Go to Original
By Emily Wilson
Skyrocketing food costs, worries about food security and an urge to do things ourselves have led to a huge surge in urban farming -- gardens in backyards, on roofs, in abandoned lots and even, in the dream of a Columbia professor and his students, in high-rise buildings in the middle of cities.
During World Wars I and II, victory gardens were considered a patriotic effort to take the pressure off the food supply and to boost morale by having people see their labor translated into produce.
An urban farmer in Oakland, Esperanza Pallana, doesn't necessarily garden as a patriotic effort, but she does enjoy what her work in the garden gives her.
"There are so many things I like about it, besides just having a food supply, though it is like magic to go out in backyard and get eggs that are fresh and delicious and to have a source of honey," she says. "It's so satisfying when I sit down to a meal and 75 percent is straight out of the backyard."
Pallana didn't start her garden with the thought of growing anything edible -- she merely wanted to fix up her front yard, which was so messy that people routinely threw trash in it. A peach tree in the yard inspired her to plant more food, but she says she just bought things at the nursery and put them in the ground; she had no idea about harvesting the food. After birds ate the broccoli she had planted, she determined to learn what she was doing and started again. Now her garden, along with produce, includes bees, turkeys and chickens.
Pallana's interest in soil and food systems has taken over her life. She now works at Urban Sprouts, a nonprofit school gardens organization, and she says she has seen the interest in urban farming grow in the four years she has been doing it.
"When we built our chicken coop, we had to design it ourselves -- I couldn't find anything about how to do it," she says. "Now there are all these books and designs online. I just see a lot of excitement and enthusiasm about this."
Barbara Finnin, the executive director of Oakland's City Slicker Farm, also sees that excitement with the people she works with in the organization's Backyard Garden Program, which helps low-income people start their own gardens.
"They tell us they didn't think it was possible to get this from a dirt patch full of weeds," Finnin says. "People feel like they have access in their backyard and they can go to pick some lettuce and collards and cook. They are really engaged with, literally, the fruits of their labor."
Having accessible healthy food is particularly important in West Oakland, where City Slicker Farm is located, Finnin says. The 21,000 residents have to leave their neighborhood to get to a grocery store, and many of them, she adds, don't have a car. To meet that immediate need for fresh food, City Slicker started in 2001 by setting up a stand and giving away food; now the organization has six lots that produce about 10,000 pounds of produce, which is sold on a sliding scale.
More and more urban agriculture projects are springing up throughout the country. When Taja Sevelle moved to Detroit in 2005 and saw the hunger, vacant lots and health problems associated with lack of fresh food, she decided that growing food on unused land was the answer. Her organization, Urban Farming, now has about 600 community gardens, many of them in Detroit, but throughout the United States and the world as well. Its lofty mission is to "eradicate hunger."
This may seem daunting, but Executive Director Sevelle, who studied to be a botanist before signing a record contract with Prince, thinks this is a reachable goal. She points to the success of the victory gardens and says her organization fed about a quarter of a million people in Detroit last year.
"This is absolutely doable. It needs to be solved and can be solved," she says. "More and more I'm seeing and hearing people making bold statements. Look at the amazing things we've done as humans. If we're able to go to the moon, certainly we can solve the problem of hunger."
Sevelle says a standard size garden of 20 feet by 20 feet will produce a quarter to a third of a ton of food and that food banks define a meal as one pound of food. Savelle sees opportunity to grow that food everywhere: Her organization plants school and rooftop gardens, and works with corporations to do edible landscaping.
But we don't live by produce alone. Kristin Reynolds, from the Small Farm Program at the University of California, applauds people's efforts to grow food for themselves, but she thinks people wouldn't be able to really feed themselves without growing grains.
"I think it would be very difficult to be self-sufficient," she says. "And I question whether that is the best use of space."
Urban farming the way Columbia University professor Dickson Despommier envisions it includes grains. Despommier and his graduate students in a medical ecology class came up with a plan they call vertical farming, which would allow farming in high-rises. It's estimated that by 2050, the population will grow by at least 3 billion and about 80 percent of the world will live in urban centers. That means we need to find a new way to produce more food, Despommier says. And corn, wheat and rice are easy to grow indoors, says the professor of environmental health sciences and microbiology.
There would be no soil in a vertical farm -- things would be grown using in the air with a method called aeroponics; or hydroponically, where plants are grown in a mineral nutrient. The energy would come from a variety of sources, including geothermal, wind, solar and incinerated sewage, and the water would be recycled.
Despommier says there are all sorts of reasons why his plan is the way to go. He cites the advantages of growing food indoors: no weather-related disasters, no plant diseases, no chemical sprays, lower water usage and lower food miles. All that is needed to make it happen is money and political will, he says. And Despommier is confident that we'll see vertical farming within the next decade, as governments get more concerned about food.
"I can guarantee you there are city councils meeting right now about this," Dickson says. "Dubai is very interested, and Shanghai and Las Vegas. Manhattan Borough President Scott Stringer is pursuing this idea, and the Department of the Environment in San Francisco is interested."
Kevin Drew, the special projects coordinator at that department, says he and his colleagues are intrigued by the possibilities, particularly Despommier's projection of the land now used for farming going back to nature.
"His notion that you could replace a lot or all farming on the land is one of the most radical," he says. "Then you'd let the earth go back to forests and wetlands, which are some of the most efficient climate drivers in the right direction."
Drew says San Francisco already has community and school gardens that grow food, but vertical farming would increase the amount of food the city could produce. He admits to being slightly skeptical at the thought of a 30-story building supplying enough food for 50,000, as Despommier suggests, but says it's an idea he wants to explore.
"Given state of pot farming in California, there is ample evidence extremely effective farming can be done inside, not growing in soil," he says.
Drew says the agency is looking at trying to retrofit existing buildings or perhaps putting a vertical farming building in some of the more toxic areas of San Francisco.
"You could spend umpty-umph million trying to get the toxicity out of soil, or you could pour six feet of concrete over it and call it done," he says.
Sadhu Johnston, the chief environmental officer for the city of Chicago, says city officials there are committed to urban agricultural and locally produced food. And with the constraints of weather and land in the city, Johnston says he would like to see food grown in high-rises -- he believes doing so could revitalize neighborhoods and employ people. Vertical farming would also cut down on water use by not spraying and save transportation costs of food being shipped in, Johnston says.
Growing food locally would undoubtedly save on transportation, says Bruce Bugbee, a professor of crop physiology at Utah State University. But he scoffs at the rice-in-the-sky idea because he believes the energy costs of growing food indoors are far too great.
"It can't work. That's the quick answer," Bugbee says. "The electric bill will make it far more expensive than what you can buy in the stores, and the produce is of lesser quality. And I'm saying that from 25 years of working with NASA, growing food in controlled environments."
Bugbee argues that we won't, as Despommier suggests, run out of land to grow food on.
"China has five times the population of the U.S., and they feed themselves," he says. "This is a horrible ecological idea because it takes such massive amounts of energy to run it whereas sunlight is free. It looks good to somebody who's never tried it."
But Despommier is undaunted by criticism. He says there are all kinds of alternative sources of energy to be tried, such as sun and wind. Despommier also wants to recycle waste, the way he says cities in Europe do.
"We're not behaving very ecologically," he says. "Today, Germany incinerates everything. Why don't we do that? Because we're living in the 19th century."
Despommier cheerfully admits that at first vertical farming will need to be subsidized -- the way farms are now, he says.
"At first nobody is going to make any money whatsoever doing vertical farming," he says. "But what you will make is food, and tell me you don't need that."
Thursday, October 2, 2008
Black Monday Galore: A Speculator's Seesaw Paradise
Go to Original
By Michel Chossudovsky
By Michel Chossudovsky
There is something disturbing about the Black Monday collapse of Wall Street, following the rejection of the proposed bailout by the US Congress, and which has not been addressed by the media.
There was prior information on how the Congressional vote would proceed.
There was also an expectation that the market would crumble if the proposed 700 billion dollar bailout were to be rejected by the US Congress.
Speculators including major financial institutions had already positioned themselves.
On Black Monday September 29, markets around the world collapsed on news that the US Congress had voted against the bailout. The Dow Jones industrial average fell by 778 points, a decline of almost 7 percent, the largest one day decline since Sept. 17, 2001, when the market opened after September 11, 2001.
In percentage terms, it was the 17th largest one day decline of the DJIA. Those who were involved in speculative trade prior to Congress’ rejection of the legislative process, made billions on Black Monday. And then on Tuesday, they made billions, when the market rebounded, with the Dow jumping up by 485 points, a 4.68% increase, largely compensating for Monday’s decline.
Dow Jones (DJIA)
Those financial actors who had advanced inside information regarding the Congressional decision or had the ability to influence the vote of members of Congress made billions of dollars when the market crumbled.
Ironically, almost twice as much money was "wiped out" from the US stock market on Black Monday September 29 (1.2 trillion dollars) than the value of the Paulson bailout (700 billion dollars). "Even before the opening bell, Monday looked ugly. But by the time that bell sounded again on the New York Stock Exchange, seven and a half frantic hours later, $1.2 trillion had vanished from the U.S. stock market."
While public opinion celebrates the refusal of US Congress to accept the bailout, the decision of the legislature feeds the speculative onslaught, which in turn favors a greater concentration of wealth and financial power.
What is more profitable to the speculators: the bailout per se or the money they make speculating as to whether the bailout proposal will or will not be adopted by the US Congress and implemented by the US administration?
In a bitter irony, political uncertainty regarding the proposed bailout constitutes ammunition for the speculators.
Short Term Speculation
What has characterized the stock market in recent years is a seesaw up and down movement, where a temporary meltdown on one day is compensated by an upward rebound on the following business day. Analysts invariably dispel the speculative mechanisms. The rebound is attributable to "regained investor confidence".
Within a trading day, there is considerable volatility.
There have been numerous "Black Mondays". Two weeks prior to the 29 Septmber meltdown, on Monday, September 15, 2008, the Dow Jones industrial average (DJIA) declined by 504 points (4.4%). The financial slide had led to an 800 point decline of the Dow Jones in less than a week.
Amply documented, these short term swings in stock markets are the object of a lucrative speculative trade.
Those who had advanced warning of Congress’ decision made a bundle of money on Black Monday. And the following day, Tuesday, when markets rebounded by 4.7% after a 7 percent collapse of the DJI, they made another bundle of money.
Was the Congressional decision in any way connected to the speculative onslaught?
"Black Mondays" are potentially the source of windfall profits. The revenues to be derived by financial institutions, which not only have foreknowledge and inside information but also the ability to manipulate the market are enormous.
Were these up and down swings the result of market manipulation?
Short Selling
In the last two weeks, the U.S. Securities and Exchange Commission established a temporary and partial ban on short-selling. How effective it was remains to be established.
The temporary ban on short selling dampens but does not preclude the speculative drive. Short selling is the act of selling stock which you do not possess and then buying the stock back in the spot market once the price has collapsed.
"The SEC ordered traders, including hedge funds, to stop short selling nearly 800 financial stocks... The emergency measure also required large managers to disclose what stocks they are selling short, or betting on a price drop. The order is set to expire on Thursday at midnight unless SEC commissioners decide to extend it. (Reuters, 30 September 2008)
The news reports suggest that the market rebounded on the presumption that Congress would pass an amended version of the $700 billion bailout. Again what is significant is that there is more money to be made on speculating on whether the bailout will or will not be implemented than on the bailout itself.
The market is in crisis but there is no consistent downward trend. What is happening is a downward movement and then on the following day, the market rebounds and then goes down again and then rebounds.
On each short term movement, institutional speculators including the financial institutions which are the targeted beneficiaries of Paulson’s bailout, make billions of dollars speculating on the short term movement of the stock market, the daily ups and downs.
What is more profitable for the banks: the bailout or speculating on whether the bailout will or will not be adopted?
There is money to be made if you have inside information as to what is happening behind closed doors at the US Congress, on the negotiations between the US Congress, the Treasury, the Fed and Wall Street’s financial institutions.
Similarly, there is money to be made in spreading rumors on negotiations pertaining to the bailout and speculating on the likely short term movement of stock markets which results from the release of false and/or misleading information.
In the weeks ahead, the Paulson bailout will be the object of further speculative transactions on Wall Street.
Will it be adopted? Under what form will it be adopted? Will it be postponed? Will it be thrown out?
Moreover, the lifting of the temporary ban on short selling by the SEC will play a proactive role in exacerbating market instability, while also facilitating the further appropriation of wealth instrumented through speculative trade.
The speculators of the late 1920s belong to a bygone age. Today’s speculative transactions are integrated into the normal functions of giant financial institutions.
At each meltdown and upward rebound, massive speculative gains accrue to major financial speculators. Those who stand to gain are those who have a privileged relationship to the Treasury, Congress and the Federal Reserve as well those involved, behind the scenes, in shaping government economic and financial policy.
Asian stocks tumble after rejection of US bailout package
Go to Original
By John Chan
All major share markets across Asia tumbled badly on Tuesday after the US House of Representatives rejected the Bush administration’s $US700 billion rescue package for Wall Street. Japan’s Nikkei lost 5 percent, Taiwan’s main index dropped 6.7 percent and Hong Kong by 6.1 percent. There was a small rebound on Asian markets on Wednesday as investors nervously watched the ongoing debate in Washington over the bailout.
Both South Korea and Taiwan have imposed emergency measures to ban short selling—a means of profiting on falling stocks. The authorities fear such trading will drag the markets down even further. The Bank of Japan (BoJ) injected 3,000 billion yen ($28.8 billion) on Tuesday, but the move did little to ease the country’s tight credit market. In total, the BoJ spent 19 trillion yen last month trying to prop up the financial system.
Major Asian banks were particularly hit hard on Tuesday. Although China’s share markets were closed for the country’s week-long national day holiday, the state-owned Industrial & Commercial Bank of China, the world’s largest bank by capitalisation, lost 8.7 percent in Hong Kong—with a small rebound of 1.6 percent when the market closed. HSBC fell 7.7 percent on the Hong Kong market. China’s leading insurer, Ping An, was hit badly by the crisis of the European bank Fortis, in which Ping An is the largest shareholder.
Japan’s banking behemoth, Mitsubishi UFJ Financial, which bought a 20 percent stake in Morgan Stanley on Monday, closed 4.7 percent down. The value of its Morgan Stanley holdings had shrunk by $500 million in just one day. Nomura Holding, Japan’s largest broker, which has bought the Asian operations of the failed Lehman Brothers, fell 7.3 percent.
Major Japanese electronic corporations—Sony, Canon and Nintendo—dropped by 7.1 percent, 6.1 percent and 4 percent respectively. Exporters were also hit by the rise of the yen against the US dollar. For first time in 26 years, Japan recorded a monthly trade deficit in August, with exports to the US dropping 21.8 percent compared to a year ago.
More signs of recession are emerging in Japan. Industrial production dropped 6.9 percent in August on an annualised basis—the largest fall since January 2001—and the unemployment rate rose to 4.2 percent. Consumer spending fell 4 percent, in the face of rising inflation. Toyota’s share price fell 4.6 percent on Tuesday following a scaling back of its production in China amid a slowing in the Chinese auto market, the world’s second largest.
In India, shares in ICIC Bank, the country’s second largest, tumbled by 7.2 percent amid rumours about its shaky financial position. The share price recovered only after the Reserve Bank of India guaranteed the ICIC’s deposits. Although Indian officials tried to reassure investors that the main Sensex share index in Mumbai will not go below the 12,595 mark reached on Tuesday, some analysts expect the index to drop below 11,000 in October.
Indian Prime Minister Manmohan Singh expressed fears of a global recession, saying: “If the financial crisis starts a recession in the main economies, that would compromise our exports.” The US accounts for one third of India’s exports, or $158 billion last year. Any downturn in the American and European economies will impact heavily on the fast growing Indian economy.
Commentators in Asia are generally pessimistic. Kim Hak-joo, an analyst with Samsung Securities, told South Korea’s Chosun Ilbo on Wednesday: “For now, the US financial crisis seems to have stabilised, but we anticipate a ‘second shock’, which entails a serious contraction in consumer spending because people have spent so much in the past.” He noted that South Korean consumers had become heavily dependent on credit cards and cheap loans in recent years.
While most Asian banks claimed to have limited exposure to subprime assets, the drying up of inter-bank lending and business loans is a major problem for the entire regional economy. South Korean banks have loan-to-deposit ratios of more than 100 percent, among the highest in Asia, making them vulnerable to the credit crunch. South Korean manufacturers, which depend on dollar-denominated imports, are being hit by a declining national currency—with the won down by 29 percent against the dollar from a year ago.
The Hong Kong Monetary Authority (HKMA) had to step in to assure the public that Hong Kong banks were healthy, even as it warned of an approaching financial “typhoon”. The lack of confidence was demonstrated last week, when hundreds of depositors queued outside Bank of East Asia branches to withdraw money, following an Internet rumour that the bank was holding debts of the collapsed Lehman Brothers. Small investors in Hong Kong, who lost money in Lehman Brothers, have staged protests demanding financial assistance.
Balance of financial terror
The whole region relies heavily on exports to American and European markets, making the Asian economies particularly vulnerable to the global financial turmoil. The central banks of China, Japan, Hong Kong and South Korea have used their huge foreign currency reserves accrued from exports to invest massively in US Treasury bonds and other government securities. The investments keep their currencies from rising against the US dollar, help underwrite the huge US trade deficit and thus enable the continued purchase of Asian exports.
About one fifth of US federal debts are held by China (more than $1 trillion) and Japan ($860 billion). Both countries have incurred huge losses through the weakening of the US dollar. In response to the turmoil on Wall Street, questions have been raised in Beijing and Tokyo about whether to stop buying, or even to dump, dollar-based assets—a move that would have a devastating impact on the US financial system.
According to the Wall Street Journal on September 29, a major reason for the bailout of the two mortgage giants, Fannie Mae and Freddie Mac, was “to assure China, which holds roughly $1 trillion in US debt, that US securities were safe”. The newspaper pointed out that the $700 billion bailout would largely hinge on the continued willingness of banks in Asia and the Middle East to hold the US debts.
Former US Treasury Secretary Lawrence Summers once described the present relationship between the US and its creditors as a “balance of financial terror”. China, Japan and other countries hold so much US debt that any pullout that undermined the dollar would result in huge losses on the remaining holdings. However, if confidence in the dollar began to decline, it could create a rush for the exit as everyone tried to minimise their losses, precipitating a crash of the US dollar.
At present, Beijing has decided it has too much at stake to abandon its dollar assets, as a collapse of the US and global financial system would have explosive implications for China. At the World Economic Forum in Tianjin last weekend, attended by 2,000 global CEOs, officials and economists, Chinese officials called for “international cooperation” to help the US.
Guo Shuqing, the chairman of China Construction Bank, told the conference: “What is good for the US is good for every country, including China.” William Rhodes, the vice chairman of Citigroup, told reporters that Chinese financial officials were in discussion with the US Federal Reserve Board on possible measures to alleviate the crisis in Wall Street.
China’s economy is slowing due to a sharp decline in exports to the US, European Union and Japan, which account for roughly half of Chinese exports. Tens of thousands of export firms have reportedly closed down. As exports slow, two other economic pillars, the property market and the auto market, are weakening. In turn, these factors have led to declines in steel and coal output, and therefore a declining demand for commodities. Despite cutting interest rates and lending rates, as well as stimulus packages and infrastructure building, many economists are worried that China will barely maintain 8 percent growth next year, with some predicting just 5-6 percent.
Any downturn in China will intensify the impact of a US slowdown throughout the Asian region, which has become increasingly integrated into manufacturing in China. The Association of South East Asian Nation (ASEAN) countries, as well as South Korea and Taiwan, export raw materials and parts to China, while Australia ships huge quantities of minerals and Japan exports capital goods to China. Any hopes that China was going to be the economic motor to counter a downturn in the world’s major economies are rapidly evaporating.
By John Chan
All major share markets across Asia tumbled badly on Tuesday after the US House of Representatives rejected the Bush administration’s $US700 billion rescue package for Wall Street. Japan’s Nikkei lost 5 percent, Taiwan’s main index dropped 6.7 percent and Hong Kong by 6.1 percent. There was a small rebound on Asian markets on Wednesday as investors nervously watched the ongoing debate in Washington over the bailout.
Both South Korea and Taiwan have imposed emergency measures to ban short selling—a means of profiting on falling stocks. The authorities fear such trading will drag the markets down even further. The Bank of Japan (BoJ) injected 3,000 billion yen ($28.8 billion) on Tuesday, but the move did little to ease the country’s tight credit market. In total, the BoJ spent 19 trillion yen last month trying to prop up the financial system.
Major Asian banks were particularly hit hard on Tuesday. Although China’s share markets were closed for the country’s week-long national day holiday, the state-owned Industrial & Commercial Bank of China, the world’s largest bank by capitalisation, lost 8.7 percent in Hong Kong—with a small rebound of 1.6 percent when the market closed. HSBC fell 7.7 percent on the Hong Kong market. China’s leading insurer, Ping An, was hit badly by the crisis of the European bank Fortis, in which Ping An is the largest shareholder.
Japan’s banking behemoth, Mitsubishi UFJ Financial, which bought a 20 percent stake in Morgan Stanley on Monday, closed 4.7 percent down. The value of its Morgan Stanley holdings had shrunk by $500 million in just one day. Nomura Holding, Japan’s largest broker, which has bought the Asian operations of the failed Lehman Brothers, fell 7.3 percent.
Major Japanese electronic corporations—Sony, Canon and Nintendo—dropped by 7.1 percent, 6.1 percent and 4 percent respectively. Exporters were also hit by the rise of the yen against the US dollar. For first time in 26 years, Japan recorded a monthly trade deficit in August, with exports to the US dropping 21.8 percent compared to a year ago.
More signs of recession are emerging in Japan. Industrial production dropped 6.9 percent in August on an annualised basis—the largest fall since January 2001—and the unemployment rate rose to 4.2 percent. Consumer spending fell 4 percent, in the face of rising inflation. Toyota’s share price fell 4.6 percent on Tuesday following a scaling back of its production in China amid a slowing in the Chinese auto market, the world’s second largest.
In India, shares in ICIC Bank, the country’s second largest, tumbled by 7.2 percent amid rumours about its shaky financial position. The share price recovered only after the Reserve Bank of India guaranteed the ICIC’s deposits. Although Indian officials tried to reassure investors that the main Sensex share index in Mumbai will not go below the 12,595 mark reached on Tuesday, some analysts expect the index to drop below 11,000 in October.
Indian Prime Minister Manmohan Singh expressed fears of a global recession, saying: “If the financial crisis starts a recession in the main economies, that would compromise our exports.” The US accounts for one third of India’s exports, or $158 billion last year. Any downturn in the American and European economies will impact heavily on the fast growing Indian economy.
Commentators in Asia are generally pessimistic. Kim Hak-joo, an analyst with Samsung Securities, told South Korea’s Chosun Ilbo on Wednesday: “For now, the US financial crisis seems to have stabilised, but we anticipate a ‘second shock’, which entails a serious contraction in consumer spending because people have spent so much in the past.” He noted that South Korean consumers had become heavily dependent on credit cards and cheap loans in recent years.
While most Asian banks claimed to have limited exposure to subprime assets, the drying up of inter-bank lending and business loans is a major problem for the entire regional economy. South Korean banks have loan-to-deposit ratios of more than 100 percent, among the highest in Asia, making them vulnerable to the credit crunch. South Korean manufacturers, which depend on dollar-denominated imports, are being hit by a declining national currency—with the won down by 29 percent against the dollar from a year ago.
The Hong Kong Monetary Authority (HKMA) had to step in to assure the public that Hong Kong banks were healthy, even as it warned of an approaching financial “typhoon”. The lack of confidence was demonstrated last week, when hundreds of depositors queued outside Bank of East Asia branches to withdraw money, following an Internet rumour that the bank was holding debts of the collapsed Lehman Brothers. Small investors in Hong Kong, who lost money in Lehman Brothers, have staged protests demanding financial assistance.
Balance of financial terror
The whole region relies heavily on exports to American and European markets, making the Asian economies particularly vulnerable to the global financial turmoil. The central banks of China, Japan, Hong Kong and South Korea have used their huge foreign currency reserves accrued from exports to invest massively in US Treasury bonds and other government securities. The investments keep their currencies from rising against the US dollar, help underwrite the huge US trade deficit and thus enable the continued purchase of Asian exports.
About one fifth of US federal debts are held by China (more than $1 trillion) and Japan ($860 billion). Both countries have incurred huge losses through the weakening of the US dollar. In response to the turmoil on Wall Street, questions have been raised in Beijing and Tokyo about whether to stop buying, or even to dump, dollar-based assets—a move that would have a devastating impact on the US financial system.
According to the Wall Street Journal on September 29, a major reason for the bailout of the two mortgage giants, Fannie Mae and Freddie Mac, was “to assure China, which holds roughly $1 trillion in US debt, that US securities were safe”. The newspaper pointed out that the $700 billion bailout would largely hinge on the continued willingness of banks in Asia and the Middle East to hold the US debts.
Former US Treasury Secretary Lawrence Summers once described the present relationship between the US and its creditors as a “balance of financial terror”. China, Japan and other countries hold so much US debt that any pullout that undermined the dollar would result in huge losses on the remaining holdings. However, if confidence in the dollar began to decline, it could create a rush for the exit as everyone tried to minimise their losses, precipitating a crash of the US dollar.
At present, Beijing has decided it has too much at stake to abandon its dollar assets, as a collapse of the US and global financial system would have explosive implications for China. At the World Economic Forum in Tianjin last weekend, attended by 2,000 global CEOs, officials and economists, Chinese officials called for “international cooperation” to help the US.
Guo Shuqing, the chairman of China Construction Bank, told the conference: “What is good for the US is good for every country, including China.” William Rhodes, the vice chairman of Citigroup, told reporters that Chinese financial officials were in discussion with the US Federal Reserve Board on possible measures to alleviate the crisis in Wall Street.
China’s economy is slowing due to a sharp decline in exports to the US, European Union and Japan, which account for roughly half of Chinese exports. Tens of thousands of export firms have reportedly closed down. As exports slow, two other economic pillars, the property market and the auto market, are weakening. In turn, these factors have led to declines in steel and coal output, and therefore a declining demand for commodities. Despite cutting interest rates and lending rates, as well as stimulus packages and infrastructure building, many economists are worried that China will barely maintain 8 percent growth next year, with some predicting just 5-6 percent.
Any downturn in China will intensify the impact of a US slowdown throughout the Asian region, which has become increasingly integrated into manufacturing in China. The Association of South East Asian Nation (ASEAN) countries, as well as South Korea and Taiwan, export raw materials and parts to China, while Australia ships huge quantities of minerals and Japan exports capital goods to China. Any hopes that China was going to be the economic motor to counter a downturn in the world’s major economies are rapidly evaporating.
Banking crisis hits Germany with full force
Go to Original
By Peter Schwarz
For the past 10 years, all of the cuts made in the public services have been justified with the argument that it was necessary to balance the German federal budget by the year 2011. This includes the anti-social measures (Agenda 2010) introduced by the previous Social Democratic Party-Green Party government.
Now, Finance Minister Peer Steinbrück (Social Democrats—SPD) has made €26.5 billion available to bail out a single German bank. Overnight, his budget targets have been thrown overboard.
With the imminent bankruptcy of the bank Hypo Real Estate (HRE), the financial crisis has hit Germany with full force. Just last Thursday, Steinbrück told the German parliament that the banking crisis was essentially an American problem. The German system of comprehensive banking had proved far more durable than the American model, he said.
He already knew better. After his speech to the parliament, Steinbrück went directly to a meeting with the heads of prominent private banks and top officials of the Federal Bank and the Federal Financial Supervisory Authority to discuss the problems at HRE.
Over the weekend, one crisis meeting followed the next. German Chancellor Angela Merkel was drawn in, and the European Central Bank, as well as the governments of Great Britain and France, were informed.
At 1:30 a.m. on Monday, just 30 minutes before the opening of the stock exchange in Tokyo, a rescue package of €35 billion was assembled to prevent the collapse of HRE. A quarter of the rescue package has been put up by private banks, the rest by the German Treasury.
For the moment, the government is providing only a debt guarantee. The bailout is financed by the private banks and the Federal Bank. The Treasury must pay if and when HRE is no longer able to cover its financial liabilities and collapses despite the rescue action.
On Monday, no one was prepared to rule out this eventuality. “I do not want to commit myself on the possibility that losses could be incurred,” Torsten Albig, the spokesman for the finance minister, told reporters.
HRE is no minor player. It is listed on the DAX (Germany’s major stock index) as one of the 30 biggest companies traded on the Frankfurt stock exchange. It is of comparable size to the US bank Lehman Brothers, which went bankrupt in the middle of September, and eight times as big as IKB Bank, which incurred losses of billions of euros in connection with the US subprime mortgage crisis.
“If we had not intervened there would have been substantial damage to enterprises and jobs at a rate which we have not experienced up to now,” argued Finance Minister Steinbrück to justify the multibillion-euro rescue package.
Unlike the hard-hit IKB, Sachsen LB and Bayern LB banks, the problems at HRE are not due to bad real estate loans. Rather, they stem from the bank’s need to cover billions in losses by its Irish subsidiary Depfa, which it acquired just last autumn for €5 billion.
Depfa specialized in the financing of state budgets and infrastructure projects, which are largely regarded to be free of risk because states rarely go bankrupt. However, the bank used a financing model that was at least as risky as the speculation in the unsecured mortgage market. It provided long-term credits which it refinanced by means of short-term loans.
As long as the money markets remained liquid and enough short-term credit was available, this business model functioned. Following the collapse of Lehman Brothers two weeks ago, however, inter-bank credit began to dry up. Trust between the various banks had evaporated. The sum which Depfa could refinance declined on a daily basis, and eventually it could not make payment on more than €10 billion, which HRE must now cover.
Which bank will be next?
The crisis at HRE makes a mockery of the homilies by the finance minister and prominent bankers, according to which the German banking system is sound and the crisis under control. While the current financial crisis has its origins in the US, it has now fully enveloped Europe.
At the same time the German government was bailing out HRE, four other major American and European banks had to be rescued from collapse: The British government took the mortgage bank Bradford & Bingley under state control and assumed responsibility for its debts of €63 billion; the governments of the Benelux states propped up the finance company Fortis with €11.2 billion; the American banking giant Citigroup swallowed up it smaller US rival Wachovia, providing guarantees for the latter’s debts to the tune of €29 billion; and the governments of Belgium, France and Luxembourg made another €6.4 billion available to prevent the collapse of the Belgian-French real estate finance firm Dexia.
The question on everybody’s lips is: Which bank is next? Certainly, there are plenty of candidates—known ones and even more unknown ones.
Until a few days ago, the problems at HRE were known only to finance specialists and insiders. The bank’s chairman, Georg Funke, continually claimed that the bank was healthy. Last November, he even declared that HRE had emerged from the financial crisis in a stronger position.
Many German banks have granted credits to HRE, the repayment of which now hangs in the balance. And the full consequences of the bank’s investments in Lehman Brothers have still to emerge. “The results of the secondary effects of the Lehman Brothers collapse have been underestimated,” was the conclusion of a banking expert cited in the Süddeutsche Zeitung. Particularly vulnerable are BayernLB, the Landesbank Baden-Württemberg and the HSH Nordbank.
On Monday, the value of German bank shares plummeted on the Frankfurt stock exchange. HRE’s share price was down by 75 percent at one point. Aareal bank shares fell 40 percent, and those of Commerzbank by 25 percent. These two banks are active in similar fields to those of HRE. The banks are so closely interlinked that any collapse or threatened collapse could set off a chain reaction similar to that which took place in Germany in 1931, when the bankruptcy of the Danat bank led to a run on the banks and a devastating crisis.
Billions for speculators
The German government has reacted to the financial crisis in the same way as the Bush administration. It is handing over billions in public funds to the banks—sums which the taxpayers will inevitably be forced to repay.
The contrast between the brutality with which spending cuts have been implemented in the sphere of health, social welfare and other public expenditures and the generosity of the government to the banks is simply staggering.
The money made available by the government to HRE is equivalent to one month’s payment of basic welfare benefits (€350) for every man, woman and child in Germany. A proposed increase in child benefits of around €10 per month—a source of heated discussion within the government for months—would cost just a tenth of the sum made available to HRE.
Suddenly, adherence to a stringent budget policy, for years a sacred principle of government policy, is thrown overboard in order to protect the interests of the banks. The question of responsibility for the gigantic losses is not even posed. At the same time, the most basic democratic considerations are treated with undisguised contempt.
Finance Minister Steinbrück and Chancellor Merkel agreed on a surety bond of €26 billion in a series of private meetings with the heads of the largest banks, without any consultation with the German cabinet, not to speak of the parliament (Bundestag) or the electorate. The cabinet was informed only on Monday, after the rescue package had been decided, and the Bundestag factions were allowed to discuss the issue only on Tuesday.
This is justified with the argument that it is necessary to undertake regrettable actions in order to prevent something even worse, and that there is no alternative to a national bailout of the banks because otherwise the entire financial system and economy would break down. At the same time, nobody can guarantee that the end of the crisis has been reached, and it is very likely that further billions will be required to rescue additional banks.
This attitude turns the state into the hostage of finance capital. It amounts to an open omission that the government serves the banks rather than the people—contrary to the official fiction of democracy.
There is, however, an alternative: The transformation of the banks into public utilities, without compensation to their owners and large shareholders, their democratic control by the people, and their subordination to the interests of society as a whole instead of the profit interests of a small elite. Those bankers responsible for the crisis, who have earned millions in the process, must be held accountable and stripped of their assets.
None of the parties sitting in the Bundestag is prepared to implement such measures. Both the ruling grand coalition of conservative parties and the Social Democratic Party (SPD) and the opposition, comprised of the Free Democratic Party, the Greens and the Left Party, defend the principle of capitalist private ownership.
By Peter Schwarz
For the past 10 years, all of the cuts made in the public services have been justified with the argument that it was necessary to balance the German federal budget by the year 2011. This includes the anti-social measures (Agenda 2010) introduced by the previous Social Democratic Party-Green Party government.
Now, Finance Minister Peer Steinbrück (Social Democrats—SPD) has made €26.5 billion available to bail out a single German bank. Overnight, his budget targets have been thrown overboard.
With the imminent bankruptcy of the bank Hypo Real Estate (HRE), the financial crisis has hit Germany with full force. Just last Thursday, Steinbrück told the German parliament that the banking crisis was essentially an American problem. The German system of comprehensive banking had proved far more durable than the American model, he said.
He already knew better. After his speech to the parliament, Steinbrück went directly to a meeting with the heads of prominent private banks and top officials of the Federal Bank and the Federal Financial Supervisory Authority to discuss the problems at HRE.
Over the weekend, one crisis meeting followed the next. German Chancellor Angela Merkel was drawn in, and the European Central Bank, as well as the governments of Great Britain and France, were informed.
At 1:30 a.m. on Monday, just 30 minutes before the opening of the stock exchange in Tokyo, a rescue package of €35 billion was assembled to prevent the collapse of HRE. A quarter of the rescue package has been put up by private banks, the rest by the German Treasury.
For the moment, the government is providing only a debt guarantee. The bailout is financed by the private banks and the Federal Bank. The Treasury must pay if and when HRE is no longer able to cover its financial liabilities and collapses despite the rescue action.
On Monday, no one was prepared to rule out this eventuality. “I do not want to commit myself on the possibility that losses could be incurred,” Torsten Albig, the spokesman for the finance minister, told reporters.
HRE is no minor player. It is listed on the DAX (Germany’s major stock index) as one of the 30 biggest companies traded on the Frankfurt stock exchange. It is of comparable size to the US bank Lehman Brothers, which went bankrupt in the middle of September, and eight times as big as IKB Bank, which incurred losses of billions of euros in connection with the US subprime mortgage crisis.
“If we had not intervened there would have been substantial damage to enterprises and jobs at a rate which we have not experienced up to now,” argued Finance Minister Steinbrück to justify the multibillion-euro rescue package.
Unlike the hard-hit IKB, Sachsen LB and Bayern LB banks, the problems at HRE are not due to bad real estate loans. Rather, they stem from the bank’s need to cover billions in losses by its Irish subsidiary Depfa, which it acquired just last autumn for €5 billion.
Depfa specialized in the financing of state budgets and infrastructure projects, which are largely regarded to be free of risk because states rarely go bankrupt. However, the bank used a financing model that was at least as risky as the speculation in the unsecured mortgage market. It provided long-term credits which it refinanced by means of short-term loans.
As long as the money markets remained liquid and enough short-term credit was available, this business model functioned. Following the collapse of Lehman Brothers two weeks ago, however, inter-bank credit began to dry up. Trust between the various banks had evaporated. The sum which Depfa could refinance declined on a daily basis, and eventually it could not make payment on more than €10 billion, which HRE must now cover.
Which bank will be next?
The crisis at HRE makes a mockery of the homilies by the finance minister and prominent bankers, according to which the German banking system is sound and the crisis under control. While the current financial crisis has its origins in the US, it has now fully enveloped Europe.
At the same time the German government was bailing out HRE, four other major American and European banks had to be rescued from collapse: The British government took the mortgage bank Bradford & Bingley under state control and assumed responsibility for its debts of €63 billion; the governments of the Benelux states propped up the finance company Fortis with €11.2 billion; the American banking giant Citigroup swallowed up it smaller US rival Wachovia, providing guarantees for the latter’s debts to the tune of €29 billion; and the governments of Belgium, France and Luxembourg made another €6.4 billion available to prevent the collapse of the Belgian-French real estate finance firm Dexia.
The question on everybody’s lips is: Which bank is next? Certainly, there are plenty of candidates—known ones and even more unknown ones.
Until a few days ago, the problems at HRE were known only to finance specialists and insiders. The bank’s chairman, Georg Funke, continually claimed that the bank was healthy. Last November, he even declared that HRE had emerged from the financial crisis in a stronger position.
Many German banks have granted credits to HRE, the repayment of which now hangs in the balance. And the full consequences of the bank’s investments in Lehman Brothers have still to emerge. “The results of the secondary effects of the Lehman Brothers collapse have been underestimated,” was the conclusion of a banking expert cited in the Süddeutsche Zeitung. Particularly vulnerable are BayernLB, the Landesbank Baden-Württemberg and the HSH Nordbank.
On Monday, the value of German bank shares plummeted on the Frankfurt stock exchange. HRE’s share price was down by 75 percent at one point. Aareal bank shares fell 40 percent, and those of Commerzbank by 25 percent. These two banks are active in similar fields to those of HRE. The banks are so closely interlinked that any collapse or threatened collapse could set off a chain reaction similar to that which took place in Germany in 1931, when the bankruptcy of the Danat bank led to a run on the banks and a devastating crisis.
Billions for speculators
The German government has reacted to the financial crisis in the same way as the Bush administration. It is handing over billions in public funds to the banks—sums which the taxpayers will inevitably be forced to repay.
The contrast between the brutality with which spending cuts have been implemented in the sphere of health, social welfare and other public expenditures and the generosity of the government to the banks is simply staggering.
The money made available by the government to HRE is equivalent to one month’s payment of basic welfare benefits (€350) for every man, woman and child in Germany. A proposed increase in child benefits of around €10 per month—a source of heated discussion within the government for months—would cost just a tenth of the sum made available to HRE.
Suddenly, adherence to a stringent budget policy, for years a sacred principle of government policy, is thrown overboard in order to protect the interests of the banks. The question of responsibility for the gigantic losses is not even posed. At the same time, the most basic democratic considerations are treated with undisguised contempt.
Finance Minister Steinbrück and Chancellor Merkel agreed on a surety bond of €26 billion in a series of private meetings with the heads of the largest banks, without any consultation with the German cabinet, not to speak of the parliament (Bundestag) or the electorate. The cabinet was informed only on Monday, after the rescue package had been decided, and the Bundestag factions were allowed to discuss the issue only on Tuesday.
This is justified with the argument that it is necessary to undertake regrettable actions in order to prevent something even worse, and that there is no alternative to a national bailout of the banks because otherwise the entire financial system and economy would break down. At the same time, nobody can guarantee that the end of the crisis has been reached, and it is very likely that further billions will be required to rescue additional banks.
This attitude turns the state into the hostage of finance capital. It amounts to an open omission that the government serves the banks rather than the people—contrary to the official fiction of democracy.
There is, however, an alternative: The transformation of the banks into public utilities, without compensation to their owners and large shareholders, their democratic control by the people, and their subordination to the interests of society as a whole instead of the profit interests of a small elite. Those bankers responsible for the crisis, who have earned millions in the process, must be held accountable and stripped of their assets.
None of the parties sitting in the Bundestag is prepared to implement such measures. Both the ruling grand coalition of conservative parties and the Social Democratic Party (SPD) and the opposition, comprised of the Free Democratic Party, the Greens and the Left Party, defend the principle of capitalist private ownership.
The Wall Street bailout and the threat of dictatorship
Go to Original
By Bill Van Auken, Socialist Equality Party vice presidential candidate
By Bill Van Auken, Socialist Equality Party vice presidential candidate
Recriminations have continued to reverberate internationally over the vote in the US House of Representatives Monday to reject a $700 billion bailout package for the Wall Street banks.
Much of the opposition in the 228-to-205 vote to defeat the bailout was attributed to representatives—Democratic and Republican alike—who face tight races for their seats in November and fear being tarred by their opponents as shills for Wall Street who handed over hundreds of billions in taxpayers’ money to the CEOs and speculators who are responsible for the crisis.
In this sense, the overwhelming hostility of ordinary working people toward this massive transfer of public resources to the super-rich found its expression, highly distorted as it was, in the measure’s temporary demise.
What is the lesson drawn by much of the political establishment, as reflected in media commentary? That the American government is too susceptible to the will of the people to respond as required to the demands of finance capital.
This is the theme sounded in a number of commentaries, some of them penned by individuals with significant ties to ruling circles.
Representative of this ideological trend is a column in Wednesday’s Washington Post by Michael Gerson, George W. Bush’s former chief speechwriter and senior advisor, who is currently a senior fellow at the Council on Foreign Relations. Entitled “Too Small for a Big Crisis,” the piece portrays a dysfunctional Congress.
Gerson begins by characterizing the vote with a lurid historical metaphor. “The Bastille of establishment opinion has been stormed and taken, at least temporarily,” he writes. “But the revolution has irresponsibility in its soul.”
He notes that the vote came despite the overarching unanimity within the ruling elite in support of the bailout. “[S]eldom has America’s governing elite been more united in response to a national challenge,” he writes, with the administration, the leadership of both major parties and both the Democratic and Republican presidential candidates all supporting the bailout proposal.
After apportioning blame between “partisan” Democrats and Republicans wedded to “ideological purity,” Gerson gets to the heart of his concerns.
“Though some compromise may eventually be passed,” he declares, “it is now clear that American political elites have lost the ability to quickly respond to a national challenge by imposing their collective will. What once seemed like politics as usual now seems more like the crisis of the Articles of Confederation—a weak government populated by small men. And this must be more frightening to a world dependent on American stability than any bank failure.”
Gerson’s second historical analogy drawn from the age of the great bourgeois revolutions is as potted as the first. The crisis of the Articles of Confederation gave rise to the House of Representatives and the US Constitution that created it. Neither was crafted with the aim of allowing “political elites” to quickly impose their “collective will.”
The Constitution’s Article 1 created Congress as the first branch of the US government, meant to most closely reflect the will of the people. This was true, in particular, of the House, with its members subject to popular election every two years. Those who drafted the Constitution envisioned the body as a bastion against tyranny, endowing it with the power to oust presidents through impeachment and the exclusive ability to initiate legislation raising revenues, thus enabling it to exert decisive power over the national purse.
Of course, such principles and powers have been steadily eroded over the course of many decades, with the consolidation of ever-greater power in the hands of an imperial presidency. Over the last eight years, this process has accelerated dramatically, with Congress accepting the imposition of a president installed in office by means of electoral fraud and the diktat of a Republican majority on the US Supreme Court, then rubber-stamping a criminal war and collaborating in sweeping attacks on basic democratic rights. Those who fill the House seats are indeed “small” men and women, dominated by concerns for their political careers and subservient to the big business interests that control both major parties.
Yet, to the extent that these miserable politicians are still influenced even in the most limited manner by mass sentiments that run counter to the interests of America’s corporate and financial rulers, the present set-up is deemed to have become intolerable.
“This is dangerous,” writes Thomas Friedman, the senior foreign policy columnist for the New York Times, in a column published Wednesday. “We have House members, many of whom I suspect can’t balance their own checkbooks, rejecting a complex rescue package because some voters, whom I fear also don’t understand, swamped them with phone calls. I appreciate the popular anger against Wall Street, but you can’t deal with this crisis this way.”
In short, the opposition of the majority of the American people cannot be allowed to stand in the way of a “complex rescue package” designed by “experts” like Treasury Secretary Henry Paulson, Goldman Sachs’s former CEO, for the purpose of bailing out his colleagues on Wall Street and rescuing the fat portfolios of individuals like Friedman.
George Will, the Washington Post’s pompous right-wing columnist, had a few choice words of advice: “Congress should disconnect from a public that cannot be blamed for being more furious about than comprehending this opaque debacle.” So much for the “House of the People.”
Across the Atlantic, where furor reigned in financial circles over the bailout’s defeat, media reaction was even more blunt. The Times of London carried a prominent column entitled “Congress is the Best Advert for Dictatorship.”
“The most flattering reading of the turmoil in Congress this week has been that this is democracy in action,” wrote columnist Camilla Cavendish Wednesday. “Personally, I have never felt more attracted to benign dictatorship.”
This provocative language, drawing the logical conclusion of the anti-democratic sentiments being expressed more widely, ultimately expresses the objective ramifications of the economic and social crisis that is eating away at US and world capitalism.
The crisis is being utilized to effect an ever more immense concentration of economic power that is incompatible with political democracy. Three banking behemoths—Citigroup, Bank of America and JPMorgan Chase—are gobbling up their failing competitors and now control fully a third of US bank deposits.
At the same time, the crisis is intensifying the social inequality that pervades every aspect of life in America, a country where the top 1 percent has more wealth than the bottom 90 percent combined. Layoffs and foreclosures are mounting, while workers are suffering sharp cuts in real wages. It is under these conditions that the ruling elite is attempting to ram through the greatest transfer of wealth to the financial oligarchy in history.
These intense social antagonisms cannot be contained within America’s existing political set-up. The furor over the vote in the House serves as a warning that capitalism in crisis will inevitably move toward new forms of rule capable of defending the economic dictatorship of finance capital by means of an open political dictatorship against the working class.
This threat cannot be confronted within the framework of the existing two-party system. It demands an irrevocable break with the Democratic Party and the organization of a new, independent political movement of the working class fighting for the socialist reorganization of society. This is the alternative advanced by the Socialist Equality Party and its candidates in the US presidential election, Jerry White for president and myself for vice president.
To find out more about the SEP campaign, visit www.socialequality.com or contact us.
US Senate passes Wall Street bailout bill
Go to Original
By Patrick Martin
The Democratic-led US Senate approved a slightly modified version of the Wall Street bailout Wednesday, reviving the $700 billion windfall for the wealthy only two days after it was defeated in the House of Representatives. The 74-25 vote saw both the Democratic presidential candidate Barack Obama and the Republican presidential candidate John McCain voting to approve the bailout.
A host of leading liberal Democrats joined in approving the bill, the largest single transfer of wealth to the financial elite in US history, including Democratic vice presidential candidate Joseph Biden, Hillary Clinton, the 2004 Democratic presidential candidate John Kerry, Majority Leader Harry Reid, Majority Whip Richard Durbin, Charles Schumer of New York, and Dianne Feinstein and Barbara Boxer of California. Only a handful of Democrats opposed the bill, joined by about 20 conservative Republicans.
Barely 48 hours after the House defeated the bailout bill—at least in part because it is overwhelmingly unpopular with the American people—congressional leaders are now engaged in an anti-democratic effort to push the legislation through over mass opposition.
In one indication of the attitude of the congressional leadership to the public, the computer servers that route email traffic to the web sites of individual congressmen were shut down—on the pretext that they were overwhelmed by the high volume of traffic—with the result that constituents were no longer able to send emails opposing the bailout.
Majority Leader Reid, a Nevada Democrat, exercised his authority to attach the bailout plan to an unrelated piece of legislation already on the Senate calendar, a bill that mandated equal treatment by healthcare insurers for mental and physical illnesses. This parliamentary maneuver allowed the Senate to evade the constitutional requirement that all spending legislation originate in the lower house.
The House is expected to take up the bill Friday, with both Democratic and Republican leaders pledging to shift enough votes in each party to overturn the previous 228-205 vote rejecting the bailout. On Monday, House Democrats supplied more than two-thirds of the votes in favor of the bailout, with 140 Democrats and 65 Republicans supporting it, while 95 Democrats and 133 Republicans were opposed.
As has been the case throughout the two-week political crisis over the bailout, the Democratic Party leadership has partnered with the Bush administration to do the bidding of the financial elite. The result is a bailout plan, now on the verge of passage, identical in its fundamentals to the three-page outline first submitted by Treasury Secretary Henry Paulson September 19.
Paulson will be given the authority to buy unlimited quantities of “troubled assets” held by various financial firms, with the restriction only that the Treasury can hold no more than $700 billion at any one time, and that purchases must be reported to an oversight panel and posted on the Internet. The panel has no authority to overrule Paulson’s decisions.
The cosmetic measures added to the legislation last weekend—relating to executive pay and “golden parachutes,” the oversight board, and suggestions that the Treasury secretary treat homeowners facing foreclosure with leniency—were not strengthened in the Senate bill, as some liberal congressmen had suggested, but remain unchanged.
Concessions to the Republican right
The only significant concessions to the House vote are aimed at appeasing the bill’s right-wing Republican opponents. The Senate bailout bill incorporates more than $100 billion in tax cuts contained in a separate bill passed by the Senate last week, but blocked by the House because the tax cuts were not fully offset by tax increases or spending cuts, as required by congressional budget rules.
The bulk of the tax breaks, $78 billion, extend existing tax breaks for business and for renewable energy efforts. There is also $8 billion in tax relief for victims of natural disasters, including Hurricane Gustav and Hurricane Ike, and an extension of relief from the Alternative Minimum Tax, which benefits several million upper-middle-income families.
The other major change from the House bill is an increase in the amount of insurance for bank accounts provided by the Federal Deposit Insurance Corporation (FDIC), from $100,000 per account to $250,000, a measure that is of no benefit to the vast majority of families whose bank deposits are far smaller.
According to a report in the Wall Street Journal, the FDIC will also be allowed to borrow unlimited amounts from the Federal Reserve in an effort to forestall widespread bank runs after the collapse of a series of major banks—Washington Mutual, Wachovia and IndyMac, to name only the largest.
While as many as 50 House Democrats voted against the bailout on the grounds that it was too favorable to Wall Street and did not assist struggling homeowners and the unemployed, there are no concessions in the Senate bill in that area. On the contrary, the main concern of congressional Democratic leaders was that a section of conservative House Democrats, the so-called Blue Dogs, might oppose the revised bailout measure because the tax provisions violate “pay-as-you-go” budget rules. Many of the Blue Dogs opposed the original bailout bill in Monday’s vote.
In a further demonstration of bipartisan support for the bailout, the chairman of the Democratic Governors Association, Joe Manchin of West Virginia, joined with the chairman of the Republican Governors Association, Rick Perry of Texas, in a letter to Congress urging passage.
Obama backs the bailout
The most politically significant feature of the Senate debate on the bailout Wednesday was the speech delivered by Obama, reiterating his support for the bill.
Obama said that now was not the time to pinpoint causes or assign blame for the crisis, comparing it to a house fire, where the community must come together to put out the blaze before determining what caused it. The metaphor was an exceptionally poor one, given that the bill provides no relief at all for the millions of homeowners facing foreclosure, while giving a bounty to the Wall Street arsonists.
Obama said that once the bailout had been approved, it would be necessary to rescue families “on Main Street” who were having trouble paying their bills because of rising unemployment, gas prices, health care costs, etc. But he did not explain the priority: why the needs of the billionaires on Wall Street were so much more urgent than those of the unemployed, low-paid, uninsured and those facing foreclosure and eviction.
Moreover, as he well knows, the allocation of what will likely amount to more than a trillion dollars in public funds to absorb part of Wall Street’s losses will bankrupt the federal government. One reason he and the Democratic leadership as a whole are pushing to pass the bailout measure before the election is so that after Election Day, should he win, he will be able to declare that his “hands are tied” and he has no choice but to repudiate his campaign promises and adopt austerity measures.
The Democratic candidate warned that passage of the bailout was needed to “prevent the crisis from turning into a catastrophe,” adding, “We can’t afford to take the risk that the worldwide economy could be plunged into a very deep hole.”
In reality, the bailout will not resolve what is a systemic crisis of the capitalist system or prevent it from enveloping millions of working people in the US and around the world. The most powerful sections of the US financial elite are utilizing the crisis as an opportunity to offload their bad debts onto the government and impose the burden of the financial meltdown, for which they are responsible, on the working class. There is already much commentary in the media and among economists to the effect that this bailout is little more than a stop-gap, and even greater transfers of wealth to Wall Street will be required.
Obama admitted, “Even if we get this in place, we could still have enormous problems and probably will have enormous problems over the next few months and potentially longer.”
He then declared, as he has in several speeches and in his debate last week with McCain, that the cost of the bailout would make it necessary to cut back on future plans to spend money on federal social programs. The programs he has promised in the course of the election campaign “may have to be delayed or stretched out,” he said. He added that an Obama administration would carry out a program of budget-cutting and fiscal austerity.
In a speech earlier in the day in La Crosse, Wisconsin, Obama fostered illusions in the bailout, telling his audience, “This is not a plan to just hand over $700 billion of your money to a few banks. If this is managed correctly, we will hopefully get most or all of our money back—we might even turn a profit on the government’s investment—every penny of which will go directly back to you, the investor.”
Such lies only underscore the fundamental political reality of the 2008 campaign: The working class has no choice between Obama and McCain, both of whom are proven defenders of corporate America. Obama is emerging at this point as the more likely victor in the election, not by proposing any program to defend the interests of the vast majority of the American people, but by presenting himself to big business as a more consistent and effective defender of the interests of the American ruling elite.
By Patrick Martin
The Democratic-led US Senate approved a slightly modified version of the Wall Street bailout Wednesday, reviving the $700 billion windfall for the wealthy only two days after it was defeated in the House of Representatives. The 74-25 vote saw both the Democratic presidential candidate Barack Obama and the Republican presidential candidate John McCain voting to approve the bailout.
A host of leading liberal Democrats joined in approving the bill, the largest single transfer of wealth to the financial elite in US history, including Democratic vice presidential candidate Joseph Biden, Hillary Clinton, the 2004 Democratic presidential candidate John Kerry, Majority Leader Harry Reid, Majority Whip Richard Durbin, Charles Schumer of New York, and Dianne Feinstein and Barbara Boxer of California. Only a handful of Democrats opposed the bill, joined by about 20 conservative Republicans.
Barely 48 hours after the House defeated the bailout bill—at least in part because it is overwhelmingly unpopular with the American people—congressional leaders are now engaged in an anti-democratic effort to push the legislation through over mass opposition.
In one indication of the attitude of the congressional leadership to the public, the computer servers that route email traffic to the web sites of individual congressmen were shut down—on the pretext that they were overwhelmed by the high volume of traffic—with the result that constituents were no longer able to send emails opposing the bailout.
Majority Leader Reid, a Nevada Democrat, exercised his authority to attach the bailout plan to an unrelated piece of legislation already on the Senate calendar, a bill that mandated equal treatment by healthcare insurers for mental and physical illnesses. This parliamentary maneuver allowed the Senate to evade the constitutional requirement that all spending legislation originate in the lower house.
The House is expected to take up the bill Friday, with both Democratic and Republican leaders pledging to shift enough votes in each party to overturn the previous 228-205 vote rejecting the bailout. On Monday, House Democrats supplied more than two-thirds of the votes in favor of the bailout, with 140 Democrats and 65 Republicans supporting it, while 95 Democrats and 133 Republicans were opposed.
As has been the case throughout the two-week political crisis over the bailout, the Democratic Party leadership has partnered with the Bush administration to do the bidding of the financial elite. The result is a bailout plan, now on the verge of passage, identical in its fundamentals to the three-page outline first submitted by Treasury Secretary Henry Paulson September 19.
Paulson will be given the authority to buy unlimited quantities of “troubled assets” held by various financial firms, with the restriction only that the Treasury can hold no more than $700 billion at any one time, and that purchases must be reported to an oversight panel and posted on the Internet. The panel has no authority to overrule Paulson’s decisions.
The cosmetic measures added to the legislation last weekend—relating to executive pay and “golden parachutes,” the oversight board, and suggestions that the Treasury secretary treat homeowners facing foreclosure with leniency—were not strengthened in the Senate bill, as some liberal congressmen had suggested, but remain unchanged.
Concessions to the Republican right
The only significant concessions to the House vote are aimed at appeasing the bill’s right-wing Republican opponents. The Senate bailout bill incorporates more than $100 billion in tax cuts contained in a separate bill passed by the Senate last week, but blocked by the House because the tax cuts were not fully offset by tax increases or spending cuts, as required by congressional budget rules.
The bulk of the tax breaks, $78 billion, extend existing tax breaks for business and for renewable energy efforts. There is also $8 billion in tax relief for victims of natural disasters, including Hurricane Gustav and Hurricane Ike, and an extension of relief from the Alternative Minimum Tax, which benefits several million upper-middle-income families.
The other major change from the House bill is an increase in the amount of insurance for bank accounts provided by the Federal Deposit Insurance Corporation (FDIC), from $100,000 per account to $250,000, a measure that is of no benefit to the vast majority of families whose bank deposits are far smaller.
According to a report in the Wall Street Journal, the FDIC will also be allowed to borrow unlimited amounts from the Federal Reserve in an effort to forestall widespread bank runs after the collapse of a series of major banks—Washington Mutual, Wachovia and IndyMac, to name only the largest.
While as many as 50 House Democrats voted against the bailout on the grounds that it was too favorable to Wall Street and did not assist struggling homeowners and the unemployed, there are no concessions in the Senate bill in that area. On the contrary, the main concern of congressional Democratic leaders was that a section of conservative House Democrats, the so-called Blue Dogs, might oppose the revised bailout measure because the tax provisions violate “pay-as-you-go” budget rules. Many of the Blue Dogs opposed the original bailout bill in Monday’s vote.
In a further demonstration of bipartisan support for the bailout, the chairman of the Democratic Governors Association, Joe Manchin of West Virginia, joined with the chairman of the Republican Governors Association, Rick Perry of Texas, in a letter to Congress urging passage.
Obama backs the bailout
The most politically significant feature of the Senate debate on the bailout Wednesday was the speech delivered by Obama, reiterating his support for the bill.
Obama said that now was not the time to pinpoint causes or assign blame for the crisis, comparing it to a house fire, where the community must come together to put out the blaze before determining what caused it. The metaphor was an exceptionally poor one, given that the bill provides no relief at all for the millions of homeowners facing foreclosure, while giving a bounty to the Wall Street arsonists.
Obama said that once the bailout had been approved, it would be necessary to rescue families “on Main Street” who were having trouble paying their bills because of rising unemployment, gas prices, health care costs, etc. But he did not explain the priority: why the needs of the billionaires on Wall Street were so much more urgent than those of the unemployed, low-paid, uninsured and those facing foreclosure and eviction.
Moreover, as he well knows, the allocation of what will likely amount to more than a trillion dollars in public funds to absorb part of Wall Street’s losses will bankrupt the federal government. One reason he and the Democratic leadership as a whole are pushing to pass the bailout measure before the election is so that after Election Day, should he win, he will be able to declare that his “hands are tied” and he has no choice but to repudiate his campaign promises and adopt austerity measures.
The Democratic candidate warned that passage of the bailout was needed to “prevent the crisis from turning into a catastrophe,” adding, “We can’t afford to take the risk that the worldwide economy could be plunged into a very deep hole.”
In reality, the bailout will not resolve what is a systemic crisis of the capitalist system or prevent it from enveloping millions of working people in the US and around the world. The most powerful sections of the US financial elite are utilizing the crisis as an opportunity to offload their bad debts onto the government and impose the burden of the financial meltdown, for which they are responsible, on the working class. There is already much commentary in the media and among economists to the effect that this bailout is little more than a stop-gap, and even greater transfers of wealth to Wall Street will be required.
Obama admitted, “Even if we get this in place, we could still have enormous problems and probably will have enormous problems over the next few months and potentially longer.”
He then declared, as he has in several speeches and in his debate last week with McCain, that the cost of the bailout would make it necessary to cut back on future plans to spend money on federal social programs. The programs he has promised in the course of the election campaign “may have to be delayed or stretched out,” he said. He added that an Obama administration would carry out a program of budget-cutting and fiscal austerity.
In a speech earlier in the day in La Crosse, Wisconsin, Obama fostered illusions in the bailout, telling his audience, “This is not a plan to just hand over $700 billion of your money to a few banks. If this is managed correctly, we will hopefully get most or all of our money back—we might even turn a profit on the government’s investment—every penny of which will go directly back to you, the investor.”
Such lies only underscore the fundamental political reality of the 2008 campaign: The working class has no choice between Obama and McCain, both of whom are proven defenders of corporate America. Obama is emerging at this point as the more likely victor in the election, not by proposing any program to defend the interests of the vast majority of the American people, but by presenting himself to big business as a more consistent and effective defender of the interests of the American ruling elite.
Tuesday, September 30, 2008
No Grand Jury for Gonzales
Go to Original
By Carrie Johnson
Former attorney general Alberto R. Gonzales will not be referred to a federal grand jury for his role in the 2006 firings of nine U.S. attorneys, but a long-awaited report to be released today will recommend that a prosecutor continue to probe the involvement of lawmakers and White House officials in the episode, according to two people familiar with the case.
Justice Department Inspector General Glenn A. Fine and Office of Professional Responsibility Director H. Marshall Jarrett, who wrote the report, will not absolve department officials of blame but will recommend that efforts to resolve unanswered questions continue, said the sources, who spoke on the condition of anonymity because the findings had not been made public.
Attorney General Michael B. Mukasey is preparing to name a prosecutor from within the department to address the questions, ensuring that the politically charged issue will extend into the next administration, the sources said. An intense effort to determine how the firing plan originated and whether perjury or obstruction-of-justice laws were violated in refusing to reveal the basis for the dismissals has been thwarted, partly because investigators lack the power to compel testimony from people outside the department. Some of those officials could have played a critical role in recommending that specific prosecutors be fired.
In their 18-month review, investigators sifted through thousands of documents and interviewed scores of people to test the reasons that department leaders offered for the prosecutors' dismissals. They also set out to determine whether the prosecutors were sacked in an improper attempt to influence particular cases.
The basis for the dismissals is the subject of a tug of war between Congress and the executive branch. This year, Democrats on the House Judiciary Committee sued to seek documents and testimony from former White House counsel Harriet E. Miers and from President Bush's chief of staff, Joshua B. Bolten. A federal appeals court in Washington is deliberating the case. Meanwhile, the House panel recently voted to hold former presidential adviser Karl Rove in contempt for refusing to answer questions about the firings.
The political heat intensified last year amid more than half a dozen congressional hearings into the issue. Ultimately, 19 Justice Department officials in Washington resigned.
Current and former lawyers in the department, however, said criminal charges against Gonzales, who stepped aside in August 2007, were unlikely absent the emergence of new e-mails or witness accounts that directly contradict his statements about the firings.
Monica M. Goodling, who served as the department's White House liaison, told Congress last year that she felt "uncomfortable" during a March 2007 conversation with Gonzales that focused on her recollections of the circumstances surrounding the dismissals. Her account of the meeting prompted lawmakers to accuse Gonzales of improperly trying to influence her testimony. He denied the allegations, saying he was only trying to comfort a distraught employee. Goodling is one of several former aides who declined to be interviewed by investigators, who lack the power to issue subpoenas.
A bipartisan group of lawmakers challenged Gonzales's truthfulness in a series of hostile hearings in the summer of 2007. The sessions highlighted his inability to remember key meetings, e-mails and memos laying out plans for the dismissals. Gonzales, who has not landed full-time legal work since his resignation, told Congress that he delegated many decisions to his subordinates and should have exercised more oversight.
"We are gratified that the report apparently verifies . . . that Judge Gonzales's action in the removal of certain U.S. Attorneys was proper and appropriate," said George J. Terwilliger III, Gonzales's attorney.
U.S. attorneys serve at the pleasure of the president and can be fired for any reason. But contradictory explanations for the dismissals, and the steady release of internal e-mails suggesting the plan had evolved over two years in consultation with White House officials, damaged the department's reputation and credibility. The report will sift through all of the conflicting data about prosecutors who found themselves on lists prepared by D. Kyle Sampson, former chief of staff to Gonzales.
Among the most closely watched of the cases is one involving former New Mexico U.S. attorney David C. Iglesias, who says he received troubling phone calls from GOP Sen. Pete V. Domenici and Republican Rep. Heather A. Wilson about the status of a criminal corruption probe against a prominent local Democrat shortly before the 2006 elections. In April, the Senate Ethics Committee admonished Domenici, who is retiring.
Investigators failed in their attempts to interview lawmakers, their assistants or former White House aides. As a result, they asked Mukasey to continue the probe by appointing a prosecutor.
Despite calls from some of the fired U.S. attorneys, Mukasey has not named a special prosecutor from outside the department. He intends to hand over the project to a career prosecutor with experience in public corruption work, the sources said.
Earlier this year, Mukasey tapped a veteran federal prosecutor from Connecticut to investigate the destruction of CIA videotapes that depicted the interrogation of prisoners suspected of ties to al-Qaeda. In that case, the attorney general said more inquiry was needed to determine whether laws had been broken but warned that criminal charges would not necessarily follow.
Mukasey is expected to adopt a similar approach in the case of the U.S. attorneys' firings, picking a career prosecutor who will report to the Justice Department's second in command.
Any documents and interviews that are gathered by the career prosecutor presumably will be covered under federal grand jury and investigative protections, keeping them under wraps for months, until after Bush leaves office.
By Carrie Johnson
Former attorney general Alberto R. Gonzales will not be referred to a federal grand jury for his role in the 2006 firings of nine U.S. attorneys, but a long-awaited report to be released today will recommend that a prosecutor continue to probe the involvement of lawmakers and White House officials in the episode, according to two people familiar with the case.
Justice Department Inspector General Glenn A. Fine and Office of Professional Responsibility Director H. Marshall Jarrett, who wrote the report, will not absolve department officials of blame but will recommend that efforts to resolve unanswered questions continue, said the sources, who spoke on the condition of anonymity because the findings had not been made public.
Attorney General Michael B. Mukasey is preparing to name a prosecutor from within the department to address the questions, ensuring that the politically charged issue will extend into the next administration, the sources said. An intense effort to determine how the firing plan originated and whether perjury or obstruction-of-justice laws were violated in refusing to reveal the basis for the dismissals has been thwarted, partly because investigators lack the power to compel testimony from people outside the department. Some of those officials could have played a critical role in recommending that specific prosecutors be fired.
In their 18-month review, investigators sifted through thousands of documents and interviewed scores of people to test the reasons that department leaders offered for the prosecutors' dismissals. They also set out to determine whether the prosecutors were sacked in an improper attempt to influence particular cases.
The basis for the dismissals is the subject of a tug of war between Congress and the executive branch. This year, Democrats on the House Judiciary Committee sued to seek documents and testimony from former White House counsel Harriet E. Miers and from President Bush's chief of staff, Joshua B. Bolten. A federal appeals court in Washington is deliberating the case. Meanwhile, the House panel recently voted to hold former presidential adviser Karl Rove in contempt for refusing to answer questions about the firings.
The political heat intensified last year amid more than half a dozen congressional hearings into the issue. Ultimately, 19 Justice Department officials in Washington resigned.
Current and former lawyers in the department, however, said criminal charges against Gonzales, who stepped aside in August 2007, were unlikely absent the emergence of new e-mails or witness accounts that directly contradict his statements about the firings.
Monica M. Goodling, who served as the department's White House liaison, told Congress last year that she felt "uncomfortable" during a March 2007 conversation with Gonzales that focused on her recollections of the circumstances surrounding the dismissals. Her account of the meeting prompted lawmakers to accuse Gonzales of improperly trying to influence her testimony. He denied the allegations, saying he was only trying to comfort a distraught employee. Goodling is one of several former aides who declined to be interviewed by investigators, who lack the power to issue subpoenas.
A bipartisan group of lawmakers challenged Gonzales's truthfulness in a series of hostile hearings in the summer of 2007. The sessions highlighted his inability to remember key meetings, e-mails and memos laying out plans for the dismissals. Gonzales, who has not landed full-time legal work since his resignation, told Congress that he delegated many decisions to his subordinates and should have exercised more oversight.
"We are gratified that the report apparently verifies . . . that Judge Gonzales's action in the removal of certain U.S. Attorneys was proper and appropriate," said George J. Terwilliger III, Gonzales's attorney.
U.S. attorneys serve at the pleasure of the president and can be fired for any reason. But contradictory explanations for the dismissals, and the steady release of internal e-mails suggesting the plan had evolved over two years in consultation with White House officials, damaged the department's reputation and credibility. The report will sift through all of the conflicting data about prosecutors who found themselves on lists prepared by D. Kyle Sampson, former chief of staff to Gonzales.
Among the most closely watched of the cases is one involving former New Mexico U.S. attorney David C. Iglesias, who says he received troubling phone calls from GOP Sen. Pete V. Domenici and Republican Rep. Heather A. Wilson about the status of a criminal corruption probe against a prominent local Democrat shortly before the 2006 elections. In April, the Senate Ethics Committee admonished Domenici, who is retiring.
Investigators failed in their attempts to interview lawmakers, their assistants or former White House aides. As a result, they asked Mukasey to continue the probe by appointing a prosecutor.
Despite calls from some of the fired U.S. attorneys, Mukasey has not named a special prosecutor from outside the department. He intends to hand over the project to a career prosecutor with experience in public corruption work, the sources said.
Earlier this year, Mukasey tapped a veteran federal prosecutor from Connecticut to investigate the destruction of CIA videotapes that depicted the interrogation of prisoners suspected of ties to al-Qaeda. In that case, the attorney general said more inquiry was needed to determine whether laws had been broken but warned that criminal charges would not necessarily follow.
Mukasey is expected to adopt a similar approach in the case of the U.S. attorneys' firings, picking a career prosecutor who will report to the Justice Department's second in command.
Any documents and interviews that are gathered by the career prosecutor presumably will be covered under federal grand jury and investigative protections, keeping them under wraps for months, until after Bush leaves office.
House Rejects Bailout Package, 228-205; Stocks Plunge
Go to Original
By CARL HULSE and DAVID M. HERSZENHORN
In a moment of historic import in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry. The vote came in stunning defiance of President Bush and Congressional leaders of both parties, who said the bailout was needed to prevent a widespread financial collapse.
The vote against the measure was 228 to 205, with 133 Republicans turning against President Bush to join 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.
Supporters vowed to try to bring the rescue package up again as soon as possible, perhaps late Wednesday or Thursday, but there were no definite plans to do so. A former Treasury Department official predicted that the administration would try to get another House vote before the end of the week, and with only “tiny tweaks” to the package, given the relative closeness of the vote.
Stock markets plunged as it appeared that the measure would go down to defeat, and kept slumping into the afternoon when that appearance became a reality. By late afternoon the Dow industrials had fallen more than 5 percent, and other indexes even more sharply. Oil prices fell steeply on fears of a global recession; investors bid up prices of Treasury securities and gold in a flight to safety.
The vote was a catastrophic political defeat for President Bush, who tried to muster national support for a recovery plan in a televised address last Wednesday, then lobbied wavering Republican legislators in intensely personal telephone calls on Monday morning.
“We put forth a plan that was big because we got a big problem,” the president said afterward. “And we’ll be working with members of Congress, leaders of Congress on the way forward. Our strategy is to continue to address this economic situation head on.”
The president was described as “very disappointed” by a spokesman, Tony Fratto. Mr. Bush’s disappointment may have been deepened by the fact that members of his own party voted against the package by more than 2 to 1.
Treasury Secretary Henry M. Paulson Jr., appearing at the White House late Monday afternoon, warned that the failure of the rescue plan could dry up credit for businesses big and small, making them unable to make payrolls or buy inventory. Vowing to continue working with Congress to revive the rescue plan, Mr. Paulson said it was “much too important to simply let fail.”
Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Moreover, supporters argued, a lingering crisis in America could choke off business and consumer loans to a degree that could prompt bank failures in Europe and slow down the global economy.
Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.
House leaders pushing for the package kept the voting period open for some 40 minutes past the allotted time at mid-day, trying to convert “no” votes by pointing to damage being done to the markets, but to no avail.
The former Treasury Department official who predicted another House vote this week said that before there could be another vote, he would expect Speaker Nancy Pelosi, the California Democrat, and Representative John A. Boehner of Ohio, the Republican minority leader, to approach members with seats in safe districts and tell them, in effect: “You’ve got to do this. The fate of the country hangs on your vote.”
On the other hand, the former official, who spoke on condition of anonymity, said he was not sure what adjustments would satisfy the Republican lawmakers who voted against the package, given that the Republicans had already succeeded in tacking government insurance on to the bill, and that other items on their list of proposals, like a suspension of the capital gains tax, are non-starters.
The United States Chamber of Commerce vowed to exert pressure, warning in a letter to members of Congress that it would keep track of who votes how. “Make no mistake,” the letter said. “When the aftermath of Congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen.”
Secretary Paulson, in promising to continue working with Congressional leaders to win passage of a rescue plan, alluded to remedial steps that the Treasury and Federal Reserve could take on their own, like lowering short-term interest rates. “Our tool kit is substantial,” he said, “but insufficient.”
Immediately after the vote, many House members appeared stunned. Some Republicans blamed Ms. Pelosi for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way.
“Clearly, there was something lacking in the leadership here,” said Representative Eric Cantor, Republican of Virginia.
Democrats, meanwhile, blamed the Republicans for not coming up with enough support for the measure on their side of the aisle.
Members of both parties, doing a quick political post-mortem, said those who voted no had encountered too much hostility for the bill among their constituents, and were worried that a vote in favor would be political suicide.
The Senate had been expected to vote later in the week if the bill had cleared the House on Monday. Senate vote-counters had predicted that there was enough support in the chamber for the measure to pass. But the stunning vote in the House, coupled with the Jewish holidays, made it difficult to predict when other votes might be held. Many House members who voted for the bill held their noses, figuratively speaking, as they did so.
Mr. Boehner, the Republican minority leader, called the measure “a mud sandwich” at one point, but he said that there was too much at stake not to support it. He urged members to reflect on the damage that a defeat of the measure could mean “to your friends, your neighbors, your constituents” as they might watch their retirement savings “shrivel up to zero.”
And Representative Steny Hoyer of Maryland, who as Democratic majority leader often clashes with Mr. Boehner, said that on this “day of consequence for America” he and Mr. Boehner “speak with one voice” in pleading for passage.
When it comes to America’s economy, Mr. Hoyer said, “none of us is an island.”
The House vote came after a weekend of tense negotiations produced a rescue plan that Congressional leaders said was greatly strengthened by new taxpayer safeguards. “If we defeat this bill today, it will be a very bad day for the financial sector of the economy,” said Representative Barney Frank, Democrat of Massachusetts and the chairman of the Financial Services Committee. Earlier Monday, President Bush urged Congress to act quickly. Calling the rescue bill “bold,” Mr. Bush praised lawmakers “from both sides of the aisle” for reaching agreement, and said it would “help keep the crisis in our financial system from spreading throughout our economy.”
After long favoring a hands-off approach and deregulation of the financial industry, the Bush administration has found itself in recent weeks interceding repeatedly in the private market to try to avert one calamity after another.
Even before the House vote, European and Asian stock markets declined sharply on Monday, especially in countries where major banks have had significant problems with mortgage investments, like Britain and Ireland. In the credit markets, investors once again bid up prices of Treasury securities and shunned more risky debt.
Early in the House debate, Jeb Hensarling, Republican of Texas, said he intended to vote against the package, which he said would put the nation on “the slippery slope to socialism.” He said that he was afraid that it ultimately would not work, leaving the taxpayers responsible for “the mother of all debt.”
Another Texas Republican, John Culberson, spoke scathingly about the unbridled power he said the bill would hand over to the Treasury secretary, Henry M. Paulson Jr., whom he called “King Henry.”
A third Texan, Lloyd Doggett, a Democrat, said the negotiators had “never seriously considered any alternative” to the administration’s plan, and had only barely modified what they were given. He criticized the plan for handing over sweeping new powers to an administration that he said was to blame for allowing the crisis to develop in the first place.
The administration accepted limits on executive pay and tougher oversight; Democrats sacrificed a push to allow bankruptcy judges to rewrite mortgages. But Republicans fell short in their effort to require that the federal government insure, rather than buy, the bad debt.
The final version of the bill included a deal-sealing plan for eventually recouping losses; if the Treasury program to purchase and resell troubled mortgage-backed securities has lost money after five years, the president must submit a plan to Congress to recover those losses from the financial industry.
Presumably that plan would involve new fees or taxes, perhaps on securities transactions.
The deal would also restrict gold-plated farewells for executives of companies that sell devalued assets to the Treasury Department. But by mid-afternoon on Monday, no one could safely predict whether the provisions in the 110-page bill were strictly academic.
“The legislation has failed,” Speaker Pelosi said at a news conference after the vote. “The crisis has not gone away. We must continue to work in a bipartisan manner.”
By CARL HULSE and DAVID M. HERSZENHORN
In a moment of historic import in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry. The vote came in stunning defiance of President Bush and Congressional leaders of both parties, who said the bailout was needed to prevent a widespread financial collapse.
The vote against the measure was 228 to 205, with 133 Republicans turning against President Bush to join 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.
Supporters vowed to try to bring the rescue package up again as soon as possible, perhaps late Wednesday or Thursday, but there were no definite plans to do so. A former Treasury Department official predicted that the administration would try to get another House vote before the end of the week, and with only “tiny tweaks” to the package, given the relative closeness of the vote.
Stock markets plunged as it appeared that the measure would go down to defeat, and kept slumping into the afternoon when that appearance became a reality. By late afternoon the Dow industrials had fallen more than 5 percent, and other indexes even more sharply. Oil prices fell steeply on fears of a global recession; investors bid up prices of Treasury securities and gold in a flight to safety.
The vote was a catastrophic political defeat for President Bush, who tried to muster national support for a recovery plan in a televised address last Wednesday, then lobbied wavering Republican legislators in intensely personal telephone calls on Monday morning.
“We put forth a plan that was big because we got a big problem,” the president said afterward. “And we’ll be working with members of Congress, leaders of Congress on the way forward. Our strategy is to continue to address this economic situation head on.”
The president was described as “very disappointed” by a spokesman, Tony Fratto. Mr. Bush’s disappointment may have been deepened by the fact that members of his own party voted against the package by more than 2 to 1.
Treasury Secretary Henry M. Paulson Jr., appearing at the White House late Monday afternoon, warned that the failure of the rescue plan could dry up credit for businesses big and small, making them unable to make payrolls or buy inventory. Vowing to continue working with Congress to revive the rescue plan, Mr. Paulson said it was “much too important to simply let fail.”
Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Moreover, supporters argued, a lingering crisis in America could choke off business and consumer loans to a degree that could prompt bank failures in Europe and slow down the global economy.
Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.
House leaders pushing for the package kept the voting period open for some 40 minutes past the allotted time at mid-day, trying to convert “no” votes by pointing to damage being done to the markets, but to no avail.
The former Treasury Department official who predicted another House vote this week said that before there could be another vote, he would expect Speaker Nancy Pelosi, the California Democrat, and Representative John A. Boehner of Ohio, the Republican minority leader, to approach members with seats in safe districts and tell them, in effect: “You’ve got to do this. The fate of the country hangs on your vote.”
On the other hand, the former official, who spoke on condition of anonymity, said he was not sure what adjustments would satisfy the Republican lawmakers who voted against the package, given that the Republicans had already succeeded in tacking government insurance on to the bill, and that other items on their list of proposals, like a suspension of the capital gains tax, are non-starters.
The United States Chamber of Commerce vowed to exert pressure, warning in a letter to members of Congress that it would keep track of who votes how. “Make no mistake,” the letter said. “When the aftermath of Congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen.”
Secretary Paulson, in promising to continue working with Congressional leaders to win passage of a rescue plan, alluded to remedial steps that the Treasury and Federal Reserve could take on their own, like lowering short-term interest rates. “Our tool kit is substantial,” he said, “but insufficient.”
Immediately after the vote, many House members appeared stunned. Some Republicans blamed Ms. Pelosi for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way.
“Clearly, there was something lacking in the leadership here,” said Representative Eric Cantor, Republican of Virginia.
Democrats, meanwhile, blamed the Republicans for not coming up with enough support for the measure on their side of the aisle.
Members of both parties, doing a quick political post-mortem, said those who voted no had encountered too much hostility for the bill among their constituents, and were worried that a vote in favor would be political suicide.
The Senate had been expected to vote later in the week if the bill had cleared the House on Monday. Senate vote-counters had predicted that there was enough support in the chamber for the measure to pass. But the stunning vote in the House, coupled with the Jewish holidays, made it difficult to predict when other votes might be held. Many House members who voted for the bill held their noses, figuratively speaking, as they did so.
Mr. Boehner, the Republican minority leader, called the measure “a mud sandwich” at one point, but he said that there was too much at stake not to support it. He urged members to reflect on the damage that a defeat of the measure could mean “to your friends, your neighbors, your constituents” as they might watch their retirement savings “shrivel up to zero.”
And Representative Steny Hoyer of Maryland, who as Democratic majority leader often clashes with Mr. Boehner, said that on this “day of consequence for America” he and Mr. Boehner “speak with one voice” in pleading for passage.
When it comes to America’s economy, Mr. Hoyer said, “none of us is an island.”
The House vote came after a weekend of tense negotiations produced a rescue plan that Congressional leaders said was greatly strengthened by new taxpayer safeguards. “If we defeat this bill today, it will be a very bad day for the financial sector of the economy,” said Representative Barney Frank, Democrat of Massachusetts and the chairman of the Financial Services Committee. Earlier Monday, President Bush urged Congress to act quickly. Calling the rescue bill “bold,” Mr. Bush praised lawmakers “from both sides of the aisle” for reaching agreement, and said it would “help keep the crisis in our financial system from spreading throughout our economy.”
After long favoring a hands-off approach and deregulation of the financial industry, the Bush administration has found itself in recent weeks interceding repeatedly in the private market to try to avert one calamity after another.
Even before the House vote, European and Asian stock markets declined sharply on Monday, especially in countries where major banks have had significant problems with mortgage investments, like Britain and Ireland. In the credit markets, investors once again bid up prices of Treasury securities and shunned more risky debt.
Early in the House debate, Jeb Hensarling, Republican of Texas, said he intended to vote against the package, which he said would put the nation on “the slippery slope to socialism.” He said that he was afraid that it ultimately would not work, leaving the taxpayers responsible for “the mother of all debt.”
Another Texas Republican, John Culberson, spoke scathingly about the unbridled power he said the bill would hand over to the Treasury secretary, Henry M. Paulson Jr., whom he called “King Henry.”
A third Texan, Lloyd Doggett, a Democrat, said the negotiators had “never seriously considered any alternative” to the administration’s plan, and had only barely modified what they were given. He criticized the plan for handing over sweeping new powers to an administration that he said was to blame for allowing the crisis to develop in the first place.
The administration accepted limits on executive pay and tougher oversight; Democrats sacrificed a push to allow bankruptcy judges to rewrite mortgages. But Republicans fell short in their effort to require that the federal government insure, rather than buy, the bad debt.
The final version of the bill included a deal-sealing plan for eventually recouping losses; if the Treasury program to purchase and resell troubled mortgage-backed securities has lost money after five years, the president must submit a plan to Congress to recover those losses from the financial industry.
Presumably that plan would involve new fees or taxes, perhaps on securities transactions.
The deal would also restrict gold-plated farewells for executives of companies that sell devalued assets to the Treasury Department. But by mid-afternoon on Monday, no one could safely predict whether the provisions in the 110-page bill were strictly academic.
“The legislation has failed,” Speaker Pelosi said at a news conference after the vote. “The crisis has not gone away. We must continue to work in a bipartisan manner.”
Ahmadinejad accepts Israel's right to exist
Go to Original
By Peter Tatchell
The Iranian president has said he would accept a two-state solution if the Palestinians agree. So where are the headlines?
Iranian President, Mahmoud Ahmadinejad, has made a remarkable announcement. He's admitted that Iran might agree to the existence of the state of Israel.
Ahmadinejad was asked: "If the Palestinian leaders agree to a two-state solution, could Iran live with an Israeli state?"
This was his astonishing reply:
If they [the Palestinians] want to keep the Zionists, they can stay ... Whatever the people decide, we will respect it. I mean, it's very much in correspondence with our proposal to allow Palestinian people to decide through free referendums.
Since most Palestinians are willing to accept a two-state solution, the Iranian president is, in effect, agreeing to Israel's right to exist and opening the door to a peace deal that Iran will endorse.
Ahmadinejad made this apparently extraordinary shift in policy during an
interview last week when he was in New York to address the UN general assembly.
He was interviewed on September 24 by reporters Juan Gonzalez, writing for the New York Daily News, and Amy Goodman for the current affairs TV programme, Democracy Now.
You can watch the full interview and read the full text on the Democracy Now website.
Surprisingly, Ahmadinejad's sensational softening of his long-standing, point-blank anti-Israeli stance was not even headlined by the two reporters. Perhaps this was a decision by their editors? Did they not want to admit that Ahmadinejad may have, for once, said something vaguely progressive?
Equally odd, the story wasn't picked up by the world's media. For many years, the Iranian president has been vilified, usually justifiably. Now, when he says something positive and helpful, the media ignores it. Is this because of some anti-Iran or pro-Israel agenda?
Why ignore a statement that is, from any political and journalistic perspective, a radical departure from Ahmadinejad's previous unyielding anti-Israel tirades? Only a week earlier in Tehran he was saying that the Israeli state would not survive.
Confused? Aren't we all. Will the real Mahmoud Ahmadinejad please stand up?
Is he a deceiver and an unprincipled opportunist who will say anything to further Iran's political agenda? Or could it be that beneath his often demagogic public rhetoric against Israel he is, in fact, open to options more moderate than his reported remarks about wiping the Israeli state off the map?
I am not defending or endorsing Ahmadinejad in any way, shape or form. Indeed, I am on record as being one of Ahmadinejad's harshest critics. I've protested dozens of times outside the Iranian Embassy in London and written scores of articles exposing his regime's persecution of trade unionists, students, journalists, human rights defenders, women's equality campaigners, gay people, Sunni Muslims and ethnic minorities such as the Arabs, Kurds, Azeris and Balochis.
You can watch my Talking with Tatchell online TV programmes on the Iranian regime's anti-Arab racism here, and on the rising popular resistance to its police state methods here.
But I also hope I am open-minded and fair. Even I can see that Ahmadinejad appears to have moderated his position and is now apparently willing, with Palestinian agreement, to accept the co-existence of two states: Israel and Palestine.
Many Israelis and their allies will no doubt say Ahmadinejad can't be trusted; that his comments were part of a manipulative charm offensive during his visit to the UN in New York. They may be right. But even if he is being disingenuous, that fact that he's made this public concession on Israel at all is a softening of sorts.
News of what he said will filter back to Tehran and he'll have to account for his words to his government, including the hardline anti-Israel ayatollahs and revolutionary guards. I wonder what they think?
Call me naive, but in my view Ahmadinejad's words were of major significance. He ought be pressed by world leaders, and Israel, to repeat them and to clarify them. His statement might, and I emphasise might, be evidence that Iran is open to some negotiation on the future of the Israeli state.
If Israel's leaders had any sense, they would ignore past provocations by Iran and seize this moment to have dialogue with the Palestinian and Iranian leaders on a two-state solution. What Ahmadinejad has said could be an opening to diffuse the stand-off between Iran and Israel.
I am not relenting one inch in my condemnation of Ahmadinejad's regime, with its grisly torture chambers, execution of juvenile offenders and neocolonial subjugation of national minorities. But I do find myself in considerable agreement with the Iranian president's analysis of why the Middle East peace process has stalled. He told Gonzales and Goodman:
The first reason is that none of the solutions have actually addressed the root cause of the problem. The root cause is the presence of an illegitimate government regime that has usurped and imposed itself on, meaning they have brought people from other parts of the world, replaced them with people who had existed in the territory and then forced the exit of the old people out, the people who lived there, out of the country or the territories. So there have been two simultaneous displacements. The indigenous people were forced out and displaced, and a group of other people scattered around the globe were gathered and placed in a new place ... A second reason is that none of those peace plans offered so far have given attention to the right to self-determination of the Palestinians. If a group of people are forced out of their country, that doesn't mean their rights are gone, even with the passage of 60 years. Can you ignore the rights of those displaced? How is it possible for people to arrive from far-off lands and have the right to self-determination, whereas the indigenous people of the territory are denied that right?
Much as I loathe his regime, Ahmadinejad is basically right. The key to peace in the Middle East is concessions from the occupying power. As the stronger, wealthier and conquering partner, Israel should take the initiative and help kick-start the peace process by withdrawing unilaterally and totally from the territories it has occupied illegally (according to international law) since the 1967 war. This means pulling out from all of the West Bank and dismantling all the illegal Israeli settlements.
The West Bank, plus Gaza, should become the independent, sovereign state of Palestine, backed with international aid and investment to create the infrastructure for economic development and for social provision (new houses, schools, hospitals, transport links and sports facilities).
Jobs and prosperity in Palestine will undercut and isolate the men of violence. They will lose support and become marginalised in a self-governing state where ordinary Palestinians experience the tangible benefits of peace.
This is so damn obvious. When will Israel's leaders wake up and realise that peace with justice is the only way to give their people lasting security?
By Peter Tatchell
The Iranian president has said he would accept a two-state solution if the Palestinians agree. So where are the headlines?
Iranian President, Mahmoud Ahmadinejad, has made a remarkable announcement. He's admitted that Iran might agree to the existence of the state of Israel.
Ahmadinejad was asked: "If the Palestinian leaders agree to a two-state solution, could Iran live with an Israeli state?"
This was his astonishing reply:
If they [the Palestinians] want to keep the Zionists, they can stay ... Whatever the people decide, we will respect it. I mean, it's very much in correspondence with our proposal to allow Palestinian people to decide through free referendums.
Since most Palestinians are willing to accept a two-state solution, the Iranian president is, in effect, agreeing to Israel's right to exist and opening the door to a peace deal that Iran will endorse.
Ahmadinejad made this apparently extraordinary shift in policy during an
interview last week when he was in New York to address the UN general assembly.
He was interviewed on September 24 by reporters Juan Gonzalez, writing for the New York Daily News, and Amy Goodman for the current affairs TV programme, Democracy Now.
You can watch the full interview and read the full text on the Democracy Now website.
Surprisingly, Ahmadinejad's sensational softening of his long-standing, point-blank anti-Israeli stance was not even headlined by the two reporters. Perhaps this was a decision by their editors? Did they not want to admit that Ahmadinejad may have, for once, said something vaguely progressive?
Equally odd, the story wasn't picked up by the world's media. For many years, the Iranian president has been vilified, usually justifiably. Now, when he says something positive and helpful, the media ignores it. Is this because of some anti-Iran or pro-Israel agenda?
Why ignore a statement that is, from any political and journalistic perspective, a radical departure from Ahmadinejad's previous unyielding anti-Israel tirades? Only a week earlier in Tehran he was saying that the Israeli state would not survive.
Confused? Aren't we all. Will the real Mahmoud Ahmadinejad please stand up?
Is he a deceiver and an unprincipled opportunist who will say anything to further Iran's political agenda? Or could it be that beneath his often demagogic public rhetoric against Israel he is, in fact, open to options more moderate than his reported remarks about wiping the Israeli state off the map?
I am not defending or endorsing Ahmadinejad in any way, shape or form. Indeed, I am on record as being one of Ahmadinejad's harshest critics. I've protested dozens of times outside the Iranian Embassy in London and written scores of articles exposing his regime's persecution of trade unionists, students, journalists, human rights defenders, women's equality campaigners, gay people, Sunni Muslims and ethnic minorities such as the Arabs, Kurds, Azeris and Balochis.
You can watch my Talking with Tatchell online TV programmes on the Iranian regime's anti-Arab racism here, and on the rising popular resistance to its police state methods here.
But I also hope I am open-minded and fair. Even I can see that Ahmadinejad appears to have moderated his position and is now apparently willing, with Palestinian agreement, to accept the co-existence of two states: Israel and Palestine.
Many Israelis and their allies will no doubt say Ahmadinejad can't be trusted; that his comments were part of a manipulative charm offensive during his visit to the UN in New York. They may be right. But even if he is being disingenuous, that fact that he's made this public concession on Israel at all is a softening of sorts.
News of what he said will filter back to Tehran and he'll have to account for his words to his government, including the hardline anti-Israel ayatollahs and revolutionary guards. I wonder what they think?
Call me naive, but in my view Ahmadinejad's words were of major significance. He ought be pressed by world leaders, and Israel, to repeat them and to clarify them. His statement might, and I emphasise might, be evidence that Iran is open to some negotiation on the future of the Israeli state.
If Israel's leaders had any sense, they would ignore past provocations by Iran and seize this moment to have dialogue with the Palestinian and Iranian leaders on a two-state solution. What Ahmadinejad has said could be an opening to diffuse the stand-off between Iran and Israel.
I am not relenting one inch in my condemnation of Ahmadinejad's regime, with its grisly torture chambers, execution of juvenile offenders and neocolonial subjugation of national minorities. But I do find myself in considerable agreement with the Iranian president's analysis of why the Middle East peace process has stalled. He told Gonzales and Goodman:
The first reason is that none of the solutions have actually addressed the root cause of the problem. The root cause is the presence of an illegitimate government regime that has usurped and imposed itself on, meaning they have brought people from other parts of the world, replaced them with people who had existed in the territory and then forced the exit of the old people out, the people who lived there, out of the country or the territories. So there have been two simultaneous displacements. The indigenous people were forced out and displaced, and a group of other people scattered around the globe were gathered and placed in a new place ... A second reason is that none of those peace plans offered so far have given attention to the right to self-determination of the Palestinians. If a group of people are forced out of their country, that doesn't mean their rights are gone, even with the passage of 60 years. Can you ignore the rights of those displaced? How is it possible for people to arrive from far-off lands and have the right to self-determination, whereas the indigenous people of the territory are denied that right?
Much as I loathe his regime, Ahmadinejad is basically right. The key to peace in the Middle East is concessions from the occupying power. As the stronger, wealthier and conquering partner, Israel should take the initiative and help kick-start the peace process by withdrawing unilaterally and totally from the territories it has occupied illegally (according to international law) since the 1967 war. This means pulling out from all of the West Bank and dismantling all the illegal Israeli settlements.
The West Bank, plus Gaza, should become the independent, sovereign state of Palestine, backed with international aid and investment to create the infrastructure for economic development and for social provision (new houses, schools, hospitals, transport links and sports facilities).
Jobs and prosperity in Palestine will undercut and isolate the men of violence. They will lose support and become marginalised in a self-governing state where ordinary Palestinians experience the tangible benefits of peace.
This is so damn obvious. When will Israel's leaders wake up and realise that peace with justice is the only way to give their people lasting security?
I've watched the economy for 30 years. Now I'm truly scared
Go to Original
By Will Hutton
If more people understood what has happened in the British and American banking system, the financial crisis would only be containable by the immediate partial nationalisation of every bank in Britain and America. There was not a run on the banks by depositors queuing in the streets to withdraw their savings. Rather, it was an escalating and terrifying run on the banks in effect by themselves, which, if it spread to millions of small savers, would reproduce the events of 1929.
In Britain, the money markets that the banks organise between themselves completely froze. Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
I have been writing on the financial markets for nearly 30 years. I have known the system was becoming increasingly fragile, but for all the ferocity of my criticisms, I never expected the scale of today's events. Or that I would begin to wonder whether my own bank would survive without nationalisation. The negotiations in Washington over this weekend to finalise the $700bn Paulson financial bail-out plan, and the expected vote on Sunday, are all that stands between the Anglo-American banking system and a first-order disaster. The scheme had better work.
This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values. London's money markets froze because of a trust collapse; banks simply don't believe each other when they say their businesses are sound and will not default on their obligations. Trust matters.
And although some conservatives in Britain and America continue to make the ideological case against any government action as a response to the recent turmoil - governments necessarily do everything worse than the market - they have no alternative proposal about how to restore trust once it has gone. Trust is a reciprocal relationship, dependent upon a desire to be considered decent and honourable. Even in the dog-eat-dog financial markets, trust and integrity are matters of self-interest. However amoral you may be, it is in your interest to care about your reputation, because if you behave badly you will not do business with me - or others - on favourable terms again.
But the scale of the personal rewards now available in London and Wall Street - £15m-£20m at the top is the norm - along with the greed-is-good doctrine associated with extreme laissez-faire economics, has trashed the need for individuals to worry about integrity. They don't need to be concerned about their reputations; they just need one deal or one year at the top and they need never work again. The incentive structure has so departed from one of the principal norms of fairness - proportionality between value added and reward - that it has eviscerated trust relationships and integrity.
Everybody tries to 'game' the system on their route to vast personal fortunes - whether short-selling, packaging up dud mortgages as prime mortgages or telling lies about their financial viability - and the result is that the system is getting wise. The best course today in any financial transaction is to presume zero integrity. Credit is drying up and with it the very lifeblood of the economy.
Worse, now that the system is in trouble, financiers are turning to taxpayers in the US and Britain for help without understanding the other key principal of fairness - that we will consider helping those who for no fault of their own get into trouble, but not those who freely created their own bad circumstances.
Hank Paulson certainly acted decisively in launching his plan, but the former Goldman Sachs CEO, who negotiated a special exemption from tax when he took the job, like his former Wall Street colleagues is not well endowed with the fairness gene. It polluted the very design of the scheme.
He knows that unless the US government does something comprehensive, the entire financial system is at stake, but his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.
American economists of every persuasion signed a joint letter complaining not at the aim of the bail out, which is plainly vital, but for its lack of fairness. Conservative papers and politicians echoed the complaint. Suddenly, Wall Street is coming back to earth. The transactions from which it skims such riches are built on the savings of ordinary Americans to whom it has obligations, as it has to other Wall Street firms. What we know now about the yet to be agreed compromise is that Paulson has accepted Congressional oversight, will offer direct help to distressed US homeowners as well as banks, and will accept some constraints on the worst excesses of executive pay.
But the core proposal remains. The government will buy toxic debt rather than inject government funds into the banks' capital base, in other words, reject even partially nationalising the entire US banking system as the Swedes had to in 1992. I don't know - nobody does - whether the Paulson plan would be sufficient or whether ultimately the Americans will have to go for nationalisation. What I do know is that unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends.
The political debate in Britain and America so far little reflects this need - but it will. Barack Obama's election as President is much more likely. And the discourse in Britain will follow. Brown may be crampingly cautious but, unlike Cameron, he does understand that without government action the restoration of trust and fairness may never happen. This week, I expect the nationalisation of the stricken Bradford & Bingley to join Northern Rock. It is but another in a long sequence of interventions that are imperative to save the system from its own proclivities. Once again, the left is coming to capitalism's rescue.
By Will Hutton
If more people understood what has happened in the British and American banking system, the financial crisis would only be containable by the immediate partial nationalisation of every bank in Britain and America. There was not a run on the banks by depositors queuing in the streets to withdraw their savings. Rather, it was an escalating and terrifying run on the banks in effect by themselves, which, if it spread to millions of small savers, would reproduce the events of 1929.
In Britain, the money markets that the banks organise between themselves completely froze. Such was the break down in trust and sense of panic that some of the most familiar names in British high street banking would not lend to each other at all or, at best, just overnight. Instead, the Bank of England had to supply tens of billions to banks who found the normal sources of funds blocked.
I have been writing on the financial markets for nearly 30 years. I have known the system was becoming increasingly fragile, but for all the ferocity of my criticisms, I never expected the scale of today's events. Or that I would begin to wonder whether my own bank would survive without nationalisation. The negotiations in Washington over this weekend to finalise the $700bn Paulson financial bail-out plan, and the expected vote on Sunday, are all that stands between the Anglo-American banking system and a first-order disaster. The scheme had better work.
This is not the end of capitalism, as some wildly claim; there is no intellectual, social or political challenge to a market system based on respect for private property rights, even by the Chinese Communist party. Rather, it is a crisis of a particular capitalism that has set aside respect for trust, integrity and fairness as fuddy-duddy obstacles to 'wealth generation'. What we are relearning is that without trust and fairness, capitalism risks its own sustainability, even while it unleashes forces that undermine those self-same values. London's money markets froze because of a trust collapse; banks simply don't believe each other when they say their businesses are sound and will not default on their obligations. Trust matters.
And although some conservatives in Britain and America continue to make the ideological case against any government action as a response to the recent turmoil - governments necessarily do everything worse than the market - they have no alternative proposal about how to restore trust once it has gone. Trust is a reciprocal relationship, dependent upon a desire to be considered decent and honourable. Even in the dog-eat-dog financial markets, trust and integrity are matters of self-interest. However amoral you may be, it is in your interest to care about your reputation, because if you behave badly you will not do business with me - or others - on favourable terms again.
But the scale of the personal rewards now available in London and Wall Street - £15m-£20m at the top is the norm - along with the greed-is-good doctrine associated with extreme laissez-faire economics, has trashed the need for individuals to worry about integrity. They don't need to be concerned about their reputations; they just need one deal or one year at the top and they need never work again. The incentive structure has so departed from one of the principal norms of fairness - proportionality between value added and reward - that it has eviscerated trust relationships and integrity.
Everybody tries to 'game' the system on their route to vast personal fortunes - whether short-selling, packaging up dud mortgages as prime mortgages or telling lies about their financial viability - and the result is that the system is getting wise. The best course today in any financial transaction is to presume zero integrity. Credit is drying up and with it the very lifeblood of the economy.
Worse, now that the system is in trouble, financiers are turning to taxpayers in the US and Britain for help without understanding the other key principal of fairness - that we will consider helping those who for no fault of their own get into trouble, but not those who freely created their own bad circumstances.
Hank Paulson certainly acted decisively in launching his plan, but the former Goldman Sachs CEO, who negotiated a special exemption from tax when he took the job, like his former Wall Street colleagues is not well endowed with the fairness gene. It polluted the very design of the scheme.
He knows that unless the US government does something comprehensive, the entire financial system is at stake, but his original plan was designed to bail out the system intact. It made no demands that any financial executives sacrifice pay or bonuses despite having driven their firms and wider economy to the point of bankruptcy. He does not want the government to provide new bank capital to help recapitalise a bust banking system. Instead, he wants the government to buy their toxic debt and so leave the banks unreformed. On top he wanted complete discretion to act as he chose without any oversight.
American economists of every persuasion signed a joint letter complaining not at the aim of the bail out, which is plainly vital, but for its lack of fairness. Conservative papers and politicians echoed the complaint. Suddenly, Wall Street is coming back to earth. The transactions from which it skims such riches are built on the savings of ordinary Americans to whom it has obligations, as it has to other Wall Street firms. What we know now about the yet to be agreed compromise is that Paulson has accepted Congressional oversight, will offer direct help to distressed US homeowners as well as banks, and will accept some constraints on the worst excesses of executive pay.
But the core proposal remains. The government will buy toxic debt rather than inject government funds into the banks' capital base, in other words, reject even partially nationalising the entire US banking system as the Swedes had to in 1992. I don't know - nobody does - whether the Paulson plan would be sufficient or whether ultimately the Americans will have to go for nationalisation. What I do know is that unless there is a radical and government-led change in ownership, structure, regulation and incentives so that the principles of fairness are put at the heart of the Anglo American financial system - proportionality of reward and fair distribution of risk - there is no chance of the return of trust and integrity upon which long-term recovery depends.
The political debate in Britain and America so far little reflects this need - but it will. Barack Obama's election as President is much more likely. And the discourse in Britain will follow. Brown may be crampingly cautious but, unlike Cameron, he does understand that without government action the restoration of trust and fairness may never happen. This week, I expect the nationalisation of the stricken Bradford & Bingley to join Northern Rock. It is but another in a long sequence of interventions that are imperative to save the system from its own proclivities. Once again, the left is coming to capitalism's rescue.
Will Wall Street's Meltdown Turn America Into a Police State?
Go to Original
By Scott Thill
By Scott Thill
"Raw capitalism is dead." -- Henry Paulson, U.S. Treasury secretary
"Can’t we just all go out and say things are OK?" -- President Bush, to congressional leaders during bailout negotiations
I’m not much of an Army Times reader, but after reading that a brigade was shipping from Iraq in October to serve as "an on-call federal response force for natural or manmade emergencies and disasters, including terrorist attacks" in the homeland right before the election, my antennae perked up. Same as they did when I read that an electoral college doomsday scenario exists in which Dick Cheney casts the deciding vote that gives McCain-Palin the White House.
That is, if Cheney and Bush don’t take it for themselves. That may sound like fantasy, but don’t kill the messenger. They are all strands of the Gordian knot the Bush administration has tied around the neck of the American people for the last two presidential terms, best represented today by the failed bailout of banks, brokers and other complicit parties that have since jacked the American people out of trillions. And while the Army Times revelation or election doomsday may turn out to be paranoia rather than prescience, the evidence just isn’t there.
Like I said: antennae.
They’ve come in handy as bullshit detectors since Bush stole the election from a flat-footed Al Gore and set about engineering the greatest transfer of public wealth into private hands in American history. If you factor in Monday’s failed takeover, as well as the $5 trillion the American people now owe thanks to the "bailout" of Fannie Mae and Freddie Mac, not to mention the continuing hyper-expensive occupation of Iraq and so on, our citizenry is now so far in the hole that it’s pointless griping about numbers. If you want one, use the figure put forth by Dennis Kucinich: half a quadrillion dollars. We have evolved past the point of economic or geopolitical reality and entered a phase of pure concept.
And all vectors of that phase point toward the conclusion that the proverbial shit has totally hit the fan -- head on, and all over again.
Meet the New Rome, Same as the Old Rome
"Franklin Roosevelt had to save capitalism from itself," Los Angeles Times business editor Tom Petruno told me as Washington Mutual and Wachovia became the latest banking dominoes to fall. "Is history repeating?"
Indeed, it is, as one could tell from the repetitive usage of loaded terms and phrases like "Great Depression," "meltdown," "apocalypse," "Armageddon" and more to describe the just-on-time cratering of the American economy. After the strange bedfellows in both parties torpedoed Bush, Bernanke and Paulson’s so-called bailout, more than $1 trillion of market value in American equities disappeared in a single day. The Dow Jones average set a record for quickest suicide dive in a single day. Other indexes sunk to multiyear lows, wiping out years of value, and stocks across the board went negative like Ann Coulter. In fact, the only major stock that actually advanced on Monday was Campbell Soup.
Can there be a more fitting metaphor for the American economy stuck beneath the Bush administration’s thumb?
But the reruns, and their loaded terminology, are merging: Bush himself is just another iteration of the infamous "New World Order" instituted by his father while trying to, what else, convince the American public that it needed to go to war against Saddam Hussein. The revisionism is transparent, befitting a government that cares nothing of what its people actually think. Jon Stewart of "The Daily Show" recently juxtaposed Bush’s address on the financial cataclysm with his pre-invasion speech in 2003 and found -- surprise! -- they were exactly the same.
This is a long way of saying that this particularly frightening crux of historical geopolitics, fascism and environmental calamity has been a long time coming. Failing banks? Deregulation. Endless war? Homeland security. Total information awareness? Transparent government. Bankrupt economy? The fundamentals are strong.
"Here’s my question," Petruno adds. "If this is remembered as Black September, will that end up being too gentle a reference to what actually happened to the American financial system this month? It is beyond comprehension for people who have been on Wall Street their entire lives. I can only imagine how absolutely stunned the American public must be. Stunned, and very afraid."
It should be. From a military brigade armed for action in the homeland in blatant transgression of Posse Comitatus to what ex-hedge funder and financial personality Jim Cramer recently called "financial terrorism," the United States is pushing forward back.
To start with, the bailout was obvious theft, but our situation is more precarious than you think. The hyperreal credit default swap market, which few understand although it is estimated to involve tens if not hundreds of global trillions, is faltering under the weight of its own Ponzi origins. The scenario significantly worsens once you factor in the given that countries like China and others who have denominated their loans in dollars are shouldering our exploding debt, along with oil-soaked sovereign wealth funds from nations whose civil liberties records suck ass. As I wrote last year on this clusterfuck, if the Chinese call in our debts and oil-producing countries decide to peg their petrodollars to the euro, you can more or less kiss the dollar goodbye. Which means the last thing you’ll need to worry about is your stocks, retirement or credit cards. You will instead worry whether or not the cash you have on hand will be worth anything at all. That is the loaded gun that bankers, brokers and the White House is holding to the public’s head, as I write. That trillion erased on Monday, as well as the trillions that have been lost and will be lost in the coming months, was nothing more than a hostage situation engineered by the Bush administration, the Federal Reserve and their partners in crime in finance, insurance and real estate business.
They don’t call that sector FIRE for nothing. Fire destroys everything and leaves little in its catastrophic wake. Which raises the question: What’s left to burn?
"I think our economic situation can get much worse," argues Danny Schechter, the veteran producer and author whose 2006 indie documentary "In Debt We Trust" covered this volatile territory long before CNN would. "Jobless claims are already at a seven-year high, but the government is worried about the reaction from Asia. We are living on other countries’ money, and when that spigot gets cut off, we will be in deeper doo-doo. Part of the reason for the scale of the bailout is to show Asia and sovereign wealth funds that we will protect their interests."
But for how long? The Bush administration and Congress’ disdain for the American people has been painfully obvious, so it’s hard to believe they will call from sky-high Dubai to see how we are doing after making off with almost all of our money.
"It’s a high-stakes gamble, which is why Paulson tried to do it quickly in a climate of shock and crisis," Shechter says. "He knew that the longer it takes, the more opposition it will attract. This plan, if eventually passed, will pre-empt the next president from doing anything about it, because there will be no money. They are wrecking the government by wrecking the economy first."
That shock doctrine, as Naomi Klein explained in her brilliant book of the same name, has foisted this same kind of disaster capitalism on country after country over the last century. Klein’s book is littered with democracies that slept their way through coups and takeovers, entranced by one simulation or another. The United States was plugged into a matrix that onetime White House press secretary Ari Fleischer described as "an American way of life," adding without deceit that "it should be the goal of policy makers to protect the American way of life."
By destroying it? Mission accomplished.
"This is the September of surprise," Schechter concluded, "not a war on Iran but on America."
Civil War, the Rerun?
So, what’s the next step for the shoe yet to drop? Perhaps the Army Times has the clues:
(The brigade) may be called upon to help with civil unrest and crowd control or to deal with potentially horrific scenarios such as massive poisoning and chaos in response to a chemical, biological, radiological, nuclear or high-yield explosive, or CBRNE, attack. ... The 1st BCT’s soldiers also will learn how to use "the first ever nonlethal package that the Army has fielded," 1st BCT commander Col. Roger Cloutier said, referring to crowd and traffic control equipment and nonlethal weapons designed to subdue unruly or dangerous individuals without killing them.
Like every move the Bush administration has ever made, from the Patriot Act to the occupation of Iraq and down to bankrupting the American economy, this maneuver is a solution in search of a problem that it seems destined to create. Look around you. Housing is over. Stocks are nosediving. The banks are gone. War is ceaseless. Civil liberties are disappearing. Nerds at the Federal Reserve and the Treasury are taking hostages. It is madness.
And mad people have a tendency to infect everyone around them. The difference is that when you go mad ... well, that’s the question mark: What will happen?
Ask the late Iman Morales, who went crazy in Brooklyn on a ledge 10 feet above ground and was illegally tasered by New York police officers, eventually falling to his death, immobilized. A perfect metaphor for our economy, sure, but it’s also the type of literal shock we might be awaiting, as the November election creeps nearer and shit begins to hit the fan with ferocity. Many of us so-called alternative journos are not conspiracy nuts, but realists. We look at galvanizing leaders like Barack Obama, America’s next president, and compare his impact to that of Lincoln, Kennedy or King -- without forgetting that all three were eventually assassinated. We are the type of realists who live through two Bush presidents, both of whom configured a New World Order, with and without the approval of the American people and the world at large. The type of realists that notice that after 9/11, we couldn’t fly to Vegas, but Osama bin Laden’s family was flown out of the country on government charter.
And here is what we see today: Crowds protesting in the streets, the people’s money wiped out thanks to the Bush administration’s latest economic shock and awe. An army brigade matter-of-factly betraying Posse Comitatus for the purpose of crowd control. The public trust and wealth almost robbed cleanly with congressional approval.
In other words, we see another unfolding coup, which is to say, a rerun. And there is no telling what the future may hold, or whether or not we are connecting vectors that should remain solitary. But our math has worked just fine in the past -- better than Ben Bernanke and Henry Paulson’s math, that’s for sure.
And we’d love to be wrong about what’s coming. But unfortunately that isn’t up to us, and it never has been: It’s up to the Bush administration. And it has never failed to let us down.
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