Sunday, November 16, 2008

Maliki tells Bush he now backs new U.S. troop deal

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By Leila Fadel

After months of tough negotiations and multiple revisions, Prime Minister Nouri al Maliki has decided to back the controversial U.S.-Iraq security agreement that calls for the complete withdrawal of American troops by the end of 2011, Iraqi and U.S. officials said Friday.

Maliki informed President George W. Bush in the last 24 hours that he's "satisfied" with what Iraqi officials now are calling the "withdrawal agreement," a Bush administration official said in Washington. Earlier, Maliki informed the Iraqi Presidency Council that he'd back it, Sami al Askari, a Shiite Muslim legislator who's close to the premier, said Friday.

At Maliki's meeting with the Presidency Council last week, President Jalal Talabani and Shiite Vice President Adil Abdul Mehdi responded that they and their political blocs also supported the draft, but the Sunni Muslim vice president, Tariq al Hashimi, declined to give his endorsement, Askari said.

Askari said Maliki, who'd won two last-minute concessions from the Bush administration, plans to address the nation to seek public support for the accord. He'll present it to the Cabinet on Sunday and if it's approved, it will go to the parliament, which will vote for or against it. The Bush administration is briefing Congress on the accord but won't submit it for a vote. Without Sunni backing the agreement could die before it goes to parliament, however.

Maliki's endorsement amounts to an about-face, for he was a hard-line holdout throughout the negotiations and had publicly criticized the agreement over the summer. The negotiations have been a political minefield for him, and he's stepped through it carefully.

The agreement, which is due to take effect Jan. 1, would replace a United Nations mandate that allows U.S. forces to operate in Iraq and severely limit their activities.

According to Askari, the United States agreed to two more amendments to the draft after returning what Washington called the final text. He said that the negotiating teams were working through the night Friday to synchronize the Arabic and English texts.

"We can't get any more," Askari said. "In practice, the Americans, they can't do anything alone, according to this agreement. . . . He (Maliki) feels now after all these amendments it's not a perfect agreement but he can now go to the people and politicians and say, `Look, it is far better to accept this than the other options.'"

But in Washington, the administration official, who refused to be named because he wasn't authorized to speak publicly, said he wasn't aware of any additional changes to the accord and that there had been "no fine tuning at all."

Washington and Maliki are hoping that the Iraqi parliament will approve the pact by Nov. 24, when it's scheduled to adjourn.

Askari said the United States didn't give in to Iraqi demands for the power to prosecute American soldiers but that Maliki decided this was the best deal Iraq could get. Currently the draft says that in cases of a major crime, a joint U.S. and Iraqi committee will decide whether an American soldier was off duty and where he'll be tried.

"There is a realization that this is a red line for the Americans," Askari said. "They never did it (before) so why will they do it for Iraq?"

The parliamentary process for the accord will take at least a week, and if it doesn't pass there, Iraq will have to ask the U.N. Security Council to renew the mandate.

During the interview with McClatchy, Askari received a call from Maliki to discuss the final plans for the draft.

Currently the draft calls for U.S. soldiers to withdraw from Iraqi cities by the end of next June and to withdraw from the country by the end of 2011. Askari said the latest draft contained about 100 changes requested by the Iraqi government, including a U.S. agreement for Iraq to inspect American cargo that it finds suspicious, Askari said.

"He played carefully and cleverly because until recently he didn't say a clear yes," Askari said of Maliki. "He never said I'm 100 percent behind this."

Even after receiving what the U.S. government called the final agreement, Maliki asked for two more changes, which have been agreed to, Askari said. One was to strike a line that would allow for a review in order to extend the June 30 date to withdraw from Iraqi cities. Another asked that a line referring to consultation with "relative Iraqi authorities" on home raids and searches be changed to the "Iraqi government."

For the first time in the negotiation process, Shiite lawmakers seem to be on board with the agreement. Privately, Iraqi officials who aren't linked to Maliki have said that Shiite political groups had been drawing out a negotiation process that they'd never agree because of to pressure from neighboring Iran.

Members of the Islamic Supreme Council of Iraq said they'd agree if there was "national consensus. "The Itilaf (Shiite alliance) agrees as long as everyone agrees," said Ridha Jawad Taqi, a Shiite lawmaker from the council. The alliance includes the council and Maliki's Dawa party.

Sunni Muslims are still wavering. "We cannot say yes and we cannot say no," said Salim al Jubouri, a spokesman for Hashimi's Iraqi Islamic Party. He called for a national referendum.

But Askari said that Shiite officials who typically echoed the Iranian position recently had become amenable to the agreement. An exception is Muqtada al Sadr, who leads a populist Shiite movement opposed to the U.S. occupation, who restated his opposition Friday.

The office of Grand Ayatollah Ali al Sistani, the foremost Shiite spiritual leader in Iraq, said that he'd "directly intervene" if the agreement violated Iraqi sovereignty. Sistani hasn't seen the latest draft.

Iran had openly urged Iraq not to sign the accord. Maliki sent copies of the latest U.S. draft to Iran, Syria and other nearby countries, Iraqi officials said.

"Their (Iran) stance was clear from the beginning until now . . . they don't want Bush to have credit," Askari said. "Sometimes they asked for us to wait until Obama comes. . . . We can't wait; we'll lose this opportunity."

Aides said Maliki weighed the agreement, knowing that it would seal his name in history either as the man who legalized an American occupation or ended it, aides said..

"From the first day" he wanted this agreement, "but he wanted an agreement he can defend," Askari said. "It will go to the record that he is the man that forced them (the U.S.) to leave."

Obama Ties Automaker Rescue to Regulation

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By Kendra Marr and Michael Shear

Top advisers to President-elect Barack Obama are helping to draft an auto industry rescue plan that would bring new government oversight, including the possibility of an auto czar who could ensure the money was being used wisely.

Aides said Obama is also open to an oversight board that would perform the same function as one individual. The proposals come as the estimates of the cost to fix Detroit's three largest automakers continue to mount.

"Certainly he wouldn't believe in it being a blank check," said an Obama adviser, who spoke on condition of anonymity due to not being authorized to speak publicly on the topic. "He wants oversight to be making sure the auto companies have figured out how to become viable, ongoing concerns."

Any plan, however, is likely to face an uphill battle in the Senate, where Republicans control 49 seats until the new Congress convenes in January.

"Right now, I don't think there are the votes. I don't know of a single Republican who's willing to support" the auto bailout, Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said yesterday. While Dodd said he supports a bailout, he cautioned against "bringing up a proposition that might fail" and suggested that Congress wait until Obama takes office.

A few months ago, a $25 billion loan package to boost Detroit's production of energy-efficient vehicles seemed sufficient to help automakers and suppliers get over a rough patch and steer the industry towards a greener future. The legislation was rushed through Congress. The Energy Department wrote the rules of the program in half of the time it was allotted.

But since then, the economy has worsened, pulling auto sales to their lowest levels in more than two decades. Like a clunker running on fumes, the industry's latest sputters have signaled a need for more expensive repairs. Not only have prominent Democrats proposed lending another $25 billion to help companies meet their day-to-day expenses, but the United Auto Workers is talking about its own $25 billion injection for a labor-run trust that would take over health-care costs from the auto companies in 2010.

An increasing number of analysts say the cost of reviving the American auto industry is not likely to stop with the current plans. Citigroup analyst Itay Michaeli said a General Motors bailout alone would exceed $21 billion. J.P. Morgan Chase's Himanshu Patel and Barclays Capital's Brian A. Johnson both speculated that federal assistance for GM could easily reach $30 billion.

At the pace GM and Ford are burning through their cash -- at a rate of least $4.9 billion a month -- $25 billion won't last much longer than five months. And that's not taking into account what Chrysler might need.

The current situation is "unsustainable," Ken W. Cole, a GM vice president, wrote in a letter sent Monday to members of Congress. The funds for energy-efficient vehicles, "while welcome by the industry, are not enough and will arrive too late to provide the urgent assistance we need," he wrote. Cole said domestic automakers need $25 billion more to address the cost of materials, wages, capital spending for machinery and equipment, upgrading infrastructure, technology research and new vehicle development.

Speaking at a conference in California yesterday, Chrysler chief executive Robert Nardelli said "it would be very difficult to make it through this unprecedented downturn" without help. Cerberus Capital Management, which owns Chrysler, would forfeit profit on a sale if it receives federal aid, according to Nardelli's spokeswoman.

How long the government aid might last largely hinges on two factors: the economy and consumer confidence, analysts said. Many estimated that consumers won't be shopping for cars until 2010 at the earliest.

Millions of jobs are at stake if any of Detroit's three largest automakers file for bankruptcy. The failure of a collapsed manufacturer could ripple through the supply chain -- from auto parts suppliers to dealerships -- and even affect Japanese carmakers.

Detroit's auto companies are striving to make it to 2010, when their costs for health-care benefits will shift to a UAW trust.

"Between here and 2010, it's a very rough road," said Harley Shaiken, a labor relations professor at the University of California at Berkeley.

The Bush administration strongly opposes Democratic plans to direct money to automakers from the Treasury Department's $700 billion financial rescue program. But Treasury Secretary Henry M. Paulson Jr. made clear yesterday that the administration does not want any of the Detroit automakers to fail.

"I understand how important the automakers are to this country. And I understand a bankruptcy," Paulson said in an interview on Bloomberg TV. "A failure in that industry wouldn't be a good thing. It's something we should avoid."

Sen. Charles E. Grassley (R-Iowa) told Detroit's top executives in a letter yesterday to follow the example of former Chrysler chief executive Lee Iacocca, who slashed his salary to $1 after Chrysler's federal bailout in 1979.

"Many men and women are pinching pennies just to get by, making sacrifices and changing their lifestyles to stay in their homes, send their children to school, and grow their retirement savings," Grassley wrote. "I think it's highly appropriate, if not absolutely necessary, that you do the same."

Obama believes action cannot wait until his administration begins, his aide said.

"The options that you have in dealing with these problems get worse and worse. The sooner you address it, the more time you have to bring the parties to the table," the adviser said. "He really feels the sooner you act, the better."

Ditch the smooth transition. The people voted for change

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By Naomi Klein

Instead of accepting the corrupted bail-out and reassuring Wall Street, Obama's team must start doing the hard stuff now

The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bail-out is not merely incompetent: it is borderline criminal.

In a moment of high panic in September, the US treasury pushed through a radical change in how bank mergers are taxed - a change long sought by the industry. Despite the fact that this move will deprive the government of as much as $140bn in tax revenue, legislators found out only after the fact. According to the Washington Post, more than a dozen tax attorneys agree that "[the] treasury had no authority to issue the [tax change] notice".

Of equally dubious legality are the equity deals the treasury has negotiated with many of the banks. According to Congressman Barney Frank, one of the architects of the legislation that enables the deals: "Any use of these funds for any purpose other than lending - for bonuses, for severance pay, for dividends, for acquisitions of other institutions ... is a violation of the act." Yet this is exactly how the funds are being used.

Then there is the nearly $2 trillion that America's central bank, the Federal Reserve, has handed out in emergency loans. Incredibly, the Fed will not reveal which corporations have received these loans or what it has accepted as collateral. Bloomberg news service believes this secrecy violates the law and has filed a federal suit demanding full disclosure.

Yet the Democrats are either openly defending the administration or refusing to intervene. "There is only one president at a time," we hear from Barack Obama. That's true. But every sweetheart deal the Bush administration makes threatens to hobble Obama's ability to make good on his promise of change. To cite just one example, that $140bn in missing revenue is almost the same sum as Obama's renewable energy programme. Obama owes it to the people who elected him to call this what it is: an attempt to undermine the electoral process by stealth.

Yes, there is only one president at a time, but that president needed the support of powerful Democrats - including Obama - to get the bail-out passed. Now that it is clear the Bush administration is violating the terms to which both parties agreed, the Democrats have not just the right, but a grave responsibility, to intervene forcefully.

I suspect the real reason the Democrats are failing to act has less to do with presidential protocol than with fear: fear that the stockmarket, which has the temperament of an over-indulged two-year-old, will throw one of its world-shaking tantrums. Disclosing the truth about who is receiving federal loans, we are told, could cause the market to bet against those banks. Question the legality of equity deals, and the same thing will happen. Challenge the $140bn tax giveaway and mergers could fail.

More than that, the Democrats, including Obama, appear to believe that the need to soothe the market should govern all key economic decisions in the transition period. Which is why, just days after a euphoric victory for "change", the mantra abruptly shifted to "smooth transition" and "continuity".

Take Obama's choice for chief of staff. Rahm Emanuel, the House Democrat who received the most donations from the financial sector, sends an unmistakably reassuring message to Wall Street. When asked if Obama would be moving quickly to increase taxes on the wealthy, as promised, Emanuel pointedly did not answer the question.

This same market-coddling logic should, we are told, guide Obama's selection of treasury secretary. Fox News and MNSBC explained that Larry Summers, who held the post under Clinton, is the man "the Street would like most". Let's be clear why. "The Street" would cheer a Summers appointment for the same reason the rest of us should fear it: because traders will assume that this champion of deregulation will offer a transition from Henry Paulson so smooth that we will barely know it happened. On the other hand, someone like Sheila Bair, the chairman of the banks' insurer of last resort, the Federal Deposit Insurance Corporation, would spark fear on the Street - for all the right reasons.

One thing we know for certain is that the market will react violently to anyone likely to impose serious regulation, invest in people, and cut off the free money. In short, the markets can be relied on to vote in precisely the opposite way that Americans have just voted. (A recent poll found 60% strongly favour "stricter regulations on financial institutions", while just 21% support aid to financial companies.)

There is no way to reconcile the public's vote for change with the market's foot-stomping for more of the same. Any moves to change course will be met with market shocks. The good news is that once it is clear the new rules will be applied across the board, fairly, the market will stabilise and adjust. Furthermore, the timing for this turbulence could not be better. Over the past three months, we've been shocked so often that market stability would come as more of a surprise. That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first. Few will be able to blame him for a crisis that predates him, or fault him for honouring the clearly expressed wishes of the electorate. The longer he waits, however, the more memories will fade.

When transferring power from a functional, trustworthy regime, everyone favours a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.

Post office $2.8 billion in the red

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The Postal Service ended its fiscal year $2.8 billion in the red, battered by a faltering economy that cut the amount of mail being sent.

Postmaster General John Potter said the agency is making sharp cuts in hours and overtime, but added there are no plans for layoffs. The mail being sent dropped by 9.5 billion items.

"We expect the new fiscal year to be another difficult one," Potter said, adding: "We're not panicking here."

By cutting back on spending the post office had a net operating income of $2.7 billion in 2008, but still ended up in the red because of the requirement for a $5.6 billion payment to a health benefit fund for retirees.

Even so, the $2.8 billion loss was well short of last year's $5.1 billion postal deficit.

The Postal Service does not receive a tax subsidy for its operations

Potter welcomed recent reductions in the cost of fuel — a major expense for the post office — and said his agency is continuing to cut overtime and working hours as it seeks to increase efficiency.

He said the agency reduced working hours by 50 million in 2008 and hopes to double that to 100 million hours cut this year.

"We are working hard to do everything that we possibly can to avoid layoffs," Potter added in an interview following the board meeting.

The post office has been offering early retirement, which has been accepted by 3,685 workers.

Asked about the possibility of cuts in service, Potter was emphatic in saying no: "When you're in tough economic times, the last thing you want to do is back away from your customers."

The cost of First Class postage went up to 42 cents in May and Potter said the annual increases for letters will continue to occur in May, with the new price being announced 90 days in advance. The increase is based on the rate of inflation.

For packages, however, rates will increase in January so the post office will be in step with its major competitors, which generally announce new rates in January, he said.

Planned rate increases are Express Mail, 5.7 percent; Priority Mail, 3.9 percent; parcel select, 5.9 percent; parcel return service, 5.3 percent and international shipping, 8.5 percent.

Potter said the agency plans to ask Congress to restructure the way it handles payments for retiree health care. A 2006 law requires the post office to create a fund to cover retiree health care, contributing several billion dollars annually for 10 years. At the same time the agency is paying about $2 billion annually for retiree health care.

The postmaster general said the agency would like to start funding retiree health care from the new account, which it will continue to build up. But it would like to eliminate the need to pay the extra $2 billion for current costs.

Standard mail, mostly advertising and the largest mail category at 99.1 billion items, was down 4.3 percent in 2008. First class mail dropped 4.8 percent to 91.7 billion cards and letters and periodicals fell 2.2 percent to 8.6 billion.

Overall, the post office had revenue of $74.9 billion, operating expenses of $72.1 billion and a health benefit fund payment of $5.6 billion for a net loss of $2.8 billion. The fiscal year began Oct. 1.

"This has been a very challenging year for the Postal Service," chief financial officer H. Glen Walker told the agency's governing board on Thursday.

Sarkozy backs Russian calls for pan-European security pact

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By Ian Traynor

President Nicolas Sarkozy of France joined Russia in condemning the Pentagon's plans to install missile defence bases in central Europe yesterday and backed President Dmitri Medvedev's previously ignored calls for a new pan-European security pact.

Both presidents concluded a Russia-EU summit, in Nice in the south of France, with an agreement to convene a major international conference next summer at which the Americans, Russians and the 27 countries of the EU should come up with a blueprint for new post-cold war "security architecture" in Europe.

The call for such a pact has been Medvedev's central foreign policy message since he succeeded Vladimir Putin as president earlier this year. Medvedev has called for the new deal in several keynote speeches but has been snubbed by western leaders until Sarkozy delivered a characteristic surprise yesterday, appearing to hijack the subject.

Sarkozy said: "We could meet in mid-2009 to lay the foundations of what could possibly be a future pan-European security system."

The Russians see such a deal as a way of halting Nato enlargement and stopping the controversial US missile defence projects in Poland and the Czech Republic. While western European leaders are lukewarm about the Pentagon project and president-elect Barack Obama has yet to reveal his policies, Sarkozy went further yesterday, branding the project a setback for European security.

"Deployment of a missile defence system would bring nothing to security in Europe. It would complicate things," said the French leader, who currently chairs the EU. As he attacked the plan, Czech and Polish ministers met in Prague to affirm their support for the installations and send a signal to the Obama administration, pleading for it to go ahead.

"I'm 100 per cent sure that Obama won't kill missile defence," Alexandr Vondra, the Czech deputy prime minister, told the Guardian. "The European pillar of missile defence is in the interests of everyone who wants to keep Nato strong."

The French alignment with Russian aims will upset pro-US leaders in western and eastern Europe, but will enjoy support in Germany and Italy, which are eager to draw Russia in as a partner despite the recent invasion of Georgia.

Yesterday's summit ordered the resumptions of negotiations on a new strategic pact governing relations between Russia and Europe - talks that the EU called off in protest at Russia's invasion of Georgia in August.

In September the Europeans set Moscow an ultimatum for re-opening the talks, demanding that Russian troop positions and numbers be returned to the pre-conflict levels. Russia has ignored the European terms. But yesterday's summit glossed over that.

"It's as if the military intervention in Georgia never happened. The EU is sending a dangerous signal of weakness," said David Clark, chair of the Russia Foundation, who was an adviser to the former British foreign secretary Robin Cook.

Blackwater Busted? Six Guards May Be Charged in Iraq Massacre

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By Jeremy Scahill

After more than five years of rampant violence and misconduct carried out by the massive army of private corporate contractors in Iraq -- actions that have gone totally unpunished under any system of law -- the US Justice Department appears to be on the verge of handing down the first indictments against armed private forces for crimes committed in Iraq. The reported targets of the "draft" indictments: six Blackwater operatives involved in the September 16, 2007, killing of seventeen Iraqi civilians in Baghdad’s Nisour Square.The Associated Press reports, "The draft is being reviewed by senior Justice Department officials but no charging decisions have been made. A decision is not expected until at least later this month." The AP, citing sources close to the case, reports that the department has not determined if the Blackwater operatives would be charged with manslaughter or assault. Simply drafting the indictments does not mean that the Blackwater forces are certain to face charges. The department could indict as few as three of the operatives, who potentially face sentences of five to twenty years, depending on the charges.

If the Justice Department pursues a criminal prosecution, it would be the first time armed private contractors from the United States face justice.

But that is a very big "if."

"The Justice Department has had this matter for fourteen months and has done almost everything imaginable to walk away from it -- including delivering a briefing to Congress in which they suggested that they lacked legal authority to press charges," says Scott Horton, distinguished visiting professor of law at Hofstra University and author of a recent study of legal accountability for private security contractors. "They did this notwithstanding evidence collected by the first teams on the scene that suggested an ample basis to prosecute. The ultimate proof here will be in the details, namely, what charges are brought exactly and what evidence has Justice assembled to make its case. Still, it’s hard to miss Justice’s lack of enthusiasm about this case, and that’s troubling."

Even if some Blackwater operatives face charges, critics allege it is the company that must be held responsible. "I am encouraged that the Justice Department is finally making progress in the investigation, but I am disappointed that it took over a year and a lot of pressure for the department to take any action," says Illinois Congresswoman Jan Schakowsky, who introduced legislation that seeks to ban using Blackwater and other armed security companies in US war zones. (She was also the national campaign co-chair of Barack Obama’s presidential campaign and is a top candidate to replace him in the US Senate.)

"While it is important to hold these individual contractors accountable for their actions, we must also hold Blackwater accountable for creating a culture that allows this type of reckless behavior," adds Schakowsky. "The indictments do nothing to solve the underlying problem of private security contractors performing critical government functions. The indictments will likely get rid of a few bad apples, but there will be no real consequences for Blackwater. This company is going to continue to do business as usual -- the solution is to get them out of this business."

News of potential indictments over the Nisour Square shootings comes as the State Department is reportedly preparing to hit Blackwater with a multimillion-dollar fine for allegedly shipping as many as 900 automatic weapons to Iraq without the required permits. Some of the guns may have made their way to the black market.

Blackwater has served as the official bodyguard service for senior US occupation officials since August 2003, when the company was awarded a $27 million no-bid contract to guard L. Paul Bremer, the original head of the Coalition Provisional Authority. To date, the company has raked in more than $1 billion in "security" contracts under its arrangement with the State Department.

Despite widespread accusations of killings of civilians and other crimes, not a single armed contractor from Blackwater -- or from any other armed war corporation -- has faced charges under any legal system. Instead, they have operated in a climate where immunity and impunity have gone hand in hand. At present, private contractors -- most of them unarmed -- outnumber US troops in Iraq by roughly 50,000 personnel.

There is no doubt that the Bush administration will continue enthusiastically to use armed private forces until the second Bush leaves office. This means that the future of Blackwater and the hundreds of for-profit war corporations servicing the Iraq occupation will lay with President-elect Barack Obama. This includes Blackwater and at least 300 other companies, which have been hired by the US government for privatized armed services in Iraq to the tune of about $6 billion in taxpayer money.

"One of the biggest problems that Barack Obama is going to have is turning the government back into a civil service and getting rid of all the private contractors," says Washington Democratic Representative Jim McDermott. "The private contracting thing is the most erosive thing that this administration has done. You look at all the things that are being run by private contractors, you simply cannot be handing money to a private contractor who is not under the law of that country or the law of this country and can do anything they want. They’re really -- they’re rogue outfits."

Obama has been a passionate critic of the war industry and is the sponsor of the leading Democratic legislation in the Senate to bring more effective regulation and oversight to it. But he has stopped short of supporting Schakowsky and Senator Bernie Sanders’s legislation seeking a ban on using Blackwater and other armed contracting companies in Iraq. One of his top foreign policy advisers told The Nation earlier this year that Obama "can’t rule out [and] won’t rule out" using these companies in Iraq.

In a brief interview with Democracy Now! in February, Obama explainedhis position when asked about the report in The Nation.

"Here’s the problem: we have 140,000 private contractors right there, so unless we want to replace all of or a big chunk of those with US troops, we can’t draw down the contractors faster than we can draw down our troops," Obama said. "So what I want to do is draw -- I want them out in the same way that we make sure that we draw out our own combat troops."

As Obama’s inauguration day draws near, he is facing increased calls from Democrats who have spent years investigating Blackwater to ban the company. Most prominent among these is Henry Waxman, chair of the House Committee on Oversight and Government Reform. He called on Obama to cancel Blackwater’s security contracts. "I don’t see any reason to have a contract with Blackwater," says Waxman. "They haven’t lived up to their contract, and we shouldn’t be having these private military contracts. We should use our own military."

As of now, Blackwater’s Iraq contract expires in April (it was extended for a year by the State Department despite numerous investigations). "I think there should be very strong handcuffs put on this whole outsourcing question, but particularly with these private security contractors like DynCorp and Blackwater," says Vermont Democrat Peter Welch, who serves on the Oversight Committee with Waxman and supports the calls for Obama to cancel Blackwater’s security contracts. "It’s just an incredible waste of taxpayer money. It dishonors the Code of Military Conduct. Our soldiers are over there. They abide by rules. Blackwater doesn’t."

But not all Democrats agree. Senator John Kerry, who is reportedly among the people being considered for Secretary of State in the Obama administration, shares the president-elect’s view. "I don’t think they should be banned," says Kerry. "I think they need to operate under rules that apply to the military and everybody else."

As of January 20, 2009, if Obama decides to keep Blackwater and other armed war corporations on the US payroll, these private forces would go from being Bush’s mercenaries in Iraq to Obama’s. As commander in chief, he would be responsible for their crimes. As for the accountability issue, many critics allege that the most serious problems in holding contractors responsible for their crimes stem from the Bush administration’s covering-up of their misconduct and immunizing them from prosecution, and the total lack of political will to bring them to justice. When Obama appoints a new attorney general, there will be more than five years’ worth of crimes to investigate -- and prosecute.

Our Economy May Be in a Death Spiral -- Will Washington Stop the Bleeding?

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By Joshua Holland

In September, Treasury Secretary Hank Paulson sold his $700 billion bailout to Congress on the premise that banks were hoarding money to prop up their balance sheets and that this was bringing the economy to a screeching halt.

Paulson has thrown a big chunk of that money at the banks -- all but $60 billion of the first $350 billion authorized by Congress has been committed -- and they’ve started lending to each other. But it has done virtually nothing to prevent the worst-case economic scenario we are all worried may come to pass -- a meltdown of the "brick and mortar" economy -- because the banks still aren’t lending to the general public.

That’s not just a result of the banks restricting loans that would allow businesses to stay afloat, if not expand, and individuals to buy so much of the stuff that the global economy produces. It’s also because there are fewer American families and businesses that are credit-worthy.

In the housing market, that’s indicated by a drop-off in the number of new loan applications. Mortgage applications are down by about a third from this time last year. As economist Dean Baker noted this week, "If people with good credit were being turned down, we would expect the number of applications to be rising, as they apply to several banks before finally finding one that will issue a loan. The fact that applications are actually declining ... is solid evidence that the problem is not that otherwise credit-worthy borrowers can’t get loans. The problem is that people are not credit-worthy."

With the housing and financial crises hitting home after the middle class had already absorbed an almost decade-long pummeling during the Bush years, the economy is starting to spiral dangerously downward as a vicious cycle begins to take hold. What started as a housing crisis that shook the financial system is now hitting all kinds of businesses hard, and they’re shedding jobs at a rapid rate -- over a half-million were lost in the course of the past two months. And that only tells part of the story, as official jobless rates don’t count the underemployed or those who have given up trying to land a gig. The broadest measure of underemployment is now a hair under 12 percent; 1 in 8 American workers aren’t getting the number of hours on the job they need to make ends meet.

Those people aren’t spending much. Neither are the rest of us. Even people who have a safe job fear for their futures, and the belts are tightening.

With the bottom dropping out of the consumer market -- responsible for two-thirds of the American economy -- businesses across the board are feeling a major crunch. Electronic giant Circuit City filed for bankruptcy this week, a move that came on the heels of bad news from Neiman Marcus, Starbucks, Gap, Best Buy and Nordstrom that, as the Washington Post reported, "show consumer spending contracting and retail revenue shrinking." On Friday, Sun Microsystems announced that it would slash 6,000 jobs; DHL killed off its U.S. business entirely this week, sending 10,000 people to the unemployment lines, including 7,000 in the tiny town of Wilmington, Ohio (out of a population of 12,000).

Best Buy’s CEO, Brad Anderson, told the Post that recent economic changes were "seismic" and that the company was facing "the most difficult climate we’ve ever seen." The New York Times reports that America’s "buying binge is grinding to a halt."

As profits drop, businesses are expected to lay off even more workers, which will mean even less consumer spending. Firms are pulling back across the board. The deflation in real estate values, which began in residential, is now spreading into the commercial market. Commercial real estate sales are expected to fall by half from last year’s levels. Already this year, $15 billion worth of planned commercial real estate projects have been canceled. The Washington Post reported that "growing layoffs and falling profits mean companies are giving up office space at rapid rates. Nationwide, more than 19 million square feet of space -- enough to fill more than 300 football fields -- has been emptied by office users this year, the most since the months after the Sept. 11, 2001, attacks."

As real estate values continue to dive, institutional investors are unloading assets, often at fire sale prices, which decreases the value of everyone’s properties. Property taxes are the main source of revenues for municipal governments, so they’re feeling pinched and are starting to lay off more people, which can only aggravate an already bleak situation. They’re also cutting back on public services at the time when they’re most needed. New York state is pondering $2 billion in cuts, "led by aid to schools and health care for the poor." California, home to one of the nation’s largest real estate bubbles, is facing a $28 billion shortfall this year.

American households have gotten through other recent downturns by taking out chunks of home equity or borrowing on their credit cards, but this time they’re tapped out. One in 6 homes is "under water" -- carrying more debt than it’s worth -- and credit card companies are lowering their exposure by limiting people’s credit lines. And Americans read the bad news every day, so they’re socking away what money they have rather than spending it. That’s a good thing in isolation -- we have one of the lowest savings rates in the world -- but it’s coming at the worst possible time.

There’s a real risk now of a "deflationary spiral." That means that as unemployment creeps up and corporate profits fall, people and companies fearing for their economic futures rein in spending even more, leaving larger stocks of everything from tractor parts to children’s toys on the shelf. If the demand for stuff falls below the supply, prices will drop, pushing revenues further down and causing companies to trim workforces further, which would in turn depress demand further -- hence the "spiral."

And remember that Americans are deeper in debt than ever before. Inflation is bad for bankers because the money being repaid to them is worth less than when they lent it. The reverse -- deflation -- is bad for debtors because the dollars they have to repay are worth more -- could buy more stuff -- than the dollars they borrowed.

There’s a major risk this will spill over into the entire global economy. China is already suffering from American consumers’ pullback, and China buys raw materials from all over the world and components for its manufactures from Japan and the East Asian "Tigers." Up until now, our consumption has given the East Asian economies the cash to buy up our debt -- but the whole merry-go-round is threatening to grind to a halt. This week, it was announced that both Hong Kong and the "Euro Zone" had officially entered into recession.

There’s broad consensus that Washington lawmakers have the tools to put a halt to this process if they use them effectively. But so far, the $700 billion bailout -- which will be much greater than that when all is said and done -- has been ineffective.

In large part, that’s because even as they throw hundreds of billions at the private sector, they’re trying not to look too much like Hugo Chavez as they do so. As the Washington Post reported, the bailout has been managed by Paulson’s "most ardent disciples of free-market principles." Chief among the "principles" they’ve adhered to -- which should have been taken out with last week’s trash -- is that even as the government shovels mountains of tax dollars at companies, it shouldn’t tell them what to do with the money. So, while the British made demands of their financial institutions in order to be bailed out, namely that they start making loans to businesses and individuals, the Paulson team has not.

This week, it announced a set of "guidelines" urging banks to make loans, trim dividend payments and keep bloated CEO pay in check. it also urged banks to work with distressed homeowners to limit the number of foreclosures. But, these are just guidelines, and when Paulson announced them, there was no mention of penalties for institutions that didn’t comply.

According to the New York Times, Neel Kashkari, the man managing the bailout, opposed a proposal by the FDIC to provide $24 billion in aid to firms that cut mortgage payments for distressed homeowners, prompting even Darrell Issa, R-Calif., a very conservative lawmaker, to say, ’’It’s very clear that Treasury cannot and will not make the effort to keep people in their homes."

A number of news reports suggests that financial institutions are using taxpayers’ largesse to bolster their bottom lines, set aside bonus pools for top execs and, for the big boys, acquire ailing firms.

The foxes are in effect bailing out the henhouse; as the New York Times reported, the bailout has led to "one of the biggest lobbying free-for-alls in memory" with Treasury "under siege by an army of hired guns for banks, savings and loan associations and insurers," among others.

Ultimately, that probably explains the biggest problem with the bailout: The money is being poorly targeted. This week, Paulson acknowledged that "Main Street" -- the overused cliche of 2008 -- remains in peril, and he said that he is shifting the focus of the bailout from buying "toxic securities" to other measures, including efforts to "make loans more accessible for credit-worthy borrowers seeking car loans, student loans and other kinds of borrowing." But that doesn’t touch the underlying issue of strained household budgets that are resulting in fewer and fewer people being "credit-worthy." The housing market has lost $5 trillion in wealth -- if there were a million-dollar bill, you’d need to stack 5 million of them to reach that amount -- along with another trillion that has vanished from the stock market; American families are now stretched to the breaking point.

And there is a massive effort under way to assure that losses from the real estate bubble’s burst are mostly shouldered by homeowners rather than lenders. This week, for example, the Federal Housing Authority announced a new effort to keep foreclosures in check by streamlining the process of modifying home loans. But there are a couple of catches that are likely to limit the effectiveness of the plan, and they have the banks’ fingerprints all over them. First, and most significantly, it will require homeowners to pony up 38 percent of their income to pay their mortgages, which might be OK if they weren’t paying for a house that’s worth less than what they owe on it. But the banks aren’t being asked to take even a partial hit on the huge losses in underlying home values -- the full amount of the original mortgage will come due when properties are sold. If you know that when you eventually unload your house you’ll owe more than you can sell it for, why struggle to make that heavy nut every month?

The program also only modifies FHA-approved loans -- mostly those made by Fannie Mae and Freddie Mac. That’s only 40 percent of home loans, and, contrary to the right-wing myth, those are the loans that are in the best shape. Most of the remaining 60 percent have been sliced and diced and sold off in little pieces as mortgage-backed securities. The government might have mandated that those institutions getting a chunk of the bailout cash offer similar "work-outs," but it didn’t (to be fair, even if it had done so, it’s uncertain how those infamous mortgage-backed securities might have been disentangled).

To be clear, any effort to keep homeowners from ending up on the street is a good thing. And smart intervention to keep the financial system afloat is a necessity at this point (the devil obviously being in the details).

But without addressing what appears to be a sharp drop in demand for goods and services, the traditional tools for staving off a "deflationary cycle" -- printing lots of money and slashing interest rates to next to nothing -- aren’t going to work. At times during Japan’s lengthy period of malaise in the 1990s and early 2000s, interest rates were set at zero. But even free money didn’t make the economy go because people just weren’t buying.

At heart, then, averting disaster at this point appears to depend on keeping demand in the United States from plummeting. That doesn’t mean more $600 "stimulus checks;" people are stretched so thin that those bucks will just pay down the MasterCard or get socked into a savings account.

What we need to do right now is throw concerns about the deficit out the window and spend money on programs that will create jobs, keep more homeowners from foreclosure and limit the pain of those who are already in trouble. As Bob Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts, suggests, a massive "green jobs" program, combined with more food stamps and beefed-up unemployment benefits, addresses economic problems over both the short and long term.

This week, China unveiled the largest stimulus package in history -- equal to about 20 percent of its annual economic activity. The plan is instructive; the Chinese government’s massive infusion of capital will "focus overwhelmingly on construction" and improving social services. In addition to beefing up its health care system, the cash will go to "projects including low-income housing, rural infrastructure, water, electricity, transportation, the environment (and) technological innovation."

China is not in the same position as the United States -- they’ve got huge cash reserves and a trade surplus, while we’ve got massive debt and a trade deficit. China also isn’t hemorrhaging cash to maintain 700 military bases and occupy a couple of far-flung countries. But the "full faith and credit" of the U.S. government is still worth something, and we may not have any option but to follow their lead.