The Presidential Debates Are a Scam

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By David Bollier

Have you wondered why the presidential debates don’t present any serious ideas or encourage any substantive exchanges about policy and political philosophy? Have you noticed that the events resemble a whirring jukebox of familiar sound bites -- a highly produced, tightly scripted affair with with no surprises and little passion?

There’s a reason. Both candidates and their political parties want it this way. The debates are not the production of some independent third party like the League of Women Voters, the host university or news organizations. They are co-produced by the Democratic and Republican Parties themselves, who have ingeniously disguised their actual roles by nominally delegating control to the Commission on Presidential Debates

The Commission sounds like some venerable group of eminent graybeards and experts. Not so. It is a group of party apparatchiks whose express goal is to broker the terms of the debate in order to advance and protect each candidate’s interests. For the 2008 debates, the Commission negotiated a 31-page memo of understanding that lays out in precise detail the rules of stagecraft, questioning, follow-up, audience deportment, and other conditions. The contents of this memo, however, have not been disclosed despite requests by citizen groups.

We do know the upshot of the memo, however: a series of carefully orchestrated PR events that pretend to host a wide-open, vigorous debate.

The truth is, no one can really learn much about the candidates or their ideas when the format has such rigid time limits on answers and predictable questions from mainstream news anchors. The moderators are constrained from asking tough follow-up questions, and the audience is forced to sit like zombies in a funeral parlor. Even with the so-called "town hall meeting" format, there is no genuine back-and-forth dialogue between candidates and citizens. Nor are there any direct candidate-to-candidate exchanges. Third-party candidates have been summarily excluded, so there are no disruptive questions that might expose the limited vision of the two major parties. (Ralph Nader was famously excluded from the 2000 presidential debates because his citizen support was deemed too insignificant to make a difference in the election.)

In short, the presidential debates are shams if they are to be considered debates. They are meant to simulate honest, spontaneous exchanges of ideas but in fact, their real goal is to prevent any spontaneity, depth, complexity or worrisome surprises.

A more open format would give candidates greater latitude to express themselves at length and with nuance. But that’s apparently what the two parties really don’t want. An open format leaves too much room for candidates to be caught off-guard or exposed as superficial. An open format would require candidates to be able to go beyond repetitious talking points and rehearsed accusations and one-liners.

In 1998, former CBS news anchor Walter Cronkite wrote, "The debates are part of the unconscionable fraud that our political campaigns have become ... the candidates participate only with the guarantee of a format that defies meaningful discourse." It is a testament to the state of mainstream journalism that leading news anchors happily agree to participate in these farces. It’s great PR exposure, after all.

One of the best debunkings of the modern presidential debates is George Farah’s book, No Debate: How the Republican and Democratic Parties Secretly Control the Presidential Debates (Seven Stories Press, 2004). Farah charges that the Commission on Presidential Debates "acts as an effective screen for the two parties to evade citizens’ most pressing questions, and absorbs the political costs that would otherwise accrue to the parties. This function of the CPD, as an arms-length organ of the parties, amounts to a shocking institutional rigging of the electoral process that degrades our democracy and signals worrying bipartisan contempt for transparency in this country’s highest elected office."

This year, however, an insurgent citizen coalition is arising to challenge the rigged presidential debates. The Open Debate Coalition, led by Professor Lawrence Lessig, has sent a letter to the Obama and McCain campaigns asking them to change the ground rules for the debates. The coalition spans a broad left-right political spectrum. It includes Craig Newmark of Craiglist; Arianna Huffington of the Huffington Post; filmmaker Robert Greenwald; Mindy Finn, a Republican strategist; Jimmy Wales, the founder of Wikipedia; Patrick Ruffini, a former Republican National Committee eCampaign Director; and many others.

The Coalition has asked that the debate moderator have broad discretion to ask follow-up questions after a candidate’s answer, and that the public be able to use the Internet to vote on which questions shall be asked. The Coalition has also asked that, as a stipulation of the next debate, the media pool must release all 2008 debate footage into the public domain.

This is an issue because on at least two occasions, TV networks have invoked copyright law to prevent candidates from using footage from the debates. Bloggers and other commentators should not be constrained from using video snippets from the debates because the host TV network asserts copyright control over its footage. The event ought to be available to every citizen, especially now that citizens have their own video-production and -publishing capacities.

Despite promising responses to the Coalition’s letter from both candidates, it remains to be seen whether the media pool will put their video of the debate into the public domain and whether moderator Tom Brokaw will use any citizen questions that citizens have voted on at Google’s website.

Perhaps the bigger question is whether the Commission on Presidential Debates will reform its practices in the future. Right now, the "debates" use a format that is deliberately designed to minimize actual debate, maximize positive PR for the candidates, and deflect any criticism of the debate format away from the two major parties. It’s time to open the closed debate structure to citizen voices and a more open format. The two parties should not be able to enclose democratic debate. Citizens, not parties, ought to reclaim the debates. If the United States hopes to recover its moral authority as a champion of democracy, it needs to start walking the talk. What better venue than the presidential debates?

Hank Paulson and His Wall Street Cronies Move to Plan B

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By Nomi Prins

How do you stop a ship from sinking, and simultaneously rebuild it to prevent its future destruction? That was the question in the minds of the world's central bankers as they sat down over the weekend to figure out how to right the global financial Titanic.

European leaders came up with a plan to inject "unlimited short-term funds" into the system in addition to $2.3 trillion of guarantees and various emergency measures (pledged by Germany, Britain, France, The Netherlands, Spain, Portugal and Austria). This could be like dumping money into a black hole, since most of these funds will be given in the form of loans, which means banks must come up with adequate collateral to back them, which is in short supply these days. But it's more decisive than anything the Treasury or Federal Reserve has done so far.

Indeed, the coordinated efforts of the European central banks have had a more positive initial impact on the markets than the bipartisan passage of Treasury Secretary Henry Paulson's $700 billion rescue fund did. That announcement preceded an eight-day market selloff and the global freezing of credit. This one sent the Dow zooming up 11.1 percent, its biggest percentage gain since 1933. But the week is young.

Meanwhile, the question addressed by Paulson Monday is what to do with that $700 billion? To answer this, he sat down with his friends, the leaders of the largest financial institutions in America that got us into this mess. Namely, Ken Lewis, CEO of Bank of America; Jamie Dimon, CEO of J.P. Morgan Chase; Lloyd Blankfein, Paulson's successor at Goldman Sachs; John Mack, CEO of Morgan Stanley; and Vikram Pandit, CEO of Citigroup.

These men have shown themselves to be far more interested in preserving themselves than in stabilizing the general economy for American citizens. And it's a safe bet (probably the safest out there) that their philosophy remains intact.

Economists and media pundits over the weekend optimistically hoped that Paulson might get a clue that his initial idea of purchasing $700 billion of toxic assets would not stabilize the financial system. Having worked on Wall Street, I remain cynical about the notion that purchasing assets was off the table.

And it turns out that Paulson's Plan B is not to completely abandon plan A. So far, he has decided to spend $250 billion of that $700 billion to buy equity stakes in banks whose future losses are still unknown. The rest could conceivably be used to buy up toxic assets.

These, and other related decisions are to be made, in large part, by Paulson's former protégé at Goldman Sachs (and now interim assistant treasury secretary) Neel Kashkari. Kashkari described the equity purchase program as "voluntary and designed with attractive terms to encourage participation from healthy institutions."

But encouraging participation hardly seems an issue. There's not a bank around that wouldn't want its stock price boosted by a Treasury purchase of its bleeding shares. Equally, every bank has a bunch of toxic assets good to go.

There are equally eager participants running this plan, too. No fewer than seven policy teams and five veteran government officials have been culled to figure out which banks will receive the most help. (This comes as the leaders of the top five cozy up to Paulson.)

There's also no shortage of firms wanting a piece of the action of the bright new Treasury hedge fund. Seventy financial firms have made bids (i.e., asked for money) to become master custodian of the fund, managing inflow and outflow.

One hundred firms have bid to become one of the five master program operators that will decide which assets to buy and how to manage them. Let's see if Goldman Sachs makes the cut.

The outcome of Monday's meeting included no request for more stringent banking regulations going forward. That would require a complete restructuring of the financial landscape into transparent, manageable parts à la the Glass Steagall Act of 1933, which separated commercial banks, investment banks, and insurance companies.

The meeting did not provide a much-needed disclosure of the dangers that still lurk on the books of these firms, in a painfully transparent manner that will illuminate future losses, a move that would help alleviate the uncertainty that has been dragging down the market and freezing corporate and consumer credit alike.

As Paulson waffles on action and plans, always weighing Wall Street demands first, European leaders are taking more decisive action with their coordinated capital-injection moves. But it remains to be seen whether these will work. Perhaps their actions are an admission of responsibility; British and European institutions also made reckless bets with inadequate capital backing them.

But they all of the world's central bankers should really consider injecting more transparency and regulation, to restore international confidence, not just money. They must create a global financial structure that will both contain the fallout and avoid a repeat performance--one that never again will be so opaque, over-leveraged and dangerous.

When the Federal Government Fails the People

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By Joel S. Hirschhorn

The hardest thing for Americans to do right now in this presidential election season is to fight distraction and, instead, focus on the failure of all three branches of the federal government. And also to resist the propaganda masquerading as patriotic obligation that voting will fundamentally fix the federal government. The real lesson of American history is that things have turned so ugly that electing a new president and many new members of Congress will at best provide band-aids when what is needed is nothing less than what Thomas Jefferson wisely said our nation would need periodically: a political revolution.

The basis for this view is that the institutions of the three branches have been so corrupted and perverted that they no longer meet the hopes and aspirations embedded in our Constitution.

It is easy to condemn George W. Bush as the worst president in history. The larger truth is that the presidency has accumulated far too much power over the past half century. This has resulted from the weakening of the Congress that no longer, in any way, has the power of an equal branch of government, not that any recent Congress has shown any commitment or capability to execute its constitutional authorities. Concurrently, we have become accepting of a politicized Supreme Court that has not shown the courage to stop the unconstitutional grabbing of power by the presidency and in 2000 showed its own root failure in choosing to select the new president.

Worst of all, modern history has vividly shown Americans that the federal government has usurped the sovereignty of the “we the people” and of the states, and has even sold out national sovereignty to a set of international organizations and the greed of corporate-crazed globalization.

The current economic and financial sector meltdown is just another symptom of deep seated, cancerous disease of government that has sold out the public because of the moneyed influence of the corporate and wealthy classes of special interests. The serious disease is a long festering unraveling of the constitutional design of our government. Each of the three branches of the federal government is totally unequal to each other and completely incapable of ensuring the constitutional functioning of each other. Checks and balances have become a fiction.

These sad historic realities have been produced because of an all too powerful and corrupt two-party political machine that has prevented true political competition and real choices for voters. This two-party system has thrived because of corruption from money provided for Democrats and Republicans to maintain the status quo that is the ruination of our constitutional Republic.

Yet the hidden genius of the Founders and Framers was to anticipate how the Republic would most likely unravel under the pressures of money and corruption. Unknown to nearly all Americans is a part of the Constitution that all established political forces have worked hard to denigrate over our entire history. They fear using what is provided as a kind of escape clause in the Constitution, something to use when the three branches of the federal government fail their constitutional responsibilities. What is this ultimate solution that those who love and respect our Constitution should be clamoring for?

It is the provision in Article V to create a temporary fourth branch of the government – in the form of a convention of state delegates – that operates outside the control of Congress, the President and the Supreme Court, and that has only one single function: to consider proposals for constitutional amendments, just like Congress has done over our history, but that must also be ratified by three-quarters of the states. One of the most perplexing questions in American history that has received too little attention is simple: Why have we never had an Article V convention?

One possible answer might be that what the Constitution requires to launch a convention has never been satisfied. But this is not the case. The one and only requirement is that two-thirds of state legislatures apply to Congress for a convention. With over 600 such state applications from all 50 states that single requirement has long been satisfied. So why no convention?

Because Congress has refused to honor the exact constitutional mandate that it “shall” call a convention when that requirement has been met. Simply put, Congress has long broken the supreme law of the land by not calling a convention, and virtually every political force on the left and right likes it that way. Why? Because they have learned to corrupt the government and fear an independent convention of state delegates that could propose serious constitutional amendments that would truly reform our government and political system to remove the power of special interests and compel all three branches to follow the letter and spirit of the Constitution.

With great irony, the public has been brainwashed to fear an Article V convention despite many hundreds of state constitutional conventions that have never wrecked state governments, and that in countless cases have provided much needed forms of direct democracy that have empowered citizens and limited powers of state governments.

There is only one national, nonpartisan organization with the single mission of educating the public about the Article V convention option and building demand for Congress to convene a convention. It is the Friends of the Article V Convention group that has done something that neither the government nor any other group has ever done; it has been collecting all the hundreds of state applications for a convention and making them available to the public at www.foavc.org.

With a new president and many new members of Congress, now is the ideal time for Americans that see the need for obeying the Constitution and seek root reforms to rally behind this mission of obtaining the nation’s first Article V convention. The new Congress in 2009 should give the public what the Constitution says we have a right to have and what Congress has a legal obligation to provide. Always remember that the convention cannot by itself change the Constitution, but operating in the public limelight it could revitalize what has become our delusional and fake democracy. The main thing to fear is not a convention, but continuation of the two-party plutocracy status quo. Sadly, no presidential candidate, not even third-party ones, has spoken out in support of Congress obeying the Constitution and giving us the first Article V convention.

U.S. Could Guarantee $2 Trillion For Banks

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Funds spent over three years to total 20 percent of the national debt

The government may guarantee nearly $2 trillion in U.S. banks' debt and deposit accounts for more than three years in an effort to break the crippling logjam in bank-to-bank lending.

That's the equivalent of about 20 percent of the national debt, which recently blew past $10 trillion, and roughly 14 percent of U.S. gross domestic product — the economy's total output of goods and services.

The temporary guarantees for banks by the Federal Deposit Insurance Corp. are in addition to the new $250 billion plan announced by the government Tuesday to directly buy shares in U.S. banks.

Among the initial banks participating in that plan will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley.

Well over half of the roughly 8,500 U.S. banks and savings and loans are expected to tap the FDIC's guarantees. The agency will provide temporary insurance for loans between banks, guaranteeing the new debt in the event the issuing bank failed or its holding company filed for bankruptcy.

"The FDIC is taking this unprecedented action because we have faith in our economy, our country and our banking system," FDIC Chairman Sheila Bair said in a statement. "The overwhelming majority of banks are strong, safe and sound. A lack of confidence is driving the current turmoil, and it is this lack of confidence that these guarantees are designed to address."

Invoking risk to the financial system, it was the first time the agency called on special authority under a 1991 law to undertake a special guarantee program of industrywide scope. The new program doesn't rely on taxpayer funding, Bair said, because the banks will be charged special fees for the guarantees.

The FDIC will guarantee new senior unsecured debt that banks issue to each other between Oct. 14 and June 30, 2009. It would be insured by the FDIC through June 30, 2012. Senior unsecured debt does not have collateral underlying it but must be repaid before other classes of debt.

The debt guarantees could total as much as $1.4 trillion if all U.S. banks chose to participate in the program, the government estimates. All federally-insured banks and thrifts are automatically covered for 30 calendar days and will have to decide by then whether to participate in the program.

"I think it's fair to say that (banks') views are mixed ... (from) enthusiastic to angry," said Wayne Abernathy, an executive vice president of the American Bankers Association.

Though the debt guarantees expire in mid-2012, it may be difficult for banks to wean themselves off them at that point, and the absence of guarantees could cause interbank lending rates to rise anew, Abernathy suggested. "It acts much like a crutch," he said.

Some banks believe the new insurance for non-interest-bearing deposits could be helpful, at least in the short run, Abernathy said.

The FDIC also will guarantee deposits in non-interest-bearing "transaction" accounts by removing, through the end of next year, the current $250,000 insurance limit on them. Businesses often use the deposit accounts for processing their payrolls and other transactions.

A significant proportion of business accounts are said to be uninsured, forcing businesses to juggle funds among multiple bank accounts to remain under the $250,000 insurance ceiling.

If fully utilized, the government estimates that change would add $400 billion to $500 billion in FDIC-guaranteed deposits, out of a total of around $7 trillion in deposits nationwide.

As part of the $700 billion financial rescue bill enacted this month, the insurance cap for regular deposit accounts was lifted to $250,000 from $100,000, also through the end of next year.

Bair has not ruled out the possibility that the FDIC may have to use its credit line with the Treasury Department for a short-term loan to replenish the deposit insurance fund, though she insists it is not likely. Money borrowed from the Treasury would be repaid with assessments on the banking industry. The fund is now at $45.2 billion, below the target minimum level set by Congress. The guarantees to be provided under the new program won't affect the fund.

For the new guarantees on debt, banks will be charged a fee of $7,500 a year for each $1 million in debt they issue. For the non-interest-bearing transaction accounts, banks will pay 10 cents for every $100 of their deposits not otherwise covered by the existing insurance limit of $250,000.

Bush Exceeded Power by Withholding Cheney Comments, Report Says

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By Jeff Bliss

President George W. Bush overstepped his authority by withholding an FBI interview of Vice President Dick Cheney from a congressional panel probing the leak of a CIA agent’s identity, a draft bipartisan House report said.

The interview may shed light on who disclosed former CIA agent Valerie Plame’s identity, the draft report said. The report was circulated by House Oversight and Government Reform Committee Chairman Henry Waxman, a California Democrat, and Virginia Representative Tom Davis, the panel’s senior Republican.

The president’s decision to withhold the interview transcript from the committee in July ``was legally unprecedented and an inappropriate use of executive privilege,’’ the report said.

The committee is investigating what role Cheney may have had in the leak of Plame’s work in 2003. Her husband, former ambassador Joseph Wilson, had questioned evidence used to justify the U.S. invasion of Iraq.

Attorney General Michael Mukasey had told the committee that Bush’s refusal to release the Cheney interview was within the president’s authority, under executive privilege, to keep his discussions with advisers private.

White House spokesman Tony Fratto today objected to the report and another one circulated by Waxman that said the administration wrongly asserted executive privilege regarding a separate panel investigation of climate change and Clean Air Act policies.

Fratto said the committee received ``upwards of a million pages of documents’’ from the administration and that today’s reports were partisan and unhelpful.

`Campaign Attack’

``We’re focused on more important business than another campaign attack from Representative Waxman,’’ he said.

In August, a federal appeals court upheld the dismissal of a lawsuit by Plame and Wilson that accused Cheney, former White House political adviser Karl Rove and former Cheney aide I. Lewis ``Scooter’’ Libby of conspiring to reveal Plame’s identity.

Plame and Wilson accused the three men and former Deputy Secretary of State Richard Armitage of leaking her name to retaliate against Wilson.

Libby was convicted by a federal jury in March 2007 of obstructing a Department of Justice probe into the leak of Plame’s identity. Bush commuted Libby’s sentence three months later while leaving the conviction intact. No one has been charged with illegally disclosing Plame’s identity.

The report on climate change said it was an ``abuse’’ for administration officials to withhold 2,000 pages of documents from the committee.

The documents concern administration decisions to prevent California and other states from seeking to reduce greenhouse gases from motor vehicles and adopt ozone standards at odds with Environmental Protection Agency scientists’ recommendations.

Name Members To Committee To Seek Prosecution of Bush For War Crimes

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By Sherwood Ross

Massachusetts law school Dean Lawrence Velvel will chair a Steering Committee to pursue the prosecution for war crimes of President Bush and culpable high-ranking aides after they leave office Jan. 20th.

The Steering Committee was organized following a conference of leading legal authorities and scholars from the U.S. and abroad convened by Velvel on Sept. 13-14 in Andover, Mass., titled "The Justice Robert Jackson Conference On Planning For The Prosecution of High Level American War Criminals."

"If Bush, Vice President Dick Cheney, and others are not prosecuted," Velvel said, "the future could be threatened by additional examples of Executive lawlessness by leaders who need fear no personal consequences for their actions, including more illegal wars such as Iraq."

Besides Velvel, members of the Steering Committee include:

Ben Davis, a law Professor at the University of Toledo College of Law, where he teaches Public International Law and International Business Transactions. He is the author of numerous articles on international and related domestic law.

Marjorie Cohn, a law Professor at Thomas Jefferson School of Law in San Diego, Calif., and President of the National Lawyers Guild.

Chris Pyle, a Professor at Mount Holyoke College, where he teaches Constitutional law, Civil Liberties, Rights of Privacy, American Politics and American Political Thought, and is the author of many books and articles.

Elaine Scarry, the Walter M. Cabot Professor of Aesthetics and the General Theory of Value at Harvard University, and winner of the Truman Capote Award for Literary Criticism.

Peter Weiss, vice president of the Center For Constitutional Rights, of New York City, which was recently involved with war crimes complaints filed in Germany and Japan against former Defense Secretary Donald Rumsfeld and others.

David Swanson, author, activist and founder of AfterDowningStreet.org/CensureBush.org coalition, of Charlottesville, Va.

Kristina Borjesson, an award-winning print and broadcast journalist for more than twenty years and editor of two recent books on the media.

Colleen Costello, Staff Attorney of Human Rights, USA, of Washington, D.C., and coordinator of its efforts involving torture by the American government.

Valeria Gheorghiu, attorney for Workers' Rights Law Center.

Andy Worthington of Redress, a British historian and journalist and author of books dealing with human rights violations.

Initial actions considered by the Steering Committee, Velvel said, are as follows:

# Seeking prosecutions of high level officials, including George Bush, for the crimes they committed.

# Seeking disbarment of lawyers who were complicitous in facilitating torture.

# Seeking termination from faculty positions of high officials who were complicitous in torture.

# Issuing a recent statement saying any attempt by Bush to pardon himself and aides for war crimes prior to leaving office will result in efforts to obtain impeachment even after they leave office.

# Convening a major conference on the state secret and executive privilege doctrines, which have been pushed to record levels during the Bush administration.

# Designation of an Information Repository Coordinator to gather in one place all available information involving the Bush Administration's war crimes.

# Possible impeachment of 9th Circuit Court of Appeals Judge Jay Bybee for co-authoring the infamous "torture memo."

Buying bank stocks ends the era of deregulation

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By Kevin G. Hall

When the sun set on the nation's capital Tuesday, it marked the end of one era in the nation's political economy and the beginning of another. American taxpayers, the proverbial Joe Six-Pack and Jane Wine-Box of campaign lore, had become partial owners of the nation's nine leading banks, with more to come.

The Bush administration's announcement that it would take ownership stakes in private banks marked a momentous shift away from a 30-year effort to get government out of business's way and opened the door to a new era of government engagement with business in ways that are only starting to unfold.

Although it's a move toward socialism, it's far short of nationalization. While government is now to be a partial owner of banks, it isn't taking over their management. The joint ownership is expected to be temporary, perhaps three to five years, and once the banks regain stability and profitability, the government intends to sell its shares in the hope of earning taxpayers a profit.

Rather than a wholesale switch from free-market capitalism to socialism, then, what's going on here is instead a progression of the mixed democracy-capitalism that's been evolving at least since Franklin D. Roosevelt's New Deal of the 1930s. The evolution this time is toward stronger government and more regulated markets, whereas since the start of the Reagan Revolution in 1981, it's been the opposite.

Now government and bankers will be limited partners — and strange bedfellows.

On Tuesday, the Bush administration tapped big financial players to oversee the rescue of their own industry. Pacific Investment Management Co., the world's biggest bond fund, was chosen to administer the Federal Reserve's new lending to corporate America, which will bypass banks.

Bank of New York Mellon, one of the institutions in which the government will take an equity stake, was selected as the custodian for the purchase of distressed assets from banks, and will evaluate the quality of these assets and set their prices.

When the federal government seized savings and loans in the 1980s or when it took bank stakes during the Great Depression of the 1930s, it did so because they were insolvent. Tuesday's partial bank purchases were instead an attempt to thaw credit markets that had frozen amid a loss of confidence in lending of all sorts. It was a bid to change market psychology.

"Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence to our financial system," Treasury Secretary Henry Paulson said in announcing plans to invest $125 billion in nine U.S. banks: Bank of America, including Merrill Lynch separately, as well as Citigroup, Bank of New York Mellon, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street and Wells Fargo.

The Treasury will buy $25 billion in preferred stock in Bank of America — including Merrill Lynch — as well as J.P. Morgan and Citigroup; $20 billion to $25 billion in Wells Fargo; $10 billion in Goldman and Morgan Stanley; $3 billion in Bank of New York Mellon; and about $2 billion in State Street.

Paulson set aside another $125 billion to invest in hundreds, perhaps thousands, of other banks through mid-November. All told, more than a third of the $700 billion that Congress authorized weeks ago to purchase distressed assets from banks now will be used to give banks the equivalent of a flu shot against a nasty financial virus.

Will it work?

The verdict on the Bush plan will be visible first in what happens in coming weeks to obscure indicators such as overseas rates for lending in dollars and the spread, or gap, between these rates and those for safe investments, led by Treasury bonds. But the real measure of success will be how fast banks resume lending and businesses return to vitality. Most economists think that the United States is in a recession; the question is how deep and how long it will be. The answer probably won't be known before spring.

"More timely action would have been better, but it is now coming and in international coordination — a plus," said R. Glenn Hubbard, the dean of Columbia University's Graduate School of Business and the chairman of President Bush's Council of Economic Advisers from 2001 to 2003.

After posting record percentage-point gains Monday, U.S. stocks opened strong on the news, then turned negative. The Dow Jones Industrial Average closed down 76.62 points to 9310.99, while the S&P 500 was off 5.32 points to 998.01. The Nasdaq fished off 65.24 points to 1779.01.

That wasn't necessarily a bad thing; it was the first day in weeks that didn't see wild swings. If volatility ebbs, traders can focus on economic and business fundamentals again.

The new Bush plan won't give taxpayers a controlling stake or voting rights in affected banks, nor any apparent way to influence the makeup of a bank's board of directors. But participating banks must curtail executive bonuses and other perks, and performance-based pay must be forfeited if a bank's accounting is found later to have inflated the numbers.

"This is the first time in American history that the federal government has applied restrictions on the compensation that goes to top executives," Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in a statement.

There were other important firsts.

The Federal Reserve on Tuesday set a date of Oct. 27 to begin bypassing banks and lending directly to U.S.-based corporations in an effort to keep the American financial system afloat. This effort, announced earlier, is a milestone because the Fed will lend to institutions that aren't banks and are outside its regulatory reach.

It will lend to big corporations such as General Electric, AT&T and Caterpillar that fund their short-term needs by issuing bond-like promissory notes called commercial paper. Investment banks and institutional investors traditionally buy this paper, but the credit crunch has caused this vital market to seize up. Enter the Fed. It will temporarily buy top-rated three-month commercial paper in an attempt to crack this frozen market.

In a similarly novel move, the Federal Deposit Insurance Corp. unveiled a three-year program to provide insurance for interbank loans, the short-term loans that banks give one another. They're essential to the functioning of the U.S. financial system.

The FDIC will insure up to $1.4 trillion worth of these loans, mostly through premiums charged on these transactions. The FDIC temporarily has unlimited borrowing authority, with the Treasury to handle whatever the crisis brings next.

The FDIC also said it would begin insuring non-interest-bearing bank accounts whose deposits exceed $250,000. The move will help small businesses that depend on these accounts, which often exceed normal deposit-insurance limits, for cash flow and payroll. The FDIC thinks that the sum of these accounts nationwide is $400 billion to $500 billion. To pay for the expanded insurance, depositors will be charged an extra dime on every $100 deposited above $250,000.

In an interview with a group of reporters, FDIC Chairman Sheila Bair explained that smaller banks were beginning to see an exodus of business deposits to larger institutions on fears that the FDIC wasn't insuring these accounts. That was leaving the small banks with insufficient deposits to make new loans.

Bair acknowledged that if this had been the original plan sought from Congress, the big Charlotte, N.C.-based commercial bank Wachovia, which recently was forced to sell itself to rival Wells Fargo, might still be a standalone bank.

"It definitely would have made a difference," she said, adding that Washington Mutual, the nation's largest thrift, which went bust last month, wouldn't have been spared if the government had moved earlier to take equity stakes in lenders.

She described Tuesday's action as unprecedented, as the FDIC was forced to move because of problems outside the sector it regulates.

"I think it is apparent that the major failures and stress have been outside the banking system. The bigger danger to the banks is the economic situation," Bair said; that's why it's vital to gird the banking sector for the coming economic slowdown. "We are the core, the heart of the financial system of the economy, and we need to put banks in a stable place."

CIA Tactics Endorsed In Secret Memos

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By Joby Warrick

Waterboarding Got White House Nod

The Bush administration issued a pair of secret memos to the CIA in 2003 and 2004 that explicitly endorsed the agency's use of interrogation techniques such as waterboarding against al-Qaeda suspects -- documents prompted by worries among intelligence officials about a possible backlash if details of the program became public.

The classified memos, which have not been previously disclosed, were requested by then-CIA Director George J. Tenet more than a year after the start of the secret interrogations, according to four administration and intelligence officials familiar with the documents. Although Justice Department lawyers, beginning in 2002, had signed off on the agency's interrogation methods, senior CIA officials were troubled that White House policymakers had never endorsed the program in writing.

The memos were the first -- and, for years, the only -- tangible expressions of the administration's consent for the CIA's use of harsh measures to extract information from captured al-Qaeda leaders, the sources said. As early as the spring of 2002, several White House officials, including then-national security adviser Condoleezza Rice and Vice President Cheney, were given individual briefings by Tenet and his deputies, the officials said. Rice, in a statement to congressional investigators last month, confirmed the briefings and acknowledged that the CIA director had pressed the White House for "policy approval."

The repeated requests for a paper trail reflected growing worries within the CIA that the administration might later distance itself from key decisions about the handling of captured al-Qaeda leaders, former intelligence officials said. The concerns grew more pronounced after the revelations of mistreatment of detainees at the Abu Ghraib prison in Iraq, and further still as tensions grew between the administration and its intelligence advisers over the conduct of the Iraq war.

"It came up in the daily meetings. We heard it from our field officers," said a former senior intelligence official familiar with the events. "We were already worried that we" were going to be blamed.

A. John Radsan, a lawyer in the CIA general counsel's office until 2004, remembered the discussions but did not personally view the memos the agency received in response to its concerns. "The question was whether we had enough 'top cover,' " Radsan said.

Tenet first pressed the White House for written approval in June 2003, during a meeting with members of the National Security Council, including Rice, the officials said. Days later, he got what he wanted: a brief memo conveying the administration's approval for the CIA's interrogation methods, the officials said.

Administration officials confirmed the existence of the memos, but neither they nor former intelligence officers would describe their contents in detail because they remain classified. The sources all spoke on the condition of anonymity because they were not cleared to discuss the events.

The second request from Tenet, in June 2004, reflected growing worries among agency officials who had just witnessed the public outcry over the Abu Ghraib scandal. Officials who held senior posts at the time also spoke of deteriorating relations between the CIA and the White House over the war in Iraq -- a rift that prompted some to believe that the agency needed even more explicit proof of the administration's support.

"The CIA by this time is using the word 'insurgency' to describe the Iraq conflict, so the White House is viewing the agency with suspicion," said a second former senior intelligence official.

As recently as last month, the administration had never publicly acknowledged that its policymakers knew about the specific techniques, such as waterboarding, that the agency used against high-ranking terrorism suspects. In her unprecedented account to lawmakers last month, Rice, now secretary of state, portrayed the White House as initially uneasy about a controversial CIA plan for interrogating top al-Qaeda suspects.

After learning about waterboarding and similar tactics in early 2002, several White House officials questioned whether such harsh measures were "effective and necessary . . . and lawful," Rice said. Her concerns led to an investigation by the Justice Department's criminal division into whether the techniques were legal.

But whatever misgivings existed that spring were apparently overcome. Former and current CIA officials say no such reservations were voiced in their presence.

In interviews, the officials recounted a series of private briefings about the program with members of the administration's security team, including Rice and Cheney, followed by more formal meetings before a larger group including then-Attorney General John D. Ashcroft, then-White House counsel Alberto R. Gonzales and then-Defense Secretary Donald H. Rumsfeld. None of the officials recalled President Bush being present at any of the discussions.

Several of the key meetings have been previously described in news articles and books, but Rice last month became the first Cabinet-level official to publicly confirm the White House's awareness of the program in its earliest phases. In written responses to questions from the Senate Armed Services Committee, Rice said Tenet's description of the agency's interrogation methods prompted her to investigate further to see whether the program violated U.S. laws or international treaties, according to her written responses, dated Sept. 12 and released late last month.

"I asked that . . . Ashcroft personally advise the NSC principles whether the program was lawful," Rice wrote.

Current and former intelligence officials familiar with the briefings described Tenet as supportive of enhanced interrogation techniques, which the officials said were developed by CIA officers after the agency's first high-level captive, al-Qaeda operative Zayn al-Abidin Muhammed Hussein, better known as Abu Zubaida, refused to cooperate with interrogators.

"The CIA believed then, and now, that the program was useful and helped save lives," said a former senior intelligence official knowledgeable about the events. "But in the agency's view, it was like this: 'We don't want to continue unless you tell us in writing that it's not only legal but is the policy of the administration.' "

One administration official familiar with the meetings said the CIA made such a convincing case that no one questioned whether the methods were necessary to prevent further terrorist attacks.

"The CIA had the White House boxed in," said the official. "They were saying, 'It's the only way to get the information we needed, and -- by the way -- we think there's another attack coming up.' It left the principals in an extremely difficult position and put the decision-making on a very fast track."

But others who were present said Tenet seemed more interested in protecting his subordinates than in selling the administration on a policy that administration lawyers had already authorized.

"The suggestion that someone from CIA came in and browbeat everybody is ridiculous," said one former agency official familiar with the meeting. "The CIA understood that it was controversial and would be widely criticized if it became public," the official said of the interrogation program. "But given the tenor of the times and the belief that more attacks were coming, they felt they had to do what they could to stop the attack."

The CIA's anxiety was partly fueled by the lack of explicit presidential authorization for the interrogation program. A secret White House "memorandum of notification" signed by Bush on Sept. 15, 2001, gave the agency broad authority to wage war against al-Qaeda, including killing and capturing its members. But it did not spell out how captives should be handled during interrogation.

But by the time the CIA requested written approval of its policy, in June 2003, the population of its secret prisons had grown from one to nine, including Khalid Sheik Mohammed, the alleged principal architect of the Sept. 11, 2001, attacks. Three of the detainees had been subjected to waterboarding, which involves strapping a prisoner to a board, covering his face and pouring water over his nose and mouth to simulate drowning.

By the spring of 2004, the concerns among agency officials had multiplied, in part because of shifting views among administration lawyers about what acts might constitute torture, leading Tenet to ask a second time for written confirmation from the White House. This time the reaction was far more reserved, recalled two former intelligence officials.

"The Justice Department in particular was resistant," said one former intelligence official who participated in the discussions. "They said it doesn't need to be in writing."

Tenet and his deputies made their case in yet another briefing before the White House national security team in June 2004. It was to be one of the last such meetings for Tenet, who had already announced plans to step down as CIA director. Author Jane Mayer, who described the briefing in her recent book, "The Dark Side," said the graphic accounts of interrogation appeared to make some participants uncomfortable. "History will not judge us kindly," Mayer quoted Ashcroft as saying.

Participants in the meeting did not recall whether a vote was taken. Several weeks passed, and Tenet left the agency without receiving a formal response.

Finally, in mid-July, a memo was forwarded to the CIA reaffirming the administration's backing for the interrogation program. Tenet had acquired the statement of support he sought.

This stock collapse is petty when compared to the nature crunch

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By George Monbiot

This is nothing. Well, nothing by comparison to what's coming. The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year as a result of deforestation alone. The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing fresh water - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it's the first response to every impending dislocation.

Gordon Brown, for instance, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40% of the world's foreign equities are now traded here. The financial sector's success had come about, he said, partly because the government had taken "a risk-based regulatory approach". In the same hall three years before, he pledged that "in budget after budget I want us to do even more to encourage the risk takers". Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends on the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That's another noun which reminds us of the connection. The Oxford English Dictionary gives 69 definitions of "stock". When it means a fund or store, the word evokes the trunk - or stock - of a tree, "from which the gains are an outgrowth". Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland's financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the common fisheries policy. Already the prime minister, Geir Haarde, has suggested that his countrymen concentrate on exploiting the ocean. The economic disaster will cause an ecological disaster.

Normally it's the other way around. In his book Collapse: How Societies Choose to Fail or Succeed, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe. The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport, and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. Diamond wonders what the Easter islander who cut down the last palm tree might have thought. "Like modern loggers, did he shout 'Jobs, not trees!'? Or: 'Technology will solve our problems, never fear, we'll find a substitute for wood.'? Or: 'We don't have proof that there aren't palms somewhere else on Easter ... your proposed ban on logging is premature and driven by fear-mongering'?".

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for instance, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90% and 99% of the population. The Mayan collapse was accelerated by "the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems". (Does any of this sound familiar?) Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other's conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks - of either kind - start sliding towards oblivion, we're knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1,700% a century), it too will hit the wall.

Iam not going to suggest, as some scoundrel who shares a name with me did on these pages last year, that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity that is not available during periods of economic success. Governments restructuring their economies should read Herman Daly's book Steady-State Economics.

As usual I haven't left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission (all references are on my website). But what Daly suggests is that nations which are already rich should replace growth - "more of the same stuff" - with development - "the same amount of better stuff". A steady-state economy has a constant stock of capital that is maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.

It’s 3 P.M. on Wall Street. The Hungry Bear Is on the Prowl.

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By VIKAS BAJAJ and LOUISE STORY

It has become the scariest hour on Wall Street.

On Wednesday, in what has become an almost daily occurrence, the stock market lurched at 3 p.m. — this time, down.

What had been a bad day ended as one of the worst in history, with the Dow Jones industrial average plummeting 733 points, or nearly 8 percent.

The late-day move — the Dow shed nearly 400 points in the last 45 minutes of trading — mirrored the market’s pattern over much of the last week. On Friday, the Dow plummeted more than 500 points in the last hour of trading. On Monday, it soared about 300 points.

Market experts offered a variety of explanations for the late sell-off on Wednesday. Some pointed to gaping losses at hedge funds, among them the Citadel Investment Group, the big fund run by Kenneth C. Griffin. Others cited margin calls that forced investors and executives to dump shares into a falling market. Still others saw panicky selling by individuals and money managers.

There was also a simpler explanation: the economy is in trouble and the recession may be longer and deeper than initially feared. Those concerns were reinforced on Wednesday morning by a report that showed that retail spending declined in September, and in the afternoon by downbeat comments by the Federal Reserve chairman, Ben S. Bernanke.

“This sell-off is about the economy and it will be exacerbated by margin calls,” said Todd Steinberg, head of global equities and commodity derivatives at BNP Paribas. “The primary reason for the sell-off today is the realization that the impact on the real economy will be greater and longer than people had anticipated.”

Whatever the cause, it is clear that this is one of the worst bear markets in postwar history. The Dow Jones industrial average closed at 8,577.91, and the broader Standard & Poor’s 500-stock index fell 90 points, or 9 percent, to 907.84. It was one of the worst days for both indexes. The last two days have erased most of their 11 percent rally on Monday.

The S.& P. 500 is now down 42 percent from its Oct. 9, 2007, peak. The downdraft has hit many big investors, including executives and hedge funds. In a letter sent to its investors on Wednesday, Citadel said it lost 16 percent in September alone.

But given the market’s moves over the last week, the final hour of trading is coming under scrutiny on Wall Street. Many analysts are asking the same question: Why is the market moving so violently between 3 p.m. and 4 p.m.? While trading often spikes in the last hour, according to a review of stock exchange data, the pattern has been much more pronounced in recent days.

One explanation, analysts say, is that brokers typically demand that clients pay down margin loans by the end of the day. As some of those clients begin to sell to raise money to cover those loans, prices fall further, forcing others who bought on margin investors to sell as well.

“This smells like that sort of forced selling, the margin calls and liquidations, that you get in the midst of a bear market,” said Barry Ritholtz, chief executive of Fusion IQ and author of the popular blog the Big Picture.

Evidence is mounting that some executives are being forced to sell stock to meet margin calls.

Bruce A. Smith, the chief executive of the Tesoro Corporation, a oil refiner, disclosed in a securities filing late Tuesday that he had to sell 251,000 shares because of a margin call by Goldman Sachs, the investment bank. Shares of his company fell more than 18 percent after his sale was made public.

Top executives at the Scholastic Corporation, the publisher and Boston Scientific, the medical device company, also disclosed forced sales this week.

Still, banking executives said they did not think the margin calls on their own were leading to the drop in stock prices.

Forced selling always increases when the price of stocks and bonds falls, but by and large, they said, the selling was driven by the bearish attitude of investors.

“I have not seen any waves of fund selling because of systematic changes in margin levels,” said Alex Ehrlich, global head of prime services for UBS. “It’s more like climbing down a ladder, rather than falling down a cliff.”

Hedge funds, which control nearly $2 trillion in assets and are big users of borrowed money, were also among those forced to sell, say analysts and industry officials, though it remains unclear how big a role they are playing in the recent sell-off.

Banks like Goldman Sachs and Morgan Stanley had been increasing the rates they charge hedge funds to borrow all year long, but in the last three weeks, Wall Street firms increased those rates aggressively, according to some officials. That was partly because the banks themselves were paying more to borrow money.

For hedge funds, the added pressure could not come at a worst time. Hedge funds are down 17 percent for the year, with most of the losses coming since the end of August, according to Hedge Fund Research. At the same time, investors are withdrawing billions of dollars from the funds, which has also caused managers to sell.

In his letter to Citadel’s investors, Mr. Griffin said the firm’s losses in September could be traced in part to its use of a strategy involving convertible bonds, an approach that requires money managers to short-sell shares they do not own in the hopes of buying them back later at a lower price. Mr. Griffin said he began increasing his holdings of convertible bonds in the middle of summer, taking more risk in an area where he has a lot of experience while reducing his positions in “poorly performing strategies.”

But the strategy became a big money loser after the Securities and Exchange Commission temporarily banned short-selling in nearly 1,000 shares. The S.E.C. said it put the ban in place temporarily. On Wednesday night, it said it would extend a requirement that big investors disclose their short positions to the agency until August 2009.

“Regretfully, I did not foresee the financial disaster that was to unfold in September,” Mr. Griffin wrote. “In the weeks to come, I expect we will continue to see significant volatility in our earnings as the world manages through the unfolding crisis.”

Citadel is hardly the only troubled hedge fund. Scores of hedge funds have lost money since Lehman Brothers, the investment bank, filed for bankruptcy protection in early September. Greenlight Capital, a fund run by David Einhorn, was down 12 percent in September, and Harbinger Capital Partners, one of the big winners of 2007, was down 18 percent for the month, according to a report by HSBC, the bank.

Many individual investors are also suffering, of course. Edward W. Gjertsen II, a vice president for Mack Investment Securities outside Chicago, said his clients appeared to be more unnerved this week than they were last week, when the market fell day after day without pause.

“I have started to see the first signs of worry today amongst clients relating to both the markets and the economy,” he said.

Mr. Gjertsen has taken to staying up late to watch trading in Asia and Europe on CNBC and Bloomberg TV. He said he was watching for signs that the market had hit bottom so he could put more of his clients’ money into the market. He said he was hopeful a bottom was close but he was not comfortable enough to tell his customers to buy.

“My wife has been asking me, ‘What are you doing?’ ” he said about his market watching. “I say, ‘I am absorbing.’ ”

The sell-off continued in Asia. In early trading Thursday, markets in Japan were down more than 9 percent, and in Australia they were down about 6 percent.

As stocks fell, investors sought safety in government debt. The benchmark 10-year Treasury bill rose 1 2/32, to 100 14/32, and the yield, which moves in the opposite direction from the price, was 3.95 percent, down from 4.08 percent late Tuesday.

The German bailout of the banks and the role of the Left Party

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By Ulrich Rippert

On Monday the German government finalised a €480 billion program, which it terms a “rescue package for Germany’s banks.” The package represents an about-turn by the coalition government (Social Democratic Party [SPD]-Christian Democratic Union [CDU]-Christian Social Union [CSU]), which until now has maintained that, despite the effects of the international finance crisis, the country’s banking system was basically sound.

The government was reacting to the dramatic fall on the German stock market, most sharply expressed when the DAX Index fell as much as 12 percent during the trading day last Friday before closing seven percent down. For the week, the DAX was down 22 percent.

The various elements of the so-called rescue package are all oriented towards the interests and demands of the banks and the financial aristocracy behind them.

As well as state warranties aimed at strengthening the flow of credit between banks, the package also allows for direct injections of finance into failing banks. According to the information forthcoming about the plan, a special fund of €400 billion is to be set up as part of the federal budget, with the title, “Finance Market Stabilization Fund.” In addition, the minister of finance is to have access to a credit authorization totalling €80 billion. This latter fund is to be made available for injections of capital to the banks and to fund risky take-overs.

At €480 billion ($651 billion), the German rescue programme is comparable in size to the US package of $700 billion although the German population is just one quarter the American population.

Expenditures by the German treasury this year are expected to total €283 billion, meaning that the banks have secured a sum one and a half times bigger than the total budget. Some €124 billion go to the Ministry for Labour and Social Affairs. In other words, the government has decided to make a sum available for the reorganization of the banks and in the interests of finance speculators four times greater than the amount of money spent in the course of a year on all of Germany’s pensioners, unemployed and the most disadvantaged layers of the population.

Based on a population of just over 82 million, the government has thereby created a potential debt burden of €5,730 euro for every man, woman and child in Germany. Until now the government has shrunk back from making such a decision. It was fearful of the political consequences of measures that so blatantly transfer almost unlimited funds from the treasury to the banks. Therefore, at the start of last week, the chancellor and finance minister were still seeking to limit themselves to noncommittal promises of support for the banks.

However the banks were not satisfied. Demonstrating the arrogance and aggressiveness with which they demanded in past years the liberalisation of markets and action by the government to free the finance market from any sort of serious control or restriction, they are now insisting on access to huge amounts of taxpayers’ money to sustain their orgy of wealth accumulation.

Even today the government is attempting to mask the true character of its bailout package. Thus the law for the creation of the €480 billion “Finance Market Stabilization Fund” includes reference to “strict conditions” and “national controls.” The real nature of such “conditions” becomes clear, however, when one examines who drafted and finalised the “rescue package.”

According to the Süddeutsche Zeitung, an “informal committee for the rescue of German banks” was set up on the initiative of Josef Ackermann, the head of Germany’s biggest bank—Deutsche Bank. “Four men stand in the foreground ... Finance Minister Peer Steinbrück, Federal Bank President Axel Weber, BaFin [German Federal Financial Supervisory Authority] head Jochen Sanio and Josef Ackermann.” (SZ)

The same newspaper notes that the details of the German rescue plan were drawn up by Steinbrück’s undersecretary of state, Jörg Asmussen, and Merkel’s economic adviser, Jens Weidmann. Both are relatively young men- Asmussen is 42 and Weidmann 39- and know each other from their student days in Bonn. Their professor at that time was Axel Weber, the current President of the Federal Bank, who is also a member of the select “informal committee.”

Asmussen headed the office of Hans Eichel (Social Democratic Party—SPD), when Eichel was finance minister in the former SPD-Green coalition government. He was instrumental not only in preparing the laws that opened up Germany to the penetration of hedge funds, but also the Hartz IV laws, which drastically pared back the German system of social benefits.

A “key role” (SZ) was played in the “bank rescue committee” by Germany’s leading banker, Ackermann. The representatives of high finance were alarmed when “the government insisted on individual case solutions and rejected an aid package like the one introduced in the US” (SZ). Ackermann criticized the behaviour of the government as half-hearted and then finalised the current rescue plan in personal discussions with the chancellor and finance minister.

It’s not the government insisting on “strict conditions” from the banks, but the other way around. The banks are dictating their conditions to the government.

The jubilation in banking and government circles and the obvious delight with which the stock markets greeted the publication of the “rescue plan” cannot disguise the fact that the government endorsement for the banks adds an entirely new dimension to the crisis. The billions allotted for the rescue of the banks will inevitably accelerate recession and inflation.


Support from the Left Party

The government feels emboldened to act openly as a servant of the banks because not a single major political party is prepared to oppose its policies.

A key role in the implementation of these policies and the social attacks that will inevitably follow is being played by the Left Party. The party was involved at various levels in the preparation of the deal and signalled its support even before the details of the rescue package emerged.

A prominent guest on the influential television talk show hosted by Anne Will last Sunday was the leader of the Left Party, Oskar Lafontaine. Also in attendance was the chairman of the Christian Democrat-Christian Social Union parliamentary fraction, Volker Kauder, who welcomed Lafontaine as “My colleague,” before announcing the measures planned by the government. Asked to respond, Lafontaine declared that the action taken by government was “inevitable and correct.” The government must ensure the flow of capital between banks and, to this end, it was necessary to provide state warranties and direct infusions of finance for distressed banks.

Lafontaine’s only criticism of the government was its failure to act earlier. In addition to the rescue plan he also demanded an economic package which “would do something for Hartz IV recipients and pensioners.”

Lafontaine made unmistakably clear that the Left Party defends the existing banking system and is quite prepared to support pumping billions of taxpayers’ money to rescue the profit system. His declaration makes a mockery of all his speeches in the past in which he denounced increasing social inequality. Without breaking the power of the banks to dictate political policy it is quite impossible to achieve any serious improvement in the situation of the majority of the population.

Ten years ago Lafontaine also backed down under pressure from the banks and business associations. He resigned his post as federal finance minister because he was unwilling to confront the finance and business elite and defend the interests of the population. Instead he retreated into private life and left the SPD and the government in the hands of his former party friend, Gerhard Schröder.

When popular resistance grew against the anti-social policies of the Schröder government and its current successor, Angela Merkel’s grand coalition (SPD-CDU-CSU), Lafontaine returned to politics and took over as head of the Left Party.

Now following the bursting of the international speculative bubble and a finance crisis, which puts all other previous financial turbulence into the shade, Lafontaine is offering the services of his Left Party as a factor of stability and regulation.

The party’s affairs manager, Dietmar Bartsch, also praised the rescue package with the words, “The decision has finally been made that recognises the need for the systematic regulation of all banks in Germany.” To begin with, he said, the government “had slept through the crisis somewhat.”

There are indications that the Left Party has already agreed to support the law backing the rescue plan, which is to be rushed through the Bundestag without any proper parliamentary debate this week.

While a small group of bank directors and politicians meet among themselves and prepare a multibillion-euro program in the interest of the banks and in the absence of any sort of political debate, the Left Party is indicating its readiness to nod through these emergency decrees in parliament. In so doing the Left Party makes clear that it is also ready to implement all subsequent measures, such as a savage new round of social cuts against the population.

The stock market’s false rallies—what history tells us

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By Tom Eley

Yesterday’s worldwide surge in stock market share values marked a partial reversal of the previous week’s declines, which had wiped out trillions of dollars in wealth. The rally marked the first reaction of the financial elite to the hundreds of billions of dollars promised to the world’s biggest bankers by central banks and governments in Europe and the US.

In one day, the Dow Jones industrial average, the index that measures the stock values of 30 leading publicly traded corporations, climbed over 11 percent, its fifth largest increase on record in percentage terms, and its largest ever in terms of points. The rally followed a sharp increase on the European stock markets, and in turn fueled an even larger increase on the Asian markets.

Under such volatile conditions, it is impossible to predict with any degree of precision whether or not Monday’s rally augurs a period of stabilization in the stock markets. However, if we consider the largest rallies in stock market history, Monday’s meteoric rise in share values might just as rightly be taken as a warning.

Data published in Monday’s Wall Street Journal shows that among the 10 biggest days in Wall Street history, eight took place within the first four years of the Great Depression. Another occurred on Oct. 21, 1987, shortly after the largest single-day decline in the history of the stock market, the 22 percent fall that took place on Oct. 19, 1987, so-called “Black Monday.”

According to the Journal, only two of these increases—those of 1987 and 1933—“marked the end of bear markets.” The increase in the Dow that began in 1933, however, proceeded slowly with more sharp falls in store. More fundamentally, improving share prices did nothing to end the Great Depression, which continued until the onset of World War Two. It was not until 1955 that the Dow Jones regained the value that it had achieved in September of 1929. The Journal is also incorrect in citing Oct. 21 as the beginning of a bull market in 1987. Two more sharp falls followed in its wake, and it was not until the end of the year that the stock market recovered and maintained its value from the beginning of 1987.

In the “Great Crash” of 1929 there were a number of big single-day increases on the stock market, but the overall trajectory was down. Between October 1929 and July 1932 there were five increases of the Dow of more than 9 percent, including the market’s second biggest day ever, Oct. 6, 1931, when stocks surged by nearly 15 percent. What is remembered about these “rallies,” however, is that they were fleeting moments in a longer downward spiral—and instants in which many investors gambled and lost. The stock market did not bottom out until July 1932, having lost 82 percent of its value.

Temporary upswings in share values are a feature of periods of crisis, which seem to accentuate the speculative characteristics of capitalism. As Friedrich Engels explained in Socialism: Utopian and Scientfic (1880), crises, as they convert “the great establishments ... into State property,” show how capitalists have “no further social function than that of pocketing dividends, tearing off coupons, and gambling on the Stock Exchange, where the different capitalists despoil one another of their capital.”

In contrast to the nineteenth century, large sections of the working and middle classes are now being “despoiled” of their retirement funds, having been promised that the stock market would provide the greatest return on their savings.

No sacrifice for the bankers

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By Barry Grey

There will be no letup in Wall Street bankers’ ruthless pursuit of profits and personal wealth. While the government and politicians of both parties are calling for all Americans to “sacrifice” for the sake of the “nation,” the CEOs of major banks and financial companies are exploiting the crisis of their own making to extract new concessions from the government.

The American Bankers Association on Monday demanded that government regulators scrap accounting rules that require banks and financial firms to write down the value of worthless assets on their balance sheets.

The arrogance of the bankers is so brazen than even the Wall Street Journal is warning that their behavior could spark a popular backlash. In a cautionary article entitled “Street’s Demands May Stir Public Wrath,” the Wall Street Journal wrote on Tuesday: “You would have thought the Street’s last surviving chieftains would be a contrite bunch by now, eager to reform their industry and help rebuild their country.

“At least until you heard Goldman Sachs Group Inc.’s Lloyd Blankfein, JPMorgan Chase’s James Dimon, Blackstone Group LP’s Stephen Schwarzman, BlackRock Inc.’s Larry Fink and Silver Lake’s Glenn Hutchins assemble for a panel session at the New York Stock Exchange last week organized in part by the Wall Street Journal...

“While America buckles in for years of sacrifice, the five chiefs took a different approach. The group pulled straight from the what-government-can-do-for-you school of 2006, lobbying for Wall Street tax breaks, the repeal of Sarbanes-Oxley and against the distraction of class-action lawsuits.”

US government expands bank bailout on Wall Street’s terms

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By Barry Grey

The Bush administration on Tuesday announced new measures, including a direct injection of $250 billion in taxpayer money, to prop up the major US banks. The government also said it would guarantee all debt issued by the banks and provide unlimited backing for the non-interest-bearing bank deposits of businesses.

The cash injection is to take the form of voluntary sales of preferred stock by financial institutions to the Treasury. It is being carried out under the powers granted Treasury Secretary Henry Paulson, the former CEO of Goldman Sachs, in the $700 billion bailout bill enacted by Congress on October 3.

When the bill was passed, Paulson and Federal Reserve Board Chairman Ben Bernanke said its main purpose was to permit the government to buy up to $700 billion in mortgage-backed securities and other bad debts from the banks. That plan, while not discarded, has been superseded by moves in the US and Europe to avert a collapse of the world financial system by rapidly bolstering the cash reserves of the major banks through direct purchases of stock.

Also on Tuesday, Fed Chairman Bernanke announced that the US central bank would quickly act on its previous pledge to serve as the buyer of last resort of commercial paper issued by US businesses. According to the financial columnist of the Washington Post, Steven Pearlstein, the panoply of actions commits “several trillion dollars in government funds” to propping up the banks.

The new plan was announced Tuesday morning in separate appearances by President Bush and top financial regulators, headed by Paulson and Bernanke. Their statements followed a closed-door meeting Monday at the Treasury Department with the CEOs of the largest banks in the US, where the terms of the bailout were discussed among current and former Wall Street executives whose combined wealth runs to billions of dollars.

The four biggest banks—Citigroup, JPMorgan Chase, Bank of America and Wells Fargo—are to receive $25 billion each. Goldman Sachs and Morgan Stanley are each to get $10 billion, Bank of New York Mellon will receive $3 billion and State Street will get $2 billion. The remaining $125 billion in the stock purchase program will be made available to thousands of smaller banks.

The new bailout plan is widely referred to in the media as a “partial nationalization” of the banks. It is nothing of the kind. It is, rather, a massive intervention by the state to use public funds to protect the social interests of the financial elite that is responsible for the greatest economic crisis since the Great Depression.

Management of the entire bailout program is being entrusted to the very financial firms that stand to benefit from the government handout. On Tuesday, it was announced that Bank of New York Mellon, one of the recipients of the government cash injection, will oversee the operation.

The plan, as crafted by Paulson in consultation with his banking cohorts, is designed to secure the personal and institutional interests of the most powerful sections of the American capitalist class. It mandates no structural or even regulatory changes in exchange for placing the resources of the country at the disposal of Wall Street.

None of the CEOs whose speculative activities resulted in the near-collapse of their own institutions are required to resign, let alone face financial or criminal prosecution. The plan does not even require that the banks use the money handed them by the government to lend to other institutions, businesses or individuals.

Paulson has made clear that the stock obtained by the government will be “non-voting,” that is, it will not entail the banks’ ceding any control to the state. As Bush stressed in his Rose Garden remarks on Tuesday, “... these measures are not intended to take over the free market, but to preserve it.”

The Wall Street Journal, in its account, noted the care taken to secure the interests of big shareholders. It wrote, “To make sure private investors aren’t scared away, the Treasury is expected to structure its investment on terms favorable to the banks and will inject capital in exchange for preferred shares or warrants... a move that is designed to not hurt existing shareholders.”

It further noted that the “government’s hope is that the new plan... will persuade private investors that government involvement won’t come at their expense.”

Paulson, in his remarks, assured Wall Street that the plan would “make capital available on attractive terms” to the banks.

No similar concern is being shown for the tens of millions of working people who are being devastated by the collapse of the housing market and the rapid descent into recession. In his remarks on Tuesday, Paulson said, “We expect all participating banks to continue and to strengthen their efforts to help struggling homeowners who can afford their homes to avoid foreclosure.”

This is a fraud. Under conditions where some two million families have already been foreclosed, and analysts predict millions more will be thrown into the street over the next several years, the banks are engaged in no real efforts to “help struggling homeowners.” On the contrary, they are seeking to limit the losses from their predatory lending policies by charging fees and otherwise exploiting the very families they have victimized.

As Paulson’s remarks make clear, there are no requirements that the banks do anything to aid distressed homeowners, and he abandons to their fate the millions of homeowners who cannot “afford their homes.”

No less fraudulent are the supposed restrictions on CEO pay which Paulson said would be imposed on companies that participate in the stock purchase scheme. These token measures were included in the bailout bill at the insistence of its Democratic supporters, who hoped thereby to give themselves a measure of political cover in the face of massive popular opposition to the bill. They impose no specific limits on executive compensation and allow already existing multi-million-dollar retirement packages to remain intact.

It is up to Paulson, who took in hundreds of millions of dollars while he was the CEO at Goldman Sachs, to define what amounts to “appropriate standards for executive compensation,” and, as Washingtonpost.com reported Tuesday, Treasury officials have “argued that the legislation required only ‘minimal’ restrictions on executive pay and told congressional staffers that there was ‘wiggle room’ under the new law.”


Unfolding social disaster

No measures are being proposed to address the social disaster that is enveloping the American people. It is widely acknowledged that, whatever the immediate turn of events on the stock market, the US and the entire world are heading into a deep and protracted recession. The crisis, which to this point has largely centered in the financial markets, is taking hold of the broader economy and entering a new stage that will see double-digit unemployment and the growth of poverty and social misery.

The auto industry is already in the grips of a deep crisis, with all of the Big Three US companies teetering on the edge of bankruptcy. The attempts of General Motors (GM), Ford and Chrysler to survive by means of mergers will entail a new round of plant closures and tens of thousands of additional layoffs.

On Monday, GM announced it would shut its metal parts plant near Grand Rapids, Michigan by the end of next year, eliminating 1,500 jobs, and speed up the closure of its Janesville, Wisconsin assembly plant to December 23 of this year, costing 1,200 jobs.

On Tuesday, the German auto giant Daimler announced it was closing its Sterling Trucks division, shutting down plants in Ontario and Oregon and eliminating 3,500 jobs.

PepsiCo reported sharply depressed third quarter earnings and announced it would slash 3,300 jobs in the US.

Far from helping “Main Street,” as claimed by the politicians and the media, the bailout measures are designed to achieve a further concentration of power in the hands of a few giant banks. This will have a harmful effect on working people, students and small businesses, whose ability to obtain loans and credit, and the fees and interest they are forced to pay, will be set by firms exercising monopoly control over the financial system.

Both the substance of the bailout measures and the manner in which they are being imposed provide a stark demonstration of the iron grip of Wall Street over the state and the dictatorship of finance capital that exists behind the trappings of democracy in America.

The Democrats, from congressional leaders to presidential candidate Barack Obama, were the main backers of the bailout bill, and have given their enthusiastic support to the expanded bailout measures. House Speaker Nancy Pelosi sent a letter to Paulson congratulating him on the new plan.

New York Senator Charles Schumer, the chairman of the Joint Economic Committee, published a column in Tuesday’s Wall Street Journal calling Paulson’s decision to make capital injections into the banks “welcome news,” and Barney Frank, the chairman of the House Financial Services Committee, said he agreed with the plan’s provision that government-owned stock be non-voting, i.e., that the bankers suffer no loss of control in return for taking taxpayer money.

In his remarks on Tuesday, Bush said the new measures were aimed at the “root cause” of the problem. This is another lie.

The root cause of the crisis is the failure of the capitalist system. The only answer that addresses the needs of the working class is socialism.

The Socialist Equality Party emphatically opposes the entire framework of the government bailout. We call for a genuine program to nationalize the banks—that is, to take them out of private hands and transform them into public utilities under the democratic control of the working people.

Only on the basis of such a socialist policy can the resources created by the working class be allocated to provide emergency relief to the victims of the economic crisis—a halt to home foreclosures and utility shutoffs, a vast extension of unemployment benefits, a crash public works program to provide jobs at decent wages for the unemployed.

The anarchy of the market and despotism of the banks must be replaced by a planned socialist economy, to ensure the basic needs and raise the living standards and cultural life of the entire population.

This requires that the working class break from the Democratic Party and the two-party system and build its own party to fight for the establishment of a workers’ government.

This is the program being advanced in the 2008 elections by the Socialist Equality Party and our candidates, Jerry White for president and Bill Van Auken for vice president. We urge all those who see the need for a socialist alternative to depression and war to support our campaign, vote for our candidates and join the SEP.

Israel May Have Become a Liability for U.S.

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By Cherrie Heywood

The relationship between two of Iran's strongest critics, the U.S. and Israel, is once again under the spotlight as the international heat on Iran's alleged nuclear programme increases following a warning from International Atomic Energy Agency (IAEA) director-general Mohamed ElBaradei for the Islamic republic to show more transparency.

With a U.S.-backed Israeli strike on Iran now considered more probable, critics are questioning the coordinated beating of war drums in Israel and the U.S. They fear a new conflagration in a region already mired in a violent and bloody quagmire. The bellicose responses from Iran are also being condemned.

The U.S. has deployed a sophisticated long-range radar system in Israel capable of providing crucial early warning in case of a missile attack. The U.S. has also agreed, following several Israeli requests, to sell a thousand GBU-39 bunker-busting bombs capable of penetrating reinforced concrete. Some of Iran's alleged nuclear programme is said to be buried in concrete bunkers below ground level.

Israel also sought upgraded refuelling jets, which would be necessary to refuel fighter jets returning from an attack on Iran, as well as a clear flight path over Iraq in order to reach Iran without being accidentally hit by U.S. fighter jets. These requests have been turned down.

Earlier in the year, Israeli Prime Minister Ehud Olmert held a secret meeting with Aviam Sela, the chief architect of Israel's 1981 attack on Iraq's Osiraq nuclear reactor. Following a leak of the meeting, Israeli media reported that the subject of discussion was a possible attack on Iran.

In June the Israeli Air Force (IAF) carried out a military exercise involving more than 100 F-15 and F-16 fighter jets over eastern Greece, in what was said to be a dummy attack on Iran. The distance covered was approximately 900 miles, the same distance to Iran's Natanz uranium enrichment plant from Israel.

In their book 'The Israel Lobby and U.S Foreign Policy', U.S. academics John J. Mearsheimer of the University of Chicago's Department of Political Science and Stephen M. Walt of Harvard University's Kennedy School of Government point out that the centrepiece of U.S. Middle East policy is its intimate relationship with Israel.

"One might assume that the bond between the two countries was based on shared strategic interests or compelling moral imperatives, but neither explanation can account for the remarkable level of material and diplomatic support that the U.S. provides," Mearsheimer and Walt say.

Many of the key organisations in the Israel lobby, such as the American-Israel Public Affairs Committee (AIPAC) and the Conference of Presidents of Major Jewish Organisations, are run by hardliners who generally support the expansionist policies of Israel's right-wing Likud Party, including its hostility to the Oslo peace process. Very few U.S. decisions on its Middle East policies are taken without heavy input from AIPAC, the academics say.

The New York Times has called AIPAC the most important organisation affecting the U.S. relationship with Israel, while Fortune magazine said years ago that it was the second most powerful lobby group in the U.S. after the Aged American Retirement Association.

AIPAC can on Israel's behalf draw on the resources of 52 national Jewish organisations from the Conference of Presidents of Major American Jewish Organisations.

Together they lobby support for Israel's hawkish policies by heavily influencing members of the U.S. Congress with substantial financial donations, and through letter writing campaigns and campus action committees.

While AIPAC itself does not contribute financially, the 126 Political Action Committees (PACs) that it coordinates with are able to donate 10,000 dollars per committee, and 2,000 dollars per individual.

The Washington Post once estimated that Democratic presidential candidates "depend on Jewish supporters to supply as much as 60 percent of the money." And because Jewish voters have high turnout rates and are concentrated in key states like California, Florida, Illinois, New York and Pennsylvania, presidential candidates go to great lengths not to antagonise them.

Israel is also by far the biggest recipient of U.S. foreign aid, receiving 3 billion dollars annually from the foreign budget. This excludes loan agreements and other military packages from different budgets which come to another few billion dollars annually.

And while other recipients of U.S. foreign aid have to account for how the money is spent, Israel does not. Some of the money goes into settlement building in the West Bank, even if this is against U.S. policy.

AIPAC silences critics with accusations of "anti-Semitism", and calls U.S. Jews such as Mearsheimer and Walt who have been critical of the U.S. Israel policy "self-hating Jews." Many critics have found themselves on the organisation's 'enemies file'.

AIPAC has also been indirectly involved in spying on the U.S., and supplying confidential information to Israel. In 2006 Lawrence Franklin, a former U.S. defence department employee, was sentenced to 12 years in jail after information he provided was passed on through two AIPAC employees to Israel.

Mearsheimer and Walt question the U.S. Administration's extraordinary generosity towards Israel. They argue that although Israel was an asset during the Cold War when it helped curb Soviet expansion in the region, this policy backfired with the Organisation of Petroleum Exporting Countries (OPEC) embargo against the Western economies.

During the first Gulf War, Israel became a strategic burden when the U.S. could not use Israeli bases without rupturing the anti-Iraq coalition. This scenario was repeated in 2003 when despite Israel's enthusiasm for an attack on Iraq, U.S. President George W. Bush had to refrain from asking Israel for help due to fears of an Arab backlash.

And despite Bush's argument that both countries face a "terror threat", the invasion of Iraq has actually strengthened the case of Islamic extremists in the region as well as removed Iraq as a bulwark against the spread of Iran's brand of fundamentalism.

"In fact, Israel is a liability in the war on terror and the broader effort to deal with rogue states. Moreover the U.S. has a terrorism problem in good part because it is so closely allied with Israel, not the other way around," argue Mearsheimer and Walt.

"The combination of unwavering support for Israel and the related effort to spread 'democracy' throughout the region has inflamed Arab and Islamic opinion and jeopardised not only U.S. security but that of much of the rest of the world," they say.

Many of the architects of the invasion of Iraq include neo-conservatives who have dual Israeli-U.S. citizenship. These are the same individuals who are currently heavily involved in planning a way to deal with Iran.