Go to Original
By PAM MARTENS
A Credit Crisis or a Collapsing Ponzi Scheme?
Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:
You take your hard earned retirement savings to a Wall Street firm and they tell you that as long as you "stay invested for the long haul" you can expect double digit annual returns. You never really know what your money is invested in because it’s pooled with other investors and comes with incomprehensible but legal looking prospectuses. The heads of these Wall Street firms have been taking massive payouts for themselves, ranging from $160 million to $1 billion per CEO over a number of years. As long as new money keeps flooding in from newfangled accounts called 401(k)s, Roth IRAs, 529 plans for education savings, and hedge funds (each carrying ever greater restrictions for withdrawing your money and ever greater opacity) everything appears fine on the surface. And then, suddenly, you learn that many of these Wall Street firms don't have any assets that anybody wants to buy. Because these firms are both managing your money as well as having their own shares constitute a large percentage of your pooled investments, your funds begin to plummet as confidence drains from the scheme.
Now consider how Wikipedia describes a Ponzi scheme:
“A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns (‘profits’) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi...One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time...The catch is that at some point one of three things will happen:
(1) the promoters will vanish, taking all the investment money (less payouts) with them;
(2) the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);
(3) the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the 'assets' that should exist do not."
Looking at outcomes 1, 2, and 3 above, here’s where we are today. The promoters have clearly not vanished as in outcome 1. In fact, they are behaving as if they know they have nothing to fear. As over $2 trillion of taxpayer money is rapidly infused through Federal Reserve loans and over $125 Billion in U.S. Treasury equity purchases to keep these firms from collapsing, the promoters are standing at the elbow of the President-Elect in press conferences (Citigroup promoter, Robert Rubin); they are served up as business gurus on the business channel CNBC (former AIG CEO and promoter, Maurice “Hank” Greenberg); they are put in charge of nationalized zombie firms like Fannie Mae (Herbert Allison, former President of Merrill Lynch); they are paying $26 million and $42 million, respectively, for new digs at 15 Central Park West in Manhattan, where their chauffeurs have their own waiting room (Lloyd Blankfein, CEO of Goldman Sachs; Sanford “Sandy” Weill, former CEO of Citigroup, who put his penthouse in the name of his wife’s trust, perhaps smelling a few pesky questions ahead over the $1 billion he sucked out of Citigroup before the Fed had to implant a feeding tube).
We are definitely seeing all the signs of outcome 2: the scheme is collapsing under its own weight; there are panic runs around the globe wherever Wall Street has left its footprint.
But outcome 3 is the most fascinating area of departure from the classic Ponzi scheme. Legal authorities have, indeed, examined the books of these firms, except for one area we’ll discuss later. They found worthless assets along with debts hidden off the balance sheet instead of real depositor funds. Instead of arresting the perpetrators and shutting down the schemes, Federal authorities have developed their own new schemes and pumped over $2 trillion of taxpayer money into propping up the firms while leaving the schemers in place. Equally astonishing, Congress has not held any meaningful investigations. This has left many Wall Street veterans wondering if the problem isn’t that the firms are “too big to fail” but rather “too Ponzi-like to prosecute.” Imagine the worldwide reaction to learning that all the claptrap coming from U.S. think-tanks and ivy-league academics over the last decade about efficient market theory and deregulation and trickle down was merely a ruse for a Ponzi scheme now being propped up by a U.S. Treasury Department bailout and loans from our central bank, the Federal Reserve.
Fortunately for American taxpayers, Bloomberg News has some inquiring minds, even if our Congress and prosecutors don’t. On May 20, 2008, Bloomberg News reporter, Mark Pittman, filed a Freedom of Information Act request (FOIA) with the Federal Reserve asking for detailed information relevant to whom the central bank was giving these massive loans and precisely what securities these firms were posting as collateral. Bloomberg also wanted details on “contracts with outside entities that show the employees or entities being used to price the Relevant Securities and to conduct the process of lending.” Heretofore, our opaque central bank had been mum on all points.
By law, the Federal Reserve had until June 18, 2008 to answer the FOIA request. Here’s what happened instead, according to the Bloomberg lawsuit: On June 19, 2008, the Fed invoked its right to extend the response time to July 3, 2008. On July 8, 2008, the Fed called Bloomberg News to say it was processing the request. The Fed rang up Bloomberg again on August 15, 2008, wherein Alison Thro, Senior Counsel and another employee, Pam Wilson, informed the business wire service that their request was going to be denied by the end of September 2008. No further response of any kind was received, including the denial. On November 7, 2008, Bloomberg News slapped a federal lawsuit on the Board of Governors of the Federal Reserve, asserting the following:
“The government documents that Bloomberg seeks are central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression. The effect of that crisis on the American public has been and will continue to be devastating. Hundreds of corporations are announcing layoffs in response to the crisis, and the economy was the top issue for many Americans in the recent elections. In response to the crisis, the Fed has vastly expanded its lending programs to private financial institutions. To obtain access to this public money and to safeguard the taxpayers’ interests, borrowers are required to post collateral. Despite the manifest public interest in such matters, however, none of the programs themselves make reference to any public disclosure of the posted collateral or of the Fed’s methods in valuing it. Thus, while the taxpayers are the ultimate counterparty for the collateral, they have not been given any information regarding the kind of collateral received, how it was valued, or by whom.”
As evidence that Bloomberg News is not engaging in hyperbole when it uses the word “cataclysmic” in a Federal court filing, consider the following price movements of some of these giant financial institutions. (All current prices are intraday on November 12, 2008):
American International Group (AIG): Currently $2.16; in May 2007, $72.00
Bear Stearns: Absorbed into JPMorganChase to avoid bankruptcy filing; share price in April 2007, $159
Fannie Mae: Currently 65 cents; in June 2007 $69.00
Freddie Mac: Currently 79 cents; in May 2007 $67.00
Lehman Brothers: Currently 6 cents; in February 2007, $85.00
What all of the companies in this article have in common is that they were writing secret contracts called Credit Default Swaps (CDS) on each other and/or between each other. These are not the credit default swaps recently disclosed by the Depository Trust and Clearing Corporation (DTCC). These are the contracts that still live in darkness and are at the root of why the Wall Street banks won’t lend to each other and why their share prices are melting faster than a snow cone in July.
A Credit Default Swap can be used by a bank to hedge against default on loans it has made by buying a type of insurance from another party. The buyer pays a premium upfront and annually and the seller pays the face amount of the insurance in the event of default. In the last few years, however, the contracts have been increasingly used to speculate on defaults when the buyer of the CDS has no exposure to the firm or underlying debt instruments. The CDS contracts outstanding now total somewhere between $34 Trillion and $54 Trillion, depending on whose data you want to use, and it remains an unregulated market of darkness. It is also quite likely that none of the firms that agreed to pay the hundreds of billions in insurance, such as AIG, have the money to do so. It is also quite likely that were these hedges shown to be uncollectible hedges, massive amounts of new capital would be needed by the big Wall Street firms and some would be deemed insolvent.
Until Congress holds serious investigations and hearings, the U.S. taxpayer may be funding little more than Ponzi schemes while companies that provide real products and services, legitimate jobs and contributions to the economy are left to fail.
Thursday, November 13, 2008
Treasury scraps original bailout plan as economy worsens
Go to Original
By Kevin G. Hall
Treasury Secretary Henry Paulson's surprise announcement Wednesday that he'll shift from purchasing troubled assets under the $700 billion Wall Street rescue plan is likely to result in spending taxpayers' dollars to shore up unregulated financial institutions that aren't banks but are vital to consumer lending.
During the negotiations on a bank rescue bill in late September and early October, Paulson argued that he needed broad authority to purchase distressed mortgages and other bad assets in order to clean up bank balance sheets and allow them to resume lending. Despite extensive misgivings, Congress created the Troubled Asset Relief Program. Now Paulson's ripping up that plan.
"Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether the targeted forms of asset purchase can play a useful role," Paulson said Wednesday in an update on rescue efforts that have changed course.
In a news conference, Paulson was unapologetic, noting that the facts have changed and the global financial crisis has worsened.
"I will never apologize for changing an approach or strategy when the facts change," he said. "I think the apology should come the other way: if someone doesn't change when the facts change. I think we move quickly, we move powerfully to address the situation as it exists."
Still, the man who shepherded the legislation through Congress, Rep. Barney Frank, D-Mass., was unhappy that the Treasury has moved away from plans to buy mortgage bonds and individual loans in order to prevent foreclosures by modifying the loans.
"We especially put in that bill authority to the secretary of the treasury to buy whole loans (and) mortgage-backed securities to make us the lender — to make us the owner — so we could do these kind of reductions," said Frank, the chairman of the House Financial Services Committee.
Paulson denied that the decision had anything to do with difficulty in determining what the Treasury Department would pay for distressed mortgages and other bad assets. He said it became apparent that direct investments in banks and other companies were a more effective and immediate way to shore up the financial system.
"The top priority has to be stability, making sure we have the resources in reserve to deal with any systemic events and make sure we have got capital to put into institutions," Paulson explained.
Instead of buying bad assets, the Treasury will address a complex area of lending that's been crucial to U.S. economic vitality. Paulson said he'd focus on boosting consumers' access to credit outside the banking system.
The Treasury and the Federal Reserve, he said, are working on a program that targets securitization. That's the process in which credit card debt, student loans and car loans are bundled together and securitized, or sold as bonds to investors, who receive monthly payments as Americans pay on their credit card bills and loans.
Securitization gave millions of Americans more access to credit over the past decade. As of last year, outstanding securitized debt for credit cards, car loans and student loans was valued at almost $2.5 trillion.
Now, however, investors are barely buying any securitized products, largely because securitized sub-prime mortgages have tarnished the image of anything that's packaged and pooled.
The Treasury and the Fed will develop a program that subsidizes the purchase of asset-based securities. It appears that the Treasury, through the Troubled Asset Relief Program, will become a co-investor with pension funds and other institutional investors that traditionally bought asset-backed securities.
"We're in the process of working with the Fed to design it. And the idea I presented very generally was a program of liquidity which would make financing available to the buyers of this," Paulson said. He said that it was difficult since it involved lending to financial market players that weren't directly regulated by the Fed or his department.
TARP money would be used as an incentive for investors to begin buying these financial instruments again, and the asset-relief program would incur the first loss in case of default.
Financial markets were caught by surprise, but they supported the new focus on securitization.
"The recent turmoil has stalled large parts of this market, and restarting it will help ensure consumers get the loans they need for homes, cars and education," Tim Ryan, the head of the Securities Industry and Financial Markets Association, said in a statement.
However, the trade group, which represents some of the biggest players in finance, was unhappy that Paulson shelved the plan to buy troubled assets from banks.
"I am disappointed Treasury is choosing to de-emphasize the asset purchase portion of the TARP program," Ryan said, noting that it would have helped to price assets that no one in the private sector wants to buy. "Until we have a functioning marketplace — where buyers and sellers agree on prices and institutions can subsequently judge the value of the assets they hold — uncertainty could keep many financial players on the sidelines, restricting lending capital for the larger economy."
Tom Deutsch, the deputy executive director of the American Securitization Forum, the trade group for companies that pool and package debt, said attempts to thaw this market were badly needed.
"It is completely frozen. And if banks aren't able to access capital from the securitization markets, they are not able to lend any capital back to borrowers for farms, for cars, for homes, etc.," he said. "And so until we get that securitization process restarted, we're not going to be able to get credit flowing back to consumers in America."
The treasury secretary said he wasn't ruling out a proposal from the Federal Deposit Insurance Corp. that would spend rescue money to help write down distressed mortgages and keep people in their homes. Such a plan requires spending, not investing, as has been the approach with bolstering banks' balance sheets. Officials hope that the invested funds will be repaid when the banks return to profitability.
"Secretary Paulson should be as quick to realize that the foreclosure issue is critical to solving our problems as he was in realizing that equity purchases were necessary," Senate Banking Committee Chairman Christopher Dodd, D-Conn., said in a statement Wednesday, calling for adopting the FDIC plan to help homeowners.
By Kevin G. Hall
Treasury Secretary Henry Paulson's surprise announcement Wednesday that he'll shift from purchasing troubled assets under the $700 billion Wall Street rescue plan is likely to result in spending taxpayers' dollars to shore up unregulated financial institutions that aren't banks but are vital to consumer lending.
During the negotiations on a bank rescue bill in late September and early October, Paulson argued that he needed broad authority to purchase distressed mortgages and other bad assets in order to clean up bank balance sheets and allow them to resume lending. Despite extensive misgivings, Congress created the Troubled Asset Relief Program. Now Paulson's ripping up that plan.
"Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether the targeted forms of asset purchase can play a useful role," Paulson said Wednesday in an update on rescue efforts that have changed course.
In a news conference, Paulson was unapologetic, noting that the facts have changed and the global financial crisis has worsened.
"I will never apologize for changing an approach or strategy when the facts change," he said. "I think the apology should come the other way: if someone doesn't change when the facts change. I think we move quickly, we move powerfully to address the situation as it exists."
Still, the man who shepherded the legislation through Congress, Rep. Barney Frank, D-Mass., was unhappy that the Treasury has moved away from plans to buy mortgage bonds and individual loans in order to prevent foreclosures by modifying the loans.
"We especially put in that bill authority to the secretary of the treasury to buy whole loans (and) mortgage-backed securities to make us the lender — to make us the owner — so we could do these kind of reductions," said Frank, the chairman of the House Financial Services Committee.
Paulson denied that the decision had anything to do with difficulty in determining what the Treasury Department would pay for distressed mortgages and other bad assets. He said it became apparent that direct investments in banks and other companies were a more effective and immediate way to shore up the financial system.
"The top priority has to be stability, making sure we have the resources in reserve to deal with any systemic events and make sure we have got capital to put into institutions," Paulson explained.
Instead of buying bad assets, the Treasury will address a complex area of lending that's been crucial to U.S. economic vitality. Paulson said he'd focus on boosting consumers' access to credit outside the banking system.
The Treasury and the Federal Reserve, he said, are working on a program that targets securitization. That's the process in which credit card debt, student loans and car loans are bundled together and securitized, or sold as bonds to investors, who receive monthly payments as Americans pay on their credit card bills and loans.
Securitization gave millions of Americans more access to credit over the past decade. As of last year, outstanding securitized debt for credit cards, car loans and student loans was valued at almost $2.5 trillion.
Now, however, investors are barely buying any securitized products, largely because securitized sub-prime mortgages have tarnished the image of anything that's packaged and pooled.
The Treasury and the Fed will develop a program that subsidizes the purchase of asset-based securities. It appears that the Treasury, through the Troubled Asset Relief Program, will become a co-investor with pension funds and other institutional investors that traditionally bought asset-backed securities.
"We're in the process of working with the Fed to design it. And the idea I presented very generally was a program of liquidity which would make financing available to the buyers of this," Paulson said. He said that it was difficult since it involved lending to financial market players that weren't directly regulated by the Fed or his department.
TARP money would be used as an incentive for investors to begin buying these financial instruments again, and the asset-relief program would incur the first loss in case of default.
Financial markets were caught by surprise, but they supported the new focus on securitization.
"The recent turmoil has stalled large parts of this market, and restarting it will help ensure consumers get the loans they need for homes, cars and education," Tim Ryan, the head of the Securities Industry and Financial Markets Association, said in a statement.
However, the trade group, which represents some of the biggest players in finance, was unhappy that Paulson shelved the plan to buy troubled assets from banks.
"I am disappointed Treasury is choosing to de-emphasize the asset purchase portion of the TARP program," Ryan said, noting that it would have helped to price assets that no one in the private sector wants to buy. "Until we have a functioning marketplace — where buyers and sellers agree on prices and institutions can subsequently judge the value of the assets they hold — uncertainty could keep many financial players on the sidelines, restricting lending capital for the larger economy."
Tom Deutsch, the deputy executive director of the American Securitization Forum, the trade group for companies that pool and package debt, said attempts to thaw this market were badly needed.
"It is completely frozen. And if banks aren't able to access capital from the securitization markets, they are not able to lend any capital back to borrowers for farms, for cars, for homes, etc.," he said. "And so until we get that securitization process restarted, we're not going to be able to get credit flowing back to consumers in America."
The treasury secretary said he wasn't ruling out a proposal from the Federal Deposit Insurance Corp. that would spend rescue money to help write down distressed mortgages and keep people in their homes. Such a plan requires spending, not investing, as has been the approach with bolstering banks' balance sheets. Officials hope that the invested funds will be repaid when the banks return to profitability.
"Secretary Paulson should be as quick to realize that the foreclosure issue is critical to solving our problems as he was in realizing that equity purchases were necessary," Senate Banking Committee Chairman Christopher Dodd, D-Conn., said in a statement Wednesday, calling for adopting the FDIC plan to help homeowners.
Blackwater likely to be fined millions in Iraq weapons case
Go to Original
By Warren Strobel
The State Department is preparing to slap a multi-million dollar fine on private military contractor Blackwater USA for shipping hundreds of automatic weapons to Iraq without the necessary permits.
Some of the weapons are believed to have ended up on the country's black market, department officials told McClatchy, but no criminal charges have been filed in the case.
The expected fine is the result of a long-running federal investigation into whether employees of the firm shipped weapons hidden in shrink-wrapped pallets from its Moyock, N.C. headquarters to Iraq, where Blackwater is the State Department's largest personal security contractor.
Since the arms shipment allegations first became public 14 months ago, Blackwater, which has received $1.2 billion in federal contracts, according to the Web site fedspending.org, has consistently denied involvement in illicit arms trafficking.
However, the State Department found that Blackwater shipped 900 weapons to Iraq without the paperwork required by arms export control regulations, one department official said. Of that number, 119 were "particularly ... erroneous," he said. He and the other officials spoke on the condition of anonymity because the decision hasn't been announced.
Federal laws require obtaining a license before exporting military hardware, including automatic weapons, overseas.
Blackwater spokeswoman Anne Tyrrell said Wednesday that the company had "not been informed of an intent to impose a fine, however ... we have been cooperating with the government to respond to inquiries into our export processes."
The State Department's "resolution of export matters with other significant defense contractors, such as Boeing, L-3, Lockheed-Martin and General Dynamics has typically resulted in some payment" to the government, she said in an e-mail exchange.
Blackwater last month announced what it billed as a major new initiative to ensure that the company complies with rules for exporting military hardware.
Saying that "our company has experienced remarkable growth in the last few years," Blackwater CEO Erik Prince said: "This growth, our work for the U.S. Government around the world, and the nature of the services we offer have created compliance challenges."
Blackwater said it created the position of Vice President of Export Compliance and created a three-person independent oversight committee whose members include former U.S. Rep. Asa Hutchinson, R-Ark.
The amount of the planned fine couldn't be learned, but one State Department official said it was "way in the millions." The official said the fine could be announced as early as this week. A second official, however, cautioned that it's not imminent.
Jay Greer, a spokesman for the State Department Bureau of Politico-Military Affairs, which implements defense export controls, declined comment.
The weapons case became public in September 2007 as part of a House Oversight and Government Reform Committee inquiry into then-State Department inspector general Howard Krongard.
The Raleigh, N.C., News & Observer, a McClatchy newspaper, first reported that two former Blackwater employees, Kenneth Wayne Cashwell and William Ellsworth "Max" Grumiaux, had pleaded guilty to weapons charges and were cooperating with federal prosecutors in North Carolina.
What became of the weapons may never be known.
Iraq has a brisk black market for weapons. Pentagon probes have found that Defense Department-supplied weapons intended for Iraq's security forces were diverted. The Turkish government has complained that some ended up in the hands of the Kurdistan Workers Party, or PKK, which Washington and Ankara consider a terrorist group.
Blackwater employees are also the subjects of a Justice Department probe into the killing of 17 Iraqi civilians in Baghdad's Nisoor Square on Sept. 16, 2007. That incident sparked outrage over the actions of private military contractors and forced the State Department to impose tighter rules on the contractors.
A federal grand jury is weighing whether to indict the Blackwater guards who were involved in the killings.
By Warren Strobel
The State Department is preparing to slap a multi-million dollar fine on private military contractor Blackwater USA for shipping hundreds of automatic weapons to Iraq without the necessary permits.
Some of the weapons are believed to have ended up on the country's black market, department officials told McClatchy, but no criminal charges have been filed in the case.
The expected fine is the result of a long-running federal investigation into whether employees of the firm shipped weapons hidden in shrink-wrapped pallets from its Moyock, N.C. headquarters to Iraq, where Blackwater is the State Department's largest personal security contractor.
Since the arms shipment allegations first became public 14 months ago, Blackwater, which has received $1.2 billion in federal contracts, according to the Web site fedspending.org, has consistently denied involvement in illicit arms trafficking.
However, the State Department found that Blackwater shipped 900 weapons to Iraq without the paperwork required by arms export control regulations, one department official said. Of that number, 119 were "particularly ... erroneous," he said. He and the other officials spoke on the condition of anonymity because the decision hasn't been announced.
Federal laws require obtaining a license before exporting military hardware, including automatic weapons, overseas.
Blackwater spokeswoman Anne Tyrrell said Wednesday that the company had "not been informed of an intent to impose a fine, however ... we have been cooperating with the government to respond to inquiries into our export processes."
The State Department's "resolution of export matters with other significant defense contractors, such as Boeing, L-3, Lockheed-Martin and General Dynamics has typically resulted in some payment" to the government, she said in an e-mail exchange.
Blackwater last month announced what it billed as a major new initiative to ensure that the company complies with rules for exporting military hardware.
Saying that "our company has experienced remarkable growth in the last few years," Blackwater CEO Erik Prince said: "This growth, our work for the U.S. Government around the world, and the nature of the services we offer have created compliance challenges."
Blackwater said it created the position of Vice President of Export Compliance and created a three-person independent oversight committee whose members include former U.S. Rep. Asa Hutchinson, R-Ark.
The amount of the planned fine couldn't be learned, but one State Department official said it was "way in the millions." The official said the fine could be announced as early as this week. A second official, however, cautioned that it's not imminent.
Jay Greer, a spokesman for the State Department Bureau of Politico-Military Affairs, which implements defense export controls, declined comment.
The weapons case became public in September 2007 as part of a House Oversight and Government Reform Committee inquiry into then-State Department inspector general Howard Krongard.
The Raleigh, N.C., News & Observer, a McClatchy newspaper, first reported that two former Blackwater employees, Kenneth Wayne Cashwell and William Ellsworth "Max" Grumiaux, had pleaded guilty to weapons charges and were cooperating with federal prosecutors in North Carolina.
What became of the weapons may never be known.
Iraq has a brisk black market for weapons. Pentagon probes have found that Defense Department-supplied weapons intended for Iraq's security forces were diverted. The Turkish government has complained that some ended up in the hands of the Kurdistan Workers Party, or PKK, which Washington and Ankara consider a terrorist group.
Blackwater employees are also the subjects of a Justice Department probe into the killing of 17 Iraqi civilians in Baghdad's Nisoor Square on Sept. 16, 2007. That incident sparked outrage over the actions of private military contractors and forced the State Department to impose tighter rules on the contractors.
A federal grand jury is weighing whether to indict the Blackwater guards who were involved in the killings.
Obama Team Faces Major Task in Justice Dept. Overhaul
Go to Original
By Carrie Johnson
Goal Is to Restore Confidence in Law Enforcement Actions
As a transition team for the Obama administration begins work on a Justice Department overhaul, the key question is where to begin.
Political considerations affected every crevice of the department during the Bush years, from the summer intern hiring program to the dispensing of legal advice about detainee interrogations, according to reports by the inspector general and testimony from bipartisan former DOJ officials at congressional hearings.
Although retired federal judge Michael B. Mukasey, who took charge of the department in the winter, has drawn praise for limiting contacts between White House officials and prosecutors, and for firmly rejecting the role of politics in law enforcement, restoring public confidence in the department's law enforcement actions will be central, lawmakers and former government officials say.
"The infusion of politics into the Justice Department and an abdication of responsibility by its leaders have dealt a severe blow," Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.) and Sen. Arlen Specter (Pa.), the panel's ranking Republican, wrote in an opinion piece last month. "Great damage has been done to the credibility and effectiveness of the Justice Department."
Ron Klain, who was chief of staff to Vice President Al Gore, said that the preelection brainstorming sessions of Democrats who want to fix the Justice Department sound like "an escalating composition of woes," not unlike the health-related talk at his mother's mah-jongg games. "Oh, my knee; no, my back; no . . . " he moaned over audience laughter at a recent luncheon held by the American Constitution Society.
Topping the list of concerns is the Office of Legal Counsel, a once-obscure operation whose advice guides some of the government's most sensitive and controversial policies, from domestic wiretapping to the appropriateness of handing out public funding to religious groups.
Many of the OLC's memos on interrogation and warrantless eavesdropping remain secret, even though lawmakers have clamored for their release. Democrats say they expect to find fresh surprises when they open the legal vault.
Officials at interest groups, including the Center for American Progress and People for the American Way, have called on President-elect Barack Obama to devote significant attention to the legal office. Christopher Anders, senior legislative counsel at the American Civil Liberties Union, urged this week that the new administration withdraw all of the OLC opinions in the interrogation and detention area and replace them with "a single opinion that should be made public."
Walter E. Dellinger III, a Justice official during the Clinton administration, has encouraged the next president to recruit OLC veterans from both Democratic and Republican camps to review the national security opinions and recommend changes.
Obama will have to do a careful balancing act. At a conference in Washington this week, former department criminal division chief Robert S. Litt asked that the new administration avoid fighting old battles that could be perceived as vindictive, such as seeking to prosecute government officials involved in decisions about interrogation and the gathering of domestic intelligence. Human rights groups have called for such investigations, as has House Judiciary Committee Chairman John Conyers Jr. (D-Mich.).
"It would not be beneficial to spend a lot of time calling people up to Congress or in front of grand juries," Litt said. "It would really spend a lot of the bipartisan capital Obama managed to build up."
Another critical, early judgment must be made about how to allocate scarce resources without shortchanging national security. Since the Sept. 11, 2001, attacks, more than 7 percent of the department's budget shifted to terrorism, away from drug trafficking, organized crime and white-collar misdeeds, according to an analysis by the Government Accountability Office.
Jamie S. Gorelick, who served as the department's second in command during the Clinton administration, said the resource issue poses "a very big problem."
"It appears the buildup in national security has come at the expense of criminal enforcement resources," she said. "I don't know how they are going to do it in a tight budget environment. Just sorting out whether they've cut meat or bone, or both, is going to be important."
The Obama advisers leading the Justice Department transition will have only a few weeks to make last-minute adjustments to the $25.4 billion budget for 2009. By early February, the 2010 budget will be due, another significant time crunch.
David Ogden, a chief of the department's civil division in the Clinton years, will lead the transition effort. Thomas J. Perrelli, who was a counselor to Attorney General Janet Reno and a classmate of Obama's at Harvard Law School, will serve as a deputy.
Within the Justice Department, career employee Lee Lofthus and political appointee Brian A. Benczkowski have been preparing binders for the transition team that contain sensitive information about ongoing investigations, positions the department has taken in forthcoming legal disputes and more run-of-the-mill data.
Early signals about Obama's view on presidential powers could come in several ongoing court cases that turn on executive privilege, including a House lawsuit against former White House counsel Harriet E. Miers and Chief of Staff Joshua B. Bolten that rests with an appeals court in the District. The Obama team could decide to dial back its use of the privilege in that case, and in Freedom of Information Act lawsuits filed by the ACLU, which seeks information on detainee issues in New York federal courts.
Moreover, by summer, key provisions of intelligence law are set to expire, including a controversial measure that gives the government more power to seize information from libraries under the USA Patriot Act. Civil libertarians say they will watch how Obama handles such issues and what he does even earlier, to review new guidelines for FBI agents conducting national security investigations that will take hold Dec. 1.
Personnel issues will pose another challenge, given the inspector general's findings in three blistering reports that said hiring by Bush Justice Department officials routinely flouted civil service laws.
William Yeomans, a former department civil rights division official who serves as a counselor to Sen. Edward M. Kennedy (D-Mass.), said that "the new team needs to make it very clear that ideology won't trump merit in hiring. There needs to be a comprehensive review, including what needs to be done to correct the hiring situation we now find. . . . There is a great deal of latitude among management to move people around."
One lawyer who offered Democrats advice during the presidential campaign suggested that Obama could decide to keep on several of the nation's 93 U.S. attorneys, such as Patrick J. Fitzgerald in Chicago, in a bid to demonstrate that merit trumps political connections. Fitzgerald, who prosecuted former vice presidential aide I. Lewis "Scooter" Libby and Antoin "Tony" Rezko, a Democratic fundraiser with ties to Obama, is a political independent.
By Carrie Johnson
Goal Is to Restore Confidence in Law Enforcement Actions
As a transition team for the Obama administration begins work on a Justice Department overhaul, the key question is where to begin.
Political considerations affected every crevice of the department during the Bush years, from the summer intern hiring program to the dispensing of legal advice about detainee interrogations, according to reports by the inspector general and testimony from bipartisan former DOJ officials at congressional hearings.
Although retired federal judge Michael B. Mukasey, who took charge of the department in the winter, has drawn praise for limiting contacts between White House officials and prosecutors, and for firmly rejecting the role of politics in law enforcement, restoring public confidence in the department's law enforcement actions will be central, lawmakers and former government officials say.
"The infusion of politics into the Justice Department and an abdication of responsibility by its leaders have dealt a severe blow," Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.) and Sen. Arlen Specter (Pa.), the panel's ranking Republican, wrote in an opinion piece last month. "Great damage has been done to the credibility and effectiveness of the Justice Department."
Ron Klain, who was chief of staff to Vice President Al Gore, said that the preelection brainstorming sessions of Democrats who want to fix the Justice Department sound like "an escalating composition of woes," not unlike the health-related talk at his mother's mah-jongg games. "Oh, my knee; no, my back; no . . . " he moaned over audience laughter at a recent luncheon held by the American Constitution Society.
Topping the list of concerns is the Office of Legal Counsel, a once-obscure operation whose advice guides some of the government's most sensitive and controversial policies, from domestic wiretapping to the appropriateness of handing out public funding to religious groups.
Many of the OLC's memos on interrogation and warrantless eavesdropping remain secret, even though lawmakers have clamored for their release. Democrats say they expect to find fresh surprises when they open the legal vault.
Officials at interest groups, including the Center for American Progress and People for the American Way, have called on President-elect Barack Obama to devote significant attention to the legal office. Christopher Anders, senior legislative counsel at the American Civil Liberties Union, urged this week that the new administration withdraw all of the OLC opinions in the interrogation and detention area and replace them with "a single opinion that should be made public."
Walter E. Dellinger III, a Justice official during the Clinton administration, has encouraged the next president to recruit OLC veterans from both Democratic and Republican camps to review the national security opinions and recommend changes.
Obama will have to do a careful balancing act. At a conference in Washington this week, former department criminal division chief Robert S. Litt asked that the new administration avoid fighting old battles that could be perceived as vindictive, such as seeking to prosecute government officials involved in decisions about interrogation and the gathering of domestic intelligence. Human rights groups have called for such investigations, as has House Judiciary Committee Chairman John Conyers Jr. (D-Mich.).
"It would not be beneficial to spend a lot of time calling people up to Congress or in front of grand juries," Litt said. "It would really spend a lot of the bipartisan capital Obama managed to build up."
Another critical, early judgment must be made about how to allocate scarce resources without shortchanging national security. Since the Sept. 11, 2001, attacks, more than 7 percent of the department's budget shifted to terrorism, away from drug trafficking, organized crime and white-collar misdeeds, according to an analysis by the Government Accountability Office.
Jamie S. Gorelick, who served as the department's second in command during the Clinton administration, said the resource issue poses "a very big problem."
"It appears the buildup in national security has come at the expense of criminal enforcement resources," she said. "I don't know how they are going to do it in a tight budget environment. Just sorting out whether they've cut meat or bone, or both, is going to be important."
The Obama advisers leading the Justice Department transition will have only a few weeks to make last-minute adjustments to the $25.4 billion budget for 2009. By early February, the 2010 budget will be due, another significant time crunch.
David Ogden, a chief of the department's civil division in the Clinton years, will lead the transition effort. Thomas J. Perrelli, who was a counselor to Attorney General Janet Reno and a classmate of Obama's at Harvard Law School, will serve as a deputy.
Within the Justice Department, career employee Lee Lofthus and political appointee Brian A. Benczkowski have been preparing binders for the transition team that contain sensitive information about ongoing investigations, positions the department has taken in forthcoming legal disputes and more run-of-the-mill data.
Early signals about Obama's view on presidential powers could come in several ongoing court cases that turn on executive privilege, including a House lawsuit against former White House counsel Harriet E. Miers and Chief of Staff Joshua B. Bolten that rests with an appeals court in the District. The Obama team could decide to dial back its use of the privilege in that case, and in Freedom of Information Act lawsuits filed by the ACLU, which seeks information on detainee issues in New York federal courts.
Moreover, by summer, key provisions of intelligence law are set to expire, including a controversial measure that gives the government more power to seize information from libraries under the USA Patriot Act. Civil libertarians say they will watch how Obama handles such issues and what he does even earlier, to review new guidelines for FBI agents conducting national security investigations that will take hold Dec. 1.
Personnel issues will pose another challenge, given the inspector general's findings in three blistering reports that said hiring by Bush Justice Department officials routinely flouted civil service laws.
William Yeomans, a former department civil rights division official who serves as a counselor to Sen. Edward M. Kennedy (D-Mass.), said that "the new team needs to make it very clear that ideology won't trump merit in hiring. There needs to be a comprehensive review, including what needs to be done to correct the hiring situation we now find. . . . There is a great deal of latitude among management to move people around."
One lawyer who offered Democrats advice during the presidential campaign suggested that Obama could decide to keep on several of the nation's 93 U.S. attorneys, such as Patrick J. Fitzgerald in Chicago, in a bid to demonstrate that merit trumps political connections. Fitzgerald, who prosecuted former vice presidential aide I. Lewis "Scooter" Libby and Antoin "Tony" Rezko, a Democratic fundraiser with ties to Obama, is a political independent.
Obama acts to drive the lobbyists out of Washington
Go to Original
By Leonard Doyle
Strict new rules on the backroom deal-makers; President-elect hopes to succeed where others failed
The leader of Barack Obama's transition team has delivered some bad news to the hordes of lobbyists plying their trade in the fancy restaurants and faceless offices along Pennsylvania Avenue: they are not welcome.
John Podesta, the transition chief, has revealed a set of draconian new regulations aimed at curbing the excessive influence of lobbyists, as Mr Obama promised throughout his election campaign. They are to be denied their normal role of greasing the wheels of the new administration's costly transition to power by paying for office space and staff between now and the inauguration on 20 January.
Mr Podesta unveiled what he said was "the strictest, the most far-reaching ethics rules of any transition team in history," and declared "that the undue influence of Washington lobbyists and the revolving door of Washington ceases to exist."
The White House and the Capitol are the two most impressive buildings in Washington but power is really along Pennsylvania Avenue and K Street, where the top-tier lobbyists arrange access to decision-makers and cut backroom deals for special interest groups.
Now, in the dying days of the Bush administration, an unprecedented frenzy is under way as Washington's legal and lobbying establishment tries to get its hands on some of the $700bn (£470bn) financial rescue package for clients before a deadline of tomorrow.
One of the top firms is Alston & Bird, which boasts it has the former Republican presidential contender and senator, Bob Dole, on its books. But Democrats are no slouches at lobbying either. The national co-chair of Mr Obama's election campaign, former Senator Tom Daschle also works for Alston & Bird though not, we are assured, as a registered lobbyist. Instead he provides "high level advisory and strategic advice" to the company.
To cope with the crush of lobbyists at its doors, the Treasury Department hired Jeb Mason, a 32-year old Texan who wears cowboy boots and hat to work. A former White House aide of the political adviser Karl Rove, he is now the point of call for the hired guns of the banking industry, insurance and credit card companies lining up to get some of the taxpayers' billions.
Talking about the dozens of phone calls and emails he gets from lobbyists, he told the New York Times, "this must have been how the Politburo felt".
Mr Obama's transition team is planning to hire about 450 people, who will be divided between Washington and Chicago, at a cost of about $12m. Less than half of that amount will be paid for from the public purse and Mr Obama is planning to fund the rest by asking the more than 3 million people who poured small amounts of money into his campaign to make up the rest. No incoming president before him has had access to such a potential well of money and his team has already sent out emails offering "Victory T-shirts" in return for fresh contributions.
Ever since Ronald Reagan's day, corporations and law firms have picked up the tab for presidential transitions. To avoid even the appearance of abuse, the Obama team is limiting private donations to a maximum of $5,000 and will disclose the names of all donors. "So you'll see our contributions... to the transition prior to the inauguration, yes," Mr Podesta said.
One problem the Obama transition team faces is that some of the brightest Washington brains it might want to hire for the transition and later in government are already registered lobbyists. "I've heard the other complaint, which is we're leaving all these experts on the side... We're leaving all the people who know everything out in the cold," Mr Podesta said. "And so be it."
Mr Podesta, who is himself the head of a think-tank, the Centre for American Progress, says that any lobbyists who are hired will be banned from working in areas for which they have previously lobbied.
And anyone who turns to lobbying after gaining insights and contacts working on the transition for the next 69 days, will be barred for 12 months from lobbying the new administration on a subject area they worked on.
The restrictions are viewed as pious hopes by many in Washington. Former president Bill Clinton tried to restrict lobbyists and failed. President Bush did little to stop their growth and they are now a multibillion-dollar business of influence. Even if Mr Obama succeeds in limiting their access to his administration, Congressmen and women are particularly soft targets. For many politicians, getting elected and serving a term or two is merely a rite of passage on the road to a lucrative Pennsylvania Avenue career.
By Leonard Doyle
Strict new rules on the backroom deal-makers; President-elect hopes to succeed where others failed
The leader of Barack Obama's transition team has delivered some bad news to the hordes of lobbyists plying their trade in the fancy restaurants and faceless offices along Pennsylvania Avenue: they are not welcome.
John Podesta, the transition chief, has revealed a set of draconian new regulations aimed at curbing the excessive influence of lobbyists, as Mr Obama promised throughout his election campaign. They are to be denied their normal role of greasing the wheels of the new administration's costly transition to power by paying for office space and staff between now and the inauguration on 20 January.
Mr Podesta unveiled what he said was "the strictest, the most far-reaching ethics rules of any transition team in history," and declared "that the undue influence of Washington lobbyists and the revolving door of Washington ceases to exist."
The White House and the Capitol are the two most impressive buildings in Washington but power is really along Pennsylvania Avenue and K Street, where the top-tier lobbyists arrange access to decision-makers and cut backroom deals for special interest groups.
Now, in the dying days of the Bush administration, an unprecedented frenzy is under way as Washington's legal and lobbying establishment tries to get its hands on some of the $700bn (£470bn) financial rescue package for clients before a deadline of tomorrow.
One of the top firms is Alston & Bird, which boasts it has the former Republican presidential contender and senator, Bob Dole, on its books. But Democrats are no slouches at lobbying either. The national co-chair of Mr Obama's election campaign, former Senator Tom Daschle also works for Alston & Bird though not, we are assured, as a registered lobbyist. Instead he provides "high level advisory and strategic advice" to the company.
To cope with the crush of lobbyists at its doors, the Treasury Department hired Jeb Mason, a 32-year old Texan who wears cowboy boots and hat to work. A former White House aide of the political adviser Karl Rove, he is now the point of call for the hired guns of the banking industry, insurance and credit card companies lining up to get some of the taxpayers' billions.
Talking about the dozens of phone calls and emails he gets from lobbyists, he told the New York Times, "this must have been how the Politburo felt".
Mr Obama's transition team is planning to hire about 450 people, who will be divided between Washington and Chicago, at a cost of about $12m. Less than half of that amount will be paid for from the public purse and Mr Obama is planning to fund the rest by asking the more than 3 million people who poured small amounts of money into his campaign to make up the rest. No incoming president before him has had access to such a potential well of money and his team has already sent out emails offering "Victory T-shirts" in return for fresh contributions.
Ever since Ronald Reagan's day, corporations and law firms have picked up the tab for presidential transitions. To avoid even the appearance of abuse, the Obama team is limiting private donations to a maximum of $5,000 and will disclose the names of all donors. "So you'll see our contributions... to the transition prior to the inauguration, yes," Mr Podesta said.
One problem the Obama transition team faces is that some of the brightest Washington brains it might want to hire for the transition and later in government are already registered lobbyists. "I've heard the other complaint, which is we're leaving all these experts on the side... We're leaving all the people who know everything out in the cold," Mr Podesta said. "And so be it."
Mr Podesta, who is himself the head of a think-tank, the Centre for American Progress, says that any lobbyists who are hired will be banned from working in areas for which they have previously lobbied.
And anyone who turns to lobbying after gaining insights and contacts working on the transition for the next 69 days, will be barred for 12 months from lobbying the new administration on a subject area they worked on.
The restrictions are viewed as pious hopes by many in Washington. Former president Bill Clinton tried to restrict lobbyists and failed. President Bush did little to stop their growth and they are now a multibillion-dollar business of influence. Even if Mr Obama succeeds in limiting their access to his administration, Congressmen and women are particularly soft targets. For many politicians, getting elected and serving a term or two is merely a rite of passage on the road to a lucrative Pennsylvania Avenue career.
Obama Pressured to Back Off Iraq Withdrawal
Go to Original
By Gareth Porter
The promotion of Robert M. Gates as President-elect Barack Obama's secretary of defence appears to be the key element in a broad campaign by military officials and their supporters in the political elite and the news media to pressure Obama into dropping his plan to withdraw U.S. troops from Iraq in as little as 16 months.
Despite subtle and unsubtle pressures to compromise on his withdrawal plan, however, Obama is likely to pass over Gates and stand firm on his campaign pledge on military withdrawal from Iraq, according to a well-informed source close to the Obama camp.
Within 24 hours of Obama's election, the idea of Gates staying on as defence secretary in an Obama administration was floated in the New York Times, which reported that 'a case is being made publicly by columnists and commentators, and quietly by leading Congressional voices of Mr. Obama's own party -- that Mr. Gates should be asked to remain as defence secretary, at least for an interim period in the opening months of the new presidency.'
The Wall Street Journal reported Tuesday that two unnamed Obama advisers had said Obama was 'leaning toward' asking Gates stay on, although the report added that other candidates were also in the running. The Journal said Gates was strongly opposed to any timetable for withdrawal from Iraq, and it speculated that a Gates appointment 'could mean that Mr. Obama was effectively shelving his campaign promise to remove most troops from Iraq by mid-2010.'
Some Obama advisers have been manoeuvering for a Gates nomination for months. Former Navy Secretary Richard Danzig publicly raised the idea of a Gates reprise in June and again in early October. Danzig told reporters Oct. 1, however, that he had not discussed the possibility with Obama.
Obama advisers who support his Iraq withdrawal plan, however, have opposed a Gates appointment. Having a defence secretary who is not fully supportive of the 16-month timetable would make it very difficult, if not impossible for Obama to enforce it on the military.
A source close to the Obama transition team told IPS Tuesday that the chances that Gates would be nominated by Obama 'are now about 10 percent'.
The source said that Obama is going to stick with his 16-month withdrawal timeline, despite the pressures now being brought to bear on him. 'There is no doubt about it,' said the source, who refused to elaborate because of the sensitivity of the matter.
Opposition to Obama's pledge to withdraw combat troops from Iraq on a 16-month timetable is wide and deep in the U.S. national security establishment and its political allies. U.S. military leaders have been unequivocal in rejecting any such rapid withdrawal from Iraq, and news media coverage of the issue has been based on the premise that Obama will have to modify his plan to make it acceptable to the military.
The Washington Post published a story Monday saying that Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, opposes Obama's timeline for withdrawal as 'dangerous', insisting that 'reductions must depend on conditions on the ground'. Along with Gen. David H. Petraeus, now the head of CENTCOM and responsible for the entire Middle East, and Gen. Ray Odierno, the new commander in Iraq, Mullen was portrayed as part of a phalanx of determined military opposition to Obama's timeline.
Post reporters Alec MacGillis and Ann Scott Tyson cited 'defence experts' as predicting a 'smooth and productive' relationship between Obama and these military leaders 'if Obama takes the pragmatic approach that his advisers are indicating, allowing each side to adjust at the margins.' But if Obama 'presses for the withdrawal of two brigades per month,' the same analysts predicted, 'conflict is inevitable.'
The story quoted a former Bush administration National Security Council official, Peter D. Feaver, who was a strategic planner on the administration's Iraq 'surge' policy, as warning that Obama's timetable would precipitate 'a civil-military crisis' if Obama does not agree to the demands of Mullen, Petraeus and Odierno for greater flexibility.
Underlying the campaign of pressure is the assumption that Obama's 16-month timetable is mainly posturing for political purposes during the primary campaign, and that Obama is not necessarily committed to the withdrawal plan.
Feaver, who has returned to Duke University, said in an interview with IPS that he did not believe such a crisis was likely, because, 'It is unlikely Obama will come in and do what he said he would do during the campaign.' Obama has given himself 'enough wiggle room to change the plan', Feaver said.
Similarly CNN Pentagon correspondent Jamie McIntyre also reported Nov. 7 that Obama 'gave himself some wiggle room' to respond to military demands for more flexibility. McIntyre said he had 'pledged to consult U.S. commanders and adjust as necessary'.
Obama's website makes no such pledge to 'adjust' the timetable. Instead it says the 'removal of our troops will be responsible and phased, directed by military commanders on the ground and done in consultation with the Iraqi government.' It defends the rate of withdrawal of one or two brigades per month and offers to leave a 'residual force' in Iraq to 'train and support the Iraqi forces as long as Iraqi leaders move toward political reconciliation and away from sectarianism.'
When Obama met with Petraeus in Baghdad in July, Petraeus presented a detailed case for a 'conditions-based' withdrawal rather than Obama's timetable and ended with a plea for 'maximum flexibility' on a withdrawal schedule, according to Joe Klein's account in Time Oct. 22.
But Obama refused to back down, according to Klein's account. He told Petraeus, 'Your job is to succeed in Iraq on as favourable terms as we can get. But my job as a potential commander in chief is to view your counsel and interests through the prism of our overall national security.' Obama defended his policy of a fixed date for withdrawal in light of the situation in Afghanistan, the costs of continued U.S. occupation and the stress on U.S. military forces.
Opponents of Obama's plan outside the Bush administration appear to be unaware of the fact that the Bush administration has already given up the 'conditions-based withdrawal' that the U.S. military has called for in agreeing to Iraqi demands for complete U.S. withdrawal by the end of 2011.
Feaver, the former strategic planner for National Security Adviser Stephen J. Hadley, said he assumes that, 'if the U.S. agreed to it, it preserves the flexibility that Petraeus and Odierno say they've needed all along.'
But even the small loophole left in previous versions of the text, allowing the 2011 deadline to be extended if the pact were revised with the agreement of the Iraqi parliament, has now been closed in the 'final' version which the Bush administration submitted to the Maliki government last week, according to a Nov. 10 report by Associated Press, which had obtained a copy of the text.
By Gareth Porter
The promotion of Robert M. Gates as President-elect Barack Obama's secretary of defence appears to be the key element in a broad campaign by military officials and their supporters in the political elite and the news media to pressure Obama into dropping his plan to withdraw U.S. troops from Iraq in as little as 16 months.
Despite subtle and unsubtle pressures to compromise on his withdrawal plan, however, Obama is likely to pass over Gates and stand firm on his campaign pledge on military withdrawal from Iraq, according to a well-informed source close to the Obama camp.
Within 24 hours of Obama's election, the idea of Gates staying on as defence secretary in an Obama administration was floated in the New York Times, which reported that 'a case is being made publicly by columnists and commentators, and quietly by leading Congressional voices of Mr. Obama's own party -- that Mr. Gates should be asked to remain as defence secretary, at least for an interim period in the opening months of the new presidency.'
The Wall Street Journal reported Tuesday that two unnamed Obama advisers had said Obama was 'leaning toward' asking Gates stay on, although the report added that other candidates were also in the running. The Journal said Gates was strongly opposed to any timetable for withdrawal from Iraq, and it speculated that a Gates appointment 'could mean that Mr. Obama was effectively shelving his campaign promise to remove most troops from Iraq by mid-2010.'
Some Obama advisers have been manoeuvering for a Gates nomination for months. Former Navy Secretary Richard Danzig publicly raised the idea of a Gates reprise in June and again in early October. Danzig told reporters Oct. 1, however, that he had not discussed the possibility with Obama.
Obama advisers who support his Iraq withdrawal plan, however, have opposed a Gates appointment. Having a defence secretary who is not fully supportive of the 16-month timetable would make it very difficult, if not impossible for Obama to enforce it on the military.
A source close to the Obama transition team told IPS Tuesday that the chances that Gates would be nominated by Obama 'are now about 10 percent'.
The source said that Obama is going to stick with his 16-month withdrawal timeline, despite the pressures now being brought to bear on him. 'There is no doubt about it,' said the source, who refused to elaborate because of the sensitivity of the matter.
Opposition to Obama's pledge to withdraw combat troops from Iraq on a 16-month timetable is wide and deep in the U.S. national security establishment and its political allies. U.S. military leaders have been unequivocal in rejecting any such rapid withdrawal from Iraq, and news media coverage of the issue has been based on the premise that Obama will have to modify his plan to make it acceptable to the military.
The Washington Post published a story Monday saying that Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, opposes Obama's timeline for withdrawal as 'dangerous', insisting that 'reductions must depend on conditions on the ground'. Along with Gen. David H. Petraeus, now the head of CENTCOM and responsible for the entire Middle East, and Gen. Ray Odierno, the new commander in Iraq, Mullen was portrayed as part of a phalanx of determined military opposition to Obama's timeline.
Post reporters Alec MacGillis and Ann Scott Tyson cited 'defence experts' as predicting a 'smooth and productive' relationship between Obama and these military leaders 'if Obama takes the pragmatic approach that his advisers are indicating, allowing each side to adjust at the margins.' But if Obama 'presses for the withdrawal of two brigades per month,' the same analysts predicted, 'conflict is inevitable.'
The story quoted a former Bush administration National Security Council official, Peter D. Feaver, who was a strategic planner on the administration's Iraq 'surge' policy, as warning that Obama's timetable would precipitate 'a civil-military crisis' if Obama does not agree to the demands of Mullen, Petraeus and Odierno for greater flexibility.
Underlying the campaign of pressure is the assumption that Obama's 16-month timetable is mainly posturing for political purposes during the primary campaign, and that Obama is not necessarily committed to the withdrawal plan.
Feaver, who has returned to Duke University, said in an interview with IPS that he did not believe such a crisis was likely, because, 'It is unlikely Obama will come in and do what he said he would do during the campaign.' Obama has given himself 'enough wiggle room to change the plan', Feaver said.
Similarly CNN Pentagon correspondent Jamie McIntyre also reported Nov. 7 that Obama 'gave himself some wiggle room' to respond to military demands for more flexibility. McIntyre said he had 'pledged to consult U.S. commanders and adjust as necessary'.
Obama's website makes no such pledge to 'adjust' the timetable. Instead it says the 'removal of our troops will be responsible and phased, directed by military commanders on the ground and done in consultation with the Iraqi government.' It defends the rate of withdrawal of one or two brigades per month and offers to leave a 'residual force' in Iraq to 'train and support the Iraqi forces as long as Iraqi leaders move toward political reconciliation and away from sectarianism.'
When Obama met with Petraeus in Baghdad in July, Petraeus presented a detailed case for a 'conditions-based' withdrawal rather than Obama's timetable and ended with a plea for 'maximum flexibility' on a withdrawal schedule, according to Joe Klein's account in Time Oct. 22.
But Obama refused to back down, according to Klein's account. He told Petraeus, 'Your job is to succeed in Iraq on as favourable terms as we can get. But my job as a potential commander in chief is to view your counsel and interests through the prism of our overall national security.' Obama defended his policy of a fixed date for withdrawal in light of the situation in Afghanistan, the costs of continued U.S. occupation and the stress on U.S. military forces.
Opponents of Obama's plan outside the Bush administration appear to be unaware of the fact that the Bush administration has already given up the 'conditions-based withdrawal' that the U.S. military has called for in agreeing to Iraqi demands for complete U.S. withdrawal by the end of 2011.
Feaver, the former strategic planner for National Security Adviser Stephen J. Hadley, said he assumes that, 'if the U.S. agreed to it, it preserves the flexibility that Petraeus and Odierno say they've needed all along.'
But even the small loophole left in previous versions of the text, allowing the 2011 deadline to be extended if the pact were revised with the agreement of the Iraqi parliament, has now been closed in the 'final' version which the Bush administration submitted to the Maliki government last week, according to a Nov. 10 report by Associated Press, which had obtained a copy of the text.
Sparing Obama Criticism Isn't Doing Him (or Us) Any Favors
Go to Original
By Tom Engelhardt
By Tom Engelhardt
On the day that Americans turned out in near record numbers to vote, a record was set halfway around the world. In Afghanistan, a U.S. Air Force strike wiped out about 40 people in a wedding party. This represented at least the sixth wedding party eradicated by American air power in Afghanistan and Iraq since December 2001.
American planes have, in fact, taken out two brides in the last seven months. And don’t try to bury your dead or mark their deaths ceremonially either, because funerals have been hit as well. Mind you, those planes, which have conducted 31% more air strikes in Afghanistan in support of U.S. troops this year, and the missile-armed unmanned aerial vehicles (UAVs) now making almost daily strikes across the border in Pakistan, remain part of George W. Bush’s Air Force, but only until January 21, 2009. Then, they -- and all the brides and grooms of Afghanistan and in the Pakistani borderlands who care to have something more than the smallest of private weddings -- officially become the property of President Barack Obama.
That’s a sobering thought. He is, in fact, inheriting from the Bush administration a widening war in the region, as well as an exceedingly tenuous situation in devastated, still thoroughly factionalized, sectarian, and increasingly Iranian-influenced Iraq. There, the U.S. is, in actuality, increasingly friendless and ever less powerful. The last allies from the infamous "coalition of the willing" are now rushing for the door. The South Koreans, Hungarians, and Bulgarians -- I’ll bet you didn’t even know the latter two had a few troops left in Iraq -- are going home this year; the rump British force in the south will probably be out by next summer.
The Iraqis are beginning to truly go their own way (or, more accurately, ways); and yet, in January, when Barack Obama enters office, there will still be more American troops in Iraq than there were in April 2003 when Baghdad fell. Winning an election with an antiwar label, Obama has promised -- kinda -- to end the American war there and bring the troops -- sorta, mostly -- home. But even after his planned 16-month withdrawal of U.S. "combat brigades," which may not be welcomed by his commanders in the field, including former Iraq commander, now Centcom Commander David Petraeus, there are still plenty of combative non-combat forces, which will be labeled "residual" and left behind to fight "al-Qaeda." Then, there are all those "advisors" still there to train Iraqi forces, the guards for the giant bases the Bush administration built in the country, the many thousands of armed private security contractors from companies like Blackwater, and of course, the 1,000 "diplomats" who are to staff the newly opened U.S. embassy in Baghdad’s Green Zone, possibly the largest embassy on the planet. Hmmmm.
And while the new president turns to domestic matters, it’s quite possible that significant parts of his foreign policy could be left to the oversight of Vice President Joe Biden who, in case anyone has forgotten, proposed a plan for Iraq back in 2007 so filled with imperial hubris that it still startles. In a Caesarian moment, he recommended that the U.S. -- not Iraqis -- functionally divide the country into three parts. Although he preferred to call it a "federal system," it was, for all intents and purposes, a de facto partition plan.
If Iraq remains a sorry tale of American destruction and dysfunction without, as yet, a discernable end in sight, Afghanistan may prove Iraq squared. And there, candidate Obama expressed no desire to wind the war down and withdraw American troops. Quite the opposite, during the election campaign he plunked hard for escalation, something our NATO allies are sure not to be too enthusiastic about. According to the Obama plan, many more American troops (if available, itself an open question) are to be poured into the country in what would essentially be a massive "surge strategy" by yet another occupant of the Oval Office. Assumedly, the new Afghan policy would be aided and abetted by those CIA-run UAVs directed toward Pakistan to hunt down Osama bin Laden and pals, while undoubtedly further destabilizing a shaky ally.
When it comes to rising civilian casualties from U.S. air strikes in their countries, both Afghan President Hamid Karzai and Pakistani President Asif Ali Zardari have already used their congratulatory phone calls to President-elect Obama to plead for an end to the attacks, which produce both a profusion of dead bodies and a profusion of live, vengeful enemies. Both have done the same with the Bush administration, Karzai to the point of tears.
The U.S. military argues that the use of air power is necessary in the face of a spreading, ever more dangerous, Taliban insurgency largely because there are too few boots on the ground. ("If we got more boots on the ground, we would not have to rely as much on airstrikes" was the way Army Brig. Gen. Michael Tucker, deputy commander of NATO forces in Afghanistan, put it.) But rest assured, as the boots multiply on increasingly hostile ground, the military will discover it needs more, not less, air power to back more troops in more trouble.
So, after January 20th, expect Obama to take possession of George Bush’s disastrous Afghan War; and unless he is far more skilled than Alexander the Great, British empire builders, and the Russians, his war, too, will continue to rage without ever becoming a raging success.
At least twelve such attacks have been carried out since then by Special Operations forces on Pakistan, Somalia, most recently Syria, and other unnamed countries. Signed by Donald Rumsfeld, signed off on by President Bush, built-upon recently by Secretary of Defense Robert Gates, these secret orders enshrine the Pentagon’s right to ignore international boundaries, or the sovereignty of nations, in an endless global "war" of choice against small, scattered bands of terrorists.
As reporter Jim Lobe pointed out recently, a "series of interlocking grand bargains" in what the neoconservatives used to call "the Greater Middle East" or the "arc of instability" might be available to an Obama administration capable of genuinely new thinking. These, he wrote, would be "backed by the relevant regional players as well as major global powers -- aimed at pacifying Afghanistan; integrating Iran into a new regional security structure; promoting reconciliation in Iraq; and launching a credible process to negotiate a comprehensive peace between Israel and the Arab world."
If, however, Obama accepts a War on Terror framework, as he already seems to have, as well as those "residual" forces in Iraq, while pumping up the war in Afghanistan, he may quickly find himself playing by Rumsfeld rules, whether or not he revokes those specific orders. In fact, left alone in Washington, backed by the normal national security types, he may soon find himself locked into all sorts of unpalatable situations, as once happened to another Democratic president, Lyndon Baines Johnson, who opted to escalate an inherited war when what he most wanted to do was focus on domestic policy.
Previews for a Political Zombie Movie
Domestically, it’s clear enough that we are about to leave the age of Bush -- in tone and policy -- but what that leave-taking will consist of is still an open question. This is especially so given a cratering economy and the pot-holed road ahead. It is a moment when Obama has, not surprisingly, begun to emphasize continuity and reassurance alongside his campaign theme of "change we can believe in."
All you had to do was look at that array of Clinton-era economic types and CEOs behind Obama at his first news conference to think: been there, done that. The full photo of his economic team that day offered a striking profile of pre-Bush era Washington and the Washington Consensus, and so a hint of the Democratic world the new president will walk into on January 20, 2009.
How about former Treasury Secretaries Robert Rubin and Larry Summers, those kings of 1990s globalization, or even the towering former Fed chief from the first Bush era, Paul Volcker? Didn’t that have the look of previews for a political zombie movie, a line-up of the undead? As head of the New America Foundation Steve Clemons has been writing recently, the economic team looks suspiciously as if it were preparing for a "Clinton 3.0" moment.
You could scan that gathering and not see a genuine rogue thinker in sight; no off-the-reservation figures who might represent a breath of fresh air and fresh thinking (other than, being hopeful, the president-elect himself). Clemons offers an interesting list of just some obvious names left off stage: "Paul Krugman, Joseph Stiglitz, Jeffrey Sachs, James Galbraith, Leo Hindery, Clyde Prestowitz, Charlene Barshefsky, C. Fred Bergsten, Adam Posen, Robert Kuttner, Robert Samuelson, Alan Murray, William Bonvillian, Doug & Heidi Rediker, Bernard Schwartz, Tom Gallagher, Sheila Bair, Sherle Schwenninger, and Kevin Phillips."
Mobilizing a largely Clintonista brain trust may look reassuring to some -- an in-gathering of all the Washington wisdom available before Hurricane Bush/Cheney hit town, but unfortunately, we don’t happen to be entering a Clinton 3.0 moment. What’s globalizing now is American disaster, which threatens to level a vulnerable world.
In a sense, though, domestic policy may, relatively speaking, represent the good news of the coming Obama era. We know, for instance, that those preparing the way for the new president’s arrival are thinking hard about how to roll back the worst of Bush cronyism, enrich-yourself-at-the-public-troughism, general lawlessness, and unconstitutionality. As a start, according to Ceci Connolly and R. Jeffrey Smith of the Washington Post, Obama advisers have already been compiling "a list of about 200 Bush administration actions and executive orders that could be swiftly undone to reverse White House policies on climate change, stem cell research, reproductive rights and other issues," including oil drilling in pristine wild lands. In addition, Obama’s people are evidently at work on ways to close Guantanamo and try some of its prisoners in U.S. courts.
However, if continuity domestically means rollback to the Clinton era, continuity in the foreign policy sphere -- Guantanamo aside -- may be a somewhat different matter. We won’t know the full cast of characters to come until the president-elect makes the necessary announcements or has a national security press conference with a similar line-up behind him. But it’s certainly rumored that Robert Gates, a symbol of continuity from both Bush eras, might be kept on as secretary of defense, or a Republican senator like Richard Lugar of Indiana or, more interestingly, retiring Nebraska Senator Chuck Hagel might be appointed to the post. Of course, many Clintonistas are sure to be in this line-up, too.
In addition, among the essential cast of characters will be Chairman of the Joint Chiefs, Michael Mullen, and Centcom Commander David Petraeus, both late Bush appointees, both seemingly flexible military men, both interested in a military-plus approach to the Afghan and Iraq wars. Petraeus, for instance, reportedly recently asked for, and was denied, permission to meet with Syrian President Bashar al-Assad.
All these figures will represent a turn away from the particular madness of the early Bush years abroad, one that actually began in the final years of his second term. But such a national security line-up is unlikely to include fresh thinkers, who might truly reimagine an imperial world, or anyone who might genuinely buck the power of the Pentagon. What Obama looks to have are custodians and bureaucrats of empire, far more cautious, far more sane, and certainly far more grown-up than the first-term Bush appointees, but not a cast of characters fit for reshaping American policy in a new world of disorder and unraveling economies, not a crew ready to break new ground and cede much old ground on this still American-garrisoned planet of ours.
Breathless in Washington
Let’s assume the best: that Barack Obama truly means to bring some form of the people’s will, as he imagines it, to Washington after eight years of unconstitutional "commander-in-chief" governance. That -- take my word for it -- he can’t do without the people themselves expressing that will.
Of course, even in the Bush era, Americans didn’t simply cede the public commons. They turned out, for instance, in staggering numbers to protest the President’s invasion of Iraq before it ever happened, and again more recently to work tirelessly to elect Obama president. But -- so it seems to me -- when immediate goals are either disappointingly not achieved, or achieved relatively quickly, most Americans tend to pack their bags and head for home, as so many did in despair after the invasion was launched in 2003, as so many reportedly are doing again, in a far more celebratory mood, now that Obama is elected.
But hard as his election may have been, that was surely the easy part. He is now about to enter the hornet’s nest. Entrenched interests. Entrenched ideas. Entrenched ideology. Entrenched profits. Entrenched lobbyists. Entrenched bureaucrats. Entrenched think tanks. An entrenched Pentagon and allied military-industrial complex, both bloated beyond imagining and virtually untouchable, along with a labyrinthine intelligence system of more than 18 agencies, departments, and offices.
Washington remains an imperial capital. How in the world will Barack Obama truly begin to change that without you?
In the Bush years, the special interests, lobbyists, pillagers, and crony corporations not only pitched their tents on the public commons, but with the help of the President’s men and women, simply took possession of large hunks of it. That was called "privatization." Now, as Bush & Co. prepare to leave town in a cloud of catastrophe, the feeding frenzy at the public trough only seems to grow.
It’s a natural reaction -- and certainly a commonplace media reaction at the moment -- to want to give Barack Obama a "chance." Back off those critical comments, people now say. Fair’s fair. Give the President-elect a little "breathing space." After all, the election is barely over, he’s not even in office, he hasn’t had his first 100 days, and already the criticism has begun.
But those who say this don’t understand Washington -- or, in the case of various media figures and pundits, perhaps understand it all too well.
Political Washington is a conspiracy -- in the original sense of the word: "to breathe the same air." In that sense, there is no air in Washington that isn’t stale enough to choke a president. Send Obama there alone, give him that "breathing space," don’t start demanding the quick ending of wars or anything else, and you’re not doing him, or the American people, any favors. Quite the opposite, you’re consigning him to suffocation.
Leave Obama to them and he’ll break your heart. If you do, then blame yourself, not him; but better than blaming anyone, pitch your own tent on the public commons and make some noise. Let him know that Washington’s isn’t the only consensus around, that Americans really do want our troops to come home, that we actually are looking for "change we can believe in," which would include a less weaponized, less imperial American world, based on a reinvigorated idea of defense, not aggression, and on the Constitution, not leftover Rumsfeld rules or a bogus Global War on Terror.
Bush, Out of Office, Could Oppose Inquiries
Go to Original
By CHARLIE SAVAGE
When a Congressional committee subpoenaed Harry S. Truman in 1953, nearly a year after he left office, he made a startling claim: Even though he was no longer president, the Constitution still empowered him to block subpoenas.
“If the doctrine of separation of powers and the independence of the presidency is to have any validity at all, it must be equally applicable to a president after his term of office has expired,” Truman wrote to the committee.
Congress backed down, establishing a precedent suggesting that former presidents wield lingering powers to keep matters from their administration secret. Now, as Congressional Democrats prepare to move forward with investigations of the Bush administration, they wonder whether that claim may be invoked again.
“The Bush administration overstepped in its exertion of executive privilege, and may very well try to continue to shield information from the American people after it leaves office,” said Senator Sheldon Whitehouse, Democrat of Rhode Island, who sits on two committees, Judiciary and Intelligence, that are examining aspects of Mr. Bush’s policies.
Topics of open investigations include the harsh interrogation of detainees, the prosecution of former Gov. Don Siegelman of Alabama, secret legal memorandums from the Justice Department’s Office of Legal Counsel and the role of the former White House aides Karl Rove and Harriet E. Miers in the firing of federal prosecutors.
Mr. Bush has used his executive powers to block Congressional requests for executive branch documents and testimony from former aides. But investigators hope that the Obama administration will open the filing cabinets and withdraw assertions of executive privilege that Bush officials have invoked to keep from testifying.
“I intend to ensure that our outstanding subpoenas and document requests relating to the U.S. attorneys matter are enforced,” said Representative John Conyers Jr., Democrat of Michigan and chairman of the House Judiciary Committee. “I am hopeful that progress can be made with the coming of the new administration.”
Also, two advocacy groups, the American Civil Liberties Union and Human Rights First, have prepared detailed reports for the new administration calling for criminal investigations into accusations of abuse of detainees.
It is not clear, though, how a President Barack Obama will handle such requests. Legal specialists said the pressure to investigate the Bush years would raise tough political and legal questions.
Because every president eventually leaves office, incoming chief executives have an incentive to quash investigations into their predecessor’s tenure. Mr. Bush used executive privilege for the first time in 2001, to block a subpoena by Congressional Republicans investigating the Clinton administration.
In addition, Mr. Obama has expressed worries about too many investigations. In April, he told The Philadelphia Daily News that people needed to distinguish “between really dumb policies and policies that rise to the level of criminal activity.”
“If crimes have been committed, they should be investigated,” Mr. Obama said, but added, “I would not want my first term consumed by what was perceived on the part of Republicans as a partisan witch hunt, because I think we’ve got too many problems we’ve got to solve.”
But even if his administration rejects the calls for investigations, Mr. Obama cannot control what the courts or Congress do. Several lawsuits are seeking information about Bush policies, including an Islamic charity’s claim that it was illegally spied on by Mr. Bush’s program on wiretapping without warrants.
And Congressional Democrats say that they are determined to pursue their investigations — and that they expect career officials to disclose other issues after the Bush administration leaves. “We could spend the entire next four years investigating the Bush years,” Mr. Whitehouse said.
But if Mr. Obama decides to release information about his predecessor’s tenure, Mr. Bush could try to invoke executive privilege by filing a lawsuit, said Peter Shane, a law professor at Ohio State University.
In that case, an injunction would most likely be sought ordering the Obama administration not to release the Bush administration’s papers or enjoining Mr. Bush’s former aides from testifying. The dispute would probably go to the Supreme Court, Mr. Shane said.
The idea that ex-presidents may possess residual constitutional powers to keep information secret traces back to Truman.
In November 1953, after Dwight D. Eisenhower became president, the House Un-American Activities Committee subpoenaed Truman to testify about why he had appointed a suspected Communist to the International Monetary Fund.
Truman decided not to comply and asked his lawyer, Samuel I. Rosenman, for help. But there was little time for research.
Edward M. Cramer, a young associate at Mr. Rosenman’s law firm, recalled being summoned with two colleagues to their boss’s office at 6 p.m. and told to come up with something. The next morning, they helped dictate Truman’s letter telling the panel he did not have to testify — or even appear at the hearing.
“I think, legally, we were wrong” about whether Truman had to show up, Mr. Cramer, now 83, said in a phone interview from his home in New York.
But the committee did not call the former president’s bluff. It dropped the matter, and Truman’s hastily devised legal claim became a historical precedent.
In 1973, President Nixon cited Truman’s letter when he refused to testify or give documents to the committee investigating the Watergate scandal.
Mr. Cramer recalled, “Nixon used it, and we said ‘Oh, Jesus, what have we done?’ ”
The first judicial backing for the idea that former presidents wield executive privilege powers came in 1977, as part of a Supreme Court ruling in a case over who controlled Nixon’s White House files. The decision suggested that Nixon might be able to block the release of papers in the future. But it offered few details, and Nixon never sought to do so.
In 1989 and 1990, judges presiding over criminal trials related to the Iran-contra affair blocked requests by defendants to make former President Ronald Reagan testify and release his diaries.
But the Supreme Court has never made clear how far a former president may go in trying to block Congressional demands for documents and testimony — or what happens if a president disagrees with a predecessor about making information public.
“There is no relevant precedent on the books,” Mr. Shane said.
By CHARLIE SAVAGE
When a Congressional committee subpoenaed Harry S. Truman in 1953, nearly a year after he left office, he made a startling claim: Even though he was no longer president, the Constitution still empowered him to block subpoenas.
“If the doctrine of separation of powers and the independence of the presidency is to have any validity at all, it must be equally applicable to a president after his term of office has expired,” Truman wrote to the committee.
Congress backed down, establishing a precedent suggesting that former presidents wield lingering powers to keep matters from their administration secret. Now, as Congressional Democrats prepare to move forward with investigations of the Bush administration, they wonder whether that claim may be invoked again.
“The Bush administration overstepped in its exertion of executive privilege, and may very well try to continue to shield information from the American people after it leaves office,” said Senator Sheldon Whitehouse, Democrat of Rhode Island, who sits on two committees, Judiciary and Intelligence, that are examining aspects of Mr. Bush’s policies.
Topics of open investigations include the harsh interrogation of detainees, the prosecution of former Gov. Don Siegelman of Alabama, secret legal memorandums from the Justice Department’s Office of Legal Counsel and the role of the former White House aides Karl Rove and Harriet E. Miers in the firing of federal prosecutors.
Mr. Bush has used his executive powers to block Congressional requests for executive branch documents and testimony from former aides. But investigators hope that the Obama administration will open the filing cabinets and withdraw assertions of executive privilege that Bush officials have invoked to keep from testifying.
“I intend to ensure that our outstanding subpoenas and document requests relating to the U.S. attorneys matter are enforced,” said Representative John Conyers Jr., Democrat of Michigan and chairman of the House Judiciary Committee. “I am hopeful that progress can be made with the coming of the new administration.”
Also, two advocacy groups, the American Civil Liberties Union and Human Rights First, have prepared detailed reports for the new administration calling for criminal investigations into accusations of abuse of detainees.
It is not clear, though, how a President Barack Obama will handle such requests. Legal specialists said the pressure to investigate the Bush years would raise tough political and legal questions.
Because every president eventually leaves office, incoming chief executives have an incentive to quash investigations into their predecessor’s tenure. Mr. Bush used executive privilege for the first time in 2001, to block a subpoena by Congressional Republicans investigating the Clinton administration.
In addition, Mr. Obama has expressed worries about too many investigations. In April, he told The Philadelphia Daily News that people needed to distinguish “between really dumb policies and policies that rise to the level of criminal activity.”
“If crimes have been committed, they should be investigated,” Mr. Obama said, but added, “I would not want my first term consumed by what was perceived on the part of Republicans as a partisan witch hunt, because I think we’ve got too many problems we’ve got to solve.”
But even if his administration rejects the calls for investigations, Mr. Obama cannot control what the courts or Congress do. Several lawsuits are seeking information about Bush policies, including an Islamic charity’s claim that it was illegally spied on by Mr. Bush’s program on wiretapping without warrants.
And Congressional Democrats say that they are determined to pursue their investigations — and that they expect career officials to disclose other issues after the Bush administration leaves. “We could spend the entire next four years investigating the Bush years,” Mr. Whitehouse said.
But if Mr. Obama decides to release information about his predecessor’s tenure, Mr. Bush could try to invoke executive privilege by filing a lawsuit, said Peter Shane, a law professor at Ohio State University.
In that case, an injunction would most likely be sought ordering the Obama administration not to release the Bush administration’s papers or enjoining Mr. Bush’s former aides from testifying. The dispute would probably go to the Supreme Court, Mr. Shane said.
The idea that ex-presidents may possess residual constitutional powers to keep information secret traces back to Truman.
In November 1953, after Dwight D. Eisenhower became president, the House Un-American Activities Committee subpoenaed Truman to testify about why he had appointed a suspected Communist to the International Monetary Fund.
Truman decided not to comply and asked his lawyer, Samuel I. Rosenman, for help. But there was little time for research.
Edward M. Cramer, a young associate at Mr. Rosenman’s law firm, recalled being summoned with two colleagues to their boss’s office at 6 p.m. and told to come up with something. The next morning, they helped dictate Truman’s letter telling the panel he did not have to testify — or even appear at the hearing.
“I think, legally, we were wrong” about whether Truman had to show up, Mr. Cramer, now 83, said in a phone interview from his home in New York.
But the committee did not call the former president’s bluff. It dropped the matter, and Truman’s hastily devised legal claim became a historical precedent.
In 1973, President Nixon cited Truman’s letter when he refused to testify or give documents to the committee investigating the Watergate scandal.
Mr. Cramer recalled, “Nixon used it, and we said ‘Oh, Jesus, what have we done?’ ”
The first judicial backing for the idea that former presidents wield executive privilege powers came in 1977, as part of a Supreme Court ruling in a case over who controlled Nixon’s White House files. The decision suggested that Nixon might be able to block the release of papers in the future. But it offered few details, and Nixon never sought to do so.
In 1989 and 1990, judges presiding over criminal trials related to the Iran-contra affair blocked requests by defendants to make former President Ronald Reagan testify and release his diaries.
But the Supreme Court has never made clear how far a former president may go in trying to block Congressional demands for documents and testimony — or what happens if a president disagrees with a predecessor about making information public.
“There is no relevant precedent on the books,” Mr. Shane said.
Crisis Is Beyond The Reach of Traditional Solutions
Go to Original
By Paul Craig Roberts
By most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic. The Russian economist, Mikhail Khazin says that the “U.S. will soon face a second ‘Great Depression.’” It is possible that even Khazin is optimistic.
I cannot predict the future. However, I can explain what the problems are, how they differ from past times of troubles, and why traditional remedies, such as the public works programs that Reich proposes, are unlikely to succeed in reviving the U.S. economy.
Khazin points out, as have others such as University of Maryland economist Herman Daly and myself, that consumer debt expansion is the fuel that kept the U.S. economy alive. The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible. Consumers are overburdened with debt. This fact takes monetary policy out of the picture. Americans can no longer afford to borrow more in order to consume more.
This leaves economists with fiscal policy, which, as Reich realizes, also has problems. Reich is correct that neither a reduction in marginal tax rates nor a tax rebate is likely to be very effective. Reich, a Keynesian, has an uncertain grasp of supply-side economics, but as one who has a firm grasp, I can attest that marginal tax rates today are not the stifling influence they were prior to John F. Kennedy and Ronald Reagan. As Art Laffer said, there are two tax rates, high and low, that will produce the same tax revenues by expanding or contracting economic activity. Marginal tax rates are no longer in the higher ranges. As for a tax rebate, Reich is correct that in the present situation a tax rebate would be dissipated in paying off creditors.
Reich sees the problem as a lack of aggregate demand sufficient to maintain full employment. His solution is for the government to spend “a lot” more on infrastructure projects on top of a trillion dollar budget deficit --”repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy.” This spending would boost employment, wages, and aggregate demand.
I have no opposition to infrastructure projects, but who will finance the baseline trillion dollar US budget deficit plus the additional red ink spending on infrastructure? Not Americans. The US savings rate is zero or negative. Home mortgage foreclosures are in the millions. Officially, US unemployment is 10 million, but if measured by pre-Clinton era standards unemployment is much higher. Statistician John Williams, who measures the unemployment rate by the pre-Clinton standards concludes that the rate of US unemployment is about 15 percent. President Clinton “reformed” the unemployment statistics by ceasing to count discouraged workers as unemployed.
For years, the US government’s budget has been dependent on foreigners financing the red ink. Countries such as Japan and China and OPEC suppliers of oil to the US have huge export surpluses with the US. They recycle the dollars by buying US Treasury bonds, thus financing the US government’s red ink budgets.
The open question is: how much longer will they do so?
Foreign portfolios are overweighed in dollar assets. Currently the dollar’s value is benefitting from the financial crisis, as investors flee to the reserve currency. However, sooner or later the huge outpourings of dollar debts will cause foreign creditors to draw back. Already China, America’s largest creditor, has sent a signal that that time might be drawing near. Recently the Chinese government asked, as they do indirectly through third parties, “Why should China help the US to issue debt without end in the belief that the national credit of the US can expand without limit?”
Is the rest of the world, which has demanded a financial summit to work toward a new financial order, going to permanently allocate the world’s supply of capital to covering American mistakes?
If not, the bailout and the stimulus package will have to be financed by printing money.
And the bailout needs are growing. Car loans and credit card debt were also securitized and sold. As the economy worsens, credit card and car loan defaults are rising. Moreover, AIG needs more money from the government. Fannie Mae’s loss has widened to $29 billion despite the $200 billion bailout. General Motors and Ford need taxpayer money to survive. General Motors says that its GMAÇ mortgage unit “may not survive.” Deutsche Bank sees General Motors shares “as likely worthless.”
Shades of the Weimar Republic.
What Reich and the American economic establishment do not understand is that the recession paradigm does not apply. There are no jobs waiting at US manufacturers for a demand stimulus to pull Americans back into work. The problem is not a liquidity problem. To the contrary, there have been many years of too much liquidity. Credit has grown far more than production. Indeed, US production has been moved offshore. Jobs that used to support the growth of American incomes and the tax bases of cities and states have moved, along with US GDP, to China and elsewhere.
The work is gone. All that are left are credit card and mortgage debts.
Anyone who thinks that America still has a vibrant economy needs to log onto www.EconomyInCrisis.org and face the facts.
Economists associate economic depression with price deflation. However, traditionally, debts that are beyond an economy’s ability to service are inflated away. This suggests that the coming depression will be an inflationary depression. Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment--a situation worse than the Great Depression.
The incompetent Clinton and Dubya administrations, unregulated banksters and Wall St criminals, greedy CEOs, and a no-think economics profession have destroyed America’s economy.
What is the remedy for simultaneous inflation and unemployment?
Three decades ago the solution was supply-side economics. Easy monetary policy had pushed up consumer demand, but high tax rates had curtailed output. It was more profitable for firms to allow prices to rise than for them to invest and increase output.
Supply-side economics changed the policy mix. Monetary policy was tightened and marginal tax rates were reduced, thus stimulating output instead of inflation.
Today the problem is different. The US has abused the reserve currency role, thus endangering its credit worthiness and the exchange value of the dollar. Jobs have moved offshore. The budget deficit is huge and growing. If foreigners will not finance the widening gap, the printing presses will be employed or the government will not be able to pay its bills.
The bailout funds have been wasted. The expensive bailout does not address the problem of falling employment and rising mortgage defaults. Treasury Secretary Hank Paulson could not see beyond saving Goldman Sachs and his bankster friends. The Paulson bailout does nothing except take troubled assets off banks’ books and put them on the overburdened taxpayers’ books, thus endangering the US Treasury’s credit rating.
What the Bush Regime has done is to stick the taxpayers with the banks’ mistakes. An intelligent government would have used the money to refinance the troubled mortgages and stop the defaults. By saving the mortgages from default, the banks’ balance sheets would have been made secure. By failing to deal with the subprime crisis, Bush and Congress have added a financial crisis to the exhaustion of consumer demand and the problems of financing huge trade and budget deficits.
Belatedly, Paulson has realized his mistake. On November 12, Paulson announced, “We have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use [bailout] funds.”
The financial crisis has cost taxpayers far more than the amount of the bailout. Americans’ savings and pension funds have been devastated. Americans in investment partnerships, who have been required by IRS rules to pay income taxes on gains in the partnerships’ portfolios, have had the accumulated multi-year gains wiped out. They have paid taxes on years of “capital gains” that have disappeared, thus doubling their losses.
America’s economic troubles will rapidly accumulate if the dollar loses its reserve currency role. To protect the dollar and the Treasury’s credit standing, the US needs to curtail its foreign borrowing by reducing its budget deficit. It can do this by halting its gratuitous wars and slashing its unnecessary military spending which exceeds that of the rest of the world combined. The empire has run out of resources, and the 700 overseas bases must be closed.
Can Americans afford massive infrastructure spending when they cannot afford health care? In Florida a Blue Cross Blue Shield group policy for a 60-year old woman costs $14,100 annually, and this is a policy with deductibles and co-payments. Supplementary policies from AARP to fill some of the gaps in Medicare can cost retirees $3,300 annually. When one looks at the economic situation of the vast majority of Americans, it is astonishing that the Bush regime regards wars in the Middle East and taxpayer bailouts of Wall Street criminals as a good use of scarce resources.
US corporations, which have moved their production for US markets offshore in order to drive up their share prices and provide their CEOs with multi-million dollar bonuses, can be provided with a different set of incentives that encourage the corporations to bring employment back to the US. For example, the corporate income tax can be restructured to tax corporations according to the value-added in the US. The higher the value-added in the US, the lower the tax rate; the lower the value-added, the higher the tax rate.
Cutting the budget deficit by halting pointless wars and unnecessary military spending and reducing the trade deficit by bringing jobs back to America are simple tasks compared to confronting inflationary depression.
The world has had enough of American irresponsibility and is taking away the reins. At the November 15 economic summit, the world will begin the process of imposing a new financial order on the US in exchange for continued lending to the bankrupt “superpower.” With bailouts eating up the world’s supply of capital, continued foreign financing for Washington’s wars of aggression is out of the picture.
By Paul Craig Roberts
By most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic. The Russian economist, Mikhail Khazin says that the “U.S. will soon face a second ‘Great Depression.’” It is possible that even Khazin is optimistic.
I cannot predict the future. However, I can explain what the problems are, how they differ from past times of troubles, and why traditional remedies, such as the public works programs that Reich proposes, are unlikely to succeed in reviving the U.S. economy.
Khazin points out, as have others such as University of Maryland economist Herman Daly and myself, that consumer debt expansion is the fuel that kept the U.S. economy alive. The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible. Consumers are overburdened with debt. This fact takes monetary policy out of the picture. Americans can no longer afford to borrow more in order to consume more.
This leaves economists with fiscal policy, which, as Reich realizes, also has problems. Reich is correct that neither a reduction in marginal tax rates nor a tax rebate is likely to be very effective. Reich, a Keynesian, has an uncertain grasp of supply-side economics, but as one who has a firm grasp, I can attest that marginal tax rates today are not the stifling influence they were prior to John F. Kennedy and Ronald Reagan. As Art Laffer said, there are two tax rates, high and low, that will produce the same tax revenues by expanding or contracting economic activity. Marginal tax rates are no longer in the higher ranges. As for a tax rebate, Reich is correct that in the present situation a tax rebate would be dissipated in paying off creditors.
Reich sees the problem as a lack of aggregate demand sufficient to maintain full employment. His solution is for the government to spend “a lot” more on infrastructure projects on top of a trillion dollar budget deficit --”repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy.” This spending would boost employment, wages, and aggregate demand.
I have no opposition to infrastructure projects, but who will finance the baseline trillion dollar US budget deficit plus the additional red ink spending on infrastructure? Not Americans. The US savings rate is zero or negative. Home mortgage foreclosures are in the millions. Officially, US unemployment is 10 million, but if measured by pre-Clinton era standards unemployment is much higher. Statistician John Williams, who measures the unemployment rate by the pre-Clinton standards concludes that the rate of US unemployment is about 15 percent. President Clinton “reformed” the unemployment statistics by ceasing to count discouraged workers as unemployed.
For years, the US government’s budget has been dependent on foreigners financing the red ink. Countries such as Japan and China and OPEC suppliers of oil to the US have huge export surpluses with the US. They recycle the dollars by buying US Treasury bonds, thus financing the US government’s red ink budgets.
The open question is: how much longer will they do so?
Foreign portfolios are overweighed in dollar assets. Currently the dollar’s value is benefitting from the financial crisis, as investors flee to the reserve currency. However, sooner or later the huge outpourings of dollar debts will cause foreign creditors to draw back. Already China, America’s largest creditor, has sent a signal that that time might be drawing near. Recently the Chinese government asked, as they do indirectly through third parties, “Why should China help the US to issue debt without end in the belief that the national credit of the US can expand without limit?”
Is the rest of the world, which has demanded a financial summit to work toward a new financial order, going to permanently allocate the world’s supply of capital to covering American mistakes?
If not, the bailout and the stimulus package will have to be financed by printing money.
And the bailout needs are growing. Car loans and credit card debt were also securitized and sold. As the economy worsens, credit card and car loan defaults are rising. Moreover, AIG needs more money from the government. Fannie Mae’s loss has widened to $29 billion despite the $200 billion bailout. General Motors and Ford need taxpayer money to survive. General Motors says that its GMAÇ mortgage unit “may not survive.” Deutsche Bank sees General Motors shares “as likely worthless.”
Shades of the Weimar Republic.
What Reich and the American economic establishment do not understand is that the recession paradigm does not apply. There are no jobs waiting at US manufacturers for a demand stimulus to pull Americans back into work. The problem is not a liquidity problem. To the contrary, there have been many years of too much liquidity. Credit has grown far more than production. Indeed, US production has been moved offshore. Jobs that used to support the growth of American incomes and the tax bases of cities and states have moved, along with US GDP, to China and elsewhere.
The work is gone. All that are left are credit card and mortgage debts.
Anyone who thinks that America still has a vibrant economy needs to log onto www.EconomyInCrisis.org and face the facts.
Economists associate economic depression with price deflation. However, traditionally, debts that are beyond an economy’s ability to service are inflated away. This suggests that the coming depression will be an inflationary depression. Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment--a situation worse than the Great Depression.
The incompetent Clinton and Dubya administrations, unregulated banksters and Wall St criminals, greedy CEOs, and a no-think economics profession have destroyed America’s economy.
What is the remedy for simultaneous inflation and unemployment?
Three decades ago the solution was supply-side economics. Easy monetary policy had pushed up consumer demand, but high tax rates had curtailed output. It was more profitable for firms to allow prices to rise than for them to invest and increase output.
Supply-side economics changed the policy mix. Monetary policy was tightened and marginal tax rates were reduced, thus stimulating output instead of inflation.
Today the problem is different. The US has abused the reserve currency role, thus endangering its credit worthiness and the exchange value of the dollar. Jobs have moved offshore. The budget deficit is huge and growing. If foreigners will not finance the widening gap, the printing presses will be employed or the government will not be able to pay its bills.
The bailout funds have been wasted. The expensive bailout does not address the problem of falling employment and rising mortgage defaults. Treasury Secretary Hank Paulson could not see beyond saving Goldman Sachs and his bankster friends. The Paulson bailout does nothing except take troubled assets off banks’ books and put them on the overburdened taxpayers’ books, thus endangering the US Treasury’s credit rating.
What the Bush Regime has done is to stick the taxpayers with the banks’ mistakes. An intelligent government would have used the money to refinance the troubled mortgages and stop the defaults. By saving the mortgages from default, the banks’ balance sheets would have been made secure. By failing to deal with the subprime crisis, Bush and Congress have added a financial crisis to the exhaustion of consumer demand and the problems of financing huge trade and budget deficits.
Belatedly, Paulson has realized his mistake. On November 12, Paulson announced, “We have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use [bailout] funds.”
The financial crisis has cost taxpayers far more than the amount of the bailout. Americans’ savings and pension funds have been devastated. Americans in investment partnerships, who have been required by IRS rules to pay income taxes on gains in the partnerships’ portfolios, have had the accumulated multi-year gains wiped out. They have paid taxes on years of “capital gains” that have disappeared, thus doubling their losses.
America’s economic troubles will rapidly accumulate if the dollar loses its reserve currency role. To protect the dollar and the Treasury’s credit standing, the US needs to curtail its foreign borrowing by reducing its budget deficit. It can do this by halting its gratuitous wars and slashing its unnecessary military spending which exceeds that of the rest of the world combined. The empire has run out of resources, and the 700 overseas bases must be closed.
Can Americans afford massive infrastructure spending when they cannot afford health care? In Florida a Blue Cross Blue Shield group policy for a 60-year old woman costs $14,100 annually, and this is a policy with deductibles and co-payments. Supplementary policies from AARP to fill some of the gaps in Medicare can cost retirees $3,300 annually. When one looks at the economic situation of the vast majority of Americans, it is astonishing that the Bush regime regards wars in the Middle East and taxpayer bailouts of Wall Street criminals as a good use of scarce resources.
US corporations, which have moved their production for US markets offshore in order to drive up their share prices and provide their CEOs with multi-million dollar bonuses, can be provided with a different set of incentives that encourage the corporations to bring employment back to the US. For example, the corporate income tax can be restructured to tax corporations according to the value-added in the US. The higher the value-added in the US, the lower the tax rate; the lower the value-added, the higher the tax rate.
Cutting the budget deficit by halting pointless wars and unnecessary military spending and reducing the trade deficit by bringing jobs back to America are simple tasks compared to confronting inflationary depression.
The world has had enough of American irresponsibility and is taking away the reins. At the November 15 economic summit, the world will begin the process of imposing a new financial order on the US in exchange for continued lending to the bankrupt “superpower.” With bailouts eating up the world’s supply of capital, continued foreign financing for Washington’s wars of aggression is out of the picture.
Paulson the Bungler
Go to Original
By Mike Whitney
Henry Paulson's time at Treasury has been one pratfall after another. Even so, on Tuesday he managed to out-due himself. Paulson held a "surprise" press conference where he announced that the $700 billion Troubled Asset Relief Program (TARP) wouldn't be used to buy troubled assets after all. Instead, the money will used to bail out insurance giant AIG, provide extra capital for the banks to hoard, and now (this is new part) give money to "nonbank financial institutions, like insurers and specialty-finance companies" so they can lend to credit-worthy consumers. (Isn't that why we gave money to the banks?)
Paulson's announcement was like tossing a hand-grenade in a San-i-can; it blew the stock market to Kingdom come. Just minutes after the opening bell on the New York Stock Exchange (NYSE) stocks plummeted to new lows ending the session in a 400 point death-spiral. Wall Street doesn't like uncertainty and Paulson's sudden about-face sent jittery investors running for cover. The message to investors is clear, the government doesn't have the foggiest idea of what it's doing and is just grasping at straws.
But Paulson's no fool; he knew exactly what the reaction would be on Wall Street. He simply decided that blowing up the equities market was worth the price of reviving "securitization"--the transformation of loans into securities. You see, securitization is Wall Street's Golden Goose. It's the foundation block upon which structured finance and all its complex credit-enhancing derivatives rests. Keep in mind, that all these exotic, financially-engineered products--the CDOs, MBS, and CDS--were all created with one goal in mind; to maximize leverage with minimum capital so that profits can be skimmed off the top. That's how Paulson managed to walk away from Goldman Sachs with hundreds of millions of dollars in his pockets. It's a racket.
There's a myth that credit is contracting because the banks won't lend. But, in truth, total bank credit expanded by $575 billion over the past 10 weeks. The real problem is that the securitzation market remains frozen.
So now Paulson wants to breathe new life into securitization by providing liquidity for nonbank financial institutions who get their money from the wholesale market. Of course, no one really knows how this will work since these operations are completely unregulated by the federal government. No worries; the charade will persist behind the dodgy claim that "it's needed to get credit to the consumer". Baloney. What the consumer needs job security and a pay-raise, not more debt. This is just more Paulson flim-flam.
It was clear that the Treasury Secretary was concocting a new swindle a couple weeks ago when Fed chief Bernanke defended "securitzation in a speech where he said:
"The ability of financial intermediaries to sell the mortgages they originate into the broader capital market by means of the securitization process serves two important purposes: First, it provides originators much wider sources of funding than they could obtain through conventional sources, such as retail deposits; second, it substantially reduces the originator's exposure to interest rate, credit, prepayment, and other risks associated with holding mortgages to maturity, thereby reducing the overall costs of providing mortgage credit."
Nonsense. What it really does is create the optimal environment for speculative leveraging, debt-pyramiding and massive profit-taking. But, that's beside the point. The real issue is that securitization is dead already because Paulson and his ilk poisoned the well by adding subprime garbage and Alt As to the mix. Now investors are steering clear of any securities that bundle debt. It's a confidence issue.
According to the Wall Street Journal:
"Banks and other finance companies making loans for autos, credit cards and college tuition are having virtually no success in selling those loans to other investors, a potent sign of just how tight credit markets remain.
The market for selling such loans — by packaging, or securitizing, them into bonds — had just one $500 million deal for all of October, according to Barclays Capital. That compares with $50.7 billion worth of deals made one year earlier, according to market-research firm Dealogic. The overall market for so-called asset-backed securitization is estimated at $2.5 trillion. (Bond Woes Choke off some Credit to Consumers, Wall Street Journal, Robin Sidel)
$500 million is just 1 percent of $50 billion! Securitization will be dead for a decade or so; it was destroyed by lax lending standards and easy credit. Paulson and his fellows will have to find a new way to fleece gulible investors.
The TARP is most expensive boondoggle in history. No one even knows what the banks are doing with the money. There's neither accountability nor transparency. As a result, investor confidence has deteriorated and stocks have continued to fall. No one trusts Paulson to do the right thing anymore; it's that simple.
The Treasury's new Financial Stability Oversight Board has met four times, but they still can't say how the banks are using the money. It's a joke. Congress has been missing in action, too. They promised to create their own oversight board, but five weeks have passed and still nothing has happened. Apparently, the idea throwing $700 billion down rathole isn't enough to prod Ms. Pelosi and her congressional cohorts into action. All that really matters to them is getting reelected and nuzzling ever-closer to the public trough.
The TARP fiasco is not taking place in a vacuum either; the country is at the beginning of the deepest consumer-led recession in the last half century. Retail spending and automobile sales have been following the same grim flightpath as housing, while unemployment is at a 7 year high soaring to nearly 4 million. Household debt is at record levels of $14 trillion. The job market is steadily weakening while the consumer is more vulnerable than ever. Meanwhile, Paulson has dragged his feet on rewriting mortgages to slow foreclosures, stalled on providing another stimulus package, and diverted all the money from the $700 billion bailout to his friends in the financial industry. Not one dime has gone to a working man or woman. Paulson continues to play games while Rome burns even though, according to his colleague, former G-Sax chairman John Whitehead, the current downturn will be worse than the Great Depression.
According to Reuters:
"The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead ...
"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system. ... I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America. ... I just want to get people thinking about this, and to realize this is a road to disaster. I've always been a positive person and optimistic, but I don't see a solution here."
There is no solution. The first thing to realize is that it is not a matter of "fixing" the economy. The economy is fixing itself by purging the unsustainable debt from the system. That's how markets work. Greenspan's low interest rates created a subsidy for debt which--along with the alphabet soup of leveraged derivatives--buoyed the economy along on the biggest wave of speculative financing the world has ever seen. The distortions that were caused by the unprecedented credit expansion stimulated artificial demand that created the appearance of growth and prosperity but, in truth, was nothing more than an equity bubble. Now the bubble has popped and the financial system is returning to the mean. That means that credit will probably contract by 30 to 40 percent putting us on the path to another Great Depression. Unless the government takes preventative action to get money into the hands of consumers and restore confidence, the nation will face (what David Brooks called) "grueling scarcity" and widespread panic. That's probably why all the voting machines and exit polls finally matched up with the election results in the 2008 presidential balloting for the first time in 8 years; because the ruling elites know that they need a popular executive to put in front of the cameras when they try to calm the crowds and keep the country from disintegrating into anarchy. It also explains the nervous smiles on the faces of the money-lenders and graybeards assembled on the stage behind Obama at his first press conference. The American establishment is placing all its hopes for economic survival on the narrow shoulders of their newest posterboy, Barak Hussein Obama.
There's more pain to come, but the suffering can be mitigated by sound decision-making and Keynesian policies. That means public work programs, bankruptcy reform, and extensions on unemployment. Nobel prize winner Paul Krugman recommends a stimulus package of $600 billion. That's a good start, but it will take much more than that. And foreign investors will have to be confident in our choices or the sale of Treasurys will slip and the US will face a funding crisis. The Fed's lending facilities have already loaned $2 trillion while the Treasury's bailout is $700 billion. By the end of 2010, fiscal deficits will be nearly $2 tillion and the total cost to the US taxpayer will be at least $5 trillion. That means rising interest rates, flagging growth and hard times ahead.
The present financial crisis is a self-inflicted wound. It started at the Federal Reserve with their cynical neoliberal monetary policies. Any solution, that does not involve the dismantling of the Fed, is unacceptable.
By Mike Whitney
Henry Paulson's time at Treasury has been one pratfall after another. Even so, on Tuesday he managed to out-due himself. Paulson held a "surprise" press conference where he announced that the $700 billion Troubled Asset Relief Program (TARP) wouldn't be used to buy troubled assets after all. Instead, the money will used to bail out insurance giant AIG, provide extra capital for the banks to hoard, and now (this is new part) give money to "nonbank financial institutions, like insurers and specialty-finance companies" so they can lend to credit-worthy consumers. (Isn't that why we gave money to the banks?)
Paulson's announcement was like tossing a hand-grenade in a San-i-can; it blew the stock market to Kingdom come. Just minutes after the opening bell on the New York Stock Exchange (NYSE) stocks plummeted to new lows ending the session in a 400 point death-spiral. Wall Street doesn't like uncertainty and Paulson's sudden about-face sent jittery investors running for cover. The message to investors is clear, the government doesn't have the foggiest idea of what it's doing and is just grasping at straws.
But Paulson's no fool; he knew exactly what the reaction would be on Wall Street. He simply decided that blowing up the equities market was worth the price of reviving "securitization"--the transformation of loans into securities. You see, securitization is Wall Street's Golden Goose. It's the foundation block upon which structured finance and all its complex credit-enhancing derivatives rests. Keep in mind, that all these exotic, financially-engineered products--the CDOs, MBS, and CDS--were all created with one goal in mind; to maximize leverage with minimum capital so that profits can be skimmed off the top. That's how Paulson managed to walk away from Goldman Sachs with hundreds of millions of dollars in his pockets. It's a racket.
There's a myth that credit is contracting because the banks won't lend. But, in truth, total bank credit expanded by $575 billion over the past 10 weeks. The real problem is that the securitzation market remains frozen.
So now Paulson wants to breathe new life into securitization by providing liquidity for nonbank financial institutions who get their money from the wholesale market. Of course, no one really knows how this will work since these operations are completely unregulated by the federal government. No worries; the charade will persist behind the dodgy claim that "it's needed to get credit to the consumer". Baloney. What the consumer needs job security and a pay-raise, not more debt. This is just more Paulson flim-flam.
It was clear that the Treasury Secretary was concocting a new swindle a couple weeks ago when Fed chief Bernanke defended "securitzation in a speech where he said:
"The ability of financial intermediaries to sell the mortgages they originate into the broader capital market by means of the securitization process serves two important purposes: First, it provides originators much wider sources of funding than they could obtain through conventional sources, such as retail deposits; second, it substantially reduces the originator's exposure to interest rate, credit, prepayment, and other risks associated with holding mortgages to maturity, thereby reducing the overall costs of providing mortgage credit."
Nonsense. What it really does is create the optimal environment for speculative leveraging, debt-pyramiding and massive profit-taking. But, that's beside the point. The real issue is that securitization is dead already because Paulson and his ilk poisoned the well by adding subprime garbage and Alt As to the mix. Now investors are steering clear of any securities that bundle debt. It's a confidence issue.
According to the Wall Street Journal:
"Banks and other finance companies making loans for autos, credit cards and college tuition are having virtually no success in selling those loans to other investors, a potent sign of just how tight credit markets remain.
The market for selling such loans — by packaging, or securitizing, them into bonds — had just one $500 million deal for all of October, according to Barclays Capital. That compares with $50.7 billion worth of deals made one year earlier, according to market-research firm Dealogic. The overall market for so-called asset-backed securitization is estimated at $2.5 trillion. (Bond Woes Choke off some Credit to Consumers, Wall Street Journal, Robin Sidel)
$500 million is just 1 percent of $50 billion! Securitization will be dead for a decade or so; it was destroyed by lax lending standards and easy credit. Paulson and his fellows will have to find a new way to fleece gulible investors.
The TARP is most expensive boondoggle in history. No one even knows what the banks are doing with the money. There's neither accountability nor transparency. As a result, investor confidence has deteriorated and stocks have continued to fall. No one trusts Paulson to do the right thing anymore; it's that simple.
The Treasury's new Financial Stability Oversight Board has met four times, but they still can't say how the banks are using the money. It's a joke. Congress has been missing in action, too. They promised to create their own oversight board, but five weeks have passed and still nothing has happened. Apparently, the idea throwing $700 billion down rathole isn't enough to prod Ms. Pelosi and her congressional cohorts into action. All that really matters to them is getting reelected and nuzzling ever-closer to the public trough.
The TARP fiasco is not taking place in a vacuum either; the country is at the beginning of the deepest consumer-led recession in the last half century. Retail spending and automobile sales have been following the same grim flightpath as housing, while unemployment is at a 7 year high soaring to nearly 4 million. Household debt is at record levels of $14 trillion. The job market is steadily weakening while the consumer is more vulnerable than ever. Meanwhile, Paulson has dragged his feet on rewriting mortgages to slow foreclosures, stalled on providing another stimulus package, and diverted all the money from the $700 billion bailout to his friends in the financial industry. Not one dime has gone to a working man or woman. Paulson continues to play games while Rome burns even though, according to his colleague, former G-Sax chairman John Whitehead, the current downturn will be worse than the Great Depression.
According to Reuters:
"The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead ...
"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system. ... I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America. ... I just want to get people thinking about this, and to realize this is a road to disaster. I've always been a positive person and optimistic, but I don't see a solution here."
There is no solution. The first thing to realize is that it is not a matter of "fixing" the economy. The economy is fixing itself by purging the unsustainable debt from the system. That's how markets work. Greenspan's low interest rates created a subsidy for debt which--along with the alphabet soup of leveraged derivatives--buoyed the economy along on the biggest wave of speculative financing the world has ever seen. The distortions that were caused by the unprecedented credit expansion stimulated artificial demand that created the appearance of growth and prosperity but, in truth, was nothing more than an equity bubble. Now the bubble has popped and the financial system is returning to the mean. That means that credit will probably contract by 30 to 40 percent putting us on the path to another Great Depression. Unless the government takes preventative action to get money into the hands of consumers and restore confidence, the nation will face (what David Brooks called) "grueling scarcity" and widespread panic. That's probably why all the voting machines and exit polls finally matched up with the election results in the 2008 presidential balloting for the first time in 8 years; because the ruling elites know that they need a popular executive to put in front of the cameras when they try to calm the crowds and keep the country from disintegrating into anarchy. It also explains the nervous smiles on the faces of the money-lenders and graybeards assembled on the stage behind Obama at his first press conference. The American establishment is placing all its hopes for economic survival on the narrow shoulders of their newest posterboy, Barak Hussein Obama.
There's more pain to come, but the suffering can be mitigated by sound decision-making and Keynesian policies. That means public work programs, bankruptcy reform, and extensions on unemployment. Nobel prize winner Paul Krugman recommends a stimulus package of $600 billion. That's a good start, but it will take much more than that. And foreign investors will have to be confident in our choices or the sale of Treasurys will slip and the US will face a funding crisis. The Fed's lending facilities have already loaned $2 trillion while the Treasury's bailout is $700 billion. By the end of 2010, fiscal deficits will be nearly $2 tillion and the total cost to the US taxpayer will be at least $5 trillion. That means rising interest rates, flagging growth and hard times ahead.
The present financial crisis is a self-inflicted wound. It started at the Federal Reserve with their cynical neoliberal monetary policies. Any solution, that does not involve the dismantling of the Fed, is unacceptable.
Subscribe to:
Posts (Atom)