Russia today comes from a mixture of brute force, political influence and personal connections. In 2001, about a year after Putin signed a decree granting legal immunity to Yeltsin’s family, Deripaska married Yeltsin’s granddaughter, thereby cementing his own immunity and power. Throughout Putin’s reign, Deripaska has adhered to an unwritten understanding between Putin and the oligarchs: as long as they support the Kremlin, they can operate with impunity. Deripaska has thus taken on numerous projects dear to Putin, such as building a new airport in Sochi for the 2014 Olympics and buying out Tajikistan’s aluminum plant to help Putin reassert control over that key ex-Soviet republic. Deripaska openly admits that his RusAl holdings are subservient to the Kremlin’s wishes, telling the Financial Times last year, "If the state says we need to give it up, we’ll give it up."

Yet Deripaska faced a serious obstacle to his business ambitions, hampering his duties as a Putin surrogate. Because of numerous accusations of involvement in death threats, extortion, racketeering and money laundering, he had been barred from entering America since 1998. Putin has lobbied for Deripaska’s US visa. In an interview with Le Monde earlier this year, Putin complained, "I have asked my American colleagues why. If you have reasons for not delivering him a visa, if you have documents on illegal activities, give us them. They give us nothing, explain to us nothing, and forbid him from entry."

The visa ban was costing Deripaska billions: for years he and fellow RusAl shareholders had sought to cash in their wealth by launching an IPO in London, which could have netted up to $10 billion for RusAl’s owners. However, finding institutional buyers would be difficult if not impossible as long as RusAl’s primary owner was barred from entering the United States.

Despite rampant Russophobia among Republicans, Deripaska turned to powerful GOP figures to solve his problem -- especially to Republicans connected with McCain. In 2003 Deripaska hired former presidential candidate Bob Dole, who had nearly picked McCain as his running mate, and Dole’s lobbying partner Bruce Jackson (also a McCain aide) to lobby the State Department to overturn the visa ban, according to Glenn Simpson and Mary Jacoby of the Wall Street Journal. Over the next few years Dole’s firm, Alston & Bird, was paid more than $500,000 to push for Deripaska’s visa.

Deripaska also reached out to a Washington-based intelligence firm, Diligence, chaired by GOP foreign policy hand Richard Burt, McCain’s top foreign policy adviser in 2000 and an adviser in ’08 (Burt left Diligence in 2007 to join Henry Kissinger’s consulting firm). Deripaska’s business partner in London, Nathaniel Rothschild, an heir to the English Rothschild fortune, bought a stake in Diligence, according to the New York Times and confirmed by a Rothschild spokesman. The firm offered Deripaska many useful services: corporate intelligence gathering, visa lobbying through considerable GOP connections and, crucially, help in obtaining a $150 million World Bank/European Bank for Reconstruction and Development loan for a Deripaska subsidiary, the Komi Aluminum Project. Getting the loan was useful in providing a layer of comfort to Western investors skittish about RusAl. So Diligence, now partly owned by Rothschild, provided a "due diligence" report to the World Bank, which the Bank then used to approve its loan to Deripaska.

Not surprisingly, the lobbying worked: in December 2005 Deripaska was issued a multientry US visa, according to the State Department. During his brief stay he signed his World Bank loan, spoke at a Carnegie Endowment meeting and attended a dinner for Harvard University’s Belfer Center, where, thanks to a generous donation, he became a member of its international council.

However, Deripaska’s trip did not end well. Under the visa’s terms, he was forced to endure lengthy FBI questioning. According to the mining-industry newsletter Mineweb, the list of his enemies had grown from jilted former business partners to the heads of powerful US metals companies and government officials unhappy with RusAl’s control of key Third World bauxite mines, which threatened beleaguered US aluminum giants. The interview went badly -- according to people who know him, Deripaska had little patience for prying bureaucrats. When he left the country, the visa ban was reinstated. Once again Deripaska turned to powerful Republicans -- this time, to McCain and campaign manager Davis, who arranged the January 2006 Davos introduction. The McCain campaign later claimed that "any contact between Mr. Deripaska and the senator was social and incidental," but afterward Deripaska thanked Davis for arranging "such an intimate setting." The Washington Post reported that Davis was "seeking to do business with the billionaire." Indeed, Deripaska’s subsequent thank-you letter mentioned his possible investment in a metals company Davis represented through a hedge-fund client.

If you’re wondering how Deripaska came to know Davis & Co., the answer lies in Russia’s next-door neighbor Ukraine.

In December 2004 Ukrainians poured into the streets of Kiev and other cities in the peaceful "Orange Revolution," which overthrew a Putin-backed corrupt leader, Viktor Yanukovich, who had tried to steal the country’s presidential election that year (during which the pro-Western opposition candidate, Viktor Yushchenko, was poisoned and almost died). It was a serious blow to Russia’s geopolitical standing.

Putin’s Ukrainian proxies were also in trouble. Shortly after the Orange Revolution, a murder investigation was launched against the country’s richest oligarch, Rinat Akhmetov, Yanukovich’s main backer. Akhmetov fled the country. In exile in Monaco, he turned to Davis’s business partner, Paul Manafort -- the second name in the lobbying firm Davis Manafort. An old GOP hand, Manafort, like Davis, had played a key role in Dole’s failed 1996 presidential run and had worked for dictators like Ferdinand Marcos of the Philippines and Mobutu Sese Seko of Zaire. Akhmetov initially hired Manafort to improve the image of his beleaguered conglomerate, SCM, but soon Manafort’s role shifted to helping Yanukovich.

Manafort assembled a skilled team of political operatives in Ukraine and set about raising the popularity of Yanukovich’s pro-Russian Party of Regions, which Akhmetov financed. It was a very lucrative deal for Davis Manafort -- and successful (according to Ukrainian investigative journalist Mustafa Nayem, Akhmetov paid Manafort upward of $3 million). Yanukovich’s disgraced party won a resounding victory in the March 2006 elections -- and Akhmetov returned as the top Ukrainian oligarch. Thanks in part to the work of Davis Manafort, the Orange Revolution was essentially undone, putting Putin back in the chess match over Ukraine’s future.

Publicly McCain and his campaign chief’s lobbying firm were on opposite sides. In 2005 McCain had nominated Orange Revolution hero Yushchenko for the Nobel Prize, and that spring he’d honored Yushchenko in the headquarters of the International Republican Institute, whose board McCain has chaired since 1993. But behind the scenes the former head of IRI’s Moscow office, Philip Griffin, was recruited by Manafort to work on Yanukovich’s campaign against Yushchenko. Davis Manafort’s work was considered so detrimental to US interests that a National Security Council official called McCain’s office to complain, according to the New York Times. The McCain campaign denies receiving the NSC complaint.

But the firm’s work was only just beginning. The same month Davis Manafort helped deliver this victory to Putin’s proxies, it started work on another key Kremlin success story: an independent and Russia-dominated Montenegro.

First, a little history. Montenegro was the smallest of the former Yugoslavia’s six republics. When Slobodan Milosevic was overthrown in October 2000, Montenegro’s longtime strongman, Milo Djukanovic, figured the West would reward him by supporting his push for independence. But the European Union and the United States opposed Montenegro’s secession, which they feared would undermine the new, pro-Western leaders in Serbia and bring more war. So under heavy pressure from the EU, an agreement was struck in 2002 putting off an independence referendum for at least three years.

Djukanovic then looked beyond the West for support. That same year his closest ally and mentor, Milan Rocen, was dispatched to Moscow as ambassador of the Serbia-Montenegro confederation. Rocen nurtured ties to Putin’s Russia, and by 2005 the biggest Montenegrin industrial asset, the KAP aluminum plant, was snatched up by Deripaska at Putin’s request. After that, Russia surprised everyone by dropping its objections to Montenegrin independence, which Russia’s historic ally Serbia vigorously opposed. "There seemed to be a belief that Deripaska and the Russians wanted to gain control of the aluminum plant as part of a Russian move for greater influence throughout Montenegro," says former ambassador Sklar.

Meanwhile, Rick Davis was also eager for a piece of Montenegro’s independence, lobbying hard for Davis Manafort to run the referendum campaign. Bob Dole, who has been paid $1.38 million by the Montenegrin government since 2001 to lobby for it in Washington, urged his Montenegrin friends to hire Davis. Whether it was because of Dole or, as some speculate, the Russians, Davis got his deal.

Though Davis has claimed no connection to his partner Manafort’s controversial activities in Ukraine, he nevertheless hired at least three specialists recommended by Manafort, from the same team Manafort used for Yanukovich’s victory, to work on Montenegro’s independence referendum. They included Russian political operative Andrei Ryabchuk, an elections specialist who had previously worked on pro-Putin campaigns in Russia. Ryabchuk told The Nation that he was "recruited by Manafort’s people" out of Moscow to the Ukraine operation and then on to Montenegro.

Davis’s team was vetted by Montenegro’s Russian ambassador Rocen, who was returning from Moscow to oversee the independence campaign. Why was Davis hired? The top McCain aide was as much a political symbol as a campaign consultant. "I think the Montenegrins hired Rick to have political cover -- it was important to show they had support from the United States," said an American democracy expert who’s worked in Montenegro. Though disclosure is required by Montenegrin law, Davis Manafort’s contract with the ruling Montenegrin party was never publicly released. In addition, Djukanovic’s party never listed payments to Davis Manafort on its election filings, lending credence to private claims by top Montenegrin officials that Russian business interests paid for Davis’s work through hired third parties, an oft-used though illegal tactic in Eastern Europe to disguise money trails.

At key points in the campaign, Davis reached out to Deripaska’s allies for help. With the referendum too close to call, the Serbs tried to sway public opinion by threatening to revoke scholarships and other education privileges of Montenegrin students if the country should secede. This caused a panic -- so to counter the Serbs, Davis turned to Deripaska emissary Nathaniel Rothschild (Rothschild has reportedly become the richest of all the Rothschilds, thanks to his privileged role as a Deripaska adviser).

Three weeks before the independence referendum, Davis asked Rothschild to come to Montenegro. After arriving in his private Gulfstream jet, Rothschild was trotted out before the cameras with the Montenegrin prime minister, where he pledged $1 million to support students who might be hurt by Serbia’s scholarship threat. Another Deripaska ally brought in to secure the student vote was Canadian billionaire Peter Munk, CEO of Barrick Gold, the world’s largest gold-mining corporation (it was Munk who had hosted the Davos meeting between McCain and Deripaska a few months earlier). Munk, who serves on the advisory board of RusAl, delivered pledges of support from Canadian universities.

At the same time Deripaska’s allies were employed by Davis, Dole was lobbying McCain to promote Montenegro’s independence. Dole’s aides held a teleconference with McCain’s Senate office when Montenegro’s foreign minister visited Washington; shortly thereafter, the referendum passed by a razor-thin 0.5 percent. In April 2006 McCain announced that Montenegro’s independence was the "greatest European democracy project since the end of the cold war." Despite opposition cries of vote rigging, the United States and other major powers accepted the results -- and Putin’s Russia recognized newly independent Montenegro before the EU did.

A few months after the vote, McCain and a contingent of GOP senators visited Montenegro. The day before they arrived, Djukanovic had flown to Putin’s dacha on the Black Sea. "Your government made it possible for large-scale Russian investments," Putin told the Montenegrin leader. Djukanovic then returned to Montenegro and warmly received McCain, who also met with the Montenegrin president, speaker of Parliament and opposition leader Predrag Bulatovic. Bulatovic told McCain about how Russian capital was taking over the country and of his concern that "this investment can have a negative impact on the democratic process." McCain listened but kept criticism of Russia to himself. Meanwhile, Davis was still in the country, helping Djukanovic’s Russia-allied party win the upcoming parliamentary elections. (At the time, Djukanovic was under investigation by Italian prosecutors for cigarette smuggling and "Mafia-type activities.")

Soon after the referendum, the powerful figures behind Montenegro’s independence were carving up the country. That summer Rothschild started discussions with top Montenegrin officials about gaining control of the valuable shoreline, including the half-billion-dollar Porto Montenegro project, which aims to become the world’s top mega-yacht marina, complete with luxury hotels, shopping and the country’s first eighteen-hole golf course. The property was handed to the Munk-Rothschild-fronted offshore consortium for a pittance, according to MANS, the local NGO partner of Transparency International, in yet another backroom deal. Eventually, Deripaska’s role in Porto Montenegro, which was initially secret, was formally acknowledged, although the full list of owners is still a mystery. Deripaska is also developing an 8 billion-euro resort in southern Montenegro and seeking control of a coal mine and a thermal power plant.

Roughly two years later, in March of this year, Rothschild hosted a high-dollar fundraiser for McCain at London’s posh eighteenth-century Spencer House, which Rothschild donated for the occasion. Given the close relationship between Rothschild and Deripaska, some speculated that Deripaska was the hidden hand behind the event. The conservative watchdog group Judicial Watch filed a complaint with the Federal Election Commission, alleging that the fundraiser amounted to an illegal contribution by foreign nationals to McCain’s campaign.

Aside from a little campaign dough, what has McCain gotten out of all this? It’s hard to tell -- either he was utterly clueless while his top advisers and political allies ran around the former Soviet domain promoting the Kremlin’s interests for cash, or he was aware of it and didn’t care. McCain was reportedly so angry about Davis Manafort’s role in stifling Ukraine’s Orange Revolution that he almost removed Davis as campaign manager. But in the case of Montenegro, he should have known what Davis & Co. were up to. After all, McCain lent a helping hand. And by the time he visited the country, the Russian takeover was plain to see.

The story of how McCain’s closest aides and employees have been undermining his vociferously expressed opposition to Putin and Russia’s oligarchs offers a highly disturbing preview of what a McCain administration might look like. When McCain’s campaign proclaims "country first," one has to wonder, Which country? The one with the highest bidder?

As the Violence Soars, Mexico Signals It's Had Enough of America's Stupid War on Drugs

Go to Original
By Silja J.A. Talvi

Even on his most homicidal of days, Al Pacino’s character in Scarface couldn’t even approach the level of drug trafficking-related brutality bleeding down Mexico’s streets. It is no longer unusual for the Mexican news media to report on yet another, freshly decapitated head stuck atop a fencepost or a metal spike, or a garbage bag filled with body parts, usually with a hand-scrawled note or placard attached. That amounts to a cartel’s calling card, and it’s usually delivered in the form of a warning to a rival cartel, or for the Mexican authorities to stay away and stop seizing their drugs. Other times, it’s just a chilling placard intended to strike terror into the hearts of the people who come across the gory scene and the text: "Ha Ha Ha." To be sure that their message is heard, cartels are known to send regular text messages to newspaper reporters, place newspaper advertisements, or to even upload their own killing videos (sometimes accompanied by narco-corridos as background music) to YouTube.

Mexican drug cartels are, rather effectively, fighting the government’s War on Drugs with their own War of Terror, often swelling their ranks (and combat/terror tactics) with former members of law enforcement. The Zetas, for instance, are members of former Mexican counter-narcotics squads (some with U.S.-assisted training under their belts), who have become the self-proclaimed and much-feared hit men of the Gulf cartel.

So far this year, roughly 3,500 murders have been directly attributed to the drug war in Mexico, surpassing last year’s estimate of 2,500. (These numbers include the murders of at least 500 soldiers, cops, judges, politicians -- and their family members -- in nearly two years. The drug war rages across Mexico’s urban and (mostly) rural terrain, and murders are usually targeted toward pronounced rivals, but increasing numbers of victims are innocent bystanders, including women and children who were previously considered off-limits where acts of drug war-related retaliation were concerned.

Reports of attacks are rolling in daily, sometimes several times a day. This Sunday, unidentified gunmen shot up the United States consulate in the northern Mexican city of Monterrey. While no injuries were reported there because the consulate was closed, six young adults attending a private celebration were killed on Saturday in the violence-and-drug-plagued Mexican border state of Chihuahua, in Ciudad Juárez. Those murders, as yet unsolved, followed on the heels of 11 homicides in a Chihuahua bar, when a gunman opened fire on unsuspecting patrons, including a prominent journalist who may or may not have been a specific target.

It should be of note that much of the worst drug war violence is happening right at the border: Tijuana, adjacent to San Diego, saw nearly 40 people murdered in the last week of September alone, in addition to nearly 25 deaths of male and female prisoners the previous week due to two major riots at the vastly overcrowded Tijuana State Prison. (Prisoners alleged frequent incidents of torture and sexual violence, sometimes leading to death, at the hands of guards.)

American newspapers located in border cities and states tend to report some of the more gruesome events and mass killings, but the rest of this country seems remarkably in the dark about what’s happening to our Mexican neighbors, much less the fact that the violence has increased dramatically since U.S. drug war dollars have increased in the form of support for Mexican President Felipe Calderón’s militarily-minded crackdown on trafficking, with the goal of dismantling the cartels’ leadership apparatus, as well as breaking apart close alliances between local authorities, cops, and drug traffickers. (Corruption in Mexican law enforcement and military is epidemic; consider that many police officers in Mexico make no more than $5,000 per year.)

Since President Calderón took office in December 2006, he has authorized large-scale troop deployments (roughly 30,000 troops), in an attempt to diminish the power lorded over Mexico and its citizens by rival Gulf and Sinaloa cartels, as well as affiliates like La Familia, which has earned a reputation for particularly memorable and gruesome acts, including the night that five decapitated heads were thrown onto a dance floor packed with people.

Seizures of illicit drugs, particularly cocaine, have indeed increased. But so has the bloodshed and the level of fear: a national poll published on October 4th indicated that more than 40% of Mexicans felt less secure since Calderón’s drug war offensive began. Another poll published by the Mexico City daily, Reforma, showed that more than half of Mexicans believed that the cartels, not the government, were winning the drug war.

Still, as one would imagine, the Bush Administration has responded favorably to Calderón’s crackdown on drug cartels, ushering in the three-year "Merida Initiative" to support counter-narcotics efforts in Mexico and Central America: "The Merida Initiative complements U.S. domestic efforts to reduce drug demand, stop the flow of arms and weapons, and confront gangs and criminal organizations," as the State Department explained in April 2008.

This past June, Bush struck a deal with Calderón to approve $400 million toward additional drug war assistance (representing a 20% increase in the Mexican anti-narcotics budget) -- for still more helicopters, military training, ion scanners, canine units, and surveillance technology.

Considering their close ties, President Calderón’s announcement earlier this month must have come as a bit of an unwanted surprise to the Bush Administration. On October 2, Calderón proposed legislation that would decriminalize drug possession, ostensibly for personal use. Not just for marijuana, as one might have expected in a country where pot smoke has not been demonized to the same degree as in the U.S., but for cocaine, methamphetamine, and heroin, as well.

To be more specific, Calderón’s proposed legislation, supported by the Mexican attorney general’s office, is intended to address a different kind of drug crisis on Mexican soil: a growing number of addicts. Cocaine once solely destined from Columbia and other Andean nations toward the U.S. is still flowing in such great supply that it has ended up attracting more users -- and abusers. In addition, meth lab crackdowns in the U.S. have allowed narco-cartels to step in and fill the void, so that speed is now more readily available in Mexico, as well. The impact has been dramatic: according to the government’s own statistics, the number of drug addicts in Mexico is estimated to have doubled in just six years to 307,000, while the number of people who have tried drugs at some point rose from 3.5 million to 4.5 million.

If passed, Calderón’s legislation would decriminalize up to 2 grams of marijuana, 500 milligrams of cocaine, 40 milligrams of meth, and 50 milligrams of heroin. To qualify, any individual arrested with those drugs would have to agree to a drug treatment program to address admitted addiction or enter a prevention program designed for recreational users. Those who refused to attend one of these kinds of programs would be subject to a fine.

This proposal isn’t the first of its kind in Mexican political history. In fact, former President Vicente Fox also supported limited decriminalization just over two years ago, but his efforts were quashed in the wake of unrelenting pressure from the White House and the Office of National Drug Control Policy. It’s a safe bet that pressure of this kind has already started up where Calderón’s proposal is concerned.

"President Calderón’s proposal to decriminalize personal possession of illicit drugs is consistent with the broader trend throughout Western Europe, Canada, and other parts of Latin America to stop treating drug use and possession as a criminal problem," says Ethan Nadelmann, executive director of the Drug Policy Alliance, a national drug policy reform organization. But it contrasts sharply with [the approach taken in] the United States [the U.S. government] should think twice before criticizing a foreign government for its drug policy, much less holding out the U.S. as a model. Looking to the U.S. as a role model for drug control is like looking to apartheid South Africa for how to deal with race."

Or, for that matter, looking toward U.S. intervention in Columbia as a model for how to deal with Mexican drug cartels. In effect, the U.S. government waded into a long-running civil war when it started to throw money toward anti-narcotics military training, aviation training, weaponry, surveillance technology, and the availability of Monsanto’s coca-killing herbicide, Round-Up. Ostensibly, all of this assistance was for the "good guys." American taxpayers, as always, were expected to overlook the death squad part of the equation, the part about the right-wing paramilitary leaders who took their U.S.-supplied training and weapons and turned them into family and local economy-displacing attacks akin to, or worse, than that of their sworn enemies, the Revolutionary Armed Forces of Columbia (FARC).

The end result: Columbia’s cities, towns, jungles, and streets were turned into even more militarized, more deadly versions of themselves. The U.S. government still declared victory when the leadership of the cocaine-producing Medellín Cartel was dismantled (or killed) from the 1980s to the early 1990s.

That particular cartel was brought down, and city streets are safer today than they were in the 80s and 90s, but Columbia’s problems have hardly gone away. Blood still flows as a result of territorial battles between FARC and right-wing militias, often over the control over land suitable for growing plentiful coca crops. At this very moment, there are some 300,000 displaced Columbians, meaning the country has the second-worst internal refugee crisis in the world, right behind Sudan.

Since 2000, in fact, the U.S. has continued to pour huge sums of money into Columbia: over $5 billion since 2000, making it the biggest recipient of drug war funding (from the U.S. to a foreign country) in the 21st century. Has it paid off? Consider that in June, the United Nations released data indicated that coca cultivation actually increased nearly 30% in 2007 to 244,634 acres.

Columbia not only remains the world’s largest coca producer, but its farmers have apparently succeeded in creating herbicide-resistant hybrid coca plants that defy Monsanto’s poisons. Ninety percent of the cocaine consumed by Americans (half the cocaine consumed in the world goes up American noses) is now flowing this way from Columbia. And much of that cocaine is, indeed, passing through Mexico. (It is estimated that 80% of methamphetamine reaching the U.S. is coming from Mexico directly.)

Last week, the two-day security meeting of the Organization of American States kicked off with the frank admission that Mexico’s narco-cartels are primarily buying their cocaine from FARC and right-wing paramilitary groups.

So, too, are Mexican cartels using what were once considered to be Columbian narco-terror tactics, including the use of "Columbian neckties" and the killing of innocent civilians. In fact, the drug war in Mexico is beginning to look, feel, and sound like the worst of the drug war in Columbia in the 1980s and 1990s. In late August, eleven headless, shirtless bodies were found handcuffed together in the Merda suburb of Chichi Suarez, in Yucatan State. The nature of the as-yet-unsolved crime is considered to be one drug cartel’s "warning sign" to a rival group.

Mexican civilians have even become the recent victims of explosives detonated in public spaces, something that had not previously been a concern. The use of larger-scale explosives as a method of terrorist attack started just two months after Calderón took office, leading up to last month’s terrifying explosion in a crowded plaza in Morelia, the capital city of Michoacn. The attack in broad daylight was timed to coincide with Mexican Independence Day festivities: over 100 people, primarily working-class men and women who had gathered for the free celebration, were wounded in the attack. Eight people were killed, including a 13-year-old.

As was the case in Columbia, journalists are being increasingly targeted for exposing narco-cartels (or links with officials and law enforcement, as the case may be). The Chihuahua bar shooting last Thursday claimed the life of David Garcia Monroy, a well-respected columnist at the daily newspaper, El Diario de Chihuahua. That same day, the editor of La Noticia de Michoacn, Miguel Angel Villagomez, was kidnapped as he left work in the port city of Lazaro Cardenas. And, on September 23, a popular Mexican radio host, Alejandro Zenn Fonseca Estrada, was shot to death with AR-15 rifles, at close range, in Villahermosa, the capital of Tabasco. According to witnesses, a van pulled up alongside Fonseca as he was hanging anti-violence posters on a major street. (According to the Committee to Protect Journalists, one of the posters read, "No to Kidnappings"). The murder remains unsolved.

According to the Committee to Protect Journalists (CPJ), Mexico ranks 10th on CPJ’s "Impunity Index," a list of countries where journalists are attacked or slain on a regular basis and those crimes consistently remain unsolved.

Calderón’s call for decriminalization won’t put a direct dent in this kind of violence, but former Seattle Police Chief Norm Stamper, author of Breaking Rank: A Top Cop’s Expos of the Dark Side of American Policing, says that it’s a step in the right direction toward alleviating the overflow of non-violent drug offenders in Mexican courtrooms, jails, and prisons -- something that’s beginning to resemble the criminal justice landscape of the United States. Stamper, an active member of Law Enforcement Against Prohibition (LEAP), says that those comparisons need to be drawn. "Our drug policy, predicated on the prohibition model, has caused far more harm than good, locally and globally, " he says. "The results? The same as Mexico’s: higher potency drugs, more readily available, and at cheaper prices than ever."

Statements like these, particularly coming from prominent members of law enforcement, would have been almost unheard of in the not-too-distant past. But these days, American public is sending strong signs that they, too, are ready for a truly different approach to drug and sentencing policies, as well as strategies on mental illness and/or substance abuse treatment. According to a nationwide Zogby poll released on October 2, three out of four U.S. voters believe that the war on drugs is failing, while over one-quarter agree that legalizing at least some drugs is the best alternative to the current strategy.

While Stamper supports Calderón’s call for decriminalization, fellow LEAP activist and board member Terry Nelson says that he doesn’t believe in "incremental steps," explaining that nothing short of complete legalization will bring an end to the profit-driven violence associated with the global drug trade, valued at around $500 billion per year. "To use a drug is not to abuse a drug," says Nelson. "Calderón is just trying to take some pressure off the court system with legalization, [most] of the actual crime and violence would be taken away, almost overnight."

A 32-year veteran of the military and various branches of law enforcement, Nelson’s career took him on narco-traffic interdiction training and surveillance missions across Mexico, Central and South America. Nelson admits that he was involved in the Mexican Aviation Training Initiative, "designed to improve our counterparts in Mexico’s professionalism in enforcing Mexican drug laws."

Some of the people Nelson helped to train ended up as Zetas, as he later found out.

Now retired and living in Fort Worth, Texas, Nelson served for five years as the Field Director of Surveillance Support Branch East (SSB East). During that time, he says, SSB East successfully seized of over 230,000 pounds of cocaine throughout Latin America. Nelson’s biggest, personal drug trafficking bust happened off the coast of Ecuador, resulting in the seizure of 30,000 pounds of cocaine.

Much to his dismay, even such a large-scale bust yielded absolutely nothing by way of a drop in street supply -- or an increase in price. "If that big a bust doesn’t affect the street trade," he muses, "what chances do you have doing it a gram or a kilo at a time?"

To put it another way, he asks, "if we hadn’t called it a war to begin with, could we admit that we’re not winning?"

Too Much Presidential Power -- We've Got to Address the 'Unitary Executive' Question

Go to Original
By Dana Nelson

In answering Gwen Ifill's question about vice presidential powers at last week's debate, Joe Biden redirected attention to the still not very well known concept of the "unitary executive."

Biden charged that Dick Cheney had become "the most dangerous vice president we've had probably in American history" because of his attempts to create a super-powerful unitary executive. Biden didn't take time to explain exactly what he meant, but it's an extremely important, poorly understood subject, and it's time to question the presidential candidates -- closely -- about it.

Plenty of presidents have worked to increase presidential power over the years, but the theory of the unitary executive, first proposed under President Reagan, has been expanded since then by every president, Democrat and Republican alike. Reagan's notion was that only a strong president would be able to dramatically limit big government. Perhaps drawing on a model for unitary corporate leadership in which the CEO also serves as chairman of the board, the so-called unitary executive promised undivided presidential control of the executive branch and its agencies, expanded unilateral powers and avowedly adversarial relations with Congress.

In the years that followed, Heritage Foundation and Federalist Society conservatives worked to provide a constitutional cover for this theory, producing thousands of pages in the 1990s claiming -- often erroneously and misleadingly -- that the framers themselves had intended this model for the office of the presidency.

Unitarians (for lack of a better word) want to expand the many existing uncheckable executive powers -- such as executive orders, decrees, memorandums, proclamations, national security directives and legislative signing statements -- that already allow presidents to enact a good deal of foreign and domestic policy without aid, interference or consent from Congress. Ardent proponents even insist that there are times when the president -- like a king -- should operate above the law.

Presidents and their supporters justify the unitary executive with an expansive reading of Article II of the Constitution (which sets out the role of the executive branch), invariably citing congressional log-jamming (what we used to call "checking and balancing") or national security.

Each president since 1980 has used the theory to seize more and more power. Reagan used expanded unilateral powers to launch an era of deregulation. Presidents George H.W. Bush, Clinton and George W. Bush all used the legislative signing statement -- the written text they are allowed to give when signing a bill into law in order to explain their position -- not simply to offer warnings and legal interpretations but to make unilateral determinations about the validity of the provisions of particular statutes. The American Bar Assn. denounced this practice in 2006 as presenting "grave harm to the separation of powers doctrine, and the system of checks and balances, that have sustained our democracy for more than two centuries."

One problem is that presidential unilateralism can seem reassuring in times of crisis, so it often receives congressional support. Most recently, in the name of managing our fiscal crisis, Congress has granted unprecedented powers to the executive and to an unelected and unaccountable secretary of the Treasury.

Another problem is that once Congress gives powers to the executive branch, it seldom can get them back. In 2001, Congress granted Bush the authorization to use military force against terrorists; five years later, when Congress sought to take back some of that authority by passing a bipartisan anti-torture bill, Bush was unwilling to back down. Instead, he signed the bill into law but appended a signing statement insisting that he would uphold the law in a manner consistent with "the constitutional authority of the president to supervise the unitary executive branch and as commander in chief." In other words, he would ignore its provisions if he felt they limited his authority.

Bush's aggressive exercise of unilateral powers has attracted serious opposition. Unfortunately, too many imagine that the unitary executive doctrine and its kingly prerogatives will leave office with him. That hope is false. History teaches that presidents do not give up power -- both Democrats and Republicans have worked to keep it. And besides, hoping the next president will give back some powers means conceding that it is up to him to make that decision.

If people have found Bush's exercise of executive power alarming, they should not only begin questioning presidential candidates about it, they should make it clear to their congressional representatives that they want these excess powers checked. Barack Obama has already promised that he will continue using signing statements, though he will not act as if they have the force of law. Interestingly enough, John McCain has suggested he will end the practice. These slim indicators deserve more pressure and scrutiny.

Former McCain Supporter: McCain Is "Unleashing the Monster of American Prejudice"

Go to Original
By Amy Goodman

Amy Goodman: We turn now to the McCain campaign’s strategy of repeatedly invoking Senator Obama’s connection to former Weather Underground member Bill Ayers, now a professor at the University of Illinois, Chicago. It seems to very clearly have a serious effect of riling up crowds of McCain and Palin supporters, to a point that Senator McCain was booed at his own rally Friday when he attempted to defend his rival against character attacks.

Sen. John McCain: I want to be president of the United States, and obviously I do not want Senator Obama to be, but I have to tell you, I have to tell you, he is a decent person and a person that you do not have to be scared as president of the United States.

Audience: [booing]

John McCain: Now, I just -- now, I just -- now, look, I -- if I didn’t think I wouldn’t be one heck of a lot better president, I wouldn’t be running, OK? And that’s the point.

AG: The Republican presidential nominee was speaking to a crowd near Minneapolis Friday. His attempt to defend Senator Obama was met with jeers.

At a Palin rally earlier in the week, Governor Palin referred to Senator Obama as a man connected to "a former domestic terrorist." She said she was "fearful" of his vision of America.

Gov. Sarah Palin: I am just so fearful that this is not a man who sees America the way that you and I see America, as the greatest source for good in this world. I’m afraid this is someone who sees America as imperfect enough to work with a former domestic terrorist who had targeted his own country.

AG: While Governor Palin was speaking about Obama, an audience member, it’s believed, yelled out, "Kill him!" It’s unclear if Palin heard the remark, but she didn’t respond.

Obama was eight years old when, 40 years ago, Bill Ayers was a member of the militant antiwar group, the Weather Underground. Today, Bill Ayers is a tenured professor and leading expert on education reform at the University of Illinois, Chicago.

At another moment last week during the presidential debate, McCain referred to Obama as "that one."

Sen. John McCain: It was an energy bill on the floor of the Senate loaded down with goodies, billions for the oil companies, and it was sponsored by Bush and Cheney. You know who voted for it? You might never know. That one. You know who voted against it? Me.

AG: Our next guest, joining us from Boston, is Frank Schaeffer, the bestselling author of Crazy for God: How I Grew Up as One of the Elect, Helped Found the Religious Right, and Lived to Take All (or Almost All) of It Back. He’s the son of the late evangelist Francis Schaeffer, considered himself a lifelong Republican. He voted for John McCain in 2000. McCain even endorsed one of Schaeffer’s earlier books on military service. But on Friday, Frank Schaeffer published an op-ed piece in the Baltimore Sun excoriating McCain for "feeding the most unhinged elements of our society the red meat of hate." The op-ed is entitled "An Open Letter to John McCain." Frank Schaeffer joins us now from Boston.

Welcome to Democracy Now!

Frank Schaeffer: Thank you, Amy.

AG: It’s very good to have you with us. Can you -- do you, by chance, have the letter in front of you?

FS: Yes, I do. I have it right here. What would you like to hear?

AG: Could you read it to us?

FS: Sure. This is the op-ed:

"John McCain: If your campaign does not stop equating Sen. Barack Obama with terrorism, questioning his patriotism and portraying Mr. Obama as ’not one of us,’ I accuse you of deliberately feeding the most unhinged elements of our society the red meat of hate, and therefore of potentially instigating violence.

"At a Sarah Palin rally, someone called out, ’Kill him!’ At one of your rallies, someone called out, ’Terrorist!’ Neither was answered or denounced by you or your running mate, as the crowd laughed and cheered. At your campaign event Wednesday in Bethlehem, Pa., the crowd was seething with hatred for the Democratic nominee -- an attitude encouraged in speeches there by you, your running mate, your wife and the local Republican chairman.


"John McCain: In 2000, as a lifelong Republican, I worked to get you elected instead of George W. Bush. In return, you wrote an endorsement of one of my books about military service. You seemed to be a man who put principle ahead of mere political gain.

"You have changed. You have a choice: Go down in history as a decent senator and an honorable military man with many successes, or go down in history as the latest abettor of right-wing extremist hate.

"John McCain, you are no fool, and you understand the depths of hatred that [surround] the issue of race in this country. You also know that, post-9/11, to call someone a friend of a terrorist is a very serious matter. You also know we are [a bitterly divided country] on many other issues. You know that, sadly, in America, violence is always just a moment away. You know that there are plenty of crazy people out there.

"Stop! Think! Your rallies are beginning to look, sound, feel and smell like lynch mobs.

"John McCain, you’re walking a perilous line. If you do not stand up for all that is good in America and declare that Senator Obama is a patriot, fit for office, and denounce your hate-filled supporters when they scream out ’Terrorist’ or ’Kill him,’ history will hold you responsible for all that follows.

"John McCain and Sarah Palin, you are playing with fire, and you know it. You are unleashing the monster of American hatred and prejudice, to the peril of all of us. You are doing this in wartime. You are doing this as our economy collapses. You are doing this in a country with a history of assassinations.

"Change the atmosphere of your campaign. Talk about the issues at hand. Make your case. But stop stirring up the lunatic fringe of haters, or risk suffering the judgment of history and the loathing of the American people -- forever.

"We will hold you responsible."

So that was the piece, and it got quite a response, actually. I’ve been swamped with email, and encouragingly, most of it favorable.

AG: Now, Frank Schaeffer, you supported John McCain in 2000, as you write.

FS: Yeah. I mean, you mentioned my book Crazy for God: How I Grew Up as One of the Elect, Helped Found the Religious Right, and Lived to Take All (or Almost All) of It Back. And really, people who have read that book will know that I come from an evangelical family that was really evangelical royalty in the ’70s and ’80s. My father was a frequent guest in the Reagan, Bush and also even the Ford White House -- Bush, first, that is. And my background, therefore, was very unthinkingly Republican. We were always just associated with these folks. And so, in 2000, I was actually on a number of evangelical and right-wing stations, like with Ollie North, for instance, on his radio station, pleading the cause of John McCain, who I thought would be a much better candidate than George W. Bush.

But really, over the years, distancing myself from that evangelical background, as I talk about in the book, I’ve come to a place where I really see what Max Blumenthal was talking about in the earlier part of your show, and that is, you know, speaking of the secessionists in Alaska, the evangelical right-wing subculture in this country, particularly the Assemblies of God, by the way, that Sarah Palin comes from, have really already ceded from our union, in the sense of the fact that they have, you know, between home schooling and their own schools, their own publishing, their own radio, their own TV, many times very fundamentally anti-American, waiting for the Apocalypse, waiting for Jesus to take everybody away in the Rapture, weirdly Christian Zionist and at the same time assuming that the Jews will all be killed in Armageddon, when Jesus comes back, as part of their Rapture enterprise.

You know, just to put it frankly, the evangelical movement that I grew up in as a child used to be a fairly respectable and respectful group of people. They regarded themselves as Americans and part of the system. And now, I really think it’s been taken over by a group of people that have to be described fairly as just wingnuts. And if you read Crazy for God, you’re going to find, through my own journey, coming out of the ’50s and ’60s, that I watched all this change. I mean, you know, I preached from Jerry Falwell’s pulpit. He sent a jet up to get me once. You know, I know Pat Robertson and Dr. Dobson and all these people personally. And the fact of the matter is, the movement has gone off the rails.

And the dangerous thing about Sarah Palin is, is that there’s a very direct line from her to the kind of extremism that would literally destroy this country. So, you know, when you look at what eight years of George Bush has done to our economy, on one side, when you look at the war we’re in in Iraq -- and, by the way, my son was in the Marine Corps and fought twice in Afghanistan, took one mission to Iraq, one to the Horn of Africa, so I speak as someone whose son actually was out there getting shot at because of these policies. When you look at all this, as I talk about in the book, what you see is that we really are at a crossroads here.

This election is not just an election. This election is a mirror that is being held up to the United States, saying you can choose what sort of country you want to be. Do you want to be with the Sarah Palin wingnuts who are bearing high-powered rifles in their gardens for the time when the United Nations sends Black Hawk helicopter-type missions against America? You know, do you want to assume that Jesus will be coming back to rapture everybody, so you hope there’s an atheist co-pilot in every plane? I know this sounds laughable, but there are tens of millions of Americans who are buying into this crap. Or do you want to be a member of the United States of America -- Republican, Democrat, left, right, center, but part of the American family? Or have you already ceded from our union?

So, basically, I think what this election is about and what my book is certainly about is, besides the politics, besides whether we have Barack Obama or John McCain as our president, is also another kind of a choice, and that is, are we going to give the right-wing evangelical/fundamentalist wing nuts of all stripes, of the Sarah Palin types, a voice in literally destroying this democracy? Do you want another eight years like the eight years that have passed, double, triple, and go from there?

So, you know, my problem with McCain now is that by nominating Sarah Palin and, as I talked about in this editorial, by opening the floodgates of hate because of his ambition to win, basically doing whatever it takes to do that, he’s clearly choosing to try to empower the America that will destroy the real America. When I say "the real America," I mean people who are proud of their country. So we’ve come to a very weird place. We have Sarah Palin, who talks about Barack Obama not liking his country enough. Her husband and her are associated with secessionists, so we have someone who wants to run for vice president who doesn’t even want the union to hang together, who would have fought on the other side in the Civil War, as it were, when it comes to the States, you know, going up against Barack Obama, who I personally think would make a terrific president.

AG: It’s very significant, your endorsement of Barack Obama, considering where you come from and your own beliefs.

FS: Right.

AG: I mean, your father was a famous evangelical preacher --

FS: Yeah.

AG: -- a person who gave sermons around the world. Really, you convinced him to take up the anti-abortion line --

FS: Absolutely.

AG: -- to make it central to his philosophy and your own.

FS: Right.

AG: So, here you are, anti-choice, pro-life, and pro-Obama, Senator Obama, who is fiercely pro-choice.

FS: Right, right. And you know what? It’s an imperfect world, but I would rather have a president that I disagree with on the issue of choice who’s fit to be president than an old man who has just shown such a lack of judgment as to literally connect himself to the lunatic fringe of the lunatic fringe. It isn’t just someone you disagree with politically. That’s one point.

And I’d say something else about the choice issue. I am pro-life. I haven’t changed in that regard. If people read my book, Crazy for God, they’ll see that I’ve gone left, if you want to put it that way, in many, many areas, but not that one. But I actually believe that if your interest is not ideology and ideological purity, but rather abortion itself, i.e. you want more or less abortions, that the medical and social programs that Barack Obama is talking about for our country, in terms of care of women and children and families, improvement in education and possibilities for all Americans, actually will result in less abortions. So my interest in the abortion issue is that I think abortion is a tragedy. My interest is not the politics of it, as in always appearing to vote for the person who has the correct ideology.

And so, I think there’s a choice for Americans interested in this issue who are like me, pro-life, and that is, do you want to choose ideological purity attached to a party that will so destroy our economy and all the social programs that there will be more abortions, i.e. as there have been through the Republican-controlled years, when they’ve been talking about this issue for thirty years and done nothing about it for actually helping women and children, or would you rather have a president like Barack Obama, who you disagree with on this one ideological point, in terms of what you might call the theology of the issue, but whose program would practically result in a more conducive environment for families to prosper, for people to have children, for kids to go to school, for women to be taken care of? And I would rather vote for a person who’s going to do the job rather than just have the correct ideology.

AG: Frank Schaeffer, also on this point of terror and terrorists, you make a very interesting point. I was reading your book throughout yesterday and last night, and about --

FS: Thank you. Thank you.

AG: -- about your dad and about being invited to the White House by President Reagan--

FS: Right.

AG: -- by President Bush, Sr., by President Ford, and you talked about him calling for the violent overthrow of the United States, yet still being invited to the White House.

FS: Yeah. I mean, the hypocrisy is total. Again, it goes back to what Max Blumenthal was saying. And, by the way, I totally commend him. I hope everybody goes to his website and looks at this. This is a huge and underreported story he was talking about, and he is getting to the nub of it. So, well done, Max Blumenthal.

But people who read Crazy for God will come to see that what I decided was happening was that the people who were talking from the right were actually -- about patriotism and wrapping themselves in the flag were actually, in a weird way, profoundly anti-American. They wanted disaster. The worse the country got, the closer it was to Christ coming back, the more you needed Christians to tell you to accept Jesus as your savior. You know, they needed -- they needed an apocalyptic frame of mind.

AG: We have eight seconds.

FS: Yeah. So, essentially, yeah, I would just say, you know, my point is, there was a hypocrisy, because the anti-Americanism was very much in the right while the right was talking about and pointing the finger at the left.

AG: Well, Frank Schaeffer, I want to thank you very much for being with us, a film director, former evangelical Christian. Latest book, Crazy for God: How I Grew Up as One of the Elect, Helped Found the Religious Right, and Lived to Take All (or Almost All) of It Back. He has written "An Open Letter to John McCain."