Go to Original
By Eric Margolis
Those Wall Street financial alchemists who turned garbage into gold must have helped John McCain prepare for his debate with Barack Obama last Friday.
Senator McCain’s insistent claims that the US is winning the war in Iraq thanks to his "surge" strategy are the military-political equivalent of the junk securities that Wall Street’s shady financiers have been selling around the globe.
McCain successfully peddled this latest untruth about Iraq on Friday night with skill and verve. Sen. Barack Obama mostly let him get away with it. Obama should have skewered McCain over Iraq and all the lies he supported to ignite this unnecessary conflict. There is enough criminal behavior over the Iraq War to fill a phone book. Two out of three America’s think it was a terrible mistake.
But Obama’s gentle, professorial criticism of the Iraq war was tepid and ineffective, leaving McCain to capture the flag of patriotism with his reheated Cold War rhetoric.
Why didn’t Obama tell Americans that the ill-begotten Iraq War has played a key role in the nation’s current financial near-death experience?
Obama should also have riposted to McCain’s bombast over Georgia: "Senator McCain, are you ready to go to war with Russia over Georgia? That’s where your plans could lead."
The two candidates did reasonably well in the debates, and both emerged looking presidential. But McCain seized the jingoistic high ground by using carefully selected slogans like "victory" and "free world," and lambasting America’s favorite hobbyhorses, Iran’s Ahmadinejad and Russia’s Putin. The two vied over who could more fulsomely support Israel.
McCain’s claims that the US is heading toward victory in Iraq thanks to his inspired military leadership immediately recalled the epic words of Pyrrhus, King of Eprius. In 281 BC, after defeating a Roman army at Heraclea in an extremely bloody, hard-fought battle in which his forces suffered grave losses, Pyrrhus famously exclaimed, "one more such victory and we are ruined!"
The Red King of Epirus (modern Albania) might as well have been speaking of Iraq. Far from the victory described by McCain, the Roman historian Tacitus’s words are appropriate: "they make a desert and call it peace."
That is precisely what the US has so far done in Iraq, a small, devastated nation of only 25 million. After five years of war, over four thousand American GI’s are dead, and 30,000 seriously wounded (some figures say 75,000), many with incurable head injuries.
No one knows how many Iraqis have died, but estimates run as high as one million – and this does not include the 500,000 who died from hunger and disease as a result of the draconian US-led embargo of Iraq and the destruction of its national water purification and sewage system by the US Air Force in 1991.
The "surge," an addition of over 30,000 US troops to the Iraq conflict, was not the primary cause of the sharp drop in violence there over the past 12 months, as McCain claims, though it did play a supporting role.
The real reason for the drop in violence and attacks on US occupation forces lies in three other areas. First, ethnic cleansing. The US occupation quietly abetted the ethnic cleansing by Shia militias of millions of Sunni Iraqis. The US took yet another page from Israel’s West Bank occupation copybook by segregating off entire neighborhoods of Iraqi cities with high, concrete walls, and conducting round-the-clock house search operations.
Today, between four and five million Iraqis are either refugees in neighboring nations or internally displaced, one of the world’s biggest number of refugees. Most are Sunni Muslims. The United States is wholly responsible for this human disaster.
The US has done what it vowed to oppose: the partition of Iraq into three weak parts: Shia, Sunni, and Kurdish. There are now three Iraqi de facto mini-states. Breaking up Iraq and US-approved ethnic cleansing by Shia death squads – just the type of criminal behavior the US condemned in Bosnia and Kosovo – has put the damper on the Sunni-Shia conflict. But it has left Iraq a ruined state, with the Sunni region a no-man’s land, the Shia region dominated by Iran, and the Kurds under US and Israel tutelage.
Second, US occupation forces finally got smart and realized it’s cheaper to buy off your foes than try to kill them all. So the US now pays 80,000 Sunni gunmen, called Awakening Councils, to fight resistance forces. Attacks by al-Qaida fanatics in Iraq against fellow Sunnis opposing US occupation drove the more moderate resistance groups into the arms of the US.
But now, the US is handing control of these Sunni gunmen, which were patterned on death squads in El Salvador, over to Shia control. The US-armed Sunni militias who sought protection against Shia government forces by siding with the Americans are now likely to become a major new problem.
Third, the firebrand Shia militia leader, Muktada al-Sadr, whose ragtag Mehdi Army used to fight US forces, has gone to ground and ordered his gunmen to stack their arms. His volte-face reflects changes in internal Shia politics but also pressure from Iran which, fearing attack by the US, ordered Muktada to stop his attacks.
But less violence, at least for now, does not in any way mean victory. Polls show 75% of Iraqis want US troops to depart. Iraq remains a nation under foreign occupation. Its US-installed regime controls nothing but the Baghdad Green Zone. Real power remains in the hands of the Shia and Sunni militias, and the two Kurdish parties in their by now almost independent state. There is still no agreement on sharing oil.
The occupation is costing the US at least $10 billion per month, not counting depreciation, $67 billion replacement costs for equipment, and billions for medical care of wounded and veterans benefits. By the end of 2008, the supposed "cake walk" in Iraq will have cost US taxpayers $1 trillion, a good part of its borrowed from Japan and China, making it America’s second most expensive war in history.
Half the US Army is bogged down in Iraq. This war and Afghanistan have led the US ground and air forces "to the breaking point," in the words of senior American commanders. History shows that all occupation armies become brutalized, corrupted and demoralized.
At least 30,000 Iraqi prisoners are held by the US and routinely tortured or executed without trial. They should be considered political prisoners. Saddam Hussein’s prisons held less inmates. The brutality of the US occupation of Iraq has enraged the Muslim world against America and, according to US intelligence agencies, has created a whole new generation of anti-American militants.
The Bush administration’s torrent of lies about Iraq and ongoing occupation are seen around the globe as crude imperialism worthy of the 19th-century British Raj or old Soviet Union. Sen. Obama was at least right in the debate when he noted that America’s image is an important factor in national security. Today, America is hated around the globe, thank you George Bush and Dick Cheney.
Washington’s current plans to continue ruling Iraq by means of a puppet government and mercenary army backed by US air power are an attempt to copy the way the British Empire ruled Iraq and exploited its oil. But once most of the US forces are withdrawn, Iraq may dissolve once again into violence and chaos, or complete its process of splintering into three mini-states, inviting intervention from its covetous neighbors. Iran has already become the dominant power in eastern Iraq, and Turkey, hungry for Iraq’s oil, is watching menacingly.
I wish Obama had riposted: "Senator McCain, one more victory like this and America is ruined. You had better think about this as you and your neocon alter ego Joe Lieberman urge confrontation against Iran, Hezbullah, Pakistan, Taliban, al-Qaida, insubordinate Arabs, Russia and China."
PS: And don’t forget Venezuela, Cuba, Somalia, and Sudan.
Thursday, October 2, 2008
Ron Paul, Dennis Kucinich: 'Lipstick' off
Go to Original
By Mark Silva
The failure of the bailout, for now, perhaps, is "a teachable moment.'
Ron Paul and Dennis Kucinich are on top.
Let history record that, for one fleeting moment perhaps this week, the most anti-establishment candidates for either major parties' presidential nominations this year - two who stirred a lot of emotion but attracted few votes -- were riding the wave of the victorious majority of the House of Representatives.
They balked at the bailout.
Paul, the Republican congressman from Texas, delivered a scowling speech against the Bush administration's $700 billion bailout of the banks and other financial institutions stuck with bad mortgage debt on Monday - when it failed on the House floor by a vote of 229-205. And Kucinich, the Democratic congressman from Ohio, stood alongside him. Until now, opposition to the war in Iraq was largely what united these two occasional hotspurs of the political debate.
"The beneficiaries of the corrupt monetary system of the last three decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege,'' Paul argued on the House floor..
Kucinich calls this "a teachable moment'' in our times.
"Slowly, like the Titanic turning around, sentiments on the Hill shifted, and we heard congressmen capitulating and changing their tune a little, desperately trying to find ways to salvage the bailout without completely enraging their constituencies," Paul wrote on his Web site before the vote on the bailout, which he feared would succeed. "Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into.''
Inevitably, perhaps, the Bush administration will win some variant on the bailout, sweetened perhaps with some lures to make it more palatable to just a few holdouts in both parties.
"Lipstick on a bailout,'' Paul calls it.
But then, Paul and Kucinich will return to the vocal minority.
But for now, they are on top, and Kucinich's own explanation of the bailout, how the Treasury's purchase of $700 billion in bad mortgage debt - with money that ultimately the Treasury will have to borrow from the credit markets - is worth the reading, no matter what anyone thinks of the deal:
"Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system,'' Kucinich wrote in an email today.
"The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.
"Confused?
"This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.
"The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.
"Who could turn down a deal like this? I did.
"The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.
"Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized.
"We are at a teachable moment on matters of money and finance. In the coming days and weeks, I will share with you thoughts about what can be done to take us not just in a new direction, but in a new direction which is just.''
By Mark Silva
The failure of the bailout, for now, perhaps, is "a teachable moment.'
Ron Paul and Dennis Kucinich are on top.
Let history record that, for one fleeting moment perhaps this week, the most anti-establishment candidates for either major parties' presidential nominations this year - two who stirred a lot of emotion but attracted few votes -- were riding the wave of the victorious majority of the House of Representatives.
They balked at the bailout.
Paul, the Republican congressman from Texas, delivered a scowling speech against the Bush administration's $700 billion bailout of the banks and other financial institutions stuck with bad mortgage debt on Monday - when it failed on the House floor by a vote of 229-205. And Kucinich, the Democratic congressman from Ohio, stood alongside him. Until now, opposition to the war in Iraq was largely what united these two occasional hotspurs of the political debate.
"The beneficiaries of the corrupt monetary system of the last three decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege,'' Paul argued on the House floor..
Kucinich calls this "a teachable moment'' in our times.
"Slowly, like the Titanic turning around, sentiments on the Hill shifted, and we heard congressmen capitulating and changing their tune a little, desperately trying to find ways to salvage the bailout without completely enraging their constituencies," Paul wrote on his Web site before the vote on the bailout, which he feared would succeed. "Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into.''
Inevitably, perhaps, the Bush administration will win some variant on the bailout, sweetened perhaps with some lures to make it more palatable to just a few holdouts in both parties.
"Lipstick on a bailout,'' Paul calls it.
But then, Paul and Kucinich will return to the vocal minority.
But for now, they are on top, and Kucinich's own explanation of the bailout, how the Treasury's purchase of $700 billion in bad mortgage debt - with money that ultimately the Treasury will have to borrow from the credit markets - is worth the reading, no matter what anyone thinks of the deal:
"Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system,'' Kucinich wrote in an email today.
"The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.
"Confused?
"This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.
"The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.
"Who could turn down a deal like this? I did.
"The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.
"Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized.
"We are at a teachable moment on matters of money and finance. In the coming days and weeks, I will share with you thoughts about what can be done to take us not just in a new direction, but in a new direction which is just.''
Bailout alternative offered by House Dems
Go to Original
By Frank James
You know the failed but still alive $700 billion bailout proposal has scrambled politics in the nation's capital when a fairly liberal member of Congress offers a solution to the financial-markets crisis that looks like something a Reagan Administration official created.
Actually that's exactly who created it. Rep. Peter DeFazio, an Oregon Democrat, took the ideas of William Isaac, who served as Federal Deposit Insurance Corp. chairman during the Reagan Administration and created legislation meant to help the capsizing financial markets right themselves.
DeFazio, a vociferous opponent of the Bush Administration's $700 billion Wall Street bailout, calls his legislation the "No BAILOUTS Act" and he talked about it today at a Capitol Hill press conference. He was joined by several other House Democrats:
And the underlying concern we all share is, we question the Paulson premise.
That is that giving him 700, borrowing or printing $700 billion, giving it to him and having him buy bad assets, on Wall Street,somehow will solve the interbank loan problem and even less likely the underlying problems of the economy.
And the interesting thing is 400 economists last week questioned that premise. That was brushed off. But if you read today's New York Times, at the point in which the world market thought we were going to adopt the Paulson plan and roll over, it says here, "Other analysts noted that credit markets around the world were almost entirely dysfunctional on Monday morning when political leaders and investors alike assumed Congress had reached a firm deal and would easily approve the bailout." It goes on from there with some detail.
The point is the premise is faulty. And as much as the Democratic leadership has tried to improve it, it still is likely to fail. So we have an alternative. And we would like to talk a little bit about that today and then we're going to have further discussion from other members.
If there's a no-cost or low-cost alternative available for the taxpayers, we should take it. And we have a working paper -- it's not done yet. I'm going to be talking to Darrell Issa on the Republican side and John Shadegg later today. This is a common set of points we have so far, but it's a work in progress. We've tentatively called it the "No BAILOUTS Act" which would be bringing accounting, increased liquidity, oversight and upholding taxpayer security. You have to start with a spiffy name around here. We'll work out the details later. (Laughter.)
But the point is, folks would like to come together on something that doesn't put the taxpayers at risk. That's a common theme among members both who voted for the bill and who voted against the bill. Don't put the taxpayers at risk. The protections in that bill yesterday were nonexistent, in terms of the taxpayers.
So we're saying here, let's try a different approach....
The part of the legislation pretty much anyone would understand immediately is an increase in the size of bank deposits that are federally insured, from $250,000 from $100,000.
The bill would also mandate a new program meant to buttress eligible banks by allowing them to receive "net worth certificates" from the FDIC. Those certificates wuld count towards the banks' capital requirements, a form of borrowing that would increase their liquidity, the money they'd have on hand. The idea was used during the 1980s to recapitalize lending institutions to great effect.
There'd be other technical changes. The bill would change how banks and other financial companies account for their mortgage-backed securities, permitting them to value them not at what they could fetch in the market, which right now is nothing, but at a higher amount based on the "economic value" they could later receive.
It would also make changes to the practice of selling stocks short, that is borrowing a stock whose price you think is going to drop, selling it, then buying it back at the lower price to give back to the owner, while pocketing the profits.
The practice of selling the stock without first borrowing it is already illegal. But somehow DeFazio's legislation would make it more illegal. Not sure how that's going to work.
And it would end the uptick rule which require short sellers to sell stock on the "uptick" which, oversimplified, means the short seller would have to sell when the stock price ticked up, a rule meant to protect stocks from being driven into the ground by short sellers.
The beauty of it from DeFazio's perspective is that his bill wouldn't require taxpayer money to implement.
Here's the summary DeFazio provided reporters:
No BAILOUTS Act
Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security
1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.
2) Require the Securities and Exchange Commission to restricting naked short sells permanently
This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.
3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.
This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.
3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.
This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.
4) "Net Worth Certificate Program"
This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.
In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.
5) Increase the FDIC Insurance limit from $100,000 to $250,000.
The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.
By Frank James
You know the failed but still alive $700 billion bailout proposal has scrambled politics in the nation's capital when a fairly liberal member of Congress offers a solution to the financial-markets crisis that looks like something a Reagan Administration official created.
Actually that's exactly who created it. Rep. Peter DeFazio, an Oregon Democrat, took the ideas of William Isaac, who served as Federal Deposit Insurance Corp. chairman during the Reagan Administration and created legislation meant to help the capsizing financial markets right themselves.
DeFazio, a vociferous opponent of the Bush Administration's $700 billion Wall Street bailout, calls his legislation the "No BAILOUTS Act" and he talked about it today at a Capitol Hill press conference. He was joined by several other House Democrats:
And the underlying concern we all share is, we question the Paulson premise.
That is that giving him 700, borrowing or printing $700 billion, giving it to him and having him buy bad assets, on Wall Street,somehow will solve the interbank loan problem and even less likely the underlying problems of the economy.
And the interesting thing is 400 economists last week questioned that premise. That was brushed off. But if you read today's New York Times, at the point in which the world market thought we were going to adopt the Paulson plan and roll over, it says here, "Other analysts noted that credit markets around the world were almost entirely dysfunctional on Monday morning when political leaders and investors alike assumed Congress had reached a firm deal and would easily approve the bailout." It goes on from there with some detail.
The point is the premise is faulty. And as much as the Democratic leadership has tried to improve it, it still is likely to fail. So we have an alternative. And we would like to talk a little bit about that today and then we're going to have further discussion from other members.
If there's a no-cost or low-cost alternative available for the taxpayers, we should take it. And we have a working paper -- it's not done yet. I'm going to be talking to Darrell Issa on the Republican side and John Shadegg later today. This is a common set of points we have so far, but it's a work in progress. We've tentatively called it the "No BAILOUTS Act" which would be bringing accounting, increased liquidity, oversight and upholding taxpayer security. You have to start with a spiffy name around here. We'll work out the details later. (Laughter.)
But the point is, folks would like to come together on something that doesn't put the taxpayers at risk. That's a common theme among members both who voted for the bill and who voted against the bill. Don't put the taxpayers at risk. The protections in that bill yesterday were nonexistent, in terms of the taxpayers.
So we're saying here, let's try a different approach....
The part of the legislation pretty much anyone would understand immediately is an increase in the size of bank deposits that are federally insured, from $250,000 from $100,000.
The bill would also mandate a new program meant to buttress eligible banks by allowing them to receive "net worth certificates" from the FDIC. Those certificates wuld count towards the banks' capital requirements, a form of borrowing that would increase their liquidity, the money they'd have on hand. The idea was used during the 1980s to recapitalize lending institutions to great effect.
There'd be other technical changes. The bill would change how banks and other financial companies account for their mortgage-backed securities, permitting them to value them not at what they could fetch in the market, which right now is nothing, but at a higher amount based on the "economic value" they could later receive.
It would also make changes to the practice of selling stocks short, that is borrowing a stock whose price you think is going to drop, selling it, then buying it back at the lower price to give back to the owner, while pocketing the profits.
The practice of selling the stock without first borrowing it is already illegal. But somehow DeFazio's legislation would make it more illegal. Not sure how that's going to work.
And it would end the uptick rule which require short sellers to sell stock on the "uptick" which, oversimplified, means the short seller would have to sell when the stock price ticked up, a rule meant to protect stocks from being driven into the ground by short sellers.
The beauty of it from DeFazio's perspective is that his bill wouldn't require taxpayer money to implement.
Here's the summary DeFazio provided reporters:
No BAILOUTS Act
Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security
1) Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.
This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.
2) Require the Securities and Exchange Commission to restricting naked short sells permanently
This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.
3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.
This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.
3) Require the Securities and Exchange Commission to restore the up-tick rule permanently.
This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.
4) "Net Worth Certificate Program"
This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.
Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.
In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.
5) Increase the FDIC Insurance limit from $100,000 to $250,000.
The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.
Wall Street Bailout
Go to Original
The Senate approved a $700 billion Wall Street bailout. Senator Bernie Sanders voted against the bill that would put Wall Street’s burden on the backs of the American middle class. “The bailout package is far better than the absurd proposal originally presented to us by the Bush administration, but is still short of where we should be,” Sanders said. “If a bailout is needed, if taxpayer money must be placed at risk, if we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from President Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation who should pick up the tab, not ordinary working people.”
Sanders proposed a five-year, 10 percent surtax on families with incomes of more than $1 million year and individuals earning over $500,00 to raise $300 billion to help bankroll the bailout. Senators, however, set aside the amendment on a voice vote.
In a Senate floor speech, Sanders elaborated on the bailout bill’s flaws:
"This country faces many serious problems in the financial market, in the stock market, in our economy. We must act, but we must act in a way that improves the situation. We can do better than the legislation now before Congress.
"This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight because the oversight board members have all been hand picked by the Bush administration. This bill does not effectively deal with the issue of foreclosures and addressing that very serious issue, which is impacting millions of low- and moderate-income Americans in the aggressive, effective way that we should be. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.
"This bill does not deal at all with how we got into this crisis in the first place and the need to undo the deregulatory fervor which created trillions of dollars in complicated and unregulated financial instruments such as credit default swaps and hedge funds. This bill does not address the issue that has taken us to where we are today, the concept of too big to fail. In fact, within the last several weeks we have sat idly by and watched gigantic financial institutions like the Bank of America swallow up other gigantic financial institutions like Countrywide and Merrill Lynch. Well, who is going to bail out the Bank of America if it begins to fail? There is not one word about the issue of too big to fail in this legislation at a time when that problem is in fact becoming even more serious.
"This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I'm the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I'm the only person in America who thinks that's a little bit weird, but that is what I think.
"This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.
"There is one issue that is even more profound and more basic than everything else that I have mentioned, and that is if a bailout is needed, if taxpayer money must be placed at risk, whose money should it be? In other words, who should be paying for this bailout which has been caused by the greed and recklessness of Wall Street operatives who have made billions in recent years?
"The American people are bitter. They are angry, and they are confused. Over the last seven and a half year, since George W. Bush has been President, 6 million Americans have slipped out of the middle class and are in poverty, and today working families are lining up at emergency food shelves in order to get the food they need to feed their families. Since President Bush has been in office, median family income for working-age families has declined by over $2,000. More than seven million Americans have lost their health insurance. Over four million have lost their pensions. Consumer debt has more than doubled. And foreclosures are the highest on record. Meanwhile, the cost of energy, food, health care, college and other basic necessities has soared.
"While the middle class has declined under President Bush's reckless economic policies, the people on top have never had it so good. For the first seven years of Bush's tenure, the wealthiest 400 individuals in our country saw a $670 billion increase in their wealth, and at the end of 2007 owned over $1.5 trillion in wealth. That is just 400 families, a $670 billion increase in wealth since Bush has been in office.
"In our country today, we have the most unequal distribution of income and wealth of any major country on earth, with the top 1 percent earning more income than the bottom 50 percent and the top 1 percent owning more wealth than the bottom 90 percent. We are living at a time when we have seen a massive transfer of wealth from the middle class to the very wealthiest people in this country, when, among others, CEOs of Wall Street firms received unbelievable amounts in bonuses, including $39 billion in bonuses in the year 2007 alone for just the five major investment houses. We have seen the incredible greed of the financial services industry manifested in the hundreds of millions of dollars they have spent on campaign contributions and lobbyists in order to deregulate their industry so that hedge funds and other unregulated financial institutions could flourish. We have seen them play with trillions and trillions dollars in esoteric financial instruments, in unregulated industries which no more than a handful of people even understand. We have seen the financial services industry charge 30 percent interest rates on credit card loans and tack on outrageous late fees and other costs to unsuspecting customers. We have seen them engaged in despicable predatory lending practices, taking advantage of the vulnerable and the uneducated. We have seen them send out billions of deceptive solicitations to almost every mailbox in America.
"Most importantly, we have seen the financial services industry lure people into mortgages they could not afford to pay, which is one of the basic reasons why we are here tonight.
"In the midst of all of this, we have a bailout package which says to the middle class that you are being asked to place at risk $700 billion, which is $2,200 for every man, woman, and child in this country. You're being asked to do that in order to undo the damage caused by this excessive Wall Street greed. In other words, the “Masters of the Universe,” those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse. Now, as the American and world financial systems teeter on the edge of a meltdown, these multimillionaires are demanding that the middle class, which has already suffered under Bush's disastrous economic policies, pick up the pieces that they broke. That is wrong, and that is something that I will not support.
"If we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people. I introduced an amendment which gave the Senate a very clear choice. We can pay for this bailout of Wall Street by asking people all across this country, small businesses on Main Street, homeowners on Maple Street, elderly couples on Oak Street, college students on Campus Avenue, working families on Sunrise Lane, we can ask them to pay for this bailout. That is one way we can go. Or, we can ask the people who have gained the most from the spasm of greed, the people whose incomes have been soaring under president bush, to pick up the tab.
"I proposed to raise the tax rate on any individual earning $500,000 a year or more or any family earning $1 million a year or more by 10 percent. That increase in the tax rate, from 35 percent to 45 percent, would raise more than $300 billion in the next five years, almost half the cost of the bailout. If what all the supporters of this legislation say is correct, that the government will get back some of its money when the market calms down and the government sells some of the assets it has purchased, then $300 billion should be sufficient to make sure that 99.7 percent of taxpayers do not have to pay one nickel for this bailout.
"Most of my constituents did not earn a $38 million bonus in 2005 or make over $100 million in total compensation in three years, as did Henry Paulson, the current secretary of the Treasury, and former CEO of Goldman Sachs. Most of my constituents did not make $354 million in total compensation over the past five years as did Richard Fuld of Lehman Brothers. Most of my constituents did not cash out $60 million in stock after a $29 billion bailout for Bear Stearns after that failing company was bought out by J.P. Morgan Chase. Most of my constituents did not get a $161 million severance package as E. Stanley O'Neill, former CEO Merrill Lynch did.
"Last week I placed on my Web site, www.sanders.senate.gov, a letter to Secretary Paulson in support of my amendment. It said that it should be those people best able to pay for this bailout, those people who have made out like bandits in recent years, they should be asked to pay for this bailout. It should not be the middle class. To my amazement, some 48,000 people cosigned this petition, and the names keep coming in. The message is very simple: “We had nothing to do with causing this bailout. We are already under economic duress. Go to those people who have made out like bandits. Go to those people who have caused this crisis and ask them to pay for the bailout.”
"The time has come to assure our constituents in Vermont and all over this country that we are listening and understand their anger and their frustration. The time has come to say that we have the courage to stand up to all of the powerful financial institution lobbyists who are running amok all over the Capitol building, from the Chamber of Commerce to the American Bankers Association, to the Business Roundtable, all of these groups who make huge campaign contributions, spend all kinds of money on lobbyists, they're here loud and clear. They don't want to pay for this bailout, they want middle America to pay for it."
The Senate approved a $700 billion Wall Street bailout. Senator Bernie Sanders voted against the bill that would put Wall Street’s burden on the backs of the American middle class. “The bailout package is far better than the absurd proposal originally presented to us by the Bush administration, but is still short of where we should be,” Sanders said. “If a bailout is needed, if taxpayer money must be placed at risk, if we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from President Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation who should pick up the tab, not ordinary working people.”
Sanders proposed a five-year, 10 percent surtax on families with incomes of more than $1 million year and individuals earning over $500,00 to raise $300 billion to help bankroll the bailout. Senators, however, set aside the amendment on a voice vote.
In a Senate floor speech, Sanders elaborated on the bailout bill’s flaws:
"This country faces many serious problems in the financial market, in the stock market, in our economy. We must act, but we must act in a way that improves the situation. We can do better than the legislation now before Congress.
"This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight because the oversight board members have all been hand picked by the Bush administration. This bill does not effectively deal with the issue of foreclosures and addressing that very serious issue, which is impacting millions of low- and moderate-income Americans in the aggressive, effective way that we should be. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.
"This bill does not deal at all with how we got into this crisis in the first place and the need to undo the deregulatory fervor which created trillions of dollars in complicated and unregulated financial instruments such as credit default swaps and hedge funds. This bill does not address the issue that has taken us to where we are today, the concept of too big to fail. In fact, within the last several weeks we have sat idly by and watched gigantic financial institutions like the Bank of America swallow up other gigantic financial institutions like Countrywide and Merrill Lynch. Well, who is going to bail out the Bank of America if it begins to fail? There is not one word about the issue of too big to fail in this legislation at a time when that problem is in fact becoming even more serious.
"This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I'm the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I'm the only person in America who thinks that's a little bit weird, but that is what I think.
"This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.
"There is one issue that is even more profound and more basic than everything else that I have mentioned, and that is if a bailout is needed, if taxpayer money must be placed at risk, whose money should it be? In other words, who should be paying for this bailout which has been caused by the greed and recklessness of Wall Street operatives who have made billions in recent years?
"The American people are bitter. They are angry, and they are confused. Over the last seven and a half year, since George W. Bush has been President, 6 million Americans have slipped out of the middle class and are in poverty, and today working families are lining up at emergency food shelves in order to get the food they need to feed their families. Since President Bush has been in office, median family income for working-age families has declined by over $2,000. More than seven million Americans have lost their health insurance. Over four million have lost their pensions. Consumer debt has more than doubled. And foreclosures are the highest on record. Meanwhile, the cost of energy, food, health care, college and other basic necessities has soared.
"While the middle class has declined under President Bush's reckless economic policies, the people on top have never had it so good. For the first seven years of Bush's tenure, the wealthiest 400 individuals in our country saw a $670 billion increase in their wealth, and at the end of 2007 owned over $1.5 trillion in wealth. That is just 400 families, a $670 billion increase in wealth since Bush has been in office.
"In our country today, we have the most unequal distribution of income and wealth of any major country on earth, with the top 1 percent earning more income than the bottom 50 percent and the top 1 percent owning more wealth than the bottom 90 percent. We are living at a time when we have seen a massive transfer of wealth from the middle class to the very wealthiest people in this country, when, among others, CEOs of Wall Street firms received unbelievable amounts in bonuses, including $39 billion in bonuses in the year 2007 alone for just the five major investment houses. We have seen the incredible greed of the financial services industry manifested in the hundreds of millions of dollars they have spent on campaign contributions and lobbyists in order to deregulate their industry so that hedge funds and other unregulated financial institutions could flourish. We have seen them play with trillions and trillions dollars in esoteric financial instruments, in unregulated industries which no more than a handful of people even understand. We have seen the financial services industry charge 30 percent interest rates on credit card loans and tack on outrageous late fees and other costs to unsuspecting customers. We have seen them engaged in despicable predatory lending practices, taking advantage of the vulnerable and the uneducated. We have seen them send out billions of deceptive solicitations to almost every mailbox in America.
"Most importantly, we have seen the financial services industry lure people into mortgages they could not afford to pay, which is one of the basic reasons why we are here tonight.
"In the midst of all of this, we have a bailout package which says to the middle class that you are being asked to place at risk $700 billion, which is $2,200 for every man, woman, and child in this country. You're being asked to do that in order to undo the damage caused by this excessive Wall Street greed. In other words, the “Masters of the Universe,” those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse. Now, as the American and world financial systems teeter on the edge of a meltdown, these multimillionaires are demanding that the middle class, which has already suffered under Bush's disastrous economic policies, pick up the pieces that they broke. That is wrong, and that is something that I will not support.
"If we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people. I introduced an amendment which gave the Senate a very clear choice. We can pay for this bailout of Wall Street by asking people all across this country, small businesses on Main Street, homeowners on Maple Street, elderly couples on Oak Street, college students on Campus Avenue, working families on Sunrise Lane, we can ask them to pay for this bailout. That is one way we can go. Or, we can ask the people who have gained the most from the spasm of greed, the people whose incomes have been soaring under president bush, to pick up the tab.
"I proposed to raise the tax rate on any individual earning $500,000 a year or more or any family earning $1 million a year or more by 10 percent. That increase in the tax rate, from 35 percent to 45 percent, would raise more than $300 billion in the next five years, almost half the cost of the bailout. If what all the supporters of this legislation say is correct, that the government will get back some of its money when the market calms down and the government sells some of the assets it has purchased, then $300 billion should be sufficient to make sure that 99.7 percent of taxpayers do not have to pay one nickel for this bailout.
"Most of my constituents did not earn a $38 million bonus in 2005 or make over $100 million in total compensation in three years, as did Henry Paulson, the current secretary of the Treasury, and former CEO of Goldman Sachs. Most of my constituents did not make $354 million in total compensation over the past five years as did Richard Fuld of Lehman Brothers. Most of my constituents did not cash out $60 million in stock after a $29 billion bailout for Bear Stearns after that failing company was bought out by J.P. Morgan Chase. Most of my constituents did not get a $161 million severance package as E. Stanley O'Neill, former CEO Merrill Lynch did.
"Last week I placed on my Web site, www.sanders.senate.gov, a letter to Secretary Paulson in support of my amendment. It said that it should be those people best able to pay for this bailout, those people who have made out like bandits in recent years, they should be asked to pay for this bailout. It should not be the middle class. To my amazement, some 48,000 people cosigned this petition, and the names keep coming in. The message is very simple: “We had nothing to do with causing this bailout. We are already under economic duress. Go to those people who have made out like bandits. Go to those people who have caused this crisis and ask them to pay for the bailout.”
"The time has come to assure our constituents in Vermont and all over this country that we are listening and understand their anger and their frustration. The time has come to say that we have the courage to stand up to all of the powerful financial institution lobbyists who are running amok all over the Capitol building, from the Chamber of Commerce to the American Bankers Association, to the Business Roundtable, all of these groups who make huge campaign contributions, spend all kinds of money on lobbyists, they're here loud and clear. They don't want to pay for this bailout, they want middle America to pay for it."
The Ho Chi Minh trail leads to Baghdad
Go to Original
By Muhammad Cohen
John McCain's unwavering support for the Iraq war shows he has failed to learn the lessons of Vietnam
John McCain is trying to win the war in Vietnam on the streets on Baghdad. When asked in Friday's presidential debate to identify the lessons of Iraq, he reminded voters that he missed the lessons of Vietnam. "I think the lessons of Iraq are very clear that you cannot have a failed strategy that will then cause you to nearly lose a conflict," he said.
McCain still believes that in Iraq and Vietnam the problem was the wrong strategy, not the wrong war. It may be the last thing in this campaign McCain says that's true to his core beliefs and record, but he's wrong. Dead wrong.
As Jeffrey Goldberg reports in his cover story in the October issue of the Atlantic, McCain believes that Vietnam was winnable, and that politicians lost that war because they didn't let the military do its job. If only they would have let him and his fellow Navy flyers bomb North Vietnam back to the Stone Age, the US could have prevailed.
Colin Powell, who served two terms in Vietnam as mid-level officer, admits he too was troubled by his Vietnam experience. That led him to formulate the Powell Doctrine, eight questions to be answered before the US takes military action. The Iraq invasion failed at least six of the eight tests, including "Is a vital US security interest threatened?" and "Have the consequences of our action been fully considered?" After opposing an attack on Iraq from the dawn of the Bush administration, Powell got dragged along out of the loyalty to the president, but sees his support for the war as "a blot" on his record.
In contrast, McCain was a cheerleader for the Iraq invasion, remains proud of it and hasn't learned a thing that will help him make the right decision when the next war of choice comes along. "There is no such thing as containment," he tells Goldberg, underscoring the frightening doctrine of pre-emptive war while confirming his aversion to reflection and his Vietnam obsession.
McCain doesn't understand lesson number one of Vietnam: you can't win a political war with foreign military troops. Whatever the war in Iraq began as, it's a political war now. The presence of US troops undermines the legitimacy and appeal of the Iraqi government that needs to win hearts and minds to stop the violence and build credibility.
McCain claims that his troop surge strategy was successful, yet he denies the one metric that would indicate success. The surge was intended to provide a lull in violence that would enable Iraqis to get their political house in order. It may have been naïve to think they could do it in a few months after four years of dithering. The great irony is that Iraqis now say they're ready to stand on their own and want the US to leave, precisely the goal of the surge. But McCain and US military brass say the Iraqis aren't ready. The Bush administration has agreed to a 2011 deadline for withdrawal, but McCain can't even reconcile himself to that distant date. In the debate, he pretended that there is no timetable, no effective Iraqi government, and that Americans alone will determine when, if ever, they leave Iraq.
McCain tried to tie the war in Iraq to the fighting in Afghanistan and to Bush's global war on terrorism. Vietnam taught the lesson that not every conflict fits into the global struggle of the moment. In the 1960s, the US was deep in its cold war against the Soviet Union. The North Vietnamese government called itself communist, but fighting in Vietnam did the US more harm than good in its struggle with the Soviets, costing the US status and goodwill around the world. Developing countries rejected US aid programmes such as the Peace Corps over Vietnam, and US allies had to moderate their support in the face of strong domestic antiwar sentiment. Similarly, the US invasion of Iraq has made it harder for those who share US values, including moderates in the Muslim world, to stand up to radicals. The Iraq fiasco has given solid evidence to support the worst accusations of America's enemies.
Republicans also persist with their myth that fighting in Iraq helps keep the US homeland safe. This is moronic. The invasion created new enemies for the US, and every day that the US stays in Iraq is one more day terrorist recruiters can say the US occupies a Muslim country that it invaded without justification. But that's not the worst of it.
As Barack Obama pointed out during the debate, in the midst of the Wall Street crisis, the US is still spending $10bn a month in Iraq. Vietnam demonstrated that the US couldn't have guns and butter without consequences. President Lyndon Johnson tried to press ahead with his Great Society agenda while escalating in Vietnam. He wound up resurrecting the deadly beast of inflation and saw his other war, the war on poverty, mired in the swamps of the Mekong Delta.
Vietnam also demonstrated that even wars in faraway places that don't directly threaten the US carry grave risks at home. Because of the military draft and far larger number of US troops involved, Vietnam polarised the country. That hasn't happened over Iraq, at least not yet. Republicans like to scream class warfare whenever anyone questions the innate wisdom of tax cuts for rich. But the US risks real class warfare waging the Iraq war with a volunteer force comprised largely of poor people and compels re-enlistments through obscure contract clauses, while troops' parents lose their homes and pay more taxes so the government can rescue big banks and politicians' egos.
It's understandable that McCain missed the lessons of Vietnam at home because, as he said during a Republican primary debate in response to a question about skipping Woodstock: "I was tied up." McCain can be excused for not understanding what he didn't live through. But he remains haunted by what he did live through. "A war that I was in, where we had an army, that it wasn't through any fault of their own, but they were defeated," he said at Friday's debate. "And I know how hard it is for an army and a military to recover from that. And it did, and we will win this one, and we won't come home in defeat and dishonour and probably have to go back if we fail."
McCain is trying to win in Iraq to wipe away that defeat. It's to his credit that Lieutenant Commander McCain was willing to put life on the line to win in Vietnam. But there's nothing honourable about senator or President McCain committing unlimited numbers of other lives to defeat Ho Chi Minh now on whatever battlefield he can find.
What McCain should have learned from his Vietnam experience, as Colin Powell did, is that the US needs to choose its fights carefully. Even miles offshore and hundreds of metres in the air, there's no safe or easy war. Yet, last month, McCain was seemingly spoiling for a fight with the Russians over Georgia, even though a third combat front for the US military would be a nightmare scenario. In the past, he's sung about bombing Iran as if it's a laughing matter. When George Bush blustered "Bring it on", he just didn't know better. McCain has no excuse.
McCain and his supporters are right that it's now pointless to debate the wisdom of invading Iraq, just as it's pointless to debate sending 535,000 US troops to Vietnam. History has judged McCain wrong on both fronts. Voters need to ask which presidential candidate has learned history's lessons to avoid the next mistake. With Hanoi's Red River dykes still in his bomb sights, McCain is ready to grasp with both hands, not the lessons of the Vietnam, but the next tar baby our dangerous times produce. Rather than slay his Vietnam demons, McCain appears destined for the fate of those who don't learn from history.
By Muhammad Cohen
John McCain's unwavering support for the Iraq war shows he has failed to learn the lessons of Vietnam
John McCain is trying to win the war in Vietnam on the streets on Baghdad. When asked in Friday's presidential debate to identify the lessons of Iraq, he reminded voters that he missed the lessons of Vietnam. "I think the lessons of Iraq are very clear that you cannot have a failed strategy that will then cause you to nearly lose a conflict," he said.
McCain still believes that in Iraq and Vietnam the problem was the wrong strategy, not the wrong war. It may be the last thing in this campaign McCain says that's true to his core beliefs and record, but he's wrong. Dead wrong.
As Jeffrey Goldberg reports in his cover story in the October issue of the Atlantic, McCain believes that Vietnam was winnable, and that politicians lost that war because they didn't let the military do its job. If only they would have let him and his fellow Navy flyers bomb North Vietnam back to the Stone Age, the US could have prevailed.
Colin Powell, who served two terms in Vietnam as mid-level officer, admits he too was troubled by his Vietnam experience. That led him to formulate the Powell Doctrine, eight questions to be answered before the US takes military action. The Iraq invasion failed at least six of the eight tests, including "Is a vital US security interest threatened?" and "Have the consequences of our action been fully considered?" After opposing an attack on Iraq from the dawn of the Bush administration, Powell got dragged along out of the loyalty to the president, but sees his support for the war as "a blot" on his record.
In contrast, McCain was a cheerleader for the Iraq invasion, remains proud of it and hasn't learned a thing that will help him make the right decision when the next war of choice comes along. "There is no such thing as containment," he tells Goldberg, underscoring the frightening doctrine of pre-emptive war while confirming his aversion to reflection and his Vietnam obsession.
McCain doesn't understand lesson number one of Vietnam: you can't win a political war with foreign military troops. Whatever the war in Iraq began as, it's a political war now. The presence of US troops undermines the legitimacy and appeal of the Iraqi government that needs to win hearts and minds to stop the violence and build credibility.
McCain claims that his troop surge strategy was successful, yet he denies the one metric that would indicate success. The surge was intended to provide a lull in violence that would enable Iraqis to get their political house in order. It may have been naïve to think they could do it in a few months after four years of dithering. The great irony is that Iraqis now say they're ready to stand on their own and want the US to leave, precisely the goal of the surge. But McCain and US military brass say the Iraqis aren't ready. The Bush administration has agreed to a 2011 deadline for withdrawal, but McCain can't even reconcile himself to that distant date. In the debate, he pretended that there is no timetable, no effective Iraqi government, and that Americans alone will determine when, if ever, they leave Iraq.
McCain tried to tie the war in Iraq to the fighting in Afghanistan and to Bush's global war on terrorism. Vietnam taught the lesson that not every conflict fits into the global struggle of the moment. In the 1960s, the US was deep in its cold war against the Soviet Union. The North Vietnamese government called itself communist, but fighting in Vietnam did the US more harm than good in its struggle with the Soviets, costing the US status and goodwill around the world. Developing countries rejected US aid programmes such as the Peace Corps over Vietnam, and US allies had to moderate their support in the face of strong domestic antiwar sentiment. Similarly, the US invasion of Iraq has made it harder for those who share US values, including moderates in the Muslim world, to stand up to radicals. The Iraq fiasco has given solid evidence to support the worst accusations of America's enemies.
Republicans also persist with their myth that fighting in Iraq helps keep the US homeland safe. This is moronic. The invasion created new enemies for the US, and every day that the US stays in Iraq is one more day terrorist recruiters can say the US occupies a Muslim country that it invaded without justification. But that's not the worst of it.
As Barack Obama pointed out during the debate, in the midst of the Wall Street crisis, the US is still spending $10bn a month in Iraq. Vietnam demonstrated that the US couldn't have guns and butter without consequences. President Lyndon Johnson tried to press ahead with his Great Society agenda while escalating in Vietnam. He wound up resurrecting the deadly beast of inflation and saw his other war, the war on poverty, mired in the swamps of the Mekong Delta.
Vietnam also demonstrated that even wars in faraway places that don't directly threaten the US carry grave risks at home. Because of the military draft and far larger number of US troops involved, Vietnam polarised the country. That hasn't happened over Iraq, at least not yet. Republicans like to scream class warfare whenever anyone questions the innate wisdom of tax cuts for rich. But the US risks real class warfare waging the Iraq war with a volunteer force comprised largely of poor people and compels re-enlistments through obscure contract clauses, while troops' parents lose their homes and pay more taxes so the government can rescue big banks and politicians' egos.
It's understandable that McCain missed the lessons of Vietnam at home because, as he said during a Republican primary debate in response to a question about skipping Woodstock: "I was tied up." McCain can be excused for not understanding what he didn't live through. But he remains haunted by what he did live through. "A war that I was in, where we had an army, that it wasn't through any fault of their own, but they were defeated," he said at Friday's debate. "And I know how hard it is for an army and a military to recover from that. And it did, and we will win this one, and we won't come home in defeat and dishonour and probably have to go back if we fail."
McCain is trying to win in Iraq to wipe away that defeat. It's to his credit that Lieutenant Commander McCain was willing to put life on the line to win in Vietnam. But there's nothing honourable about senator or President McCain committing unlimited numbers of other lives to defeat Ho Chi Minh now on whatever battlefield he can find.
What McCain should have learned from his Vietnam experience, as Colin Powell did, is that the US needs to choose its fights carefully. Even miles offshore and hundreds of metres in the air, there's no safe or easy war. Yet, last month, McCain was seemingly spoiling for a fight with the Russians over Georgia, even though a third combat front for the US military would be a nightmare scenario. In the past, he's sung about bombing Iran as if it's a laughing matter. When George Bush blustered "Bring it on", he just didn't know better. McCain has no excuse.
McCain and his supporters are right that it's now pointless to debate the wisdom of invading Iraq, just as it's pointless to debate sending 535,000 US troops to Vietnam. History has judged McCain wrong on both fronts. Voters need to ask which presidential candidate has learned history's lessons to avoid the next mistake. With Hanoi's Red River dykes still in his bomb sights, McCain is ready to grasp with both hands, not the lessons of the Vietnam, but the next tar baby our dangerous times produce. Rather than slay his Vietnam demons, McCain appears destined for the fate of those who don't learn from history.
Bailing Out The Oil Market
Go to Original
By William Pentland
Government Assistance
While everyone knows the U.S. government is looking to bail Wall Street banks, few people realize that it's also bailing out speculative oil and commodities traders in the process, fueling a sharp rise in energy prices. Lehman Brothers (nyse: LEH - news - people ) and AIG (nyse: AIG - news - people ) held enormous trading positions in commodities markets. If those positions had been liquidated suddenly, the price of everything from wheat to oil would have collapsed. The Commodity Futures Trading Commission, the main regulator of U.S. commodity markets, allowed Wall Street's investment banks and trading companies to take control of massive positions in commodities markets called swaps held by Lehman Brothers and AIG.
The result: Oil prices spiked by a whopping $16 per barrel on Monday, the largest single-day rise in oil prices ever.
"If speculators were forced to liquidate their positions, oil would easily be $65 to $75 per barrel by the time the liquidation was complete," said Michael Masters, the founder of Atlanta-based hedge fund Masters Capital Management. Tuesday, oil was trading at $108.74 in midday trading in New York.
For all the talk of OPEC, the biggest threat to high oil prices in the short term might be the implosion of Morgan Stanley (nyse: MS - news - people ) or Goldman Sachs (nyse: GS - news - people ), which would trigger a massive number of low-priced oil-futures contracts to flood the market all at once in search of buyers to liquidate those contracts.
"If either of these entities were to collapse, we believe the downside for commodities would be tremendous as these companies unwind positions," Valerie Wood, president and owner of Energy Solutions, told Platts on Monday. "In particular, we know Goldman Sachs has large investments in crude oil and natural gas commodities because its own Goldman Sachs Commodity Index fund [comprises] about 39% crude oil commodities and about 6% natural gas commodities. A liquidation of GSCI shares would directly result in the selling of these commodities, and selling pushes prices lower."
Ironically, the biggest losers turned out to be the traders who bet that at least one of the victims from this month's financial chaos would be forced to liquidate a major long position in oil prices. When they avoided that fate, the race to unwind those bets that oil prices would fall before the end of the trading month caused a massive rally in oil prices.
The market meltdown has revealed the full extent of Wall Street's influence on commodities prices and, especially, their role in energy markets. More than $40 billion in cash has poured into commodity markets since the start of 2008, according to a report by Standard & Poor's. The total amount of investments in commodity indexes is estimated at between $150 billion and $270 billion. In other words, new investments in the market have climbed by 15% to 25% in less than a year.
In 2006, the U.S. Senate's Subcommittee for Permanent Investigations had already reported "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices." The trouble is that so much of the trading happens in so-called "dark markets," unregulated over-the-counter electronic exchanges where trading companies buy and sell energy derivatives, that this role is hard to document.
Investment banks make money off commodities speculation, but are just conduits for hedge funds and institutional investors that have taken large positions in commodities markets as a long-term investment.
"The market dynamics induced more and more financial players to move into commodities markets," said Fadel Gheit, a senior oil analyst at Oppenheimer & Co. "It was a perfect storm. The Federal Reserve was cutting interest rates and people were running away from the dollar as it lost value. Hedge funds, pension funds and mutual funds started pumping money into commodities because they were the safest place and the safest of them all was crude oil. There were too many dollars chasing too few physical assets. That's the bottom line."
By William Pentland
Government Assistance
While everyone knows the U.S. government is looking to bail Wall Street banks, few people realize that it's also bailing out speculative oil and commodities traders in the process, fueling a sharp rise in energy prices. Lehman Brothers (nyse: LEH - news - people ) and AIG (nyse: AIG - news - people ) held enormous trading positions in commodities markets. If those positions had been liquidated suddenly, the price of everything from wheat to oil would have collapsed. The Commodity Futures Trading Commission, the main regulator of U.S. commodity markets, allowed Wall Street's investment banks and trading companies to take control of massive positions in commodities markets called swaps held by Lehman Brothers and AIG.
The result: Oil prices spiked by a whopping $16 per barrel on Monday, the largest single-day rise in oil prices ever.
"If speculators were forced to liquidate their positions, oil would easily be $65 to $75 per barrel by the time the liquidation was complete," said Michael Masters, the founder of Atlanta-based hedge fund Masters Capital Management. Tuesday, oil was trading at $108.74 in midday trading in New York.
For all the talk of OPEC, the biggest threat to high oil prices in the short term might be the implosion of Morgan Stanley (nyse: MS - news - people ) or Goldman Sachs (nyse: GS - news - people ), which would trigger a massive number of low-priced oil-futures contracts to flood the market all at once in search of buyers to liquidate those contracts.
"If either of these entities were to collapse, we believe the downside for commodities would be tremendous as these companies unwind positions," Valerie Wood, president and owner of Energy Solutions, told Platts on Monday. "In particular, we know Goldman Sachs has large investments in crude oil and natural gas commodities because its own Goldman Sachs Commodity Index fund [comprises] about 39% crude oil commodities and about 6% natural gas commodities. A liquidation of GSCI shares would directly result in the selling of these commodities, and selling pushes prices lower."
Ironically, the biggest losers turned out to be the traders who bet that at least one of the victims from this month's financial chaos would be forced to liquidate a major long position in oil prices. When they avoided that fate, the race to unwind those bets that oil prices would fall before the end of the trading month caused a massive rally in oil prices.
The market meltdown has revealed the full extent of Wall Street's influence on commodities prices and, especially, their role in energy markets. More than $40 billion in cash has poured into commodity markets since the start of 2008, according to a report by Standard & Poor's. The total amount of investments in commodity indexes is estimated at between $150 billion and $270 billion. In other words, new investments in the market have climbed by 15% to 25% in less than a year.
In 2006, the U.S. Senate's Subcommittee for Permanent Investigations had already reported "there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices." The trouble is that so much of the trading happens in so-called "dark markets," unregulated over-the-counter electronic exchanges where trading companies buy and sell energy derivatives, that this role is hard to document.
Investment banks make money off commodities speculation, but are just conduits for hedge funds and institutional investors that have taken large positions in commodities markets as a long-term investment.
"The market dynamics induced more and more financial players to move into commodities markets," said Fadel Gheit, a senior oil analyst at Oppenheimer & Co. "It was a perfect storm. The Federal Reserve was cutting interest rates and people were running away from the dollar as it lost value. Hedge funds, pension funds and mutual funds started pumping money into commodities because they were the safest place and the safest of them all was crude oil. There were too many dollars chasing too few physical assets. That's the bottom line."
Will Cities Soon Be Able to Feed Themselves?
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."
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."
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.
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