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China has strong evidence that groups aligned with the Dalai Lama are responsible for violent protests against Chinese rule in Tibet, the Chinese premier has said.
"There is ample fact and plenty of evidence proving this incident was organised, premeditated, masterminded and incited by the Dalai clique," Wen Jiabao told a news conference on Tuesday, referring to followers of the exiled Tibetan spiritual leader.
Defending China's crackdown on protesters, he said the response of the security forces had been "extremely restrained" but he avoided giving any details on the situation on the ground in Tibet.
Speaking in Beijing, Wen's comments are the highest-level response so far to the violence in Tibet and the biggest protests against Chinese rule in almost two decades.
The protests have also spread from Tibet to Tibetan communities in neighbouring Chinese provinces - an issue the Chinese premier avoided comment on.
Wen said the protests - in which Chinese authorities say 16 people were killed - had shown that "consistent claims by the Dalai clique that they pursue not independence but peaceful dialogue are nothing but lies".
Some human rights groups have put the toll as high as 100.
'Nothing but lies'
Wen added that the Dalai Lama's accusations that China was committing "cultural genocide" in Tibet were "nothing but lies".
He said those who had protested against Chinese rule wanted to undermine the staging of the Beijing Olympics, which open on August 8.
Hinting at calls from some groups for a boycott of the Games, he said the Olympics should not be politicised.
The Dalai Lama, who fled into exile in India in 1959 following a failed uprising against Chinese rule, has denied Chinese accusations that he incited the rioting.
Wen's comments came hours after a deadline passed for protesters involved in the Lhasa uprising to give themselves up to Chinese authorities.
Qiangba Puncog, the Chinese-installed governor of Tibet, set the deadline for midnight on Monday, warning of "harsh" treatment for those who refused to surrender.
There was little indication of any protesters having surrendered after the deadline.
On Tuesday the US-funded Radio Free Asia reported that hundreds of people were being rounded up by security forces, in a possible sign of an intensified crackdown.
Tibet is largely cut off from the outside world, with foreign reporters barred from the territory.
Even activist groups with long-standing connections to contacts in Tibet have indicated they are having difficulty finding out what is happening in the region.
"It is a very, very tense and terrifying situation," Kate Saunders, from the International Campaign for Tibet, told the AFP news agency.
"It has become much more difficult to get information out."
Boycott calls
The uprising in Tibet and the response of the Chinese authorities have sparked protests outside Chinese diplomatic missions around the world, with several calling for a boycott of the Beijing Olympics which begin in less than five months time.
On Tuesday about 100 protesters clashed with Australian police outside the Chinese consulate in Sydney.
Several protesters burned Chinese flags, while others attempted to storm the consulate gates.
Earlier in New York, Ban Ki-moon, the UN secretary-general, said he was "increasingly concerned about the tensions and reports of violence and loss of life in Tibet".
"At this time I urge restraint on the part of the authorities and call on all concerned to avoid further confrontation and violence," he said.
Condoleezza Rice, the US secretary of state, also repeated US calls for China to exercise restraint, urging Chinese leaders to "engage the Dalai Lama".
Monday, March 17, 2008
A Question of Arab Unity - Holy Unity
The collapse of Nasserism as a uniting force and the inability to regain the territories lost in wars with Israel led to the questioning of the secular ideologies that have dominated regional politics since WWII.
The Iraq experience has laid bare the limits of raw military power
The next US president must reject the juvenile Bush vision, reach out to Iran and seek justice for the Palestinian people
Go to Original
By Max Hastings
The Iraq war has shown how high is the pain threshold of the west. Five years after the 2003 invasion, the daily roll call of Iraqi suicide bombings, murders, firefights and body-bags has become as familiar a part of our landscape as traffic jams on the M1 and Los Angeles freeway.
The media class on both sides of the Atlantic is deeply engaged, indeed impassioned. The war is much discussed in the US presidential election campaign. But most Americans and Europeans display vastly less interest in the Middle East than in troubles closer to home - the global banking crisis foremost among them.
They have grown used to Iraq in the way they do to a chronic personal ailment. It is there. It is nasty. They wish that it would go away. But it does not inflict the sort of agonising pain that causes democracies to force urgent action upon their governments.
At this week's bleak anniversary, statisticians measure the cost. Joseph Stiglitz and Linda Bilmes tell us that the US faces a total bill of $3 trillion, and still counting. About 4,000 American soldiers, 171 British and anything between 200,000 and 600,000 Iraqis have died. It would be madness to describe these numbers as acceptable. But they have not proved so unacceptable that the US or British government, or even the Iraqi administration in Baghdad, has found it necessary to adopt any radical shift of policy.
The Shia-dominated government of Nouri al-Maliki still recoils from empowering Iraq's Sunnis. The Bush administration declines to make serious advances to Iran and Syria, vital players in any credible Iraqi outcome, or to qualify its unstinting support for Israel. Gordon Brown maintains a token British contingent outside Basra, which does little, but avoids an outright breach with Washington.
It seems futile, five years on, to waste words rehearsing once more the folly of the invasion, launched under false pretences, on the basis of WMD evidence that some of us, including me, were foolish enough to swallow. Likewise, the blunders of the early occupation are common ground even in sentient zones of the White House. All that matters now are the present and future.
George Bush's troop surge has been a tactical military success. Though violence in February and March has increased from the low January level, with 10 US soldiers dying last week, far fewer Iraqi lives are being lost than at this time last year. Local ceasefires have made notable progress, with militias receiving American pay to refrain from attacks on either US forces or other factions.
Al-Qaida insurgents have suffered repeated military defeats, and political eclipse. Many Sunni communities have rejected al-Qaida's murderous hegemony, together with the cost of allowing their towns and villages to become battlefields.
The great unanswered question is whether this amounts to sustainable progress, or merely to a temporary hiatus which fails to address the fundamental issues that will decide Iraq's future. Dr Stephen Biddle of the US Council on Foreign Relations has acquired an intimate knowledge of Iraq, and offered an interesting assessment to the House armed services committee in January.
While accepting that all the options remain bleak, he suggested that there is today a better chance of salvaging something than seemed possible six months ago. He argued that a long-term US peacekeeping commitment - perhaps for 20 years - remains essential.
"We are the only plausible candidate for this role for now - no one else is lining up to don a blue helmet and serve in a UN mission to Iraq," he said. "We are not widely loved by Iraqis ... Yet we are the only party to today's conflict that no other party sees as a threat of genocide ... we are tolerated across Iraq today in a way that is unique among the parties."
Biddle cherishes no delusions about the weakness, approaching paralysis, of the national government in Baghdad. The Shia prime minister, Maliki, he says, can more readily live with continuing war than address the political challenges of reconciliation and compromises with the Sunnis, which peace would render inescapable.
Instead, he suggests that "a patchwork quilt of uneasy local ceasefires" may be attainable, with adjoining areas run by local Sunni and Shia militias, and essential services provided by trusted co-religionists. All this fits with the bottom-up rather than top-down approach that has been at the heart of General David Petraeus's strategy since he assumed command in Baghdad.
Yet massive uncertainties overhang the vision propounded by Biddle and others. Will the local ceasefires and reduction of violence be maintained, as US troop numbers on the ground inevitably decline ? Can intercommunal stresses, not least with the Kurds, be contained while the key issue of dividing oil revenues remains unresolved? And whoever becomes president in January, will the American people be willing to sacrifice the blood and treasure involved in a long-term troop commitment to Iraq?
Whether McCain, Obama or Clinton reaches the White House, each will face the same dilemma: would any of the three accept responsibility for presiding over a possible bloodbath, if he or she gives an order to bring the boys home?
A familiar tension will persist, between the visible cost of staying, and the huge unknown of getting out. If violence on the ground seems containable, if the present flickering candle-flames of optimism remain unextinguished, the next president seems likely to persevere in Iraq. If, on the other hand, pain increases, bloodshed worsens, then the American people will surely force the hand of the White House, and insist upon a closure.
No American general is likely to accomplish more than Petraeus. Current US political strategy in Iraq is probably as enlightened as it is going to get. The big, empty field is that of wider American policy in the Middle East, which is critical in determining the context in which Iraq's fate will be decided. Under Bush, this has been sterile. In theory at least, a big opportunity awaits a new president - that of making a new start with Iran, Syria, Saudi Arabia and Israel.
The British historian Professor Hew Strachan, one of my heroes among academics, has for years deplored the west's failure to act abroad in accordance with a plausible framework of strategy. We will dismiss the Washington neocons' claim, underpinning the 2003 Iraq invasion, that their campaign to bring democracy to the Middle East represented just such an overarching idea. What is needed is informed particularism in place of ignorant universalism.
The challenge for the next US administration is to create a new Middle East strategy that rejects the juvenile Bush vision of Iraq as a playing field against al-Qaida; which reaches out to moderate Iranians; and which accepts that until there is justice for the Palestinians, American mood music can never play right anywhere in the Muslim world.
The Iraq experience has laid bare the limits of raw military power. It would be naive to suggest that an abrupt American departure would now promise the country a happy future. But there seems no purpose in a continued US military presence, save within the context of new regional policies vastly different from those that prevail today.
Go to Original
By Max Hastings
The Iraq war has shown how high is the pain threshold of the west. Five years after the 2003 invasion, the daily roll call of Iraqi suicide bombings, murders, firefights and body-bags has become as familiar a part of our landscape as traffic jams on the M1 and Los Angeles freeway.
The media class on both sides of the Atlantic is deeply engaged, indeed impassioned. The war is much discussed in the US presidential election campaign. But most Americans and Europeans display vastly less interest in the Middle East than in troubles closer to home - the global banking crisis foremost among them.
They have grown used to Iraq in the way they do to a chronic personal ailment. It is there. It is nasty. They wish that it would go away. But it does not inflict the sort of agonising pain that causes democracies to force urgent action upon their governments.
At this week's bleak anniversary, statisticians measure the cost. Joseph Stiglitz and Linda Bilmes tell us that the US faces a total bill of $3 trillion, and still counting. About 4,000 American soldiers, 171 British and anything between 200,000 and 600,000 Iraqis have died. It would be madness to describe these numbers as acceptable. But they have not proved so unacceptable that the US or British government, or even the Iraqi administration in Baghdad, has found it necessary to adopt any radical shift of policy.
The Shia-dominated government of Nouri al-Maliki still recoils from empowering Iraq's Sunnis. The Bush administration declines to make serious advances to Iran and Syria, vital players in any credible Iraqi outcome, or to qualify its unstinting support for Israel. Gordon Brown maintains a token British contingent outside Basra, which does little, but avoids an outright breach with Washington.
It seems futile, five years on, to waste words rehearsing once more the folly of the invasion, launched under false pretences, on the basis of WMD evidence that some of us, including me, were foolish enough to swallow. Likewise, the blunders of the early occupation are common ground even in sentient zones of the White House. All that matters now are the present and future.
George Bush's troop surge has been a tactical military success. Though violence in February and March has increased from the low January level, with 10 US soldiers dying last week, far fewer Iraqi lives are being lost than at this time last year. Local ceasefires have made notable progress, with militias receiving American pay to refrain from attacks on either US forces or other factions.
Al-Qaida insurgents have suffered repeated military defeats, and political eclipse. Many Sunni communities have rejected al-Qaida's murderous hegemony, together with the cost of allowing their towns and villages to become battlefields.
The great unanswered question is whether this amounts to sustainable progress, or merely to a temporary hiatus which fails to address the fundamental issues that will decide Iraq's future. Dr Stephen Biddle of the US Council on Foreign Relations has acquired an intimate knowledge of Iraq, and offered an interesting assessment to the House armed services committee in January.
While accepting that all the options remain bleak, he suggested that there is today a better chance of salvaging something than seemed possible six months ago. He argued that a long-term US peacekeeping commitment - perhaps for 20 years - remains essential.
"We are the only plausible candidate for this role for now - no one else is lining up to don a blue helmet and serve in a UN mission to Iraq," he said. "We are not widely loved by Iraqis ... Yet we are the only party to today's conflict that no other party sees as a threat of genocide ... we are tolerated across Iraq today in a way that is unique among the parties."
Biddle cherishes no delusions about the weakness, approaching paralysis, of the national government in Baghdad. The Shia prime minister, Maliki, he says, can more readily live with continuing war than address the political challenges of reconciliation and compromises with the Sunnis, which peace would render inescapable.
Instead, he suggests that "a patchwork quilt of uneasy local ceasefires" may be attainable, with adjoining areas run by local Sunni and Shia militias, and essential services provided by trusted co-religionists. All this fits with the bottom-up rather than top-down approach that has been at the heart of General David Petraeus's strategy since he assumed command in Baghdad.
Yet massive uncertainties overhang the vision propounded by Biddle and others. Will the local ceasefires and reduction of violence be maintained, as US troop numbers on the ground inevitably decline ? Can intercommunal stresses, not least with the Kurds, be contained while the key issue of dividing oil revenues remains unresolved? And whoever becomes president in January, will the American people be willing to sacrifice the blood and treasure involved in a long-term troop commitment to Iraq?
Whether McCain, Obama or Clinton reaches the White House, each will face the same dilemma: would any of the three accept responsibility for presiding over a possible bloodbath, if he or she gives an order to bring the boys home?
A familiar tension will persist, between the visible cost of staying, and the huge unknown of getting out. If violence on the ground seems containable, if the present flickering candle-flames of optimism remain unextinguished, the next president seems likely to persevere in Iraq. If, on the other hand, pain increases, bloodshed worsens, then the American people will surely force the hand of the White House, and insist upon a closure.
No American general is likely to accomplish more than Petraeus. Current US political strategy in Iraq is probably as enlightened as it is going to get. The big, empty field is that of wider American policy in the Middle East, which is critical in determining the context in which Iraq's fate will be decided. Under Bush, this has been sterile. In theory at least, a big opportunity awaits a new president - that of making a new start with Iran, Syria, Saudi Arabia and Israel.
The British historian Professor Hew Strachan, one of my heroes among academics, has for years deplored the west's failure to act abroad in accordance with a plausible framework of strategy. We will dismiss the Washington neocons' claim, underpinning the 2003 Iraq invasion, that their campaign to bring democracy to the Middle East represented just such an overarching idea. What is needed is informed particularism in place of ignorant universalism.
The challenge for the next US administration is to create a new Middle East strategy that rejects the juvenile Bush vision of Iraq as a playing field against al-Qaida; which reaches out to moderate Iranians; and which accepts that until there is justice for the Palestinians, American mood music can never play right anywhere in the Muslim world.
The Iraq experience has laid bare the limits of raw military power. It would be naive to suggest that an abrupt American departure would now promise the country a happy future. But there seems no purpose in a continued US military presence, save within the context of new regional policies vastly different from those that prevail today.
The Fed's Wall Street Dilemma
Go to Original
Too Big to Bail
The Fed’s Wall Street Dilemma
By PAM MARTENS
Americans learned two new truths last week from the Bush Administration’s version of Life’s Little Instruction Book: if you’re a Wall Street miscreant you’re thrown a lifeline; if you’re a Wall Street crime fighter you’re thrown a land mine.
In the first effort, the Feds effectively handed a Federal Reserve ATM card to JPMorgan to funnel your tax dollars to the teetering Bear Stearns brokerage firm to address counterparty risks that have been building for at least 4 years as the Feds snoozed. Counterparty risk is the trillions of dollars of insurance contracts (credit default swaps and other derivatives) taken out by Wall Street firms on each others (counterparty) bonds, bundled mortgage and commercial debt (collateralized debt obligations). The firms have used unregulated over-the-counter contracts to perform this risk transfer alchemy and funded their own company, Markit Group Ltd., to take the place of a regulated exchange for price discovery.
In the second effort, the Feds tapped the Department of Justice, Internal Revenue Service, U.S. Attorney’s office in New York, FBI, five federal judges and a busy federal court to root out that Code Red threat to our national security: consensual sex. The sex involved a prostitution ring and Democratic New York State Governor, Eliot Spitzer, who was savaged and forced to step down by an avenging media mob abundantly fed with well placed leaks from a suspiciously homogenous group called "anonymous law enforcement officials." Governor Spitzer, in his former role as New York State Attorney General, had taken the lead in rooting out Wall Street crimes against small investors because the Federal Reserve was preoccupied with lobbying to remove regulations on Wall Street’s crime factory.
As usual, the Feds handed the bill to the governed with no thought to the will of the governed.
While mainstream media called the Bear Stearns bailout the first brokerage bailout since the Great Depression, in truth it was the second in seven months.
The first brokerage bailout came without all the media fanfare because it arrived not on the wings of a public announcement but in five pages of indecipherable Fed jargon addressed to the General Counsel of Citigroup.
Here is the effective message sent by the Federal Reserve to Citigroup in its letter of August 20, 2007: now that we have allowed you to become both too big to fail and too big to bail by repealing the depression era investor-protection law known as the Glass-Steagall Act at your mere beckoning, we have to bend more rules to keep you afloat. So, for example, the rule that says the Federal Reserve is not allowed to lend to brokerages, just banks, from its discount window can be tweaked for you by lending up to $25 billion to you and then we’ll let you lend it to your brokerage arm. The Federal Reserve Act rule that says a bank can’t loan more than 10% of its capital stock and surplus to its brokerage affiliate, we’ll let you go as high as about 30% and say it’s in the public interest.
By giving Citigroup an exemption from Rule 23A of the Federal Reserve Act, by allowing it to funnel up to $25 Billion from the Fed’s discount window to its brokerage clients who were getting hit with margin calls, the Federal Reserve and Chairman Ben Bernanke telegraphed an incredibly dangerous message to global markets: we’re just as unaccountable as Wall Street. The Federal Reserve as enabler under Alan Greenspan created today’s problem and today’s Crony Fed under Ben Bernanke is killing off what’s left of U.S. financial credibility. (I had barely finished typing these words on Monday, March 17, 2008, when a news alert came across my screen advising that the Federal Reserve was taking the breathtaking step of making direct loans to all brokerage firms which are primary dealers for Treasury securities.)
The Federal Reserve is stumbling around in the dark and regularly bumping into the next bailout because it stopped being an independent monetary force and started taking its marching orders from Wall Street quite some time ago.
Here’s what Nancy Millar, President at the time of the National Organization for Women in New York City, presciently testified in writing to the Securities and Exchange Commission in August 2001. (Ms. Millar edited and signed this testimony while I and other Wall Street activists provided input. This testimony is available in full on the SEC’s web site.)
We thank the Securities and Exchange Commission for extending the comment period to September 4, 2001 in the critical area of bank oversight now that the lines between banks and brokerage firms have been blurred with the repeal of the Glass-Steagall Act.
We believe that the comments made in the letter dated June 29, 2001 from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency should be disregarded in their totality. The banks of America have enough lobbyists and trade associations to argue their case before the SEC. It is not the charter or mandate of these three regulatory bodies to lobby on behalf of banks.
The body of evidence that should dictate how the SEC must now proceed since Congress saw fit to eliminate the critical protections afforded the investing public in the Glass-Steagall Act, resides in the tens of thousands of pages of transcripts of the Pujo Committee hearings held in 1913 and the Pecora Committee hearings of 1933 and 1934. Fancy promises from regulators that banks functioning in the dual role as brokerage firms can and will be self-policing is not what the SEC or Congress should rely on. The well-developed history of egregious abuses bestowed on the investing public prior to the enactment of Glass-Steagall, and since its recent repeal, is what the SEC and Congress must look to. To believe that the dynamics of power and greed have been materially altered in nine decades is to engage in naiveté at the public’s peril.
Our Nation’s prosperity, democracy and the productivity of its citizens demand a level playing field to acquire and safeguard financial assets. Society crumbles when assets achieved through years of honest hard work can be fleeced by brokerage firms masquerading as insured-deposit banks. It is the role of federal regulators to maintain a level playing field through stringent regulation.
We ask that the SEC immediately impose the same regulations that govern outside broker-dealers to securities’ operations within banks. And, we herewith ask Congress to reconsider the repeal of the Glass-Steagall Act or be held accountable for the peril that unfolds from this unwise and inadequately deliberated decision.
If ever there was evidence that America is now facing that peril, it was the most recent news that the Bush administration’s much touted "free and efficient market" had priced Bear Stearns at $30 a share at the close of trading on Friday, March 14, 2008 but on further examination of its books over the weekend, it was valued at $2 a share and absorbed by JPMorgan at that price.
Equally troubling is the growing awareness among Wall Street veterans that neither the Federal Reserve nor the U.S. Treasury comprehend was has happened here, much less how to contain it. Here’s what we heard from Hank Paulson, the Treasury Secretary, last week:
"regulation needs to catch up with innovation and help restore investor confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it."
Innovation? Less efficient? Is there anything at all that looks innovative or efficient about Wall Street today? It is a seized up house of cards built on a toxic formula of hubris, corruption and free market madness.
Before there is a complete breakdown, Congress must quickly address the five key reasons we have today’s mess on our hands:
(1) Incentive: from mortgage brokers paid higher fees to sell subprime loans rather than prime loans, to stockbrokers paid dramatically higher fees to sell mortgage-backed securities rather than U.S. Treasury securities, to investment bankers paid dramatically higher fees to package Collateralized Debt Obligations rather than issue plain vanilla corporate bonds, Wall Street has been incentivized to greed rather than honest service to investors.
(2) Artificial Demand: The above outsized incentive produced a glut of unwanted and unneeded product that had to be eventually hidden off Wall Street’s balance sheet in Structured Investment Vehicles (SIVs) or dressed up to look like Commercial Paper and buried in mom and pop money market funds. It is this glut and the lack of transparency as to where else this toxic paper is hiding that is creating the fear and panic on Wall Street.
(3) Counterparty Risk: The regulators allowed Wall Street firms/banks to balloon their asset base and pretend they were meeting capital adequacy tests by buying "insurance" in the form of derivative contracts. There was only one problem with these "hedging" techniques; the counterparty in many cases was just another Wall Street firm or an inadequately capitalized municipal bond insurer. Instead of spreading risk, the risk was concentrated among the same players.
(4) Glass-Steagall Act: Congress was incentivized through Wall Street campaign financing to throw reason and judgment out the window and repeal the only law that stood between the country and another 1929. Glass-Steagall must be restored; and public financing of federal campaigns is the only means of restoring the will of the governed to Washington.
Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com
Bear Stearns Fire-sale sends Global Markets Plunging; Dollar Routed
Go to Original
By Mike Whitney
"It’s a snowball and it keeps getting bigger," Peggy Furusaka, credit specialist at BNP Paribas SA in Tokyo.
Last night, while America slept, investors and dollar-holders around the world held an impromptu election on US stewardship of the global economy. It was a spontaneous referendum triggered by the sudden collapse of Bear Stearns, but it covered many of the issues that have worried investors for the last seven years: the unfunded Bush tax cuts, the $2 trillion war in Iraq, the Federal Reserves low-interest bubble-making policies, the reckless gutting of US industrial base, the $4 trillion increase to the national debt, the multi-billion dollar "no bid" contracts, the opaque deregulated financial system, and the systematic destruction of the world’s reserve currency. The ballots are still being counted, but the outcome is certain. The Bush administration lost in a landslide. Investors have had enough Bush’s failed leadership and the Fed’s reckless, globally-destabilizing monetary policies. A dollar-rout has already begun in earnest and stock markets around the world are plummeting. The Hang Seng index (Hong Kong) fell 4.3 percent to 21,279.40. Japan’s benchmark Nikkei index slumped 3.7 percent to finish at 11,787.51, falling below 12,000 for the first time since August 2005. Shares throughout Europe tumbled overnight, shaving tens of billions off market capitalization. The Fed’s panicky bailout of Bear Stearns and its surprise quarter-point rate cut has ignited a global equities sell-off and sent the cost of protecting corporate bonds through the roof. The economic tsunami is presently right outside New York ready to touch-down on Wall Street at the opening bell. The futures markets are already gyrating wildly. It should be a raucous St Patrick’s day in the Big Apple.
Bernanke’s 11th Hour Bailout of Bear Sparks Market Freefall
In the end, it was a race with the clock. The Federal Reserve wanted to get a deal done before the Asia markets opened hoping to soothe jittery investors and stop a full-blown stock market crash. It was right down to the wire, too. Less than an hour before trading began on Japan’s Nikkei Index, the sale of beleaguered Investment giant, Bear Stearns was announced on Bloomberg News. Backed by a $30 billion line of credit from the Fed, JP Morgan reluctantly purchased Bear for the bargain-basement price of $240 million or $2 per share. Less than a year ago, Bear was riding high at $170 per share, but that was before the credit python had wrapped itself around US financial markets. That seems like ancient history now. Without the Fed’s intervention the nearly-century old investment warhorse would have been dragged from Wall Street feet first. If the deal with JPM had flipped, Bear would have been forced into bankruptcy.
But Bear’s travails are just the beginning of Wall Street’s woes. Now there’s talk of Lehman Brothers going under. According to the Wall Street Journal:
"Worries are deepening that other securities firms and commercial banks might be on shaky ground. Lehman Brothers Holdings Inc. Chief Executive Richard Fuld, concerned about the markets and possible fallout from Bear Stearns’s troubles, cut short a trip to India and returned home Sunday, ahead of schedule, according to people familiar with the matter. The decision came after a series of calls Saturday to both senior executives at the firm and Treasury Secretary Henry Paulson, these people say." ("JP Morgan Rescues Bear Stearns", WSJ)
Mr. Fuld has good reason to be concerned, too. Economics professor Nouriel Roubini says that, "Lehman’s exposure to toxic ABS/MBS securities is as bad as that of Bear: according to Fitch at the beginning of the turmoil Bear Stearns had the highest toxic waste ("residual balance") exposure as percent of adjusted equity on balance sheet; the exposure of Bear was 54.5% while that of Lehman was only marginally smaller at 53.3%; that of Goldman Sachs was only 21%. And guess what? Today Lehman received a $2 billion unsecured credit line from 40 lenders. Here is another massively leveraged broker dealer that mismanaged its liquidity risk, had massive amount of toxic waste on its books and is now in trouble. Again here we have not only a situation of illiquidity but serious credit problems and losses given the reckless exposure of this second broker dealer to toxic investments." (Nouriel Roubini’s Global EconoMonitor)
So, it looks like Bear will be just the first of many over-leveraged investment banks on their way to the chopping block. As credit gets tighter, banks will have to call in their loans to pare down their debts and increase their capital. That’s easier said than done in an environment where consumer’s are cutting back on borrowing and traditional revenue streams have dried up. The banks are facing some stiff headwinds in the near future.
The Federal Reserve announced two initiatives on Sunday designed to "bolster market liquidity and promote orderly market functioning."The Fed is "creating a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York."
This is an incredible move and way beyond the Fed’s mandate to insure price stability. Bernanke is now offering to accept dodgy mortgage-backed bonds from NON-BANK institutions. Outrageous. We can be 100% certain now, that Congress’s closed door meeting on Friday had nothing to do with Bush’s spying on American citizens. Most likely, the Fed convened the meeting to present their extraordinary strategy to save the financial system from a Chernobyl-like meltdown.
The Fed also announced a "decrease in the primary credit rate from 3-1/2 percent to 3-1/4 percent (and) an increase in the maximum maturity of primary credit loans to 90 days from 30 days." (Fed statement)
So Bernanke has not only decided to bailout the banks but everyone else who is even remotely connected to the subprime/securitization swindle. Great. But the rest of the world is not so convinced that this is prudent economic theory, in fact, foreign investors are already shedding US debt instruments faster than any time in history. Let’s hope that Bernanke realizes that foreign Central Banks and investors presently hold $6 trillion dollars of US Treasuries and dollars and can dump it on our shores whenever they choose. That’s enough greenbacks to start a Wiemar-type blizzard that will last until Resurrection Day.
Roubini on the Fed’s plan to provide loans to non-bank institutions:
"By having thrown down the drain the decades old doctrine and rule that the Fed should not lend or bail out non-bank financial institutions the Fed has created an extremely dangerous precedent that seriously aggravates the moral hazard of its lender of last resort support role. If the Fed starts on the slippery slope of providing massive liquidity support to non-bank financial institutions that have recklessly managed their risks it enters into uncharted territory that radically changes its mandate and formal role. Breaking decades-old rules and practices is a radical action that seriously requires a clear public explanation and justification."(Nouriel Roubini’s Global EconoMonitor)
It’s clear that Bernanke is just making it up as he goes along. His actions are unprecedented and, yes, counterproductive. He’s just generating more panic among investors. That doesn’t help. Just a few months ago, Bernanke was reiterating his belief that markets should operate with as little government intervention as possible. What a transformation. Now he has nationalized the banking system and is providing a backstop for privately owned brokerages. What’s next; a bailout for the hedge funds?
There’s still a great deal that we don’t know about the Bear buyout. Like why was it so important to save a bank that had invested its shareholders money so poorly in toxic bonds that were virtually untested in stressful market conditions?
It is complicated, but the real reason for the bailout is that the entire financial industry is now inextricably bound together through multi-billion dollar counterparty transactions called credit default swaps and other unregulated derivatives. When one major player is stricken, the whole system can violently unwind.
According to the Wall Street Journal: "With each firm intricately intertwined with others in a maze of loans, credit lines, derivatives and swaps, the Fed and Treasury agreed that letting Bear Stearns collapse quickly was a risk not worth taking, because the consequences were simply unknowable. ...For Fed officials it was a difficult choice. They did not want to single Bear out for help and they realized their actions aggravated "moral hazard" -- the tendency of bailouts to encourage future risky behavior. But the alternative was potentially far worse. Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices." ("Fed Races to Rescue Bear Stearns In Bid to Steady Financial System", Wall Street Journal)
So Bernanke felt like he had no choice. He could either bailout Bear or sit back and watch a daisy-chain of defaults take down one bank after another. Of course, there was another option. The Fed and the SEC could have fulfilled their responsibilities as regulators and insisted that derivatives trading come under the purvue of government officials. But, apparently, that was never a serious consideration among the non-interventionist free market cheerleaders at the Federal Reserve. They saw their job as simply enabling their obscenely rich constituents to get even richer while putting the public at risk. Now it has all ended badly.
Saint Patrick’s Day Financial Chainsaw Massacre
In less than an hour, the stock market will open and investors will get a chance to vote on the Fed’s latest plan to rescue the US financial system. Good luck. The dollar has already sunk to $1.59 per euro, gold is up to $1017 per ounce, and oil topped out at $111 per barrel; all record highs. At the same time, foreign investors have begun an informal boycott of US debt. Last week’s auction of US Treasuries was the worst in a decade. Thus, the anemic greenback has continued its steady decline as the fundamentals get weaker and weaker.
This afternoon, at 2PM, President Bush will meet with the Working Group on Financial Markets (aka; the Plunge Protection Team) at private White House meeting. The group includes the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC, and the Chairman of the Commodity and Futures Trading Commission. The group of financial heavyweights will update the President on developments in the equities markets and explain in greater detail what Henry Paulson calls "the systemic risk posed by hedge funds and derivatives." Of course, by then, the blood could be running knee-deep down Wall Street.
(Note; "Bernankerupted" invented by Mish blogger named skeptic)
By Mike Whitney
"It’s a snowball and it keeps getting bigger," Peggy Furusaka, credit specialist at BNP Paribas SA in Tokyo.
Last night, while America slept, investors and dollar-holders around the world held an impromptu election on US stewardship of the global economy. It was a spontaneous referendum triggered by the sudden collapse of Bear Stearns, but it covered many of the issues that have worried investors for the last seven years: the unfunded Bush tax cuts, the $2 trillion war in Iraq, the Federal Reserves low-interest bubble-making policies, the reckless gutting of US industrial base, the $4 trillion increase to the national debt, the multi-billion dollar "no bid" contracts, the opaque deregulated financial system, and the systematic destruction of the world’s reserve currency. The ballots are still being counted, but the outcome is certain. The Bush administration lost in a landslide. Investors have had enough Bush’s failed leadership and the Fed’s reckless, globally-destabilizing monetary policies. A dollar-rout has already begun in earnest and stock markets around the world are plummeting. The Hang Seng index (Hong Kong) fell 4.3 percent to 21,279.40. Japan’s benchmark Nikkei index slumped 3.7 percent to finish at 11,787.51, falling below 12,000 for the first time since August 2005. Shares throughout Europe tumbled overnight, shaving tens of billions off market capitalization. The Fed’s panicky bailout of Bear Stearns and its surprise quarter-point rate cut has ignited a global equities sell-off and sent the cost of protecting corporate bonds through the roof. The economic tsunami is presently right outside New York ready to touch-down on Wall Street at the opening bell. The futures markets are already gyrating wildly. It should be a raucous St Patrick’s day in the Big Apple.
Bernanke’s 11th Hour Bailout of Bear Sparks Market Freefall
In the end, it was a race with the clock. The Federal Reserve wanted to get a deal done before the Asia markets opened hoping to soothe jittery investors and stop a full-blown stock market crash. It was right down to the wire, too. Less than an hour before trading began on Japan’s Nikkei Index, the sale of beleaguered Investment giant, Bear Stearns was announced on Bloomberg News. Backed by a $30 billion line of credit from the Fed, JP Morgan reluctantly purchased Bear for the bargain-basement price of $240 million or $2 per share. Less than a year ago, Bear was riding high at $170 per share, but that was before the credit python had wrapped itself around US financial markets. That seems like ancient history now. Without the Fed’s intervention the nearly-century old investment warhorse would have been dragged from Wall Street feet first. If the deal with JPM had flipped, Bear would have been forced into bankruptcy.
But Bear’s travails are just the beginning of Wall Street’s woes. Now there’s talk of Lehman Brothers going under. According to the Wall Street Journal:
"Worries are deepening that other securities firms and commercial banks might be on shaky ground. Lehman Brothers Holdings Inc. Chief Executive Richard Fuld, concerned about the markets and possible fallout from Bear Stearns’s troubles, cut short a trip to India and returned home Sunday, ahead of schedule, according to people familiar with the matter. The decision came after a series of calls Saturday to both senior executives at the firm and Treasury Secretary Henry Paulson, these people say." ("JP Morgan Rescues Bear Stearns", WSJ)
Mr. Fuld has good reason to be concerned, too. Economics professor Nouriel Roubini says that, "Lehman’s exposure to toxic ABS/MBS securities is as bad as that of Bear: according to Fitch at the beginning of the turmoil Bear Stearns had the highest toxic waste ("residual balance") exposure as percent of adjusted equity on balance sheet; the exposure of Bear was 54.5% while that of Lehman was only marginally smaller at 53.3%; that of Goldman Sachs was only 21%. And guess what? Today Lehman received a $2 billion unsecured credit line from 40 lenders. Here is another massively leveraged broker dealer that mismanaged its liquidity risk, had massive amount of toxic waste on its books and is now in trouble. Again here we have not only a situation of illiquidity but serious credit problems and losses given the reckless exposure of this second broker dealer to toxic investments." (Nouriel Roubini’s Global EconoMonitor)
So, it looks like Bear will be just the first of many over-leveraged investment banks on their way to the chopping block. As credit gets tighter, banks will have to call in their loans to pare down their debts and increase their capital. That’s easier said than done in an environment where consumer’s are cutting back on borrowing and traditional revenue streams have dried up. The banks are facing some stiff headwinds in the near future.
The Federal Reserve announced two initiatives on Sunday designed to "bolster market liquidity and promote orderly market functioning."The Fed is "creating a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York."
This is an incredible move and way beyond the Fed’s mandate to insure price stability. Bernanke is now offering to accept dodgy mortgage-backed bonds from NON-BANK institutions. Outrageous. We can be 100% certain now, that Congress’s closed door meeting on Friday had nothing to do with Bush’s spying on American citizens. Most likely, the Fed convened the meeting to present their extraordinary strategy to save the financial system from a Chernobyl-like meltdown.
The Fed also announced a "decrease in the primary credit rate from 3-1/2 percent to 3-1/4 percent (and) an increase in the maximum maturity of primary credit loans to 90 days from 30 days." (Fed statement)
So Bernanke has not only decided to bailout the banks but everyone else who is even remotely connected to the subprime/securitization swindle. Great. But the rest of the world is not so convinced that this is prudent economic theory, in fact, foreign investors are already shedding US debt instruments faster than any time in history. Let’s hope that Bernanke realizes that foreign Central Banks and investors presently hold $6 trillion dollars of US Treasuries and dollars and can dump it on our shores whenever they choose. That’s enough greenbacks to start a Wiemar-type blizzard that will last until Resurrection Day.
Roubini on the Fed’s plan to provide loans to non-bank institutions:
"By having thrown down the drain the decades old doctrine and rule that the Fed should not lend or bail out non-bank financial institutions the Fed has created an extremely dangerous precedent that seriously aggravates the moral hazard of its lender of last resort support role. If the Fed starts on the slippery slope of providing massive liquidity support to non-bank financial institutions that have recklessly managed their risks it enters into uncharted territory that radically changes its mandate and formal role. Breaking decades-old rules and practices is a radical action that seriously requires a clear public explanation and justification."(Nouriel Roubini’s Global EconoMonitor)
It’s clear that Bernanke is just making it up as he goes along. His actions are unprecedented and, yes, counterproductive. He’s just generating more panic among investors. That doesn’t help. Just a few months ago, Bernanke was reiterating his belief that markets should operate with as little government intervention as possible. What a transformation. Now he has nationalized the banking system and is providing a backstop for privately owned brokerages. What’s next; a bailout for the hedge funds?
There’s still a great deal that we don’t know about the Bear buyout. Like why was it so important to save a bank that had invested its shareholders money so poorly in toxic bonds that were virtually untested in stressful market conditions?
It is complicated, but the real reason for the bailout is that the entire financial industry is now inextricably bound together through multi-billion dollar counterparty transactions called credit default swaps and other unregulated derivatives. When one major player is stricken, the whole system can violently unwind.
According to the Wall Street Journal: "With each firm intricately intertwined with others in a maze of loans, credit lines, derivatives and swaps, the Fed and Treasury agreed that letting Bear Stearns collapse quickly was a risk not worth taking, because the consequences were simply unknowable. ...For Fed officials it was a difficult choice. They did not want to single Bear out for help and they realized their actions aggravated "moral hazard" -- the tendency of bailouts to encourage future risky behavior. But the alternative was potentially far worse. Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices." ("Fed Races to Rescue Bear Stearns In Bid to Steady Financial System", Wall Street Journal)
So Bernanke felt like he had no choice. He could either bailout Bear or sit back and watch a daisy-chain of defaults take down one bank after another. Of course, there was another option. The Fed and the SEC could have fulfilled their responsibilities as regulators and insisted that derivatives trading come under the purvue of government officials. But, apparently, that was never a serious consideration among the non-interventionist free market cheerleaders at the Federal Reserve. They saw their job as simply enabling their obscenely rich constituents to get even richer while putting the public at risk. Now it has all ended badly.
Saint Patrick’s Day Financial Chainsaw Massacre
In less than an hour, the stock market will open and investors will get a chance to vote on the Fed’s latest plan to rescue the US financial system. Good luck. The dollar has already sunk to $1.59 per euro, gold is up to $1017 per ounce, and oil topped out at $111 per barrel; all record highs. At the same time, foreign investors have begun an informal boycott of US debt. Last week’s auction of US Treasuries was the worst in a decade. Thus, the anemic greenback has continued its steady decline as the fundamentals get weaker and weaker.
This afternoon, at 2PM, President Bush will meet with the Working Group on Financial Markets (aka; the Plunge Protection Team) at private White House meeting. The group includes the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC, and the Chairman of the Commodity and Futures Trading Commission. The group of financial heavyweights will update the President on developments in the equities markets and explain in greater detail what Henry Paulson calls "the systemic risk posed by hedge funds and derivatives." Of course, by then, the blood could be running knee-deep down Wall Street.
(Note; "Bernankerupted" invented by Mish blogger named skeptic)
Tainted Drugs Put Focus on the FDA
Go to Original
By Gardiner Harris
Washington - After a contaminated medicine from China was linked to as many as 17 deaths in the United States, members of Congress clamored for changes while regulators defended their actions.
The drug was a common antibiotic, and the year was 1999. But in recent weeks, the Food and Drug Administration has faced an almost identical crisis.
Nineteen deaths have been linked to contaminated heparin, a crucial blood thinner manufactured in China. Again the drug agency became aware of the problem only after hundreds were sickened. Again Congress is investigating.
The FDA admitted that it violated its own policies by failing to inspect the China plant, and on Friday it said it had alerted border agents to detain suspect heparin shipments.
"This heparin problem has happened before with other drugs," said William Hubbard, a former FDA deputy commissioner, "and it's going to keep happening until Congress fixes this problem."
The Institute of Medicine, the Government Accountability Office and the FDA's own Science Board have all issued reports saying poor management and scientific inadequacies make the agency incapable of protecting the country against unsafe drugs, medical devices and food.
Indeed, in the years since the last China drug scandal, the share of drugs coming from that country has soared while the FDA's inspections of overseas drug plants have dropped. There are 566 plants in China that export drugs to the United States, but the agency inspected just 13 of them last year.
The agency does not have the money to inspect many more, and the Bush administration has no plans to fix this most basic of problems. The administration's budget calls for a 3 percent increase in allocated funds next year, not enough even to keep up with rising costs.
Congress, though, may finally heed the calls of Mr. Hubbard and others and allocate far more money. The Senate passed a budget resolution on Friday to give the FDA an additional $375 million, a 20 percent increase over this year.
"Congress has a responsibility to close the glaring gaps in food and drug safety that have begun to overwhelm the FDA," said Senator Edward M. Kennedy, Democrat of Massachusetts, who pushed for the new financing.
Several top legislators in the Senate and House said they supported the increase.
"FDA needs a serious infusion of resources and strong leadership dedicated to reforming the agency," said Representative Henry A. Waxman, Democrat of California, who is chairman of the House oversight committee.
Representatives John D. Dingell and Bart Stupak, powerful Democrats from Michigan, said they would fight to support the increase in the agency's budget.
But the new money is far from assured. President Bush has threatened to veto appropriations that go beyond his requests, and there are powerful interests in Congress that are skeptical of increased agency financing.
Among the skeptics is Representative Rosa DeLauro, Democrat of Connecticut, who leads the House appropriations subcommittee with authority over the agency. Ms. DeLauro said that although the FDA was in crisis, "I don't want to throw money at an agency that doesn't have the infrastructure to carry out its mission."
Some top agency officials are simply "incompetent," she added, and real change can occur only with a new administration.
An FDA spokeswoman, Julie Zawisza, said the agency was "looking at a number of options in addition to more foreign inspections to increase our presence abroad and our ability to detect problems." For instance, the agency is opening an office in China to conduct audits and inspections.
The uncertain prospects of the increased financing have led many in Congress to consider a user-fee system to pay for foreign inspections. The agency already relies heavily on user fees to pay for new drug reviews. Mr. Stupak said such a system might be the only way to pay for the necessary inspections of an industry rapidly moving to places like China.
"Why should the taxpayer pay for these inspections so that you can close a plant here and open it over there to ship it back?" Mr. Stupak said. "It will be sustainable income so that we don't have to get into these budget battles every year."
Eighty percent of the active pharmaceutical ingredients of drugs consumed in the United States are manufactured abroad; 40 percent are made in China and India. Meanwhile, the FDA has cut back on its foreign drug inspections, which declined to 341 in 2006 from 391 in 2000.
Among the only foreign inspections that the FDA still conducts are those done before a drug's approval. Spot foreign inspections are rare. For logistical reasons, the agency warns foreign plants when its inspectors intend to visit, something not done domestically. All of this needs to change, said Mr. Stupak, who wants the oversight of foreign plants to be as strict as those governing domestic ones.
Dr. Sidney Wolfe, director of Public Citizen's health research group, said a fee-based inspection system was "a terrible idea" because it would lead the agency to become more lax with those who pay their salaries.
"The FDA is too important to be left to the industry to fund it," Dr. Wolfe said.
Manufacturers would support a user-fee system in hopes of making medicines safer and competition fairer, said Guy Villax, chief executive of Hovione, a drug maker based in Portugal with plants in Europe, the United States, China and Macao.
Plants in China and India are rarely inspected by Western governments, which can reduce costs dramatically, Mr. Villax said. Even the Chinese did not inspect the plant making contaminated heparin because, regulators there said, everything made at the plant was shipped overseas.
"The globalization of active pharmaceutical ingredients has happened very quickly," Mr. Villax said, "and the government agencies are very slow at adapting to changing circumstances."
By Gardiner Harris
Washington - After a contaminated medicine from China was linked to as many as 17 deaths in the United States, members of Congress clamored for changes while regulators defended their actions.
The drug was a common antibiotic, and the year was 1999. But in recent weeks, the Food and Drug Administration has faced an almost identical crisis.
Nineteen deaths have been linked to contaminated heparin, a crucial blood thinner manufactured in China. Again the drug agency became aware of the problem only after hundreds were sickened. Again Congress is investigating.
The FDA admitted that it violated its own policies by failing to inspect the China plant, and on Friday it said it had alerted border agents to detain suspect heparin shipments.
"This heparin problem has happened before with other drugs," said William Hubbard, a former FDA deputy commissioner, "and it's going to keep happening until Congress fixes this problem."
The Institute of Medicine, the Government Accountability Office and the FDA's own Science Board have all issued reports saying poor management and scientific inadequacies make the agency incapable of protecting the country against unsafe drugs, medical devices and food.
Indeed, in the years since the last China drug scandal, the share of drugs coming from that country has soared while the FDA's inspections of overseas drug plants have dropped. There are 566 plants in China that export drugs to the United States, but the agency inspected just 13 of them last year.
The agency does not have the money to inspect many more, and the Bush administration has no plans to fix this most basic of problems. The administration's budget calls for a 3 percent increase in allocated funds next year, not enough even to keep up with rising costs.
Congress, though, may finally heed the calls of Mr. Hubbard and others and allocate far more money. The Senate passed a budget resolution on Friday to give the FDA an additional $375 million, a 20 percent increase over this year.
"Congress has a responsibility to close the glaring gaps in food and drug safety that have begun to overwhelm the FDA," said Senator Edward M. Kennedy, Democrat of Massachusetts, who pushed for the new financing.
Several top legislators in the Senate and House said they supported the increase.
"FDA needs a serious infusion of resources and strong leadership dedicated to reforming the agency," said Representative Henry A. Waxman, Democrat of California, who is chairman of the House oversight committee.
Representatives John D. Dingell and Bart Stupak, powerful Democrats from Michigan, said they would fight to support the increase in the agency's budget.
But the new money is far from assured. President Bush has threatened to veto appropriations that go beyond his requests, and there are powerful interests in Congress that are skeptical of increased agency financing.
Among the skeptics is Representative Rosa DeLauro, Democrat of Connecticut, who leads the House appropriations subcommittee with authority over the agency. Ms. DeLauro said that although the FDA was in crisis, "I don't want to throw money at an agency that doesn't have the infrastructure to carry out its mission."
Some top agency officials are simply "incompetent," she added, and real change can occur only with a new administration.
An FDA spokeswoman, Julie Zawisza, said the agency was "looking at a number of options in addition to more foreign inspections to increase our presence abroad and our ability to detect problems." For instance, the agency is opening an office in China to conduct audits and inspections.
The uncertain prospects of the increased financing have led many in Congress to consider a user-fee system to pay for foreign inspections. The agency already relies heavily on user fees to pay for new drug reviews. Mr. Stupak said such a system might be the only way to pay for the necessary inspections of an industry rapidly moving to places like China.
"Why should the taxpayer pay for these inspections so that you can close a plant here and open it over there to ship it back?" Mr. Stupak said. "It will be sustainable income so that we don't have to get into these budget battles every year."
Eighty percent of the active pharmaceutical ingredients of drugs consumed in the United States are manufactured abroad; 40 percent are made in China and India. Meanwhile, the FDA has cut back on its foreign drug inspections, which declined to 341 in 2006 from 391 in 2000.
Among the only foreign inspections that the FDA still conducts are those done before a drug's approval. Spot foreign inspections are rare. For logistical reasons, the agency warns foreign plants when its inspectors intend to visit, something not done domestically. All of this needs to change, said Mr. Stupak, who wants the oversight of foreign plants to be as strict as those governing domestic ones.
Dr. Sidney Wolfe, director of Public Citizen's health research group, said a fee-based inspection system was "a terrible idea" because it would lead the agency to become more lax with those who pay their salaries.
"The FDA is too important to be left to the industry to fund it," Dr. Wolfe said.
Manufacturers would support a user-fee system in hopes of making medicines safer and competition fairer, said Guy Villax, chief executive of Hovione, a drug maker based in Portugal with plants in Europe, the United States, China and Macao.
Plants in China and India are rarely inspected by Western governments, which can reduce costs dramatically, Mr. Villax said. Even the Chinese did not inspect the plant making contaminated heparin because, regulators there said, everything made at the plant was shipped overseas.
"The globalization of active pharmaceutical ingredients has happened very quickly," Mr. Villax said, "and the government agencies are very slow at adapting to changing circumstances."
Chrysler Plans to Shut Down Company for Two Weeks
Employees encouraged to take vacation in July.
Go to Original
By Frank Ahrens
Chrysler, which is restructuring a troubled business under private ownership, told its workers in an e-mail yesterday that almost all of the company will shut down for two weeks in July to save money.
"This year, in order to create better alignment and efficiency across organizational lines and boost productivity, Chrysler will use a corporate-wide vacation shutdown for the weeks of July 7 and July 14," chief executive Robert L. Nardelli wrote to Chrysler's 71,578 employees.
Sales of new autos are down 5.4 percent this year, as the economy flags and the national average price of gasoline tops $3 per gallon. Chrysler's sales are down 13 percent for the first two months of this year compared with last year. Toyota Motor said yesterday that it would cut production of its Tundra pickup trucks at plants in Texas and Indiana.
Automakers in recent years have selectively shut down plants or entire manufacturing units, usually during the summer, to save money. General Motors and Ford plan two-week plant shutdowns this summer. During the technology crash of 2001, several Silicon Valley companies, such as Adobe Systems and Sun Microsystems, ordered employees to take a week off to save money.
But Chrysler's shutdown is notable for two reasons: It will include all of Chrysler's employees except for minimal staff needed for what Nardelli called "business critical operations." It's also notable because of the company's current state of play - executing tough cuts in a turbulent economy to prepare it for sale, likely to another automaker.
"They want to use the urgency that comes with the crisis atmosphere" in the current economy, said David Cole, an analyst at the nonprofit Center for Automotive Research.
Cerberus Capital Management bought an 80 percent stake in Chrysler from Daimler for $7.4 billion last May, taking the automaker private. Cerberus has been paring the company to make it attractive to a buyer, possibly Volkswagen or the Nissan-Renault alliance, Cole said.
The current economic volatility - retail sales fell and jobs were lost in February, according to government reports - gives Chrysler extra leverage to make the cost-savings cuts it wants, including the July shutdown, Cole said.
Nardelli encouraged Chrysler workers to take vacation during the shutdown, during which they will be paid. The cost-savings result in temporarily idling Chrylser's 27 manufacturing plants. Employees who will have to work during the shutdown include those that deal with customers and dealers, said Chrysler spokeswoman Mary Beth Halprin.
Last year, Chrysler negotiated a contract with the United Auto Workers that changes the benefits structure for the company's employees, significantly lightening Chrysler's long-term obligations. Also, the company announced last year that it would lay off as many as 12,000 workers and discontinue several slow-selling vehicles, including the Crossfire sports coupe and Magnum muscle sedan.
Go to Original
By Frank Ahrens
Chrysler, which is restructuring a troubled business under private ownership, told its workers in an e-mail yesterday that almost all of the company will shut down for two weeks in July to save money.
"This year, in order to create better alignment and efficiency across organizational lines and boost productivity, Chrysler will use a corporate-wide vacation shutdown for the weeks of July 7 and July 14," chief executive Robert L. Nardelli wrote to Chrysler's 71,578 employees.
Sales of new autos are down 5.4 percent this year, as the economy flags and the national average price of gasoline tops $3 per gallon. Chrysler's sales are down 13 percent for the first two months of this year compared with last year. Toyota Motor said yesterday that it would cut production of its Tundra pickup trucks at plants in Texas and Indiana.
Automakers in recent years have selectively shut down plants or entire manufacturing units, usually during the summer, to save money. General Motors and Ford plan two-week plant shutdowns this summer. During the technology crash of 2001, several Silicon Valley companies, such as Adobe Systems and Sun Microsystems, ordered employees to take a week off to save money.
But Chrysler's shutdown is notable for two reasons: It will include all of Chrysler's employees except for minimal staff needed for what Nardelli called "business critical operations." It's also notable because of the company's current state of play - executing tough cuts in a turbulent economy to prepare it for sale, likely to another automaker.
"They want to use the urgency that comes with the crisis atmosphere" in the current economy, said David Cole, an analyst at the nonprofit Center for Automotive Research.
Cerberus Capital Management bought an 80 percent stake in Chrysler from Daimler for $7.4 billion last May, taking the automaker private. Cerberus has been paring the company to make it attractive to a buyer, possibly Volkswagen or the Nissan-Renault alliance, Cole said.
The current economic volatility - retail sales fell and jobs were lost in February, according to government reports - gives Chrysler extra leverage to make the cost-savings cuts it wants, including the July shutdown, Cole said.
Nardelli encouraged Chrysler workers to take vacation during the shutdown, during which they will be paid. The cost-savings result in temporarily idling Chrylser's 27 manufacturing plants. Employees who will have to work during the shutdown include those that deal with customers and dealers, said Chrysler spokeswoman Mary Beth Halprin.
Last year, Chrysler negotiated a contract with the United Auto Workers that changes the benefits structure for the company's employees, significantly lightening Chrysler's long-term obligations. Also, the company announced last year that it would lay off as many as 12,000 workers and discontinue several slow-selling vehicles, including the Crossfire sports coupe and Magnum muscle sedan.
Triple Shock to the Global Economy
Go to Original
By Eric Le Boucher
You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.
We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.
The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation - dead for 30 years - to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.
There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope: boom, boom, boom, they come at once and act in concert.
The Federal Reserve is blamed for having been the source of the evils of easy money. The "wizard" Alan Greenspan, adulated only yesterday, decided on interest rates too low to encourage growth, but that inflated asset bubbles instead. American households were able to go into debt cheaply and consume more and more. Imports grew in a straight line; the trade deficit deepened; the dollar began to weaken.
The United States has other, enviable, "fundamentals:" productivity gains, a high-tech sector, immigration ... but its debt-fueled growth model spiraled out of control with respect to real estate. The house was barely purchased before it gained in value, which allowed it to be refinanced and borrowing to be increased. Lending organizations invented subprimes to convince households without the means that they, too, could become property-owners under this system. Up until the day when, after an increase of 80% between 2000 and 2006, prices stagnated, forcing those households into bankruptcy.
The subprime crisis is one of excessive indebtedness. The American growth model will have to change: the return to savings will atrophy consumption; the dollar's fall could allow exports to take up a part of the slack. How? To what extent? It's too early to know.
In any case, the American deficit has its complement: the Asian surplus. China became the United States's workshop, then, as it accumulated monetary reserves, its creditor. The size of developing economies has grown vertiginously: they account for 50% of global GNP (in purchasing power parity). The "dragon" swallows half of global pork production, ditto for cement, a third of steel production. Its oil consumption will triple between now and 2030. Hence the surge in energy, metal and food prices.
From now on, food and energy will be more expensive. We are experiencing the end of a 30-year downward trend in commodity prices. Does that mean the resurgence of the specter of inflation? Probably not, even if it is too soon to be entirely reassured. In the immediate future, these elevated prices are going to corrode purchasing power, slowing both consumption and growth.
To what extent are developing countries autonomous enough to resist the fall of the American economy, now poised on the verge of recession? This East versus West "uncoupling" is one major uncertainty.
Then, there's the financial crisis. The collapse of an investment fund in the American giant Carlyle Group, this week, has come to show that that crisis is far from being contained. What's new about this crisis is that it does not center on one country or one bank, but concerns the sui generis construction of the financial world. Did the Fed's too-low interest rates or the excessive ingenuity of the math geniuses bring it about? In any case, the banks, and especially other financial organizations have sold and resold fragile stacks of "products," in ignorance of their risks. The regulations that forced these products off-balance sheet were an incentive to crime, while the obligation to mark to market daily has precipitated losses. In short, the hyper-finance world offers a great many subjects for revision, and, in the meantime, fear of new losses, failures and credit rationing after years of excess is strong.
The three shocks create uncertainty in the short term. Over the longer term, they will prove not to have been solely negative, and should give birth to a new economy with multi-polar growth, strong research and development in energy and agriculture, wiser finance. But the process of giving birth is always agonizing.
By Eric Le Boucher
You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.
We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.
The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation - dead for 30 years - to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.
There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope: boom, boom, boom, they come at once and act in concert.
The Federal Reserve is blamed for having been the source of the evils of easy money. The "wizard" Alan Greenspan, adulated only yesterday, decided on interest rates too low to encourage growth, but that inflated asset bubbles instead. American households were able to go into debt cheaply and consume more and more. Imports grew in a straight line; the trade deficit deepened; the dollar began to weaken.
The United States has other, enviable, "fundamentals:" productivity gains, a high-tech sector, immigration ... but its debt-fueled growth model spiraled out of control with respect to real estate. The house was barely purchased before it gained in value, which allowed it to be refinanced and borrowing to be increased. Lending organizations invented subprimes to convince households without the means that they, too, could become property-owners under this system. Up until the day when, after an increase of 80% between 2000 and 2006, prices stagnated, forcing those households into bankruptcy.
The subprime crisis is one of excessive indebtedness. The American growth model will have to change: the return to savings will atrophy consumption; the dollar's fall could allow exports to take up a part of the slack. How? To what extent? It's too early to know.
In any case, the American deficit has its complement: the Asian surplus. China became the United States's workshop, then, as it accumulated monetary reserves, its creditor. The size of developing economies has grown vertiginously: they account for 50% of global GNP (in purchasing power parity). The "dragon" swallows half of global pork production, ditto for cement, a third of steel production. Its oil consumption will triple between now and 2030. Hence the surge in energy, metal and food prices.
From now on, food and energy will be more expensive. We are experiencing the end of a 30-year downward trend in commodity prices. Does that mean the resurgence of the specter of inflation? Probably not, even if it is too soon to be entirely reassured. In the immediate future, these elevated prices are going to corrode purchasing power, slowing both consumption and growth.
To what extent are developing countries autonomous enough to resist the fall of the American economy, now poised on the verge of recession? This East versus West "uncoupling" is one major uncertainty.
Then, there's the financial crisis. The collapse of an investment fund in the American giant Carlyle Group, this week, has come to show that that crisis is far from being contained. What's new about this crisis is that it does not center on one country or one bank, but concerns the sui generis construction of the financial world. Did the Fed's too-low interest rates or the excessive ingenuity of the math geniuses bring it about? In any case, the banks, and especially other financial organizations have sold and resold fragile stacks of "products," in ignorance of their risks. The regulations that forced these products off-balance sheet were an incentive to crime, while the obligation to mark to market daily has precipitated losses. In short, the hyper-finance world offers a great many subjects for revision, and, in the meantime, fear of new losses, failures and credit rationing after years of excess is strong.
The three shocks create uncertainty in the short term. Over the longer term, they will prove not to have been solely negative, and should give birth to a new economy with multi-polar growth, strong research and development in energy and agriculture, wiser finance. But the process of giving birth is always agonizing.
Audit: Bush Barely Trims FOIA Backlog
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Washington - Despite ordering improvements more than two years ago, President Bush has barely made a dent in the huge backlog of unanswered requests under the Freedom of Information Act.
At the same time, an audit by the National Security Archive found that Bush has provided citizens someone to talk to about how long it is going to take to get the government records they want or to be turned down.
The archive, a private research group at The George Washington University, released its seventh audit Sunday of the 1967 law that gives people the power to request information from federal government files. The audit of 90 government agencies found mixed results from Bush's executive order on Dec. 14, 2005, to agencies to clear the backlog and be more responsive to requesters.
"Behind its ambitious facade, the order lacked both carrot and stick," the audit said, because it provided no additional money to do the job and no way to force agencies to set substantial goals or step up their efforts if they fell short.
"Many of the same old scofflaw agencies are still shirking their responsibilities to the public," said Tom Blanton, director of the archive, whose FOIA audits are funded by the John S. and James L. Knight Foundation.
The archive found that unanswered requests government-wide dropped just over 2 percent, from 217,000 to 212,000, from the end of 2005 to the end of 2007.
Of those agencies with backlogs, 31 percent even saw pending requests rise during the two years, including some agencies that significantly reduced very old unanswered requests but saw gains wiped out by a surge of new requests.
Some agencies did well:
-The Energy Department focused on requests more than a year old and instituted biweekly reports from its field offices to top headquarters FOIA officials. It cut the agency-wide backlog from 1,162 requests to 438.
-The CIA set up a task force to tackle the oldest requests. Requests more than five years old were cut 25 percent in 2006 and 74 percent in 2007.
-The Health and Human Services Department added staff but an unexpected increase in new requests prevented it from achieving its planned 5 percent reduction in 2006. It did achieve a 24 percent reduction during 2007.
The Homeland Security Department set an ambitious goal of eliminating its entire backlog by the end of 2007, but instead saw it grow from 82,544 to 83,661 requests.
The FBI failed to meet its reduction goals for 2006 and 2007 and twice pushed them back a year.
The audit particularly criticized the Treasury Department for trying to "wait out the requester." Treasury sent letters to requesters requiring them to reaffirm their interest in the data within 15 business days.
The archive, a major FOIA requester, received such letters from Treasury for 42 outstanding requests. In 27 cases, Treasury sent a second letter after the archive responded it was still interested. For 10 requests all over a decade old, Treasury said the files had been transferred to the National Archives and a new request would have to be submitted there.
Treasury closed 718 requests over two years because the requester no longer wanted the documents or because Treasury's letters went unanswered or were returned because of outdated addresses.
"That many agencies have made significant improvements without additional funding is a real credit to the professionals who work there," said Melanie Poustay of the Justice Department. She heads the Office of Information and Privacy, which advises all government agencies how to obey FOIA and suggests improvements in the FOIA plans Bush ordered each agency to prepare.
"Obviously, though, backlog reduction is an area that continued to need attention," she said.
The audit praised Bush for requiring each agency to set up an FOIA Service Center that people can call to track the progress of their requests; an FOIA Public Liaison to take complaints about the service center; and a chief FOIA officer to manage agency efforts.
The archive sent FOIA requests to all 90 agencies. At 51 of 53 agencies that did not respond in the required 20 days, the archive was able by calling service centers or public liaisons to confirm its requests had been received and sometimes learn where they were in processing. Most FOIA officers they reached "were courteous and helpful."
But not at the CIA and Transportation Department. Multiple calls to the service centers and public liaisons at those two agencies went unanswered. The CIA had no voicemail to take a message; voicemail messages left at the Transportation Department were not returned.
Poustay said the audit revealed "great strides agencies have made in improving customer service." She said her office emphasizes to all agencies the value of direct dialogue between requesters and FOIA officers. "We have seen firsthand how helpful that is to the process."
FOIA amendments enacted last year, after the Bush administration tried to delay them to give its efforts more time, require agencies to establish telephone or Internet service allowing requesters to learn electronically the status and estimated completion date of their requests.
Washington - Despite ordering improvements more than two years ago, President Bush has barely made a dent in the huge backlog of unanswered requests under the Freedom of Information Act.
At the same time, an audit by the National Security Archive found that Bush has provided citizens someone to talk to about how long it is going to take to get the government records they want or to be turned down.
The archive, a private research group at The George Washington University, released its seventh audit Sunday of the 1967 law that gives people the power to request information from federal government files. The audit of 90 government agencies found mixed results from Bush's executive order on Dec. 14, 2005, to agencies to clear the backlog and be more responsive to requesters.
"Behind its ambitious facade, the order lacked both carrot and stick," the audit said, because it provided no additional money to do the job and no way to force agencies to set substantial goals or step up their efforts if they fell short.
"Many of the same old scofflaw agencies are still shirking their responsibilities to the public," said Tom Blanton, director of the archive, whose FOIA audits are funded by the John S. and James L. Knight Foundation.
The archive found that unanswered requests government-wide dropped just over 2 percent, from 217,000 to 212,000, from the end of 2005 to the end of 2007.
Of those agencies with backlogs, 31 percent even saw pending requests rise during the two years, including some agencies that significantly reduced very old unanswered requests but saw gains wiped out by a surge of new requests.
Some agencies did well:
-The Energy Department focused on requests more than a year old and instituted biweekly reports from its field offices to top headquarters FOIA officials. It cut the agency-wide backlog from 1,162 requests to 438.
-The CIA set up a task force to tackle the oldest requests. Requests more than five years old were cut 25 percent in 2006 and 74 percent in 2007.
-The Health and Human Services Department added staff but an unexpected increase in new requests prevented it from achieving its planned 5 percent reduction in 2006. It did achieve a 24 percent reduction during 2007.
The Homeland Security Department set an ambitious goal of eliminating its entire backlog by the end of 2007, but instead saw it grow from 82,544 to 83,661 requests.
The FBI failed to meet its reduction goals for 2006 and 2007 and twice pushed them back a year.
The audit particularly criticized the Treasury Department for trying to "wait out the requester." Treasury sent letters to requesters requiring them to reaffirm their interest in the data within 15 business days.
The archive, a major FOIA requester, received such letters from Treasury for 42 outstanding requests. In 27 cases, Treasury sent a second letter after the archive responded it was still interested. For 10 requests all over a decade old, Treasury said the files had been transferred to the National Archives and a new request would have to be submitted there.
Treasury closed 718 requests over two years because the requester no longer wanted the documents or because Treasury's letters went unanswered or were returned because of outdated addresses.
"That many agencies have made significant improvements without additional funding is a real credit to the professionals who work there," said Melanie Poustay of the Justice Department. She heads the Office of Information and Privacy, which advises all government agencies how to obey FOIA and suggests improvements in the FOIA plans Bush ordered each agency to prepare.
"Obviously, though, backlog reduction is an area that continued to need attention," she said.
The audit praised Bush for requiring each agency to set up an FOIA Service Center that people can call to track the progress of their requests; an FOIA Public Liaison to take complaints about the service center; and a chief FOIA officer to manage agency efforts.
The archive sent FOIA requests to all 90 agencies. At 51 of 53 agencies that did not respond in the required 20 days, the archive was able by calling service centers or public liaisons to confirm its requests had been received and sometimes learn where they were in processing. Most FOIA officers they reached "were courteous and helpful."
But not at the CIA and Transportation Department. Multiple calls to the service centers and public liaisons at those two agencies went unanswered. The CIA had no voicemail to take a message; voicemail messages left at the Transportation Department were not returned.
Poustay said the audit revealed "great strides agencies have made in improving customer service." She said her office emphasizes to all agencies the value of direct dialogue between requesters and FOIA officers. "We have seen firsthand how helpful that is to the process."
FOIA amendments enacted last year, after the Bush administration tried to delay them to give its efforts more time, require agencies to establish telephone or Internet service allowing requesters to learn electronically the status and estimated completion date of their requests.
Supreme Court Inc.
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By Jeffrey Rosen
I.
The headquarters of the U.S. Chamber of Commerce, located across from Lafayette Park in Washington, is a limestone structure that looks almost as majestic as the Supreme Court. The similarity is no coincidence: both buildings were designed by the same architect, Cass Gilbert. Lately, however, the affinities between the court and the chamber, a lavishly financed business-advocacy organization, seem to be more than just architectural. The Supreme Court term that ended last June was, by all measures, exceptionally good for American business. The chamber's litigation center filed briefs in 15 cases and its side won in 13 of them - the highest percentage of victories in the center's 30-year history. The current term, which ends this summer, has also been shaping up nicely for business interests.
I visited the chamber recently to talk with Robin Conrad, who heads the litigation effort, about her recent triumphs. Conrad, an appealing, soft-spoken woman, lives with her family on a horse farm in Maryland, where she rides with a fox-chasing club called the Howard County-Iron Bridge Hounds. Her office, playfully adorned by action figures of women like Xena the Warrior Princess and Hillary Rodham Clinton, has one of the most impressive views in Washington. "You can see the White House through the trees," she said as we peered through a window overlooking the park. "In the old days, you could actually see people bathing in the fountain. Homeless people."
Conrad was in an understandably cheerful mood. Though the current Supreme Court has a well-earned reputation for divisiveness, it has been surprisingly united in cases affecting business interests. Of the 30 business cases last term, 22 were decided unanimously, or with only one or two dissenting votes. Conrad said she was especially pleased that several of the most important decisions were written by liberal justices, speaking for liberal and conservative colleagues alike. In opinions last term, Ruth Bader Ginsburg, Stephen Breyer and David Souter each went out of his or her way to question the use of lawsuits to challenge corporate wrongdoing - a strategy championed by progressive groups like Public Citizen but routinely denounced by conservatives as "regulation by litigation." Conrad reeled off some of her favorite moments: "Justice Ginsburg talked about how 'private-securities fraud actions, if not adequately contained, can be employed abusively.' Justice Breyer had a wonderful quote about how Congress was trying to 'weed out unmeritorious securities lawsuits.' Justice Souter talked about how the threat of litigation 'will push cost-conscious defendants to settle.'"
Examples like these point to an ideological sea change on the Supreme Court. A generation ago, progressive and consumer groups petitioning the court could count on favorable majority opinions written by justices who viewed big business with skepticism - or even outright prejudice. An economic populist like William O. Douglas, the former New Deal crusader who served on the court from 1939 to 1975, once unapologetically announced that he was "ready to bend the law in favor of the environment and against the corporations."
Today, however, there are no economic populists on the court, even on the liberal wing. And ever since John Roberts was appointed chief justice in 2005, the court has seemed only more receptive to business concerns. Forty percent of the cases the court heard last term involved business interests, up from around 30 percent in recent years. While the Rehnquist Court heard less than one antitrust decision a year, on average, between 1988 and 2003, the Roberts Court has heard seven in its first two terms - and all of them were decided in favor of the corporate defendants.
Business cases at the Supreme Court typically receive less attention than cases concerning issues like affirmative action, abortion or the death penalty. The disputes tend to be harder to follow: the legal arguments are more technical, the underlying stories less emotional. But these cases - which include shareholder suits, antitrust challenges to corporate mergers, patent disputes and efforts to reduce punitive-damage awards and prevent product-liability suits - are no less important. They involve billions of dollars, have huge consequences for the economy and can have a greater effect on people's daily lives than the often symbolic battles of the culture wars. In the current Supreme Court term, the justices have already blocked a liability suit against Medtronic, the manufacturer of a heart catheter, and rejected a type of shareholder suit that includes a claim against Enron. In the coming months, the court will decide whether to reduce the largest punitive-damage award in American history, which resulted from the Exxon Valdez oil spill in 1989.
What should we make of the Supreme Court's transformation? Throughout its history, the court has tended to issue opinions, in areas from free speech to gender equality, that reflect or consolidate a social consensus. With their pro-business jurisprudence, the justices may be capturing an emerging spirit of agreement among liberal and conservative elites about the value of free markets. Among the professional classes, many Democrats and Republicans, whatever their other disagreements, have come to share a relatively laissez-faire, technocratic vision of the economy and are suspicious of excessive regulation and reflexive efforts to vilify big business. Judges, lawyers and law professors (such as myself) drilled in cost-benefit analysis over the past three decades, are no exception. It should come as little surprise that John Roberts and Stephen Breyer, both of whom studied the economic analysis of law at Harvard, have similar instincts in business cases.
This elite consensus, however, is not necessarily shared by the country as a whole. If anything, America may be entering something of a populist moment. If you combine the groups of Americans in a recent Pew survey who lean toward some strain of economic populism - from disaffected and conservative Democrats to traditional liberals to social and big-government conservatives - at least two-thirds of all voters arguably feel sympathy for government intervention in the economy. Could it be, then, that the court is reflecting an elite consensus while contravening the sentiments of most Americans? Only history will ultimately make this clear. One thing, however, is certain already: the transformation of the court was no accident. It represents the culmination of a carefully planned, behind-the-scenes campaign over several decades to change not only the courts but also the country's political culture.
II.
The origins of the business community's campaign to transform the Supreme Court can be traced back precisely to Aug. 23, 1971. That was the day when Lewis F. Powell Jr., a corporate lawyer in Richmond, Va., wrote a memo to his friend Eugene B. Snydor, then the head of the education committee of the U.S. Chamber of Commerce. In the memo, Powell expressed his concern that the American economic system was "under broad attack." He identified several aggressors: the New Left, the liberal media, rebellious students on college campuses and, most important, Ralph Nader. Earlier that year, Nader founded Public Citizen to advocate for consumer rights, bring antitrust actions when the Justice Department did not and sue federal agencies when they failed to adopt health and safety regulations.
Powell claimed that this attack on the economic system was "quite new in the history of America." Ever since 1937, when President Franklin D. Roosevelt threatened to pack a conservative Supreme Court with more progressive justices, the court had largely deferred to federal and state economic regulations. And by the '60s, the Supreme Court under Chief Justice Earl Warren had embraced a form of economic populism, often favoring the interests of small business over big business, even at the expense of consumers. But what Powell saw in the work of Nader and others was altogether more extreme: a radical campaign that was "broadly based and consistently pursued."
To counter the growing influence of public-interest litigation groups like Public Citizen, Powell urged the Chamber of Commerce to begin a multifront lobbying campaign on behalf of business interests, including hiring top business lawyers to bring cases before the Supreme Court. "The judiciary," Powell predicted, "may be the most important instrument for social, economic and political change." Two months after he wrote the memo, Powell was appointed by Richard Nixon to the Supreme Court. And six years later, in 1977, after steadily expanding its lobbying efforts, the chamber established the National Chamber Litigation Center to file cases and briefs on behalf of business interests in federal and state courts.
Today, the Chamber of Commerce is an imposing lobbying force. To fulfill its mission of serving "the unified interests of American business," it collects membership dues from more than three million businesses and related organizations; last year, according to the Center for Responsive Politics, the chamber spent more than $21 million lobbying the White House, Congress and regulatory agencies on legal matters. But its battle against the forces of Naderism got off to a slow start. In 1983, when Robin Conrad arrived at the chamber, the Supreme Court was handing Nader and his allies significant victories. That year, for example, the court held that President Reagan's secretary of transportation, Andrew L. Lewis Jr., acted capriciously when he repealed a regulation, inspired by Nader's advocacy, that required automakers to install passive restraints like air bags. In 1986, the chamber supported a challenge to the Environmental Protection Agency's aerial surveillance of a Dow Chemical plant. The chamber's side lost, 5-4.
But eventually, things began to change. The chamber started winning cases in part by refining its strategy. With Conrad's help, the chamber's Supreme Court litigation program began to offer practice moot-court arguments for lawyers scheduled to argue important cases. The chamber also began hiring the most-respected Democratic and Republican Supreme Court advocates to persuade the court to hear more business cases. Although many of the businesses that belong to the Chamber of Commerce have their own in-house lawyers, they would have the chamber file "friend of the court" briefs on their behalf. The chamber would decide which of the many cases brought to its attention were in the long-term strategic interest of American business and then hire the leading business lawyers to write supporting briefs or argue the case.
Until the mid-'80s, there wasn't an organized group of law firms that specialized in arguing business cases before the Supreme Court. But in 1985, Rex Lee, the solicitor general under Reagan, left the government to start a Supreme Court appellate practice at the firm Sidley Austin. Lee's goal was to offer business clients the same level of expert representation before the Supreme Court that the solicitor general's office provides to federal agencies. Lee's success prompted other law firms to hire former Supreme Court clerks and former members of the solicitor general's office to start business practices. The Chamber of Commerce, for its part, began to coordinate the strategy of these lawyers in the most important business cases.
At times, the strategic calculations can be quite personal. Because Supreme Court clerks have tremendous influence in making recommendations about what cases the court should hear, Conrad told me, having well-known former clerks involved in submitting a brief can be especially important. "When Justice O'Connor was on the bench and we knew her vote was very important, we had a case where the opposition had her favorite clerk on the brief, so we retained her next-favorite clerk," she said with a laugh. "We won."
In our conversation, Conrad was especially enthusiastic about Maureen Mahoney, a former clerk for Chief Justice Rehnquist and one of the top Supreme Court litigators who coordinate strategy with the chamber. When Mahoney agreed in 2005 to represent an appeal by the disgraced accounting firm Arthur Andersen, which was convicted in 2002 of obstructing justice by shredding documents related to the audit of Enron, few people thought the Supreme Court would take the case. "The climate was very anti-Enron," Mahoney told me, "and it was viewed as a doomed petition."
Mahoney rehearsed her Supreme Court argument in a moot court sponsored by the chamber. ("She was absolutely dazzling," Conrad recalls.) On April 27, 2005, Mahoney stood calmly before the justices and delivered one of the best oral arguments I've ever seen at the Supreme Court. She argued that because Arthur Andersen's accountants had followed a standard document-destruction procedure before receiving the government's subpoena, they couldn't be guilty of a crime; they weren't aware what they were doing was criminal. The Supreme Court unanimously agreed and reversed the conviction, 9-0.
The Arthur Andersen case is a good example of how significantly the Supreme Court has changed its attitude about cases involving securities fraud - and business cases more generally - from the Warren to the Roberts era. In a case in 1964, the court ruled that aggrieved investors and consumers could file private lawsuits to enforce the securities laws, even in cases in which Congress hadn't explicitly created a right to sue. In the mid-1990s, however, Congress substantially cut back on these citizen suits, and the court today has shown little patience for them. Mahoney says she sees her victory in the Arthur Andersen case as significant because it applied the same principle in criminal cases involving corporate wrongdoing that the court had already been recognizing in civil cases: namely, "refusing to create greater damage remedies or criminal penalties than Congress has explicitly specified." She describes the case as "a very important win for business."
This term, the Supreme Court has continued to cut back on consumer suits. In a ruling in January, the court refused to allow a shareholder suit against the suppliers to Charter Communications, one of the country's largest cable companies. The suppliers were alleged to have "aided and abetted" Charter's efforts to inflate its earnings, but the court held that Charter's investors had to show that they had relied on the deceptive acts committed by the suppliers before the suit could proceed. A week later, the court invoked the same principle when it refused to hear an appeal in a case related to Enron, in which investors are trying to recover $40 billion from Wall Street banks that they claim aided and abetted Enron's fraud. As a result, the shareholder suit against the banks may be dead.
III.
In addition to litigating cases before the court, the Chamber of Commerce also lobbies Congress and the White House in an effort to change the composition of the court itself. (Unlike many other government officials, the justices themselves are not, of course, subject to direct corporate lobbying.) The chamber's efforts in this area were inspired by Robert Bork's thwarted nomination to the court in 1987. Business groups were enthusiastic about Bork - not because of his conservative social views but because of his skepticism of vigorous antitrust enforcement. "In reaction to the Bork nomination, it struck us that we didn't even have a process in place to be a player," Conrad said.
So the chamber set up a formal process for endorsing candidates after their nominations. The process was designed to be bipartisan; and the chamber has encouraged Democratic as well as Republican presidents to appoint justices. Nominees are evaluated solely through the prism of their views about business. "We're very surgical in our analysis," Conrad said.
After the election of Bill Clinton, for example, the chamber endorsed Ruth Bader Ginsburg, who in addition to her pioneering achievements as the head of the women's rights project at the A.C.L.U. had specialized, as a law professor, in the procedural rules in complex civil cases and was comfortable with the finer points of business litigation. The chamber was especially enthusiastic about Clinton's second nominee, Stephen Breyer, who made his name building a bipartisan consensus for airline deregulation as a special counsel on the judiciary committee; and who, as a Harvard Law professor, advocated an influential and moderate view on antitrust enforcement.
During Breyer's confirmation hearings his sharpest critic was Ralph Nader, who testified that his pro-business rulings were "extraordinarily one-sided." Another critic, Senator Howard Metzenbaum of Ohio, said that the fact that the chamber was the first organization to endorse Breyer indicated that "large corporations are very pleased with this nomination" and "the fact that Ralph Nader is opposed to it indicated that the average American has a reason to have some concern." The chamber's imprimatur helped reassure Republicans about Breyer, and he was confirmed with a vote of 87 to 9. "Frankly, we didn't feel like we had anyone on the court since Justice Powell who truly understood business issues," Conrad told me. "Justice Breyer came close to that."
The Breyer and Ginsburg nominations also came at a time when liberal as well as conservative judges and academics were gravitating in increasing numbers to an economic approach to the law, originally developed at the University of Chicago. The law-and-economics movement sought to evaluate the efficiency of legal rules based on their costs and benefits for society as a whole. Although originally conservative in its orientation, the movement also attracted prominent moderate and liberal scholars and judges like Breyer, who before his nomination wrote two books on regulation, arguing that government health-and-safety spending is distorted by sensational media reports of disasters that affect relatively few citizens.
Since joining the Supreme Court, Breyer has also been an intellectual leader in antitrust and patent disputes, which often pit business against business, rather than business against consumers. In those cases, many liberal scholars sympathetic to economic analysis have applauded the court for favoring competition rather than existing competitors, innovation rather than particular innovators. "The court deserves credit for trying to rationalize a totally irrational patent system, benefiting smaller new competitors rather than existing big ones," says Lawrence Lessig, an intellectual-property scholar at Stanford.
Clinton's nominations of Ginsburg and Breyer may have been welcomed by the chamber, but with the election of George W. Bush, the chamber faced a dilemma. Ever since the Reagan administration, there had been a divide on the right wing of the court between pragmatic free-market conservatives, who tended to favor business interests, and ideological states-rights conservatives. In some business cases, these two strands of conservatism diverged, leading the most staunch states-rights conservatives on the court, Antonin Scalia and Clarence Thomas, to rule against business interests. Scalia and Thomas were reluctant to second-guess large punitive-damage verdicts by state juries, for example, or to hold that federally regulated cigarette manufacturers could not be sued in state court. As a result, under Conrad's leadership, the chamber began a vigorous campaign to urge the Bush administration to appoint pro-business conservatives.
When it came time to replace Chief Justice William Rehnquist and Justice Sandra Day O'Connor, the candidate most enthusiastically supported by states-rights conservatives, Judge Michael Luttig, had a record on the Court of Appeals for the Fourth Circuit that some corporate interests feared might make him unpredictable in business cases. ("One of my constant refrains is that being conservative doesn't necessarily mean being pro-business," Conrad told me.) The chamber and other business groups enthusiastically supported John Roberts, who had been hired by the chamber to write briefs in two Supreme Court cases in 2001 and 2002. At the time of Roberts's nomination, Thomas Goldstein, a prominent Supreme Court litigator, described him as "the go-to lawyer for the business community," adding "of all the candidates, he is the one they knew best." When Roberts was nominated, business groups lobbied senators as part of the campaign for his confirmation.
The business community was also enthusiastic about Samuel Alito, whose 15-year record as an appellate judge showed a consistent skepticism of claims against large corporations. Ted Frank of the American Enterprise Institute predicted at the time of the nomination that if Alito replaced O'Connor, he and Roberts would bring about a rise in business cases before the Supreme Court. Frank's prediction was soon vindicated.
"There wasn't a great deal of interest in classic business cases in the last few years of the Rehnquist Court," Carter Phillips, a partner at Sidley Austin and a leading Supreme Court business advocate, told me. In 2004, Judge Richard Posner, a founder of the law-and-economics movement, argued that the Rehnquist Court's emphasis on headline-grabbing constitutional cases had politicized it, and called on the court to hear more business cases. The Roberts court has unambiguously answered the call. As Phillips told me, Roberts "is more interested in those issues and understands them better than his predecessor did."
IV.
Exactly how successful has the Chamber of Commerce been at the Supreme Court? Although the court is currently accepting less than 2 percent of the 10,000 petitions it receives each year, the Chamber of Commerce's petitions between 2004 and 2007 were granted at a rate of 26 percent, according to Scotusblog. And persuading the Supreme Court to hear a case is more than half the battle: Richard Lazarus, a law professor at Georgetown who also represents environmental clients before the court, recently ran the numbers and found that the court reverses the lower court in 65 percent of the cases it agrees to hear; and when the petitioner is represented by the elite Supreme Court advocates routinely hired by the chamber, the success rate rises to 75 percent.
Faced with these daunting numbers, the progressive antagonists of big business are understandably feeling beleaguered and outgunned. "The fight before the court is generally not an even one," said David Vladeck, who once worked for the Public Citizen Litigation Group and now teaches law at Georgetown. "There's us on one side, with a brief or two, and industry on the other side, with a well-coordinated campaign of 10 or 12 briefs, with each one written by a member of the elite Supreme Court bar that address an issue in enormous depth." He added, ruefully, "You admire their handiwork, but it's frustrating as hell to deal with."
To gauge the degree of the frustration, I recently paid a visit to Ralph Nader, a few weeks before he announced his most recent campaign for president of the United States. It was a surprise to find that his office, the Center for Study of Responsive Law, shares an address in a grand building with the Carnegie Institution for Science. But the office itself, reassuringly, is buried on the ground floor, where Nader received me at a conference table surrounded by file cabinets stuffed with faded back issues of Mother Jones and The Nation.
Nader was uncontrite about his 2000 run against Al Gore - which is often credited with helping George W. Bush win the presidency - and he insisted that because Clinton appointed justices like Breyer, Gore would have done the same. "Breyer hasn't been worse than I feared, because I had real concern when he was nominated," Nader told me. He conceded that, like Breyer, Democratic justices appointed by President John Kerry would presumably have been better on civil rights and liberties than John Roberts and Samuel Alito. Nevertheless, he disparaged Breyer as a "deregulation quasi-ideologue" who was able to weave a "tapestry of illusion" in his arguments by dealing in abstractions.
The main casualty of the 2000 run, Nader said, is that he is no longer collaborating with America's trial lawyers. They would ordinarily be his natural allies in representing consumer interests, but they donated heavily to Gore's campaign. After 2000, the trial lawyers "have been vitriolic," Nader explained. He blames them for not using their money to help counteract the influence of the Chamber of Commerce and other business groups before the federal courts. In part as a result of their stinginess, he said, his colleagues at Public Citizen are underfinanced and worn down. "There were some lawyers who left Public Citizen because they got tired of losing," he said. "Everyone is desperately trying to hold on to whatever issues are left, and then they become demoralized and discouraged."
Thirty years after the Chamber of Commerce founded its litigation center to counteract his influence, Nader all but conceded defeat in the battle for the Supreme Court. With the decline of economic populism in Congress, the weakening of trade unions and the rise of globalization, the political climate, he lamented, was passing him by. "I recall a comment by Eugene Debs," Nader said, looking at me intensely. "He said: The American people live in a country where they can have almost anything they want. And my regret is that it seems that they don't want much of anything at all."
Nader chuckled quietly and shook his head. "I say ditto."
V.
If there is an anti-Nader - a crusading lawyer passionately devoted to the pro-business cause - it is Theodore Olson. One of the most influential Supreme Court advocates and a former solicitor general under President George W. Bush, Olson is best known for his winning argument before the Supreme Court in Bush v. Gore in 2000. But Olson has devoted most of his energies in private practice to changing the legal and political climate for American business. According to his peers in the elite Supreme Court bar, he more than anyone else is responsible for transforming the approach to one of the most important legal concerns of the American business community: punitive damages awarded to the victims of corporate negligence.
Punitive damages - money awarded by civil juries on top of any awarded for actual harm that victims have suffered - are designed to penalize especially egregious acts of corporate misconduct resulting from malice or greed, and to deter similar wrongdoing in the future. In the 19th century, courts generally demanded a clear assignment of fault in cases where victims sued for injuries caused by malfunctioning products. It was hard for plaintiffs to recover in personal-injury cases unless the corporation was obviously at fault. But in the 20th century, in liability cases involving a rapidly expanding class of potentially dangerous products like cars, drugs and medical devices, courts increasingly applied a standard of "strict liability," which held that manufacturers should pay whether or not they were directly at fault.
The animating idea was that manufacturers were in the best position to prevent accidents by improving their products with better design and testing. They and their insurance companies (rather than society as a whole) would shoulder the costs of accidents, thus giving them an incentive to make their products safer. Encouraged by Ralph Nader's book, "Unsafe at Any Speed," published in 1965, courts began to see car accidents as predictable events that better car design could have prevented. In 1968, for example, a federal court held that car manufacturers could be sued for failing to make cars safe enough for drivers to survive crashes, even if the driver was at fault for the crash.
A series of well-publicized awards in the 1980s and '90s culminated in the largest punitive damage award in American history the $5 billion levied against Exxon after the Exxon Valdez oil spill in 1989. This was hardly typical: the median punitive award actually fell to $50,000 in 2001 from $63,000 in 1992. Nevertheless, critics like Olson claimed that multimillion-dollar punitive-damage verdicts were threatening the health of the economy. They resolved to fight back on several fronts. In his first Supreme Court argument, in 1986, Olson set out the broad contours of his argument: for most of English and American history, private litigants were entitled to be compensated for whatever damages they suffered, including pain and suffering, but any public wrongs like the failure of American business to make cars safer by adopting air bags should be addressed by legislation or regulation, not by the courts.
Olson decided that his clients deserved not just a lawyer who could argue a case but a lawyer who could change the political culture. "You had to attack it in a broad-scale way in the legislatures, in the arena of public opinion and in the courts," he told me recently. "I felt the business community had to approach this in a holistic way." He set out, in lectures and op-ed pieces, to publicize especially egregious examples. The poster child for punitive-damage abuse, widely derided in TV and radio ads paid for by the business community, was a New Mexico grandmother who, in 1994, was awarded $2.7 million in punitive damages when she scalded herself with hot McDonald's coffee. Consumer advocates countered that she had originally asked for $20,000 for medical expenses, which McDonald's refused to pay, and the award appeared to have the effect of persuading McDonald's to serve its coffee at a safer temperature. Nonetheless, the campaign to vilify plaintiffs' lawyers has been effective enough that the American Association of Trial Lawyers recently changed its name to the fuzzier American Association for Justice.
The business community made other inroads against punitive damages. Corporations financed campaigns against pro-punitive-damage state judges who had been elected with the assistance of large contributions from plaintiffs' lawyers. The business community also helped persuade more than 30 states to either impose caps on punitive-damage awards or direct substantial portions of the awards to be paid into special state funds. In 1996, it helped persuade the Republican Congress, led by Newt Gingrich, to pass legislation that would cap punitive-damage awards in product-liability cases in every state court in the country. But in 1996, President Clinton, with what must have been perverse pleasure, vetoed the bill on the grounds that it violated principles of federalism and states rights to which conservatives claimed to be devoted.
Thwarted by Clinton, and unable to persuade Congress to override the veto, opponents of punitive damages turned their attention back to the Supreme Court, looking for a victory they were unable to win in the political arena. Here, they were remarkably successful. As late as 1991, the court had refused to impose limits on a large punitive-damage award. But in a case in 1996, the court held for the first time that punitive-damage awards had to be proportional to the actual damage incurred by the plaintiff. The case involved a man who said he was deceived by BMW when it sold him a supposedly "new" car that was, in fact, used and had received a $300 touch-up job. The court, in a 5-4 opinion, overturned a $2 million punitive-damage award as "grossly excessive." In 2003, the court clarified what it meant: a single-digit ratio between punitive damages and compensatory damages was likely to be acceptable.
Last year, the business community watched with anticipation as Roberts and Alito revealed their views about punitive damages. The case involved the estate of a heavy smoker who sued Philip Morris for deceitfully distributing a "poisonous and addictive substance." A jury had awarded the estate $821,000 in compensatory damages and $79.5 million in punitive damages - a ratio of about 100 to 1. In a 5-4 opinion written by Breyer, the court held that it was unconstitutional for a jury to use punitive damages to punish a company for its conduct toward similarly affected individuals who are not party to the lawsuit.
This spring, the court will decide the Exxon Valdez punitive-damage case, which many consider the culmination of the business community's decades-long campaign against punitive damages. In 1989, the Exxon Valdez tanker, whose captain had a history of alcoholism, ran into a reef and punctured the hull; 11 million gallons of oil leaked onto the coastline of Prince William Sound. A jury handed down a $5 billion punitive-damage award.
After the verdict, Exxon began providing money for academic research to support its claim that the award for damages was excessive. It financed some of the country's most prominent scholars on both sides of the political spectrum, including the Nobel laureate Daniel Kahneman and Cass Sunstein, a law professor at the University of Chicago. (Sunstein says he accepted only travel grants, not research support, from Exxon; and Kahneman stresses that the financing had no influence on the substance of his work.) In a 2002 book, "Punitive Damages: How Juries Decide," Sunstein studied hundreds of mock-jury deliberations and concluded that jurors are unpredictable and often irrational in punitive-damage cases. Jury deliberations, he found, increase the unpredictability, as well as the dollar amount of the final awards. Sunstein concluded that a system of civil fines determined by experts, rather than punitive damages determined by juries, might be more sensible. When Exxon appealed the $5 billion verdict in 2006, it was reduced by an appellate court to $2.5 billion. The reduced verdict is once again being challenged as excessive.
Walter Dellinger, the lawyer now arguing Exxon's case before the Supreme Court, is no Republican activist. Like Sunstein, he is one of the most respected Democratic constitutional scholars, as well as a former acting solicitor general for President Clinton. Last month, in his argument before the court, Dellinger argued that because Exxon has already paid $3.4 billion in fines, cleanup costs and compensation connected with the Exxon Valdez spill, and because it didn't act out of malice or greed in failing to monitor the alcoholic captain, additional punitive damages would serve no "public purpose."
During the argument, Breyer noted that the $2.5 billion punitive damage award represents a less than 10-to-1 ratio between punitive damages and compensatory damages, which is in the single-digit range that the Supreme Court has considered acceptable in the past. But Breyer also seemed concerned at other points that punitive-damage awards have not been routine in maritime cases like this one, and that the award might create "a new world for the shipping industry." Alito, who owns Exxon Mobil stock, did not participate, and because a tie would affirm the $2.5 billion punitive-damage award, the plaintiffs who are opposing Exxon need only four votes to prevail. But whether Dellinger gets five votes, a significant triumph is already behind him: he persuaded the court to take the case in the first place.
VI.
Ted Olson and the Chamber of Commerce aren't only trying to persuade the Supreme Court to cut back on large punitive-damage awards; they're also arguing that consumers injured by dangerous or defective medical devices and drugs in some cases shouldn't be able to file product-liability suits at all. Because there is no national product-liability law that allows federal suits for personal injuries, consumers who are injured by, say, defective heart valves or artificial hips have to sue in state courts under state tort law. By asking the Supreme Court to prevent injured consumers from suing in state court, the business community, supported by the Bush administration, is trying to ensure that these consumers often have no legal remedy for their injuries. And the Supreme Court has been increasingly sympathetic to the business community's arguments.
In a Supreme Court case Olson argued in December, he stood before the justices and argued that the manufacturers of defective medical devices - like heart valves, breast implants and defibrillators - should be immune from personal-liability suits because the federal Food and Drug Administration had approved the devices before they were marketed and the manufacturers had complied with all federal requirements. The case involved Charles Riegel, who had an angioplasty in 1996 during which the catheter used to dilate his coronary artery burst. Riegel, who needed advanced life support and emergency bypass surgery, eventually sued the manufacturer of the catheter, Medtronic. The company is colloquially referred to in the business community as "the pre-emption company" because of its practice of arguing that the Food and Drug Administration's "premarket approval" of its products pre-empts product-liability suits in state courts.
The lawyer representing Riegel's estate before the Supreme Court, Allison Zieve of Public Citizen, countered that Congress never intended to ban state product-liability suits when Senator Edward Kennedy sponsored a bill regulating medical devices in 1976. (Kennedy himself filed a brief in the case noting that he indeed intended no such thing.) "Lawyers think this is a close issue, but any time I talk to a nonlawyer about it, they're shocked," Zieve told me after the argument. "People think: of course, if somebody makes a defective product you can sue."
It's one thing to argue that the federal government's "premarket approval" of food, drugs and medical devices should pre-empt clearly inconsistent state laws and regulations. After all, if states imposed safety requirements that conflicted with the federal standard, the resulting regulatory confusion would make a national (and global) market impossible. But Olson's claim that federal regulation of medical devices and drugs should also pre-empt product-liability suits under state tort law is one of the more creative and far-reaching legal arguments of the business groups that litigate before the Supreme Court.
This type of argument arose out of the tobacco litigation of the 1980s and '90s, which culminated in a $206 billion settlement paid by the top tobacco companies to a consortium of 46 state attorneys general in exchange for dropping tort suits against the companies. The tobacco litigation began modestly: in 1983, Rose Cipollone, a New Jersey woman dying of lung cancer, sued several of the country's largest tobacco companies for their failure to give adequate warnings about the dangers of smoking. After spending tens of millions of dollars fighting the verdict, the companies decided to take their defense to the next level. They argued that because the federal government required cigarette companies to have warning labels, tobacco companies couldn't be subject to tort suits in state courts. Jury verdicts, they argued, are no less a form of regulation than laws explicitly adopted by state legislatures.
In a decision in 1992, the Supreme Court endorsed part of the companies' argument. The decision unleashed a torrent of similar "pre-emption" claims by the manufacturers of dangerous drugs, defective medical devices and cars without air bags. And after the election of President Bush in 2000, the business community's crusade was aggressively supported by the White House. At the same time that the White House was scaling back on federal health-and-safety enforcement, it insisted that consumers should not be able to sue federally regulated industries in state court. Bush appointed as the general counsel of the Food and Drug Administration a former drug- and tobacco-company lawyer named Daniel Troy. With Troy's support, the F.D.A. reversed its position, held for 25 years, and argued for the first time that its premarket approval of medical devices should prevent injured consumers from bringing product-liability suits in state court.
After her Supreme Court argument in the Medtronic case, Zieve told me she wasn't sure what to expect. Until the arrival of Chief Justice Roberts, groups like Public Citizen had found that they had a better chance of winning pre-emption cases before the Supreme Court than in the lower courts. But during the first two years of the Roberts Court, the justices had decided two pre-emption cases in favor of the corporate defendants.
The trend has continued. On Feb. 21, the Supreme Court handed Zieve a crushing defeat: an 8-1 opinion immunizing the makers of defective medical devices from product-liability suits. The lone dissent was written by Ruth Bader Ginsburg, who objected that Congress could not have intended such a "radical curtailment" of state personal-injury suits when it regulated medical devices in 1976. Ginsburg, who is devoted to liberal judicial restraint, has consistently opposed efforts to second-guess punitive-damage awards or expand federal pre-emption. I called Zieve soon after the Supreme Court issued its opinion, and she sounded shocked. "It's really unfathomable to me," she said. "I wasn't sure that this was a business-friendly court, but now I'm finding it harder not to view it that way." Zieve said that, as a result of the decision, "I think the industry will keep unsafe devices on the market longer and be slower to improve products."
In the eyes of advocates like Zieve and Public Citizen, the public is now caught in a Catch-22: at the very moment that agencies like the F.D.A. are being strongly reproved by critics - including the agency's own internal science board - for being unwilling or unable to protect public health, the court is making it harder for people to receive compensation for the injuries that result. On rare occasions, the Roberts Court has held that the Bush administration's deregulatory efforts circumvent the will of Congress - like the 5-4 decision last year holding that the Environmental Protection Agency acted capriciously when it adopted a rule that said it had no legal authority to regulate greenhouse gases. But by and large, the Supreme Court defers to agencies that refuse to regulate public health and safety. "The industry has a lot of money, and they can routinely hire the biggest names in the biggest firms, while we're doing it on our own," Zieve told me. "We don't charge anything - we're free. It didn't cost $250,000 to get us to write the brief."
VII.
The Supreme Court is unlikely to reconsider its pro-business outlook anytime soon. Nevertheless, there are several currents in American political life that run counter to the court, even if they may not be strong enough, or suitably directed, to reverse it. There are, for example, economic populists in both political parties - John Edwards Democrats and Mike Huckabee Republicans, to cite just two types - who express concern about growing economic inequality and corporate corruption, and blame unchecked corporate power for America's escalating economic problems. These populists tend to be from the working and middle classes rather than the professional classes, and their numbers may be growing. In recent Pew surveys, 65 percent of Americans agreed that corporations make excessive profits - the highest number in 20 years. Moreover, about half the country now asserts that America is divided on economic lines into two groups - the "haves" and "have nots" - up from only 26 percent two decades ago. And the number of Americans who view themselves as "have nots" has doubled to 34 percent today from 17 percent in 1988. Responding to pressures from this demographic, a Democratic Congress - bolstered by states-rights conservatives - might well try to pass legislation to counteract the court's recent decisions barring product-liability suits for defective medical devices.
What about the executive branch? It seems unlikely that John McCain, if he were elected president, would push back against the court: he has already pledged to appoint "judges of the character and quality of Justices Roberts and Alito," rather than justices more devoted to states rights, like Scalia and Thomas. As for Barack Obama and Hillary Clinton, both have sounded increasingly populist notes in an effort to attract union and blue-collar supporters, ratcheting up their attacks on corporate wealth and power, singling out the drug, oil and health-insurance industries and promising to renegotiate the North American Free Trade Agreement. But despite their rhetoric, it is not clear that either candidate would actually appoint justices any more populist than Bill Clinton's nominees. "I would be stunned to find an anti-business appointee from either of them," Cass Sunstein, who is a constitutional adviser to Obama, told me. "There's not a strong interest on the part of Obama or Clinton in demonizing business, and you wouldn't expect to see that in their Supreme Court nominees."
Still, the possibility does exist. If the economy continues to decline and blue-collar voters end up being crucial in the election, a Democratic president might appoint an economic populist to the Supreme Court as a kind of payback. Earlier this month, on the campaign trail in Ohio, Obama mentioned Earl Warren, who served as governor of California before becoming chief justice, as a model of the kind of justice he hoped to appoint. "I want people on the bench who have enough empathy, enough feeling, for what ordinary people are going through," Obama said. He praised Warren for understanding that segregation was wrong because of the stigma it attached to blacks, rather than because of the precise nature of its sociological impact. Appointing a former politician to the court would almost certainly introduce a more populist element: the Supreme Court that in 1954 decided Brown v. Board of Education included, in addition to a former governor, three former senators, a former Securities and Exchange Commission member and two former attorneys general. (By contrast, the Roberts court is composed of nine former judges.)
Whatever happens in November, Robin Conrad says the Chamber of Commerce is prepared to lobby as hard as ever for the appointment of pro-business justices. "If we do have a Democrat president, and that president has opportunities to nominate to the court," she said in our meeting as I glanced at her Hillary Clinton action figure, "we want to be able to express ourselves and work with that president." Regardless of how many justices retire in the next presidential term, Conrad is confident that, having helped to transform the Supreme Court in less than 30 years, she and her colleagues can assure American business of a sympathetic hearing for decades to come.
When I told Conrad that Ralph Nader told me that lawyers were leaving Public Citizen because they were tired of losing, she achieved a look of earnest concern. "I hope if they feel they've lost," she said, "they lost for a good reason - not because they've been overpowered or muscled by the big, bad business community, but they've lost because reason won."
Conrad looked at me squarely, and then added, "I guess if Ralph Nader wants to say we did him in" - she paused to weigh her words - "so be it."
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