Secret Iraqi Deal Shows Problems in Arms Orders

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By Solomon Moore

Baghdad - An $833 million Iraqi arms deal secretly negotiated with Serbia has underscored Iraq’s continuing problems equipping its armed forces, a process that has long been plagued by corruption and inefficiency.

The deal was struck in September without competitive bidding and it sidestepped anticorruption safeguards, including the approval of senior uniformed Iraqi Army officers and an Iraqi contract approval committee. Instead, it was negotiated by a delegation of 22 high-ranking Iraqi officials, without the knowledge of American commanders or many senior Iraqi leaders.

The deal drew enough criticism that Iraqi officials later limited the purchase to $236 million. And much of that equipment, American commanders said, turned out to be either shoddy or inappropriate for the military’s mission.

An anatomy of the purchase highlights how the Iraqi Army’s administrative abilities - already hampered by sectarian rifts and corruption - are woefully underdeveloped, hindering it in procuring weapons and other essentials in a systematic way. It also shows how an American procurement process set up to help foreign countries navigate the complexity of buying weapons was too slow and unwieldy for wartime needs like Iraq’s, prompting the Iraqis to strike out on their own.

Such weaknesses mean that five years after the American invasion, the 170,000-strong Iraqi military remains under-equipped, spottily supplied and largely reliant on the United States for such basics as communications equipment, weapons and ammunition, raising fresh questions about the Iraqi military’s ability to stand on its own.

Iraq’s defense minister, Abdul Qadir, defended the arms deal, saying he had followed proper contracting protocols and had informed Prime Minister Nuri Kamal al-Maliki every step of the way.

Nonetheless, American commanders and some Iraqi officials criticized the Serbian arms purchase. Closer monitoring of weapons deals has been a delicate subject since a series of tainted arms purchases totaling $1.3 billion in Iraqi government funds in 2004 and 2005. Lacking electronic banking systems at the time, Iraqi officials paid for second-rate or nonexistent weapons and equipment in cash, using middlemen to ferry duffle bags stuffed with bricks of $100 bills.

That episode brought down the previous defense minister, Hazam Shalan, now a fugitive, and tarnished the reputation of the interim prime minister, Iyad Allawi. American and Iraqi officials said that the loss of so much money and time caused critical delays in the development of the Iraqi Army.

Those with knowledge of the Serbian arms deal said they knew of no specific crimes, but warned that with so little transparency and such poor oversight, problems were likely to emerge, as they did with the 2004 deal.

The Serbian deal called for the purchase of a large number of helicopters, planes, armored personnel carriers, mortar systems, machine guns, body armor, military uniforms and other equipment. It was largely negotiated by Mr. Qadir and the planning minister, Ali Glahil Baban. In response to the criticism, Mr. Qadir said he "froze" purchases of the personnel carriers and some aircraft, reducing the final contract price to $236 million. The deal was signed in March, American military officials said.

"We just want to have a mix of procedures for contracts so we can expedite our acquisition," Mr. Qadir said, adding that "American timelines for delivery were too far away."

Despite the criticism, some American advisers said the deal was an essential part of the Iraqi military’s learning curve and a test of the American military’s capacity to balance guidance and restraint.

"We can be very overbearing as a nation, and part of this task is a feel for this task," said Lt. Gen. James M. Dubik, the commander of the Multinational Security Transition Command and the head of America’s security advisory mission in Iraq. "How do I impose myself enough to keep things going but back off enough to let development occur? There is an art to this."

Diverging Accounts

American military officials and the Iraqi authorities alike point to the Pentagon’s Foreign Military Sales program as the reason the Serbian arms deal was pursued in the first place. After that, however, their versions of events diverge sharply.

Under the sales program, used by more than 100 allied nations, Pentagon officials serve as intermediaries for government-to-government defense procurements, handling administrative issues, logistics, delivery, maintenance and training. Clients sometimes get the benefit of American economies of scale, American expertise regarding weapons systems and quality control and built-in transparency and corruption safeguards. Defense contractors also benefit to some extent, because the program often channels clients to American companies that produce arms and other equipment.

American officials hoped the program would help Iraq spend more of its own money on defense. Last year, for the first time, Iraqi military expenditures of $7.5 billion surpassed the $5.5 billion in American financing for Iraq’s military. But the program is intended for peacetime, and with protocols spanning hundreds of pages, it is built more for transparency and standardization than for speed.

Beginning in late 2006, the Iraqi government deposited $2.6 billion in an account for Foreign Military Sales procurements. But by September 2007, less than $200 million worth of badly needed equipment had been delivered, and many of those items were stockpiled because of poor distribution and accountability systems. And that, the officials pointed out, was during one of the most violent periods on record.

"The problem with F.M.S. is that it didn’t deliver on time," a senior Iraqi official said, "and this was used by some in government to say, ’Look, this is deliberate. The U.S. is trying to keep us unarmed so that we’ll always be in need of the Americans.’ "

General Dubik, in an interview in his office in the Green Zone, acknowledged, "There was an issue of credibility in our system."

But there were problems on the Iraqi side as well, American military officers said. A bureaucracy used to functioning under a command economy during the reign of Saddam Hussein had little use for formal procurement protocols and was unaccustomed to such basic practices as writing detailed specifications.

"I mean literally, the Iraqis had some letters of request that said, ’We want to buy 1,000 trucks,’ " said Joe Benkert, an assistant defense secretary for global affairs who manages the Foreign Military Sales program.

Some critics, all of them high-ranking Iraqi and American military officials, made the more serious charge that senior Iraqi officials intentionally obstructed American-sponsored procurements because they feared the sales program would prevent them from siphoning off a share of the money. But they offered no independent corroboration.

"The defense minister is playing games," said an official with Iraq’s Defense Ministry who spoke out because of his concern about corruption, but also spoke on condition of anonymity for fear of reprisals. "He is stopping F.M.S.," the official said. "Contracts just sat on his desk waiting for approval for six or seven months sometimes."

American procurement experts were so mystified by some of the delays that they set up a new office to track procurements and found that many of the delays led straight back to Mr. Qadir’s desk. Mr. Qadir denied delaying contracts or making money from them.

After months of delays and an overhaul of the Pentagon procurement bureaucracy, the program increased the value of its delivered equipment to $1 billion by this February. But in the absence of a comprehensive distribution and inventory system in Iraq, much of that equipment remains locked in Iraqi storehouses, American officials said.

Mr. Qadir, who made headlines during a January visit to the United States, when he said Iraq could not take full military responsibility for itself until 2018, blamed the slowness of the Foreign Military Sales program for his decision to deal directly with Serbia. "Foreign Military Sales is a system built to provide weapons systems to a national force in a peaceful time," he said.

A Deal in the Dark

In an interview in February in his office, Mr. Qadir, a Sunni Arab native of Ramadi, confirmed that the original Serbian deal "exceeded $800 million."

"The thing is, we did not limit ourselves to any fixed number or fixed price," he said.

But critics say the deal circumvented fragile anticorruption safeguards. Indeed, at Mr. Qadir’s urging Mr. Maliki abolished the national contracts committee, a mandatory review agency for all government purchases of more than $50 million.

Mr. Maliki also overrode the nation’s Supreme Economic Committee after it expressed concerns that the Serbian deal lacked guarantees of service from the Serbian government.

The deal was also supported by Iraq’s Office of the Commander in Chief, a shadowy group of Shiite advisers to Mr. Maliki that American officials accused last year of leading a purge of Sunni Iraqi Army commanders who had cracked down on Shiite militia leaders.

The same group, which rejected suggestions that it bring in Western advisers, has marginalized senior uniformed officers charged with procurement decisions and kept American officials in the dark about Iraqi financing of arms deals, according to high-ranking American officials familiar with its workings.

"It struck me as bizarre," said a Western official with knowledge of the security ministries, who spoke on condition of anonymity because he did not want to be seen as criticizing people he was advising. "You can only explain it in two ways: a desire to avoid oversight and a desire to offer opportunities for graft and corruption."

A high-ranking Iraqi government official who spoke on condition of anonymity, for fear of reprisals against him and others in his office, said, "We have no confidence in the Iraqi contracting process."

"I heard about it out of the blue, that the minister of defense took a delegation to Serbia and came back and said that he had signed deals with the Serbian prime minister," the official said. "Why Serbia? Why not Ukraine? Why not Russia? We just don’t know."

American military officials did persuade Mr. Qadir to cancel the $200 million purchase of 30 to 40 French-made Puma helicopters, arguing that they were unsuited to Iraq’s harsh climate. The minister also decided against buying armored personnel carriers and Gazelle helicopters.

American and Iraqi military officers also questioned the wisdom of purchasing tens of millions of dollars of nonmilitary crowd control gear - batons, stun guns and plexiglass shields - usually used by police forces, and $76 million worth of mortar systems, which are too imprecise to use against guerrillas. The minister said he still intended to buy the riot control equipment, to handle crowds of Shiite pilgrims, and mortar systems, because the insurgents have them.

Critics of the deal also complained that the arms agreement thwarted the standardization of the Iraqi Army’s hodgepodge of war matériel, which includes firearms from the United States, China, the Balkans, Pakistan and Russia; 150 types of land vehicles; and a United Nations panoply of aircraft.

Administration Set to Use New Spy Program in US

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By Spencer S. Hsu

Congressional critics want more assurances of legality.

The Bush administration said yesterday that it plans to start using the nation's most advanced spy technology for domestic purposes soon, rebuffing challenges by House Democrats over the idea's legal authority.

Homeland Security Secretary Michael Chertoff said his department will activate his department's new domestic satellite surveillance office in stages, starting as soon as possible with traditional scientific and homeland security activities - such as tracking hurricane damage, monitoring climate change and creating terrain maps.

Sophisticated overhead sensor data will be used for law enforcement once privacy and civil rights concerns are resolved, he said. The department has previously said the program will not intercept communications.

"There is no basis to suggest that this process is in any way insufficient to protect the privacy and civil liberties of Americans," Chertoff wrote to Reps. Bennie G. Thompson (D-Miss.) and Jane Harman (D-Calif.), chairmen of the House Homeland Security Committee and its intelligence subcommittee, respectively, in letters released yesterday.

"I think we've fully addressed anybody's concerns," Chertoff added in remarks last week to bloggers. "I think the way is now clear to stand it up and go warm on it."

His statements marked a fresh determination to operate the department's new National Applications Office as part of its counterterrorism efforts. The administration in May 2007 gave DHS authority to coordinate requests for satellite imagery, radar, electronic-signal information, chemical detection and other monitoring capabilities that have been used for decades within U.S. borders for mapping and disaster response.

But Congress delayed launch of the new office last October. Critics cited its potential to expand the role of military assets in domestic law enforcement, to turn new or as-yet-undeveloped technologies against Americans without adequate public debate, and to divert the existing civilian and scientific focus of some satellite work to security uses.

Democrats say Chertoff has not spelled out what federal laws govern the NAO, whose funding and size are classified. Congress barred Homeland Security from funding the office until its investigators could review the office's operating procedures and safeguards. The department submitted answers on Thursday, but some lawmakers promptly said the response was inadequate.

"I have had a firsthand experience with the trust-me theory of law from this administration," said Harman, citing the 2005 disclosure of the National Security Agency's domestic spying program, which included warrantless eavesdropping on calls and e-mails between people in the United States and overseas. "I won't make the same mistake... . I want to see the legal underpinnings for the whole program."

Thompson called DHS's release Thursday of the office's procedures and a civil liberties impact assessment "a good start." But, he said, "We still don't know whether the NAO will pass constitutional muster since no legal framework has been provided."

DHS officials said the demands are unwarranted. "The legal framework that governs the National Applications Office ... is reflected in the Constitution, the U.S. Code and all other U.S. laws," said DHS spokeswoman Laura Keehner. She said its operations will be subject to "robust," structured legal scrutiny by multiple agencies.

Democrat Blames Weak Economy on Iraq War

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By Will Lester

The growing cost to the United States of fighting the war in Iraq "is not only linked to our economic skid, but is a leading cause of it," a Democratic congressman said Saturday.

Rep. John Yarmuth of Kentucky linked the costly, unpopular war with the growing economic troubles - some say recession - in this country.

Yarmuth said in the Democrats' weekly radio address that the testimony this week of Gen. David Petraeus and Ambassador Ryan Crocker about the Iraq war served as reminder of the billions of dollars being poured into Iraq as the U.S. economy struggles.

"General Petraeus and Ambassador Crocker failed to offer a plan to change direction in Iraq and redeploy our troops," Yarmuth said. "Instead, they offered more of the same, with U.S. troops and taxpayers paying the price."

The U.S. government has spent "more than half-a-trillion dollars" in support of the war effort, while that money could be spent on pressing needs in this country, he said.

In February, an Associated Press-Ipsos poll found that pulling out of Iraq was the most named remedy for fixing U.S. economic problems.

Forty-eight percent of those surveyed said a withdrawal would help the country's economic problems "a great deal" and 20 percent more said it would help somewhat. Some 43 percent said increasing government spending on health care, education and housing programs would help a great deal; 36 percent named cutting taxes.

"Across America, our roads and bridges are crumbling and are in desperate need of repair, yet taxpayer dollars are being squandered on an Iraqi government that is riddled with waste, fraud and corruption," Yarmuth said.

He said "the cost of one month in Iraq could extend the Children's Health Insurance Program, which the president vetoed, to 10 million children of working families for a full year."

He noted that Congress has passed an economic stimulus package to send millions of Americans up to $1,200 that could provide a boost to the economy.

But Yarmuth isn't satisfied.

"We know we must do more," he said, adding that Democrats are pushing for a second economic stimulus package to aid workers, their families and businesses.

The White House said the first economic stimulus package should be given a chance to work before a second is passed.

World Bank to Meet as Rising Food Prices Spark Unrest

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Washington - The World Bank meets here Sunday as rising food prices spark deadly unrest in developing countries, underscoring the urgency of getting food aid to desperate people.

Policymakers of the anti-poverty bank are due to discuss a massive, coordinated international plan to reduce hunger announced less than two weeks ago by the head of the bank, Robert Zoellick.

With soaring food prices threatening political stability in poor countries, Zoellick called for a "new deal" for global food policy, similar in scope to a 1930s program under US president Franklin D. Roosevelt that tackled the problems of the Great Depression.

The World Bank meeting comes against a backdrop of a mounting global financial crisis, a US economy teetering on recession, high energy prices and currency market imbalances.

Escalating inflation is complicating policymakers' efforts to revive stuttering economic growth.

The 185-nation bank's sister institution, the International Monetary Fund, issued a dire warning Saturday about the food crisis at their spring meetings in Washington.

"Food prices, if they go on like they are doing today ... the consequences will be terrible," IMF managing director Dominque Strauss-Kahn said.

"Hundreds of thousands of people will be starving ... (leading) to disruption of the economic environment," Strauss-Kahn told a news conference at the close of the IMF meeting.

Development gains made in the past five or 10 years could be "totally destroyed," he said, warning that social unrest could even lead to war.

"As we know, learning from the past, those kind of questions sometimes end in war," he said. If the world wanted to avoid "these terrible consequences," then rising prices had to be tackled.

Skyrocketing prices on rice, wheat, corn and other staple foods like milk particularly hurt developing nations, where the bulk of income is spent on the bare necessities for survival.

According to a World Bank policy note released this past week, increases in global wheat prices reached 181 percent over the 36 months leading up to last February, and overall global food prices increased by 83 percent.

Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline, but they are likely to remain well above the 2004 levels through 2015 for most food crops, the document warned.

"The poor are not just facing higher food prices but also higher energy costs, which is a worrying combination," said Danny Leipziger, a World Bank Group vice president.

In recent months, rising food costs have lead to violent protests in Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines, Indonesia and other countries in the past month.

Haiti's prime minister was ousted Saturday in a no-confidence vote after more than a week of violent demonstrations over rocketing food and fuel prices.

In Pakistan and Thailand, army troops have been deployed to avoid the seizure of food from fields and warehouses.

Thirty-seven countries currently face food crises, according to the Food and Agriculture Organization.

Zoellick is urging countries to provide the minimum 500 million dollars immediately sought by the World Food Program in the mounting food crisis.

The World Bank plans to nearly double its lending for agriculture in Africa, to to 800 million dollars."

Zoellick proposed three other measures to soften the impact of a slowing world economy on the most vulnerable countries: investment in Africa by sovereign wealth funds; strengthening a 2002 initiative to improve governance in resource-rich countries; and conclusion of the World Trade Organization's trade liberalization negotiations.

Bill and Hillary's 'Stockholm Syndrome'

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By Robert Parry

As one of the few mainstream Washington journalists who defended the Clintons when they were under often unfair attack in the 1990s, it sometimes pains me to watch how that experience shaped – or misshaped – them in their national political revival a decade later.

The two most distinctive features of Hillary Clinton’s presidential campaign – and Bill Clinton’s attempts at a supporting role – are a seemingly bottomless pit of self-pity (excavated in part by the right-wing attack machine years ago) and the copycat use of many right-wing tactics to demonize their opponents and critics.

It’s like watching a Democratic mirror image of Lee Atwater and Karl Rove (albeit without all the creative destructive brilliance and with more whining about alleged media bias against individuals, Hillary and Bill Clinton).

Not that the Right didn’t whine over the years. A central theme in the Right’s faux populism was the long-asserted grievance about “liberal media bias.”

That right-wing complaint emerged historically in the 1950s when white Southerners grew angry about what they saw as sympathetic Northern news coverage of Martin Luther King Jr. and other civil rights protesters.

The “liberal bias” argument gained steam in the late 1960s and the early 1970s when mainstream TV and print journalists were blamed for undermining public support for the Vietnam War and for driving Richard Nixon from office over the Watergate scandal.

Indeed, the Republican Party’s chip-on-the-shoulder style can be traced to these alleged injustices – even if the complaints hold little water (few Americans today would defend racial segregation; U.S. military historians pin the Vietnam defeat on incompetent battlefield strategy and high casualties, not the press corps; and President Nixon was guilty in the Watergate scandal).

Nevertheless, the right-wing anger over integration, Vietnam and Watergate transformed the U.S. political system, as Republican operatives justified their nasty hard-ball tactics as payback against the elitist liberals. Conservatives were the victims, you see.

So, in the late 1970s and through the 1980s, wealthy right-wingers built an extraordinary attack apparatus – their own media, well-funded think tanks and groups that would target journalists who exposed facts that endangered some other Republican president. There would not be “another Watergate.”

Clintons Arrive

That was the strange world the Clintons entered in 1993 when they arrived in Washington. During the presidential campaign, they had gotten a taste of the attack machine (see, for instance, the targeting of Bill Clinton’s patriotism by President George H.W. Bush in the Passportgate scandal).

But the Clintons thought that the Republican meanness would subside once they took office, that they would be given a fair chance to govern.

So, in what he apparently regarded as a gesture of bipartisanship, Bill Clinton helped sweep under the rug serious investigations that were then underway into major political crimes of the Reagan-Bush years, such as the secret Iraqgate arming of Saddam Hussein and the Iran-Contra Affair. [For details, see Robert Parry’s Secrecy & Privilege.]

All Clinton’s generosity did, however, was free up the Right’s attack apparatus from its original role of playing defense for Republican presidents and let it go on the offensive against him and his wife.

Soon, the Right’s rapidly expanding media was full of ugly stories about the Clintons.

Rush Limbaugh and other right-wing talk show hosts regaled millions of listeners with tales of Clinton scandals; Jerry Falwell hawked a slickly produced video suggesting the Clintons were murderers; David Brock of the American Spectator wrote salacious stories about the Clintons’ personal lives in Arkansas; the Conservative Political Action Conference in 1994 was a virtual trade show for hate-Clinton paraphernalia.

Plus, given the mainstream news media’s sensitivity to the “liberal bias” label, editors and producers at major newspapers and TV networks joined in the “dump-on-the-Clintons” fun to show they could be tougher on a Democrat than any Republican.

During this period, I was working at PBS Frontline, which wanted to do its own story about the Clinton scandals (presumably to strengthen its flanks against right-wing criticism of PBS’s “liberal bias”). But I argued that the anti-Clinton attacks were essentially “oppo” – or opposition research – run wild.

My efforts to turn the documentary more into an examination of how “oppo” techniques had distorted the U.S. political process led me to investigate how some of the false allegations against the Clintons were generated.

However, when my senior producer left Frontline for a job at another network, my effort to put the Clinton stories into this broader context died – and so did hope for any future work for me at Frontline.

Silver Bullet

After I founded Consortiumnews.com in 1995, as a way to tell important stories that the U.S. press corps was ignoring, one of our earliest series (in 1996) examined how President Bush’s re-election campaign had sought a political “silver bullet” that would take out the young Arkansas governor.

That was what had led to State Department political appointees rifling through Clinton’s passport file in late September 1992, followed by the Bush campaign’s attempt to impugn Clinton’s patriotism over a student trip he had taken to Moscow.

Another of my stories exposed how U.S. Supreme Court Chief Justice William Rehnquist had engineered a key personnel shift in 1992 to put the panel that picked “independent counsels” under the control of a right-wing judge, David Sentelle.

A protégé of Sen. Jesse Helms, Sentelle then picked partisan Republicans to investigate Clinton and his administration. One of Sentelle’s choices was former Bush administration lawyer Kenneth Starr, who conducted a zealous investigation into the Clintons’ Whitewater real-estate deal.

That inquiry eventually morphed into a recommendation that Bill Clinton be impeached for lying about a sexual affair with former White House intern Monica Lewinsky.

At the time, while many Washington journalists mocked Hillary Clinton’s claim about a “vast right-wing conspiracy,” I wrote an article saying she had a legitimate point.

Our political correspondent Mollie Dickenson also described how – even after Bill Clinton survived an impeachment trial in the Senate in early 1999 – the right-wing and mainstream news media continued to smear Hillary Clinton by publishing false leaks predicting that Starr would incriminate her in another offshoot of the scandal.

Though there’s an old saying that “whatever doesn’t kill you makes you stronger,” sometimes what happens is that a person (or a political movement) becomes badly scarred by abuse or takes on the tendencies of the abuser.

As Bill and Hillary Clinton returned to the national political stage in Campaign 2008, they have personified both tendencies: they have displayed the thin skin of people who have been burned before and they have employed their own slash-and-burn tactics.

Bosnia Case

Whenever Hillary Clinton has faced criticism – whether legitimate or not – she has acted like an aggrieved victim and her husband often has hammered home the point. That was the context of Bill Clinton’s lament about how the press had distorted his wife’s gaffe about coming under sniper fire in Bosnia in 1996 and running for cover.

“A lot of the way this whole campaign has been covered has amused me,” Bill Clinton said on April 10 in Boonville, Indiana, though he obviously was using the passive-aggressive tense of the word “amused.”

The former president then launched into a false explanation of his wife’s earlier false account of the Bosnia episode – to show how unfair the press was acting.

He claimed she slipped up once (when she actually had puffed up the tale several times), made the mistake late at night (when it was a daytime speech), and corrected herself immediately (when, in truth, her campaign tried to beat back the journalistic reports and only backed off a week later after video was shown on CBS News).

Hillary Clinton also never really came clean in her explanation. She, too, used the cop-out excuse of exhaustion. A more plausible reason was that she had learned another bad lesson from the Republicans, that you often can get away with making false claims if you’re willing to denounce honest journalists who dare point out the facts.

But unlike the Republicans who have built their own machine – complete with dedicated media attack groups to go after troublesome journalists – the Clintons have a much more modest operation, essentially her campaign staff plus a handful of loyal commentators and a collection of angry bloggers.

Still, those limits haven’t stopped the Clintons from trying to bend reality to their advantage. To do so, they often have played games with one of the most sensitive issues in American politics, the historic discrimination against women.

Whenever Hillary Clinton has found herself in a tight spot, she has thrown down the gender card – even sometimes while saying she would never do such a thing – with complaints about the “all boys’ club” or talk about “breaking the highest and hardest glass ceiling” or having her surrogates bash her critics for “sexism” or “misogyny.”

The Clinton campaign’s thinking apparently is that by hitting people with such ugly charges, the critics will retreat into silence, much as Ronald Reagan’s backers used the phrase “soft on communism” or George W. Bush’s supporters used “soft on terror” or neocons label criticism of Israeli government policies as “anti-semitic.”

‘Big Boy’ Bullies

One example of this strategy came in late March when Sen. Patrick Leahy, a Barack Obama supporter, suggested that it might be time for Hillary Clinton to consider stopping her increasingly negative campaign to avoid damaging Democratic chances in November.

Though Leahy was just expressing his own political opinion, Sen. Clinton reportedly saw something more sinister. According to the New York Times, she told two Democratic allies that she would not be “bullied out” of the race and compared Leahy’s comment with the “big boys” trying to bully a woman.

The accusation that Sen. Leahy – regarded as one of the most decent people in the U.S. Senate and an ardent supporter of women’s rights – would bully a woman struck some people in Washington as either a strange delusion or a cynical political ploy.

Sen. Clinton later denied using the words “big boys” and “bully,” but the reported comments fit with her blunt warnings that her rejection by the Democratic Party risked causing women voters to sit out the general election.

“You cannot, as a Democrat, win the White House without a very big women’s vote,” she told the Washington Post. “It’s impossible. You go back and look at what’s happened in the last four or five elections, if women don’t turn out for the Democratic nominee, we don’t win.”

I also encountered angry reactions from Clinton supporters when I wrote an article three months ago – just after the New Hampshire primary – citing the danger of the Clinton-Obama race degenerating into an unseemly competition between whether women or blacks had the larger historic grievance.

What I didn’t anticipate at the time was that this descent into identity politics would be something the Clinton campaign would encourage from both angles – with Bill Clinton portraying Obama as the black candidate in South Carolina – apparently making the political calculation that there were more white women voters than black voters.

At times, the Clintons and their surrogates have skirted close to a Republican-style race-baiting campaign, with Obama portrayed as a “lucky” and “elitist” young black man who consists of “just words” cutting line in front of a hard-working, older white woman.

Stockholm Syndrome?

The Clinton campaign’s angry tone also has exposed a deep well of self-pity, with Hillary and Bill Clinton signaling that they see a media double-standard against them.

So, when the press does its job in pointing out significant exaggerations and even lies told by Sen. Clinton, these legitimate criticisms are dismissed as anti-Clinton bias. Her aides and supporters rush to battle stations as if they were fending off a new assault from Ken Starr or the American Spectator.

The recurring complaints about an anti-Clinton media bias also are reminiscent of the Right’s endless accusations about the “liberal media,” a form of “working the refs” to get more favorable calls.

That tactic has worked well for Republicans in getting the Washington press corps to go out of its way to “prove it’s not liberal.” It now seems to be getting some journalists to toughen their treatment of Obama.

From e-mails that I’ve received, it also appears that some Democrats, who have suffered through decades of harsh Republican tactics, may welcome how the Clintons are trying to replicate the Right’s attack apparatus, though on a much smaller scale.

These Democrats argue that the party’s only hope for victory in November is to give the Republicans a taste of their own medicine. Some laugh at Obama’s concept of a “new politics” that appeals to voters with less partisanship, comparing his thinking to the campfire song, “Kumbayah.”

Some of these Democrats even argue that it is the Clintons’ duty to destroy Obama with negative attacks before the Republicans get their chance in the fall. It may be ugly but it’s for the good of the party, these Democrats contend.

But other Democrats are aghast at what they’re watching. They see Obama as a decent fellow and an inspiring (though thinly qualified) candidate who is being dirtied up by a Clinton-ized version of Republican attack politics.

To some, it’s hard to decide if the Clintons are suffering from a form of Stockholm Syndrome, in which they now identify with the cruel tactics of their past Republican tormentors, or if the Clintons are so consumed with self-pity that they would rather smash Democratic hopes this fall than face personal political rejection now.

Credit Default Swaps: Evolving Financial Meltdown and Derivative Disaster Du Jour

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By Dr. Ellen Brown

Author’s website www.webofdebt.com/

When the smartest guys in the room designed their credit default swaps, they forgot to ask one thing - what if the parties on the other side of the bet don’t have the money to pay up? Credit default swaps (CDS) are insurance-like contracts that are sold as protection against default on loans, but CDS are not ordinary insurance.

Insurance companies are regulated by the government, with reserve requirements, statutory limits, and examiners routinely showing up to check the books to make sure the money is there to cover potential claims. CDS are private bets, and the Federal Reserve from the time of Alan Greenspan has insisted that regulators keep hands off.

The sacrosanct free market would supposedly regulate itself. The problem with that approach is that regulations are just rules. If there are no rules, the players can cheat; and cheat they have, with a gambler’s addiction. In December 2007, the Bank for International Settlements reported derivative trades tallying in at $681 trillion - ten times the gross domestic product of all the countries in the world combined. Somebody is obviously bluffing about the money being brought to the game, and that realization has made for some very jittery markets.

“Derivatives” are complex bank creations that are very hard to understand, but the basic idea is that you can insure an investment you want to go up by betting it will go down. The simplest form of derivative is a short sale: you can place a bet that some asset you own will go down, so that you are covered whichever way the asset moves.

Credit default swaps are the most widely traded form of credit derivative. They are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the “protection buyer” gets a large payoff if the company defaults within a certain period of time, while the “protection seller” collects periodic payments for assuming the risk of default.

CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to speculate on market changes. In one blogger’s example, a hedge fund wanting to increase its profits could sit back and collect $320,000 a year in premiums just for selling “protection” on a risky BBB junk bond. The premiums are “free” money - free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims. And there’s the catch: what if the hedge fund doesn’t have the $100 million? The fund’s corporate shell or limited partnership is put into bankruptcy, but that hardly helps the “protection buyers” who thought they were covered.

To the extent that CDS are being sold as “insurance,” they are looking more like insurance fraud; and that fact has particularly hit home with the ratings downgrades of the “monoline” insurers and the recent collapse of Bear Stearns, a leading Wall Street investment brokerage. The monolines are so-called because they are allowed to insure only one industry, the bond industry. Monoline bond insurers are the biggest protection writers for CDS, and Bear Stearns was the twelfth largest counterparty to credit default swap trades in 2006.¹ These players have been major protection sellers in a massive web of credit default swaps, and when the “protection” goes, the whole fragile derivative pyramid will go with it. The collapse of the derivative monster thus appears to be both imminent and inevitable, but that fact need not be cause for despair. The $681 trillion derivatives trade is the last supersized bubble in a 300-year Ponzi scheme, one that has now taken over the entire monetary system. The nation’s wealth has been drained into private vaults, leaving scarcity in its wake. It is a corrupt system, and change is long overdue. Major crises are major opportunities for change.

The Wall Street Ponzi Scheme

The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.² The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years - ever since the founding of the Bank of England in 1694 - until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up.”

When the banks ran out of creditworthy borrowers, they had to turn to uncreditworthy “subprime” borrowers; and to avoid losses from default, they moved these risky mortgages off their books by bundling them into “securities” and selling them to investors. To induce investors to buy, these securities were then “insured” with credit default swaps. But the housing bubble itself was another Ponzi scheme, and eventually there were no more borrowers to be sucked in at the bottom who could afford the ever-inflating home prices. When the subprime borrowers quit paying, the investors quit buying mortgage-backed securities. The banks were then left holding their own suspect paper; and without triple-A ratings, there is little chance that buyers for this “junk” will be found. The crisis is not, however, in the economy itself, which is fundamentally sound - or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money.

The Derivatives Chernobyl

The latest jolt to the massive derivatives edifice came with the collapse of Bear Stearns on March 16, 2008. Bear Stearns helped fuel the explosive growth in the credit derivative market, where banks, hedge funds and other investors have engaged in $45 trillion worth of bets on the credit-worthiness of companies and countries. Before it collapsed, Bear was the counterparty to $13 trillion in derivative trades. On March 14, 2008, Bear’s ratings were downgraded by Moody’s, a major rating agency; and on March 16, the brokerage was bought by JPMorgan for pennies on the dollar, a token buyout designed to avoid the legal complications of bankruptcy. The deal was backed by a $29 billion “non-recourse” loan from the Federal Reserve. “Non-recourse” meant that the Fed got only Bear’s shaky paper assets as collateral. If those proved to be worthless, JPM was off the hook. It was an unprecedented move, of questionable legality; but it was said to be justified because, as one headline put it, “Fed’s Rescue of Bear Halted Derivatives Chernobyl.” The notion either that Bear was “rescued” or that the Chernobyl was halted, however, was grossly misleading. The CEOs managed to salvage their enormous bonuses, but it was a “bailout” only for JPM and Bear’s creditors. For the shareholders, it was a wipeout. Their stock initially dropped from $156 to $2, and 30 percent of it was held by the employees. Another big chunk was held by the pension funds of teachers and other public servants. The share price was later raised to $10 a share in response to shareholder outrage, but the shareholders were still essentially wiped out; and the fact that one Wall Street bank had to be fed to the lions to rescue the others hardly inspires a feeling of confidence. Neutron bombs are not so easily contained.

The Bear Stearns hit from the derivatives iceberg followed an earlier one in January, when global markets took their worst tumble since September 11, 2001. Commentators were asking if this was “the big one” - a 1929-style crash; and it probably would have been if deft market manipulations had not swiftly covered over the approaching catastrophe. The precipitous drop was blamed on the threat of downgrades in the ratings of two major monoline insurers, Ambac and MBIA, followed by a $7.2 billion loss in derivative trades by Societe Generale, France’s second-largest bank. Like Bear Stearns, the monolines serve as counterparties in a web of credit default swaps, and a downgrade in their ratings would jeopardize the whole shaky derivatives edifice. Without the monoline insurers’ traiple-A seal, billions of dollars worth of triple-A investments would revert to junk bonds. Many institutional investors (pension funds, municipal governments and the like) have a fiduciary duty to invest in only the “safest” triple-A bonds. Downgraded bonds therefore get dumped on the market, jeopardizing the banks that are still holding billions of dollars worth of these bonds. The downgrade of Ambac in January signaled a simultaneous downgrade of bonds from over 100,000 municipalities and institutions, totaling more than $500 billion.³

Institutional investors have lost a good deal of money in all this, but the real calamity is to the banks. The institutional investors that formerly bought mortgage-backed bonds stopped buying them in 2007, when the housing market slumped. But the big investment houses that were selling them have billions’ worth left on their books, and it is these banks that particularly stand to lose as the derivative Chernobyl implodes.⁴

A Parade of Bailout Schemes

Now that some highly leveraged banks and hedge funds have had to lay their cards on the table and expose their worthless hands, these avid free marketers are crying out for government intervention to save them from monumental losses, while preserving the monumental gains raked in when their bluff was still good. In response to their pleas, the men behind the curtain have scrambled to devise various bailout schemes; but the schemes have been bandaids at best. To bail out a $681 trillion derivative scheme with taxpayer money is obviously impossible. As Michael Panzer observed on SeekingAlpha.com:

As the slow-motion train wreck in our financial system continues to unfold, there are going to be plenty of ill-conceived rescue attempts and dubious turnaround plans, as well as propagandizing, dissembling and scheming by banks, regulators and politicians. This is all happening in an effort to try and buy time or to figure out how the losses can be dumped onto the lap of some patsy (e.g., the taxpayer).

The idea seems to be to keep the violins playing while the Big Money Boys slip into the mist and man the lifeboats. As was pointed out in a blog called “Jesse’s Café Americain” concerning the bailout of Ambac:

It seems that the real heart of the problem is that AMBAC was being used as a "cover" by the banks which originated these bundles of mortgages to get their mispriced ratings. Now that the mortgages are failing and the banks are stuck with them, AMBAC cannot possibly pay, they cannot cover the debt. And the banks don’t wish to mark these CDOs [collateralized debt obligations] to market [downgrade them to their real market value] because they are probably at best worth 60 cents on the dollar, but are being held by the banks on balance at roughly par. That’s a 40 percent haircut on enough debt to sink every bank involved in this situation . . . . Indeed for all intents and purposes if marked to market banks are now insolvent. So, the banks will provide capital to AMBAC . . . [but] it’s just a game of passing money around. . . . So why are the banks engaging in this charade? This looks like an attempt to extend the payouts on a vast Ponzi scheme gone bad that is starting to collapse . . . .⁵

The banks will therefore no doubt be looking for one bailout after another from the only pocket deeper than their own, the U.S. government’s. But if the federal government acquiesces, it too could be dragged into the voracious debt cyclone of the mortgage mess. The federal government’s triple A rating is already in jeopardy, due to its gargantuan $9 trillion debt. Before the government agrees to bail out the banks, it should insist on some adequate quid pro quo. In England, the government agreed to bail out bankrupt mortgage bank Northern Rock, but only in return for the bank’s stock. On March 31, 2008, The London Daily Telegraph reported that Federal Reserve strategists were eyeing the nationalizations that saved Norway, Sweden and Finland from a banking crisis from 1991 to 1993. In Norway, according to one Norwegian adviser, “The law was amended so that we could take 100 percent control of any bank where its equity had fallen below zero.”⁶ If their assets were “marked to market,” some major Wall Street banks could already be in that category.

Benjamin Franklin’s Solution

Nationalization has traditionally had a bad name in the United States, but it could be an attractive alternative for the American people and our representative government as well. Turning bankrupt Wall Street banks into public institutions might allow the government to get out of the debt cyclone by undoing what got us into it. Instead of robbing Peter to pay Paul, flapping around in a sea of debt trying to stay afloat by creating more debt, the government could address the problem at its source: it could restore the right to create money to Congress, the public body to which that solemn duty was delegated under the Constitution.

The most brilliant banking model in our national history was established in the first half of the eighteenth century, in Benjamin Franklin’s home province of Pennsylvania. The local government created its own bank, which issued money and lent it to farmers at a modest interest. The provincial government created enough extra money to cover the interest not created in the original loans, spending it into the economy on public services. The bank was publicly owned, and the bankers it employed were public servants. The interest generated on its loans was sufficient to fund the government without taxes; and because the newly issued money came back to the government, the result was not inflationary.⁷ The Pennsylvania banking scheme was a sensible and highly workable system that was a product of American ingenuity but that never got a chance to prove itself after the colonies became a nation. It was an ironic twist, since according to Benjamin Franklin and others, restoring the power to create their own currency was a chief reason the colonists fought for independence. The bankers’ money-creating machine has had two centuries of empirical testing and has proven to be a failure. It is time the sovereign right to create money is taken from a private banking elite and restored to the American people to whom it properly belongs.

Ellen Brown, J.D., developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her eleven books include the bestselling Nature’s Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies. Her websites are www.webofdebt.com and www.ellenbrown.com .

NOTES

¹ “Credit Swap Worries Go Mainstream,” nakedcapitalism.com (February 17, 2008); Aline van Duyn, “CDS Sector Weighs Bear Stearns Backlash,” Financial Times (London) (March 16, 2008).

² See Ellen Brown, “Dollar Deception: How Banks Secretly Create Money,” webofdebt.com/articles (July 3, 2008).

³ “Monoline Insurance,” Wikipedia.

⁴ Jane Wells, “Ambac and MBIA: Bonds, Jane’s Bonds,” CNBC (February 4, 2008).

⁵ “Saving AMBAC, the Homeowners, or the Banks?”, Jesse’s Café Americain (February 25, 2008).

⁶ Ambrose Evans-Pritchard, “Fed Eyes Nordic-style Nationalisation of US Banks,” International Business Editor (March 31, 2008).

⁷ See Ellen Brown, Web of Debt (Third Millennium Press, 2008), chapter 3.

Gas prices hit record high

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By Greg Wiles

Costlier than during 2005 shortage — and still spiraling upward

Hawai'i's average gasoline price jumped to a record high this week, surpassing a mark set 31 months ago and increasing the possibility the statewide price will break through the $4 level soon.

The price of a gallon of regular rose 2.3 cents to $3.697 on Thursday, and diesel fuel also reached a new high with a statewide average price of $4.261.

The new gasoline price eclipses the old mark of about $3.684 a gallon, set in September 2005 after refineries shut down in the wake of hurricanes Katrina and Rita, according to data from the AAA's Daily Fuel Gauge Web site. The new high also comes just after the average price for a gallon of regular reached $4 a gallon Wednesday in Wailuku, a new high for Maui.

"I hardly drive now," said Carson Neves, a 21-year-old Kane'ohe resident who limits his trips into Honolulu because of prices and tries to find the cheapest gasoline when he needs fuel. The $5 fuel-ups he puts into his 2001 Nissan Sentra don't give him much these days.

"I just put in $5 the other day and it didn't reach a quarter of a tank," said Neves, who is in between jobs and tries to save money by sharing rides with friends.

Prices are tracking the rise of crude oil, which cracked the $100 mark in mid-February and reached a high of $110.87 earlier this week. Nationally, gasoline prices are reaching record levels and all three local markets tracked by the AAA have been increasing. More and more people are talking about $4-a-gallon gasoline soon becoming a reality nationwide, just as it has for Maui residents.

The previous statewide record of $3.684 was set on Sept. 18, 2005, because of gasoline shortages in the wake of hurricanes Katrina and Rita. At the time, the state was under a gas-cap law that set maximum wholesale prices based on prices in Los Angeles, the Gulf Coast and New York.

over a barrel

The current situation is different because the state no longer has the gas cap law and because gasoline is plentiful compared to September 2005. But the market has changed and crude oil prices now have a greater influence over prices at the pump.

Whereas there were questions just two months ago if statewide gasoline prices would hit $4 a gallon, that's less the case now, said oil industry consultant David Hackett, head of Stillwater Associates in Irvine, Calif.

"It will get to $4 if crude oil keeps going up," said Hackett, noting it takes six weeks or so for crude oil price changes to ripple through to the gas pump.

A barrel of West Texas Intermediate crude oil traded in the $50 to $60 range on the New York Mercantile Exchange in the summer of 2005. Since mid-February it has traded in the $80 to $110 range, according to Bloomberg L.P. data.

It remains to be seen how much more prices will rise in Hawai'i as the higher crude prices work their way through to consumers. Hackett said prices generally rise more slowly in Hawai'i because of consumer resistance to price hikes, but also come down more slowly after crude oil prices recede.

Statewide gasoline prices for regular have risen by about 67 cents in the past year and Hawai'i's average gallon of diesel fuel has gone up 76 cents in the past 12 months to a record $4.261.

Wailuku has the highest price of the three markets tracked by the AAA, with a gallon costing $4.004 Thursday. It was the first city or county in the nation to hit $4 a gallon, according to the AAA.

On Lana'i, it's $4.71

But that's not the costliest gasoline in the state. Oil Price Information Service, the data provider used by AAA, doesn't track prices on Kaua'i, Moloka'i or Lana'i.

Yesterday, Lanai City Service reported selling regular for $4.71 a gallon, while Rawlins Chevron Service in Kaunakakai, Moloka'i, said its regular was going for $4.36.

The Kukui Grove Self Service station outside of Lihu'e reported regular at $3.799 a gallon.

In Honolulu, the average price for regular was nearing its record, having risen to just 0.002 cents beneath it. The AAA reported the average price was $3.592 for O'ahu drivers.

Hilo's price was higher, but not as close to a new high. Its $3.705 average was less than the $3.773 high reached in September 2005.

The automobile club's data shows Hawai'i's statewide average is still lower than California's, which leads the nation with an average regular price of $3.767.

That's little solace to Neves, who thinks twice about driving to Honolulu, given his limited gasoline budget.

"I don't leave (Kane'ohe) town unless I have more money."

The Next President's First Task [A Manifesto]

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By Robert F. Kennedy Jr.

Last November, Lord (David) Puttnam debated before Parliament an important bill to tackle global warming. Addressing industry and government warnings that we must proceed slowly to avoid economic ruin, Lord Puttnam recalled that precisely 200 years ago Parliament heard identical caveats during the debate over abolition of the slave trade. At that time slave commerce represented one-fourth of Britain's G.D.P. and provided its primary source of cheap, abundant energy. Vested interests warned that financial apocalypse would succeed its prohibition.

That debate lasted roughly a year, and Parliament, in the end, made the moral choice, abolishing the trade outright. Instead of collapsing, as slavery's proponents had predicted, Britain's economy accelerated. Slavery's abolition exposed the debilitating inefficiencies associated with zero-cost labor; slavery had been a ball and chain not only for the slaves but also for the British economy, hobbling productivity and stifling growth. Now creativity and productivity surged. Entrepreneurs seeking new sources of energy launched the Industrial Revolution and inaugurated the greatest era of wealth production in human history.

Today, we don't need to abolish carbon as an energy source in order to see its inefficiencies starkly, or to understand that this addiction is the principal drag on American capitalism. The evidence is before our eyes. The practice of borrowing a billion dollars each day to buy foreign oil has caused the American dollar to implode. More than a trillion dollars in annual subsidies to coal and oil producers have beggared a nation that four decades ago owned half the globe's wealth. Carbon dependence has eroded our economic power, destroyed our moral authority, diminished our international influence and prestige, endangered our national security, and damaged our health and landscapes. It is subverting everything we value.

We know that nations that "decarbonize" their economies reap immediate rewards. Sweden announced in 2006 the phaseout of all fossil fuels (and nuclear energy) by 2020. In 1991 the Swedes enacted a carbon tax - now up to $150 a ton - and as a result thousands of entrepreneurs rushed to develop new ways of generating energy from wind, the sun, and the tides, and from woodchips, agricultural waste, and garbage. Growth rates climbed to upwards of three times those of the U.S.

Iceland was 80 percent dependent on imported coal and oil in the 1970s and was among the poorest economies in Europe. Today, Iceland is 100 percent energy-independent, with 90 percent of the nation's homes heated by geothermal and its remaining electrical needs met by hydro. The International Monetary Fund now ranks Iceland the fourth most affluent nation on earth. The country, which previously had to beg for corporate investment, now has companies lined up to relocate there to take advantage of its low-cost clean energy.

It should come as no surprise that California, America's most energy-efficient state, also possesses its strongest economy.

The United States has far greater domestic energy resources than Iceland or Sweden does. We sit atop the second-largest geothermal resources in the world. The American Midwest is the Saudi Arabia of wind; indeed, North Dakota, Kansas, and Texas alone produce enough harnessable wind to meet all of the nation's electricity demand. As for solar, according to a study in Scientific American, photovoltaic and solar-thermal installations across just 19 percent of the most barren desert land in the Southwest could supply nearly all of our nation's electricity needs without any rooftop installation, even assuming every American owned a plug-in hybrid.

In America, several obstacles impede the kind of entrepreneurial revolution we need. To begin with, that trillion dollars in annual coal-and-oil subsidies gives the carbon industry a decisive market advantage. Meanwhile, an overstressed and inefficient national electrical grid can't accommodate new kinds of power. At the same time, a byzantine array of local rules impede access by innovators to national markets.

There are a number of things the new president should immediately do to hasten the approaching boom in energy innovation. A carbon cap-and-trade system designed to put downward pressure on carbon emissions is quite simply a no-brainer. Already endorsed by Senators McCain, Clinton, and Obama, such a system would measure national carbon emissions and create a market to auction emissions credits. The supply of credits is then reduced each year to meet pre-determined carbon-reduction targets. As supply tightens, credit value increases, providing rich monetary rewards for innovators who reduce carbon. Since it is precisely targeted, cap-and-trade is more effective than a carbon tax. It is also more palatable to politicians, who despise taxes and love markets. Industry likes the system's clear goals. This market-based approach has a proven track record.

There's a second thing the next president should do, and it would be a strategic masterstroke: push to revamp the nation's antiquated high-voltage power-transmission system so that it can deliver solar, wind, geothermal, and other renewable energy across the country. Right now, a Texas wind-farm manager who wants to get his electrons to market faces two huge impediments. First, our regional power grids are overstressed and misaligned. The biggest renewable-energy opportunities - for instance, Southwest solar and Midwest wind - are outside the grids' reach. Furthermore, traveling via alternating-current (AC) lines, too much of that wind farmer's energy would dissipate before it crossed the country. The nation urgently needs more investment in its backbone transmission grid, including new direct-current (DC) power lines for efficient long-haul transmission. Even more important, we need to build in "smart" features, including storage points and computerized management overlays, allowing the new grid to intelligently deploy the energy along the way. Construction of this new grid will create a marketplace where utilities, established businesses, and entrepreneurs can sell energy and efficiency.

The other obstacle is the web of arcane and conflicting state rules that currently restrict access to the grid. The federal government needs to work with state authorities to open up the grids, allowing clean-energy innovators to fairly compete for investment, space, and customers. We need open markets where hundreds of local and national power producers can scramble to deliver economic and environmental solutions at the lowest possible price. The energy sector, in other words, needs an initiative analogous to the 1996 Telecommunications Act, which required open access to all the nation's telephone lines. Marketplace competition among national and local phone companies instantly precipitated the historic explosion in telecom activity.

Construction of efficient and open-transmission marketplaces and green-power-plant infrastructure would require about a trillion dollars over the next 15 years. For roughly a third of the projected cost of the Iraq war we could wean the country from carbon. And the good news is that the government doesn't actually have to pay for all of this. If the president works with governors to lift constraints and encourage investment, utilities and private entrepreneurs will quickly step in to revitalize the grid and recover their investment through royalties collected for transporting green electrons. Businesses and homes will become power plants as individuals cash in by installing solar panels and wind turbines on their buildings, and by selling the stored energy in their plug-in hybrids back to the grid at peak hours.

Energy expert and former CIA director R. James Woolsey predicts: "With rational market incentives and a smart backbone, you'll see capital and entrepreneurs flooding this field with lightning speed." Ten percent of venture-capital dollars are already deployed in the clean-tech sector, and the world's biggest companies are crowding the space with capital and scrambling for position.

The president's final priority must be to connect a much smarter power grid to vastly more efficient buildings and machines. We have barely scratched the surface here. Washington is a decade behind its obligation, first set by Ronald Reagan, to set cost-minimizing efficiency standards for all major appliances. With the conspicuous exception of Arnold Schwarzenegger's California, the states aren't doing much better. And Congress keeps setting ludicrously tight expiration dates for its energy-efficiency tax credits, frustrating both planning and investment. The new president must take all of this in hand at once.

The benefits to America are beyond measure. We will cut annual trade and budget deficits by hundreds of billions, improve public health and farm production, diminish global warming, and create millions of good jobs. And for the first time in half a century we will live free from Middle Eastern wars and entanglements with petty tyrants who despise democracy and are hated by their own people.

More on Michael Mukasey's false 9/11 and FISA claims

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By Glenn Greenwald

The San Francisco Chronicle became one of the few media outlets to report on the multiple false claims about 9/11 and FISA in Michael Mukasey’s speech two weeks ago, as they adeptly summarized the key events in this article today. As the article, using the Lee Hamilton and other quotes reported here, put it: "It seemed like a sensational disclosure -- a phone call that, if traced and monitored, could have allowed authorities to thwart the attacks -- but it has proved difficult to verify."

Also, Mukasey appeared yesterday before a Senate Appropriations subcommittee and was questioned on this matter by Pat Leahy:

On his third question, Leahy asked Mukasey to clarify a recent comment he made in San Francisco where he implied that the failure to listen in on a phone call from Afghanistan to the United States prior to the Sept. 11, 2001 attacks had cost 3,000 lives.

"Nobody else seems to know about this. Can you tell me what the circumstances were and why?" Leahy said.

"The phone call I referenced relates to an incoming call that is referred to in a letter in February of this year to House Intelligence Committee Chairman [Silvestre] Reyes [(D-Texas)] from Director of National Intelligence Mike McConnell and I," Mukasey said.

"One thing I got wrong. It didn’t come from Afghanistan. I got the country wrong," Mukasey continued without specifying the country where the call originated.

So finally, Mukasey, only because he has been forced to do so, admits that he was wrong in the facts of this alleged call. If the Attorney General is going to go around tearfully claiming that there was a pre-9/11 call that the Government was prevented by surveillance laws from investigating and which would have prevented the 9/11 attacks, wouldn’t one think that he would actually know what he was talking about? He made a similar claim, though much more vaguely, in a letter he signed two weeks earlier to Congress. How does one just get something like that wrong -- a bombshell which the Chronicle described as "sensational" -- if it really happened?

More to the point, Mukasey’s claims still make no sense even if one changes the country of origin. There is still nothing about any episode of that sort -- a call from a foreign country into the U.S. that the administration was prohibited from investigating -- in either the 9/11 Report or the Joint Inquiry.

But whether this call actually occurred has always been the secondary level of deceit in what Mukasey said. Most significant is that even if there had been such a call, Mukasey’s claim -- that FISA’s warrant requirements somehow prevented investigation of that call -- is completely deceitful, as Leahy’s follow-up statement suggested:

Mukasey, who used the phone call as an example to highlight the intelligence shortcomings before 9/11, did not explain why he included the comment to argue for expanded surveillance powers in a question-and-answer session after his speech on March 27.

"No FISA [Foreign Intelligence Surveillance Act] application should have been necessary to monitor a foreign target in a foreign country," Leahy reminded Mukasey. "We didn’t need it then. And we didn’t need it today."

John Conyers ought to follow up on the questions he asked in the excellent letter sent by him and two Subcommittee Chairs to Mukasey last week. Even with this "modification," Mukasey still is plainly not telling the truth about what he said.

And this has been going on forever -- when the Bush administration wants more unchecked power or to evade accountability, they send out whoever the Trusted, Honorable, Non-partisan officials of the Month happen to be to make emotionally manipulative -- and outright false -- claims about the 9/11 attack in order to secure those powers. Here, Mukasey got caught red-handed making numerous false and misleading claims -- about both the facts of 9/11 and the law -- and he shouldn’t be allowed to get away with it simply because, under pressure, he has now "acknowledged" some minor error that does not, in any way, mitigate the core deceit here.

UPDATE: The commenter selise, one of the most reliable sources around, has posted a transcript of the Leahy-Mukasey exchange that is somewhat different (and even more damning) than the source quoted above. Mukasey claims that his only point was that no warrant should be required for foreign-to-foreign calls, but virtually nobody contests that. Indeed, that has always been the law under FISA -- certainly it was the law as of 9/11 -- and there was absolutely nothing preventing them from having intercepted and investigated that call (more details on that here, from Kevin Fenton).

Moreover, virtually everyone in Congress -- including even Russ Feingold and Rush Holt -- were willing to amend FISA to clarify further that no warrants are required to eavesdrop on such calls, but the President threatened to veto any such amendment unless it was accompanied by telecom amnesty. So it’s hard to believe -- to put it mildly -- that Mukasey’s only point was that foreign-to-foreign calls shouldn’t require warrants, since (a) nobody contests that and (b) no warrants were required for such calls as of 9/11. His point was that FISA’s warrant requirements prevented discovery of the 9/11 attack ("We’ve got three thousand people who went to work that day and didn’t come home to show for that") and that claim is every bit as false as Mukasey’s description of the call itself.

Why Costs Are Climbing

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By Eric Reguly

As food prices surge, starvation looms for millions. Experts call for emergency action but admit there's no quick fix.

Rome - Fatal food riots in Haiti. Violent food-price protests in Egypt and Ivory Coast. Rice so valuable it is transported in armoured convoys. Soldiers guarding fields and warehouses. Export bans to keep local populations from starving.

For the first time in decades, the spectre of widespread hunger for millions looms as food prices explode. Two words not in common currency in recent years - famine and starvation - are now being raised as distinct possibilities in the poorest, food-importing countries.

Unlike past food crises, solved largely by throwing aid at hungry stomachs and boosting agricultural productivity, this one won't go away quickly, experts say. Prices are soaring and stand every chance of staying high because this crisis is different.

A swelling global population, soaring energy prices, the clamouring for meat from the rising Asian middle class, competition from biofuels and hot money pouring into the commodity markets are all factors that make this crisis unique and potentially calamitous. Even with concerted global action, such as rushing more land into cultivation, it will take years to fix the problem.

The price increases and food shortages have been nothing short of shocking. In February, stockpiles of wheat hit a 60-year low in the United States as prices soared. Almost all other commodities, from rice and soybeans to sugar and corn, have posted triple-digit price increases in the past year or two.

Yesterday in Rome, Jacques Diouf, director-general of the United Nations Food and Agriculture Organization, said the cereal-import bill for the poorest countries is expected to rise 56 per cent this year, on top of the 37 per cent recorded last year. "There is certainly a risk of [people] dying of starvation" unless urgent action is taken, he said. "I am surprised I have not been summoned to the Security Council to discuss these issues."

The UN's donor countries, he said, need to come up with as much as $1.7-billion (U.S.) to implement quick-fix food programs, such as topping up the World Food Programme, whose emergency food-buying power has been clobbered by the rising prices. Its budget shortfall, the difference between the food it intended to buy and can now afford, is $500-million.

Other UN officials have been equally blunt. Sir John Holmes, the UN's top humanitarian official and emergency relief co-ordinator, said this week that soaring food prices threaten political stability. The UN and national governments are especially worried about potentially violent situations in Africa's increasingly crowded urban areas. Rioting triggered by absent or unaffordable food could cripple cities. "The security implications should not be underestimated as food riots are being reported across the globe," Mr. Holmes said.

Nigeria's Kanayo Nwanze, vice-president of the UN's International Fund for Agricultural Development, sees no short-term fix. "I wouldn't be surprised if there is an escalation of food riots in the next few months," he said. "It could lead to famine in certain parts of Africa if the international community and local governments do not put emergency actions into place."

And it's not just the UN that thinks so. Independent analysts, economists and agriculture consultants say the term most often used to describe the food prices and shortages - crisis - is not hyperbole.

How did it come to this? Surging food prices, now at 30-year highs, are actually a relatively new phenomenon. In the mid-1970s, prices began to fall as the green revolution around the world made farms dramatically more productive, thanks to improvements in irrigation and the widespread use of fertilizers, mechanized farm equipment and genetically engineered crops. If there was a crisis, it was food surpluses - too much food chasing too few stomachs - and dropping produce prices had often disastrous effects on farm incomes.

By 2001, the surpluses began to shrink and prices reversed. In the past year or so, the price curve has gone nearly vertical. The UN's food index rose 45 per cent in the past nine months alone, but some prices have climbed even faster. Wheat went up 108 per cent in the past 12 months; corn rose 66 per cent. Rice, the food that feeds half the world, went "from a staple to a delicacy," says Standard Chartered Bank food commodities analyst Abah Ofon.

The price of Thai medium-quality rice, a global benchmark, has more than doubled since the end of 2007. This week it reached a record $854 a tonne, which helps explain why World Food Programme trucks carrying rice in certain parts of Africa have come under attack.

Food prices in the first three months of 2008 reached their highest level in both nominal and real (inflation adjusted) terms in almost 30 years, the UN says. That's stoking double-digit inflation and prompting countries such as Egypt, Vietnam and India to eliminate or substantially reduce rice exports to keep a lid on prices and prevent rioting. But, by reducing global supply, this only increases prices for food-importing countries, many of them in West Africa.

Throughout history, the world has seen food shortages and famines triggered by drought, war, pestilence, crop failures and regional overpopulation. In the Chinese famine between 1958 and 1961, an estimated 30 million people died from malnutrition. In the late 1960s and early 1970s, severe food shortages hit India and parts of southeast Asia. Only the emergency shipment of hundreds of thousands of tonnes of grain from the U.S. prevented a humanitarian disaster. Drought, violent conflict, economic incompetence, misfortune and corruption created deadly famines in Ethiopia and Sudan in the first half of the 1980s.

In each case, the food shortages were alleviated through emergency aid or investment in farming and crop productivity. While no one so far is dying of hunger in this latest crisis, the UN and agriculture experts predict years of pain, at best, and severe shortages, possibly famine in the worst-hit countries. The reason: High prices are likely to persist for years.

Swelling population explains only part of the problem. The world's population, estimated at 6.6 billion, has doubled since 1965. But population growth rates are falling and, theoretically, there is enough food to feed everyone on the planet, said Peter Hazell, a British agriculture economist and a former World Bank principal economist.

Why millions may go hungry, he said, is because prices are so high, food is becoming unaffordable in some parts of the world.

The "rural poor" (to use the UN's term) in Burkina Faso, Niger, Somalia, Senegal, Cameroon and some other African countries exist on the equivalent of $1 a day or less. As much as 70 per cent of that meagre income goes to food purchases, compared with about 15 per cent in the U.S. and Canada. As prices, but not incomes, rise, the point may be reached where food portions shrink or meals are skipped. Malnutrition sets in.

The dramatic price rises have been driven by factors absent in previous food shortages.

They include turning food into fuel, climate change, high oil and natural gas prices (which boost trucking and fertilizer costs), greater consumption of meat and dairy products as incomes rise (which raises the demand for animal feedstuffs), and investment funds, whose billions of dollars of firepower can magnify price increases.

Driven by fears of global warming, biofuel has become big business in the U.S., Canada and the European Union. The incentive to produce the fuels is overwhelming because they are subsidized by taxpayers and, depending on the country or the region, come with content mandates.

Starting next week, Britain will require gasoline and diesel sold at the pumps be mixed with 2.5-per-cent biofuel, rising to 5.75 per cent by 2010 and 10 per cent by 2020, in line with European Union directives. Ontario's ethanol-content mandate is 5 per cent. As the content requirements rise, more and more land is devoted to growing crops for fuel, such as corn-based ethanol. In the EU alone, 15 per cent of the arable land is expected to be devoured by biofuel production by 2020.

That's raising alarm bells, especially given lingering doubts about the effectiveness of ethanol in combatting climate change. British Prime Minister Gordon Brown said this week he's worried that ethanol production is pushing up food prices everywhere, and he called for an urgent review of the issue. Economist Dr. Hazell has said that filling an SUV tank once with ethanol consumes more maize than the typical African eats in a year.

Rising ethanol demand is one of the main reasons why Wall Street securities firm Goldman Sachs predicts high food prices for a long time. "We believe the recent rise in agriculture prices is not a transient spike, but rather represents the beginning of a structural increase in prices, much as has occurred in the energy and metals markets," Jeffrey Currie, Goldman's chief commodities analyst, said in a research note last month.

Severe weather has clobbered crop production among some big exporting countries. Drought in Australia, the third largest wheat exporter after the U.S. and Canada, has pushed wheat production down by half since the 2005-06 crop year. Statistics Canada said Canadian wheat production fell 20.6 per last year. Exports, as a result, are expected to fall by six million tonnes in the 2007-08 year.

While Australia and Canada could bounce back in the next season or the season after, depending on temperatures and rainfall, rising global temperatures do not bode well for agriculture in many parts of the world.

The UN has predicted that climate change could reduce production in developing countries by 9 to 21 per cent by 2080 and that sub-Saharan Africa could lose more than 30 per cent of its main crop, maize. Southern Asia, it said, could see millet, maize and rice production fall by 10 per cent. The challenge is to offset the losses with higher crop yields on arable land less affected by climate change.

Mr. Ofon, of Standard Chartered Bank, said rising demand in the face of production shortfalls does not fully explain the dramatic price increases. Investors are the other driver. They have discovered they can make money from food commodities as easily as they can in oil, gold or nickel. "Fund money flowing into agriculture has boosted prices," he said. "It's fashionable. This is the year of agricultural commodities."

But Mr. Currie of Goldman Sachs dismisses the theory that funds are pushing prices higher than they would be otherwise, though the funds can make prices rise and fall quickly in the short term. "The simple truth is that the funds don't take delivery of the commodity," he said in an interview. "Therefore they cannot sit on them and put them in silos. Therefore they can't affect prices over the long term."

In other words, the rally in food prices is being caused by demand exceeding production, resulting in dwindling food stockpiles. UN's International Fund for Agricultural Development, for one, assumes prices will stay high for as long as 10 years.

Agriculture economists and the UN have not lost all hope. New irrigation systems are inevitable in Africa and have the potential to boost crop production dramatically. Ditto for the use of fertilizers. Only three to five kilos of fertilizer per hectare is used in Africa, compared with about 250 kilos in the U.S. The problem with using more fertilizer is cost. Fertilizers such as urea are derived from natural gas, and gas prices have climbed, too. The price of urea has almost tripled since 2003, to $400 a tonne.

Dr. Hazell said some big countries, notably the U.S., Canada and Ukraine, have the capacity to increase crop production substantially. Already world cereal production is on the rise, although not nearly fast enough to end the crisis. The Food and Agriculture Organization yesterday forecast a 2.6-per-cent rise in cereal production in 2008.

Cutting back on ethanol production alone would go some way to restoring supply-demand balance in the food markets. "If we decide to do something about it, we can just use less food for fuel," he said.

But everyone - analysts, economists, agriculture experts, the UN - thinks all bets are off in the next two or three years. It's almost impossible to boost production quickly, because of land and water shortages and competition from biofuels.

"I can say with some degree of confidence that if governments and international development agencies do not put in place a concerted effort quickly, then we are looking at a very serious problem," Mr. Nwanze said.

More FAA Whistle-Blowers Begin to Come Forward

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By Dave Montgomery

Washington - More Federal Aviation Administration whistle-blowers are beginning to step forward with fresh allegations of a "culture of complacency" between the FAA and the airlines industry, the head of the government agency charged with investigating whistle-blower complaints said Friday.

The complaints under investigation by the U.S. Office of Special Counsel may widen attacks on the besieged regulatory agency. But with the FAA under scrutiny by Congress and government investigators, while hundreds of thousands of passengers reel from massive flight cancellations, the big question remains: How could this have happened?

The FAA was created in 1958 as an independent watchdog over airline safety. But instead the 46,000-employee agency is falling down on the job through a cozy relationship with the industry that has led to a years-long pattern of benign enforcement, say a parade of critics.

Over the past week, much of the flying public found itself grounded as American Airlines and other carriers abruptly canceled nearly 3,000 flights to make inspections and repairs that the FAA mandated. The unprecedented cancellations generated assertions that the FAA was overcompensating for past enforcement lapses. FAA officials vigorously deny that perception.

"This is not something sudden that just came up," FAA spokeswoman Lynn Tierney said Friday in restating the agency's 50-year-old pledge to enforce safety in the skies. FAA officials says they're moving to correct internal problems and call this "the safest period in aviation history," with only two major U.S. air crashes over the past seven years.

Nevertheless, investigations by congressional oversight committees, the special counsel's office and the Department of Transportation's inspector general have produced a different picture, including disclosures that mid-level FAA officials in Texas allowed Southwest Airlines to continue flying potentially dangerous planes that should been inspected for cracks.

The allegations about Southwest surfaced after two FAA inspectors, seeking whistle-blower protections, took their story to U.S. Special Counsel Scott J. Bloch and later testified publicly before the House Committee on Transportation and Infrastructure.

Bloch, in a telephone interview Friday, said another FAA whistle-blower has approached his agency, and a second is also considering working with investigators. The complaints involve two and possibly three airlines, which Bloch declined to name. The agency, he said, has four or five active files "and are opening more now." The complaints, he said, "run the gamut" from maintenance issues to "airworthiness" and safety.

"We're going to see a great deal of emphasis on oversight of the FAA over the next couple of months," Bloch said. "I believe there are many whistle-blowers in the wings who would like to report problems because they feel a duty to do so, but are very afraid of what will happen to them. We will protect them if they do come to us."

Political fury at the agency, particularly among Democratic lawmakers, soared to white-hot intensity after the mass grounding of airline flights prompted a flood of calls to congressional offices and embarrassing television images of passengers stranded at airports.

David Stempler, president of the Air Travelers Association, said the cancellations were the most pervasive since the grounding of DC-10s in 1979 and have disrupted at least 300,000 travelers.

"That's just an unprecedented amount of people whose trips have been changed, altered or canceled," he said. "It's absolutely huge."

Amid the passenger angst, a fundamental debate over whether such draconian measures were necessary has yet to be settled.

American Airlines grounded the flights of its MD-80 fleet to inspect and repair wiring bundles in the wheel wells to comply with an FAA safety directive. American had complied with the directive when it was first issued in 2006, but the FAA, over the past two weeks, determined that it wasn't done properly.

Over the past several weeks, Southwest, United, Delta, US Airways and Alaska Airlines also have canceled flights to take planes out of service to meet FAA requirements.

The FAA stepped up its surveillance as part of a two-phased audit that began after the agency levied a proposed $10.2 million fine against Southwest for continuing to fly planes that should have been grounded.

American officials said they thought were in compliance with the directive. But the FAA, after reviewing inspection records, determined that the carrier was in violation of the requirements. The FAA's Tierney said the carrier made the decision to ground the aircraft to comply with the regulation, but American officials said they had no choice.

Some FAA critics contend that the penalty against Southwest, as well as the rigid enforcement that led to the mass groundings, were public relations moves aimed at recasting the FAA's image. But Rep. Jim Oberstar, D-Minn., chairman of the House Transportation and Infrastructure Committee investigating the FAA, said the agency was "correcting course" and belatedly rising to its responsibility.

"They're not overreacting," Oberstar said. "They're reacting and doing what they should be doing." The mass groundings, he said, reflected the airlines' failure to comply with FAA maintenance requirements.

Bloch, who testified before Oberstar's committee, has become a leading critic of the FAA. The agency, he said, "is far and above the worst we've encountered in the federal government for its contempt for oversight, its willingness to retaliate against whistle-blowers ... and their willingness to cover up violations."

In his more than four years as special counsel, Bloch said his office has substantiated at least 10 whistle-blower complaints about the FAA.

Calvin Scovel, inspector general for the Department of Transportation, which includes the FAA, said "fundamental breakdowns" in the FAA's oversight of Southwest Airlines have raised "legitimate concerns about the FAA's overall approach to safety oversight."

One area of criticism has focused on the FAA's "self-disclosure" policy, in which airlines can escape possible fines if they report violations of airworthiness directives before they're spotted by FAA inspectors. But investigators and congressional critics say the policy has led to abuses in which airlines are sometimes tipped off about potential investigations by sympathetic inspectors in the FAA, thus enabling them to escape penalties.

Tom Brantley, the head of the union that includes FAA safety inspectors, said he has been told of "numerous instances" in which FAA safety inspectors were prevented from moving forward with enforcement actions after identifying a violation of FAA regulations.

"It's gotten worse," Brantley, president of Professional Aviation Safety Specialists, told McClatchy. The inspectors, he said, approach him with their grievances but are often afraid to press the matter through official channels. "It's not a perpetual thing, but it is widespread."