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Saturday, March 15, 2008
The Deployment of US Troops inside Canada
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By Michel Chossudovsky
By Michel Chossudovsky
On February 14th, Canada and the US signed an agreement which allows for the deployment of US troops inside Canada.
There was no official announcement nor was there a formal decision at the governmental level.
In fact the agreement was barely mentioned by the Canadian media.
The agreement, which raises farreaching issues of national sovereignty, was not between the two governments. It was signed by military commanding officers.
U.S. Northern Command (NORTHCOM) released a statement confirming that the agreement had been signed between US NORTHCOM and Canada Command, namely between the military commands of each country. Canada Command was established in February 2006.
U.S. Air Force Gen. Gene Renuart, commander of North American Aerospace Defense Command and U.S. Northern Command, and Canadian Air Force Lt.-Gen. Marc Dumais, commander of Canada Command, have signed a Civil Assistance Plan that allows the military from one nation to support the armed forces of the other nation during a civil emergency.
"This document is a unique, bilateral military plan to align our respective national military plans to respond quickly to the other nation’s requests for military support of civil authorities," Renuart said. "Unity of effort during bilateral support for civil support operations such as floods, forest fires, hurricanes, earthquakes and effects of a terrorist attack, in order to save lives, prevent human suffering and mitigate damage to property, is of the highest importance, and we need to be able to have forces that are flexible and adaptive to support rapid decision-making in a collaborative environment."
"The signing of this plan is an important symbol of the already strong working relationship between Canada Command and U.S. Northern Command," Dumais said. "Our commands were created by our respective governments to respond to the defense and security challenges of the twenty-first century, and we both realize that these and other challenges are best met through cooperation between friends."
The plan recognizes the role of each nation’s lead federal agency for emergency preparedness, which in the United States is the Department of Homeland Security and in Canada is Public Safety Canada. The plan facilitates the military-to-military support of civil authorities once government authorities have agreed on an appropriate response.
U.S. Northern Command was established on Oct. 1, 2002, to anticipate and conduct homeland defense and civil support operations within the assigned area of responsibility to defend, protect, and secure the United States and its interests.
Similarly, Canada Command was established on Feb. 1, 2006, to focus on domestic operations and to offer a single point of contact for all domestic and continental defense and security partners.
The two domestic commands established strong bilateral ties well before the signing of the Civil Assistance Plan. The two commanders and their staffs meet regularly, collaborate on contingency planning and participate in related annual exercises.
(NORTHCOM website: http://www.northcom.mil/News/2008/021408.html
The Decision to Allow the Deployment of US Troops inside Canada was taken in April 2002
While a formal agreement was reached in February 2008, the decision to allow the deployment of US troops in Canada was announced in April 2002 by (former) Secretary of Defense Donald Rumsfeld.
Territorial control over Canada is part of Washington’s geopolitical and military agenda as formulated in April 2002 by Donald Rumsfeld. "Binational integration" of military command structures was also contemplated alongside a major revamping in the areas of immigration, law enforcement and intelligence.
The matter has been known for more than five years. It has been deliberately obfuscated. There has been no public debate. It has not received news coverage nor has it been the object of discussion in the Canadian House of Commons or the US Congress.
In an article published in 2004 entitled Is the Annexation of Canada Part of Bush’s Military Agenda?, I provided a detailed analysis of the process of integration of military command structures. I also examined the broader issue of sovereignty. The Toronto Star accepted to publish an abridged version of my November 2004 text as an oped. The article explained that Ottawa had been:
"quietly negotiating [since April 2002] a far-reaching military cooperation agreement, which allows the US Military to cross the border and deploy troops anywhere in Canada, in our provinces, as well station American warships in Canadian territorial waters. This redesign of Canada’s defense system is being discussed behind closed doors, not in Canada, but at the Peterson Air Force base in Colorado, at the headquarters of US Northern Command (NORTHCOM)."
Despite repeated assurances by the Toronto Star OpEd Editor, the article never appeared in print. Below is a summary of my more detailed November 2004 text as well as links to the original articles:
"The creation of NORTHCOM announced in April 2002, constitutes a blatant violation of both Canadian and Mexican territorial sovereignty. Defense Secretary Donald Rumsfeld announced unilaterally that US Northern Command would have jurisdiction over the entire North American region. Canada and Mexico were presented with a fait accompli. US Northern Command’s jurisdiction as outlined by the US DoD includes, in addition to the continental US, all of Canada, Mexico, as well as portions of the Caribbean, contiguous waters in the Atlantic and Pacific oceans up to 500 miles off the Mexican, US and Canadian coastlines as well as the Canadian Arctic.
NorthCom’s stated mandate is to "provide a necessary focus for [continental] aerospace, land and sea defenses, and critical support for [the] nation’s civil authorities in times of national need."
(Canada-US Relations - Defense Partnership – July 2003, Canadian American Strategic Review (CASR),
http://www.sfu.ca/casr/ft-lagasse1.htmRumsfeld is said to have boasted that "the NORTHCOM – with all of North America as its geographic command – ’is part of the greatest transformation of the Unified Command Plan [UCP] since its inception in 1947.’" (Ibid)
Following Prime Minister Jean Chrétien’s refusal to join NORTHCOM, a high-level so-called "consultative" Binational Planning Group (BPG), operating out of the Peterson Air Force base, was set up in late 2002, with a mandate to "prepare contingency plans to respond to [land and sea] threats and attacks, and other major emergencies in Canada or the United States".
The BPG’s mandate goes far beyond the jurisdiction of a consultative military body making "recommendations" to government. In practice, it is neither accountable to the US Congress nor to the Canadian House of Commons.
The BPG has a staff of fifty US and Canadian "military planners", who have been working diligently for the last two years in laying the groundwork for the integration of Canada-US military command structures. The BPG works in close coordination with the Canada-U.S. Military Cooperation Committee at the Pentagon, a so-called " panel responsible for detailed joint military planning".
Broadly speaking, its activities consist of two main building blocks: the Combined Defense Plan (CDP) and The Civil Assistance Plan (CAP).
The Militarisation of Civilian Institutions
As part of its Civil Assistance Plan (CAP), the BPG is involved in supporting the ongoing militarisation of civilian law enforcement and judicial functions in both the US and Canada. The BPG has established "military contingency plans" which would be activated "on both sides of the Canada-US border" in the case of a terror attack or "threat". Under the BPG’s Civil Assistance Plan (CAP), these so-called "threat scenarios" would involve:
"coordinated response to national requests for military assistance [from civil authorities] in the event of a threat, attack, or civil emergency in the US or Canada."
In December 2001, in response to the 9/11 attacks, the Canadian government reached an agreement with the Head of Homeland Security Tom Ridge, entitled the "Canada-US Smart Border Declaration." Shrouded in secrecy, this agreement essentially hands over to the Homeland Security Department, confidential information on Canadian citizens and residents. It also provides US authorities with access to the tax records of Canadians.
What these developments suggest is that the process of "binational integration" is not only occurring in the military command structures but also in the areas of immigration, police and intelligence. The question is what will be left over within Canada’s jurisdiction as a sovereign nation, once this ongoing process of binational integration, including the sharing and/or merger of data banks, is completed?
Canada and NORTHCOM
Canada is slated to become a member of NORTHCOM at the end of the BPG’s two years mandate.
No doubt, the issue will be presented in Parliament as being "in the national interest". It "will create jobs for Canadians" and "will make Canada more secure".
Meanwhile, the important debate on Canada’s participation in the US Ballistic Missile Shield, when viewed out of the broader context, may serve to divert public attention away from the more fundamental issue of North American military integration which implies Canada’s acceptance not only of the Ballistic Missile Shield, but of the entire US war agenda, including significant hikes in defense spending which will be allocated to a North American defense program controlled by the Pentagon.
And ultimately what is at stake is that beneath the rhetoric, Canada will cease to function as a Nation:
But there is something perhaps even more fundamental in defining and understanding where Canada and Canadians stand as a Nation.
The World is at the crossroads of the most serious crisis in modern history. The US has launched a military adventure which threatens the future of humanity. It has formulated the contours of an imperial project of World domination. Canada is contiguous to "the center of the empire". Territorial control over Canada is part of the US geopolitical and military agenda.
The Liberals as well as the opposition Conservative party have endorsed embraced the US war agenda. By endorsing a Canada-US "integration" in the spheres of defense, homeland security, police and intelligence, Canada not only becomes a full fledged member of George W. Bush’s "Coalition of the Willing", it will directly participate, through integrated military command structures, in the US war agenda in Central Asia and the Middle East, including the massacre of civilians in Iraq and Afghanistan, the torture of POWs, the establishment of concentration camps, etc.
Under an integrated North American Command, a North American national security doctrine would be formulated. Canada would be obliged to embrace Washington’s pre-emptive military doctrine, including the use of nuclear warheads as a means of self defense, which was ratified by the US Senate in December 2003. (See Michel Chossudovsky, The US Nuclear Option and the "War on Terrorism" http://globalresearch.ca/articles/CHO405A.html May 2004)
Moreover, binational integration in the areas of Homeland security, immigration, policing of the US-Canada border, not to mention the anti-terrorist legislation, would imply pari passu acceptance of the US sponsored police State, its racist policies, its "ethnic profiling" directed against Muslims, the arbitrary arrest of anti-war activists.
A Vicious Circle ending in a Systemic Financial Meltdown
Roubini's Nightmare Scenario
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By Mike Whitney
“The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.”
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By Mike Whitney
"It’s another round of the credit crisis. Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself," Jesper Fischer-Nielsen, interest rate strategist at Danske Bank, Copenhagen, Reuters)
Yesterday’s action by the Federal Reserve proves that the banking system is insolvent. It also shows that the Fed is willing to intervene directly in the stock market if it keeps equities propped up. This is clearly a violation of its mandate and runs contrary to the basic tenets of a free market. Investors who shorted the market yesterday, got clobbered by the not so invisible hand of the Fed chief.
In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years.
“It’s like they’re putting jumper cables onto a battery to kick-start the credit market,’’ said Nick Raich, a manager at National City Private Client Group in Cleveland. ``They’re doing their best to try to restore confidence.’’
To understand the real meaning behind the Fed’s action; it’s worth considering some of the stories which popped up in the business news just days earlier. For example, last Friday, the International Herald Tribune reported:
“Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the “third wave” of a global credit crisis....Money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.”
The Herald Tribune said that troubles in the credit markets had pushed the stock market down more than 3 percent in a week and that the same conditions which preceded the last two crises (in August and December) were back stronger than ever. In other words, liquidity was vanishing from the system and the market was headed for a crash.
A report in Reuters reiterated the same ominous prediction of a “third wave” saying:
“The two-year U.S. Treasury yields hit a 4-year low below 1.5 percent as investors flocked to safe-haven government bonds....The cost of corporate bond insurance hit record highs on Friday and parts of the debt market which had previously escaped the turmoil are also getting hit.”
Risk premiums were soaring and investors were fleeing stocks and bonds for the safety of government Treasuries; another sure sign that liquidity was disappearing.
"The level of financial stress is ... likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut," Goldman Sachs said in a note to clients.”
Indeed. When there’s a funding-freeze by lenders, investors hit the exits as fast as their feet will carry them. That’s why the lights started blinking red at the Federal Reserve and Bernanke concocted a plan to add $200 billion to the listing banking system.
New York Times columnist Paul Krugman also referred to a “third wave” in his article “The Face-Slap Theory”. According to Krugman, “The Fed has been cutting the interest rate it controls - the so-called Fed funds rate – (but) the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.”...(Now) “the banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing significant collateral damage to market functioning.” What the Times’ columnist is describing is a run on the financial system and the onset of “a full-fledged financial panic.”
The point is, Bernanke’s latest scheme is not a remedy for the trillion dollar unwinding of bad bets. It is merely a quick-fix to avoid a bloody stock market crash brought on by prevailing conditions in the credit markets.
Bernanke coordinated the action with the other members of the global banking cartel---The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank---and cobbled together the new Term Securities Lending Facility (TSLF), which “will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.” (Fed statement)
The plan, of course, is wildly inflationary and will put additional downward pressure on the anemic dollar. No matter. All of the Fed’s tools are implicitly inflationary anyway, but they’ll all be put to use before the current crisis is over.
The Fed’s statement continues: “The Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.”
So, why is the Fed issuing loans to foreign banks? Isn’t that a tacit admission of its guilt in the trillion dollar subprime swindle? Or is it simply a way of warding off litigation from angry foreign investors who know they were cheated with worthless toxic bonds? In any event, the Fed’s largess proves that the G-10 operates as de facto cartel determining monetary policy for much of the world. (The G-10 represents roughly 85% of global GDP)
As for Bernanke’s Term Securities Lending Facility (TSLF) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.
`The fact that they’ve kept those ratings where they are is laughable,’’ said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. ``Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.’’ Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.” (Bloomberg News) The Fed is accepting these garbage bonds at nearly full-value. Another gift from Santa Bernanke.
Additionally, the Fed is offering 28 day repos which -- if this auction works like the Fed’s other facility, the TAF -- the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. The capital-starved banksters at Citi and Merrill must feel like they just won the lottery. Unfortunately, Bernanke’s move effectively nationalizes the banks and makes them entirely dependent on the Fed’s fickle generosity.
The New York Times Floyd Norris sums up Bernanke’s efforts like this:
“The Fed’s moves today and last Friday are a direct effort to counter a loss of liquidity in mortgage-backed securities, including those backed by Fannie Mae and Freddie Mac. Given the implied government guarantee of Freddie and Fannie, rising yields in their paper served as a warning sign that the crunch was worsening and investor confidence was waning. On Oct. 30, the day before the Fed cut the Fed funds rate from 4.75 per cent to 4.5 per cent, the yield on Fannie Mae securities was 5.75 percent. Today the Fed Funds rate is 3 per cent, and the Fannie Mae rate is 5.71 per cent, virtually the same as in October.....A sign of the Fed’s success, or lack of same, will be visible in that rate. It needs to come down sharply, in line with Treasury bond rates. Today, the rate was up for most of the day, but it did fall back at the end of the day. Watch that rate for the rest of the week to see indications of whether the Fed’s move is really working to restore confidence.”
Norris is right; it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales.
Still, equities traders love Bernanke’s antics and, for the next 24 hours or so, he’ll be praised for acting decisively. But as more people reflect on this latest maneuver, they’ll see it for what it really is; a sign of panic. Even more worrisome is the fact that Bernanke is quickly using every arrow in his quiver. Despite the mistaken belief that the Fed can print money whenever it chooses; there are balance sheets constraints; the Fed’s largess is finite. According to MarketWatch:
"Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Lou Crandall, chief economist for Wrightson ICAP noted. ’The Fed won’t have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before."
Steve Waldman at interfluidity draws the same conclusion in his latest post:
“After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.” (Calculated Risk)
So, Bernanke is running short of ammo and the housing bust has just begun. That’s bad.
But that’s only half the story. Bernanke and Co. are already working on a new list of hyper-inflationary remedies once the credit troubles pop up again. According to the Wall Street Journal, the Fed has other economy-busting scams up its sleeve:
“With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly.
“As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies. ( “Rate Cuts may not be Enough”, David Wessel, Wall Street Journal)
Wonderful. So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain’t the “free market” great?
In fact, Bernanke is destroying the currency by trying to reflate the equity bubble. And how much damage is he inflicting on the dollar? According to Bloomberg, “the risk of losses on US Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves....Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.’’
America is going broke and the rest of the world knows it. Timothy Geithner, President of the New York Fed put it like this:
“The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.”
Without a hint of irony, Geithner talks about the importance of building confidence on a day when the Fed has deliberately distorted the market by injecting $200 billion in the banking system and sending the flagging stock market into a steroid-induced rapture. Astonishing.
The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes.
"In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB)
Is that too gloomy? Then take a look at these eye-popping charts which show the extent of the Fed’s lending operations via the Temporary Auction Facility. The loans have helped to make the insolvent banks look healthy, but at great cost to the country’s economic welfare. http://benbittrolff.blogspot.com/2008/03/really-scary-fed-charts-march.html
The Fed established the TAF in the first place; to put a floor under mortgage-backed securities and other subprime junk so the banks wouldn’t have to try to sell them into an illiquid market at fire-sale prices. But the plan has backfired and now the Fed feels compelled to contribute $200 billion to a losing cause. It’s a waste of time.
UBS puts the banks’ total losses from the subprime fiasco at $600 billion. If that’s true, (and we expect it is) then the Fed is out of luck because, at some point, Bernanke will have to throw in the towel and let some of the bigger banks fail. And when that happens, the stock market will start lurching downward in 400 and 500 point increments. But what else can be done? Solvency can only be feigned for so long. Eventually, losses have to be accounted for and businesses have to fail. It’s that simple.
So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim.
The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster. Economist Nouriel Roubini predicted the whole sequence of events six months before the credit markets seized and the Great Unwind began”. Here’s a sampling of his recent testimony before Congress:
Roubini’s Testimony before Congress:
“There is now a rising probability of a "catastrophic" financial and economic outcome; a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown....Capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit.
To understand the risks that the financial system is facing today I present the "nightmare" or "catastrophic" scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.”
Roubini has been right from the very beginning, and he is right again now. Bernanke can place himself at the water’s edge and lift his hands in defiance, but the tide will come in and wash him out to sea anyway. The market is correcting and nothing is going to stop it.
Iran, Pakistan to hold pricing talks on gas pipeline
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By Alex Lantier
Iran’s links to Asia
Sino-American rivalry in South Asia
By Alex Lantier
The Iranian and Pakistani governments will hold final talks next month on pricing natural gas to be sent through a pipeline connecting Iran’s South Pars natural gasfields to the Pakistani cities of Karachi and Multan. The deal, arrived at despite intense US opposition to pipeline deals involving Iran, highlights the increasingly bitter struggle over energy and strategic influence in Central Asia.
The pricing mechanism between Iran and Pakistan had been worked out in October 2007, according to Iran’s official Islamic Republic News Agency. On March 10, the Pakistani liberal daily Dawn wrote that Pakistan had asked for a meeting with Iranian officials to ratify the agreed-upon pricing mechanism. Bloomberg News reported on March 11 that Pakistan will be able to receive natural gas once a 400-kilometer segment connecting the Iranian city of Iranshahr to the Iran-Pakistan border is complete, perhaps by 2011.
Should it become operational, this pipeline would be only one segment of what was originally a far longer proposed pipeline—the Iran-Pakistan-India (IPI) pipeline. When the pipeline was initially proposed in 1995 to market Iranian natural gas and supply badly needed energy to Pakistan and India, it was planned to extend from Iran through Pakistan to Delhi, in India.
Because it would have relied on the cooperation of long-time military rivals India and Pakistan, the IPI pipeline was also often called the "Peace Pipeline." Despite official US support for an India-Pakistan peace process, the US has until now successfully held up the project, due to its opposition to any measure which would increase Iran’s role in the world energy trade.
With regard to India, the US has not been shy in applying direct pressure over relations with Iran. India unexpectedly voted with the US in favor of sanctions at IAEA meetings in September 2005 and February 2006. In February 2007 a former Bush administration official, Stephen Rademaker, even publicly boasted that India’s votes had "been coerced" on this matter. The 2006 Hyde Act, passed by the US Congress, even specifies that to retain US support and the nuclear accord, it must act "to dissuade, isolate, and if necessary, sanction and contain Iran for its efforts to acquire weapons of mass destruction, including a nuclear weapons capability and the capability to enrich uranium or reprocess nuclear fuel and the means to deliver weapons of mass destruction."
Pakistan has apparently convinced Iran to agree to the deal, with or without Indian participation. Dawn wrote: "The [Pakistani] government has asked Iran to close the gas pipeline project, with or without India, by April to help meet Pakistan’s increasing gas requirements. Sources in the ministry of petroleum and natural resources told Dawn on Monday that Iran would hold final talks with India this month to persuade it to join the $5.4 billion Iran-Pakistan-India (IPI) gas pipeline project."
India’s pullout from the IPI pipeline leaves it with significant excess capacity, and an important strategic issue: who will receive the leftover gas? Vahid Zeydifard, a senior official at the National Iranian Gas Company, told Bloomberg News that the pipeline’s transport capacity would be approximately 110 million cubic meters per day. He added: "Pakistan needs 50 million cubic meters of gas a day, and we can supply the rest to India if they want."
China, which shares a border with Pakistan, has repeatedly stated that, should India abandon the IPI pipeline, it would buy whatever natural gas is left after Pakistan buys what it wants. On March 11 the India Times wrote: "If India continues to dither under US pressure, Iran will invite China to join the project, sources in the [Pakistani] petroleum ministry said. China has promised to line up financial resources for the project and has been in contact with Pakistan on the issue."
Despite US pressure, the Indian government would still prefer to proceed with the project. An Indian Petroleum Ministry official speaking to the Asian Times dismissed the announcement as a way to "pressurize" India, since India would be "politically unwise [to] let China walk away with the extra gas, as has happened in Myanmar." Indian officials also pointed out that India would pay more for the gas than China. However, India does not want to agree to participate in the IPI pipeline and openly oppose the US government, at least until the Indo-US nuclear accord is passed by the US government.
The successful operation of an Iran-Pakistan, let alone an Iran-Pakistan-China pipeline, would represent a significant blow to US imperialist policy in the Middle East. In its quest for global hegemony, the US bourgeoisie has pursued two related goals: first, to completely isolate any energy-producing state, such as Iran and Saddam Hussein’s Iraq, that it viewed as politically unreliable; second, to station overwhelming US military force—e.g., the US Navy in the Indian Ocean, and US army bases in the Balkans—along the export routes of Middle Eastern energy reserves towards the US’ Eurasian rivals. US imperialism is increasingly failing to achieve either of these goals.
The US’ Iran strategy was perhaps most crudely stated by the late US Congressman Tom Lantos (Democrat of California), as he introduced the Iran Counter-Proliferation Act (HR 1400, S 970) in March 2007. The bill passed the House with bipartisan support and is now under consideration in the Senate. Lantos said: "Our goal must be zero foreign investment—let me repeat this, zero foreign investment—in Iran’s energy sector."
As a result of Iran’s political and commercial isolation, though Iran has the second-largest natural gas reserves in the world (971 trillion cubic feet, second after Russia’s 1700 trillion cubic feet and 16 percent of the world total), these reserves are underdeveloped: 62 percent are not currently tapped, according to a US Congressional research report.
Joint US-European sanctions against Iran over its alleged nuclear weapons programs have left Tehran with few options besides pursuing contracts in Asia. In 2004, China’s Sinopec Group signed a $70 billion oil and gas agreement with Iran, according to which it will purchase 250 million tons of liquefied natural gas (LNG) over the next 30 years and help develop Iran’s Yadavaran oilfield, which holds 18.3 billion barrels of oil and 12.5 trillion cubic feet of gas. In December 2007, Sinopec agreed to invest a further $2 billion in the Yadavaran field.
Also in December 2007, Iran’s Pars Oil and Gas Company signed a $6 billion deal with Malaysia’s SKS Group to develop Iran’s Golshan and Ferdows gasfields. Iranian Oil Minister Gholamhossein Nozari commented: "Our approach is [towards] Asian countries, which are the focus of attention because of their future vast energy markets." The US responded by postponing talks on a free trade agreement with Malaysia.
Iranian officials have even publicly speculated about the currently unlikely possibility of extending the IPI pipeline through India to Southeast Asia. On January 18, Thailand’s Bangkok Post reported comments by Iranian Finance Minister Davoud Jafari: "We are very positive about the [IPI] pipeline because we firmly believe that it will have a regional impact. We are positive we can take the pipeline to Southeast Asia, to countries like Thailand, Malaysia, and Singapore."
At the same time, the Iranian government has pursued a rapid privatization program aimed at boosting foreign, and especially Asian, investment throughout its economy. Ayatollah Ali Khamenei has declared privatization "the most effective way" to counteract the "economic war" and financial sanctions pursued by the US and Europe.
In February 2008, Hojatollah Ghanimi-Fard, director of foreign affairs at the National Iranian Oil Company (NIOC), told the Middle East Economic Digest that Iran would privatize 47 energy firms, including NIOC subsidiaries Petropars and Petroiran Development Company, worth an estimated $90 billion. Iranian Deputy Finance Minister Heidari Kord Zanganeh told the Financial Times, "I promise that if I am here for the next two years, between 80 and 90 percent of the government will be sold."
The Financial Times noted that this included currently state-owned steel, copper, banking, shipping, airlines, and telecommunications companies. It added that the Iranian government was considering stock exchanges in Hong Kong, Jakarta, and Kuala Lumpur for initial public offerings of these enterprises’ stock.
To understand the explosiveness of the possibility that Pakistan could provide a pipeline link between Iran and China, one must place it in the context of the US strategy in the region. US pressure on India to abandon the IPI pipeline was based on threatening to deny India the benefits of the proposed Indo-US nuclear accord and a "global" and "strategic" partnership. The US hopes to build up India as a counterweight to China, the strongest rising power in Asia; the Indian bourgeoisie, while far from certain that it wishes to play this role, hopes for the time being to reap the maximum possible benefit from such a relationship.
If the US was opposed to an energy pipeline linking Iran and a country it is courting as an ally—India—then it must be even more bitterly opposed to a pipeline link between Iran and China, a country viewed as the main US geopolitical competitor in Asia and quite possibly in the world. Though China has not yet taken explicit steps to challenge US influence in Pakistan, US imperialism cannot easily brush China aside in Pakistani politics.
China has longstanding political influence in Pakistan dating to the Cold War period, when both Pakistan and China fought wars against India and viewed it as a common enemy. In a reference to repeated US withdrawals of financial and political support at key turning points in regional politics—perhaps most notably after the final collapse of the Soviet-backed People’s Democratic Party of Afghanistan (PDPA) regime in 1992—Pakistani state officials call China Pakistan’s "all-weather friend," implicitly comparing it to Pakistan’s fair-weather friend, the US.
China also has growing commercial influence. In 2006 it signed a free-trade agreement with Pakistan. Chinese companies operate gold and copper mines at Saindak, lead and zinc mines in Lasbela district (both in Balochistan), and a Pak-China Industrial Zone near Kala Shah Kako in the Punjab. The two countries can trade directly overland via the Karakoram Highway, which provides a paved highway link between the city of Kashgar in China’s Xinjiang Autonomous Region, through Pakistani Kashmir, and down to Islamabad and Rawalpindi.
China operates a deep-sea port at Gwadar on Pakistan’s Arabian Sea coast, only 400 kilometers east of the strategic Strait of Hormuz. It is helping build the Gwadar-Dalbandin railroad to connect Gwadar to the Karakoram highway, amid widespread speculation that Beijing intends to import Middle Eastern oil and African oil and minerals via the Gwadar port, to minimize the time these shipments spend on US-controlled shipping lanes in the Indian and Pacific Oceans.
US bourgeois strategists view these developments with increasing mistrust. Thus Tariq Niazi, writing in February 2005 for the Jamestown Foundation think tank, said that China aims to "integrate Pakistan into the Chinese economy," "transform Pakistan into a giant factory floor for China," and obtain "access to Central Asian markets for energy imports and Chinese exports by developing road networks and rail links through Afghanistan and Pakistan." US military analysts have also alleged that Chinese forces at Gwadar routinely spy on US naval deployments in the Persian Gulf region.
Beijing has long hoped to avoid naval entanglements altogether, by developing a network of pipelines connecting China with Central Asian or Iranian fields. Such plans for a so-called "Pan-Asian Global Energy Bridge" or "New Energy Silk Road" were largely shelved, however, in the aftermath of the 2001 US invasion of Afghanistan, as US forces were stationed in several countries in the region. The current plans for an Iranian-Pakistani pipeline appear to have revived the possibility of direct, overland access by China to Middle Eastern energy resources.
This political instability is heightened by the proposed pipeline’s location—passing through Iranian and Pakistani Baluchistan, both regions poorly controlled by their respective central governments. Baluchi nationalists and militants of the Jundallah group have already carried out attacks against Iranian and Chinese nationals in the region. In April 2007 Iranian officials, basing themselves on ABC News reports, charged that US Vice President Dick Cheney had discussed such attacks with Pakistani dictator Pervez Musharraf, and that the US government was sponsoring Jundallah as an "off-the-books" operation.
Police arrest auto workers on American Axle picket line in Detroit
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By Tim Tower
By Tim Tower
Click here to download this article as a leaflet.
Auto workers on strike at American Axle and Manufacturing (AAM) in Detroit and New York are facing a sharp escalation of attacks in their struggle to prevent the company from carrying through a brutal two-thirds reduction in their wages and benefits. The 3,650 AAM workers organized in the United Auto Workers union walked out more than two weeks ago.
On Friday morning, March 14, the company executed what appeared to be a carefully orchestrated effort at the company’s main production facility in Detroit, involving local police and news media to provoke a confrontation and force an end to the strike.
Approximately a dozen squad cars and twice as many uniformed officers accompanied by vans and plain-clothes cops were mobilized when the company moved large semi-trailers through the St. Aubin Street gate of the huge American Axle complex. Three picketers were arrested, charged with disorderly conduct, handcuffed and taken away in police vans.
Soon after the arrests, reporters from the World Socialist Web Site visited the picket lines and interviewed strikers. A witness to the incident reported that one of the truck drivers got out of his vehicle and approached the pickets in an apparent deliberate effort to cause a provocation.
The police then escorted the scab back to his truck while other officers arrested and handcuffed three of the pickets. As the witness reported, "They didn’t take him to jail, but they took three of our guys to jail that were just standing in the way. Now what’s up with that?" he asked. "To me, that’s illegal." (See video "Arrests on American Axle picket line in Detroit"]
Local media outlets responded with breaking-news reports of violence and arrests on the picket lines and video images of strikers being hauled away in handcuffs. As an example, in a story headlined "Strikers Handcuffed During Scuffle," the web site for Channel 4, the local NBC affiliate, wrote, "Detroit police were called to the St. Aubin strike location Friday morning to control a situation that turned violent."
According to eyewitnesses, the only violence was carried out by a lone scab truck driver supported by a large number of police. The provocative character of the incident and the inflated and inflammatory response to it in the local media are aimed at intimidating the strikers in preparation for the UAW’s move to end the strike.
As the union has become increasingly integrated into the financial and management structure of the corporations where its members work, it has become common practice for the UAW to move to shut down a strike at the very moment when the workers’ struggle begins to exercise its greatest economic impact. Such is the current danger at American Axle.
General Motors, AAM’s principal client receiving 80 percent of parts produced by company, has a large stake in the current conflict. When its plants began to shut down because of parts shortages, the auto giant gave its full support to AAM’s decision to inflict a decisive defeat on its workers. Presumably, short-term losses were seen as a necessary sacrifice to insure the extension of the auto industry pattern of brutal cuts in wages and benefits.
However, the published reports this week of a statement by GM Chairman Rick Wagoner that the strike will hurt GM’s first-quarter financial results is a sign that pressure is building in corporate boardrooms to bring the strike to a speedy end. Parts shortages from the strike have forced GM to close all or part of 28 plants, affecting more than 37,000 hourly workers.
In line with these demands, the UAW international union has now taken control of negotiations in the strike in an effort to impose a contract on striking workers. The Associated Press reported on Friday that the international dismissed local union representatives from negotiations on Monday, while declaring that the company had not shifted its demands for sweeping concessions in wages and benefits.
"The union sent its local bargainers back to their factories on Monday and reported that the company wasn’t budging from its earlier proposals," wrote Tom Krisher for the AP, who went on to report that talks resumed Thursday with "top negotiators for American Axle and Manufacturing Holdings Inc. and the United Auto Workers."
Workers on the picket lines explained the decisive character of their struggle and their dismay at the conduct of the union. "It’s all about looking good on Wall Street," said Lia. "I may never walk in these doors again if the contract involves cuts."
Scott said, "The UAW is supposed to be democratic, but we can’t even vote for our own president. Our pay scale has been incorporated into an international contract. They know if we vote the contract down here at this plant, then there are four other plants—some of which are threatened with closure—that they can pressure to accept the deal."
"I started working here 14 years ago, after leaving the military," said Steve. "We started at $12.55 an hour. We have had pay increases since then. Now they want to send us back to $14.50? After inflation, that would mean that we would be earning less than we made when we started. This is all about greed, corporate greed. They want to make more money."
The arrest of striking workers on the AAM picket lines is an indication that the strike has reached a crucial point. With its takeover of the negotiations, the UAW international is working to implement a contract in line with the demands of the auto industry, at the expense of the jobs, wages and benefits of striking workers.
American Axle workers should organize strike committees, independent of the UAW, to expand the strike to workers at Delphi, Dana, GM, Ford and Chrysler and demand the restoration of all concessions and wage a fight against the union-management conspiracy to slash wages and benefits. Workers should demand the dropping of all charges against the arrested pickets.
House Democrats pass new spy bill without telecom immunity
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By Joe Kay
The US House of Representatives on Friday passed another version of a bill to expand government spying powers while excluding a provision demanded by the Bush administration granting retroactive immunity to telecommunications companies that have collaborated in the government’s illegal surveillance operations.
A parallel bill has passed in the Senate that does include immunity, and President George W. Bush has already promised to veto the House version if it were to reach his desk. The conflict means that the debate within the political establishment over a new bill modifying the Foreign Intelligence Surveillance Act (FISA) of 1978 will likely continue for several more weeks or months. Congress begins a two-week recess on Saturday.
A revision of FISA has been the subject of intense debate within the political establishment since the expiration of the so-called Protect America Act last month. That act gave the president far greater powers to spy on the American population without a warrant and formalized a close cooperation between the government and the giant corporations that control all the communications passing through the country—including phone calls, Internet traffic, and emails.
However, the Protect America Act did not provide the telecommunications companies—which have been cooperating with the Bush administration since at least 2001—retroactive immunity for past illegal actions. All factions of the political establishment are largely agreed on the need to expand spying powers, while they were split on the question of immunity.
The vote in the House on Friday was mostly along party lines: 221-188, with Democrats supporting the bill and Republicans opposing it. In remarks on Thursday, Bush demanded that the House pass the Senate version, which received substantial bipartisan support in that body.
The House bill does have an additional amendment designed as a partial concession to those demanding immunity for the telecoms. It would allow the US federal judge who is hearing about 40 civil cases against the companies in San Francisco to review secret documents behind closed doors. The documents include the Bush administration’s legal rationale for the spying program.
If the judge determined that the documents were sufficient to absolve the companies of responsibility, he could dismiss the cases. The Bush administration has refused to allow the telecoms to present this evidence, arguing that this action would violate “state secrets.”
This accommodation is not sufficient for the supporters of immunity, however. Aside from the financial interests of the telecommunications companies, the Bush administration is concerned that any trial could reveal the real extent of the National Security Agency’s (NSA) operations, which have never been fully disclosed to the public. This is the main reason why it will accept nothing short of complete immunity and the outright dismissal of the cases.
There are divisions within the Democratic Party over how to proceed on the question of immunity, as reflected in the different House and Senate versions and in the behind-the-scenes debate within the House caucus. If the House leadership brought the Senate version for a vote, as demanded by Bush, it would almost certainly pass with the support of the so-called Blue Dog Democrats.
The refusal of the House leadership to back down on this question evidently surprised sections of the media and the Bush administration. In an article published on Friday, before the final House vote, the Wall Street Journal commented, “The plan [passed on Friday] represents a shift for Democrats, who until now have mostly backed down in the face of White House claims that their efforts would endanger national security.”
The Journal went on to note, “Some Bush administration officials said privately that the pushback caught them off guard. In August, Republicans were able to outmaneuver Democrats and force passage of a White House-sponsored measure to temporarily broaden warrantless domestic spy authority.” This was the Protect America Act.
There were indications over the past two weeks that the Democrats would find a way of accepting the immunity provision as well. On February 29, House Intelligence Committee Chairman Silvestre Reyes told CNN that his committee had been holding discussions with telecom companies “because if we’re going to give them blanket immunity, we want to know and understand what it is we’re giving them immunity for.” Reyes said that he had an “open mind” about immunity and that negotiators were “very close” to finding some agreement.
Last week, several media reports, including one in the Washington Post, indicated that the House leadership had crafted a procedure designed to allow Democrats to continue to posture as opponents of Bush’s proposal while nevertheless allowing the Senate version to go through. Under this plan, the House would pass a bill without immunity and with a few additional restrictions, which would then go to the Senate where the immunity provision would be added. Then the final bill would be allowed to come for a vote on the floor of the House, where it would pass with support from some Democrats.
At some point over the past week, however, this agreement fell through, generating a storm of protest among House Republicans. On Thursday night, the House held an extremely rare closed session at the behest of House Republican Whip Roy Blunt. Only six such sessions have been held since 1825.
There are a number of factors behind the Democratic Party’s decision not to give in on the question of immunity at this point. First, under the provisions of the Protect America Act, the Bush administration can continue to spy without a warrant for one year after an initial authorization. This includes new individuals that the administration claims are associated with “terrorist” groups already subject to monitoring. In effect, the provision means that the government can continue to use the anti-democratic powers approved by the Democratic-controlled Congress at least through August 2008.
The Bush administration has evidently refused to show any but a few leading Democrats and Republicans the legal memoranda written to justify the initial warrantless spying program, which was the main condition that Reyes cited for accepting immunity. Commenting on the House floor Friday, House Judiciary Committee Chairman John Conyers complained, “You can’t give retroactive immunity when you don’t know what you are immunizing.”
Under these conditions, it became very difficult for the Democrats to justify a complete capitulation, especially in an election year and given the massive public opposition to the Bush administration.
At the same time, the Bush administration, while counting on the eventual capitulation of the Democrats, is not averse to having the issue drag out. The Republicans are planning on running on a “national security” fear campaign in the November elections.
Whatever the temporary divisions over telecom immunity, none of the leading Democrats have any interest in challenging the fundamental fraud of the “war on terror”—used as a pretext for a bipartisan attack on democratic rights and two wars—or to expose the true extent of the Bush administration’s spying program. Indeed, Democrats continue to work actively to cover up the massive breadth of these programs.
The latest example of this was the revelation in a Wall Street Journal article earlier this week that the NSA is currently monitoring “huge volumes of records of domestic emails and Internet searches as well as bank transfers, credit-card transactions, travel and telephone records.” The NSA has accumulated a massive database of communications of Americans in violation of fundamental constitutional rights.
Since the initial revelation, the Wall Street Journal article has received almost no media coverage, and the Democrats have remained almost entirely silent on the issue. Since gaining control of Congress over a year ago, the Democrats have held no hearings aimed at exposing the extent of the government’s illegal actions.
A Justice Department audit released this week found that in 2006 the FBI had misused so-called national security letters, which are used to seize documents without a warrant. A previous report last year found similar abuse in 2003-2005.
By Joe Kay
The US House of Representatives on Friday passed another version of a bill to expand government spying powers while excluding a provision demanded by the Bush administration granting retroactive immunity to telecommunications companies that have collaborated in the government’s illegal surveillance operations.
A parallel bill has passed in the Senate that does include immunity, and President George W. Bush has already promised to veto the House version if it were to reach his desk. The conflict means that the debate within the political establishment over a new bill modifying the Foreign Intelligence Surveillance Act (FISA) of 1978 will likely continue for several more weeks or months. Congress begins a two-week recess on Saturday.
A revision of FISA has been the subject of intense debate within the political establishment since the expiration of the so-called Protect America Act last month. That act gave the president far greater powers to spy on the American population without a warrant and formalized a close cooperation between the government and the giant corporations that control all the communications passing through the country—including phone calls, Internet traffic, and emails.
However, the Protect America Act did not provide the telecommunications companies—which have been cooperating with the Bush administration since at least 2001—retroactive immunity for past illegal actions. All factions of the political establishment are largely agreed on the need to expand spying powers, while they were split on the question of immunity.
The vote in the House on Friday was mostly along party lines: 221-188, with Democrats supporting the bill and Republicans opposing it. In remarks on Thursday, Bush demanded that the House pass the Senate version, which received substantial bipartisan support in that body.
The House bill does have an additional amendment designed as a partial concession to those demanding immunity for the telecoms. It would allow the US federal judge who is hearing about 40 civil cases against the companies in San Francisco to review secret documents behind closed doors. The documents include the Bush administration’s legal rationale for the spying program.
If the judge determined that the documents were sufficient to absolve the companies of responsibility, he could dismiss the cases. The Bush administration has refused to allow the telecoms to present this evidence, arguing that this action would violate “state secrets.”
This accommodation is not sufficient for the supporters of immunity, however. Aside from the financial interests of the telecommunications companies, the Bush administration is concerned that any trial could reveal the real extent of the National Security Agency’s (NSA) operations, which have never been fully disclosed to the public. This is the main reason why it will accept nothing short of complete immunity and the outright dismissal of the cases.
There are divisions within the Democratic Party over how to proceed on the question of immunity, as reflected in the different House and Senate versions and in the behind-the-scenes debate within the House caucus. If the House leadership brought the Senate version for a vote, as demanded by Bush, it would almost certainly pass with the support of the so-called Blue Dog Democrats.
The refusal of the House leadership to back down on this question evidently surprised sections of the media and the Bush administration. In an article published on Friday, before the final House vote, the Wall Street Journal commented, “The plan [passed on Friday] represents a shift for Democrats, who until now have mostly backed down in the face of White House claims that their efforts would endanger national security.”
The Journal went on to note, “Some Bush administration officials said privately that the pushback caught them off guard. In August, Republicans were able to outmaneuver Democrats and force passage of a White House-sponsored measure to temporarily broaden warrantless domestic spy authority.” This was the Protect America Act.
There were indications over the past two weeks that the Democrats would find a way of accepting the immunity provision as well. On February 29, House Intelligence Committee Chairman Silvestre Reyes told CNN that his committee had been holding discussions with telecom companies “because if we’re going to give them blanket immunity, we want to know and understand what it is we’re giving them immunity for.” Reyes said that he had an “open mind” about immunity and that negotiators were “very close” to finding some agreement.
Last week, several media reports, including one in the Washington Post, indicated that the House leadership had crafted a procedure designed to allow Democrats to continue to posture as opponents of Bush’s proposal while nevertheless allowing the Senate version to go through. Under this plan, the House would pass a bill without immunity and with a few additional restrictions, which would then go to the Senate where the immunity provision would be added. Then the final bill would be allowed to come for a vote on the floor of the House, where it would pass with support from some Democrats.
At some point over the past week, however, this agreement fell through, generating a storm of protest among House Republicans. On Thursday night, the House held an extremely rare closed session at the behest of House Republican Whip Roy Blunt. Only six such sessions have been held since 1825.
There are a number of factors behind the Democratic Party’s decision not to give in on the question of immunity at this point. First, under the provisions of the Protect America Act, the Bush administration can continue to spy without a warrant for one year after an initial authorization. This includes new individuals that the administration claims are associated with “terrorist” groups already subject to monitoring. In effect, the provision means that the government can continue to use the anti-democratic powers approved by the Democratic-controlled Congress at least through August 2008.
The Bush administration has evidently refused to show any but a few leading Democrats and Republicans the legal memoranda written to justify the initial warrantless spying program, which was the main condition that Reyes cited for accepting immunity. Commenting on the House floor Friday, House Judiciary Committee Chairman John Conyers complained, “You can’t give retroactive immunity when you don’t know what you are immunizing.”
Under these conditions, it became very difficult for the Democrats to justify a complete capitulation, especially in an election year and given the massive public opposition to the Bush administration.
At the same time, the Bush administration, while counting on the eventual capitulation of the Democrats, is not averse to having the issue drag out. The Republicans are planning on running on a “national security” fear campaign in the November elections.
Whatever the temporary divisions over telecom immunity, none of the leading Democrats have any interest in challenging the fundamental fraud of the “war on terror”—used as a pretext for a bipartisan attack on democratic rights and two wars—or to expose the true extent of the Bush administration’s spying program. Indeed, Democrats continue to work actively to cover up the massive breadth of these programs.
The latest example of this was the revelation in a Wall Street Journal article earlier this week that the NSA is currently monitoring “huge volumes of records of domestic emails and Internet searches as well as bank transfers, credit-card transactions, travel and telephone records.” The NSA has accumulated a massive database of communications of Americans in violation of fundamental constitutional rights.
Since the initial revelation, the Wall Street Journal article has received almost no media coverage, and the Democrats have remained almost entirely silent on the issue. Since gaining control of Congress over a year ago, the Democrats have held no hearings aimed at exposing the extent of the government’s illegal actions.
A Justice Department audit released this week found that in 2006 the FBI had misused so-called national security letters, which are used to seize documents without a warrant. A previous report last year found similar abuse in 2003-2005.
Fed rescue of Bear Stearns raises specter of Depression-era crash
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By Barry Grey
The Federal Reserve Board on Friday took emergency action to prevent the collapse of Bear Stearns, the fifth largest US investment bank and one of the world’s largest finance and brokerage houses.
Invoking a little-used provision added to the Federal Reserve Act in 1932, at the height of the Great Depression, the US central bank agreed to allow the Federal Reserve Bank of New York to insure an infusion of credit to Bear Stearns by JP Morgan Chase. Under the terms of the “secured loan facility,” to extend for up to 28 days, the risk of a default by Bear Stearns will be borne by the Federal Reserve Bank of New York, not JP Morgan Chase. The latter will serve essentially as a conduit for the cash provided by the US central bank.
This mechanism was used because only commercial banks, so-called depository institutions, can borrow directly from the Fed’s discount window. Bear Stearns is not a depository bank, and hence the Fed was obliged to invoke a provision of the 1932 amendment to the Federal Reserve Act that applies when “unusual and exigent circumstances exist and the borrower is unable to secure adequate credit accommodations from other sources.”
The announcement of the Fed bailout sent shivers through Wall Street and shook financial markets around the world. It confirmed rumors that had been mounting over the past week that Bear Stearns, the second largest US underwriter of mortgage bonds, did not have the cash to meet claims by its creditors. The rescue operation came one day after the collapse of Carlyle Capital Corporation, a $22 billion publicly traded investment fund controlled by the Carlyle Group, long one of the most profitable and well-connected private equity firms in the US.
With the de facto collapse of Bear Stearns, however, the housing and credit market collapse has claimed one of the titans of Wall Street. Founded in 1923 and employing some 15,500 people worldwide, Bear Stearns was one of the “big five” Wall Street investment banks. In 2005-2007, Bear Stearns was recognized as the “Most Admired” securities firm in Fortune magazine’s “America’s Most Admired Companies” survey.
Last July, the collapse of two Bear Stearns hedge funds as a result of the bursting of the US housing bubble sparked a crisis of confidence in the credit system that has gathered steam and expanded in scope to threaten the viability of some of the biggest banks and financial institutions in the world. The worsening credit crunch has deepened the crisis in the housing market and the economy in general, plunging the US into a recession and wreaking havoc with the economies of Europe and Japan.
The news of the bailout sent share prices tumbling on Wall Street. The Dow Jones Industrial Average fell 194.65 points, a drop of 1.6 percent. The Standard & Poor’s 500 Index fared even worse, giving up 27.34 points (2.1 percent), while the Nasdaq Composite Index fell 51.12 points, or 2.3 percent.
Nine stocks fell for every one that rose, and the fears that other financial houses could follow Bear’s demise was reflected in a 4.1 percent fall in the Standard & Poor’s Financial Index. All 92 members of the index lost ground during the trading day.
Bear Stearns stock plunged $27, or 47 percent, to end the day at $30. Coming on the heels of a months-long slide in the bank’s stock price, yesterday’s panic sell-off reduced Bear Stearns’s market valuation to $4.1 billion, less than one-fifth the size of Lehman Brothers.
Indicative of the broader reverberations from the Bear Stearns collapse, the share price of Ambac Financial Group, the world’s second-largest bond insurer, fell 93 percent, on widespread fears that the company will not have sufficient capital to meet claims from its creditors.
The US dollar hit new lows against the euro and other currencies.
The Fed action on Friday confirmed speculation that its extraordinary announcement three days earlier that it would loan $200 billion in Treasury bonds to investment banks and brokerages and accept as collateral privately issued mortgage-backed securities—whose market value has plummeted—was a desperation measure aimed at forestalling the failure of a major Wall Street finance house.
Speaking of Friday’s Fed rescue operations, the Wall Street Journal Online wrote: “The timing of the move made its urgency clear: If Bear could have held out until March 27, it could have borrowed directly from the Fed itself under a new program announced just Tuesday.”
The maximum size of the loan is not predetermined, but is limited by how much collateral Bear Stearns can provide to satisfy the Fed’s requirements, officials said. The loan by no means assures Bear Stearns’s survival. More likely, it was granted in the hope that it would buy time for a more orderly disposition of the firm’s fate and head off a panic response by bankers and investors to its demise.
As the Wall Street Journal Online noted, “The developments could mean the end of independence for Bear, founded in 1923. JP Morgan said it is ‘working closely with Bear Stearns on securing permanent financing or other alternatives for the company’—Wall Street lingo for a sale of other strategic-level change—and CNBC reported that the bank is ‘actively being shopped’ to potential buyers.”
Officials at Standard & Poor’s and Moody’s Investor Services met Friday to discuss whether to downgrade Bear Stearns’s credit rating, and if so, by how much.
In its own statement on the bailout, Bear Stearns said, “The company can make no assurance that any strategic alternatives will be successfully completed.”
Carl Lantz, a strategist at Credit Suisse, said the intervention by the New York Fed and JP Morgan showed that Bear “didn’t have enough money to turn the light on this morning.”
Geoffrey Yu of UBS said, “I don’t think the market has seen anything of this magnitude before, such a big bank.”
Wall Street Journal columnist Peter A. McKay wrote: “For investors, the arrival of the Federal Reserve and JP Morgan Chase with a financial life raft for troubled Bear Stearns served primarily as a reminder of how murky and deep the waters of Wall Street’s credit crisis remain, with other market participants possibly drowning below the surface.”
The immediate fear motivating the Federal Reserve, the Treasury Department and Wall Street banks was the danger that an uncontrolled collapse of Bear Stearns would have a domino effect on already turbulent financial markets. Were Bear Stearns forced to sell off assets at fire-sale prices to raise cash needed to meet creditors’ demands, the value of untold billions in assets held by other financial institutions would drop, leading to more margin calls from creditors, further institutional collapses, more panic selling of debt and securities—a vicious spiral to the bottom with the potential of a breakdown in the entire capitalist financial system.
The temporary reprieve for Bear Stearns does not eliminate the potential for just such a scenario in the near future.
The underlying problem is the vast credit bubble that was inflated on the basis of reckless and intrinsically unviable home loans and other forms of speculation, including leveraged buyouts and a vast expansion in unregulated credit markets that delivered unsustainably high returns on investment. The immense fortunes amassed by the uppermost echelons of the US population on the basis of such parasitic financial operations have created, as their consequence, a social and economic disaster of historical proportions, threatening tens of millions of Americans, and hundreds of millions more people around the world, with pauperization.
President Bush, perhaps the consummate political personification of the social layer that benefited from the now-imploded speculative bubble, spoke Friday before the Economic Club of New York, only hours after the rescue of Bear Stearns had been announced. Moving from platitude to platitude, he declared the US economy “the envy of the world,” referred to the financial crisis as a “rough patch,” and reassured his audience that “in a free market, there’s going to be good times and bad times. That’s how markets work.”
The only substance of his remarks was opposition to any resurrection of government regulation of the banks, denunciation of proposals, such as the timid half-measures being advanced by congressional Democrats, to contain the growing wave of home foreclosures, and a restatement of the demand that his tax cuts for the wealthy be made permanent.
His speech did nothing to reassure the financial markets, which are too mired in crisis to buy into the fool’s paradise “optimism” of the commander in chief. Martin Feldstein, a conservative Republican who served for a time as Ronald Reagan’s chief economic adviser, summed up the growing sentiment in a speech to a conference in Florida. “I believe,” he said, “the US economy is now in recession. The situation is bad, it’s getting worse and the risks are that the situation could be very bad.”
By Barry Grey
The Federal Reserve Board on Friday took emergency action to prevent the collapse of Bear Stearns, the fifth largest US investment bank and one of the world’s largest finance and brokerage houses.
Invoking a little-used provision added to the Federal Reserve Act in 1932, at the height of the Great Depression, the US central bank agreed to allow the Federal Reserve Bank of New York to insure an infusion of credit to Bear Stearns by JP Morgan Chase. Under the terms of the “secured loan facility,” to extend for up to 28 days, the risk of a default by Bear Stearns will be borne by the Federal Reserve Bank of New York, not JP Morgan Chase. The latter will serve essentially as a conduit for the cash provided by the US central bank.
This mechanism was used because only commercial banks, so-called depository institutions, can borrow directly from the Fed’s discount window. Bear Stearns is not a depository bank, and hence the Fed was obliged to invoke a provision of the 1932 amendment to the Federal Reserve Act that applies when “unusual and exigent circumstances exist and the borrower is unable to secure adequate credit accommodations from other sources.”
The announcement of the Fed bailout sent shivers through Wall Street and shook financial markets around the world. It confirmed rumors that had been mounting over the past week that Bear Stearns, the second largest US underwriter of mortgage bonds, did not have the cash to meet claims by its creditors. The rescue operation came one day after the collapse of Carlyle Capital Corporation, a $22 billion publicly traded investment fund controlled by the Carlyle Group, long one of the most profitable and well-connected private equity firms in the US.
With the de facto collapse of Bear Stearns, however, the housing and credit market collapse has claimed one of the titans of Wall Street. Founded in 1923 and employing some 15,500 people worldwide, Bear Stearns was one of the “big five” Wall Street investment banks. In 2005-2007, Bear Stearns was recognized as the “Most Admired” securities firm in Fortune magazine’s “America’s Most Admired Companies” survey.
Last July, the collapse of two Bear Stearns hedge funds as a result of the bursting of the US housing bubble sparked a crisis of confidence in the credit system that has gathered steam and expanded in scope to threaten the viability of some of the biggest banks and financial institutions in the world. The worsening credit crunch has deepened the crisis in the housing market and the economy in general, plunging the US into a recession and wreaking havoc with the economies of Europe and Japan.
The news of the bailout sent share prices tumbling on Wall Street. The Dow Jones Industrial Average fell 194.65 points, a drop of 1.6 percent. The Standard & Poor’s 500 Index fared even worse, giving up 27.34 points (2.1 percent), while the Nasdaq Composite Index fell 51.12 points, or 2.3 percent.
Nine stocks fell for every one that rose, and the fears that other financial houses could follow Bear’s demise was reflected in a 4.1 percent fall in the Standard & Poor’s Financial Index. All 92 members of the index lost ground during the trading day.
Bear Stearns stock plunged $27, or 47 percent, to end the day at $30. Coming on the heels of a months-long slide in the bank’s stock price, yesterday’s panic sell-off reduced Bear Stearns’s market valuation to $4.1 billion, less than one-fifth the size of Lehman Brothers.
Indicative of the broader reverberations from the Bear Stearns collapse, the share price of Ambac Financial Group, the world’s second-largest bond insurer, fell 93 percent, on widespread fears that the company will not have sufficient capital to meet claims from its creditors.
The US dollar hit new lows against the euro and other currencies.
The Fed action on Friday confirmed speculation that its extraordinary announcement three days earlier that it would loan $200 billion in Treasury bonds to investment banks and brokerages and accept as collateral privately issued mortgage-backed securities—whose market value has plummeted—was a desperation measure aimed at forestalling the failure of a major Wall Street finance house.
Speaking of Friday’s Fed rescue operations, the Wall Street Journal Online wrote: “The timing of the move made its urgency clear: If Bear could have held out until March 27, it could have borrowed directly from the Fed itself under a new program announced just Tuesday.”
The maximum size of the loan is not predetermined, but is limited by how much collateral Bear Stearns can provide to satisfy the Fed’s requirements, officials said. The loan by no means assures Bear Stearns’s survival. More likely, it was granted in the hope that it would buy time for a more orderly disposition of the firm’s fate and head off a panic response by bankers and investors to its demise.
As the Wall Street Journal Online noted, “The developments could mean the end of independence for Bear, founded in 1923. JP Morgan said it is ‘working closely with Bear Stearns on securing permanent financing or other alternatives for the company’—Wall Street lingo for a sale of other strategic-level change—and CNBC reported that the bank is ‘actively being shopped’ to potential buyers.”
Officials at Standard & Poor’s and Moody’s Investor Services met Friday to discuss whether to downgrade Bear Stearns’s credit rating, and if so, by how much.
In its own statement on the bailout, Bear Stearns said, “The company can make no assurance that any strategic alternatives will be successfully completed.”
Carl Lantz, a strategist at Credit Suisse, said the intervention by the New York Fed and JP Morgan showed that Bear “didn’t have enough money to turn the light on this morning.”
Geoffrey Yu of UBS said, “I don’t think the market has seen anything of this magnitude before, such a big bank.”
Wall Street Journal columnist Peter A. McKay wrote: “For investors, the arrival of the Federal Reserve and JP Morgan Chase with a financial life raft for troubled Bear Stearns served primarily as a reminder of how murky and deep the waters of Wall Street’s credit crisis remain, with other market participants possibly drowning below the surface.”
The immediate fear motivating the Federal Reserve, the Treasury Department and Wall Street banks was the danger that an uncontrolled collapse of Bear Stearns would have a domino effect on already turbulent financial markets. Were Bear Stearns forced to sell off assets at fire-sale prices to raise cash needed to meet creditors’ demands, the value of untold billions in assets held by other financial institutions would drop, leading to more margin calls from creditors, further institutional collapses, more panic selling of debt and securities—a vicious spiral to the bottom with the potential of a breakdown in the entire capitalist financial system.
The temporary reprieve for Bear Stearns does not eliminate the potential for just such a scenario in the near future.
The underlying problem is the vast credit bubble that was inflated on the basis of reckless and intrinsically unviable home loans and other forms of speculation, including leveraged buyouts and a vast expansion in unregulated credit markets that delivered unsustainably high returns on investment. The immense fortunes amassed by the uppermost echelons of the US population on the basis of such parasitic financial operations have created, as their consequence, a social and economic disaster of historical proportions, threatening tens of millions of Americans, and hundreds of millions more people around the world, with pauperization.
President Bush, perhaps the consummate political personification of the social layer that benefited from the now-imploded speculative bubble, spoke Friday before the Economic Club of New York, only hours after the rescue of Bear Stearns had been announced. Moving from platitude to platitude, he declared the US economy “the envy of the world,” referred to the financial crisis as a “rough patch,” and reassured his audience that “in a free market, there’s going to be good times and bad times. That’s how markets work.”
The only substance of his remarks was opposition to any resurrection of government regulation of the banks, denunciation of proposals, such as the timid half-measures being advanced by congressional Democrats, to contain the growing wave of home foreclosures, and a restatement of the demand that his tax cuts for the wealthy be made permanent.
His speech did nothing to reassure the financial markets, which are too mired in crisis to buy into the fool’s paradise “optimism” of the commander in chief. Martin Feldstein, a conservative Republican who served for a time as Ronald Reagan’s chief economic adviser, summed up the growing sentiment in a speech to a conference in Florida. “I believe,” he said, “the US economy is now in recession. The situation is bad, it’s getting worse and the risks are that the situation could be very bad.”
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