Inside Account of US Eavesdropping on Americans

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by Brian Ross, Vic Walter, and Anna Schecter

U.S. Officers' "Phone Sex" Intercepted, Recorded, Shared Across NSA Listening Post

Despite pledges by President George W. Bush and American intelligence officials to the contrary, hundreds of US citizens overseas have been eavesdropped on as they called friends and family back home, according to two former military intercept operators who worked at the giant National Security Agency (NSA) center in Fort Gordon, Georgia.

"These were just really everyday, average, ordinary Americans who happened to be in the Middle East, in our area of intercept and happened to be making these phone calls on satellite phones," said Adrienne Kinne, a 31-year old US Army Reserves Arab linguist assigned to a special military program at the NSA’s Back Hall at Fort Gordon from November 2001 to 2003.

Watch the video.

Kinne described the contents of the calls as "personal, private things with Americans who are not in any way, shape or form associated with anything to do with terrorism."

She said US military officers, American journalists and American aid workers were routinely intercepted and "collected on" as they called their offices or homes in the United States.

Another intercept operator, former Navy Arab linguist, David Murfee Faulk, 39, said he and his fellow intercept operators listened into hundreds of Americans picked up using phones in Baghdad’s Green Zone from late 2003 to November 2007.

"Calling home to the United States, talking to their spouses, sometimes their girlfriends, sometimes one phone call following another," said Faulk.

The accounts of the two former intercept operators, who have never met and did not know of the other’s allegations, provide the first inside look at the day to day operations of the huge and controversial US terrorist surveillance program.

"There is a constant check to make sure that our civil liberties of our citizens are treated with respect," said President Bush at a news conference this past February.

But the accounts of the two whistleblowers, which could not be independently corroborated, raise serious questions about how much respect is accorded those Americans whose conversations are intercepted in the name of fighting terrorism.

US Soldier’s ’Phone Sex’ Intercepted, Shared

Faulk says he and others in his section of the NSA facility at Fort Gordon routinely shared salacious or tantalizing phone calls that had been intercepted, alerting office mates to certain time codes of "cuts" that were available on each operator’s computer.

"Hey, check this out," Faulk says he would be told, "there’s good phone sex or there’s some pillow talk, pull up this call, it’s really funny, go check it out. It would be some colonel making pillow talk and we would say, ’Wow, this was crazy’," Faulk told ABC News.

Faulk said he joined in to listen, and talk about it during breaks in Back Hall’s "smoke pit," but ended up feeling badly about his actions.

"I feel that it was something that the people should not have done. Including me," he said.

In testimony before Congress, then-NSA director Gen. Michael Hayden, now director of the CIA, said private conversations of Americans are not intercepted.

"It’s not for the heck of it. We are narrowly focused and drilled on protecting the nation against al Qaeda and those organizations who are affiliated with it," Gen. Hayden testified.

He was asked by Senator Orrin Hatch (R-UT), "Are you just doing this because you just want to pry into people’s lives?"

"No, sir," General Hayden replied.

Asked for comment about the ABC News report and accounts of intimate and private phone calls of military officers being passed around, a US intelligence official said "all employees of the US government" should expect that their telephone conversations could be monitored as part of an effort to safeguard security and "information assurance."

"They certainly didn’t consent to having interceptions of their telephone sex conversations being passed around like some type of fraternity game," said Jonathon Turley, a constitutional law professor at George Washington University who has testified before Congress on the country’s warrantless surveillance program.

"This story is to surveillance law what Abu Ghraib was to prison law," Turley said.

Listening to Aid Workers

NSA awarded Adrienne Kinne a NSA Joint Service Achievement Medal in 2003 at the same time she says she was listening to hundreds of private conversations between Americans, including many from the International Red Cross and Doctors without Borders.

"We knew they were working for these aid organizations," Kinne told ABC News. "They were identified in our systems as ’belongs to the International Red Cross’ and all these other organizations. And yet, instead of blocking these phone numbers we continued to collect on them," she told ABC News.

A spokesman for Doctors Without Borders, Michael Goldfarb, said: "The abuse of humanitarian action through intelligence gathering for military or political objectives, threatens the ability to assist populations and undermines the safety of humanitarian aid workers."

Both Kinne and Faulk said their military commanders rebuffed questions about listening in to the private conversations of Americans talking to Americans.

"It was just always, that , you know, your job is not to question. Your job is to collect and pass on the information," Kinne said.

Some times, Kinne and Faulk said, the intercepts helped identify possible terror planning in Iraq and saved American lives.

"IED’s were disarmed before they exploded, that people who were intending to harm US forces were captured ahead of time," Faulk said.

NSA job evaluation forms show he regularly received high marks for job performance. Faulk left his job as a newspaper reporter in Pittsburgh to join the Navy after 9/11.

Kinne says the success stories underscored for her the waste of time spent listening to innocent Americans, instead of looking for the terrorist needle in the haystack.

"By casting the net so wide and continuing to collect on Americans and aid organizations, it’s almost like they’re making the haystack bigger and it’s harder to find that piece of information that might actually be useful to somebody," she said. "You’re actually hurting our ability to effectively protect our national security."

The NSA: "The Shadow Factory"

Both former intercept operators came forward at first to speak with investigative journalist Jim Bamford for a book on the NSA, "The Shadow Factory," to be published next week.

"It’s extremely rare," said Bamford, who has written two previous books on the NSA, including the landmark "Puzzle Palace" which first revealed the existence of the super secret spy agency.

"Both of them felt that what they were doing was illegal and improper, and immoral, and it shouldn’t be done, and that’s what forces whistleblowers."

A spokesman for General Hayden, Mark Mansfield, said: "At NSA, the law was followed assiduously. The notion that General Hayden sanctioned or tolerated illegalities of any sort is ridiculous on its face."

The director of the NSA, Lt. General Keith B. Alexander, declined to directly answer any of the allegations made by the whistleblowers.

In a written statement, Gen. Alexander said: "We have been entrusted to protect and defend the nation with integrity, accountability, and respect for the law. As Americans, we take this obligation seriously. Our employees work tirelessly for the good of the nation, and serve this country proudly."

How T. Boone Pickens' Energy Plan Just Got Killed

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By David Morris

The financial bailout bill passed by Congress may have once and for all put an end to T. Boone Pickens’ energy plan. Let me explain.

Until the financial meltdown obliterated all other news coverage, T. Boone and his energy plan were everywhere. His book, The First Billion Is the Hardest, is number two on the bestseller list. During the Republican and Democrat Conventions his press conferences were attended by a fawning media, virtually all of who filed stories with the theme "oil man turns wind energy advocate."

Indeed, even the more than casual reader might come away believing the Pickens Energy Plan was all about wind energy. T. Boone’s web site does little to contradict that impression. It displays nothing but wind turbines.

But expanding wind energy is not the key element in his plan. The reason is that that the plan’s goal is to reduce our dependence on oil and the electric sector uses very little oil. Thus expanding wind-generated electricity does little to move us in that direction. Instead, the heart of Pickens’ plan is to purportedly use increased wind energy to back out the natural gas in our electricity system. Pickens wants to eliminate our use of natural gas to generate electricity and instead use it to in our vehicles.

In California, Pickens has been more upfront about his intentions. The Texas oil and gas billionaire has single handedly financed a ballot initiative that would raise $3 billion for incentives for vehicles using cleaner fuels. The initiative heavily favors natural gas vehicles. The biggest rebates would go toward the purchase of heavy-duty trucks and transit buses fueled by natural gas. Only natural gas vehicles would quality for the largest rebate for passenger vehicles -- $10,000.

The primary beneficiary of this ballot initiative would be Clean Energy, the nation’s biggest supplier of natural gas for transportation needs. Mr. Pickens is majority shareholder of Clean Energy.

The Pickens energy proposal has a fatal flaw. Transforming our transportation fleet to natural gas will require massive investments in new engines and new fueling systems. Although largely buried in the fine print, Pickens isn’t proposing to use natural gas to entirely replace transportation fuels derived from oil. His goal is a 20 percent replacement. So after 15-20 years and the expenditure of tens, if not hundreds of billions of dollars we would then have a transportation system still 80 percent dependent on oil and 20 percent dependent on a fossil fuel whose life expectancy is not much longer than oil’s.

A far better plan, and one proposed by a growing number of groups and individuals (including my own, the Institute for Local Self-Reliance, in a recent report titled Driving Our Way to Energy Independence)is to electrify our transportation system. Instead of converting part of our transportation system to natural gas, only to have to then convert it again to renewable fuels, we should convert the transportation system to electricity, and make that electricity increasingly renewable as solar and wind power expand.

Electric vehicles have important advantages over natural gas (or gasoline) powered cars. They are more efficient. They are quiet. They generate no tailpipe emissions.

Moreover, their combined battery storage capacity could usher in a more democratic energy system where households generate transportation fuel from their rooftop solar array and store it in the vehicles’ batteries, and, if needed, use their electric vehicles as backup power plants for their homes.

Unlike natural gas cars, electrified cars also lend themselves to being introduced incrementally. There is no partial natural gas car. On the other hand, there is a plug-in hybrid electric vehicle, the first generation of which will be introduced commercially in 2010. The initial PHEVs might have a limited driving range. As a result, initially electricity might power only 25 to 50 percent of the total miles driven. But as battery performance increases and costs drop, electricity will provide a majority and perhaps even 100 percent of the fuel used. Even at lower percentages, if the backup engine for the PHEV were a flexible fuel engine, then biofuels could replace oil, bringing the total oil displacement above 85 percent.

In June 2007, Senators Obama, Orrin Hatch (R-UT) and Maria Cantwell (D-WA) introduced a bill that would give handsome incentives to manufacturers of electrified cars. After the House of Representatives rejected the initial bailout bill, the Senate added on some $110 billion worth of incentives for a wide range of purposes and industries. The Obama, Hatch, Cantwell bill was one of them. It offers a tax credit of up to $7,500 for electrified vehicles. The incentives phase out after sales of electrified vehicles, either plug in hybrids or all electric cars, reach 250,000 in any calendar quarter.

The passage of that bill will accelerate the already vigorous rush by manufacturers to develop a high performance, long lasting and inexpensive car battery. Companies are working on dozens of configurations and in the last two years progress has been swift. The incentives offered should cover 25-50 percent of the cost of these new car batteries, shaving the payback period for electrified vehicles to under 5 years or less.

The financial meltdown probably has killed Pickens’ chances of gaining passage of his natural gas initiative in California. Few voters there will approve putting the state even further in debt. And the passage of the Congressional bailout bill should mark the demise of his overall plan, as electric cars go mainstream, leaving the idea of natural gas cars in the dust.

Who Owns The Federal Reserve?

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By Ellen Brown

The Fed is privately owned. Its shareholders are private banks

"Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders."

– The Honorable Louis McFadden, Chairman of the House Banking and Currency Committee in the 1930s

The Federal Reserve (or Fed) has assumed sweeping new powers in the last year. In an unprecedented move in March 2008, the New York Fed advanced the funds for JPMorgan Chase Bank to buy investment bank Bear Stearns for pennies on the dollar. The deal was particularly controversial because Jamie Dimon, CEO of JPMorgan, sits on the board of the New York Fed and participated in the secret weekend negotiations.¹ In September 2008, the Federal Reserve did something even more unprecedented, when it bought the world’s largest insurance company. The Fed announced on September 16 that it was giving an $85 billion loan to American International Group (AIG) for a nearly 80% stake in the mega-insurer. The Associated Press called it a "government takeover," but this was no ordinary nationalization. Unlike the U.S. Treasury, which took over Fannie Mae and Freddie Mac the week before, the Fed is not a government-owned agency. Also unprecedented was the way the deal was funded. The Associated Press reported:

"The Treasury Department, for the first time in its history, said it would begin selling bonds for the Federal Reserve in an effort to help the central bank deal with its unprecedented borrowing needs."²

This is extraordinary. Why is the Treasury issuing U.S. government bonds (or debt) to fund the Fed, which is itself supposedly "the lender of last resort" created to fund the banks and the federal government? Yahoo Finance reported on September 17:

"The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts to enhance its liquidity facilities over the previous few quarters."

Normally, the Fed swaps green pieces of paper called Federal Reserve Notes for pink pieces of paper called U.S. bonds (the federal government’s I.O.U.s), in order to provide Congress with the dollars it cannot raise through taxes. Now, it seems, the government is issuing bonds, not for its own use, but for the use of the Fed! Perhaps the plan is to swap them with the banks’ dodgy derivatives collateral directly, without actually putting them up for sale to outside buyers. According to Wikipedia (which translates Fedspeak into somewhat clearer terms than the Fed’s own website):

"The Term Securities Lending Facility is a 28-day facility that will offer Treasury general collateral to the Federal Reserve Bank of New York’s primary dealers in exchange for other program-eligible collateral. It is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. . . . The resource allows dealers to switch debt that is less liquid for U.S. government securities that are easily tradable."

"To switch debt that is less liquid for U.S. government securities that are easily tradable" means that the government gets the banks’ toxic derivative debt, and the banks get the government’s triple-A securities. Unlike the risky derivative debt, federal securities are considered "risk-free" for purposes of determining capital requirements, allowing the banks to improve their capital position so they can make new loans. (See E. Brown, "Bailout Bedlam," webofdebt.com/articles, October 2, 2008.)

In its latest power play, on October 3, 2008, the Fed acquired the ability to pay interest to its member banks on the reserves the banks maintain at the Fed. Reuters reported on October 3:

"The U.S. Federal Reserve gained a key tactical tool from the $700 billion financial rescue package signed into law on Friday that will help it channel funds into parched credit markets. Tucked into the 451-page bill is a provision that lets the Fed pay interest on the reserves banks are required to hold at the central bank."³

If the Fed’s money comes ultimately from the taxpayers, that means we the taxpayers are paying interest to the banks on the banks’ own reserves – reserves maintained for their own private profit. These increasingly controversial encroachments on the public purse warrant a closer look at the central banking scheme itself. Who owns the Federal Reserve, who actually controls it, where does it get its money, and whose interests is it serving?

Not Private and Not for Profit?

The Fed’s website insists that it is not a private corporation, is not operated for profit, and is not funded by Congress. But is that true? The Federal Reserve was set up in 1913 as a "lender of last resort" to backstop bank runs, following a particularly bad bank panic in 1907. The Fed’s mandate was then and continues to be to keep the private banking system intact; and that means keeping intact the system’s most valuable asset, a monopoly on creating the national money supply. Except for coins, every dollar in circulation is now created privately as a debt to the Federal Reserve or the banking system it heads.⁴ The Fed’s website attempts to gloss over its role as chief defender and protector of this private banking club, but let’s take a closer look. The website states:

* "The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations – possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."

* "[The Federal Reserve] is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."

* "The Federal Reserve’s income is derived primarily from the interest on U.S. government securities that it has acquired through open market operations. . . . After paying its expenses, the Federal Reserve turns the rest of its earnings over to the U.S. Treasury."⁵

So let’s review:

1. The Fed is privately owned.

Its shareholders are private banks. In fact, 100% of its shareholders are private banks. None of its stock is owned by the government.

2. The fact that the Fed does not get "appropriations" from Congress basically means that it gets its money from Congress without congressional approval, by engaging in "open market operations."

Here is how it works: When the government is short of funds, the Treasury issues bonds and delivers them to bond dealers, which auction them off. When the Fed wants to "expand the money supply" (create money), it steps in and buys bonds from these dealers with newly-issued dollars acquired by the Fed for the cost of writing them into an account on a computer screen. These maneuvers are called "open market operations" because the Fed buys the bonds on the "open market" from the bond dealers. The bonds then become the "reserves" that the banking establishment uses to back its loans. In another bit of sleight of hand known as "fractional reserve" lending, the same reserves are lent many times over, further expanding the money supply, generating interest for the banks with each loan. It was this money-creating process that prompted Wright Patman, Chairman of the House Banking and Currency Committee in the 1960s, to call the Federal Reserve "a total money-making machine." He wrote:

"When the Federal Reserve writes a check for a government bond it does exactly what any bank does, it creates money, it created money purely and simply by writing a check."

3. The Fed generates profits for its shareholders.

The interest on bonds acquired with its newly-issued Federal Reserve Notes pays the Fed’s operating expenses plus a guaranteed 6% return to its banker shareholders. A mere 6% a year may not be considered a profit in the world of Wall Street high finance, but most businesses that manage to cover all their expenses and give their shareholders a guaranteed 6% return are considered "for profit" corporations.

In addition to this guaranteed 6%, the banks will now be getting interest from the taxpayers on their "reserves." The basic reserve requirement set by the Federal Reserve is 10%. The website of the Federal Reserve Bank of New York explains that as money is redeposited and relent throughout the banking system, this 10% held in "reserve" can be fanned into ten times that sum in loans; that is, $10,000 in reserves becomes $100,000 in loans. Federal Reserve Statistical Release H.8 puts the total "loans and leases in bank credit" as of September 24, 2008 at $7,049 billion. Ten percent of that is $700 billion. That means we the taxpayers will be paying interest to the banks on at least $700 billion annually – this so that the banks can retain the reserves to accumulate interest on ten times that sum in loans.

The banks earn these returns from the taxpayers for the privilege of having the banks’ interests protected by an all-powerful independent private central bank, even when those interests may be opposed to the taxpayers’ -- for example, when the banks use their special status as private money creators to fund speculative derivative schemes that threaten to collapse the U.S. economy. Among other special benefits, banks and other financial institutions (but not other corporations) can borrow at the low Fed funds rate of about 2%. They can then turn around and put this money into 30-year Treasury bonds at 4.5%, earning an immediate 2.5% from the taxpayers, just by virtue of their position as favored banks. A long list of banks (but not other corporations) is also now protected from the short selling that can crash the price of other stocks.

Time to Change the Statute?

According to the Fed’s website, the control Congress has over the Federal Reserve is limited to this:

"[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute."

As we know from watching the business news, "oversight" basically means that Congress gets to see the results when it’s over. The Fed periodically reports to Congress, but the Fed doesn’t ask; it tells. The only real leverage Congress has over the Fed is that it "can alter its responsibilities by statute." It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG’s stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed’s stock in return for the trillion-or-so dollars we’ll be advancing to bail out the private banking system from its follies.

If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers. a truly "federal" Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.

Md. Police Put Activists' Names On Terror Lists

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By Lisa Rein

Surveillance's Reach Revealed

The Maryland State Police classified 53 nonviolent activists as terrorists and entered their names and personal information into state and federal databases that track terrorism suspects, the state police chief acknowledged yesterday.

Police Superintendent Terrence B. Sheridan revealed at a legislative hearing that the surveillance operation, which targeted opponents of the death penalty and the Iraq war, was far more extensive than was known when its existence was disclosed in July.

The department started sending letters of notification Saturday to the activists, inviting them to review their files before they are purged from the databases, Sheridan said.

"The names don't belong in there," he told the Senate Judicial Proceedings Committee. "It's as simple as that."

The surveillance took place over 14 months in 2005 and 2006, under the administration of former governor Robert L. Ehrlich Jr. (R). The former state police superintendent who authorized the operation, Thomas E. Hutchins, defended the program in testimony yesterday. Hutchins said the program was a bulwark against potential violence and called the activists "fringe people."

Sheridan said protest groups were also entered as terrorist organizations in the databases, but his staff has not identified which ones.

Stunned senators pressed Sheridan to apologize to the activists for the spying, assailed in an independent review last week as "overreaching" by law enforcement officials who were oblivious to their violation of the activists' rights of free expression and association. The letter, obtained by The Washington Post, does not apologize but admits that the state police have "no evidence whatsoever of any involvement in violent crime" by those classified as terrorists.

Hutchins told the committee it was not accurate to describe the program as spying. "I doubt anyone who has used that term has ever met a spy," he told the committee.

"What John Walker did is spying," Hutchins said, referring to John Walker Jr., a communications specialist for the U.S. Navy convicted of selling secrets to the Soviet Union. Hutchins said the intelligence agents, whose logs were obtained by the American Civil Liberties Union of Maryland as part of a lawsuit, were monitoring "open public meetings." His officers sought a "situational awareness" of the potential for disruption as death penalty opponents prepared to protest the executions of two men on death row, Hutchins said.

"I don't believe the First Amendment is any guarantee to those who wish to disrupt the government," he said. Hutchins said he did not notify Ehrlich about the surveillance. Ehrlich spokesman Henry Fawell said the governor had no comment.

Hutchins did not name the commander in the Division of Homeland Security and Intelligence who informed him in March 2005 that the surveillance had begun. More than a year later, after "they said, 'We're not getting much here,' " Hutchins said he cut off what he called a "low-level operation."

But Sen. James Brochin (D-Baltimore County) noted that undercover troopers used aliases to infiltrate organizational meetings, rallies and group e-mail lists. He called the spying a "deliberate infiltration to find out every piece of information necessary" on groups such as the Maryland Campaign to End the Death Penalty and the Baltimore Pledge of Resistance. When Hutchins called their members "fringe people," the audience of activists who filled the seats in the hearing room in Annapolis sighed.

Some activists said yesterday that they have received letters; others said they were waiting with anticipation to see whether they were on the state police watch list.

Laura Lising of Catonsville, a member of the Baltimore Coalition Against the Death Penalty, received her notification yesterday. She said she wants a hard copy of her file, because she does not trust the police to purge it. "We need as much protection as possible," she said.

Both Hutchins and Sheridan said the activists' names were entered into the state police database as terrorists partly because the software offered limited options for classifying entries.

The police also entered the activists' names into the federal Washington-Baltimore High Intensity Drug Trafficking Area database, which tracks suspected terrorists. One well-known antiwar activist from Baltimore, Max Obuszewski, was singled out in the intelligence logs released by the ACLU, which described a "primary crime" of "terrorism-anti-government" and a "secondary crime" of "terrorism-anti-war protesters."

Sheridan said that he did not think the names were circulated to other agencies in the federal system and that they are not on the federal government's terrorist watch list. Hutchins said some names might have been shared with the National Security Agency.

Although the independent report on the surveillance released last week said that it was part of a broad effort by the state police to gather information on protest groups across the state, Sheridan said the department is not aware of any surveillance as "intrusive" as the spying on death penalty and war opponents.

The police notified the protesters at the recommendation of former U.S. attorney and state attorney general Stephen H. Sachs, who was appointed by Gov. Martin O'Malley (D) to review the covert monitoring. In a report last week, Sachs also recommended regulations that forbid such spying on protest groups unless the state police chief believes it is justified.

"I can't imagine getting a letter that says, 'You've been classified as a terrorist; come in and we'll tell about it,'" said Sen. Bryan W. Simonaire (R-Anne Arundel). Two senators noted that they had been arrested years ago for civil disobedience. Sen. Jennie Forehand (D-Montgomery) asked Sheridan, "Do you have any legislators on your list?" The answer was no.

For Dow, Final Swing Was Down

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By DAVID JOLLY, BETTINA WASSENER and KEITH BRADSHER

Wall Street could not hold onto its gains on Wednesday, as a 150-point rally vanished in the closing minutes of trading amid the fear and uncertainty that continue to course through the financial system.

The Dow Jones industrials average ended down 189 points, after falling 316 points in the final 28 minutes of the session.

The broader market finished down 1.1 percent, a modest decline compared to the rest of the week, as measured by the Standard & Poor’s 500-stock index.

“It just feels like more of the same,” said Richard Sparks, an analyst at Schaeffer’s Investment Research. “This is an extremely weak market with a tremendous amount of uncertainty.”

Stocks were volatile through much of the day, lurching up and down the chart across a 400-point range.

Investors had appeared conflicted about the extraordinary global rate cut by the world’s central banks that came before trading opened in New York. Stocks ducked in and out of positive territory as investors weighed the good — a half-point reduction in the Federal Reserve’s benchmark interest rate — against the bad, namely the growing realization that a serious recession may be difficult to avoid.

“The Fed, worldwide government agencies and central banks have done just about anything they can now,” Mr. Sparks said. “And that may be the biggest fear now. They’ve used up all their bullets and there’s really nothing left to do other than let it work its way through the system.”

Just a half hour before the close, it looked like stocks would snap their five-day losing streak. Telecommunications and technology stocks were higher, and even financial shares advanced. By the bell, however, those gains had been erased. Bank of America shares ended down 7 percent, and shares of Goldman Sachs and Morgan Stanley finished lower.

Yields fell on long-term Treasury bills, a sign that investors were feeling more comfortable about moving out of safe havens. But there were other signs that the strains in the credit markets had refused to abate. Short-term Treasury yields fell again, and borrowing rates for interbank loans and commercial paper rose overnight. It is still difficult for businesses and municipalities to find sources of critical short-term financing.

The coordinated series of interest rate cuts came after another wave of relentless selling washed over global markets, pulling shares lower in Europe and Asia. The Tokyo market had its worst decline since the 1987 crash, falling more than 9 percent.

In London, the FTSE 100, which had been down more than 6 percent on the day, recovered into positive territory, only to fall back. It closed down almost 5 percent. In Frankfurt, the Dax ended the day 5.8 percent lower, and the CAC 40 in Paris lost 6.3 percent.

The British government’s announcement of a plan to bail out the country’s foundering banks with about $88 billion of new capital did little to restore market confidence.

Japanese stocks plunged 9.4 percent, leading the Nikkei 225 to close at 9,203.32, the lowest since 2003. It was the biggest single-day loss in the index since October 1987. The sell-off followed Tuesday’s drop of more than 3 percent. The index is now down 40 percent in 2008.

Toyota Motor, Nissan Motor and Honda Motor all fell more than 10 percent on expectations that the global downturn, and particularly the faltering American economy, would hit their results.

In Hong Kong, where markets were closed for a holiday on Tuesday, stocks slumped 8.2 percent, despite news that the Hong Kong Monetary Authority had lowered its benchmark interest rate in an effort to bolster bank lending.

The Shanghai composite index fell 3 percent, and in Seoul, the Kospi fell 5.8 percent. James Chirnside, who manages $65 million at Asia Pacific Asset Management in Sydney, said that investors feared that corporate profits would fall and many companies would fail if banks did not resume lending soon.

Ahead of the interest rate cuts, Hans Genberg, the executive director for research at the Hong Kong Monetary Authority, said that even if the Federal Reserve were to push down its overnight interest rate — the federal funds rate — financial markets might keep falling and harm to the global economy would not be contained.

“Rate cuts, federal funds cuts, are not going to be enough,” at a time when banks are reluctant to lend to one another, Mr. Genberg said, adding that considerable academic research suggests that the United States must find a way to restore the capital bases of its banks.

Olaf Unteroberdoerster, the International Monetary Fund’s representative in Hong Kong, was similarly gloomy about the potential of interest rate cuts to stop the problems. “The key lesson is when you face a confidence issue where the market participants no longer trust each other, the conventional macroeconomic tools are not as effective,” he said.

Economists have been gradually reducing their forecasts for economic growth in Asia, and warn that further reductions may be coming soon. “All the risks to those numbers are very much on the downside,” said Michael Buchanan, Goldman Sachs’s chief economist for Asia except Japan.

Mounting difficulties in European economies are starting to spill over into Asia, where many companies had been trying to step up sales to European consumers before the euro started falling in recent weeks. “For a long time, I think Asia was hoping exports to Europe would make up for a shortfall in the U.S.,” Mr. Buchanan said.

Robert Cardarelli, a senior International Monetary Fund economist, said at a news conference in Hong Kong on Wednesday that the fund’s recent research showed that during financial crises in which banks are particularly affected, “we are in for a much more severe and protracted downturn.”

United States crude oil for November delivery fell $1.06 to close at $89 a barrel on the New York Mercantile Exchange.

Plunges in Asian stock markets caused many investors to buy yen, as Japan’s well-capitalized banking system appeared to be a refuge from turmoil in financial markets even as the Japanese stock market took heavy losses.

The dollar fell at one point below 100 yen — a level that will further hurt the profits of many Japanese industrial companies like Sony and Toyota that depend heavily on sales in the United States.

The euro traded at $1.3615, up from $1.3590 late Tuesday, while the pound rose to $1.7460, from $1.7457.

Indonesia’s stock exchange halted trading after a morning plunge of 10.4 percent. The main floor of Jakarta’s benchmark stock exchange building fell quiet at about 11 a.m. Wednesday after officials there suspended trading for the first time in eight years.

The main Jakarta stock index, the JSX, fell more than 10 percent for the second day in a row, making this one of the worst weeks in 20 years. The last time trading had been suspended here was in 2000, when a car bomb exploded outside the stock exchange building.

“I don’t think anyone has seen anything like this in a long time,” said Eugene Galbraith, president commissioner of Bank Central Asia.

30 Civilians Died in Afghan Raid, U.S. Inquiry Finds

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By ERIC SCHMITT

An investigation by the military has concluded that American airstrikes on Aug. 22 in a village in western Afghanistan killed far more civilians than American commanders there have acknowledged, according to two American military officials.

The military investigator’s report found that more than 30 civilians — not 5 to 7 as the military has long insisted — died in the airstrikes against a suspected Taliban compound in Azizabad.

The investigator, Brig. Gen. Michael W. Callan of the Air Force, concluded that many more civilians, including women and children, had been buried in the rubble than the military had asserted, one of the military officials said.

The airstrikes have been the focus of sharp tensions between the Afghan government, which has said that 90 civilians died in the raid, and the American military, under Gen. David D. McKiernan, the top American military commander in Afghanistan, which has repeatedly insisted that only a handful of civilians were killed.

The report was requested by General McKiernan on Sept. 7, more than two weeks after the airstrikes, in response to what he said at the time was “emerging evidence” about the raids. While American commanders in Afghanistan have contended that 30 to 35 militants were killed in the raid, the new report concludes that many among that group were in fact civilians, the military officials said.

According to the new report, fewer than 20 militants died in the raid, which was conducted jointly by American and Afghan forces, and in subsequent airstrikes carried out by an AC-130 gunship in support of the allied ground forces.

The revised American estimate for civilian deaths in the operation remains far below the 90 that Afghan and United Nations officials have claimed, a figure that the Afghan government and the United Nations said was supported by cellphone photos, freshly dug grave sites and the accounts of witnesses who saw the dead bodies.

But General Callan’s findings ran counter to those of the earlier American investigations. American Special Operations forces conducted an initial battlefield review, including a building by building search, and four days later, military investigators traveled to the vicinity of the raid. General Callan found that the people who conducted those investigations did not or could not do what was necessary to establish the full extent of the civilian killings, the military officials said.

In contrast, military officials said, General Callan was able to review the scene of the airstrikes more extensively. They said his team interviewed villagers, which the other military units had not done before, and examined new evidence, like cellphone videos and other images showing the bodies of women and children that were not available previously.

The report sticks to the military’s assertion that the compound was a legitimate target, a finding that is likely to rekindle tensions with the government of President Hamid Karzai. As a result of that finding, the report does not single out any individual for blame or recommend that any American troops be punished.

The report’s general findings were described by two American military officials who spoke on the condition of anonymity because the report has not yet been made public, and Afghan officials have not yet been briefed on the matter.

In recent days, both General McKiernan and Lt. Gen. Martin E. Dempsey, the acting commander of the military’s Central Command, who appointed General Callan on Sept. 9 to investigate the episode, have received briefings on the report’s findings.

The New York Times on Sept. 8 described freshly dug graves, lists of the dead, and cellphone videos and other images showing bodies of women and children in the village mosque seen on a visit to Azizabad. Cellphone images a Times reporter saw showed at least 11 dead children, some apparently with blast and concussion injuries, among some 30 to 40 bodies laid out in the mosque.

Afghan and United Nations officials backed this accounting of a higher civilian death toll, putting them in direct conflict with the American military’s version of events. In that account, American Special Forces troops and Afghan commandos called in airstrikes after they came under attack while approaching a compound in Azizabad, a village in the Shindand district of Herat Province. Among the militants killed, the military said at the time, was a Taliban leader, Mullah Sadiq.

By the next day, Afghan officials complained of significant civilian casualties and President Karzai strongly condemned the airstrikes. American military officials rejected the claim, saying that extremists who entered the village after the bombardment encouraged villagers to change their stories and inflate the number of dead.

The initial investigating officer, an Army Special Forces major, visited the village after the airstrikes. Guided by aerial photographs, he visited six burial sites within a six-mile range of the attack, a military spokesman said; only one had any freshly dug graves, about 18 to 20. Afghan villagers said there were other burial sites that the Americans did not visit.

One of the military officials who agreed to discuss the new report said the Special Forces troops who had called in the strikes could conduct only a limited assessment of the damage and casualties afterward because they were forced to leave the village soon after the strikes, fearing retaliation from the villagers.

“We were wrong on the number of civilian casualties partly because the initial review was operating under real limitations,” said one of the military officials, who said of the Special Forces soldiers, “They were definitely not welcome there.”

Even before he requested the more senior investigator, General McKiernan issued orders on Sept. 2 tightening the rules about when NATO troops in Afghanistan were authorized to use lethal force. The new rules emphasized putting Afghan forces out front in searches of homes and requiring multiple sources of information before attacking targets.

General McKiernan told reporters in Washington last week that one of his “top challenges” was “to try to make sure we have the right measures in place to minimize the possibility of civilian casualties.”

He said the American military was trying to work with the Afghan authorities to ensure that further allegations involving civilian casualties would be investigated jointly rather than separately.

The financial crisis could be the euro's death knell and even end the shambolic EU

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By Christopher Booker

At the very moment when Europe's banking system is teetering on the edge of collapse and national economies are in freefall, we might, perhaps, have expected the EU finally to live up to its more grandiose pretensions as the ' government of Europe'.

Yet what have we seen by way of the EU's response to what is undoubtedly the most testing crisis in its history?

A few perfunctory fine words and empty gestures - and then the national leaders flapping off like so many headless chickens to pursue their own national interests, regardless of all those laws and principles which in easier times they were apparently so happy to sign up to.

The truth is that this massive banking crisis has exposed the hollowness, the impotence and the hypocrisy of the European Union like nothing before in its history.

This present emergency is the first real ordeal that the euro - that supposed symbol of European economic unity - has had to face as a major international currency.

Yet, without a central united government to give it proper political clout, it has seemed strangely irrelevant to a financial meltdown that has seen all the 13 countries which use it more concerned about their own national economies than a supranational currency.

The fact is that when a crisis occurs, we are all concerned about our own nation - not our neighbours.

But what is doubly worrying about the EU in the current crisis is not just the questions it raises over the single currency, but the spectacular inability of the whole creaking edifice to respond in any meaningful way.

First, last week, we saw Nicolas Sarkozy of France, as the EU's acting president, calling for an EU-sponsored bail-out of its banks, in pale emulation of the attempted bail-out of the U.S. banking system which was dominating the world's headlines - an empty political gesture which melted away almost as soon as he had proposed it.

Then we saw the Irish government, faced with the imminent collapse of its own major banks, pledging a 100 per cent state-backed guarantee of all customers' deposits.

This was in flagrant breach of EU law, but it just happened that the Brussels commissioner in charge of financial services was Charlie McCreevy, an Irishman who cheerfully observed that he could see no problems with his country's scheme.

On Saturday, President Sarkozy invited Chancellor Angela Merkel of Germany, Prime Minister Silvio Berlusconi of Italy and Gordon Brown to Paris for an 'emergency summit' to discuss the crisis.

'It is of the essence,' said Mr Sarkozy, 'that Europe should exist and respond with one voice.'

This, in itself, was odd enough. Why were only these four governments represented - along with the president of the European Central Bank, the man in charge of the euro?

What about the leaders of the other 23 countries making up the EU, many of whom were deeply disturbed at being excluded from this cosy get-together?

It was far from clear that anything emerged from Mr Sarkozy's summit other than their alarm at the precedent set by the Irish government in guaranteeing those bank deposits, which had already led to a drain of billions of pounds into Irish banks from countries which did not offer their customers such protection.

And what happened next, when Chancellor Merkel scurried back to Berlin to find the German banking system on the edge of its own meltdown?

Time To Face The Facts On Afghanistan

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By Eric S. Margolis

For those who savor historical irony, the Soviet Empire collapsed in the years 1989-1991 because of an implosion of its economy brought on by a ruinous arms race with the United States and the heavy costs of occupying Afghanistan.
Seventeen years later came the turn of the world’s other great imperial power, the United States. Lethally bloated by runaway debt, and burdened by 50% of the world’s military spending, the house of cards known as the US economy finally collapsed.

The doomsday news from New York and Washington has obscured most other world affairs. This is unfortunate because for the first time there is a flicker – and I mean only a flicker – of light at the end of the Afghanistan tunnel. It may only be an oncoming truck bomb.

The US-installed Afghan president, Hamid Karzai, revealed last week he had asked Saudi Arabia to broker peace talks with the alliance of tribal and political groups resisting Western occupation collectively known as Taliban. Saudi Arabia had been one of the few nations to recognize the Taliban government and retains considerable influence in Afghanistan and remains a loyal friend of Pakistan.

Taliban leader Mullah Omar quickly rejected Karzai’s offer, and claimed the US was heading toward the same kind of catastrophic defeat in Afghanistan that the Soviet Union had met. The ongoing financial panic in North America lent substance to his words.

The US economy is in grave peril and its big three automakers may soon face bankruptcy. In a crazy sidebar, as Wall Street and the Us banking system faced meltdown, the insouciant Pentagon just announced it would spend $300 million with American `contractors’ to spread pro-US propaganda in Iraq. This remarkable idiocy notwithstanding, Washington could soon run out of money necessary to keep paying for operations in Iraq, and bribing Pakistan with $250-300 million a month to wage war against its own rebellious Pashtun tribes people along the Afghanistan border.

The able and forthright US commander in Afghanistan, Gen. David McKiernan, urgently called for at least 10,000 more troops. US and NATO forces in Afghanistan are increasingly on the defensive, hard pressed to defend vulnerable supply lines in spite of massive fire power and total control of the air.

Attacks on US and NATO convoys are even beginning at the port of Karachi. The prospect of the US spreading a war it can’t win in Afghanistan into Pakistan is military and political madness.

Startlingly, Gen. McKiernan appeared to break with Bush administration policy by proposing political talks with Taliban and admitting the war had to be ended by diplomacy. The military men know this war cannot be won on the battlefield. McKiernan’s predecessor told Congress that 400,000 US troops would be needed to pacify Afghanistan. There are currently 80,000 western troops in Afghanistan, many of them unwilling to enter combat.

By sharp contrast, I recently asked Karl Rove, President Bush’s former senior advisor, how the US could ever hope to win the war in Afghanistan. His eyes dancing with imperial hubris, Rove brightly replied, `More Predators(missile armed drones) and helicopters! Then we’ll go into Pakistan.’

Which reminded me of poet Hilaire Beloc’s wonderful line about 19th century British imperialism that I use in my new book, `American Raj:’ `Whatever happens/we have got/the Maxim gun* /and they have not.’

*Maxim gun – early machine gun

Though Karzai’s olive branch was rejected, the fact he made it public is very important. By doing so, both he and Gen. McKiernan broke the simple-minded Western taboo against negotiations with Taliban and its allies.

Let us remember that Taliban is not a `terrorist movement,’ as claimed by western war propaganda, but was founded as an Islamic religious movement dedicated to fighting Communism and the drug trade.

Taliban received US funding until May, 2001. In fact, CIA keep close contacts with Taliban, many of whose members were US-backed mujahidin from the anti-Soviet war of the 1980’s, for possible future use against the Communist regimes of Central Asia and against China. The 9/11 attacks made CIA immediately cut its links to Taliban and burn the associated files.

In recent years, Western war propaganda has so demonized Taliban that few politicians have the courage to propose the obvious and inevitable: a negotiated settlement to this pointless seven-year war. A noteworthy exception came last April when NATO’s secretary general, Jaap de Hoop Scheffer, who admitted the war could only be ended by negotiations, not military means.

The Karzai government cannot extend its authority beyond Kabul because that would mean overthrowing the very same Uzbek and Tajik drug-dealing warlords and Communists chiefs that are its base of power. There is no real Afghan national army, just a bunch of unenthusiastic mercenaries who pretend to fight.

The current war in Afghanistan is not really about al-Qaida and `terrorism,’ but about opening a secure corridor through Pashtun tribal territory to export the oil and gas riches of the Caspian Basin of Central Asia to the West. The US and NATO forces in Afghanistan are essentially pipeline protection troops fighting off the hostile natives..

Both Barack Obama and John McCain are wrong about Afghanistan. It is not a `good’ fight against `terrorism,’ but a classic, 19th century colonial war to advance western geopolitical power into resource-rich Central Asia. The Pashtun Afghans who live there are ready to fight for another 100 years. The western powers certainly are not.

As that great American founding father Benjamin Franklin said, `there is no good war, and no bad peace.’ Time for the West to face reality in Afghanistan.

Thousands of Troops Are Deployed on U.S. Streets Ready to Carry Out "Crowd Control"

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By Naomi Wolf

Background: the First Brigade of the Third Infantry Division, three to four thousand soldiers, has been deployed in the United States as of October 1. Their stated mission is the form of crowd control they practiced in Iraq, subduing "unruly individuals," and the management of a national emergency. I am in Seattle and heard from the brother of one of the soldiers that they are engaged in exercises now. Amy Goodman reported that an Army spokesperson confirmed that they will have access to lethal and non lethal crowd control technologies and tanks.

George Bush struck down Posse Comitatus, thus making it legal for military to patrol the U.S. He has also legally established that in the "War on Terror," the U.S. is at war around the globe and thus the whole world is a battlefield. Thus the U.S. is also a battlefield.

He also led change to the 1807 Insurrection Act to give him far broader powers in the event of a loosely defined "insurrection" or many other "conditions" he has the power to identify. The Constitution allows the suspension of habeas corpus -- habeas corpus prevents us from being seized by the state and held without trial -- in the event of an "insurrection." With his own army force now, his power to call a group of protesters or angry voters "insurgents" staging an "insurrection" is strengthened.

U.S. Rep. Brad Sherman of California said to Congress, captured on C-Span and viewable on YouTube, that individual members of the House were threatened with martial law within a week if they did not pass the bailout bill:

"The only way they can pass this bill is by creating and sustaining a panic atmosphere. … Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day and a couple of thousand on the second day, and a few members were even told that there would be martial law in America if we voted no."

If this is true and Rep. Sherman is not delusional, I ask you to consider that if they are willing to threaten martial law now, it is foolish to assume they will never use that threat again. It is also foolish to trust in an orderly election process to resolve this threat. And why deploy the First Brigade? One thing the deployment accomplishes is to put teeth into such a threat.

I interviewed Vietnam veteran, retired U.S. Air Force Colonel and patriot David Antoon for clarification:

"If the President directed the First Brigade to arrest Congress, what could stop him?"

"Nothing. Their only recourse is to cut off funding. The Congress would be at the mercy of military leaders to go to them and ask them not to obey illegal orders."

"But these orders are now legal?’"

"Correct."

"If the President directs the First Brigade to arrest a bunch of voters, what would stop him?"

"Nothing. It would end up in courts but the action would have been taken."

"If the President directs the First Brigade to kill civilians, what would stop him?"

"Nothing."

"What would prevent him from sending the First Brigade to arrest the editor of the Washington Post?"

"Nothing. He could do what he did in Iraq -- send a tank down a street in Washington and fire a shell into the Washington Post as they did into Al Jazeera, and claim they were firing at something else."

"What happens to members of the First Brigade who refuse to take up arms against U.S. citizens?"

"They’d probably be treated as deserters as in Iraq: arrested, detained and facing five years in prison. In Iraq a study by Ann Wright shows that deserters -- reservists who refused to go back to Iraq -- got longer sentences than war criminals."

"Does Congress have any military of their own?"

"No. Congress has no direct control of any military units. The Governors have the National Guard but they report to the President in an emergency that he declares."

"Who can arrest the President?"

"The Attorney General can arrest the President after he leaves or after impeachment."

[Note: Prosecutor Vincent Bugliosi has asserted it is possible for District Attorneys around the country to charge President Bush with murder if they represent districts where one or more military members who have been killed in Iraq formerly resided.]

"Given the danger do you advocate impeachment?"

"Yes. President Bush struck down Posse Comitatus -- which has prevented, with a penalty of two years in prison, U.S. leaders since after the Civil War from sending military forces into our streets -- with a ’signing statement.’ He should be impeached immediately in a bipartisan process to prevent the use of military forces and mercenary forces against U.S. citizens"

"Should Americans call on senior leaders in the Military to break publicly with this action and call on their own men and women to disobey these orders?"

"Every senior military officer’s loyalty should ultimately be to the Constitution. Every officer should publicly break with any illegal order, even from the President."

"But if these are now legal. If they say, ’Don’t obey the Commander in Chief,’ what happens to the military?"

"Perhaps they would be arrested and prosecuted as those who refuse to participate in the current illegal war. That’s what would be considered a coup."

"But it’s a coup already."

"Yes."

Asian markets continue to fall

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By Peter Symonds

Asian shares have fallen heavily this week, along with American and European stock markets, despite last week’s approval of the Bush administration’s $US700 billion bailout plan for Wall Street. While the Asian markets are reacting to the global financial crisis, there are also fears throughout the region that export markets in the US and Europe will be badly affected by an international economic slowdown.

An element of sheer panic is adding to the volatility of the markets. After huge falls across the Asia on Monday, stock markets plunged sharply after opening on Tuesday only to recover somewhat on news that the Australian Reserve Bank had chopped interest rates by a larger than expected amount—1 percent—the largest cut since 1992.

The Australian announcement raised hopes of coordinated action by the world’s main central banks to restore confidence in the global financial system. Later on Tuesday, however, Bank of Japan governor Masaaki Shirakawa ruled out any cut to its key interest rate of just 0.5 percent and declared that it was “not desirable to undertake policy coordination that would involve measures inappropriate for each country’s economic and price situation”.

Japan’s share markets have been among the most affected. After falling by 4.3 percent on Monday, the Nikkei 225 index shed another 317.90 points on Tuesday, or 3.03 percent, to close at 10,155.90—its lowest finish since December 2003. “Sentiment was really pessimistic as investors were worried over the course of the financial crisis. No one knows how and when this crisis will end,” Masatoshi Sato, a strategist at Mizuho Investors Securities, told the Associated Press.

Among the biggest losers yesterday were the major auto makers. Mitsubishi Motors Corp fell 10.3 percent, Nissan Motor Co 4.79 percent and Toyota Motor Corp 4.87 percent. All the Japanese car manufacturers recorded huge declines in sales to the US for September—monthly sales for Toyota slumped by 32 percent, Nissan by 37 percent and Honda by 24 percent.

There are strong indications that Japan is already in recession. Official statistics released last month showed that the economy contracted 3 percent in the second quarter on an annualised basis. The Cabinet Office yesterday announced that the country’s leading coincident index of economic activity fell by 2.8 points to 100.7 in August and that the economy was “deteriorating”. The Tanken index of business confidence fell for large manufacturers to minus 3 in September from 5 in June—the first negative outlook since 2003. Factory output fell by 3.5 percent and the jobless rate hit a two-year high of 4.2 percent in August.

Share values in China fell sharply after being closed all last week for national holidays. The benchmark Shanghai Composite Index dropped 5.2 percent on Monday and by 4.6 percent in early trading on Tuesday before closing down by 0.7 percent. China’s stock markets have declined by more than 60 percent this year. Hong Kong’s Hang Seng Index plunged by 5 percent on Monday and was closed yesterday.

Like leaders in other countries, Chinese Premier Wen Jiabao declared on Monday that the country’s financial system was safe and that he had full confidence in China’s economic development and stability. According to Bloomberg.com, Asian financial institutions have a low exposure to losses from securities tied to US subprime home loans—just $24.5 billion of an estimated $590 billion globally. But the full extent of the losses and the wider implications of the international drying up of credit are not known.

Time magazine pointed out that China has been hit. “Its banks have an estimated $12 billion in exposure to subprime debt in the US, a figure some analysts believed is understated. Its sovereign wealth funds have lost tens of millions of dollars on poorly timed investments in Blackstone, a private equity group, and Morgan Stanley. And Ping An Insurance, China’s second largest insurer, lost 70 percent of its $2.7 billion investment in Fortis, the Dutch-Belgium financial services company that collapsed last week.”

Time pointed out that more significant risks came from “the global macroeconomic fallout from the crisis”. In particular, the article highlighted the danger of a falling US dollar and rising Chinese renminbi “at a time when the country’s exporters are already hurting from slowing global growth. That in turn could slow growth further domestically.” China’s growth predictions are being revised. UBS AG estimated that the Chinese economy will grow by 9.6 percent this year, the slowest pace since 2002. Other estimates put growth at just 8 percent next year. Any slowdown in the Chinese economy has serious political implications for Beijing, which is desperate to prevent unemployment, and thus social tensions, from rising.

In South Korea, the Seoul stock market fell by 4.3 percent on Monday and closed marginally higher yesterday. Overall, the Kospi stock index is down 29 percent this year. The South Korean won plunged by 5 percent against the US dollar on Monday and declined further on Tuesday to hit a seven-year low, prompting emergency measures to shore up the currency.

Finance Minister Kang Man-soo promised to use the country’s currency reserves of nearly $240 billion—the world’s sixth largest—to shield South Korea’s banking system from the financial crisis. The government has spent nearly $25 billion since March to prop up the won, which has lost 26 percent of its value since December. Kang also called on South Korean banks to sell foreign assets to raise dollars that could not be raised through overseas loans.

“The currency difficulties are a result of the global liquidity squeeze rather than risk issues at individual banks,” You Jung-youn, a spokesman for major lender Kookmin, told Reuters. “It is more about country risk.” South Korea has been hard hit by rising prices for oil and other imports, contributing to current account deficits for every month from December to August, except for June. The economy is slowing, with the government revising its growth forecast this year from 6 to 4 percent.

According to the ruling Grand National Party, South Korea’s President Lee Myung-bak is planning to propose a summit with China and Japan later this month to discuss how to cope with the global economic crisis. He called last week for the three countries to speed up plans to create an $80 billion pool of currency swaps to act as a buffer against financial turmoil. China and Japan have yet to respond.

In India, which like China has been hailed as an economic miracle, the benchmark Sensex index fell 5.8 percent on Monday and a further 0.9 percent on Tuesday. Shares in Reliance Industries, the country’s largest private sector firm by market capitalisation, plunged by 7 percent on Monday, metals giant Tata Steel lost 11 percent and the huge real estate firm DLF dropped 10.3 percent.

The Reserve Bank of India stepped in yesterday to reduce the mandatory proportion of deposits that banks have to place with it from 9 percent to 8.5 percent. The move injected around 200 billion rupees ($US4.2 billion) into the money markets, but failed to prevent a slide on the Bombay share market.

There are fears that Indian exports will be hit by the global slowdown. While Finance Minister Palaniappan Chidambaram optimistically declared on Monday that India’s growth rate would rebound to 9 percent in the 2009-10 fiscal year, the Reserve Bank of India estimates that growth for the current financial year will be only 8 percent, its slowest in four years.

Stock markets across South East Asia have also fallen amid fears of a global recession. All the Association of South East Asian (ASEAN) countries are heavily dependent on exports to the US, Japan and Europe and, since the 1997-98 Asian financial crisis, have become more heavily integrated into globalised production processes, particularly in supplying parts and raw materials to China.

In Indonesia, shares plunged by a massive 10 percent on Monday—the largest ever one-day percentage fall—and fell by another 2 percent yesterday. Rather than cut interest rates, Bank Indonesia raised them by 0.25 percent in a bid to rein in inflation, which hit more than 12 percent last month. While the country’s growth rate was 6.4 percent last year, it relies on the export of commodities, including natural gas and palm oil, that will be among the first affected by any global downturn.

In Singapore and Malaysia, shares fell by 5.6 percent and 1.95 percent respectively on Monday before rising marginally yesterday. In Thailand, an economic slowdown is helping to fuel the country’s protracted political crisis, which in turn is further undermining the economy. The Bangkok share market plunged 6.4 percent on Monday and another 4.2 percent yesterday to close on a five-year low, down 30 percent since January.

Forecasts of global growth are all being revised down. The IMF is due to release its latest economic estimates today, but a staff report obtained by Bloomberg.com forecast a global growth rate of 3 percent next year, down from the IMF’s April estimate of 3.7 percent. Growth will be “particularly weak” in the G-7 countries—the US, Japan, Germany, France, Britain, Canada and Italy—with Canada topping the list with a forecast growth of 1.2 percent. UBS AG predicted global growth of just 2.2 percent next year. JPMorgan Chase & Co declared in a report yesterday that world growth would hover around zero through the fourth quarter of 2008 and the first three quarters of next year.

The ongoing financial crisis combined with these bleak prospects for export markets is generating continuing volatility of Asian share values. Following the plunge on Wall Street last night, all the region’s stock markets opened sharply down on Wednesday. The MSCI Asia Pacific Index, which is a measure of share values across the region, had fallen by 2.7 percent by 10 a.m. in Tokyo. The Nikkei 225 index had lost another 2.6 percent, putting it below the 10,000-point mark.

European Union remains paralysed in face of market turmoil

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By Chris Marsden and Julie Hyland

The European Union’s finance ministers agreed Tuesday to raise the guarantee on bank deposits to a minimum of €50,000 ($68,160) and “to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers.”

They would “ensure a comprehensive and coordinated response to the current situation,” a joint statement declared. The finance ministers ruled out a US-style bailout, but said they would defend “systemic” institutions from collapse.

The declaration was an attempt to present a united front after days of indecision and fractious wrangling. It came in the aftermath of “Meltdown Monday,” in which nervousness over the state of Europe’s banking system contributed to massive falls in share prices on the major stock exchanges.

In just 24 hours, governments in Belgium, Luxemburg and Germany were forced to mount emergency bank rescue operations, while in Iceland trading was suspended and the government warned of the potential collapse of the country’s economy. Russia suspended trading twice on Monday and Tuesday and share values fell by over 20 percent.

The market turmoil exploded claims that Europe was relatively free from the financial crisis gripping Wall Street. Whatever the precise degree of direct involvement by the various European banks in the speculative activities most closely associated with the US and Britain, the world’s financial institutions are tightly integrated. Moreover, what began as a liquidity crisis has now spilled over into the rest of the economy.

It was evident that European leaders, like their US counterparts, had underestimated the depth and rapidity of the crisis gripping the world economy. Peter Peston of the BBC said, “One thing, and one thing alone is crystal clear: European governments are as dazed and confused by the mayhem in the global banking system as most of the rest of us.”

Even as the finance ministers began their meeting on Monday, Peer Steinbrueck had to excuse himself to work on what was described as a “system-wide rescue plan for Germany.” This came just hours after the second bailout in a week for the German mortgage lender Hypo Real Estate had been put into place.

In addition to the ongoing uncertainty, what frightened international markets was the prospect of beggar-thy-neighbour measures further destabilising Europe. Germany, Sweden, Austria and Denmark had followed Ireland and Greece in making unilateral pledges to support all savings, raising fears of a massive flight of capital across national borders. In particular, Sunday’s “political commitment” by German Chancellor Angela Merkel to protect savings in German banks opened up the prospect of cut-throat inter-bank competition throughout the continent.

Merkel’s announcement came less than 24 hours after the Paris summit of France, Germany, Britain and Italy had denounced such unilateral guarantees. There was immediate speculation that Britain would have to follow suit—exposing the Brown government to liabilities in excess of £950 billion in retail deposits, double the figure involved in Germany.

Despite the protestations levelled against Berlin, Dublin and Athens, the Paris summit had in fact paved the way for go-it-alone measures when it vetoed proposals for a coordinated bailout plan floated by France and Italy.

The proposal was opposed by both Germany and the UK, which would not countenance bailing out their European rivals. French President Nicolas Sarkozy was later forced to deny having mooted the plan and the summit instead issued a vague commitment that each European government would act to safeguard its own national institutions. This prompted Forbes to comment that “Europe’s most powerful heads of state” had “managed to quietly figure out that it was going to be every man for himself.”

The Guardian’s financial correspondent David Gow’s verdict on the Paris summit was even more damning. It represented “the flight of the EU’s seven leading figures from reality,” he wrote. “Outside, on a chilly but sunny evening, the creeping Balkanisation of Europe’s integrated banking system is moving up a gear; inside, they’re talking up a coordinated, collective response to combat the risk of a 1930s-style depression. But they... know full well that the EU’s financial system is going down the Seine and they are preparing emergency ‘national measures’.”

The fracturing of political relations was made more apparent by the fact that the four acted without any consultation with the rest of the EU’s 27 member states, including the 12 others within the euro zone. Spain protested bitterly at its exclusion.

With the markets in free-fall, there were strident demands for Europe to present some semblance of a common position. International Monetary Fund head Dominique Strauss-Kahn insisted, “Europe must prepare to put in place a collective line of defence. The stability of the world economy is at stake.”

To this end, on Monday night Sarkozy—acting on behalf of the EU—pledged that “No depositor in the banks of our countries has suffered losses and we will continue to take the necessary measures to protect the system as well as depositors... In taking these measures, European leaders confirm the necessity of a close coordination and cooperation.” Even at the eleventh hour, discord continued. Italian Premier Silvio Berlusconi had reportedly read out the same statement earlier as if it were his own, while claiming that a European-wide bailout might still be possible and that Germany had objected only because Merkel “didn’t have the power.”

Later, at a joint press conference in Berlin with Berlusconi, Merkel again rejected proposals for a pan-European bailout, insisting that “every country has to live up to its own responsibilities.”

Meanwhile, Iceland’s prime minister, Geir Haarde, attacked his country’s “friends” for failing to offer financial assistance to the ailing economy, forcing him to go cap in hand to Russia for a €4 billion ($5.4 billion) loan.

Tuesday’s package was an attempt by EU leaders to claw their way back from the precipice and make a show of unity. But it was far from convincing. The financial publication Bloomberg concluded that the ministers had “failed to find a solution to the frozen credit markets that created the biggest financial crisis since the Great Depression, settling for an increase on consumers’ deposit insurance.”

Even this limited measure was a compromise, after some countries urged a guarantee on deposits up to €100,000. The minimum level of support that was specified still leaves differing levels of guarantee across the continent. Whatever action is taken remains to be organised on a national rather than European-wide basis.

What does Merkel’s demand that every country must “live up to its own responsibilities” mean other than a further descent of the continent into economic conflict? An hour after the statement was issued, Spain announced that it was raising its guarantee of savings from €20,000 to €100,000.

The Paris summit had already agreed to temporarily relax euro zone rules against state subsidies and limits on national budgets—bringing an effective end to a coordinated monetary policy. There is even some speculation that the euro zone could fracture under the weight of increasingly divergent national interests.

Noting that recent years had seen “extreme movements in competitiveness, unit labour costs and trade balances across the euro zone,” the Guardian cited Charles Goodhart of the London School of Economics estimating the risk that the monetary union will break up at between 10 to 20 percent.

Leaving aside such doomsday scenarios, the economic and social implications of what has currently been proposed are vast. The banks and major corporations are demanding that billions be made available to them, under conditions in which France is officially in recession, Britain’s Chamber of Commerce insists that the UK is in recession and the rest of Europe looks set to follow.

For the last decade, Europe’s leaders have slashed welfare and public spending on essential services, claiming that the money was not available and the private sector was more efficient. Now, without any democratic consultation, let alone a vote, they have agreed to direct vast tranches of public funds into unstable financial institutions to pay for rampant speculation by the super rich.

So far this process has gone furthest in the UK, which is one of the world’s leading financial centres. Already this year some £200 billion has been made available to just two banks. As Brown held urgent talks with the Bank of England on Tuesday night, there were calls for the government to recapitalise major banks whose shares in some instances fell by around 40 percent.

This is just the tip of the iceberg—and there is no guarantee that it will work. Working people thus face wage cuts and tax hikes to preserve the grotesque wealth accrued by the financial oligarchy under conditions in which tens of thousands have already been thrown out of work across Europe. Unemployment stood at 7.5 percent in August and there are predictions that millions more could lose their jobs by the end of the year.

Picked to direct the Wall Street bailout: Who is Neel Kashkari?

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By Alex Lantier

On October 6 US Treasury Secretary Henry Paulson named Neel Kashkari to head the Treasury’s new Office of Financial Stability (OFS). The OFS is charged with paying out $700 billion to Wall Street banks and other financial firms in exchange for their failed mortgage-backed assets, under the terms of the bailout signed into law by President Bush on October 3.

Kashkari’s identity is thus a matter of considerable public interest. Only 35 years old, Kashkari joined the Treasury in 2006 “as a Senior Advisor to US Treasury Secretary Henry M. Paulson,” according to his official Treasury Department biography. At the time, Paulson was giving up his job as CEO of Wall Street investment bank Goldman Sachs to join the Treasury.

The biography continues, “Prior to joining the Treasury Department, Mr. Kashkari was a Vice-President of Goldman Sachs & Co. in San Francisco, where he led Goldman’s IT Security Investment Banking practice, advising public and private companies on mergers and acquisitions and financial transactions.”

Despite his high rank, Kashkari has only a few years of experience in finance. After initially studying aerospace engineering at the University of Illinois, he worked at defense firm TRW on contract projects from the US space agency NASA, before switching careers and attending the Wharton School of Business in Philadelphia. He joined Goldman Sachs after graduating from Wharton in 2002.

Once at the Treasury, Kashkari helped prepare the recently passed bailout. The Wall Street Journal wrote, “Mr. Kashkari was part of the Treasury team that negotiated the asset-repurchase program with Congress [...] He was also one of the originators of the plan. Last year, he and Phillip Swagel, assistant secretary for economic policy, crafted a proposal called ‘break the glass’—referring to the emergency nature of using such a tool—which envisioned Treasury buying bad loans and other assets.”

Kashkari’s history highlights the extraordinary influence of Goldman Sachs, a firm that stands massively to benefit from the bailout its former executives have organized at the Treasury. Not only does Goldman now have the option of unloading its failed mortgage-backed assets on the Treasury, but it stands to make large sums from carrying out the actual transactions of the bailout program itself.

On October 7, the New York Times wrote that Kashkari’s office was moving to “outsource almost the entire [bailout] project.” It continued: “The Treasury said it intended to hire one company as a ‘financial agent’ to set up the basic system, which would include running the auctions, keeping track of the various portfolios, and overseeing all the operational issues.” The OFS will also ask “experienced investment managers” to value and sell the failed assets—and these managers will come from firms that are “either sellers or buyers of mortgage-backed securities.”

The deadline for the Treasury to accept firms’ bids for the “financial agent” position is today, and the Treasury will announce its choice on October 10.

Goldman Sachs’ competitors have leaked objections in the press to the role of an ex-Goldman Sachs executive as the arbiter of this scramble for lucrative government contracts. In its article on Kashkari, the Financial Times wrote, “The prominence of Goldman alumni within the administration has raised eyebrows at competing Wall Street banks, which have become concerned about what some privately see as Goldman’s disproportionate influence over policy.”

While echoing some of these complaints, the media has suggested the government was taking corrective measures. Thus the Wall Street Journal commented, “Treasury is trying to determine how to handle conflicts of interest as a result of the program, especially with regard to the asset managers it hires. Anyone with direct experience of these mortgage assets will likely work for a firm with a financial stake in the same assets. [...] While it is unlikely that all conflicts will be eliminated, Treasury wants to find a way to manage conflicts using strict guidelines, according to people familiar with the matter.”

It is, of course, impossible to eliminate or control conflict of interest in the OFS program, because the entire bailout project—whereby the financial industry dictates the terms under which it receives $700 billion from the US Treasury—is in and of itself a gigantic conflict of interest.

In pushing the bailout, its supporters—particularly Democratic congressional leaders and presidential candidate Barack Obama—claimed there would be “transparency” and “oversight” safeguards. The nomination of Kashkari, however, exposes the fact that the financial elite will direct the entire process on behalf of its own interests.

US stocks plunge amid mounting signs of global recession

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By Barry Grey

US stock indexes plummeted on Tuesday despite new moves by the government to prop up Wall Street with billions more in taxpayer funds.

Ahead of the opening of the trading day, Federal Reserve Board Chairman Ben Bernanke announced that the Fed, backed by Treasury funds, would begin to buy commercial paper directly from banks, businesses and local governments that are unable to sell the short-term IOUs on the market due to a credit crisis that has assumed global dimensions.

The unprecedented action was aimed at averting a chain reaction of defaults and failures of a wide range of businesses that rely on the commercial paper market to meet immediate expenses. The cost of the program could well run into hundreds of billions of dollars, eclipsing the $700 billion bailout of the banks proposed by Treasury Secretary Henry Paulson and passed by the Democratic Congress on Friday.

US stock markets initially rebounded from the panic selling on Monday that had left the Dow Jones Industrial Average below the 10,000 mark for the first time in four years. By the time Bernanke delivered an afternoon speech in New York, however, all three major indexes had turned negative, and his grim prognosis for the US economy only accelerated the slide.

Not even Bernanke’s broad hint that the Fed would soon cut interest rates, making credit cheaper, stemmed the decline. A subsequent rambling and semi-coherent speech by President Bush touting the so-called Emergency Economic Stabilization Act passed Friday added fuel to the fire, and the downward trend turned into a rout in the final hour of trading.

The Dow Jones Industrial Average was down 508 points, or 5.1 percent, at the close of trading. The Nasdaq Composite Index fell 108 points, or 5.8 percent, and the Standard & Poor’s 500 Index declined 60.7 points, a drop of 5.7 percent, leaving that index below 1,000, its lowest level in five years.

Major banks suffered huge losses in the stock sell-off. Bank of America shares fell more than 26 percent, Morgan Stanley stock declined nearly 25 percent, Citigroup shares fell 13 percent, National City shares fell 11 percent as did those of JPMorgan Chase. Other big losers included United Airlines, down 25 percent, and Sun Microsystems, whose stock plunged by more than 10 percent.

Since Friday’s passage of the bailout bill—which was presented as the means to save “Main Street” from a deep and protracted recession—the Dow has lost more than 1,000 points and the financial crisis has intensified, both in the US and around the world. It is already clear that the bailout, while covering the losses of the Wall Street architects of the financial debacle, will do nothing to resolve what is a systemic crisis of the capitalist system that threatens the people of the US and the world with catastrophe.

Already the financial crisis, the result of speculation in pursuit of high profits, is having a cruel impact on working people. The government reported Tuesday that more than $2 trillion in retirement savings has been wiped out over the past 13 months.

The Associated Press released a survey showing that the number of Americans whose electricity or gas has been shut off for non-payment of bills rose sharply through August of this year. Shut-offs have been running 17 percent higher in New York state and 22 percent higher in Michigan, according to the report, and they are up in dozens of other states.

No emergency action is being proposed to address the social crisis engulfing the working class, which is compounded by rising unemployment and an epidemic of home foreclosures.

There are other indications that the economic crisis is intensifying. The International Monetary Fund’s latest Global Financial Stability Report concludes that world economic growth is headed for a “major downturn” in 2009. “The global economy is entering a major downturn,” the fund states, adding, “Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.”

In its report, the IMF raises its estimate of the total cost of write-downs to financial institutions with exposure to the US mortgage market to $1.4 trillion, up from its April estimate of $945 billion.

Another indication of deepening recession is a report from the Federal Reserve showing that borrowing by US consumers fell in August by the most on record, as banks shut off access to loans. According to the Fed, consumer credit fell by $7.9 billion, the sharpest drop recorded since such statistics began in 1943. Economists had forecast an increase of $5 billion.

Fueling the ongoing sell-off on US markets is a growing recognition that Paulson’s bailout program will not solve the financial crisis and concerns over the lack of any coordinated policy by US, European and Japanese central banks and governments. There is also a sense that not only the markets, but also the US government is in disarray.

Speaking of the Fed’s new program to buy commercial paper, Mark Gertler, a New York University economist and co-author with Bernanke, said it and other emergency measures taken by the US central bank were aimed at “stemming the bank run-like panic.”

Dirk Van Dijk, director of research at Zacks Equity Research, said, “Under all this, the real economy is headed south in a very big way. That is in itself going to put a lot more pressure on these banks.” He said he foresaw 200,000 to 250,000 jobs lost in October. “It’s going to be quite bad,” he added.

In his speech to the National Association of Business Economists, Bernanke said, “Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased.” He sought to discourage hopes that the $700 billion bailout program, which he praised, would lead to an early end to the crisis. “With time,” he said, “strengthening our financial institutions and markets will allow credit to begin flowing again...”

While his remarks were couched in the soporific language that is typical of Fed chairmen, they included scattered sentences that indicated the scope of the crisis. Speaking of the extraordinary measures he has taken in an attempt to contain the crisis, he said, “These are momentous steps, but they are being taken to address a problem of historic dimensions.” At another point he spoke of the financial system “and thus the health of the broader economy” as being “at risk.”

Bush’s speech, delivered to an audience of small businessmen in northern Virginia, was predictably banal and devoid of any sign that the speaker comprehended his subject matter. It included the standard bromides about the virtues of American capitalism.

Acknowledging that these are “serious times,” he declared, “We also know that we’re the most dynamic economy in the world... Our entrepreneurial system has delivered unparalleled levels of productivity and growth and prosperity.”

Nevertheless, he was at pains to warn his audience not to expect the bailout program he had signed into law to visibly ease the crisis any time soon—a stark contrast to the speeches he gave when he was promoting the plan, which depicted it as a bulwark against recession.

His speech was peppered with remarks like: “It’s going to take time...” “It’s not going to happen all at once.” “And it’s going to take a while.”

Longer term, he said, the solution was more drilling for oil in the US and making his tax cuts for the wealthy permanent.

At one point, Bush stressed that the crisis was global and required a coordinated solution agreed upon by the nations of the world. He then proceeded to call for a nationalist program of “energy independence” at the expense of foreign oil producers.

Asked by a member of the audience, “What do you think is going to happen to my 401(k) and other people’s retirement plan?” Bush replied, “I think in the long run they’re going to be fine because the stock markets will reflect real value. In the short term, they’re going to take a hit.”