Greenspan Says, "Who Could Have Known?"

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By Dean Baker

That’s right, the former Maestro told Congress last week, when asked about the meltdown of the housing bubble and the resulting financial crisis, "we’re not smart enough as people. We just cannot see events that far in advance."

Unfortunately, this sentence is even worse in context. Greenspan told the committee about the brilliant economists on staff at the Federal Reserve Board. His point was that if this group could not see the housing bubble, and the risks it posed to the economy, then it was not humanly possible to see it.

The reality is that it was possible - in fact, easy - to recognize the housing bubble as early as the summer of 2002. House prices nationwide had substantially outpaced inflation in the years since 1996 (coinciding with the stock bubble) after just tracking the rate of inflation for the prior hundred years. There was nothing in the fundamentals of supply or demand that could explain this run-up.

Furthermore, there was no corresponding increase in rents. Since people always have the choice to buy or rent, house sale prices and rents should rise and fall together over time, although not necessarily at the exact same pace. In the years since 1996, rents had only modestly outpaced inflation. And they had begun dropping in real terms by 2002. This was not consistent with house prices being driven by fundamentals.

It was also easy to see that the collapse of the housing bubble would cause enormous damage to the economy. Housing itself accounted for more than 6 percent of GDP at the peak of the boom in 2006. Today, it accounts for just over 3 percent.

More importantly, housing wealth provided the base for the consumption boom of this period. Research from the Federal Reserve Board and elsewhere shows that annual consumption is increased by 5 to 7 cents for each dollar of housing wealth. This means that the collapse of a bubble that eventually grew to $8 trillion would lead to a reduction in annual consumption on the order of $400 billion to $560 billion (2.6 percent to 3.7 percent of GDP).

In addition, housing is a highly leveraged asset. In normal times, buyers typically borrow 80 to 90 percent of the purchase price. Of course, housing became much more highly leveraged during the bubble with many borrowers putting zero down.

The heavy leverage in the housing market meant that it was inconceivable that a collapse of the housing bubble would not lead to serious consequences for the banking industry. I first warned that the collapse of the bubble would imperil the survival of Fannie Mae and Freddie Mac in September of 2002.

Greenspan would have been correct if he said that we are not smart enough as human beings to know when the bubble would finally burst. I did not expect the bubble to last as long as it did.

Of course, I did not bet on there being such a vast reservoir of foolish investors, not only in the United States but also in Asia and Europe, willing to buy garbage mortgages buried in complex derivative instruments. I also didn’t imagine the Fed and other regulatory agencies would ever be so completely out-to-lunch in policing mortgage issuance and the practices of the investment banks.

But the basic story, that there was a housing bubble that would burst, and that it would cause enormous damage to the economy, was completely knowable to any competent economist long ago. The failure of the economists at the Fed, as well as the vast majority of the economists elsewhere, to see the housing bubble and to recognize the damage that would be caused by its collapse, is a testament to the failure of the profession.

Greenspan’s claim that the crisis was not foreseeable is a cover-up for a profession that has badly failed the public. If factory workers or custodians had failed so miserably in their jobs, they would quickly find themselves unemployed.

Remarkably, in economics, the people responsible for this easily preventable disaster are suffering no negative consequences and, in fact, are still the ones designing the nation’s economic policies. Economists believe that if workers are not held accountable for their performance, then they will not do good work. If economists are not held accountable for their performance, then we should not expect good economic policy.

Contrary to what Greenspan told Congress, "we" are smart enough as people to see asset bubbles like the housing bubble. If his "we" are not smart enough, as he claims, then the current group of economic policymakers must be replaced with people qualified to do the job.

US Threatens To Halt Services to Iraq Without Troop Accord

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By Roy Gutman and Leila Fadel

The U.S. military has warned Iraq that it will shut down military operations and other vital services throughout the country on Jan. 1 if the Iraqi government doesn't agree to a new agreement on the status of U.S. forces or a renewed United Nations mandate for the American mission in Iraq.

Many Iraqi politicians view the move as akin to political blackmail, a top Iraqi official told McClatchy Sunday.

In addition to halting all military actions, U.S. forces would cease activities that support Iraq's economy, educational sector and other areas _ "everything" _ said Tariq al Hashimi, the country's Sunni Muslim vice president. "I didn't know the Americans are rendering such wide-scale services."

Hashimi said that Army Gen. Ray Odierno, the top U.S. military commander in Iraq, listed "tens" of areas of potential cutoffs in a three-page letter, and he said the implied threat caught Iraqi leaders by surprise.

"It was really shocking for us," he said. "Many people are looking to this attitude as a matter of blackmailing."

Odierno had no comment Sunday, but U.S. Embassy officials told McClatchy that a lengthy list of the sort Hashimi described has been passed to the Iraqi government. Among the services the U.S. provides are protection of Iraq's principal borders, of its oil exports and other shipping through the Shatt al Arab into the Persian Gulf and all air traffic control over Iraq.

The status of forces agreement, which calls for a final withdrawal of U.S. troops from Iraq by the end of 2011, was supposed to resolve a number of contentious issues between the two countries, but its completion 10 days ago has instead provoked a political crisis within Iraq's Shiite-dominated government and between Iraq and the United States.

Fearing a major battle in the Iraqi parliament, Prime Minister Nouri al Maliki solicited proposed amendments from his cabinet and called a meeting to review them Sunday afternoon.

However, the two main Shiite parties, Maliki's Dawa party and the Islamic Supreme Council of Iraq, were unable to produce their full lists of demands, and he postponed the meeting until Tuesday, other cabinet members said.

Hashimi said that Iran, a longtime backer of both parties, is pressuring Iraq's leaders not to accept the agreement.

The dispute "is real and factual. The government is not manipulating this dispute," Hashimi said. He said he hadn't yet seen the objections to the accord, even those from his own Sunni Iraqi Islamic Party.

Political party heads, including Hashimi, say that Maliki is responsible for the agreement, but Maliki has been unwilling to back the accord unless his Shiite coalition and other party members join him to take the political heat.

An additional complication is the decision of Hashimi's Iraqi Islamic party to suspend all "official communication" with U.S. military and civilian officials until it receives an explanation and an apology following a joint U.S.-Iraqi military raid against party backers in Anbar province in which one man was killed.

It's unclear what will happen when the Iraqi cabinet offers a list of proposed changes and Maliki winnows them down to proposed amendments.

Defense Secretary Robert Gates has said, "I don't think you slam the door shut" on amendments, but Hashimi said the U.S. is "adamant in saying, 'We close the door, we are not accepting any sort of amendment.' "

He said that if the United States met Iraq halfway and accepted amendments to the controversial articles of the accord, it would make it "rather easy" to submit the agreement to the parliament.

The alternative to a new agreement governing U.S. forces, an Iraqi request to the U.N. Security Council to extend the U.N. mandate, which now expires on Dec. 31, is also highly contentious.

One of the biggest concessions Iraq won from Washington in the negotiations over the forces accord was a stipulation that private contractors such as Blackwater that have been accused of killing Iraqi civilians would become subject to Iraqi law.

Immunity from prosecution for private contractors _ and for all official U.S. entities _ under Iraqi law was promulgated by the U.S. occupation government in June 2004, and ending that order is the subject of another confrontation between Iraq and the United States, Hashimi said. He said the United States insists that it would reject any Iraqi request to change the mandate.

Ironically, Iraqi politicians of practically every stripe agree that the proposed agreement would be a major advance toward restoring Iraq's full sovereignty and a vast improvement over the initial U.S. proposal made last spring.

He credited President Bush with changing the U.S. position as a result of twice-weekly conference calls with Maliki.

Global recession threatens mass lay-offs in China

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By John Chan

A wave of protests by laid-off workers is a sign of what is to come as the global recession hits China. Like their counterparts in North America, Europe and elsewhere in the world, workers in China are being hit hard by accelerating plant closures, especially in the major export industries.

The latest example is Smart Union, one of the largest toy manufacturers in Dongguan city in the southern province of Guangdong. Around 7,000 people lost their jobs after the company, which manufactured items for US toy giants like Mattel and Disney, went bankrupt on October 17.

Workers immediately protested to demand their wages, severance pay and other benefits—2,000 gathered outside the local Zhangmutou district government office and another 100 workers outside the factory gate. Riot police with shields and clubs were deployed at the government building. The local government posted a sign at the factory gate warning that workers could be detained for 10-15 days for staging illegal protests, or ignoring orders from security officials. The confrontation only ended when the government promised to provide 24 million yuan ($3.5 million) to cover two months of unpaid wages.

A 42-year-old worker told Associated Press: "This financial crisis in America is going to kill us. It's already taking food out of our months." Most workers were migrants from rural areas. Song Xiaoguan, 25, told Agence France-Presse (AFP): "We thought about going to Shenzhen or even Shanghai. But then factories are also closing down in those places." Another worker said he feared returning to Fujian province where economic conditions were worse than Dongguan. "I do not want to go back home a poorer man, in debt, and unable to feed my family," he said.

Smart Union's liquidation followed a loss of $US26 million caused by weak demand and rising costs—a situation facing most export industries. Earlier this month, Dongguan mayor Li Yuquan told foreign reporters that more than 400 factories in the city had closed down in the first half of this year, posing a serious unemployment problem. China's customs agency announced last week that 52.7 percent of the country's toy exporting companies—3,631 in all—had ceased operations in the first seven months of the year.

Dongguan is located in the Pearl River Delta—one of the country's major manufacturing zones. The region turns out vast quantities of low-cost consumer goods such as toys, textiles, shoes, garments, home appliances and electronics for Western markets. Foreign investors from Hong Kong, Taiwan, Japan, US and Europe have flooded the region to set up factories since the 1980s.

In boom times, workers laboured in the atrocious conditions for long hours and low pay. Now millions of workers are losing their jobs. According to Chen Cheng-jen, chairman of the Federation of Hong Kong Industries, a quarter of small and medium Hong Kong-invested companies in the Pearl River Delta will be closed by next January, throwing 2.5 million workers out of work.

Since mid-October, workers from a series of closed factories across Guangdong province have held protests by blocking roads and highways. The demonstrations included: 1,000 workers from a Dongguan pet utility company, 700 workers from a Dongguan shoe factory, 500 workers from an electronic plant in Fushan and 500 workers from a Panyu textile firm. On October 13, 1,000 workers from a closed Taiwanese-owned factory in Dongguan's Dongcheng district blocked a road, demanding three months in unpaid wages. Riot police were brought in to disperse the protest and arrested more than 20 people.

Shenzhen, a major manufacturing city in the Pearl River Delta, has also witnessed growing unrest. BEP, a home appliance manufacturer, recently declared bankruptcy, leaving 1,500 workers jobless. Workers staged demonstrations on October 20-21 and guarded the factory to prevent assets being looted by creditors and suppliers. The Shenzhen labour bureau offered each worker just 300 yuan ($US44) in compensation.

Following the collapse of watch manufacturer Peace Mark, more than 800 workers from its plant in the Baoan district of Shenzhen staged a protest on October 21, demanding 4 million yuan in severance pay. Another 600 workers from its factory in the Longhua district demonstrated in front of the township government. On October 20, more than 900 workers from the bankrupt electronics firm Gangsheng in Longgang district kidnapped a Hong Kong driver demanding the government cover unpaid wages.

Economic downturn
The labour unrest in Guangdong indicates why the Chinese regime has just announced an economic stimulus package in a desperate bid to keep growth above 8 percent. Either Beijing creates sufficient jobs to absorb the growing workforce or it faces a social explosion. The growth rate for the third quarter had already slowed to 9 percent—down from almost 12 percent last year.

China's exports expanded more than 22 percent in the first three quarters—but the figure was down 4.8 percent from the same period last year. Stephen Green, China economist with Standard Chartered, forecast that exports could tumble to "zero or even negative growth" in 2009. JP Morgan Chase recently estimated that Chinese exports would fall 5.7 percent for every one percent shrinkage in global economic growth.

Guangdong's exports rose just 14 percent in the first seven months of this year—down from 27 percent for the same period last year. Industrial profits were up just 4 percent in the first five months of the year—compared to 49 percent for the same period last year.

The slowdown in exports is reverberating throughout the whole economy, dragging down the prices of homes, especially in the once booming coastal cities. Yan Yu, a Beijing University academic, told USA Today on October 21 that the property bubble is starting to burst. Housing prices in Dongguan, for instance, have fallen by up to 50 percent this year, leaving many families owing more on their mortgage than their home is worth. The downturn in real estate, which is partly driven by a growing outflow of speculative capital from China, will weaken domestic demand and further slow the economy.

Zheng Zizhen, labour expert at the Guangdong Academy of Social Sciences, told the South China Morning Post on October 17 that the "big ships" of manufacturing were sinking because of the recession in the US and Europe. "And we do not know how long the others can stand. It all depends on how strong they are, so the government should be prepared for possible labour problems," he warned.

The situation is no different in the region around Shanghai—another major manufacturing area. On October 7, Zhejiang River Dragon Textile Printing & Dyeing Co, one of the largest factories of its kind in China, shut down, leaving 4,000 workers in Shaoxing city jobless. Hundreds of workers joined protests, even as suppliers and creditors were busy looting assets from the complex. More than 10,000 textile companies throughout China went out of business in the first half of this year—that is, before the full impact of US financial crisis in September.

A program broadcast by state-run CCTV on September 13 focussed on the situation in Shengze, the "silk capital" in Jiangsu province, where 2,400 textile firms employed 250,000 workers. The reporter explained: "You can see a lot of small textile enterprises in Shengze. Most of them have only 30 or 40 machines and 10 or 20 workers. These companies are mostly working hard to just get by; some are closing down for a period and then starting up again. Although some are still in production, they are increasing inventory, like the company behind me here. According to locals, they haven't been operating since Chinese New Year [in February]. For companies like this, no one is sure who will make it."

Most migrant workers were staying put, hoping that things would get better. They depended on whatever shifts were available to get by. At Hengli Chemical Fibre, a large firm, the workforce had already been slashed by 1,500 jobs, due to increases in productivity. While the stronger companies may survive by hiring fewer workers, the small firms that employ the bulk of workers can only cut costs and wages or go bankrupt. "This has put many migrant workers in a very difficult situation," CCTV explained.

With 90 percent of its economy dependent on silk-related textiles, Shengze is just one of many manufacturing cities in eastern China that specialise in a single product. There are "shoe" towns, "zipper" towns, "air conditioner" towns and "sock" towns—each with hundreds of thousands and even millions of workers dependent on the production of just one commodity. Once celebrated for their large numbers of successful new entrepreneurs, these towns and cities are now highly vulnerable to global recession.

As the full force of the economic tsunami hits China in coming months, many of these new industrial cities will rapidly be transformed from economic miracles to centres of political turmoil as sacked workers confront factory owners, police and government authorities.

Iraq's prime minister won't sign U.S. troop deal

Iraq's prime minister won't sign U.S. troop deal
Go to Original By Roy Gutman Fearing political division in the parliament and in his country, Iraqi Prime Minister Nouri al Maliki won't sign the just-completed agreement on the status of U.S. forces in Iraq, a leading lawmaker said Friday. The new accord's demise would be a major setback for the Bush administration, which has been seeking to establish a legal basis for the extended presence of the 151,000 U.S. troops in this country, and for Iraq, which won notable concessions in the draft accord reached a week ago. "No, he will not" submit the agreement to the parliament, Sheikh Jalal al Din al Sagheer, the deputy head of the Shiite Muslim Islamic Supreme Council of Iraq, told McClatchy. "For this matter, we need national consensus." Instead, Sagheer said, Iraq's political leaders are considering seeking an extension of the United Nations mandate for the presence of U.S. troops, which will expire on Dec. 31. Russia, a permanent member of the U.N. Security Council, has assured Iraq that it wouldn't veto an extension, he said, adding that one was likely to last between six months and a year. Ali al Adeeb, the chief of staff of Maliki's Dawa party, said Wednesday that the Iraqi parliament "cannot approve this pact in its current form." Top U.S. military officials have warned of serious consequences if the agreement isn't signed. Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, said earlier this week that Iraq's forces "will not be ready to provide for their security" after the current U.N. mandate runs out. "And in that regard there is great potential for losses of significant consequence," Mullen said. Army Gen. Ray Odierno, the top U.S. commander in Iraq, told USA Today: "Without (a security agreement), we would potentially have to cease all operations." Iraqis, however, are adamant that the accord must be open to further amendments if they're to approve it. "The problem is that when we were given the latest draft, we were told the American negotiators will accept no amendments to it, and the Iraqi government has more requirements," said Sagheer, an Islamic cleric who later led the Friday prayers broadcast on national television. He said that Maliki had come to the Political Council for National Security, a top decision-making body, and said the new accord was the best he could obtain, but it didn't include everything that Iraq wanted. If Maliki signed the accord and turned it over to the parliament, "I'm sure that the agreement will not be approved for 10 years," Sagheer said. The cleric said the draft accord was "good, in general," but its timing was bad. If an Iraqi negotiator accepted the agreement, "he will be taken as an agent for the Americans," and if he were to reject it, "he will be taken for an agent for Iran." A second factor is that the accord comes just before the U.S. elections, and an Iraqi negotiator had to ask whether it was best to negotiate with the lame-duck Bush administration or wait for its successor. More important, Sagheer said, are the approaching provincial elections in Iraq, which could be held early next year. "Iraqi politicians don't want to give their competitors the chance to use this agreement to destroy them," he said. The accord contains a number of American concessions, calling for U.S. troops to withdraw to their bases by June 2009 and to leave Iraq by the end of 2011 — both dates subject to extension, but only if the Iraqi government requests it. The accord also would allow Iraq to prosecute U.S. troops except when they're on U.S. bases or on military operations, strips private military contractors of U.S. legal protection and reclaims control over Baghdad's "Green" zone, the location of the U.S. Embassy and military headquarters and much of the Iraqi government's headquarters. Sagheer said that setting a timetable for a U.S. troop withdrawal was a "historic" accomplishment. He also acknowledged that an extension of the current U.N. mandate might not reflect the gains made in the status of forces draft. "For everything there is a price," he said. "And although (the accord) has many advantages, it also has many disadvantages, as it does for the coalition forces." The problem for Iraqis, he said, was "the feeling with some of the parties that America has no intention of withdrawing within the timetable." Iraqis, he said, had so many negative experiences while a British mandate under the League of Nations from 1920 to 1932 that they fear a written agreement. "We have the feeling that if the Iraqi government accepts the demands, it will give a legal right to be occupied, so we don't have any kind of sovereignty." Other politicians said that if Washington agrees to extend the negotiations, the talks will never end. "This is all a game to win time. When the current issues are settled, they will just find new ones. . . . They are delaying to appease Iran," said Mithal al Alusi, a secular Sunni legislator whos' critical of the current Shiite-led government.

For Whom the Bailout Tolls

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By Michael Winship

During the Stock Market Crash in 1929, that curtain-raising overture to the Great Depression, stories abounded of Wall Street brokers rushing to their office windows and leaping to their deaths. But according to the late John Kenneth Galbraith and other economic historians, those accounts of suicide were, by and large, fairy tales. Perhaps they were more dark-hearted, wishful thinking than reality - revenge fantasies on the part of those whose real life savings had been wiped out by ravenous speculators.

Nonetheless, the myth of those fatal plunges, like so many urban legends, is hard to shake. With more than a drop of cold blood, some have asked why, during this current fiscal crisis, we haven't seen similar tragedies in the ranks of high finance.

A close look at the recent government bailouts may explain why. The fat cats at the top had nothing to worry their pretty little whiskers about. Not only have most of their businesses been saved, for now at least, but they've already been pretty successful at protecting their high-rolling lifestyles, and finding bailout loopholes that allow them to keep hauling in the big bucks. To that ancient business axiom, "Buy low, sell high," add this amendment: When you get into trouble, beg for a bailout. Then, new money in hand, continue to act with the rapacious greed of Caligula or the Sun King.

You may already have heard how AIG, the insurance giant, after being saved to the tune of $85 billion, threw a $440,000 shindig at a California spa and then blew another $86,000 on a hunting trip to the English countryside, picking off partridges just as they were asking the Feds for an additional $38 billion. Bit of a sticky wicket, that.

Caught red-handed, AIG canceled plans for another 160 sales and promotion events that would have cost a cool $80 million AND - get this - agreed to stop spending millions of their newly gained tax dollars on lobbying efforts against increased government regulations - this after being rescued from extinction by that very same government. Talk about biting the hand that feeds you! New York State Attorney General Andrew Cuomo is demanding that AIG get back from its execs millions of dollars the insurer paid out as the company neared collapse, and on Wednesday, the insurance giant agreed to freeze $600 million worth of deferred compensation and bonuses for its top brass.

There are "claw back" provisions in the big $700 billion bailout passed by Congress three weeks ago, requiring that financial institutions get money back from their senior executives, if the payments were "based on statements of earnings, gains, or other criteria that are later proven to be materially inaccurate."

But the executive pay limits in the legislation apparently have so many loopholes you could fly a fleet of Gulfstream corporate jets through them. Oregon Congressman Peter de Fazio caught at least seven, "that will protect their outrageous paychecks and golden parachutes," he wrote fellow Democratic House members, adding, "Imagine how many more loopholes the Wall Street lawyers will find."

No doubt the nine banks into which the US is planning to inject billions in capital - again, all taxpayer dollars - have their lawyers searching for those escape hatches. Writing in the Seattle Post Intelligencer, Sarah Anderson and Sam Pizzigati of the Institute for Policy Studies calculated that last year the CEO's of those nine banks took home "on average, $32.2 million each, nearly triple the average CEO pay at the 500 biggest US companies. This is more than $600,000 a week." Apiece.

Bloomberg News columnist Jonathan Weil figures that since the start of fiscal 2004, the once Mighty Five of Wall Street - Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns - lost around $83 billion in stock market value. But they reported employee compensation of around $239 billion. In other words, the engineers who dug this disastrous hole paid themselves almost three dollars for every dollar they lost.

The cost to the taxpayer of all the bailouts, as calculated by the internet investigative newsroom ProPublica.org, is a whopping $8,750 per household, more than two and a half times what lucky us got to fork over 20 years ago during the savings and loan crisis.

But the masters of the universe are just fine, thank you, in no small part due to the tolerance and largesse of their guru, Treasury Secretary Henry Paulson, late of Goldman Sachs, where Forbes magazine reports that during a 32-year-career he accumulated more than $700 million. He said limiting compensation too punitively might prevent some institutions from participating in his plan to save the economy.

No, the people suffering are the nearly 800,000 out of work so far this year. More families with children are homeless. Delinquencies and foreclosures are at their highest in nearly three decades, and The Los Angeles Times reported earlier this month that, "Worries about home foreclosures, job losses and plunging stock prices have sparked a surge in mental health problems."

Including suicide. In California recently, where professionals say mental health referrals have tripled in the last year, unemployed financial adviser Karthik Rajaram killed himself and four members of his family, including his wife, children and mother-in-law. In two suicide notes, he said he was broke and had run out of options. Variations of his story are appearing all over the country, from Colorado to Tennessee.

There are some happier stories. Tom Dart, the sheriff of Cook County, Illinois, suspended all foreclosure evictions because they were throwing into the street tenants of buildings who had nothing to do with their landlords' inability to make payments. Jocelyn Voltaire, an immigrant from Haiti, was about to lose her home after the death of her eldest son, a Marine in Iraq who had been sending her money to help meet the mortgage.

After seeing a report produced by the American News Project, members of the antiwar group CodePink raised $30,000 to save Voltaire's house.

Testifying before the House Budget Committee this week, Federal Reserve Chairman Ben Bernanke agreed that homeowners in jeopardy of foreclosure need help. "I agree that stopping preventable foreclosures is extremely important," he said. "I hope we continue to look for ways to do that."

But so far the government and the businesses bailed out haven't looked very hard. They've done little or nothing and it's every man for himself, devil take the hindmost. In his history of the 1929 market crash, John Kenneth Galbraith wrote, "The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil."

In other words, virtually nonexistent, somewhere around zero. In other words, my fellow Americans, look out below. Do not ask for whom the bailout tolls. It tolls for thee.

Meet the World's New Reserve Currency:The Chinese Yuan

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By Mike Whitney

Things are getting worse. On Friday morning, futures trading was halted for the first time ever after futures plunged more than 5 percent. The sell-off came after another 500-plus down day on the Dow followed by steep declines in equities markets across Europe and Asia. Japan's benchmark index, the Nikkei, slipped more than 9.5 percent after Toyota and Samsung reported disappointing earnings. The news was equally bad in Europe where shares were battered across the continent on fears of a global recession. Since September, $16 trillion has been erased from global stock market value. Losses in the US--where the financial turmoil originated--have been much smaller than other, more vulnerable markets. The Dow is down less than 40 percent from its peak of 14,000, whereas Hong Kong, Poland and China have all tumbled more than 60 percent. Its a bloodbath.

The Chicago Board Options Exchange Volatility Index, "the Fear Index", surged to 79.13 on Friday, the highest in its 18-year history, while the Dow clawed its way back from 500 points down to a 312 point loss on the day. The massive blow-off in stocks is mainly the result of ongoing deleveraging among the hedge funds which are dumping shares in at a record pace to cover the dwindling value of their asset base. According to the New York Times: "Hedge funds lost an estimated $180 billion during the last three months and some are near collapse. Investors are demanding their money back, and Wall Street is bracing for a shake-out in the $1.7 trillion industry." If a large fund, like Citadel, goes down, it will create a black hole in the financial system, similar to the loss of Lehman Bros. and, once again, the US Treasury will have to come to the rescue by providing a multi-billion dollar taxpayer bailout.

The dislocations caused by the unwinding of the hedge funds creates the possibility that US markets will have to be closed while assets are dumped on the market. New York University Professor Nouriel Roubini summed it up like this:

"Policy makers may soon be forced to close financial markets as the panic selling accelerates.
Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. There is a free fall as most investors are rapidly deleveraging and we are on the verge of a a capitulation collapse. What matters now is only flows - rather than stocks and fundamentals - and flows are unidirectional as everyone is selling and no one is buying as trying to buy equities is like catching a falling knife. There are no buyers in these dysfunctional markets, only sellers and panic is the ugly state of this destabilizing game.

We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies. So it is time to think about more radical policy actions and government interventions." (Nouriel Roubini's Global EconoMonitor)

The stock market rout has triggered gigantic swings in the currency markets, too. The dollar has surged 16 percent against the euro in a matter of weeks while every other currency in the world has steadily lost ground, excluding the yen. The sudden fall in commodities and the unwinding of dollar-based bets in foreign capitals has bolstered the dollar and made US Treasurys the preferred "flight to safety" investment.

The volatility is causing problems everywhere, particularly where foreign companies must pay back loans in dollars which have risen steeply in relation to their own currencies. Emerging "commodities based" markets are getting clobbered. The stronger dollar also threatens to make it harder on US exports which have been the one economic bright spot in recent months. If present trends continue, then foreign governments will have to allocate more of their reserves to prop up their own currencies which will make it even more difficult for the US to fund its current account deficit as well as the Treasury's expanding balance sheet. In other words, these violent and unprecedented currency swings foreshadow a funding crisis looming just ahead as credit is drained from the financial system and capital becomes even scarcer. For now the dollar is flying high, but the future is looking grimmer by the day.

The financial crisis is wringing credit from the system and pushing prices downward across the board. No asset class has been spared, including gold which posted its biggest one week loss in 28 years and has plummeted from $1,040 in March to $734 at Friday's market close.

Oil has also been hammered by speculative bets made by the hedge funds which are now forced to sell their positions to cover downgrades on their mortgage-backed assets. The erratic movement in oil prices makes it possible to see the real destructive power of the unregulated market, particularly the opaque buying and selling by the hedge funds. In just 14 months oil went from $70 to $145 and back to $67 again on Friday. Wall Street speculators drove up prices with money they borrowed from the investment banks and delivered a knockout blow to the US consumer. The Fed played a critical role in this "gaming the system" by providing the low interest credit that created burgeoning profits for the investment class and falling living standards for everyone else.

Now that the currency bubble has popped, its effects are being felt worldwide. Countries that benefited from the high commodities prices are now getting slammed everywhere from Russia to the Persian Gulf. Ethanol producers are facing bankruptcy if things do not turnaround in the next 12 months. As the Wall Street Journal notes:

"The tragedy of the second bubble is that it has left the economy in a weaker position to ride out the housing slump and credit panic. The American consumer has been whipsawed with $4 dollar gas and food inflation, while entire industries have been put on the edge of bankruptcy. Detroit's auto makers have spent the last year taking down their truck and SUV assembly lines while gearing up to make hybrids and electric cars, even as their cash flow has been ravaged. Their new investments are based on the expectation that oil will stay high permanently, but will the market for hybrids exist if oil is $50 a barrel?

As Congress plumbs the causes of our current mess, the main one is hiding in plain sight: Reckless monetary policy that did so much to create the credit mania and then compounded the felony with a commodity bubble and run on the dollar whose damage is now becoming apparent." (Wall Street Journal)

The effects of low interest rates and credit contagion are not limited to "bottom line" considerations. As Marketwatch's Thomas Kostigen points out, monetary policy can be a death sentence for poor people across the planet who are invariably it biggest victims:


"The harsh reality of the economic fallout isn't that Joe the plumber can't buy his business or that people's retirement funds are being lost or that unemployment is rising; the harsh reality is that people will die.

Already, since food prices began to rise 100 million more people have been pushed into poverty, according to the World Bank, with as many as two billion on the verge of disaster. Almost half the world's population, let's remember, live on less than $2.50 per day. Millions die annually of hunger and starvation, and more than a billion do not have access to fresh water.

These numbers are poised to rise dramatically with population growth, dwindling natural resources and higher consumer prices across all goods and services. So as the stock market tumbles and the world economy falters, it's important to remember that it's more than financial losses we are talking about, it's the loss of life.

And increasingly it isn't just people in far-off places around the world who are succumbing to such extreme hardships. Note this: Job losses in the state of Indiana have caused the child poverty rate there to spike 29% since 2000. The wealth gap in the United States and around the world is at record levels -- and it has serious consequences.

The Organization for Economic Cooperation and Development reported this week that the gap between the rich and the poor is getting bigger around the world, and that the U.S. is experiencing the biggest dichotomy.

We are experiencing the largest wealth gap in history. Further erosion of the economic floor will only send more people plunging into destitution.

This is why it's so important to fix the economic crisis -- now.

We're all linked." (MarketWatch)

The Bush administration has called for an economic summit to be held by the 20 largest economies sometime after the presidential elections. US and EU officials are hoping to stitch together another Bretton Woods wherein control of the global economic system was delivered to those same nations. It's likely, however, that the outcome will turn out considerably different than anticipated. Already, under China's leadership, 12 Asian nations have agreed to set up an 80-billion-dollar fund to protect their economies from currency-runs, capital flight or other financial disruptions. China has the world's largest reserves at $1.9 trillion followed by Japan at more than $1 trillion. Clearly the two richest nations will set the agenda and play a central role in deciding how best to deal with the global recession.

The November summit in Washington could produce some unwelcome surprises which were hinted at by Thailand's Deputy Prime Minister, Olarn Chaipravat, who told Bloomberg News: ,

"The message of this initiative is for China to consider whether or not China would open up its banking system and allow the strongest currency in the world, which is the Chinese yuan, to be the rightful and anointed convertible currency of the world."

Surely, the present financial malaise which has its roots in Wall Street and at the Federal Reserve, has demonstrated that the dollar must be replaced as the world's "reserve currency" and that America must be deposed as the de facto steward of the global economic system. Leadership implies responsibility and the US must be held to account for its failings. It's time for a change.

Final Text of Iraq Pact Reveals a U.S. Debacle

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By Gareth Porter

The final draft of the U.S.-Iraq Status of Forces agreement on the U.S. military presence represents an even more crushing defeat for the policy of the George W. Bush administration than previously thought, the final text reveals.

The final draft, dated Oct. 13, not only imposes unambiguous deadlines for withdrawal of U.S. combat troops by 2011 but makes it extremely unlikely that a U.S. non-combat presence will be allowed to remain in Iraq for training and support purposes beyond the 2011 deadline for withdrawal of all U.S. combat forces.

Furthermore, Shiite opposition to the pact as a violation of Iraqi sovereignty makes the prospects for passage of even this agreement by the Iraqi parliament doubtful. Pro-government Shiite parties, the top Shiite clerical body in the country, and a powerful movement led by nationalist cleric Moqtada al-Sadr that recently mobilised hundreds of thousands of demonstrators in protest against the pact, are all calling for its defeat.

At an Iraqi cabinet meeting Tuesday, ministers raised objections to the final draft, and a government spokesman said that the agreement would not submit it to the parliament in its current form. But Secretary of Defence Robert Gates told three news agencies Tuesday that the door was "pretty far closed" on further negotiations.

In the absence of an agreement approved by the Iraqi parliament, U.S. troops in Iraq will probably be confined to their bases once the United Nations mandate expires Dec. 31.

The clearest sign of the dramatically reduced U.S. negotiating power in the final draft is the willingness of the United States to give up extraterritorial jurisdiction over U.S. contractors and their employees and over U.S. troops in the case of "major and intentional crimes" that occur outside bases and while off duty. The United States has never allowed a foreign country to have jurisdiction over its troops in any previous status of forces agreement.

But even that concession is not enough to satisfy anti-occupation sentiments across all Shiite political parties. Sunni politicians hold less decisive views on the pact, and Kurds are supportive.

Bush administration policymakers did not imagine when the negotiations began formally last March that its bargaining position on the issue of the U.S. military presence could have turned out to be so weak in relation with its own "client" regime in Baghdad.

They were confident of being able to legitimise a U.S. presence in Iraq for decades after the fighting had ended, just as they did in South Korea. Secretary of Defence Robert Gates had declared in June 2007 that U.S. troops would be in Iraq "for a protracted period of time".

The secret U.S. draft handed to Iraqi officials Mar. 7 put no limit on either the number of U.S. troops in Iraq or the duration of their presence or their activities. It would have authorised U.S. forces to "conduct military operations in Iraq and to detain certain individuals when necessary for imperative reasons of security", according to an Apr. 8 article in The Guardian quoting from a leaked copy of the draft.

When Prime Minister Nouri al-Maliki demanded a timetable for complete U.S. withdrawal in early July, the White House insisted that it would not accept such a timetable and that any decision on withdrawal "will be conditions based". It was even hoping to avoid a requirement for complete withdrawal in the agreement, as reflected in false claims to media Jul. 17 that Bush and Maliki had agreed on the objective of "further reduction of U.S. combat forces from Iraq" rather than complete withdrawal.

By early August, however, Bush had already reduced its negotiating aims. The U.S. draft dated Aug. 6, which was translated and posted on the internet by Iraqi activist Raed Jarrar, demanded the inclusion of either "targeted times" or "time targets" to refer to the dates for withdrawal of U.S. forces from all cities, town and villages and for complete combat troop withdrawal from Iraq, suggesting that they were not deadlines.

When Secretary of State Condoleezza Rice visited Baghdad Aug. 21, the United States accepted for the first time a firm date of 2011 for complete withdrawal, giving up the demand for ambiguous such terms. However, the Aug. 6 draft included a provision that the U.S. could ask Iraq to "extend" the date for complete withdrawal of combat troops, based on mutual review of "progress" in achieving the withdrawal.

Because it had not yet been removed from the text, U.S. officials continued to claim to reporters that the date was "conditions-based", as Karen DeYoung reported in the Washington Post Aug. 22.

The administration also continued to hope for approval of a residual force. U.S. officials told DeYoung the deal would leave "tens of thousands of U.S. troops inside Iraq in supporting roles...for an unspecified time". That hope was based on a paragraph of the Aug. 6 draft providing that the Iraqi government could request such a force, with the joint committee for operations and coordination determining the "tasks and level of the troops..."

But the Oct. 13 final draft, a translation of which was posted by Raed Jarrar on his website Oct. 20, reveals that the Bush administration has been forced to give up its aims of softening the deadline for withdrawal and of a residual non-combat force in the country. Unlike the Aug. 6 draft, the final text treats any extension of that date as a modification of the agreement, which could be done only "in accordance to constitutional procedures in both countries".

That is an obvious reference to approval by the Iraqi parliament.

Given the present level of opposition to the agreement within the Shiite community, that provision offers scant hope of a residual U.S. non-combat force in Iraq after 2011.

Another signal of Iraqi intentions is a provision of the final draft limiting the duration of the agreement to three years -- a date coinciding with the deadline for complete withdrawal from Iraq. The date can be extended only by a decision made by the "constitutional procedures in both countries".

The final draft confirms the language of the Aug. 6 draft requiring that all U.S. military operations be subject to the approval of the Iraqi government and coordinated with Iraqi authorities through a joint U.S.-Iraqi committee.

The negotiating text had already established by Aug. 6 that U.S. troops could not detain anyone in the country without a "warrant issued by the specialised Iraqi authorities in accordance with Iraqi law" and required that the detainees be turned over to Iraqi authorities within 24 hours. The Oct. 13 "final draft" goes even further, requiring that any detention by the United States, apart from its own personnel, must be "based on an Iraqi decision".

The collapse of the Bush administration’s ambitious plan for a long-term U.S. presence in Iraq highlights the degree of unreality that has prevailed among top U.S. officials in both Washington and Baghdad on Iraqi politics. They continued to see the Maliki regime as a client which would cooperate with U.S. aims even after it was clear that Maliki’s agenda was sharply at odds with that of the United States.

They also refused to take seriously the opposition to such a presence even among the Shiite clerics who had tolerated it in order to obtain Shiite control over state power.

Fallout of US-India nuke deal

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By Howard Lafranchi

Could China's plan to help Pakistan build nuclear power plants be the first of many pacts in the region?

China's agreement to help Pakistan build two nuclear power plants is prompting warnings that the new US-India civilian nuclear deal is already pushing other countries to pursue their own nuclear relationships.

The concern among South Asia experts and nonproliferation advocates is that the American deal allowing India to pursue an expanded civilian nuclear program with limited safeguards is prompting other countries in a volatile region to seek a similar deal – something the US had said would not happen.

"You can't help but hear about China supplying Pakistan with nuclear power plants and see it as a reaction to the US-India deal," says Michael Krepon, a South Asia nuclear proliferation expert at the Henry L. Stimson Center in Washington. "Pakistan is desperate for energy, as is India, but there are lower-cost and shorter-timeline options for producing it, so there is something else going on here and in the Middle East."

That "something else" – whether a result of Iran pursuing a nuclear program it claims is peaceful or Saudi Arabia talking nuclear power with the US – is a regional scramble to counterbalance the nuclear plans of often untrusted neighbors. In the case of Pakistan, it's the pursuit of a counterweight to offset the expanding US-India strategic partnership – particularly in the nuclear realm – through a similar, though less ambitious, partnership with China.

Announcement of China's intentions to add two nuclear plants to the Chinese-built one Pakistan already has came during a visit by Pakistan's new president, Asif Ali Zardari, to Beijing last week.

Pakistan's foreign minister, Shah Mahmood Qureshi, told reporters after the visit that Chinese officials are sympathetic to Pakistan's concerns about the "discriminatory nature" of the US-India deal. He suggested China, Pakistan's longtime ally, was acting partly in the interest of a balance of power in South Asia.

US had claimed no nuclear race

Still, the announcement left many questions unanswered, regional analysts say, including how Pakistan would pay for the projects when it is in a deep economic crisis and seeking aid from the International Monetary Fund to avoid defaulting on billions of dollars in debt.

Mr. Zardari returned to Islamabad without the billions in loans he is believed to have sought from China, so speculation has arisen that the nuclear deal was something of a consolation prize. "It could be a political fig leaf, since Zardari didn't get the financial package he wanted, or China could be legitimately concerned about the US-India deal, it's hard to know," says Jon Wolfsthal, a nonproliferation expert at the Center for Strategic and International Studies in Washington.

What is clear, he says, is that the US-India deal – which gives India, once a nuclear pariah for refusing to sign the Nuclear Non-Proliferation Treaty, access to international nuclear technology and to fuel for nuclear power plants – is having an "I-want-some-too" impact. "The US-India deal makes it harder for the US to argue that countries like China shouldn't pursue nuclear trade with a country like Pakistan," Mr. Wolfsthal says.

As it pressed earlier this year for international approval of its pact with India from the Nuclear Suppliers Group (NSG) – an assembly of countries that seeks to control proliferation of nuclear weapons by limiting export of nuclear fuel and materials – the US made the case that India had been a responsible steward of its nuclear materials and had earned special treatment.

US officials on various occasions have stressed that the deal would not open the door to a nuclear race in South Asia or anywhere else. In Delhi last month, US ambassador to India, David Mulford, responded to a journalist's query by saying that there was "no possibility" that China would seek a similar deal with Pakistan.

Of course, China might not seek approval from the NSG for its deal with Pakistan, some experts say. Instead, it might claim the deal is grandfathered under its earlier nuclear agreements with Pakistan. Another possibility: Having acquiesced as part of the NSG to the US-India deal, China might seek approval of its Pakistan deal to test how far the group would go in discriminating between countries.

India's nonreaction

Some nonproliferation advocates worry that the China-Pakistan deal – and the international silence that has met the announcement so far – could suggest that determination to control nuclear proliferation is weakening.

"India's silence suggests, if anything, that they are smiling on this, so the question is, why?" says Henry Sokolski, executive director of the Nonproliferation Policy Education Center in Washington. "One answer may be that they are more interested in trashing the international restrictions and the Nuclear Suppliers Group that limit them, than in denying Pakistan access to reactors."

Still, he says that does not explain why US officials and members of Congress who questioned the deal with India have remained mum.

The Stimson Center's Mr. Krepon says he would not expect India to "beat the drums on this" for a number of reasons. One, he says, is that India would expect the China-Pakistan deal to go to the NSG, and would anticipate the group putting tighter restrictions on Pakistan.

He adds that, contrary to the US-promoted notion, India "does not have a blemish-free record" on proliferation. But he says Pakistan's is "worse," with Exhibit A being the A.Q. Khan network of clandestine nuclear exports.

At the same time Krepon says India can hardly jump to the attack on a deal that comes on the heels of its own success with nuclear powers. "It's in India's interest to maintain its own freedom of action," he says. "They got a sweetheart deal."

Another explanation for India's silence has more to do with its vision of itself as a rising global power that is now playing on a different field from its traditional rival next door. "On one level," says CSIS's Wolfsthal, "the Indians are saying 'We're not going to respond to everything the Pakistanis do, we're playing at the big boys' table now.' "

European auto industry in crisis

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By Ulrich Rippert

On Thursday, the German stock exchange fell dramatically as auto manufacturers announced substantial job cuts and austerity measures.

According to media reports, Volkswagen plans to cut up to 25,000 temporary staff and contract workers. Management at the VW headquarters in Wolfsburg denied that decisions have already been made, but did confirm that a “crisis programme” is being worked on.

The Frankfurter Rundschau quoted Volkswagen boss Martin Winterkorn saying, “We cannot avoid making harsh cuts.” Addressing 500 top-level personnel in Wolfsburg, Winterkorn said, “Prospects have not been so bad and so uncertain for a long time.” In order to counter the impact of falling sales, shifts are being cut immediately and surplus capacity rolled back.

While the Volkswagen “Betriebsrat” (union-management Works Council) has tried to placate the workforce, describing press reports as panic-mongering and “complete rubbish,” automobile expert Ferdinand Dudenhöffer said he thought the dismissal of 25,000 temporary staff was “not unrealistic.”

He told NDR Info, “As we move into the new year, we will have to reckon with these numbers.” The auto industry was being seriously affected by the financial crisis, he said.

The prospects for Daimler also look bleak. The company, which manufactures Mercedes cars, has lowered its profit forecast for the second time in a few months, citing catastrophic last quarter returns. The company announced Thursday that it expects to see an operating profit of €6 billion. In the summer, chief executive Dieter Zetsche, had already lowered his original profit forecast from €7.7 billion to approximately €7 billion.

In the third quarter, the results before interest and taxes sank from €1.89 billion to approximately €650 million. This is mainly attributed to the collapse in operating profits at Mercedes; which slumped in the third quarter by 92 percent to only €112 million.

On Friday, French auto manufacturer Peugot halved its profit forecast, predicting a margin of just 1.3 percent instead of the 3.5 percent it had previously expected. Turnover in 2008 will be approximately 3.5 percent below that of 2007.

“Massive” cuts in production are planned for the fourth quarter. The third quarter saw Peugeot’s projected annual turnover fall to €13.3 billion, down 5.2 percent.

“Renault is also looking sceptically into the near future,” wrote newsweekly Der Spiegel. Operating profits for 2008 fell to 2.5-3 percent, the company said on Thursday evening. In response to falling sales the French auto manufacturer is temporarily halting production at all of its plants. The suspension will start next week and last for “one or two weeks,” according to a representative of the CGT trade union.

Volvo, the second largest truck manufacturer in the world, has reported a fall in profits of over 36 percent and has lowered its expectations for the whole year. The Swedish company anticipated its turnover in North America would decrease by approximately ten percent in the current fiscal year. In Europe, too, its sales figures have declined.

Japanese automaker Toyota has announced a decrease in its sales in Germany by some 22 percent in comparison to the same period last year.

Fiat also announced on Thursday that it anticipated its profits would shrink considerably in the coming year. The Italian auto and industrial giant warned that poor trading conditions meant profits could be reduced by 65 percent.

In Europe, the number of new cars sold fell in September by 8 percent compared to the previous year, to approximately 1.3 million vehicles. Customers are delaying their purchase decisions and face difficulties financing a new car, according to the European Automobile Manufacturers Association.

For the second time, Opel has halted production at its Bochum plant, where production lines will remain still for two weeks. In Eisenach its plant has already been idle for a week and production will be suspended until the end of the month. Opel plants in Antwerp (Belgium) and Ellesmere Port (Britain) have been shut down for two weeks.

In the company’s Kaiserslautern works, which supplies the Bochum and Eisenach plants, some 550 of the 2,400 workforce have been put on short-time working. In Bochum, the usual one-week Christmas break is to be extended to two weeks, starting on December 16.

In Luton (Britain), Gleiwitz (Poland), Trollhättan (Sweden) and Saragossa (Spain) production will be halted for the coming week.

Blaming falling orders in the US market, Ford plans to place some parts of its engine manufacturing operations on short-time working for five weeks in November, affecting 820 of the 17,300 employed at its Cologne plant. It is anticipated that a decision regarding the future of the Cologne engine works will be made by the end of the year. Ford management previously announced it would stop manufacturing six-cylinder engines at the facility.

While auto workers all over the world are confronted with mounting attacks on their jobs and conditions, factory councils and trade unions try to contain workers’ anger, calling for calm. They are covering up for management and are determined to prevent any workplace resistance to massive job cuts and the likely closure of entire plants.

Where plants are threatened, as in Cologne, they try to play off one location against another. Thus, in Cologne, the Ford factory council insists that in view of the threatened closure of the plant, production of three-cylinder engines should not be undertaken in Romania but should come to Cologne.

An international strategy to defend the jobs of auto workers and the millions of workers in subsidiary industries dependent on the auto industry can only be developed in opposition to the nationalist and corrupt politics of the unions.

Warnings of recession send global share markets plunging

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By Peter Symonds

World share markets plunged again on Friday, as further signs emerged that the global economy is heading for a deep and protracted recession. The largest falls were in Asia, where major exporters are being hit by shrinking markets in the US and Europe.

Japan's Nikkei 225 sank by 9.6 percent, India's Sensex fell 11 percent and South Korea's Kospi plunged 10.6 percent. Across the region, the picture was similar: Hong Kong's Hang Seng was down 8.3 percent, Singapore's Strait Times Index fell 8.3 percent and Taiwan share prices fell 3.2 percent to hit a new five-year low.

Losses for the week across the region's eight top markets totalled nearly $820 billion, according to FactSet Research data. The Kospi was down more than 20 percent, the Nikkei down 12 percent and the Sensex down nearly 13 percent.

Panicked investors reacted to announcements by Samsung of a 44 percent drop in its third quarter profits and by Sony of a cut in its full-year profit forecast by half. Sony cited falling sales, financial stress and a strong yen as the reasons. The shares of major Japanese exporters all suffered huge losses yesterday: Sony fell by 14 percent, Sharp by 13.7 percent, Panasonic by 12 percent, Nikon by 12.4 percent and Toyota by 11.5 percent.

Amid collapsing share prices, European and Asian leaders gathered in Beijing at the Asia-Europe Meeting (ASEM) to discuss the financial crisis sweeping the world. European Union President José-Manuel Barroso urged unprecedented cooperation to deal with unprecedented times. "We sink or swim together," he warned. "We need Asia to be on board and more particularly countries like China and India. The eye of the storm was in the US, but it is a global storm and there will be ripple effects all over the world."

It is already evident that Asia will be hit by more than ripples. The region's heavy reliance on exports makes it particularly vulnerable to any global downturn. Exports accounted for 46.7 percent of gross domestic product in Asia, excluding Japan, in 2007. According to Morgan Stanley Asia Chairman Steven Roach, this is an 11 percent rise since the 1997-98 Asian financial crisis. Asia may not be exposed to the international credit crunch, Roach noted, "but it's certainly levered to the global economy."

In other words, just as banks in Europe and the US are deleveraging by writing down assets, so Asia will have to "deleverage" by slashing its massive buildup in manufacturing capacity. In comments to the Wall Street Journal, IHS Global Insight Director William Hess made a similar warning: "The crisis represents an unwinding of global imbalances... The markets are saying that, outside of this financial crisis, there may be lean years ahead as rationalisation takes place" in the Asian manufacturing sector.

Across the region, there are pronounced signs of a rapid economic slowdown. According to some commentators, Japan, which posted a second quarter economic contraction of 3 percent, is already in recession.

Growth rates in China are still high, but have declined sharply from nearly 12 percent last year to 9 percent for the third quarter of this year. Sketchy reports are already emerging from the country's major manufacturing zones of a wave of factory closures and job losses.

South Korea yesterday announced the lowest growth figure in four years for the third quarter—an annualised 3.9 percent. The international ratings agency Moody's recently forecast a growth rate of 2.2 percent for South Korea next year.

For all the grand promises of cooperation in Beijing yesterday, the ASEM summit was fraught with tensions as Asian and European leaders pressed their own economic interests. French President Nicolas Sarkozy declared that Europe would present "a united front" at next month's G-20 summit in Washington and appealed for Asia's support in refashioning the global financial framework.

EU President Barroso called on China to "show a sense of responsibility" in addressing trade imbalances and using its huge foreign currency reserves to help shore up the international financial system. While pledging cooperation, Chinese Premier Wen Jiabao was more concerned with overcoming the "severe shock to global economic growth" that is hitting Chinese exports to the US and Europe.

Recession in Europe and the US
The tensions underlying the ASEM summit will only intensify as the global recession deepens and each country scrambles to shore up its own economic interests at the expense of its rivals. A pessimistic editorial in yesterday's Financial Times entitled "Low Expectations Could Get Lower" commented: "When there was just a financial crisis, the problem was runs on banks. Now there is a real economy crisis, and the problem is runs on everything. The global economy is stalling and even low expectations are being dashed."

The editorial continued: "Economic activity across the world, everywhere from the US to China, has fallen back. In the UK, data released this week showed that gross domestic product fell by 0.5 percent in the third quarter. This fall is much bigger than anticipated—but worse may follow. By any sensible definition, the UK is already in a recession."

On Tuesday, the same newspaper produced a map of Europe akin to a weather map covered with economic clouds, storms and uncertainties. The entire continent showed slowing economies and steeply rising unemployment—the only exception showing "some sunny prospects" was the tiny island of Cyprus.

An International Monetary Fund (IMF) report released this week warned that average growth for the Eurozone plus the UK, Sweden and Denmark would be only 1.3 percent this year and 0.2 percent next year. "Confronted with a crisis in the financial system that is of unprecedented scale, scope and complexity, on top of a commodity price shock, it's hardly surprising that Europe's economy is entering a major slowdown," the IMF's acting European director Alessandro Leipold stated. The report advised all countries to make contingency plans for "a hard landing".

The social consequences of the economic crisis for the working class will be immense. The International Labour Organisation has forecast that 20 million jobs will be destroyed worldwide before the end of the year.

In Europe, as a Reuters report explained: "The inevitable question from workers to governments is: You found billions of euros for the banks, what are you doing now to protect jobs?" The article cited a Reuters survey of economists which predicted that unemployment would jump in France from 7.2 to 8.5 percent by the end of next year. In Spain, where the jobless rate is already 11.3 percent, analysts predicted it could hit 19 percent.

Fears of a global recession were reflected in further plunges on European stock markets yesterday: Britain's FTSE 100 fell by 5 percent, France's CAC 40 dropped by 3.5 percent and the German DAX lost almost 5 percent. Russia shut its stock exchange until Tuesday after the market lost more than one tenth of its value on Friday. The rout continued across the Atlantic in Wall Street, where the Dow Jones Industrial Average finished down 3.6 percent after wild fluctuations throughout the day.

Plunging sales figures around the world are hitting the auto industry hard. US automaker Chrysler, which is in merger negotiations with General Motors, told employees yesterday that the company will slash its white collar workforce by 25 percent, some 5,000 jobs, next month. This comes on top of the elimination of 1,000 jobs at the end of last month. French carmaker PSA Peugeot Citroen is planning "massive" production cuts in the fourth quarter.

Another clear indicator of global downturn is the continuing fall in prices for commodities—the basic inputs for production. OPEC met in emergency session yesterday and imposed a cut in production of 1.5 million barrels a day, or 1.7 percent of world production, in an attempt to prop up prices that have fallen 40 percent since September 10. The announcement failed to halt the slide, with crude oil futures falling another 6 percent.

The Reuters/Jeffries CRB Index of 19 raw materials hit a four-year low this week—the gauge has plummeted 41 percent since hitting a record high in July. Prices for copper, zinc, sugar and coffee were all battered again yesterday. The sharp falls are already having a dramatic economic impact on commodity exporting countries such as Australia and Argentina, but the most savage effects will be on the poorest countries around the world.

Amid this tempest tearing through world capitalism, the leaders of the G-20 are preparing to meet in Washington on November 15 to discuss measures to shore up the global financial system. If they manage to agree on anything, it will be that the brunt of the economic crisis must be imposed on working people in the form of job losses and severe cuts to social spending in order to defend the wealthy elites—as has already been the case with all of the rescue packages so far announced.

Union Card or Master Card -- How a Nation of Workers Became a Nation of Debtors

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By Frank Joyce

It has been apparent for some time that the 20th Century US social contract is defunct beyond repair. Now the economic system faces the prospect of collapse as well. Not surprisingly, these developments are related. They did not come about overnight.

Looking back, it's easy to see that the system which emerged from the post-Bolshevik revolution, mass industrial production era of the 1920's, 30's and 40's was beginning to unravel by the end of the 1970's.

Union membership provides a helpful lens through which to view the process.

During the 1960's union membership bounced up and down within a narrow range ending the decade slightly higher than it began. But starting in 1970, it began a steady decline. In 1970 union workers were 29.6 percent of the work force. At those numbers, unions were able to exert considerable leverage over the wages, benefits and working conditions of all workers. By 1980 union workers were down to 23.2 percent of the total workforce. By the year 2000, union members represented just 13.5 percent of all workers. Today it is about 12.1 percent.

Conventional wisdom holds that Ronald Reagan caused the decline of unions by busting the air traffic controllers union (PATCO) in 1981. Not so. What Reagan and his advisors understood was that union power was already on the wane. Did they know for certain that they could attack PATCO and get away with it? Probably. But even if they didn't, they deemed it a risk--a "probe," if you will--worth taking.

Either way, they did bust PATCO. Consequently, the message that unions could be beat came through for all to see. Employers got the point and stepped up their already fierce resistance at the bargaining table. And they devoted new and effective resources to defeating organizing efforts by their workers.

Workers also got it that unions were weakening. That too made organizing tougher. Corruption scandals and other difficulties added to problems of unions. As the power of unions declined, real wages for workers declined too. Most economists agree that measured in constant dollars, wages in the US have been effectively stagnant since about 1975.

Unions were indisputably an effective instrument for building a broad "middle" class. They did so by applying sufficient power to assure that workers shared in the value that they were helping to create. As industrialization brought enormous innovation and productivity, workers waged epic struggles that won them the wages to buy what they were making. Working conditions improved. Home ownership, car ownership and college for the children of workers became widespread. Pensions and employer paid health care became the norm.

But. But. But. For many reasons unions were less effective at sustaining the newly huge middle-class than they had been at creating it. (The how and the why of the inability of US unions to perceive, let alone counteract, the new forces coming into play in the 1970's is an interesting and important but different topic.)

Declining union membership and power is, however, only one variable in the equation that has brought us to the white hot economic and political meltdown now dominating our news and our lives. Another critical variable is this: as the wallets of workers held fewer and fewer union cards, credit cards were filling up those very same wallets. Workers were in effect trading union cards for MasterCard's.

In the process workers became the proverbial frogs in the pot on the stove. The temperature kept getting closer to the boiling point. But the water felt just fine. Because even though worker power was in decline, worker consumption was going up. Color TV's replaced black and white TV's, only to be replaced again by bigger screen TV's and now LCD's and Plasmas. Vehicles got bigger and better and working families had more of them. Shopping malls proliferated and shopping itself became the national religion. Cell phones, computers, video games, boats, iPods and snowmobiles--workers had stuff, lots and lots of stuff. The whole economy grew.

How could this happen in the face of stagnant real wages? Three reasons. Technological political and economic forces made global production both possible and necessary. That in turn made it possible to stabilize and in many cases lower costs and prices for goods and services.

The social upheaval of the 60's helped create conditions that brought women into the workforce in great numbers. The added income helped to offset the decline in wages for men.

Last and anything but least, credit, not wages, came to drive purchasing and consumption. For workers, debt came from all over: credit cards; longer and longer terms for auto loans; huge college loans; "creative" financing for mortgages. A whole kit and caboodle of financial entanglements enmeshed workers, students, just about everybody. The "middle" class became the debtor class.

Between 1970 and 2000, according to the Bureau of Economic Analysis of the Federal Reserve Bank, household debt relative to disposable personal income nearly doubled. In 2006, David A. Gaffen reported in the Wall Street Journal that "households'...debt-to-income ratio reached an all time high 131.1%." (Exploding public debt is an important component of this dynamic too. According to Federal Reserve Board data, between 1957 and 2007 the inflation adjusted total debt load per person in the US increased $145,432, equivalent to an increase of $581,728 per family of 4. That number, of course, does not include long-term costs of the war in Iraq or of ongoing taxpayer funded bailouts of financial companies.)

That debt is bondage is a profound moral truth. But it is an important shaper of political and economic consciousness as well. The more you are in debt, the less likely you are to rock the boat. Take on your employer? Go on strike? Risk your job by trying to start a union? What, and miss a credit card payment? Don't you get it? I'm maxed out. Risk getting my car getting reposed? You've got to be kidding.

Some of this attitude is quite conscious. Much of is more below the surface. Either way, this kind of debt profoundly changes many things including the relationship of the worker to the employer. It's one thing to "owe my soul to the company store." But this debt is different. This debt creates a mindset by which the paycheck and the employer who provides it come to be seen as a protector from the demands of the lender. It is the credit card company and the collection agency that become the greatest source of worry and harassment.

To be sure, there are those who have felt little or no grief at all. Others have overcome financial challenges and setbacks. There is no denying that for quite a long time, this system seemed to work just fine. In garden variety daily life terms, living standards were going up. Millions of working class families had fulfilling and decent lives. Many still do.

But this arrangement changes politics too. Economically satisfied workers can "afford" political engagement on social issues such as gun ownership or abortion if they choose to be involved at all. And if you have a growing 401 K--which you have been led to believe is far more secure than Social Security--why wouldn't you have a literally "conservative" political outlook? Why not align with the politics that come with living in a "gated" community to defend against the less well off hordes? From that outlook, it's easy to imagine immigrants and/or "angry" African Americans as being seen as a much bigger threat than financial shenanigans on Wall Street. Thus are born "Reagan Democrats."

Moreover, from church, media and political pulpit alike comes a very sophisticated propaganda drumbeat. Relentlessly it pumps out the message that is that if you are on debt overload, you and you alone made bad choices. You didn't manage your money well. You should be contrite, even ashamed. The last thing you should do is think you have anything in common with any one else--even if millions are in exactly the same situation. Even less should you consider that you are a victim of extremely cynical and deliberate manipulation.

Did not the Credit Card Masters of the Universe barefacedly testify before Congress that it was they who needed protection from irresponsible borrowers? And did not a substantial majority of the "people's" representatives from both political parties in Congress agree with them? (As the righteous Elizabeth Warren has pointed out, those very same credit card companies routinely troll bankruptcy fillings to get names of bankruptcy filers to whom they then send credit cards solicitations! See here for terrific information on debt dynamics from Elizabeth Warren and her band of researchers. The New York Times recently published an excellent article on this subject as well.)

But credit card solicitations are not the only toxic Kool-Aid that's been on offer. The same institutions told us too that 401-K's are safer and better than either social security or a union negotiated pension. Why? Because private investments and personal responsibility are good and government and collective action are bad, that's why.

It's all enough to make your head swim. Partly that's because through it all You're On Your Own (YOYO). Even now, workers have some degree of union protection--whether they belong to a union or not. Unions and the threat of unions retain a small degree of leverage over some employer behavior.

Debtors have nothing. No one even pretends to care about them except lenders who will offer more credit at terms worse than what you have now or "credit counselors" who will help you--oh, and incidentally help themselves and help the lenders who got you into trouble in the first place too.

The result is now before us. Absent any restraining force whatsoever, the financial masters of the universe went wild. They invented ways to make money out of whole cloth. They ENRONed the economy of the world.

Let's take a deep breath and go back to the beginning for a minute. The "cost" of forming or joining a union seems high. As a worker, you are told over and over again that you might lose your job because you'll get fired for being a union supporter or that your employer will close up shop altogether if it goes union. And enough employers do just that, so the threat is entirely credible.

And even if you get a union you'll pay dues. And you will hear again and again what a dumb thing that is. You will learn repeatedly about workers who go on strike only to settle for wages and benefits that are worse, not better. The media will tell you over and over about union companies that shrink or move all their work to Mexico or China or go out of business entirely.

At the same time workers get offers of "cheap" credit in the mail virtually every day. The choice seems clear. Union membership? Expensive. Risky. At least a little bit scary.

The credit that gets you your car(s), your plasma TV, your home and college tuition for your children? That seems "cheap." Isn't the word "free" the single most common word in credit solicitations?

Admittedly sometimes there can be a downside to all this credit. Well actually, more often than not the lenders, especially credit card companies do treat their customers like shit. They raise rates and add incomprehensible and ever more expensive fees. When you call them to argue or just get an explanation you enter voice mail hell. Or if you do reach someone they might respond by lowering your credit limit or adding yet another fee. Collection agencies can really make you life miserable.

And yes, politicians of both parties do keep changing the rules so that lenders can basically do whatever they want. Until just the last few weeks they were virtually all for "deregulation." (Suddenly they are all "born again" regulators. Hmmm.) Speak up as Dennis Kucinich, Danny Schecter and others have done and you will be marginalized as a kook, a whiner or an extremist.

And yes it can be annoying that the perpetrators of this economic bondage are living very large while you are struggling more and more every day.

But, hey, don't be ungrateful. You live in the "ownership society"!

Really? Do you own your stuff? Or is it in effect rented? Or is it maybe that the finance companies own you? And by the way, if they are so morally and otherwise superior, how are they doing at managing the system they created?

Sisters and brothers, the debt society truly is a house of cards. MasterCard's, VISA cards, Discover Cards, Debit cards. And it is built on sand at that. The whole damn thing rests on a foundation of credit default swaps and commercial paper and sub-prime mortgage bundles and hedges and leverage and god only knows what other hocus pocus.

But now. But now? Make no mistake about it--the financial equivalent of Hurricane Katrina is blowing that house down. Naturally, the very same people who built the house in the first place are trying to patch it up. Why wouldn't they? In the short term we should probably wish them the best. So far, however, the only solution they seem to have to the debt crisis is to create a more debt. A lot more debt.

Clearly, we need to start designing and building a new house altogether. In the 20th century, the Flint sit-down strike and the Montgomery Bus Boycott stand as icons of successful struggles by working men and women to win economic and social justice against daunting opposition. It's time to do it again.

More recriminations over US/NATO quagmire in Afghanistan

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By James Cogan

An increasing number of politicians, diplomats, military commanders and media commentators are describing the US-led occupation of Afghanistan as a failure and warning that American and NATO forces face defeat at the hands of a strengthening resistance movement led by the Islamist Taliban movement.

The most prominent example in the past week has been a comment published in the British Independent on October 20 by David Davis, a Conservative Party parliamentarian. He has been promoted by various liberals and "lefts" in Britain as a defender of civil liberties, due to his opposition to aspects of the Labour government's anti-terrorism laws.

The column, based on Davis's observations during a recent fact-finding trip to Afghanistan, was an indictment of the occupation and the puppet government in Kabul.

Davis began: "It is time to face facts in Afghanistan: the situation is spiraling downwards, and if we do not change our approach, we face disaster. Violence is up in two-thirds of the country, narcotics are the main contributor to the economy, criminality is out of control and the government is weak, corrupt and incompetent. The international coalition is seen as a squabbling bunch of foreigners who have not delivered on their promises. Although the Taliban have nowhere near majority support, their standing is growing rapidly among some ordinary Afghans."

Davis noted that three quarters of the police "actively steal from the people". The Afghan government of President Hamid Karzai, he continued, "appears to have been run for the financial benefit of 20 families", who are "old-time warlords and faction leaders responsible for past atrocities" and "operate with impunity, even over acts of violence and attempted murder".

Corruption is so pervasive in the security forces, Davis wrote, that a farmer attempting to take produce from the British base at Lashkar Gah to the city of Kandahar has to pay bribes or "tolls" at as many as 12 police checkpoints. "The ordinary Afghan must feel caught between competing protection rackets in the police, the Taliban, the narco-bandits and the warlords... This is the regime we are defending and are perceived to be supporting."

Davis's solution, however, was no different than that being proposed by scores of pro-war commentators: more US and NATO troops, more Afghan government troops and more repression against the legitimate resistance among the Afghan people to foreign occupation.

The corrupt character of the US-backed Afghan state was reinforced by a feature on the Afghan police in this week's edition of Time magazine.

Time noted: "A long history of corruption has reduced the image of Afghanistan's police to little more than uniformed thieves." Individuals are said to have paid government officials bribes of up to $US200,000 to be appointed to major police commands, as they can generate fortunes from "tolls, pay-offs and unofficial taxes on merchants".

The corruption reaches the highest circles of the Karzai government. Captain David Panian, a US soldier assisting in the training of police recruits, told Time: "It's like a feudal system. The baron pays the count, the count pays the duke, the duke pays the king... In order to maintain your job you have to give X amount to the provincial guy, and he has got to give it to the regional guy and so on all the way to the top."

Police corruption, stand-over tactics and abuses make them a prime target for anti-occupation insurgents. According to Interior Ministry statistics cited by Time, 1,119 police officers out of a total force of about 70,000 were killed between March 2007 and March 2008. Since March, another 720 police have been killed.

The insurgency has reached its most intense phase since the initial invasion more than seven years ago. The Taliban and other guerilla groups are attacking US, NATO and Afghan government forces across a growing area of the country, including in the capital Kabul. The occupation, consisting of just 70,000 troops, simply does not have enough manpower to adequately control the country.

The European members of NATO are continuing to resist Washington's calls for them to increase the size of their contribution and to lift the caveats that limit where and how their troops can be used. The bulk of the large German, French, Italian, Spanish, Polish and Turkish contingents—more than 11,000 troops in total—cannot be deployed into the southern and eastern provinces where the Taliban insurgency is the strongest.

Italian Foreign Minister Franco Frattini ruled out sending any extra troops during a visit to Pakistan this week. The Italian contingent mainly operates in the western province of Herat. Dismissing US calls, Frattini stated: "I do not think sending more troops is the right solution today." The German parliament has approved the dispatch of 1,000 additional personnel—boosting German troop numbers in Afghanistan to 4,500—but their sphere of operation is limited to the northern provinces.

The stance of the European powers was openly condemned on Monday by the Supreme Allied Commander in Europe, US general John Craddock. Addressing a forum in London, Craddock pointed to the "70 caveats" restricting the use of European troops and declared: "We are demonstrating a political will that, in my judgment, is sometimes wavering. We in NATO have the ambition, we have the military capability, but the question is, do we have the will to address these challenges?"

Craddock described the US-NATO operations in Afghanistan as "disjointed in time and space". With no other NATO ally offering troops, the Netherlands withdrawing its contingent in mid-2010 and Canada withdrawing by the end of 2011, Craddock stated that Britain would need to send additional forces to boost its 8,300-strong contingent in the southern province of Helmand.

Additional American troops are scheduled to deploy from January. Particularly if Barack Obama wins the presidency, it is likely that at least four extra combat brigades will be sent to Afghanistan in the first half of 2009, boosting the US force in the country to over 60,000.

The endemic corruption of the Karzai regime, the broad and growing hostility of Afghans to foreign troops, the daily abuse of democratic rights, the dysfunctional economy and the lack of elementary social services all underscore the fact that the aim of US-led occupation was never to improve the lot of the Afghan people. Rather it was to establish a base of operations for Washington's broader ambitions in the resource-rich regions of Central Asia and the Middle East.

US layoffs mount, home foreclosures rise

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By Patrick O’Connor

Indicators of a worsening social crisis in the US are mounting daily as the economic downturn takes an ever greater toll on jobs. Further layoffs were announced yesterday in the US and around the world. New data was also released showing escalating numbers of American families losing their homes through foreclosure, further driving down house prices.

A Reuters roundup of some of the US corporations which have made major layoff announcements in the last two days alone included:

• Chrysler, which announced an additional 1,825 layoffs on Thursday

• Goldman Sachs, which said it will cut 10 percent of its staff, or almost 3,300 jobs

• Pharmaceutical giant Merck, which announced it is shedding 12 percent of its workforce

• Biotechnology company Maxygen, which said it will cut nearly 30 percent of its workforce

• Money manager Janus Capital Group, which is sacking 9 percent of its workforce

• Xerox, which said yesterday it will cut 5 percent of its staff, or 3,000 positions

• Mining equipment maker Terex Corporation, which is laying off hundreds of its workers

• United Parcel Service, which announced plans to cut an unspecified number of jobs next year

• Fidelity National Financial Inc., which announced it will slash 1,000 jobs and cut pay by 10 percent

• Financial services conglomerate Popular Inc., which is cutting 600 jobs and closing more than a quarter of its branches in the US.

The US Labor Department reported that new applications for unemployment insurance increased by 15,000 to 478,000 in the week ending October 18, significantly more than was anticipated by economists. A year ago, new jobless claims stood at 333,000.

The Labor Department also found that inflation-adjusted wages for non-managerial workers declined by 1.9 percent in the twelve months up to September. This extraordinary figure indicates the extent to which the social position of the working class is being further undermined as the financial crisis and recession unfold.

The Washington Post yesterday reported that leading temp agencies are receiving far higher numbers of inquiries from job-seekers, including from people who are currently working but fear for their jobs. The article noted that many desperate workers "are also willing to make less money, even as the cost of living goes up." An example was call center jobs that paid $9 an hour last year but now pay $8.50.

Workers in the auto industry continue to bear much of the brunt of the growing assault on jobs and conditions. Chrysler announced 1,825 layoffs through the elimination of a shift at an assembly plant in Toledo, Ohio and said it would bring forward the closure date of a plant in Newark, Delaware that had been scheduled to close in December 2009.

Chrysler released figures yesterday revealing that it lost more than $1 billion in the first six months of 2008. Standard and Poor's has said that both Chrysler and GM may run out of cash in 2009 as auto sales fall to their lowest level since 1991.

Germany's Daimler AG, which has a 19.9 percent stake in Chrysler, said yesterday it was revising the book value of its stake to zero. This is down from $220 million three months ago and $1.2 billion at the end of 2007.

GM is in an equally severe crisis. A JPMorgan analyst told Reuters he expects the company to lose more than $12 billion next year. Like Chrysler, GM is slashing costs ahead of a potential merger between the two companies.

GM announced Wednesday it was considering selling AC Delco, its international parts subsidiary, a measure which will inevitably lead to further job losses. The company also said it will suspend many salaried employee benefits, including matching contributions for workers' 401(k) retirement plans.

Job losses continue to mount in the European auto industry. Sweden's Volvo AB said yesterday it would sack 850 more workers at its construction equipment unit. This follows an earlier announcement of 500 layoffs in the same unit, as well as 1,400 layoff notices issued to workers at truck factories in Sweden and Belgium.

Germany's Frankfurter Allgemeine Zeitung reported yesterday that Volkswagen plans to cut most or all of its 25,000 temporary staff. A Volkswagen spokesman denied the report, insisting that no decision had yet been reached.

Polish government advisors have estimated that one third of the 1.2 million Polish workers in Britain and Ireland, i.e., 400,000 people, will either return to Poland or move to another country to try to find work. According to a number of reports, the exodus has already begun, with thousands of Polish workers relocating, either in response to being laid off or to the British pound's poor exchange rate, which has sharply reduced the value of immigrant workers' wages sent back to their families.

Workers in countries throughout Europe are also being hit with rapidly declining house prices and increased foreclosures. But nowhere is the crisis more severe than in the US.

A survey released yesterday by listing service RealtyTrac found that foreclosure filings—that is, default notices, auction sale notices and bank repossessions—were reported on 765,000 properties in the three months ending in September, up 71 percent from the third quarter in 2007. Six states—Nevada, California, Florida, Ohio, Michigan, and Arizona—accounted for more than 60 percent of all foreclosure activity. Nevada recorded the highest foreclosure rate, with one out of every 82 housing properties issued a foreclosure filing.

The RealtyTrac report concluded that the third quarter figures probably underestimate the situation. Several states have passed new laws requiring lenders to issue extended notices before filing default notices. These laws artificially suppressed September's foreclosure figures by temporarily postponing the full impact. Rising unemployment will further accelerate the catastrophe.

The company said 81,300 homes had been foreclosed in September, and a total of 851,000 had been repossessed by lenders since August of 2007.

Rod Dubitsky, managing director for asset-backed securities at Credit Suisse, told BusinessWeek he expects that more than 5 million American families will lose their homes through the year 2012. He said 1.69 million families will lose their homes in 2008.

Falling property values have also hit homeowners. Over the last period, the family home was widely regarded as the primary asset to fund people's retirement, their children's college education, and even to cover unanticipated health expenses. But yesterday, the Federal Housing Finance Agency reported that house prices in August were 5.9 percent lower than they were a year earlier. The decline was the greatest recorded since 1991, when data was first collected.