Legislators ordered audit of Superferry

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By Derrick DePledge and Treena Shapiro

Tomorrow is the 54th day of the 60-day session.

The state auditor has released a report that said the state may have compromised its environmental policy under pressure from Hawaii Superferry executives concerned about financing for the interisland ferry project.

The auditor, in a report released Thursday, found that an internal deadline by Superferry for financing for ship construction "drove the process" and led the state Department of Transportation to bypass an environmental review.

The state Supreme Court ruled last year that the state was wrong to exempt the project from an environmental review, which led to public protests and legal challenges that halted ferry service.

State lawmakers approved a bill in special session last year allowing ferry service to resume while the state conducts an environmental impact statement. Lawmakers ordered the audit, however, to review the Lingle administration’s decision-making on the project.

The auditor urged lawmakers to improve the state’s environmental review law through better enforcement and five-year updates of permissible exemptions.

A second phase of the audit is expected to be released later this year.

Judicial retirement age: State House and Senate leaders have abandoned a proposed constitutional amendment to extend the mandatory retirement age for judges from 70 to 80 years old.

Voters in 2006 rejected lifting the mandatory retirement age entirely, but lawmakers wanted to consider alternatives. Gov. Linda Lingle called it an attempt to limit her ability to replace state Supreme Court Chief Justice Ronald T.Y. Moon, who reaches mandatory retirement age in 2010.

The House Judiciary Committee had amended the proposal to make it apply to judges appointed after November as a compromise. But lawmakers said interest in the issue had waned.

Former Aloha Airlines workers: Lawmakers are fast-tracking a bill that would provide temporary healthcare coverage to the children of Aloha Airlines workers who lost their jobs and benefits when the interisland carrier closed its passenger service.

The children would be eligible for basic healthcare through the end of the year from a new pilot program by the state Department of Human Services and the Hawaii Medical Service Association. The program is meant to serve so-called gap children who do not qualify for Quest, the state’s health insurance program for the poor, and who do not have private insurance.

The proposal could also help Aloha workers who are purchasing insurance through COBRA, the federal healthcare extension program, by allowing them to to save money by removing their children from COBRA coverage.

QUOTE OF THE WEEK

"Fundamentally, we do not believe it is appropriate or fair to the employee to remove his or her right to a secret ballot in determining their representation by a labor organization."

— Vicky Cayetano, president and chief executive officer of United Laundry Services Inc., and wife of former Gov. Ben Cayetano, in a letter supporting Gov. Linda Lingle’s veto of a bill that would recognize union representation if a majority of workers at a company sign union cards.

Escalating food prices pinch shoppers

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By Will Hoover

Isle consumers feeling sting of rising fuel costs, alter grocery shopping

While shopping at Safeway in Kapolei last week, Jane Boyce of Barbers Point stood before a display of large cantaloupes and considered her options.

"It's 69 cents a pound," she finally said. "But when you weigh it, it's four or five pounds. You're talking $3 or $4 for one melon."

And that was the price for Safeway Club Card members. With the regular "nonmember" price at $1.99 per pound, a four-pound cantaloupe would cost $7.96.

Boyce chose to walk away from the cantaloupe display. Like others on O'ahu, she worries about escalating food prices that jumped 6.1 percent during the past year — the biggest increase in nearly two decades — and show no sign of leveling off.

Boyce has joined a growing legion of Island grocery shoppers who are beginning to alter their food-buying habits. They're scouting for sales, buying at whichever store has better prices, collecting coupons, purchasing less, serving smaller portions, and checking cash register receipts for errors.

Boyce said she selects items that stretch her meals further. She avoids spontaneous purchases, and tries to make every dollar count.

"The prices are affecting me a lot," said Boyce, 55, who lives on a fixed income. "Because my money isn't going as far when it comes to groceries. Sometimes Safeway has the best price. Sometimes I go to food banks. I used to buy name brands. Don't do that anymore."

Mostly, she frets about what's coming.

"It's a little frightening," she said. "Because we all have to eat. And if food prices go up, what am I going to do?"

Over at Sack 'N Save in Nanakuli, Kaulana Kaneakua was having similar anxieties. With 10 kids and four adults in his household, he, too, has felt the sting of rapidly rising grocery prices. Even with three working adults splitting the costs, he said, the family lives one day at a time, paycheck to paycheck.

When it comes to groceries, the family has adopted a regimen of belt-tightening tactics to keep costs down.

"We buy in bulk," said Kaneakua, who maintains two jobs. "We look for sales. We use everything we buy. The leftovers are breakfast and lunch for the next day."

They limit grocery shopping to twice a month. They avoid name brands. They look for in-store specials. So far they haven't put in a garden at home, said Kaneakua, but they haven't ruled out the option.

Experts aren't able to offer much solace to Island consumers feeling the food crunch.

"There's been a lot of attention on higher food prices," said Leroy Laney, a professor of economics and finance at Hawai'i Pacific University, and an economics adviser at First Hawaiian Bank.

"We've already got a pretty high inflation rate here because of shelter and energy costs. And higher food prices aren't going to make that overall rate of inflation any easier to live with."

The problem isn't difficult to comprehend. With 80 percent of everything consumed in Hawai'i imported via ship or airplane, Laney said, the costs of food are soaring in proportion to skyrocketing fuel prices. Shoppers can count on food prices to continue moving in lockstep with the gas pump.

That doesn't bode well for folks heading to the local marketplace, considering that the average price of unleaded regular gas on O'ahu has jumped by 63 cents a gallon in the past year — an increase of more than 20 percent.

Worse, Laney said he doesn't see a silver lining for Hawai'i.

"I don't know of anything you can do about it," he said. "We can't possibly come close to sustaining our consumption with locally grown food. If there were any obvious answer, we would have heard it already."

Laney isn't alone in that opinion.

"It doesn't look good, because everything is going up," said Richard Botti, president of the Hawaii Food Industry Association. "And then you add to that our bad economy, and what you've got is people who have to change what they're eating for dinner."

Wholesalers are caught in a squeeze between skyrocketing fuel costs and frenzied retailers, said Brian Christensen, president of C&S Wholesale Grocers, one of the largest wholesale food distributors in Hawai'i.

"Frankly, I don't see it getting any better soon," said Christensen, who has never seen the price of food spike as fast as it has in recent months. He's hearing from buyers who can't believe it either. They are upset and frustrated.

"I think they understand that it's all related to fuel. We haven't passed on all the increases, only because there is just so much. We're trying to be more efficient in order to overcome some of the increases. But you can only absorb so much."

Karolann Nera of Nanakuli shops for her husband and two daughters at Tamura Super Market in Wai'anae, a long-time family-owned operation with a reputation for some of the lowest grocery prices around.

Nera said even factoring in the time and extra gas it takes to drive 10 miles roundtrip between Nanakuli and Wai'anae, it's worth the effort.

"It's cheaper here," said Nera, as she began loading around $120 worth of groceries in the back of her pickup in the Tamura parking lot. The same items would have cost more than $200 in Kapolei or Honolulu, she said.

Nera said she comparison shops, looks for sale items and stays completely away from convenience stores, where prices are "just ridiculous."

Still, she's concerned about where food prices are headed.

So are George and Beatrice Piliwale of 'Aiea, although you wouldn't know it to listen to them.

"We don't buy in bulk," said George, 71, with a hearty laugh, after the couple had picked up bread and cold cuts for dinner sandwiches at Times Supermarket in Waimalu.

"We don't even have a refrigerator."

The Piliwales live in a 1990 tan and brown Dodge Ram custom van. The two, who are perpetually upbeat and appear to be in good health, live on a combined fixed income of $606 a month — an annual income of slightly more than $7,000.

Anything beyond that they donate to the church.

"I'm a homeless minister," explained George, who for more than a decade — every Saturday from 3:30 to 5 p.m. under a tent at Blaisdell Park — has tended the open-air flock of the Jesus Christ Gathering His People Ministry.

To cope, they buy generic brands and stick to the basics. They believe prices will be going higher and they are not looking forward to it. But they stick to a grocery strategy that hasn't failed them yet.

"Number one, it's attitude," said George. "I try to ignore the pain I'm suffering when I buy the groceries. Number two, we look around for the best deal."

That's pretty much the whole strategy. Keep on the sunny side, look for the lowest price, and trust in the Lord.

"We'll make out all right," he said with a chuckle. "We always do."

Import costs get passed on down line

Hawai'i shoppers aren't the only ones feeling the pinch of rapidly rising grocery prices. The unwelcome phenomenon is affecting virtually the entire Island food chain, top to bottom.

"Since December we've had a 12.7 percent increase in jet fuel and rate increases by the two shippers," said Brian Christensen, president of C&S Wholesale Grocers. "Everything's coming in on a ship, so it affects everything we do."

What costs wholesalers can't hold down, they pass along to retailers.

"They (retailers) need to be able to sell the product, and they can't just keep changing prices," Christensen said. "I'm sure restaurants are even in a tougher bind, because they have to print a new menu."

One such restaurant owner is Richard Chan, who operates the I Love Country Cafe and Chinatown Express locations.

"This is getting ridiculous," said Chan, who said he's had to stop serving some appetizers, such as buffalo chicken wings, because they cost too much to prepare. He has resigned himself to the fact that his menus will need to be rewritten.

"This is definitely worse than after 9/11," he said. "Because with Sept. 11 you could look for things to improve. But I look at commodity prices now and it doesn't seem like there's any relief in sight."

Chan said the price he pays for cooking oil has more than doubled in the past year, and the amount he pays for flour has nearly doubled in the past six months.

At the Hawaii Foodbank, Dick Grimm said his organization also is in a bind.

"In March of 2007 we could have bought a 25-pound bag of rice for $5.75. That comes to 23 cents a pound. The latest we bought was in September of 2007, and that was $7.20 for a 20-pound bag — and that's 36 cents a pound. So in six months you've got almost a 50 percent increase."

And the price of rice continues to skyrocket this year. Across the board, food is costing more and it will continue to do so, he said.

"My gut is telling me that we are in for some really tough times with food," Grimm said.

Bankruptcies in Hawaii starting to rise

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By Greg Wiles


At Consumer Credit Counseling Service of Hawaii business is booming, especially when it comes to providing the mandatory financial counseling that's required before someone can file for bankruptcy.

That's been increasing and figures to rise even more this year, says Wendy Burkholder, head of the agency that provides advice and counseling on how to handle debt problems.

"I think we're going to see a tremendous increase in volume this year," said Burkholder, ticking off a list of factors that could contribute to a rise in bankruptcies. Rising adjustable-rate mortgage payments. Record gasoline prices. Higher food prices. Aloha Airlines' collapse. The closing of Molokai Ranch.

"It's going to be a really busy year."

Bankruptcy filings are increasing in Hawai'i, as witnessed by an about 26 percent jump during the first three months of the year. The surge in people going broke is in line with the trend nationally, where experts are saying heavy household debt burden and growing mortgage problems are forcing people into bankruptcy court.

The increase is being driven by a number of factors, one of which involves some history. A year and a half ago the U.S. bankruptcy code was tightened up, making it more difficult for people to clear their debts through the process. Congress changed the law after credit card companies and other lenders complained too many consumers were using bankruptcy to shed debt even if they could make partial payments.

Many people filed before the law change in October 2005. But since that time the numbers have been creeping up. March had the most filings in 18 months, said Mike Bickford, president of AACER, an Oklahoma City firm that tracks bankruptcy filings nationwide.

"It's just a steady uptick," said Bickford. "We're going to be in a period over the next one to three years where we're going to see increased filings."

But Bickford, like others, says the current spike in filings is more than just filings inching back up to a normalized rate. Hawai'i's overall per-capita filing rate remains low compared to the rest of the country, but it is on the rise.

A lot of the increase has to do with the overhang from days when mortgage standards weren't as high, with so-called sub-prime credit customers jumping on non-traditional loans that included interest-only and zero-money-down products. Many hoped increases in their own earnings or higher home prices would bail them out as the loan payments adjusted higher.

"These people have been thirsting for home ownership," said Khaled Mujtabaa, an attorney specializing in bankruptcies and foreclosures.

"They had their hopes built up and some of them realistically thought they could do it."

But now with real estate prices declining and loans adjusting with higher interest rates, some sub-prime mortgage holders are under water.

Some can't sell in the slowing real estate market and cover their loan amount, while others who try to look into refinancing at a lower interest rate sometimes find credit standards have risen and that lenders aren't interested in their business.

Dawn Smith, a former bankruptcy attorney who is now a mortgage solicitor, said lenders are now looking for borrowers who have excellent credit scores (800 on a 950-point scale) and can put 20 percent down. They're also demanding appraisers be more rigorous in valuing homes.

With refinancing out and no prospects for selling their homes at the desired price, people are looking to bankruptcy attorneys to avoid foreclosure. Many are also dealing with creditors' frequent calls demanding payment.

"They're filing bankruptcy to get rid of the mortgage and give up the house as part of the bankruptcy," said Stuart Ing, a bankruptcy attorney.

"They were just making it before and there's no way they're going to make it with a significant adjustment."

Bankruptcy is a way to avoid a judicial foreclosure, which could still leave the homeowner owing money to pay the bank if the residence doesn't sell for as much as the loan amount.

Chapter 7 stops foreclosure proceedings. But because Chapter 7 liquidates assets, many who go this route lose their homes.

Recently, more are turning to Chapter 13, which staves off foreclosure proceedings while the homeowner works out a plan to pay off debts other than mortgages usually over three to five years.

During the first quarter Chapter 13 bankruptcies shot up 60 percent, while Chapter 7s rose 19 percent.

Burkholder said many people also are suffering from crushing credit card debt and simply can't keep up with payments anymore as statewide gasoline prices edge toward $4 a gallon and grocery prices rise at the fastest clip in 17 years.

"Probably if you did some digging a lot of the increase in bankruptcies are people filing in an effort to stave off foreclosure," she said.

"Then the balance of it is people just finally succumbing to being on the edge."

That includes people who have had some sort of financial crisis, such as a costly illness, and others who worked multiple jobs but have lost one or had hours cut because of the slowing economy.

For now the latter doesn't include the 2,050 people who were let go as Aloha Airlines grounded its passenger operations. Ing reported getting a call from a couple of former Aloha employees, but they were mostly inquiring about the process and costs. Bankruptcy experts say many people tend to hang on after losing jobs, either relying on spouses or family to carry them through until they find new jobs.

Bankruptcy statistics show the majority of people who file have jobs. An Institute for Financial Literacy study last year found about 64 percent of petitioners in 2006 were working, while unemployed people were the second largest category at 13.1 percent.

The primary reasons for their financial distress was too much debt, unexpected expenses, reduction in income or job loss or illness, the study said.

Mujtabaa said he expected to receive calls from laid-off Aloha workers, as well as other people losing their jobs locally.

"Hawai'i will be less affected than the Mainland, but I think there's going to be a substantial increase in the number of bankruptcies here," Mujtabaa said.

Hawai'i residents typically are a little more financially conservative than their Mainland counterparts with less foreclosures and bankruptcies than most other states. bankruptcies per-capita here were the second-lowest nationally, trailing only Alaska, during the first quarter.

Still, most people expect that rate to increase this year. Ing said filings probably won't slow down for at least another two years since some adjustable rate mortgages have yet to reset at higher levels.

"Everyone thinks the market is going to turn around," Ing said, noting bankruptcy attorneys are typically last in a string of solutions people seek.

"Everyone is an optimist until they have to come see us."

• • •

Frost over the World-Food riots and Paraguay

Josette Sheeran is the head of the UN World Food Programme, the body set up to combat world poverty.

She explains the reasons for the current food crisis and what the international community can do to help.

Also, Sir David is joined by Maria Emma Mejia, former Colombian foreign minister and the head of the Organisation of American States' mission to supervise the electoral process in Paraguay.

Dr. Nick Begich Are You A Manchurian Candidate ?

Inside Iraq - A Shia political resurgence

Inside Iraq examines a resurgence of Shia politics in Iraq and the region.

As losses mount, US banks cut thousands of jobs

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By David Walsh

Banking and other financial firms in the US continue to report enormous financial losses, inevitably accompanied by mass layoffs. While present and former executives of these companies are well insulated from the disaster over which they have presided, tens of thousands of their employees are not so fortunate.

A number of major US banks reported first-quarter earnings this week, and more will do so next week.

On April 17, investment bank and the world’s largest brokerage Merrill Lynch announced a loss of $1.96 billion in the first three months of 2008, a turnaround of more than $4 billion from the same period a year ago (when it made a profit of $2.11 billion).

Merrill Lynch announced it was eliminating another 2,900 jobs, bringing the total of its proposed job losses for 2008 to 4,000.

The following day, banking giant Citigroup reported a $5.1 billion loss in the first quarter, a change in fortune of $10 billion from the first three months of 2007 (when its profits amounted to $5 billion). Forbes.com remarked that the earnings “were even more dreadful than the miserable results investors had expected.”

Citigroup has said it will lay off some 9,000 employees in the next 12 months. This comes on top of 4,000 cuts announced in January.

This is unlikely to be the end of the firm’s layoffs. Vikram Pandit, Citi’s chief executive, indicated Thursday that the bank would be seeking to slash costs by as much as 20 percent. The comment, noted the Financial Times, had the effect of “deepening fears that Wall Street and the City of London are about to be hit by tens of thousands of additional job losses.”

The business paper suggested that analysts are anticipating the elimination of some 25,000 jobs “in the next few months” at Citigroup.

The bank is not out of the woods yet. Moody’s Investors Service warned that because of “Citigroup’s complexity, its significant exposure to the global capital markets, and current illiquidity and volatility of some of those markets, additional marks in its investment bank cannot be ruled out.”

JPMorgan Chase announced April 16 that its earnings had been cut in half in 2008’s first quarter due to problems with mortgages and other bad loans. JPMorgan’s recent purchase of bankrupt Bear Stearns will undoubtedly lead to slashing the latter’s workforce of 14,000. The Wall Street Journal reported April 12 that the “emergency takeover” is expected to cost at least half of the jobs at Bear Stearns.

Other large US banking firms, such as Washington Mutual (a $1.14 billion loss and 3,000 layoffs), Wachovia (a $393 million loss and hundreds of layoffs) and Wells Fargo (a decline of 11 percent in profits), have also reported grim first quarter earnings. Bank of America is not expected to have anything good to report next week.

There is no end in sight to the financial and employment bloodletting. Financial firms globally have taken some $200 billion in write-downs (reductions in the book value of assets because they are overvalued compared to their market value) since the middle of 2007. Citigroup alone has now taken write-downs totaling nearly $39 billion since the crisis began; JPMorgan has taken about $10 billion.

After the announcement of Merrill Lynch’s most recent earnings, John Thain, its new chairman and chief executive, called the first three months of 2008 “as difficult a quarter as I’ve seen in my 30 years on Wall Street.” Merrill Lynch executives indicated that March was “a significantly more difficult month” than January or February.

In an interview with the New York Times April 17, Thain sounded “a more negative note than some of his Wall Street colleagues, saying he did not think the downturn was near its bottom.”

Thain told the Times that thus far “the slowdown has been finance-driven. ... What we haven’t seen yet is the impact on the consumer of falling house prices, rising energy prices, higher food prices and higher unemployment.”

Floyd Norris, the Times’ chief financial correspondent, writes April 18 that “Since the big banks first realized last fall that their capital situations were perilous, more than $100 billion has been poured into them. Without all that cash, the system would be in horrid shape, and there would be a lot more blood on the Street.”

Norris takes note that bank chief executives “now profess to see light at the end of the tunnel, and they may be right. ... The trouble with such assurances is that the bosses of Wall Street have been repeatedly blindsided by newly discovered risks that their firms—and others—had taken.”

Norris ends on a pessimistic note: “With credit hard to come by, the real economy may be in for rough times, creating more loan losses. Wall Street may not need to beg for any more capital, but it is a good bet that its layoffs are only starting. There is not much need for the people who put together securitizations when there is virtually no market for such deals.”

The estimates on potential job losses in the banking and wider financial arena vary, but they are all substantial.

On April 1 financial research firm Celent LLC issued a report suggesting that some 200,000 of the US commercial banking industry’s 2 million jobs could be lost over the next 12 to 18 months. That would be an unprecedented number. But Octavio Marenzi, the head of New York-based Celent’s financial consultancy unit, argued that the economic situation was without precedent.

“The banking industry over the past 40 years has never seen a downturn in its revenue growth,” Marenzi told the Associated Press. “In 2008, it looks like it will decrease for the first time in living memory. They’re going to have to respond with severe cost cutting. It’s not an environment they’re entirely used to.”

In addition, global securities firms have announced 20,000 job cuts, 6,000 of them in New York.

Financial companies in total have slashed at least 70,000 positions in the US and Europe. Data provider Experian estimates the final number by the end of 2008 could be 240,000.

A recent headline in BusinessWeek asked, “How Deep Will Wall Street Cut?” It reported that Wall Street has announced plans to slash 34,000 positions over the past nine months, but noted that the number of layoffs might not be as great as in recent recessions due to the fact that “after the dot-com debacle,” only 74 percent of the jobs that had been lost were filled.

Precisely because “There is not a lot of fat to cut,” as one economist puts it, the upcoming job slashing will be more damaging. “What’s worrisome,” writes BusinessWeek, “is that companies may have to cut into the meat of their operations.” Many positions have been eliminated permanently with improvements in technology, “helping to keep a lid on costs and head counts in recent years. Since those ranks remain relatively thin, firms now may have to whack analysts, traders, and dealmakers. That’s not good for the island of Manhattan, where many of these high-paid employees work; banks and brokerages account for 35 percent of the city’s wages.”

While workers in the industry suffer the consequences of the economic slump, their employers face no such prospect. Apparently whether their firms prosper or not, or even go under, banking executives have organized things so they will be paid fabulous amounts.

Citigroup’s Charles Prince and Merrill Lynch’s Stanley O’Neal, who stood at the helm of their companies as they lost billions on risky investments in mortgage-backed securities, made off with $68 million and $161 million, respectively, when they resigned or were forced out. Former Bear Stearns chairman James Cayne dumped his entire stake in the failed bank for a mere $61 million in late March, a fraction of what his stake in the company had once been worth. We needn’t worry too much about Mr. Cayne. He made $38.31 million in 2006 in total compensation and $155.26 million over five years. There are no indications that he plans to give any of it back.

BusinessWeek last November took note of some of the fantastic “exit packages” that CEOs have organized for themselves. Richard Fuld Jr., for example, CEO of Lehman Brothers, “has nothing to worry about—his exit package is valued at $299 million, putting him close to the record for any such package.” Bank of America’s chairman and CEO, Kenneth D. Lewis, stands to walk away with $120 million, down from an estimated value of $136 million at the end of 2006.

While much of the country is suffering from some combination of job losses, gas and food prices, disappearing benefits and pensions, soaring medical costs and declining house prices, the super-rich are doing quite nicely. The BBC headlined a recent piece “Manhattan property defies gravity,” and pointed out that property prices in New York’s wealthiest borough had soared 41 percent over the course of the past year.

On average a Manhattan home costs $1.6 million, an increase from $1.1 million a year ago. Prices in primarily working class Queens and Staten Island dropped by 5 percent and in the Bronx by 1 percent. In Brooklyn, which has seen its share of ‘gentrification’ and housing speculation, prices rose by 3 percent.

The Real Estate Board’s Steven Spinola commented, “Manhattan’s luxury market for high-end properties continues to remain untouched by the slowing economy.” In fact, Spinola suggested that several luxury developments had just become available to meet the “pent-up demand.”

For the working population, the situation continues to deteriorate rapidly. Mass layoffs have been announced in recent days, in addition to those at Merrill Lynch and Citigroup, at AT&T (5,000 jobs), Volvo Trucks (1,100), Asahi Glass (900 in the US and Canada), Harley-Davison (730), Lehman Brothers (600), Siemens Energy and Automation (477), AMD (420), Valley Health System (396), Newark Morning Ledger (367), Skybus Airlines (365), Greenville Hospital in Jersey City, New Jersey (356), Aramark Sports and Entertainments (303), Baja Marine Corp (283), Dutch Housing (250) and Summit Production Systems (200), among other firms.

Meanwhile, paychecks of those who have a job are getting smaller as hours and overtime decline. The New York Times reported April 18 that “the reduction of wages and working hours ... has become a primary cause of distress, pushing many more Americans into a downward spiral.”

From March 2007 to March this year, the average workweek fell slightly from 33.9 hours to 33.8, with the slippage greater in manufacturing. Nearly 5 million workers were working part-time at the end of March “because their companies had cut hours in the face of slack business.” That number had jumped 400,000 since November.

Average income declined in March, after accounting for rising prices, the sixth consecutive month “that pay failed to keep pace with inflation.” While the increase in average hourly earnings from February to September 2007 barely kept pace with inflation, that is no longer the case. From November through March 2008, as employers began to reduce their operations, “wage growth fell below the pace of inflation, meaning that paychecks were effectively shrinking.”

IMF and OECD: Europe will be hit hard by US recession

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By Chris Marsden

Reports issued by the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) warn that the United States is entering into a recession and reject all claims that Europe will be able to avoid severe economic dislocations as a result of America’s worsening situation.

The OECD meeting in Paris this week estimated that global losses from the US subprime mortgage crisis would surpass $440 billion. This was a sharp upward revision of its previous estimate of $200-300 billion.

Europe was more vulnerable than many thought to the global financial markets crisis, and would be especially so if trouble spread to the equity derivatives markets, officials said on April 15.

The OECD’s estimate of likely bank losses ranges from $350 billion to $420 billion, based on different assumptions as to the amount of distressed assets the banks will be able to recover. Assuming a 40 percent recovery rate, the OECD estimated losses in excess of $422 billion, of which $87 billion would be borne by US banks—$60 billion by commercial banks and the rest by investment banks.

These losses would ripple throughout the world. A third of the collateralised debt obligations (CDOs) and other financial instruments based on US residential mortgage-backed securities (RMBS) that are tied to sub-prime markets have moved offshore, mainly to Europe, the OECD said.

Forbes magazine, commenting on the OECD report, noted: “More dangerous still, it said, was another area so far not hit by the crisis that spilled out of the subprime market last August—capital-guaranteed financial products with exposure to equities and based on complex operations-replication programmes.”

The OECD stated that a $1 trillion equity derivatives market based on these products had developed between 2003 and the start of this year.

These instruments are the basis for many of the savings products offered by scores of retail banks and building societies. Europe is the dominant force in these Constant Proportion Portfolio Insurance (CPPI) products.

Thomas Weiser of the OECD said one of the big risks now was that economic growth could be hit by loss of capital at banks which played a key role in the wider economy. He called for massive injections of cash by the world’s central banks.

The IMF described last summer’s crisis in the financial markets as “the largest financial shock since the Great Depression.” It stated that the world’s bankers have created a pool of $1 trillion in toxic debt, twice the sum estimated in earlier projections.

The IMF’s conclusions are conservative, given such a description. It predicts that the US will go into a “mild recession” this year, with growth of around 0.5 percent, even after the economic stimulus package from the Bush administration and sweeping cuts in interest rates. It warns that there is a one-in-four chance of a full-blown global recession over the next 12 months. At best, it forecasts that world economic growth will fall to 3.7 percent for the next two years.

The IMF issued particular warnings that house price inflation in several European countries, including Britain and the Netherlands, where housing was said to be 30 percent overvalued, would make them more susceptible to the global downturn.

Britain has long been recognised as the European country most exposed to the economic turmoil unleashed in the United States and most heavily dependent on world financial markets. The IMF downwardly revised UK growth figures from the Treasury’s estimate of 2 percent this year and 2.5 percent next to 1.6 percent for both 2008 and 2009, the worst performance since the last recession ended in 1992.

After nationalising Northern Rock and injecting £50 billion of liquidity into the markets, the Brown government and the Bank of England plan to risk billions more, emulating the US Federal Reserve by taking over bad mortgage debts from banks in return for secure government bonds.

House prices in Britain already fell by 2.5 percent last month and are expected to decline by as much as 10 percent this year. Britain’s Royal Institution of Chartered Surveyors reports that the number of residential property agents saying prices declined exceeded those reporting gains by 78.5 percentage points in March, the worst since records began in 1978.

Britain is also labouring under staggering levels of personal, unsecured debt.

Total UK unsecured debt is £1.3 trillion—more than the rest of the European Union put together. Lorna Bourke, writing in Citywire, rejects claims that the present housing crisis is not as bad as that in the 1990s, when there were 78,000 repossessions a year, because unemployment is lower. She notes that “In the early nineties high unemployment created by the collapse of the debt market in 1987 and rising inflation meant homebuyers could not meet their mortgage obligations. Does that sound familiar?”

Credit card debt is much greater than it was in 1990. Financial analysts Mintel have reported that mortgage costs in Britain trebled during the past 10 years and now account for 25 percent of consumer spending, compared to 14 percent a decade earlier. The debt management company TDX Group estimates that the number of people struggling with debt is set to double during 2008. Around one million people have unsecured debts totalling £25 billion, averaging a staggering £25,000 each. Some 60 percent is owed on credit cards, with the rest mainly in personal loans.

London’s role as a financial centre will translate into a massive and relatively immediate impact from a global economic downturn. JPMorgan Chase analysts estimate that 40,000 City of London jobs could be lost as a result of the credit crunch, doubling the forecast by the Centre for Economics and Business Research.

Amongst the cuts already announced are 900 jobs at UBS, the European bank worst hit by the credit crunch, representing 10 percent of its London workforce. Merrill Lynch has warned of 450 imminent job losses in London.

Initial signs have emerged of a rise in unemployment from its present 1.6 million. Although the claimant count rate fell by 1,200 in March, the previous month’s 2,800 decline was revised to show a 600 increase—the first since September 2006.

Sterling has hit repeated all-time lows against the euro, which is presently worth more than 80 pence. The Bank of England has cut interest rates to 5 percent in an attempt to stimulate the release of credit by banks and building societies.

Europe’s economic powerhouse, Germany, does not at first appear to be in such a precarious position. Its exports continue to rise, even though the euro has dramatically risen in relation to the dollar.

But there are clear signs of troubles ahead, of which the €4.3 billion losses incurred by the Bavarian State Bank (BayernLB) from its dealings on the US subprime mortgage market, as well as the billions lost by SaxonyLB and WestLB, are only a foretaste. These banks, partly owned by the federal government and various German states, are to be bailed out to the tune of €30 billion—at taxpayer expense.

According to Der Spiegel, this is only the tip of the iceberg. It wrote on April 2, “The end of the crisis is not in sight: According to one study (by business advisory group Ernst and Young) German banks have hidden away rotten credits in their books—amounting to a total sum of €200 billion.”

This week, four leading German economic think tanks cut their forecasts for growth this year to 1.8 percent, down from the 2.2 percent they predicted last October, and projected even slower growth of 1.4 percent next year. The German government is less confident still, predicting growth of just 1.7 percent this year.

The Financial Times reported April 14 the views of several leading European industrialists that the worst effects of the credit crunch will not be felt for six months.

Peter Löscher, chief executive of Siemens, said, “I don’t see any impact at the moment. But I have no doubt it is coming, probably in 6 to 12 months’ time.” Wolfgang Reitzle, chief executive of the Linde industrial gases group, added, “It will happen with a time lag ... of maybe a year.... We are in the most critical business environment in decades.”

Gareth Williams of ING Financial Markets stated, “This [financial] quarter is going to be pretty horrible. But the worst will come in the fourth quarter.” Teun Draaisma of Morgan Stanley is forecasting a 16 percent drop in earnings over the year and an “earnings recession in Europe.”

Germany and Europe, with a monetary system based on stability and spending targets, are particularly fearful of the impact of runaway inflation and angry over how the US Federal Reserve is pumping money into the economy.

An article in Der Spiegel from April 14, entitled “The Madness of Ben Bernanke,” gave full vent to these tensions. Comparing Alan Greenspan and Ben Bernanke, the former and current heads of the Federal Reserve, to Siegfried and Roy, it described their “pumping easy credit into the system” as “a crazy policy that will worsen the crisis.... The aim is to keep on financing consumer spending and even to stimulate it further—for reasons of patriotism. There’s a word for this policy—madness.”

The strong euro has not so far done major damage to the European economy, particularly because it has reduced the cost of dollar-priced oil imports. But companies reliant on dollar sales such as Airbus have been hit and a “pain threshold” will eventually be breached.

More long term, the divergence of policy between the Fed and the European Central Bank (ECB), which has kept interest rates steady, cannot but destabilise the global economy. The dollar’s decline also means that its repayment of debts has less value, punishing US creditors in Europe and elsewhere.

Inflation is a major problem for Europe, now running at a record 3.6 percent in the euro zone. The ECB has set its main policy rate at 4 percent, but fears that inflation will make this unsustainable. Food and energy price rises alone added 1.6 percentage points to March’s inflation figures.

Jorg Kramer, chief economist at Commerzbank AG in Frankfurt, told the International Herald Tribune, “The Fed is not so interested in inflation, currently. They have a bigger problem: recession.” But he warned that “someday, this crisis will be over” and inflation will necessitate drastic action.

The Fed’s benchmark rate is currently at 2.25 percent and a further cut is expected. Krämer said he expected Bernanke to cut the fed funds rate to 1.25 percent by June.

The “fight against inflation” is always a codeword for moves to cut the wages of the working class. German government and bank officials are complaining of recent high wage settlements being unsustainable, including a meagre 8 percent agreement in Germany’s chemical sector that is staged over two years and barely matches the official inflation rate.

In Britain, Prime Minister Gordon Brown has imposed a 2.5 percent pay ceiling throughout the public sector, already provoking strikes involving hundreds of thousands of civil servants and teachers.

Draconian attacks are being prepared in France, where dissatisfaction with the country’s economic performance in ruling circles is most pronounced. Prime Minister Francois Fillon has cut the official forecast for gross domestic product (GDP) growth in France in 2008 to 1.7-2.0 percent from a previous estimate of “around 2.0 percent.” The right-wing administration of Nicolas Sarkozy has announced public spending cuts of €6-7 billion annually to run for a three-year period in 2009-2011. But with a public deficit running at €1.2 trillion in 2007, far greater attacks must be anticipated.

America's allies in Iraq under pressure as civil war breaks out among Sunni

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By Patrick Cockburn

"God is Great," screamed a man seconds before he blew himself up, killing 10 people in a restaurant in Ramadi, the capital of Anbar province in western Iraq. A series of suicide bombings have shown over the past week that al-Qa'ida in Iraq, though battered by defections over the past year, is striking back remorselessly at Sunni Arab leaders who ally themselves to the US.


In another attack in the village of Albu Mohammed, south of Kirkuk, an elderly man thought by guards to be too old to be a bomber, walked unsearched into a tent filled with mourners attending the funeral of two Sunni tribesmen who had been killed after they joined al-Sahwa, the Awakening Council, as the pro-US Sunni group is called. The man detonated the explosives hidden under his long Arab robes, killing at least 50 people.

A vicious civil war is now being fought within Iraq's Sunni Arab community between al-Qa'ida in Iraq and al-Sahwa while other groups continue to attack American forces. In Baghdad on a single day the head of al-Sahwa in the southern district of Dora was killed in his car by gunmen and seven others died by bombs and bullets in al-Adhamiya district.

US spokesmen speak of a "spike" in violence in recent weeks but in reality security in Sunni and Shia parts of Iraq has been deteriorating since January. The official daily death toll of civilians reached a low of 20 killed a day in that month and has since more than doubled to 41 a day in March. The US and the Iraqi government are now facing a war on two fronts.

The attack in Ramadi shows al-Qa'ida still has support in Anbar province where al-Sahwa was founded and has greater strength in Diyala, Salahudin and Nineveh provinces. In Sunni parts of Baghdad, al-Sahwa often includes members of al-Qa'ida whose loyalties have not changed or gunmen who think it safest to work for the US and al-Qa'ida. "No officer in al-Sahwa walks home unless he has a relationship with al-Qa'ida," said one al-Sahwa member. "It would be too dangerous for him otherwise."

The American-backed government of Nouri al-Maliki is in the meantime stepping up its campaign against the Mehdi Army militia of the anti-American cleric Muqtada al-Sadr. Iraqi troops sealed off the Basra office of the Sadrists yesterday. "Troops from the Iraqi army prevented us from holding Friday prayers and now they are cordoning off the office," said Harith al-Idhari, the head of the office. "They want to storm it and clear everybody out of it."

Mr Maliki is convinced that this is the moment to assert himself against the Sadrists despite military setbacks when he launched his offensive against Basra on 25 March. Two brigades of about 600 men, each from the army's 14th Division whose soldiers come from the city, refused to fight the Mehdi Army as did most of Basra's 11,000 police.

The Iraqi government says that it has purged 1,300 men from its armed forces and police since the Basra operation and is willing to try again against the militiamen. But it has only been able to hold its own in Basra, Baghdad and other cities because of backing from the US.

The Sadrist office in Basra is housed in the building of the old Olympic committee. "We have orders to take back all the government buildings that are occupied by parties and political movements in Basra within 48 hours," said the Interior Ministry spokesman Major-General Abdul Karim-Khalaf.

The greatest stronghold of the Sadrists is Sadr City in Baghdad, which has a population of two million and is virtually a twin city to the capital. US forces have now started building a concrete wall which will seal off the southern part of Sadr City. The US and the Iraqi government are particularly keen to gain control of those parts of Sadr City used to lob rockets and mortars into the Green Zone.

Despite government purges, it is still unclear how far Iraqi army units are willing to fight Shia co-religionists. Yesterday a company of government troops abandoned their positions in al-Nasir police station in Sadr City when they came under attack from militiamen during a sandstorm. Another company had deserted earlier in the week.

Mr Maliki is eager to show that the Iraqi government is strong enough to overcome its domestic enemies, but the fighting against al-Qa'ida in Iraq in Sunni districts and the Mehdi Army in Shia areas over the past month has proved the opposite. The Iraqi army has appeared as dependent on American support as it ever was in the past.

Torture Question Hovers Over Chertoff

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By Jason Leopold

John Yoo and some other Bush administration lawyers who built the legal framework for torture are now out of the U.S. government, but one still holds a Cabinet-level rank – Homeland Security Secretary Michael Chertoff.

In the summer of 2002, Chertoff, then head of the Justice Department’s Criminal Division, offered assurances to the CIA that its interrogators would not face prosecution under anti-torture laws if they followed guidelines on aggressive techniques approved by the Department’s Office of Legal Counsel, where Yoo worked.

Those guidelines stretched the rules on permissible treatment of detainees by narrowly defining torture as intense pain equivalent to organ failure or death. Specific interrogation techniques were gleaned from a list of methods that the U.S. military feared might be used against American soldiers if they were captured by a ruthless enemy.

Three years ago, when Chertoff was facing confirmation hearings to be Homeland Security chief, the New York Times cited three senior-level government sources as describing Chertoff’s Criminal Division as fielding questions from the CIA about whether its officers risked prosecution if they employed certain harsh techniques.

“One technique the CIA officers could use under circumstances without fear of prosecution was strapping a subject down and making him experience a feeling of drowning,” the Times reported.

In other words, Chertoff appears to have green-lighted the technique known as “waterboarding,” which has been regarded as torture since the days of the Spanish Inquisition.

Chertoff reportedly did object to some other procedures, such as death threats against family members and mind-altering drugs that would change a detainee’s personality, the Times reported. [NYT, Jan. 29, 2005]

During his Senate confirmation hearings in February 2005, Chertoff denied providing the CIA with legal guidance on the use of specific interrogation methods, such as waterboarding. Rather, he said he gave the agency broad guidance in response to questions about interrogation methods.

"You are dealing in an area where there is potential criminality," Chertoff said in describing his advice to the CIA. "You better be very careful to make sure that whatever you decide to do falls well within what is required by law."

Nevertheless, the evidence continues to build that Chertoff’s assurances gave CIA interrogators confidence they would avoid prosecution as long as they stayed within the permissive guidelines devised by deputy assistant attorney general John Yoo and his boss at the Office of Legal Counsel, Jay Bybee.

The Abu Zubaydah Case

Chertoff’s reported assurances to CIA agents appear to have led directly to the use of waterboarding against alleged al-Qaeda operative Abu Zubaydah in August 2002.

"The CIA was seeking to determine the legal limits of interrogation practices for use in cases like that of Abu Zubaydah, the Qaeda lieutenant who was captured in March 2002," according to the New York Times article.

The Abu Zubaydah case was the first time that waterboarding was used against a prisoner in the “war on terror,” according to Pentagon and Justice Department documents, news reports and several books written about the Bush administration’s interrogation methods.

In The One Percent Doctrine, author Ron Suskind reported that President George W. Bush had become obsessed with Zubaydah and the information he might have about pending terrorist plots against the United States.

"Bush was fixated on how to get Zubaydah to tell us the truth," Suskind wrote. Bush questioned one CIA briefer, "Do some of these harsh methods really work?"

The waterboarding of Abu Zubaydah was videotaped, but that record was destroyed in November 2005 after the Washington Post published a story that exposed the CIA’s use of so-called "black site" prisons overseas to interrogate terror suspects.

John Durham, an assistant attorney general in Connecticut, was appointed special counsel earlier this year to investigate the destruction of that videotape as well as destroyed film on other interrogations.

The CIA officials who pressed Chertoff to give assurances protecting CIA interrogators included former CIA General Counsel Scott Muller and his deputy, John Rizzo, according to the New York Times. Muller and Rizzo, who is now the CIA’s general counsel, are at the center of Durham’s probe.

The Times also reported that Chertoff participated in the drafting of a second still-secret memo in August 2002, which allegedly described specific interrogation methods that CIA interrogators could use against detainees.

Those interrogation techniques were derived from the Army and Air Force’s Survival, Evasion, Rescue, and Escape (SERE) training program. But those techniques were meant to prepare U.S. soldiers for abuse they might suffer if captured by a brutal regime, not as methods for U.S. interrogations.

New ACLU Document Release

This past week, the American Civil Liberties Union released more than 300 pages of documents showing that in 2003 military interrogators used methods they learned during SERE training against eight Afghanistan detainees held at the Gardez Detention Facility in southeastern Afghanistan.

Those methods included forcing a detainee to kneel outside in wet clothing, spraying the person with cold water, and punching and kicking a detainee over the course of three weeks.

One of the prisoners, an 18-year-old Afghan militia fighter named Jamal Naseer, later died. The documents released to the ACLU say his body was so severely beaten by his interrogators that it appeared to be a black and green color at the time of his death.

Amrit Singh, an ACLU attorney, said the SERE tactics that were approved by the Justice Department were never intended to be used by the U.S. government against its detainees.

The latest disclosures further erode claims by President Bush, Vice President Dick Cheney and then-Defense Secretary Donald Rumsfeld that prisoner abuses at Gardez – or the torture of prisoners at Abu Ghraib – were isolated acts by a few “bad apples.”

To the contrary, it appears that the policies approved by Bush and the assurances provided by Chertoff and others led to the atrocities at the CIA detention centers as well as the prisoner abuse at Abu Ghraib and Guantanamo Bay.

An action memorandum, dated Feb. 7, 2002, and signed by President Bush, stated that the Geneva Convention did not apply to members of al-Qaeda or the Taliban.

That, in turn, led Lt. Gen. Ricardo S. Sanchez, the top commander in Iraq to institute a “dozen interrogation methods beyond” the Army’s standard practice under the convention, according to a 2004 report on the prisoner abuse at Abu Ghraib prepared by a panel headed by James Schlesinger.

Sanchez said he based his decision on “the President’s Memorandum,” which he said had justified "additional, tougher measures" against detainees, the Schlesigner report said.

Other prisoner abuses resulted from Rumsfeld’s verbal and written authorization in December 2002 allowing interrogators to use “stress positions, isolation for up to 30 days, removal of clothing and the use of detainees’ phobias (such as the use of dogs),” according to a separate report issued by Army Maj. Gen. George R. Fay.

“From December 2002, interrogators in Afghanistan were removing clothing, isolating people for long periods of time, using stress positions, exploiting fear of dogs and implementing sleep and light deprivation,” the Fay report said.

Mora’s Complaint

Rumsfeld’s approval of certain interrogation methods outlined in a December 2002 action memorandum was criticized by Alberto Mora, the former general counsel of the Navy.

“The interrogation techniques approved by the Secretary [of Defense] should not have been authorized because some (but not all) of them, whether applied singly or in combination, could produce effects reaching the level of torture, a degree of mistreatment not otherwise proscribed by the memo because it did not articulate any bright-line standard for prohibited detainee treatment, a necessary element in any such document,” Mora wrote in a 14-page letter to the Navy’s inspector general.

Additionally, a Dec. 20, 2005, Army Inspector General Report relating to the capture and interrogation of Mohammad al-Qahtani included a sworn statement by Lt. Gen. Randall M. Schmidt. It said Secretary Rumsfeld was “personally involved” in the interrogation of al-Qahtani and spoke “weekly” with Maj. Gen. Geoffrey Miller, the commander at Guantanamo, about the status of the interrogations between late 2002 and early 2003.

Gitanjali S. Gutierrez, an attorney with the Center for Constitutional Rights who represents al-Qahtani, said in a sworn declaration that his client, imprisoned at Guantanamo, was subjected to months of torture based on verbal and written authorizations from Rumsfeld.

“At Guantánamo, Mr. al-Qahtani was subjected to a regime of aggressive interrogation techniques, known as the ‘First Special Interrogation Plan,’ that were authorized by U.S. Secretary of Defense Donald Rumsfeld,” Gutierrez said.

“Those techniques were implemented under the supervision and guidance of Secretary Rumsfeld and the commander of Guantánamo, Major General Geoffrey Miller. These methods included, but were not limited to, 48 days of severe sleep deprivation and 20-hour interrogations, forced nudity, sexual humiliation, religious humiliation, physical force, prolonged stress positions and prolonged sensory over-stimulation, and threats with military dogs.”

Gutierrez’s claims about the type of interrogation al-Qahtani endured have since been borne out with the release of hundreds of pages of internal Pentagon documents describing interrogation methods at Guantanamo and at least two independent reports about prisoner abuse.

According to the Schlesinger report, orders signed by Bush and Rumsfeld in 2002 and 2003 authorizing brutal interrogations “became policy” at Guantanamo and Abu Ghraib.

In February, the Justice Department’s Office of Professional Responsibility (OPR) confirmed that it launched a formal investigation to determine, among other issues, whether agency attorneys, including Chertoff, provided the White House and the CIA with poor legal advice when it said CIA interrogators could use harsh interrogation methods against detainees.

Yoo is currently a law professor at the University of California at Berkeley.

School security

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By Seth Freedman

In many ways, my secondary school experience was the perfect precursor to living in Israel and understanding the paranoia that envelops the country’s citizens like a dense fog. Seven years at JFS, a Jewish school in the heart of Kentish Town, gave me firsthand experience of what happens when you fence in a group of people behind a wall and convince them that everyone on the other side is out to get them, and that they will go on the attack the minute they are given the opportunity.

I have to admit, I believed the hype as much as the next blue blazer-clad boy or girl. The dark forces of Holloway Boys, Richard of Chichester, and all the other schools that surrounded us in every direction were, in my eyes, as frightening a prospect as the Syrians, Iranians et al are to today’s terrified Israeli public. The walk from the school gates to Kentish Town station every afternoon was approached with trepidation by us all, fevered imaginations running wild as to where and when the next assault would come from.

On one famous occasion, two infiltrators scaled the fence between the school and the skateboard park and jumped down into the playground. Five hundred startled JFS pupils stampeded like wildebeest for the sanctuary of the dining hall. No one stopped to weigh up the odds - it could have been 250:1, had a fight broken out. Instead, the pre-instilled terror proved too weighty for logic to even get a look-in, and the incident poured yet more fuel on an already brightly burning fire.

Of course, the tales of hate and harassment weren’t entirely apocryphal; there were plenty of occasions when JFS pupils bore the brunt of the violent tendencies of the local thugs and carried the scars into school the next day. However - as the more sane pointed out (although their wisdom usually fell on deaf ears) - there was every reason to believe that the internecine fighting was born of plain, inter-school rivalry, rather than some deep-rooted antisemitic streak common to every uncircumcised male within a five-mile radius.

The net result of all of the tension and paranoia was that, bit by bit, our school was transformed into a fortress, replete with 20-foot high metal fences, CCTV cameras, and a full-time security team headed up by a thuggish skinhead who was as close to a modern-day Golem as it got. Our lot was to be shepherded to and from the tube station by our protectors, who spent the rest of their time patrolling the school’s borders with a zeal all too familiar to anyone who has spent time in the Holy Land.

The grown-up version of JFS which I now inhabit is just that - secondary school all over again. Same fear, same heavily fortified perimeter, same collective mentality: afraid that all who inhabit the surrounding area are after our blood. However, in the case of Israel, the crucial distinction is that our "school" is built on the ruins of a former school, whose dispossessed pupils have every reason to avenge their loss. But that point is completely ignored by those running the show, who prefer to peddle the canard that the reason for their resentment and rage is the old antisemitic gene that can be found in every soul outside the flock.

One of Cif’s I/P heavyweights often makes the point that had it been Catholics rather than Jews who established a state in Israel in 1948, the Palestinians would have responded just as viciously to the injustice they were dealt. Anyone with an ounce of sense would reach the same conclusion - provided they are not under the widely-cast spell that there is an inherent lust for Jewish blood in every Arab. As I argued in a comment on my last thread, belief in such a preposterous theory is as stereotyping and racist as a belief that all Jews are leeches and cosmopolitan anarchists.

Of course there are extremists amongst the Palestinians who want to maim and kill Israeli civilians for no reason other than they are Israeli civilians. Those true terrorists must not be given the freedom to operate. However, perpetually occupying an entire people and keeping them in prison and in penury plays into the hands of radical elements, providing them with more and more fodder willing to do their bidding and put the security of ordinary Israelis at risk. Collective punishment breeds collective rage, and Israel has to recognise this before there is any chance of a cessation of violence.

But beyond the extremists there exists a majority of Palestinians who couldn’t give a damn about the ethnicity of those oppressing them, they just care about the oppression itself. If Israel unlocks its vice-like grip on their collective windpipe, they will breathe again, and with each breath more oxygen will rush to their heads and they’ll be able to think straight once more. Then the Israelis will realise that the Palestinians are no more or less human than the Israelis themselves, and the 60-year fear will begin to recede.

Just as it did for we JFS pupils once we reached the sixth form and were allowed out into the bandit country of Kentish Town during our free periods. Unchecked, we wandered the streets among our supposedly mortal enemies, wondering how we’d been worked into such a state of suspicion for so long, when the truth was far removed from the urban legends that swirled around our penned-in playground.

Even though I look forward a time when Israelis and Palestinians can reside together in peace, it would be foolish to suggest the conditions are sufficiently clement for that to occur today. Clearly, the rogue elements who do wish genuine harm on the country’s inhabitants must be neutralised before any kind of integration can begin in earnest. But that doesn’t mean neutralisation by force, since that route only generates more fundamentalists.

Instead, the Israelis must begin by rebuilding the Palestinians’ lives step by step - economically, socially, emotionally - and demonstrating a clear wish for rapprochement. The Israeli public must be treated like sixth-formers and allowed back into the West Bank (as they were in pre-intifada days), to see for themselves that not all Palestinians are masked gunmen with only murder on their minds. Once that happens, the hysteria will dissipate as it did for we JFS kids. And only then will it truly be possible to move forward to a future of harmonious coexistence.

U.S. to Expand Collection Of Crime Suspects' DNA

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By Ellen Nakashima and Spencer Hsu

Policy Adds People Arrested but Not Convicted

The U.S. government will soon begin collecting DNA samples from all citizens arrested in connection with any federal crime and from many immigrants detained by federal authorities, adding genetic identifiers from more than 1 million individuals a year to the swiftly growing federal law enforcement DNA database.

The policy will substantially expand the current practice of routinely collecting DNA samples from only those convicted of federal crimes, and it will build on a growing policy among states to collect DNA from many people who are arrested. Thirteen states do so now and turn their data over to the federal government.

The initiative, to be published as a proposed rule in the Federal Register in coming days, reflects a congressional directive that DNA from arrestees be collected to help catch a range of domestic criminals. But it also requires, for the first time, the collection of DNA samples from people other than U.S. citizens and legal permanent residents who are detained by U.S. authorities.

Although fingerprints have long been collected for virtually every arrestee, privacy advocates say the new policy expands the DNA database, run by the FBI, beyond its initial aim of storing information on the perpetrators of violent crimes.

They also worry that people could be detained erroneously and swept into the database without cause, and that DNA samples from those who are never convicted of a crime, because of acquittal or a withdrawal of charges, might nonetheless be permanently retained by the FBI.

"Innocent people don't belong in a so-called criminal database," said Tania Simoncelli, science adviser for the American Civil Liberties Union. "We're crossing a line."

She said that if the samples are kept, they could one day be analyzed for sensitive information such as diseases and ancestry.

Justice Department spokesman Erik Ablin said the collection of DNA samples "will provide an additional form of biometric identification from persons who would normally be fingerprinted." FBI rules preclude using DNA samples to determine a person's genetic traits, diseases or disorders.

The database expansion was authorized by Congress as an amendment to the Violence Against Women Act and was billed primarily as a way to track down serial rapists, murderers and other offenders. "We know for a fact that the proposed regulations will save the lives of many innocent people and will prevent devastating crimes," said Sen. Jon Kyl (R-Ariz.), a sponsor of the legislation. "These regulations are long overdue -- we should have done this 10 years ago."

The proposed rule applies to all federal agencies with the authority to arrest or detain, including the FBI, the Border Patrol and the Internal Revenue Service. Although details of the policy have not been announced, officials said they expect the bulk of the new DNA samples to be collected through cheek swabs.

U.S. officials said that when the measure is fully implemented, roughly 1.2 million people a year could be added to the national database. About 140,000 of those would be people arrested for federal crimes. Many of the rest would be foreigners detained for being in the United States illegally.

Immigration rights advocates note that most illegal immigrants are detained for administrative violations, not federal crimes. By adding their DNA to the database, "it casts them all as criminals," said Paromita Shah, associate director of the National Immigration Project of the National Lawyers Guild.

The rule's scope is still being negotiated, officials said, but it will not cover illegal immigrants picked up at sea; people being processed for legal admission to the United States, such as asylum seekers; and people undergoing secondary screening at ports of entry. It was unclear yesterday whether Mexican border-crossers who are briefly detained and then released in Mexico will be covered. The Border Patrol made 877,000 apprehensions in 2007, most of them of Mexicans.

The move comes as 13 states -- including Virginia and, recently, Maryland -- have passed laws to include many arrestees in their DNA databanks. California, which has more than 1 million profiles, will begin collecting DNA from all felony arrestees next year. The information will be uploaded to the national database, which today houses more than 5.9 million samples, making it the largest forensic DNA databank in the world.

The National DNA Index System (NDIS) was created by the DNA Identification Act of 1994 to store profiles of people convicted of serious violent crimes, such as rape and murder. A 2004 amendment expanded the collection to people convicted of any felony offense, and it allowed states to upload DNA profiles from people convicted of misdemeanors and from arrestees charged with a crime. In 2006, the law was changed again, enabling states to upload data from arrestees who had not been charged.

Over the years, the NDIS has yielded 66,750 hits in 67,285 investigations, FBI officials said. "I think by any measure, the program has been a success," said Thomas Callaghan, head of the database, adding that the best way to increase its effectiveness is to add DNA samples from arrestees.

Jayann Sepich of Carlsbad, N.M., said she applauds the federal rule change. In August 2003, after Sepich's 22-year-old daughter, Katie, was raped and killed, investigators found her attacker's skin and blood under her fingernails. But no samples in the state's database matched the evidence.

In 2006, moved by Katie Sepich's death, the New Mexico legislature passed "Katie's Law," requiring the collection of arrestees' DNA. That December, authorities arrested the man who had killed her -- a DNA sample had been taken from him when he was arrested on a charge of aggravated burglary. Jayann Sepich is now a prominent advocate of similar laws in other states.

The new federal rule will conform to current law, which requires the removal of DNA profiles from the database when a conviction is reversed or when an arrest does not result in conviction. An individual must petition for expungement, Ablin said. Civil liberties advocates say removal should be automatic.

In Virginia, which in 2003 adopted one of the first arrestee laws, about 51 percent of arrestee profiles are eventually removed from the state database because charges are dropped or a case is dismissed, said Pete Marone, director of the Department of Forensic Science. He said it is the forensic lab's duty to remove the profiles, something that can take a year or two. "As long as the case is in process, they're still there," he said.

Jim Harper, director of information policy studies at the libertarian Cato Institute, warned of mission creep. "The natural path is to move from the dangerous criminals down the chain, to anybody who has contact with law enforcement, and after that you'll have DNA taken when people are born or first enter the country legally," he said.

The proposed rule will be subject to a 30-day public comment period, Ablin said.

Top Bush aides pushed for Guantánamo torture

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By Richard Norton-Taylor

America's most senior general was "hoodwinked" by top Bush administration officials determined to push through aggressive interrogation techniques of terror suspects held at Guantánamo Bay, leading to the US military abandoning its age-old ban on the cruel and inhumane treatment of prisoners, the Guardian reveals today.

General Richard Myers, chairman of the US joint chiefs of staff from 2001 to 2005, wrongly believed that inmates at Guantánamo and other prisons were protected by the Geneva conventions and from abuse tantamount to torture.

The way he was duped by senior officials in Washington, who believed the Geneva conventions and other traditional safeguards were out of date, is disclosed in a devastating account of their role, extracts of which appear in today's Guardian.

In his new book, Torture Team, Philippe Sands QC, professor of law at University College London, reveals that:

· Senior Bush administration figures pushed through previously outlawed measures with the aid of inexperienced military officials at Guantánamo.

· Myers believes he was a victim of "intrigue" by top lawyers at the department of justice, the office of vice-president Dick Cheney, and at Donald Rumsfeld's defence department.

· The Guantánamo lawyers charged with devising interrogation techniques were inspired by the exploits of Jack Bauer in the American TV series 24.

· Myers wrongly believed interrogation techniques had been taken from the army's field manual.

The lawyers, all political appointees, who pushed through the interrogation techniques were Alberto Gonzales, David Addington and William Haynes. Also involved were Doug Feith, Rumsfeld's under-secretary for policy, and Jay Bybee and John Yoo, two assistant attorney generals.

The revelations have sparked a fierce response in the US from those familiar with the contents of the book, and who are determined to establish accountability for the way the Bush administration violated international and domestic law by sanctioning prisoner abuse and torture.

The Bush administration has tried to explain away the ill-treatment of detainees at Guantánamo Bay and Abu Ghraib prison in Iraq by blaming junior officials. Sands' book establishes that pressure for aggressive and cruel treatment of detainees came from the top and was sanctioned by the most senior lawyers.

Myers was one top official who did not understand the implications of what was being done. Sands, who spent three hours with the former general, says he was "confused" about the decisions that were taken.

Myers mistakenly believed that new techniques recommended by Haynes and authorised by Rumsfeld in December 2002 for use by the military at Guantánamo had been taken from the US army field manual. They included hooding, sensory deprivation, and physical and mental abuse.

"As we worked through the list of techniques, Myers became increasingly hesitant and troubled," writes Sands. "Haynes and Rumsfeld had been able to run rings around him."

Myers and his closest advisers were cut out of the decision-making process. He did not know that Bush administration officials were changing the rules allowing interrogation techniques, including the use of dogs, amounting to torture.

"We never authorised torture, we just didn't, not what we would do," Myers said. Sands comments: "He really had taken his eye off the ball ... he didn't ask too many questions ... and kept his distance from the decision-making process."

Larry Wilkerson, a former army officer and chief of staff to Colin Powell, US secretary of state at the time, told the Guardian: "I do know that Rumsfeld had neutralised the chairman [Myers] in many significant ways.

"The secretary did this by cutting [Myers] out of important communications, meetings, deliberations and plans.

"At the end of the day, however, Dick Myers was not a very powerful chairman in the first place, one reason Rumsfeld recommended him for the job".

He added: "Haynes, Feith, Yoo, Bybee, Gonzalez and - at the apex - Addington, should never travel outside the US, except perhaps to Saudi Arabia and Israel. They broke the law; they violated their professional ethical code. In future, some government may build the case necessary to prosecute them in a foreign court, or in an international court."