A drop in the sea

Evidence overwhelms Stevens lawyers

2008-08-16T13:56:00.000-07:00

Original Link: http://www.adn.com/news/politics/fbi/stevens/story/493283.html

HELP: Defense team scrambling to sift through glut of legal material.

By ERIKA BOLSTAD ebolstad@adn.com

Lawyers for Sen. Ted Stevens, facing a stepped-up trial schedule, asked for help Wednesday trying to make sense of more than 67,000 documents and 2,800 audio files that could end up as evidence against him.

Prosecutors and lawyers for Stevens had a brief hearing Wednesday afternoon to decide how to handle discovery materials the Justice Department is handing over to Stevens' defense team. That includes recordings of roughly 10,000 phone conversations.

Stevens, 84, faces a Sept. 24 trial on charges he knowingly took home repairs and gifts worth more than $250,000 from the oil field services company, Veco Corp., and failed to report them on his annual U.S. Senate disclosure forms. Next week, a judge will decide whether to grant Stevens' request to move the trial to Alaska.

Wednesday, one of Stevens' lawyers, Alex Romain, asked the government to provide more detail about 67,000 pages of documents they scanned electronically and handed over to the defense. Some of the documents don't show where they begin and end, the defense complained. Those documents include bank records, spreadsheets and evidence that was seized from Veco Corp. computers.

Veco CEO Bill Allen and Richard Smith, a former vice president of community affairs and government relations for the now-defunct company, pleaded guilty in May 2007 to making more than $400,000 in corrupt payments to Alaska public officials.

Allen's testimony has been key in other convictions in the ongoing public corruption investigation, which to date has led to charges against 11 lawmakers, lobbyists and businessmen. Eight have been convicted or pleaded guilty. Three lawmakers, including Stevens, are awaiting trial.

Stevens' lawyers on Wednesday also asked to have better labeling on approximately 2,800 audio files, and the government agreed to be more forthcoming about who is calling or who is receiving the call, and when it was made. The audio files include wiretaps of both cell phones and land lines, Stevens' lawyers said Wednesday.

The defense also wants "surveillance logs" used by investigators to determine when calls began and ended and who is on the line.

With all the discovery materials, prosecutors said they would work with the defense to try to provide more information.

DISPUTES IN THE OPEN

The fast-moving trial calendar, sped up so Stevens could face a jury before the general election, means that some of the tug-of-war that generally goes on behind the scenes in criminal trials is playing out in the courtroom.

They're the kind of issues that could generally be handled over the telephone, said U.S. District Court Judge Emmet Sullivan. In this case, though, Sullivan said he is anxious to be as transparent as possible because of the high-profile nature of the trial and the intense media scrutiny.

When necessary, Sullivan said, he'll hold a hearing, but the speed of the case means that lawyers need to settle some of their disputes over potential evidence among themselves.

"I'm going to make myself available," he warned the defense and prosecution, "but this is an issue best resolved by the attorneys."

If the case remains in Washington, D.C., jury selection is scheduled to begin Sept. 22, two days before the trial. Lawyers for both the defense and the prosecution have asked to submit questionnaires to the jurors, so they can review them and base their selection on their answers.

Questionnaires are rarely used, Sullivan said, so he asked the lawyers to make plans to photocopy 30 to 40 copies of the answers submitted by the estimated 150 jurors in the initial pool. The copies will be needed for members of the legal teams.

PRETRIAL PUBLICITY

Meanwhile, Stevens' lawyers submitted a second brief Wednesday in support of their motion to move the trial to Alaska. In it they argued that holding the trial in Alaska is "the only way to permit Senator Stevens even a minor role in his reelection campaign." Stevens, a Republican who has held his Senate seat since 1968 and has been campaigning in Alaska, has attended only one of his court appearances since his indictment.

His attorneys continued to argue that most of the witnesses are in Alaska, as is one of the pieces of evidence in the case: Stevens' home in Girdwood.

Stevens' lawyers also dismissed concerns by the Justice Department prosecutors that moving the trial to Alaska -- while the senator campaigns there -- could taint the jury pool.

Stevens has "received positive and negative publicity in Alaska and in the District of Columbia," his lawyers wrote. "This publicity can be expected to continue in both venues during the trial. In either venue, the effects of pre-trial publicity can be addressed during jury selection while the effects of publicity during trial can be addressed by appropriate instructions to the jury."

Prosecutors argued in a motion filed Monday that they believe the case is fundamentally a Washington, D.C.-based one, since the case centers on disclosure forms Stevens filed with the U.S. Senate.

Group says life not improving for tent camp Iraqis

2008-08-16T06:50:00.000-07:00

Original Link: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/08/15/international/i063344D89.DTL

By BRADLEY S. KLAPPER, Associated Press Writer

The world's migration body said Friday that daily life has improved little for thousands of Iraqis living in tent camps, despite a slowdown in the number of people in Iraq being uprooted.

While most displaced Iraqis rent housing, live with relatives or squat in public buildings, less fortunate tent camp residents have no protection against extreme weather and poor access to medical care, education and other basic services.

In a new assessment, the International Organization for Migration found that those living in tent camps are "often the most vulnerable among a displaced population" of some 2.8 million in Iraq, said spokesman Jean-Philippe Chauzy.

He estimated their total number at a "few thousand," and said they were in "constant need of humanitarian assistance."

The 125-nation IOM is assisting displaced Iraqis with emergency food, water and household supplies, but overall help for those in tent camps remains inadequate, Chauzy said.

He described conditions in the al-Manathera camp in Najaf, the largest in Iraq, where "families who were evicted from public buildings live in cramped tents and caravans" with limited sanitation and drinking water.

A lack of family privacy — highly valued in Iraqi culture — combined with unemployment and overcrowding has caused "significant tensions" among the inhabitants, he said.

In the Qalawa camp in Sulaymaniyah, a group of displaced Iraqis that settled on a piece of open land two years ago still have no sanitation, electricity or toilets, Chauzy said.

They "live surrounded by garbage," he said. "As a result, cases of typhoid have recently been reported."

Greenspan in Bubble Denial

2008-08-15T18:51:00.000-07:00

Original Link: http://www.minyanville.com/articles/Greenspan-fre-fnm-housing-bailout-real/index/a/18533/from/yahoo

By William Fleckenstein

In a Wall Street Journal article headlined "Greenspan Sees Bottom in Housing, Criticizes Bailout" former Federal Reserve chairman Alan Greenspan said: "Home prices in the US are likely to start to stabilize or touch bottom sometime in the first half of 2009."

He did leave himself some wiggle room, as he also noted: "Prices could continue to drift lower through 2009 and beyond."

Of course, we shouldn't forget that this is the same man who in October of 2006 opined: "I think the worst of this [housing problem] may well be over."

As I noted in my book and often in this column, while Greenspan was in office, he went to great lengths to suggest that housing couldn't experience a bubble. And, as the Journal pointed out, he also tried to make the case in 2004 -- when many of us were already certain that a disastrous bubble was in full bloom -- that "a national severe price distortion seems most unlikely in the United States, given its size and diversity."

Which just illustrates my strongly held (and I believe well-documented) view that when it comes to matters of economics, he is utterly clueless -- and completely unable to learn from his mistakes.

However, what really sent my blood boiling was his criticism of the government bailouts of Fannie Mae (FNM) and Freddie Mac (FRE). Now, you might wonder why I'd be angry that he said something that I agree with, especially: "They should have wiped out the shareholders." (He was referring to the Bear Stearns/Fannie/Freddie bailout.)

The reason I'm so angry is because of his logic -- which the Journal paraphrased as follows: "The Fed-financed takeover of investment bank Bear Stearns also made government backing of Fannie and Freddie debt 'inevitable.'" (His adjective, my emphasis.)

Then Greenspan went on to tell the Journal: "There's no credible argument for bailing out Bear Stearns and not the GSEs."

Y'all Have to Reap What I Didn't Sow

The problem with that line of logic: He made the Bear Stearns bailout "inevitable" -- when he set the precedent of rescuing Wall Street during the collapse of Long-Term Capital Management in 1998. Of course, those actions led to the massive blow-off to the stock bubble, the response to which led to the real-estate bubble. Thus, had he not bailed out Wall Street, I don't believe we would ever have been in the situation where a Bear Stearns bailout would have been required, or even considered.

In sum, it was Greenspan who set this train wreck in motion, with his specific policies regarding Long-Term Capital, dramatically altering the financial landscape, via the "Greenspan put." Making matters worse, in the wake of that "warning shot" he advocated the deregulation of the financial system and championed securitization at every chance he got. While in charge, he never tried to put a stop to any dangerous policy, but rather pursued it aggressively.

Can It Happen Here?

2008-08-14T22:37:00.000-07:00

Original Link: http://www.nytimes.com/2008/08/11/opinion/11krugman.html

By PAUL KRUGMAN

Go to Columnist Page » Blog: The Conscience of a Liberal Can Democrats deliver on that commitment? In principle, it should be easy. In practice, supporters of health care reform, myself included, will be hanging on by their fingernails until legislation is actually passed.

What’s easy about guaranteed health care for all? For one thing, we know that it’s economically feasible: every wealthy country except the United States already has some form of guaranteed health care. The hazards Americans treat as facts of life — the risk of losing your insurance, the risk that you won’t be able to afford necessary care, the chance that you’ll be financially ruined by medical costs — would be considered unthinkable in any other advanced nation.

The politics of guaranteed care are also easy, at least in one sense: if the Democrats do manage to establish a system of universal coverage, the nation will love it.

I know that’s not what everyone says; some pundits claim that the United States has a uniquely individualistic culture, and that Americans won’t accept any system that makes health care a collective responsibility. Those who say this, however, seem to forget that we already have a program — you may have heard of it — called Medicare. It’s a program that collects money from every worker’s paycheck and uses it to pay the medical bills of everyone 65 and older. And it’s immensely popular.

There’s every reason to believe that a program that extends universal coverage to the nonelderly would soon become equally popular. Consider the case of Massachusetts, which passed a state-level plan for universal coverage two years ago.

The Massachusetts plan has come in for a lot of criticism. It includes individual mandates — that is, people are required to buy coverage, even if they’d prefer to take their chances. And its costs are running much higher than expected, mainly because it turns out that there were more people without insurance than anyone realized.

Yet recent polls show overwhelming support for the plan — support that has grown stronger since it went into effect, despite the new system’s teething troubles. Once a system of universal health coverage exists, it seems, people want to keep it.

So why be nervous about the prospects for reform? Because it’s hard to get universal care established in the first place. There are, I’d argue, three big hurdles.

First, the Democrats have to win the election — and win it by enough to face down Republicans, who are still, 42 years after Medicare went into operation, denouncing “socialized medicine.”

Second, they have to overcome the public’s fear of change.

Some health care reformers wanted the Democrats to endorse a single-payer, Medicare-type system for all. On the sheer economic merits, they’re right: single-payer would be more efficient than a system that preserves a role for private insurance companies.

But it’s better to have an imperfect universal health care plan than none at all — and the only way to get a universal health care plan passed soon is to inoculate it against Harry-and-Louise-type claims that people will be forced into plans “designed by government bureaucrats.” So the Democratic platform emphasizes choice, declaring that Americans “should have the option of keeping the coverage they have or choosing from a wide array of health insurance plans, including many private health insurance options and a public plan.” We’ll see if that’s enough.

The final hurdle facing health care reform is the risk that the next president and Congress will lose focus. There will be many problems crying out for solutions, from a weak economy to foreign policy crises. It will be easy and tempting to put health care on the back burner for a bit — and then forget about it.

So I’m nervous. The history of the pursuit of universal health care in America is one of missed chances, of political opportunities frittered away. Let’s hope that this time is different.

One more thing: if we do get real health care reform, a lot of people will owe a debt of gratitude to none other than John Edwards. When Mr. Edwards dropped out of the presidential race, I credited him with making universal health care a “possible dream for the next administration.” Mr. Edwards’s political career is over — but perhaps he and his family can take some solace from the fact that his party is still trying to make that dream come true.

Figure in Abramoff scandal raises money for McCain

2008-08-13T20:45:00.000-07:00

Original Link: http://seattletimes.nwsource.com/html/politics/2008110916_apmccainfundraiser.html

By CHARLES BABINGTON, Associated Press Writer

WEST BLOOMFIELD, Mich. —
A political strategist tied to the Jack Abramoff lobbying scandal is helping raise money for John McCain, urging his fellow Georgia Republicans to attend a fundraiser for the presidential candidate in Atlanta.

Ralph Reed, former director of the Christian Coalition, said he had agreed to be on McCain's "Victory 2008 Team" in an e-mail that solicited donations on McCain's behalf. The Republican National Committee is hosting the fundraiser set for an Atlanta hotel on Aug. 18.

A House investigative committee in 2006 did not call Reed as a witness, but concluded that he interceded with the Bush White House to help some of Abramoff's clients. Reed's public relations firm also received $4.2 million from Abramoff to mobilize Christian voters to fight the opening of casinos that could compete with Abramoff's Indian tribe clients.

Reed later said he regretted the actions, which contributed to his 2006 Republican primary loss in a bid to be Georgia's lieutenant governor. Abramoff went to prison for conspiracy, mail fraud and tax evasion.

McCain led a Senate investigation into Abramoff's dealings with Indian tribes, which included information about his ties to Reed. McCain said in a November 2007 presidential debate: "I led in the Abramoff hearings in the, in the obscure Indian Affairs Committee, for which people are still testifying and going to jail."

On Wednesday, Democratic National Committee Chairman Howard Dean criticized what he called "McCain's decision to cozy up to one of the central figures in the Republican culture of corruption."

In an e-mail statement, Reed said, "I take the long view of politics, which is that yesterday's opponent can be tomorrow's friend or ally." He said he suppports the Arizona Republican but holds "no position, title or official role in the McCain campaign and am not seeking one."

The Atlanta Journal-Constitution reported last week that Reed sent a message to an undetermined number of Georgia Republicans, saying that McCain "will be coming to Atlanta on August 18 for a very special event at the Marriott Marquis downtown and I have agreed to serve as a member of the McCain Victory 2008 Team."

Reed urged the recipients to donate money, saying, "If you select to use your credit card, you may fax the form to me."

The McCain campaign Wednesday referred questions to the Republican National Committee.

RNC spokesman Alex Conant said, "It's laughable Democrats would try to make this a political issue, considering John McCain led the Abramoff investigations and has a record of fighting to reform Washington."

Conant noted that Democratic candidate Barack Obama has had fundraising controversies, too, including instances in which Obama returned donations from tainted contributors.

The House Government Reform Committee reported in 2006 that Reed, who was close to Bush political adviser Karl Rove, helped Abramoff obtain a spot on the administration's 2001 transition team at the Bureau of Indian Affairs, an agency important to his clients.

"Do you think you might be able to contact Karl, as I am sure you have more weight there," Abramoff said in an e-mail to Reed. "Be happy to," Reed replied.

The House report found at least 14 instances in which Abramoff asked Reed to contact Rove on matters including political appointments "and obtaining favorable actions on client matters."

The report confirmed e-mails that Time magazine published in 2005 in which Abramoff asked Reed to help block the proposed appointment of the wife of Orson Swindle - who was a Vietnam prisoner of war with McCain - to an Interior Department job.

"Can you ping Karl on this?" Abramoff wrote. "I can't believe they just don't get this done."

Reed responded: "Talked to Rove about this and I think I killed it. He's on it. Keep this between us, don't want to raise expectations, but I banged on this one hard."

Swindle's wife did not get the job. Swindle has been an ally of McCain's campaign, criticizing Obama supporter Wesley Clark last month for saying that McCain's Vietnam service doesn't qualify him for the White House.

More college students using food stamps

2008-08-12T19:49:00.001-07:00

Original Link: http://www.mcclatchydc.com/200/story/47818.html

By Evan S. Benn and Scott Andron The Miami Herald
In a down economy, some Florida college students have found a new form of financial aid: food stamps.

The number of Sunshine State students receiving stamps was up 44 percent in July compared to the same time in 2007.

That's about twice the rate of increase for food-stamp recipients in the population as a whole.

Statewide, 54,116 students were receiving the stamps, including 10,506 in Miami-Dade alone. Broward had another 4,311, according to figures from the state Department of Children & Families. Monroe had 51.

The numbers reflect a nationwide trend.

''It's pretty much impossible to get by anymore without some help,'' said John English, a Palm Beach Community College student who has received stamps.

English, 20, said he was in a halfway house when he moved to South Florida from Ohio. And signing up for the stamps wasn't hard.

''I got in easy,'' he said. "But then I got a job that paid a decent amount, and I couldn't qualify for food stamps anymore.''

Most corporations pay no federal income tax

2008-08-12T19:26:00.000-07:00

Original Link: http://www.boston.com/business/ticker/2008/08/study_most_corp.html

Most US and foreign companies doing business in the United States pay no federal income tax, according to a study by the Government Accountability Office.

It said two-thirds of US corporations paid no federal income taxes between 1998 and 2005, and about 68 percent of foreign companies doing business in the country avoided corporate taxes over the same period.

‘‘It’s shameful that so many corporations make big profits and pay nothing to support our country,’’ said Senator Byron Dorgan, Democrat of North Dakota, who asked for the study with Senator Carl Levin, Democrat of Michigan.

An outside tax expert, Chris Edwards of the libertarian Cato Institute in Washington, said increasing numbers of limited liability corporations and so-called S corporations pay taxes under individual tax codes.

‘‘Half of all business income in the United States now ends up going through the individual tax code,’’ Edwards said.

The study by the GAO, the investigative arm of Congress, did not investigate why corporations weren’t paying federal income taxes or corporate taxes and it did not identify any corporations by name. It said companies may escape paying such taxes due to operating losses or because of tax credits.

More than 38,000 foreign corporations had no tax liability in 2005 and 1.2 million US companies paid no income tax, the GAO said. Combined, the companies had $2.5 trillion in sales. About 25 percent of the US corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.

Dorgan and Levin have complained about companies abusing transfer prices — amounts charged on transactions between companies in a group, such as a parent and subsidiary. In some cases, multinational companies can manipulate transfer prices to shift income from higher to lower tax jurisdictions, cutting their tax liabilities.

‘‘It’s time for the big corporations to pay their fair share,’’ Dorgan said.

Know-Nothing Politics

2008-08-10T12:33:00.000-07:00

Original Link: http://www.nytimes.com/2008/08/08/opinion/08krugman.html

By PAUL KRUGMAN

Go to Columnist Page » Blog: The Conscience of a Liberal And the debate on energy policy has helped me find the words for something I’ve been thinking about for a while. Republicans, once hailed as the “party of ideas,” have become the party of stupid.

Now, I don’t mean that G.O.P. politicians are, on average, any dumber than their Democratic counterparts. And I certainly don’t mean to question the often frightening smarts of Republican political operatives.

What I mean, instead, is that know-nothingism — the insistence that there are simple, brute-force, instant-gratification answers to every problem, and that there’s something effeminate and weak about anyone who suggests otherwise — has become the core of Republican policy and political strategy. The party’s de facto slogan has become: “Real men don’t think things through.”

In the case of oil, this takes the form of pretending that more drilling would produce fast relief at the gas pump. In fact, earlier this week Republicans in Congress actually claimed credit for the recent fall in oil prices: “The market is responding to the fact that we are here talking,” said Representative John Shadegg.

What about the experts at the Department of Energy who say that it would take years before offshore drilling would yield any oil at all, and that even then the effect on prices at the pump would be “insignificant”? Presumably they’re just a bunch of wimps, probably Democrats. And the Democrats, as Representative Michele Bachmann assures us, “want Americans to move to the urban core, live in tenements, take light rail to their government jobs.”

Is this political pitch too dumb to succeed? Don’t count on it.

Remember how the Iraq war was sold. The stuff about aluminum tubes and mushroom clouds was just window dressing. The main political argument was, “They attacked us, and we’re going to strike back” — and anyone who tried to point out that Saddam and Osama weren’t the same person was an effete snob who hated America, and probably looked French.

Let’s also not forget that for years President Bush was the center of a cult of personality that lionized him as a real-world Forrest Gump, a simple man who prevails through his gut instincts and moral superiority. “Mr. Bush is the triumph of the seemingly average American man,” declared Peggy Noonan, writing in The Wall Street Journal in 2004. “He’s not an intellectual. Intellectuals start all the trouble in the world.”

It wasn’t until Hurricane Katrina — when the heckuva job done by the man of whom Ms. Noonan said, “if there’s a fire on the block, he’ll run out and help” revealed the true costs of obliviousness — that the cult began to fade.

What’s more, the politics of stupidity didn’t just appeal to the poorly informed. Bear in mind that members of the political and media elites were more pro-war than the public at large in the fall of 2002, even though the flimsiness of the case for invading Iraq should have been even more obvious to those paying close attention to the issue than it was to the average voter.

Why were the elite so hawkish? Well, I heard a number of people express privately the argument that some influential commentators made publicly — that the war was a good idea, not because Iraq posed a real threat, but because beating up someone in the Middle East, never mind who, would show Muslims that we mean business. In other words, even alleged wise men bought into the idea of macho posturing as policy.

All this is in the past. But the state of the energy debate shows that Republicans, despite Mr. Bush’s plunge into record unpopularity and their defeat in 2006, still think that know-nothing politics works. And they may be right.

Sad to say, the current drill-and-burn campaign is getting some political traction. According to one recent poll, 69 percent of Americans now favor expanded offshore drilling — and 51 percent of them believe that removing restrictions on drilling would reduce gas prices within a year.

The headway Republicans are making on this issue won’t prevent Democrats from expanding their majority in Congress, but it might limit their gains — and could conceivably swing the presidential election, where the polls show a much closer race.

In any case, remember this the next time someone calls for an end to partisanship, for working together to solve the country’s problems. It’s not going to happen — not as long as one of America’s two great parties believes that when it comes to politics, stupidity is the best policy.

Freddie posts 4th straight quarterly loss and slashes dividend

2008-08-06T21:00:00.000-07:00

Original Link: http://today.reuters.com/news/articleinvesting.aspx?type=comktNews&rpc=33&storyid=2008-08-06T174729Z_01_WNAB5259_RTRIDST_0_BUSINESS-FREDDIEMAC-RESULTS-DC.XML

By Al Yoon

NEW YORK (Reuters) - Freddie Mac on Wednesday posted its fourth straight quarterly loss as it braced for a prolonged housing crisis by setting aside twice as much money for bad loans and plans to slash its dividend by at least 80 percent.

The worse-than-expected results came just three weeks after authorities orchestrated a sweeping effort to prop up the U.S. No. 2 provider of residential mortgage funding and its rival Fannie Mae .

Freddie Mac's chief financial officer Buddy Piszel reiterated that the company continues to maintain a surplus over regulatory capital requirements, and said the company can wait for "choppy" market conditions to improve before raising capital, which could exceed $5.5 billion.

For the second quarter, McLean, Virginia-based Freddie posted a loss of $821 million, or $1.63 per share, compared with a profit of $729 million, or 96 cents per share, in the same quarter a year earlier.

That included the first loss from its holdings of subprime and other risky loans, which formed a significant part of its $2.8 billion in realized and anticipated losses stemming from the steepest U.S. housing downturn since the Great Depression.

The company more than doubled its provisions for loan losses to $2.5 billion since the first quarter, marking the fourth increase in as many quarters. All credit-related expenses surged to $2.8 billion from $1.4 billion in the previous period and $463 million a year earlier.

"Credit-related expenses were far higher than what guidance had been," said Rajiv Setia, a strategist at Barclays Capital in New York. Barclays was expecting about $2 billion, he said, adding "that was on the high side" of analyst estimates.

FOURTH STRAIGHT LOSS

The second-quarter loss follows a $151 million loss in the first quarter and brings its cumulative loss over the past four quarters to more than $4.6 billion.

Piszel told Reuters it was still reasonable to expect a housing market recovery by early 2009, but "we have to prepare for a stress condition that looks worse than that."

Richard Syron, Freddie Mac's chief executive officer, said the company revised its expectations for home price declines that have wreaked havoc on foreclosures to 18 percent to 20 percent from peak-to-trough, from 15 percent in a previous assumption. The numbers are based on Freddie Mac's own model.

"Today's challenging economic environment suggests that the housing market is far from stabilizing," Syron said on a conference call with analysts and investors. "We now think that we are halfway through the overall peak-to-trough decline."

Freddie Mac shares plummeted by more than 14 percent to $6.89 in early afternoon trading in New York. The stock is up from its mid-July low of $3.89, but remains nearly 90 percent below its 52-week high of $66.65 set last August.

Freddie Mac and Fannie Mae faced a storm of stock selling last month as investors speculated the companies would fall short of the capital needed to offset losses sustained from delinquent mortgages.

The turmoil led U.S. Treasury Secretary Henry Paulson, in concert with Federal Reserve Chairman Ben Bernanke, to arrange emergency measures that bolstered federal backing for the government-sponsored enterprises.

"Either investors are going to be massively diluted given the amount of equity they are going to need or they are going to be nationalized," said Dan Alpert, managing director of Westwood Capital LLC in New York. "Without a larger equity capital base, they are going to be incapable of surviving. We don't think $5.5 billion even scratches the surface."

DIVIDEND SLASH

To help preserve capital, Freddie Mac said it would slash its quarterly dividend, pending board approval, by at least 80 percent to 5 cents a share or less from the current 25 cents a share. On an annualized basis, that will save Freddie Mac more than $500 million based on current shares outstanding.

It will also halt the rapid growth in its $792 billion portfolio as it becomes more conservative with capital, Piszel said. The company contends it can continue to support the mortgage market by replacing loans matured or refinanced.

Freddie Mac, along with Fannie Mae, owns or guarantees more than $5 trillion in mortgages, or nearly half of all U.S. home loans. Analysts also expect Fannie Mae to show a loss when it reports second-quarter results on Friday.

Freddie said revenue rose by more than 10 percent from the first quarter to $1.69 billion, including an increase of 92 percent in net interest income to $1.5 billion as the portfolio ballooned.

Total credit losses rose to $810 million in the period from $528 million in the first quarter.

"The reality is you don't know" what losses will be," said Malcolm Polley, chief investment officer at Stewart Capital Advisors in Indiana, Pennsylvania. "It's pretty ugly."

(Editing by Gary Crosse)

Insurer AIG posts large loss on bad mortgage bets

2008-08-06T20:57:00.001-07:00

Original Link: http://www.reuters.com/article/marketsNews/idINN06230920080807

By Lilla Zuill

NEW YORK, Aug 6 (Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) posted its third consecutive quarterly net loss of more than $5 billion on Wednesday as it wrote down bad mortgage-related investments, sending its shares down almost 8 percent.

The world's largest insurer and one of the hardest hit in the credit crisis also reported a general deterioration in its mainstream insurance businesses, which were hurt in particular by a decline in investment income and losses from its mortgage insurer, United Guaranty Corp.

"Our second quarter results were adversely affected by the severe conditions in the housing and credit markets and a very difficult investment environment," AIG's chairman and chief executive Robert Willumstad said in a statement. Willumstad took the CEO job in June after Martin Sullivan resigned.

"We have a lot of work to do to restore AIG's profitability to where it should be," Willumstad warned, adding that AIG was considering all options as it looked to improve results and its risk profile and protect its capital base.

"We are examining every business, as well as the assumptions underlying how we do business in the markets where we have a presence," Willumstad said. He said a progress report would be issued in late September.

BATHED IN RED

AIG said its second-quarter net loss was $5.36 billion, or a loss of $2.06 a share, compared with net income of $4.28 billion, or $1.64 a share, a year ago. It had an adjusted net loss of 51 cents a share. Analysts, on average, had forecast a profit of 46 cents a share, according to Reuters Estimates.

It was the second-largest loss in AIG's 89-year history, surpassed only by the $7.7 billion net loss it recorded in the first quarter of 2008. AIG has posted net losses exceeding $18 billion over the past three quarters.

Long known for profitability, AIG said some of its workers had received Wells notices, indicating the U.S. Securities and Exchange Commission was considering civil action. The Justice Department and SEC are investigating investments that led to AIG's quarterly losses.

AIG said it recorded $5.56 billion in second quarter unrealized market valuation losses on credit default swaps, the same area that led to losses in the prior two quarters.

The company's financial ratings have been lowered, and it has been forced to raise $20 billion in recent months to strengthen its balance sheet.

Portfolio manager Thomas Russo at Gardner, Russo & Gardner in Lancaster, Pennsylvania, which manages more than $3 billion in assets and owns AIG shares, said he was concerned that AIG's credit losses would undermine its insurance business. AIG is best known for its insurance business.

Russo said he owns AIG shares because of strong growth forecasts for its foreign life insurance and retirement services. "What would be important is to know ... is this an up-to-date and full reflection of what they know to be their exposures," he said.

Much of the second-quarter 2008 loss was due to what AIG described as "severe, rapid declines in fair values of certain residential mortgage-backed securities and other structured securities in the second quarter." AIG said it had concluded that it could not "reasonably assert that the recovery period would be temporary."

AIG said second-quarter results included pre-tax net realized capital losses of $6.08 billion ($4.02 billion after tax) arising primarily from other-than-temporary impairment charges in its investment portfolio. The company said this compared to pre-tax net realized capital losses of $28 million ($17 million after tax) in the year-ago quarter.

General insurance operating income fell 54 percent to $1.39 billion, reflecting a 28.3 percent decline in investment income primarily due to lower partnership and mutual fund income, and an increase of $440 million in operating losses at United Guaranty Corp.

The general insurance division wrote $12.22 billion in net premiums in the quarter, slightly more than last year's $12.14 billion.

"They may have taken a write down in the same vein as Merrill Lynch did," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22 billion. "It looks like the new CEO took what I call a kitchen sink quarter," meaning all the bad news was out of the way.

AIG shares fell 7.7 percent in after-market trading to $26.84. The shares closed down 2.68 percent at $29.09 in the regular session on the New York Stock Exchange.

LIFE AND OTHER BUSINESS

Income from life insurance and retirement services fell 10 percent to $2.6 billion.

Premiums, deposits and other revenue were $25.55 billion, up 16.4 percent compared to a year ago. The company said they were favorably affected by foreign exchange.

AIG also has lending units, an asset management division and aircraft leasing.

Its financial services business reported a $5.88 billion loss for the quarter. But operating income for aircraft leasing, long one of AIG's most profitable units, rose 85.3 percent to $352 million compared to a year ago. The company said that was due to a larger fleet, higher lease rates, lower interest rates and more aircraft sales.

Consumer finance, a division that offered home mortgages, posted a $22 million operating loss compared to $58 million in operating income last year.

Equity research analyst Bill Fitzpatrick at Optique Capital in Milwaukee, Wisconsin, said the credit swap losses were "a little higher than we would have hoped for," but he said he expected AIG to benefit as market conditions improve.

"The thesis remains the same that these portfolios will ultimately be marked up," Fitzpatrick said. (Additional reporting by Paritosh Bansal and Dan Wilchins; Editing by Andre Grenon)

US officials defend Iraq's oil-fed budget surplus

2008-08-06T20:49:00.000-07:00

Original Link: http://www.bnd.com/283/story/423141.html

By ROBERT H. REID Associated Press Writer

BAGHDAD --Iraq is paying for more of its own reconstruction but is still struggling to spend its multibillion-dollar surplus as it copes with a flood of oil revenue and a cumbersome approval process meant to curb corruption, U.S. officials said Wednesday.

Iraq could finish the year with as much as a $79 billion cumulative budget surplus as oil revenues add to leftover income the Iraqis still haven't spent on national rebuilding, according to a report by the Government Accountability Office made public Tuesday.

Many Iraqis - who lack adequate electricity, clean water and jobs - find it unfathomable their country is awash in oil dollars. Last year, it spent less than a third of the $12 billion budgeted for major projects such as electricity, housing and water.

In Washington, senators renewed calls for Baghdad to pay more for its own reconstruction, which has been heavily supported by hard-pressed American taxpayers.

"I think it's absurd that we're paying for the reconstruction in a country when right at the beginning of the war the Bush administration assured the American people that Iraq's reconstruction would be paid for by Iraq and through its oil revenues," Democratic Sen. Carl Levin said Wednesday on MSNBC.

Levin, who requested the GAO report along with Republican Sen. John Warner, said in a statement Tuesday that it was "inexcusable for U.S. taxpayers to continue to foot the bill for projects the Iraqis are fully capable of funding themselves."

But U.S. officials who work with the Iraqis on reconstruction said the Baghdad government has been increasing its capital spending by 30 percent to 35 percent each year since 2006 - although they added that both governments want to see the pace increased.

The Iraqi government is drafting plans for Iraqi-funded projects to include 1,000 new primary health care centers over the next 10 years, new airports and a major renovation project for downtown Baghdad, the American officials said.

They spoke on condition of anonymity because they did not want to comment on Iraqi government performance.

The officials said the United States has not begun any new reconstruction projects in Iraq since 2004 and that ongoing work is funded by money approved by Congress four years ago.

In the report, the GAO said Iraq had an estimated budget surplus of about $29 billion from 2005 to 2007 and could have an additional surplus of up to $50 billion this year.

Nearly $10 billion of the estimated surplus is held by the Development Fund for Iraq at the Federal Reserve Bank of New York, according to the report. That fund was established by U.S.-led coalition authorities shortly after the 2003 overthrow of Saddam Hussein to hold Iraqi oil revenues and other state assets.

Every month, the government-owned State Oil Marketing Organization offers to sell Iraqi oil at an announced price. Oil companies interested in buying then request shipments. Preference is given to major international companies and those that have previously done business with Iraq.

Revenues are then deposited in the Development Fund account, which the Iraqi government has controlled since 2004. The Central Bank of Iraq is free to draw from the account, but the government decides how to spend the money. Other revenues are held by the Central Bank and Iraqi commercial banks.

The expected surplus is likely to be lower than $79 billion because parliament Wednesday approved legislation for a $21 billion supplemental budget for 2008.

Nevertheless, the GAO report faulted the government for holding back on spending plans.

"First ... (the) relative shortage of trained budgetary, procurement and other staff with the necessary technical skills is a factor limiting the Iraqi government's ability to plan and execute its capital spending," the GAO said, adding that a second problem is the government's weak accounting systems.

"Third ... violence and sectarian strife remain major obstacles to developing Iraqi government capacity," it said.

The report also estimated that this year Iraq could generate $67 billion to $79 billion in oil sales. Other U.S. officials previously had said they expected the oil windfall to be about $70 billion.

"This substantial increase in revenues offers the Iraqi government the potential to better finance its own security and economic needs," the GAO said.

But the U.S. officials said the influx of oil money had been difficult to manage, not only for Iraq but for other oil-producing countries.

Other problems cited by the officials included a cumbersome approval process - put in place to curb corruption - lack of expertise in the ministries and a shortage of Iraqi contractors capable of taking on major development projects.

Since 2005, the United States has funded a number of efforts to teach civilian and security ministries how to effectively execute their budgets.

The efforts included programs to advise and help Iraqi government employees develop the skills to plan programs and to effectively deliver government services such as electricity, water and security.

The real deficit probably closer to $900 billion, Allan Sloan

2008-08-04T23:16:00.000-07:00

Original Link: http://marketplace.publicradio.org/display/web/2008/08/04/sloan_deficit/

The real deficit and how we came to it

The Bush Administration is projecting the deficit for the next White House will be about half a trillion. But

Allan Sloan takes Scott Jagow through the numbers and explains why it's probably closer to $900 billion.

TEXT OF INTERVIEW

Scott Jagow: Last week, the Bush Administration said the next White House will inherit a half a trillion dollar budget deficit. That would be a record. But Fortune Magazine's Allan Sloan says unfortunately, that's not even close to the real deficit.

Allan Sloan: Well, the number the Bush people have put out is $482 billion, and people are going, "Huuhh!!" Or however you inhale. But the real number is significantly higher than that, the real deficit. In fact, it probably closes in on $900 billion. But it's only money and who's counting?

Jagow: Well, what would people say if it was $900 billion?

Sloan: Well, they'd say my god, it's 6 percent of the Gross Domestic Product. This is the number back in the 80's, in the early Reagan years, that shocked everybody and got Congress and Reagan and all of these people to put in a very large tax increase. And now, we're approaching that number and nobody seems to realize it other than me and one or two other people who're considered cranks -- like Senator Conrad of North Dakota.

Jagow: OK, so explain how you come up with $900 versus the $482 billion.

Sloan: All right, it's Washington math. So we start with 482, the stated number. We then add back $182 billion, which is the Social Security surplus, which reduces the stated deficit, but in theory this money's being set aside for you and me when we get to be old and even crankier than we are. Which makes it 664. Then, the government pays interest on its own securities to itself and its own trust funds, and that's about another $100 billion. Then there's $50-something billion for loans and loan guarantees. So you do all of this and you end up with Senator Conrad's number, which is 815. But he's being way too nice and way too conservative.

Jagow: So Allan, what do you propose we do about this?

Sloan: Well, I propose for starters that people in our profession -- your's and mine -- decide to use the real number instead of the stated number, people might actually listen. But right now, there's no pressure on the White House -- whoever happens to be in the White House -- to care about this. The people from Congress, for the most part, go their own way because there's nobody really in charge of the whole big financial picture. Maybe this will change with the next administration, but I sure wouldn't want to bet on it.

Jagow: All right, Allan Sloan from Fortune Magazine. Thank you.

Sloan: You're welcome, Scott.

Allan Sloan is a senior editor-at-large at Fortune (APM)

Ex-President Clinton to fight AIDS in US

2008-08-04T23:01:00.000-07:00

Original Link: http://www.star-telegram.com/468/story/808089.html

Former President Bill Clinton said Monday that his foundation is going to focus its efforts on fighting AIDS in the United States, especially among blacks.

Speaking at an AIDS conference in Mexico City, Clinton said he was spurred to action after the U.S. Center for Disease Control reported that 40 percent more Americans are infected by HIV than previously estimated. The report released Saturday said nearly half of annual HIV infections in the United States are among black Americans.

"For Americans, this should be a wake up call," Clinton said. "Even as we keep working globally, we need to do much more to fight AIDS at home, and I intend to do so with my foundation."

Clinton flew to Mexico after touring Africa to see the work of the William J. Clinton Foundation's HIV/AIDS Initiative.

The foundation has negotiated agreements to lower the prices of rapid HIV tests and anti-AIDS drugs in the developing world and has collaborated with the Geveva-based UNITAID, a U.N.-backed fund that helps supply low-cost antiretroviral drugs.

Senator Charged in Scheme to Hide Oil Firm Gifts

2008-08-03T21:44:00.000-07:00

Original Link: http://www.nytimes.com/2008/07/30/washington/30stevens.html?ref=politics

By DAVID JOHNSTON and DAVID M. HERSZENHORN

Senator Ted Stevens of Alaska, a legendary political figure closely tied to the rough-and-tumble history of his home state, and who wields outsize influence over federal spending, was indicted on Tuesday on seven felony counts of failing to disclose gifts that he received from an oil services company.

A federal grand jury in the District of Columbia charged Mr. Stevens, who is 84 and the longest-serving Republican in the Senate, with failing to report more than $250,000 in gifts, including extensive renovations to his house in Alaska, a Land Rover and home furnishings on financial disclosure forms that he filed from 1999 to 2006.

The indictment said that Mr. Stevens “knowingly and willfully engaged in a scheme to conceal” the gifts he received from the VECO Corporation, once one of Alaska’s largest oil field contractors, and its former chief executive, William J. Allen, who last year pleaded guilty in the case. And it comes nearly a year to the day after F.B.I. agents raided the senator’s home as part of a long-running and expansive public corruption investigation in Alaska.

Mr. Stevens was informed of the indictment through a telephone call to his lawyer on Tuesday morning and was allowed to surrender instead of being arrested. He was expected to make an initial appearance in Washington before a federal judge, Emmet G. Sullivan, once a hearing is scheduled.

Mr. Stevens declared his innocence and his intention to fight the charges against him in a statement posted on his Web site. “I am innocent of these charges and intend to prove that,” he said.

But the indictment dealt a sharp blow to Mr. Stevens’s effort to win re-election in November, and raised the hopes of Democrats who have not won a Senate race in Alaska since 1974. Democrats were already relishing the chance to unseat Mr. Stevens, having recruited Mark Begich, the popular mayor of Anchorage, to challenge him. Mr. Stevens first must face six Republican challengers in the state’s Aug. 26 primary.

In his statement, Mr. Stevens also noted that he had served the nation and Alaska for more than half a century, beginning in World War II. “I have never knowingly submitted a false disclosure form required by law as a U.S. senator,” he said in the statement.

He also said that, in accordance with Senate Republican rules, he had relinquished, temporarily, his leadership positions, as senior Republican on the Commerce Committee and on the Defense Appropriations Subcommittee. He had served as chairman of the full Appropriations Committee for nearly a dozen years, and also as president pro tem of the Senate from 2003 to 2007, which put him third in line for the presidency.

Mr. Stevens, a short, square-shouldered man who shuffles through the Capitol these days in shoes with thick-cushioned soles, has long been a powerful force in the Senate, directing hundreds of millions of dollars to Alaska each year. Mr. Stevens is regarded as a nearly heroic figure in Alaska, where he is often called Uncle Ted, and played a crucial role in its achievement of statehood, which became official in 1959. Hardened by decades of legislative battles, he can be soft-spoken but also one of the most cantankerous lawmakers.

Mr. Stevens was not charged with performing improper favors for VECO, the company that gave him the unreported gifts, although the indictment said Mr. Stevens “could and did use his official position and his office on behalf of VECO.” At a news conference on Tuesday, prosecutors said they would not explain why the exchange of favors did not itself result in a charge.

The indictment said that Mr. Stevens met with the company to discuss its projects in Pakistan and Russia, its requests for “multiple federal grants and contracts to benefit VECO” and federal and state assistance in an effort to construct a natural gas pipeline from the North Slope of Alaska.

The indictment of a sitting senator, particularly one of Mr. Stevens’s seniority and stature, reverberated swiftly and ominously through the Capitol, in no small part because of the political implications.

Democrats already had high hopes that they would win more seats in November. They now control the Senate by a razor-thin 51 to 49, thanks only to two independents who vote with them.

As far-fetched as it might seem, some Democrats have started thinking aloud that they may be able to win nine more seats in November, bringing them a filibuster-proof majority of 60.

Senator Harry Reid of Nevada, the majority leader, boasted on Tuesday that Senate Democrats were mounting strong races against Republicans in 11 states.

The indictment could have implications beyond Mr. Stevens’s political future. It could set back Republican efforts to open more of Alaska to oil drilling. Mr. Stevens has been a powerful voice in favor of more drilling, including in the Arctic National Wildlife Refuge of Alaska.

The charges also handed Democrats an easy political weapon. Mr. Stevens has been a prolific fund-raiser for his party’s candidates, and Democrats immediately attacked several Republican incumbents for accepting money from him.

Mr. Stevens, in his committee positions, has helped funnel billions of federal dollars to Alaska. Since 1999, he has directed more than $3 billion in earmarks — pet projects sought by lawmakers outside the usual budget process — for Alaska, according to Citizens Against Government Waste, a Washington advocacy group.

One earmark that became a symbol of wasteful excess was the so-called Bridge to Nowhere, which was to connect the town of Ketchikan to a small, sparsely populated island, even though funds for the project were ultimately canceled.

Senator Mitch McConnell of Kentucky, the Republican leader, refused on Tuesday to answer questions about Mr. Stevens. Appearing before a huge throng of reporters at what is normally a regular weekly news conference, Mr. McConnell spoke for a scant 21 seconds.

“Let me just say that the Republican conference, like you, just learned of this news,” he said. “We’ll no doubt have more to say about it later.”

Mr. Reid said he learned of the indictment in an e-mail message from a staff member. He arrived at the lectern for his weekly news conference flashing a wide smile, the TV camera lights glinting off his teeth.

“I, of course, have served with Senator Stevens my entire Congressional career,” said Mr. Reid, who was elected to the Senate in 1986. “It’s a sad day for him, us. But you know I believe in the American system of justice. He is presumed innocent.”

Mr. Reid said that Senate Republicans would have to decide how to deal with Mr. Stevens, but suggested that they might move swiftly as they did after the news last summer that Senator Larry E. Craig, Republican of Idaho, had pleaded guilty to disorderly conduct, a misdemeanor, for allegedly soliciting an undercover police officer in an airport bathroom in Minneapolis.

Mr. Craig was stripped of his leadership positions and announced that he would resign, but then sought unsuccessfully to retract his guilty plea. He ultimately decided to remain in the Senate to complete his current term at the end of this year.

An investigation of Mr. Stevens by the Senate Ethics Committee is inevitable, but the chairwoman of the committee, Senator Babara Boxer, Democrat of California, said it would defer to the criminal authorities to complete their investigation first.

One of only a few World War II veterans left in the Senate, Mr. Stevens grew up in Indiana and California and moved to Alaska in 1950, before it was a state, according to the Almanac of American Politics.

He first ran for the Senate in 1962, losing to Ernest Gruening, a Democrat. In 1968, Mr. Stevens was appointed by Gov. Walter Hickel to fill a vacant seat in the Senate, and has been re-elected six times since then.

He is by far the most prominent figure to be charged in a four-year-old political corruption investigation in Alaska, which has resulted in seven convictions, among them three state lawmakers and the chief of staff of former Gov. Frank H. Murkowski.

The case, which began as an inquiry into VECO’s relationship with Alaska lawmakers, is still under way and several well-known figures in the state are said to remain under scrutiny, among them Representative Don Young, a Republican, and Mr. Stevens’s son, Ben, former president of the State Senate. Both have denied any wrongdoing.

The indictment was announced by Matthew Friedrich, the acting head of the Justice Department’s criminal division. He said at a news conference that politics played no role in the decision to bring the case or the timing of the charges.

The indictment was announced one day after a scathing inspector general’s report that said that senior Justice Department aides had improperly asked political questions to fill nonpolitical jobs under former Attorney General Alberto R. Gonzales.

The charges against Mr. Stevens said that, beginning in the spring and summer of 2000, Mr. Stevens and Mr. Allen discussed whether VECO could renovate Mr. Stevens’s residence in Girdwood, Alaska.

After that conversation, and over the next six years, Mr. Stevens is accused of accepting from VECO and Mr. Allen more than $250,000 in free labor, construction work like flooring, heating, plumbing and installation of electrical wiring and gutters, and a Viking gas grill.

Ted Stevens scandal puts Republican Senate seat in play

2008-08-03T21:37:00.000-07:00

Original Link: http://www.latimes.com/news/nationworld/washingtondc/la-na-stevens30-2008jul30,0,5720247.story

By Richard B. Schmitt and Janet Hook, Los Angeles Times Staff Writers

The indictment of Sen. Ted Stevens (R-Alaska) on corruption charges Tuesday throws into question his grip on a Senate seat he has held for decades and offers Democrats a chance to strengthen their hold on Congress.

Stevens, the longest-serving Republican in the Senate and a towering figure in Alaska's political history, was indicted by a federal grand jury here on charges that he concealed hundreds of thousands of dollars in gifts from one of the state's most powerful employers. The indictment accuses Stevens, 84, of accepting more than $250,000 in improvements to his Alaska home, as well as other gifts such as a gas grill and a new Land Rover, from VECO Corp., an oil field services company.

"It saddens me to learn that these charges have been brought against me," Stevens said in a statement in which he denied that he had ever knowingly submitted a false disclosure form. "I am innocent of these charges and intend to prove that."

Stevens said he had relinquished his post as senior Republican on several congressional committees in accordance with Senate GOP rules that require members indicted on felony charges to give up leadership posts.

Stevens has served in the Senate since 1968 and has held some of its most powerful positions, including chairmanships of the Appropriations and Commerce committees. He is legendary for bringing home federal dollars to Alaska; the Anchorage Daily News once wrote that Stevens was "the second-largest engine of the Alaska economy."

According to Citizens Against Government Waste, a Washington watchdog group, Stevens sponsored a total of 1,452 pork barrel projects worth $3.4 billion between 1995 and 2008, making Alaska the No. 1 state in pork per capita every year since 1999.

The indictment casts a shadow over Stevens' future. He is up for reelection this year, and news reports questioning his ethics have already damaged his standing. Alaska has not elected a Democratic senator for a generation. But even before Stevens was indicted, polls showed him trailing his Democratic opponent, Anchorage Mayor Mark Begich.

Stevens' defeat would be a big notch in the belt of Democrats hoping to expand their party's slim control of the Senate. (The chamber's two independents typically vote with the 49 Democrats against the 49 Republicans). Some analysts wonder whether Stevens will drop his bid for reelection rather than risk the loss of his seat to a Democrat. Several Republicans are running against Stevens in the state's GOP primary Aug. 26.

"If Stevens runs, the likelihood of him getting beaten in the primary just went up 100%," said Jennifer Duffy, who analyzes Senate elections for the nonpartisan Cook Political Report.

Reaction to the indictment Tuesday was muted on Capitol Hill, where the Justice Department has been conducting a number of corruption probes.

Sen. Richard J. Durbin (D-Ill.), the Senate's majority whip, described the mood among Democrats as "somber" and said his caucus was thinking of Stevens and his family. "I believe in the presumption of innocence," Durbin added. "At this point, we should just let the courts do their work."

Republicans largely avoided reporters.

Senate Minority Leader Mitch McConnell (R-Ky.) appeared alone before reporters at a regular briefing usually attended by most of the GOP leadership. He appeared grim and spoke briefly on Stevens. "The Republican conference, like you, just heard of this news," McConnell said. "No doubt we'll have more to say about this later." He turned from reporters' shouted questions and walked away.

Stevens is charged with seven counts of making false statements on his financial disclosure forms for calendar years 2001 to 2006. The post-Watergate Ethics in Government Act requires lawmakers to disclose gifts over a specific monetary amount as well as liabilities in excess of $10,000.

The indictment alleges that, over a six-year period, Stevens failed to report gifts from VECO, in exchange for which he "received and accepted solicitations for multiple official actions," including helping VECO obtain lucrative federal contracts and providing "assistance" with company ventures in Pakistan and Russia.

The indictment does not accuse him of the more serious crime of bribery. Legal experts said that may reflect difficulty that prosecutors had in identifying specific legislative favors that Stevens performed for VECO. Bribery law requires that there be an identifiable exchange, known as a quid pro quo, between a thing of value and an official act.

The charges culminate a multiyear influence-peddling investigation that has led to the convictions of several Alaska state officials and the chief executive of VECO, Bill J. Allen, who last year admitted that he made more than $400,000 in payments to government officials. Stevens' son, Ben, a former president of the Alaska state Senate, remains under federal investigation, as does Republican U.S. Rep. Don Young of Alaska.

The indictment focuses on improvements to Stevens' home in Girdwood, Alaska, a onetime gold-mining town about 40 miles southeast of Anchorage that touts itself as the state's only year-round resort community. The remodeling more than doubled the home's size, starting in the summer of 2000, when Stevens and Allen first discussed the project, according to the indictment.

Over the ensuing six years, "Stevens accepted from Allen and VECO more than $250,000 in free labor, materials and other things of value" in connection with the home improvements, according to the indictment. "Stevens never paid Allen or VECO anything for these expenses, and Stevens never listed his receipt of these things of value on any of his yearly financial disclosure forms," the indictment says.

At one point, according to the indictment, the renovation work included jacking up and resting the house on stilts and building a new first floor with two bedrooms and a bathroom. Wraparound decks reportedly were added to the first and second floors along with a garage with a workshop. VECO employees and contractors allegedly bought and installed fixtures and kitchen appliances.

Stevens reportedly monitored the progress of the work closely. "We've never worked with a man so easy to get along with," Stevens said in a September 2000 e-mail to Allen, lauding the work of a VECO employee. "You . . . have been the spark plugs and we are really pleased with all you have done."

The indictment says that Allen also helped Stevens outfit the remodeled home with "new and used furniture, a new stationary tool storage cabinet with new tools, and a new professional Viking gas grill."

The indictment also accuses Stevens of accepting a $40,000 Land Rover Discovery from Allen in 1999 in exchange for a 1964 Ford Mustang that Stevens owned plus $5,000. The Ford was worth less than $20,000. The indictment said that Stevens wanted the new vehicle for one of his children.

Several other past and present Republican members of Congress are under investigation by Justice Department anti-corruption lawyers. Some political observers believe bringing charges in an election year could sway some voters.

At a news conference where the indictment of Stevens was announced, Matthew Friedrich, acting chief of the department's criminal division, said the election would not affect the timing or decision to bring any additional charges.

"When we bring cases as prosecutors, we bring cases based upon our evaluation of the facts and the law, and we bring cases when they are ready to be charged, and . . . that's what has happened here," he said.

rick.schmitt@latimes.com

janet.hook@latimes.com

Times staff writers Nicole Gaouette and Chuck Neubauer contributed to this report.

Catalog of Ted Stevens’ Actions That Have Benefitted Clients of Ben Stevens

2008-08-03T21:33:00.000-07:00

Original Link: http://blog.sunlightfoundation.com/2006/09/01/catalog-of-ted-stevens-actions-that-have/

By Bill Allison

From the miracle of Nexis comes this list compiled by Chuck Neubauer, Judy Pasternak and Richard T. Cooper of the Los Angeles Times in June 2003 of Sen. Ted Stevens official actions in the U.S. Senate that have benefited the clients of his son, state Sen. Ben Stevens. Regrettably, that article (part of a two-part series the Times did looking at congressional offspring who became lobbyists) is not available online; this is a small chunk of it.

The Stevens connection

The special interest: Cook Inlet Region Inc., (CIRI), a Native Alaskan corporation created by federal legislation sponsored by Sen. Stevens

What Sen. Ted Stevens has done: Put a rider on an appropriations bill to help CIRI make a profit from a telecommunications investment. Pushed other legislation that would benefit CIRI, including an attempt in January to make CIRI eligible for tribal gaming.

How much Ben Stevens has been paid in consulting fees*: $218,774

The special interest: VECO, a large Alaskan engineering and construction company with business around the world. It started out as an oil field service contractor

What Sen. Ted Stevens has done: Helped settle a contract dispute between VECO and Pakistan while chairing an appropriations subcommittee that was considering legislation to remove sanctions against Pakistan. Mandated that federal job training money be used to train Russian oil field workers for VECO and other Alaskan companies. Pushed for the Alaska Natural Gas pipeline.

How much Ben Stevens has been paid in consulting fees*: $148,000 in consulting fees from 2000 to 2002. $64,000 in lobbying fees in 1996 and 1997

The special interest: Special Olympics

What Sen. Ted Stevens has done: Brought more than $10 million in federal aid to put on the 2001 Special Olympics Winter Games in Anchorage.

How much Ben Stevens has been paid in consulting fees*: $715,395 in salary over three years to run the Alaska games. $57,000 as a consultant to the national Special Olympics since he ended his job running the Anchorage games

The special interest: At-Sea Processors Assn., the trade group of the 19 large factory trawlers that catch and process groundfish in the Bering Sea. The group’s executive director is Trevor McCabe, a former Stevens aide

What Sen. Ted Stevens has done: Sits on the subcommittee of the Senate Commerce, Science and Transportation Committee, which has jurisdiction over the fisheries. Co-sponsored American Fisheries Act in 1998 that gave 40% of the pollock harvest to the 19 trawlers in the association, which are listed by name in the legislation. In 2001, put through a rider that eliminated the sunset provisions of the act, making it permanent.

How much Ben Stevens has been paid in consulting fees*: $54,000

The special interest: North Pacific Crab Assn., a trade group of nine onshore processors

What Sen. Ted Stevens has done: Pushed legislation to have federal fishing regulators come up with a plan for crab quotas. Congress is expected to vote this year on the plan, which gives processors, vessel owners and skippers shares that can be bought and sold. Has held hearings on the plan.

How much Ben Stevens has been paid in consulting fees*: $56,000

The special interest: Bering Sea Crab Effort Reduction Fund, an ad hoc group of Bering Sea vessel owners

What Sen. Ted Stevens has done: Pushed through legislation for a $100-million buy-back program for crabbing vessels as the crab population shrinks.

How much Ben Stevens has been paid in consulting fees*: $42,500

The special interest: Norquest Seafood, a large fish processor

What Sen. Ted Stevens has done: Earmarked $10 million in federal funds to market Alaska seafood. Required Defense Dept. to buy only domestically produced seafood.

How much Ben Stevens has been paid in consulting fees*: $37,502

The special interest: Adak Fisheries, a groundfish processor

What Sen. Ted Stevens has done: Earmarked $10 million in federal funds to market Alaska seafood. Required Defense Dept. to buy only domestically produced seafood.

How much Ben Stevens has been paid in consulting fees*: $80,000

The special interest: Adak Seafood, former operator of a groundfish processing plant on Adak Island

What Sen. Ted Stevens has done: Sponsored legislation that opened this one-time naval base for commercial development.

How much Ben Stevens has been paid in consulting fees*: $25,000

The special interest: Southwest Alaska Municipal Conference, a nonprofit economic development agency

What Sen. Ted Stevens has done: Picked the agency to divide $30 million in disaster relief money after a bad groundfish season in 2000.

How much Ben Stevens has been paid in consulting fees*: $12,800

*Unless otherwise noted

Sources: Financial disclosure forms filed by Ben Stevens with the Alaska Public Offices Commission, covering 2000 through 2002; congressional bills, news releases and documents; interviews with Ben Stevens’ clients and others.

All coincidences, I’m sure. The full cite for the article is: Neubauer, Chuck, Judy Pasternak and Richard T. Cooper, “The Senators’ Sons; A Washington Bouquet: Hire A Lawmaker’S Kid.” Los Angeles Times, June 22, 2003 Sunday, Pg. A1.

Only luck can save America's economy

2008-08-03T19:45:00.001-07:00

Original Link: http://us.ft.com/ftgateway/superpage.ft?news_id=fto080320081428403697&referrer_id=yahoofinance

By Clive Crook

The US economy may not be in recession, but this is the nearest thing. In spite of the recent fiscal stimulus, output grew less than 2 per cent at an annual rate in the second quarter, slower than expected. That followed growth of 1 per cent in the first quarter and a contraction (on revised numbers) of 0.2 per cent in the fourth quarter of 2007. A recession is usually defined as two consecutive quarters of shrinking output. It has not happened yet, but it very well might in the next few quarters. Even if it does not, that would be little consolation.

Prospects for the second half of the year are poor. Some of the current boost from the fiscal injection delivered last quarter will keep feeding through, but consumer spending, the hitherto unstoppable engine of US growth, is stalling. The prices of food and petrol, together with still-tightening credit conditions and a housing market that has not yet touched bottom, are weighing it down. Net exports were the main accelerator in the second quarter - without that rise, in fact, output would have fallen, fiscal stimulus or no. But they cannot be relied on in future because growth in Europe and elsewhere is going to be limited by, among other things, policymakers' worries about inflation.

Most forecasters are expecting a double-dip US slowdown - and the second dip could be a technical recession. Regardless, the labour market is already behaving that way. Unemployment moved up to 5.7 per cent in July, the labour department reported on Friday. Overtime is falling; involuntary part-time working is on the rise. Unemployment will climb above 6 per cent next year. While it may be true that the US has seen much worse, this is no mere "mental recession".

What more can be done? The short answer is nothing. The policy options have narrowed almost to zero. The Federal Reserve has already cut interest rates sharply - more than some think wise - and is having to assure the markets that it is keeping an eye on inflation. In spite of the slowdown, consumer prices are rising at their fastest for almost 20 years. Crucially, this has not embedded itself in expectations of permanently higher inflation. If that happens, and prices start pushing wages, interest rates would have to go up. The recent poor numbers for output and jobs led markets not to expect that interest rates will be cut further, but to hope that they will not be raised again just yet.

Some fiscal room for manoeuvre would be good right now - but precious little remains. The White House just updated its budget forecasts for next year. These pencil in a deficit of nearly $500bn (£253bn, €321bn). This excludes roughly $80bn of war costs. It also makes incomplete allowance for the fiscal component of the various housing-related bail-outs now in train. If Freddie Mac and Fannie Mae (NYSE:FNM) , the housing agencies, are forced to draw on the full support that the Treasury, with the passage of the new housing bill, is empowered to provide, add tens of billions more. A deficit of 5 per cent of gross domestic product next year is within reach.

Looking farther ahead, both presidential candidates are promising to cut taxes by thousands of billions of dollars over the next 10 years (relative to the Bush administration's bogus baseline). Barack Obama, the Democratic contender, is calling for an additional fiscal stimulus right now.

Budget deficits should indeed rise sharply in recessions. In the US, this requires more forceful intervention than in most European countries. Automatic fiscal stabilisers are less powerful in the US: the government is smaller, and the tax base (lacking a value-added tax or equivalent) is less cyclically sensitive. States have to comply with semi-binding balanced budget rules as well, which perversely tighten fiscal policy during recessions. California, in the midst of the current slowdown, has been forced to sack thousands of workers and put state employees on the minimum wage.

Even so, further aggressive fiscal easing at the federal level would be risky. If the budget outlook starts to scare the markets and interrupt the flow of foreign capital to the US, the dollar might fall abruptly - worsening the inflation risk and forcing the Fed's hand on interest rates. The point at which fiscal easing becomes self-cancelling may not be far away.

It is worth remembering where the blame for this neutering of fiscal policy lies: squarely with the Bush administration. At the start of this decade, the budget stood in surplus to the tune of 2.4 per cent of GDP. On unchanged policy, this was expected to grow to a surplus of 4.5 per cent of GDP by 2008. This year's actual deficit of 3 per cent of GDP therefore represents a worsening of more than 7 per cent of GDP, or roughly $1,000bn. Almost all of this deterioration is due to policy: to tax cuts, spending increases, and their associated debt-service costs.

That projected surplus was a priceless gift to the White House. It offered the Bush administration ample scope for outlays on homeland security and other unforeseen priorities, and moderate tax cuts as well, all within a budget balanced over the course of the business cycle. Instead, the administration knowingly opted for outrageous fiscal excess - adding insult to injury with its phoney tax-cut sunset provisions, designed for no other purpose than to disguise the long-term fiscal implications. Eight years on, this startling record of fiscal irresponsibility has all but taken fiscal policy off the table as an available response to the slowdown.

The US economy had better have luck on its side. Luck is about all it has left.

Hundreds of banks will fail, Roubini tells Barron's

2008-08-03T19:40:00.000-07:00

Original Link: http://www.reuters.com/article/marketsNews/idINN0344130720080803?rpc=44

The United States is in the second inning of a recession that will last for at least 18 months and help kill off hundreds of banks, influential economist and New York University Professor Nouriel Roubini told Barron's in Sunday's edition.

Taxpayers will pay a big price for helping bail out the rest of the financial services industry as well, Roubini said -- at least $1 trillion and more likely $2 trillion.

The banks will become insolvent because of mounting losses as a result of the housing bust and because they have only written down their subprime loans so far, he said. Still in front of them are their consumer-credit losses, for which they lack the reserves, Barron's reported.

He also said there are hundreds of millions of dollars outstanding in home-equity loans that could be worth zero, too.

U.S. consumers, meanwhile, are "shopped out" and saving less, while the Federal Reserve's performance in handling the crisis has been poor, Roubini said, because it failed to see that the problem extended beyond subprime mortgage debt.

Now, Roubini told Barron's, the government is overregulating, bailing out troubled participants and intervening in every market.

"The regulators should investigate themselves for bailing out Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), the creditors of Bear Stearns and the financial system with new lending facilities. They have swapped U.S. Treasury bonds for toxic securities," he told Barron's. "It is privatizing the gains and profits, and socializing the losses as usual. This is socialism for Wall Street and the rich."

He said that sometimes it is necessary to use public money to rescue institutions, but in a way that does not bail out the people who made the mistakes. "In each one of these episodes, the government bailed out the shareholders, the bondholders, and to some degree, management," Roubini told Barron's.

As for the banks that will go bankrupt, they will include community banks that finance homes, stores, downtown areas, commercial real estate and other mainstays of U.S. towns and cities, Roubini said.

"Of three dozen or so medium-sized regional banks, a good third are in distress," he told Barron's, saying half of the group could go bankrupt. Some big banks could wind up insolvent, he added, but said they might be deemed too big to fail.

Nouriel stressed that he is "quite bullish" about the state of the global economy and that he is positive about the medium and long term.

(Reporting by Robert MacMillan, editing by Martin Golan)

Economic Free Fall?

2008-08-03T19:17:00.000-07:00

Original Link: http://www.thenation.com/doc/20080818/greider

By William Greider

Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion. Congress quickly agreed to enact a gargantuan bailout, with more to come, to calm the anxieties and halt the deflation of Wall Street giants. Put aside partisan bickering, no time for hearings, no need to think through the deeper implications. We haven't seen "bipartisan cooperation" like this since Washington decided to invade Iraq.

In their haste to do anything the financial guys seem to want, Congress and the lame-duck President are, I fear, sowing far more profound troubles for the country. First, while throwing our money at Wall Street, government is neglecting the grave risk of a deeper catastrophe for the real economy of producers and consumers. Second, Washington's selective generosity for influential financial losers is deforming democracy and opening the path to an awesomely powerful corporate state. Third, the rescue has not succeeded, not yet. Banking faces huge losses ahead, and informed insiders assume a far larger federal bailout will be needed--after the election. No one wants to upset voters by talking about it now. The next President, once in office, can break the bad news. It's not only about the money--with debate silenced, a dangerous line has been crossed. Hundreds of billions in open-ended relief has been delivered to the largest and most powerful mega-banks and investment firms, while government offers only weak gestures of sympathy for struggling producers, workers and consumers.

The bailouts are rewarding the very people and institutions whose reckless behavior caused this financial mess. Yet government demands nothing from them in return--like new rules for prudent behavior and explicit obligations to serve the national interest. Washington ought to compel the financial players to rein in their appetite for profit in order to help save the country from a far worse fate: a depressed economy that cannot regain its normal energies. Instead, the Federal Reserve, the Treasury, the Democratic Congress and of course the Republicans meekly defer to the wise men of high finance, who no longer seem so all-knowing.

Let's review the bidding to date. After panic swept through the global financial community this spring, the Federal Reserve and Treasury rushed in to arrange a sweetheart rescue for Bear Stearns, expending $29 billion to take over the brokerage's ruined assets so JPMorgan Chase, the prestigious banking conglomerate, would agree to buy what was left. At the same time, the Fed and Treasury provided a series of emergency loans and liquidity for endangered investment firms and major banks. Investors were not persuaded. Their panic was not "mental," as former McCain adviser Phil Gramm recently complained. The collapse of the housing bubble had revealed the deep rot and duplicity within the financial system. When investors tried to sell off huge portfolios of spoiled financial assets like mortgage bonds, nobody would buy them. In fact, no one can yet say how much these once esteemed "safe" investments are really worth.

The big banks and investment houses are also stuck with lots of bad paper, and some have dumped it on their unwitting customers. The largest banks and brokerages have already lost enormously, but lending portfolios must shrink a lot more--at least $1 trillion, some estimate. So wary shareholders are naturally dumping financial-sector stocks.

Most recently, the investors' fears were turned on Fannie Mae and Freddie Mac, the huge quasi-private corporations that package and circulate trillions in debt securities with implicit federal backing. Treasury Secretary Henry Paulson (formerly of Goldman Sachs) boldly proposed a $300 billion commitment to buy up Fannie Mae stock and save the plunging share price--that is, save the shareholders from their mistakes. So much for market discipline. For everyone else, Washington recommends a cold shower.

Talk about warped priorities! The government puts up $29 billion as a "sweetener" for JP Morgan but can only come up with $4 billion for Cleveland, Detroit and other urban ruins. Even the mortgage-relief bill is a tepid gesture. It basically asks, but does not compel, the bankers to act kindlier toward millions of defaulting families.

A generation of conservative propaganda, arguing that markets make wiser decisions than government, has been destroyed by these events. The interventions amount to socialism, American style, in which the government decides which private enterprises are "too big to fail." Trouble is, it was the government itself that created most of these mastodons--including the all-purpose banking conglomerates. The mega-banks arose in the 1990s, when a Democratic President and Republican Congress repealed the New Deal-era Glass-Steagall Act, which prevented commercial banks from blending their business with investment banking. That combination was the source of incestuous self-dealing and fraudulent stock valuations that led directly to the Crash of 1929 and the Great Depression that followed.

Even before Congress and Bill Clinton repealed the law, the Federal Reserve had aggressively cleared the way by unilaterally authorizing Citigroup to cross the line. Wall Street proceeded, with accounting tricks described as "modernization," to re-create the same scandals from the 1920s in more sophisticated fashion. The financial crisis began when these gimmicky innovations blew up.

Democrats who imagine they can reap partisan advantage from this crisis don't know the history. The blame is bipartisan; so also is the disgrace. In 1980, before Ronald Reagan even came to town, Democrats deregulated the financial system by repealing federal interest-rate ceilings and other regulatory restraints--a step that doomed the savings and loan industry and eliminated a major competitor for the bankers. Democrats have collaborated with Republicans on behalf of their financial patrons every step of the way.

The same legislation also repealed the federal law prohibiting usury--the predatory practices that ruin debtors of modest means by lending on terms that ensure borrowers will fail. Usurious lending is now commonplace in America, from credit cards and "payday loans" to the notorious subprime mortgages. The prohibition on usury really involves an ancient moral principle, one common to Judaism, Christianity and Islam: people of great wealth must not be allowed to use it to ruin others who lack the same advantages. A decent society cannot endure it.

The fast-acting politicians may hope to cover over their past mistakes before the public figures out what's happening (that is, who is screwing whom). But the Federal Reserve has a similar reason to move aggressively: the Fed was a central architect and agitator in creating the circumstances that led to the collapse in Wall Street's financial worth. The central bank tipped its monetary policy hard in one direction--favoring capital over labor, creditors over debtors, finance over the real economy--and held it there for roughly twenty-five years. On one side, it targeted wages and restrained economic growth to make sure workers could not bargain for higher compensation in slack labor markets. On the other side, it stripped away or refused to enforce prudential regulations that restrained the excesses of banking and finance. In The Nation a few years back, I referred to Alan Greenspan as the "one-eyed chairman" [September 19, 2005] who could see inflation in the real economy--even when it didn't exist--but was blind to the roaring inflation in the financial system.

The Fed's lopsided focus on behalf of the monied interests, combined with its refusal to apply regulatory laws with due diligence, eventually destabilized the overall economy. Trying to correct for previous errors, the Fed, with its overzealous free-market ideology, swung monetary policy back and forth to extremes, first tightening credit without good reason, then rapidly cutting interest rates to nearly zero. This erratic behavior encouraged a series of financial bubbles in interest-sensitive assets--first the stock market, during the late 1990s tech-stock boom, then housing--but the Fed declined to do anything or even admit the bubbles existed. The nation is now stuck with the consequences of its blindness.

The Federal Reserve's dereliction of duty is central to the financial failures. It betrayed the purpose for which the central bank was first created, in 1913, abandoning the sense of balance the Fed had long pursued and that Congress requires. Most politicians, not to mention the press, are too intimidated to question the Fed's daunting power, but their ignorance is about to compound the problem. Instead of demanding answers, the political system is about to expand the Fed's governing powers--despite its failure to protect us. Treasury Secretary Paulson proposed and Democratic leaders have agreed to make the insulated Fed the "supercop" that oversees not only commercial banks and banking conglomerates but also the largest investment houses or anyone else big enough to destabilize the system. This "reform" would definitely reassure club members who are already too cozy with the central bankers. Everyone else would be left deeper in the dark.

The political system, once again, is rewarding failure. The Fed is an unreliable watchdog, ideologically biased and compromised by its conflicting obligations. Is it supposed to discipline the big money players or keep them afloat? Putting the secretive central bank in charge, with its unlimited powers to prop up troubled firms, would further eviscerate democracy, not to mention economic justice.

If Congress enacts this concept early next year, the privileged group of protected financial interests is sure to grow larger, because other nonfinancial firms could devise ways to reconfigure themselves so they too would qualify for club membership. A very large manufacturing conglomerate--General Electric, for instance--might absorb elements of banking in order to be covered by the Fed's umbrella (GE Capital is already among the largest pools of investment capital). Private-equity firms, with their buccaneer style of corporate management, are already trying to buy into banking, with encouragement from the Fed (the Service Employees International Union has mounted a campaign to stop them). A new President could stop the whole deal, of course, but John McCain has surrounded himself with influential advisers who were co-architects of this financial disaster. For that matter, so has Barack Obama.

The nation, meanwhile, is flirting with historic catastrophe. Nobody yet knows how bad it is, but the peril is vastly larger than previous episodes, like the savings and loan bailout of the late 1980s. The dangers are compounded by the fact that the United States is now utterly dependent on foreign creditors--Japan and China lead the list--who have been propping us up with their lending. Thanks to growing trade deficits and debt, foreign portfolio holdings of US long-term debt securities have more than doubled since 1994, from 7.9 percent to 18.8 percent as of June 2007. If these countries get fed up with their losses and pull the plug, the US economy will be a long, long time coming back.

The gravest danger is that the national economy will weaken further and spiral downward into a negative cycle that feeds on itself: as conditions darken, people hunker down and wait for the storm to pass--consumers stop buying, banks stop lending, producing companies cut their workforces. That feeds more defaulted loan losses back into the banking system's balance sheets. This vicious cycle is essentially what led to the Great Depression after the stock market crash of 1929. I offer not a prediction but a warning. The comparison may sound farfetched now, but US policy-makers and politicians are putting us at risk of historic deflationary forces that, once they take hold, are very difficult to reverse.

A more aggressive response from Washington would address the real economy's troubles as seriously as it does Wall Street's. Financial firms have lost capital on a huge scale--more of them will fail or be bought by foreign investors. But Wall Street cannot get well this time if the economy remains stuck in the ditch. Washington needs to revive the "animal spirits" of the nation at large. The $152 billion stimulus package enacted so far is piddling and ought to be three or four times larger. Instead of sending the money to Iraq, we should be spending it here on getting people back to work, building and repairing our tattered infrastructure, investing in worthwhile projects that can help stimulate the economy in rough weather.

An agenda of deeper reforms can boost public confidence even as it undoes a lot of the damage caused by the financiers and bankers. Some suggestions:

§ Nationalize Fannie Mae and other government-supported enterprises instead of coddling them. Restore them to their original status as nonprofit federal agencies that provide a valuable service to housing and other markets. Make the investors eat their losses. Buy the shares at 2 cents on the dollar. Without a federal guarantee, these firms are doomed anyway.

§ Resolve the democratic contradiction of "too big to fail" bailouts by dismantling the firms that are too big to fail--especially the newly created banking conglomerates that have done so much harm. Restore the boundaries between commercial banking and investment banking. In any case, market pressures are likely to shrink those behemoths as banks sell off their parts to survive. For the remaining big boys, revive antitrust enforcement. Set stern new conditions for emergency lending from government--supervised receivership, stricter lending rules to prevent recidivism and severe penalties for greed-crazed shareholders and executives.

§ Assign the Federal Reserve's regulatory role to a new public agency that is visible and politically accountable. Make the Fed a subsidiary agency of the Treasury Department and reform its decision-making on money and credit to restore an equitable balance between competing goals and interests--seeking full employment but also stable money and moderate inflation.

§ Begin the hard task of re-creating a regulated financial system Americans can trust, one that recognizes its obligations to the broad national interest. This requires regulatory reforms to cover moneypots like private-equity funds and to clear away the blatant conflicts of interest and double-dealing on Wall Street, and also to give responsible shareholders, workers and other interests a greater voice in corporate management and greater protection against rip-offs of personal savings.

§ Re-enact the federal law against usury. The details are difficult and can follow later, but this would be a meaningful first step toward restoring moral obligations in the financial sector. People would understand it, and so would a lot of the money guys. Maybe in the deepening crisis, Washington will begin to grasp that money is also a moral issue.

Speculation behind global commodity price rise

2008-08-03T19:13:00.000-07:00

Original Link: http://www.informationclearinghouse.info/article20413.htm

By Ramgopal Agarwala

The vested interests are trying to divert the attention from regulation by arguing that other factors, including growing demand from emerging markets such as China and India, is responsible for commodity price increases. This game of blaming emerging economies in which the President of the US has also joined is patently absurd because the rapid growth in India and China has been going on for more than a decade with no increase in commodity prices even in nominal terms and cannot explain the sharp increase in last two years.

Other factors such as drought in Australia and switch of corn to biofuels can explain part of the increase in food prices but none of them can explain increases of more than 100% in many commodity prices in a single year as it has happened in 2007 and 2008. There is little doubt that speculative finance is a key factor in sudden price increases in oil, food and metals in the last two years. Amartya Sen in his classical work on famines pointed out that even when supply situation for food is healthy, famines can occur because of collapse of purchasing power of the common man. Today we are witnessing a phenomenon of food riots caused by food price increases due not to demand-supply imbalance but to greed of speculators facilitated by lax regulatory system in the key trading centre of the world.

Given the play of vested interests in US Congress it is not clear which way the legislation on regulating speculative finance in commodity futures will move. Policymakers in developing countries in which price increase in fuel and food are matters of life and death for the poor cannot remain silent and accept vulnerability to the price fluctuations originating in developed countries' financial markets. This must reflect on what they can do to safeguard their people against the onslaught of the speculators in foreign lands?

Over the long-term, the dominant role of a few commodity markets in the West must be reduced. As the centre of gravity of the world economy shifts to the South and South is becoming a dominant source of both demand and supply for commodities, it must develop its own markets with its own rules.

However, in the short run when the contagion effects of the markets in developed countries are still strong, the South must stake its claim in contributing to reform of the regulatory systems in the developed countries because its vital interests are involved. It should not remain silent when the contagion from developed economies is leading to mass starvation in its economies. It should demand, perhaps through international forums such as G-20, proper regulations in the developed countries so that the greed of the few in developed countries does not lead to misery of the many in the developing countries. It should also use its leverage through institutions such as Opec to persuade the developed countries to check the excesses of speculators which could have adverse effects in the long run on both producers and consumers of oil.

Massive US Deficit Spells Austerity Policy For Next Administration

2008-08-03T19:09:00.000-07:00

Original Link: http://www.informationclearinghouse.info/article20413.htm

By Jerry White

The Bush administration this week predicted that the US budget deficit will hit a record $482 billion in 2009. This means that the next president, whether Democrat Barack Obama or Republican John McCain, will follow a policy of unprecedented austerity, including gutting entitlement programs, such as Medicare and Social Security.

Although the deficit figure is $74 billion higher than what the White House predicted just two months ago, it is widely acknowledged that it severely underestimates the real scope of the coming shortfall. The amount announced by White House budget director Jim Nussle includes only $70 billion for the wars in Iraq and Afghanistan—which could cost at least three times as much.

Moreover, the estimate ignores the $100 billion—or hundreds of billions, which could be the eventual cost—being allocated for the Treasury Department’s rescue of the mortgage finance companies, Fannie Mae and Freddie Mac.

The estimate was based on projections of better-than-expected economic growth, corporate tax revenues, unemployment and inflation estimates and a slowing down of the fall in housing prices. These were quickly discredited by news that real estate prices had fallen by a record 15.8 percent in 20 major US cities over the past year. The same day that the White House released the estimate, Merrill Lynch was forced to write-down $5.7 billion in mortgage-backed assets and was essentially bailed out by investors from Singapore.

“That’s not the real number,” former Bush Treasury Secretary Paul O’Neill said of the deficit in a comment cited in the Washington Post. “It’s upward of $500 billion and counting. It’s a mind-boggling number.”

This staggering rise in government indebtedness—which has more than doubled in the current 2008 fiscal year to $389 billion, from $162 billion in 2007 and will be nearly half a trillion in 2009—further undermines the international creditworthiness of the US and places even greater downward pressure on the US dollar.

According to the New York Times, “When Mr. Bush took office, he predicted that federal debt held by the public—the amount borrowed by the government to pay for past deficits—would shrink to just 8 percent of the gross domestic product in 2009. He now estimates that it will amount to 40 percent.”

There is an overwhelming consensus in the economic and political establishment that ordinary Americans will have to pay for the crisis of American capitalism and a budget deficit that has been fueled by massive war spending, tax cuts for the wealthy and the provision of unlimited public resources to bail out major financial institutions.

“This is going to make it extraordinarily difficult for whoever’s going to become president,” Senate Budget Committee Chairman Kent Conrad (Democrat-North Dakota) told the Washington Post. “I don’t care who the president is—when they come and meet with their secretary of the Treasury, the Federal Reserve chairman, their top economists, it will be a sobering moment.”

If he wins the November elections, whatever minimal spending proposals Barack Obama has made during the campaign—including his so-called universal health care plan, tax credits for middle and low-income families and miniscule increases in infrastructure spending—will quickly be shelved in the name of “fiscal responsibility.”

Moreover, the political groundwork for major cutbacks in vital social services is already being laid. In their reports on the budget deficit, both the New York Times and the Washington Post complained of “fiscal pressures” due to the growing Medicare and Social Security costs—a thinly veiled suggestion that the next president will have no choice but to gut these programs, upon which tens of millions of seniors depend for income and health care.

Nowhere is there a suggestion that military spending—which at nearly $700 billion consumes well over half of the US government’s discretionary spending and is more than the rest of the world’s military spending combined—should be cut, let alone eliminated.

For his part, Obama has pledged to expand the military by nearly 100,000 soldiers and marines and increase spending. Given the costs of the ongoing wars in Iraq and Afghanistan, as well as new weapons systems, “ It’s hard to see how we could spend less on the military in the near term,” Richard Danzig, a former Navy secretary who advises Obama on national security, told Reuters in an interview last week.

While McCain calls for the extension of Bush’s tax cuts for the rich, Obama would only raise the top tax rates to the levels that existed under the Clinton administration—to 36 percent and 39.6 percent, from the current 33 percent and 35 percent. He has repeatedly rejected any return to higher tax rates on the wealthy as “confiscatory” and has told the Wall Street Journal he would also consider cutting corporate taxes.

On Monday, Obama held a Washington meeting with leading figures from corporate America and both Democratic and Republican parties. These included billionaire financier Warren Buffett, the CEOs of JPMorgan Chase, PepsiCo and Google, as well as Bush’s former Treasury Secretary Paul O’Neill, now a special advisor to the private equity firm Blackstone Group.

Also participating were top Obama economic advisors Robert Rubin, chairman of Citigroup and Clinton’s former treasury secretary, and Paul Volcker, who served as Federal Reserve chairman under the Carter and Reagan administrations. Ruben played a decisive role in the deregulation of the financial markets that helped create the mortgage and real estate bubble and made billions for wealthy speculators.

Volcker spearheaded the attack on the working class in the early 1980s by driving up interest rates to record levels and deliberately provoking the worst recession since the Great Depression of the 1930s in order to use unemployment as a hammer to drive down wages and living standards.

With bureaucrats from the AFL-CIO and Change to Win union federations present to perpetuate the fraud that Obama speaks for the interests of workers, the Democratic presidential candidate said, “There were some irresponsible decisions that were made on Wall Street and in Washington. In the past few years, I think we learned an essential truth that in the long run we can’t have a thriving Wall Street if we don’t have a thriving Main Street.”

Bipartisan measures were needed, he said, to “stabilize financial markets” and encourage entrepreneurship and the free market.

On Tuesday, Obama held discussions with current Federal Reserve Chairman Ben Bernanke and Bush’s Treasury Secretary Henry Paulson, where he signaled support for the government’s bailout of mortgage giants Fannie Mae and Freddie Mac.

While unlimited public funds are being made available to bail out wealthy investors, there will be no relief for masses of working people in the US facing layoffs, home foreclosures, unsustainable levels of personal debt, declining wages and skyrocketing prices for basic necessities.

Once again, both parties will use the lie that there is “no money” to meet social needs, while hundreds of billions are squandered on imperialist wars and channeled into the pockets of the wealthiest one percent of the population.

This guarantees that under the next administration, the working class occupants of “Main Street” will continue to face unprecedented levels of social distress and economic insecurity, while the country’s infrastructure—its roads, schools, bridges and public services—continue to crumble from neglect

Meeting the basic needs of the population—for decent paying jobs, high quality health care and education and affordable housing—requires a complete reorganization of economic life. Social and political priorities must be turned inside out, rejecting the anarchic prerogatives of the capitalist market and placing the needs of working people first.

This underscores the need for a break with the Democratic and Republican parties and the building of a mass political movement of the working class based on a socialist alternative to the profit system.

Fannie, Freddie seen boosting loss estimates, again

2008-08-02T22:42:00.000-07:00

Original Link: http://www.reuters.com/article/newsOne/idUSN0159911820080801

By Al Yoon - Analysis

NEW YORK (Reuters) - U.S. mortgage market giants, Fannie Mae and Freddie Mac, may report further downgrades to their forecasts for credit losses in their upcoming second-quarter results, starting next week.

The government-sponsored enterprises have already warned investors that credit-related losses, such as payouts on loans they guarantee, would likely rise through 2008 as falling U.S. home prices aggravate defaults on mortgages.

But the collapse in the shares of Fannie Mae and Freddie Mac last month, which led to the U.S. Treasury and Congress extending them government support, suggests investors think the companies sorely underestimated the housing market debacle.

Since the two companies' May forecasts, the U.S. housing market has continued to deteriorate, leading credit rating agency Standard & Poor's this week to raise its loss estimates on risky loans which, in turn, may extend the vicious cycle of asset write-downs at banks.

In the market's view, Fannie Mae and Freddie Mac may not have enough capital to offset losses and maintain their roles as the engines of the U.S. housing market.

"They've increased credit loss expectations for the past three quarters and this next one is probably going to be the fourth," Robert Napoli, an analyst at Piper Jaffray in Chicago, said in a recent interview.

Freddie Mac, which in May boosted its forecast for total credit losses in 2008 to 16 basis points or 0.16 percent of their total mortgage book, from 12 basis points, plans to report second-quarter results on Wednesday.

Fannie Mae in May ratcheted up its expectation for its 2008 credit loss ratio to 13 to 17 basis points, at least double its historical range, from a prior estimate of 11 to 15 basis points to 15 basis points. Fannie had not set a date for its second quarter results by Friday afternoon.

Upward revisions to loss forecasts may reignite scrutiny over whether the companies can contain their losses and meet political pressure to expand their support for the housing market. They own or guarantee nearly half of the $12 trillion mortgage market.

Doubts about their capital adequacy led to one of the stormiest months ever for the mortgage giants in July, leading the U.S. Treasury to make explicit its already tacit support for the two companies. The housing market legislation passed by Congress in July included provisions for the U.S. Treasury to buy equity capital in the two firms and extend credit to them.

Fannie Mae and Freddie Mac have said they have enough capital and their regulator, OFHEO, affirmed their statements.

S&P, whose massive downgrades in the ratings of mortgage related assets in the summer of 2007 helped to exacerbate the credit crisis, this week again boosted its assumptions of losses on subprime and so-called "Alt-A" mortgages, which require less documentation and were often handed to borrowers with no equity stake in the property.

The new assumptions indicate up to $450 billion, or 85 percent, of "AAA" rated 2006 vintage subprime securities will default, and may lead to a raft of downgrades that pressure financial institutions to face a "new reality," said Vivek Tawadey, head of credit strategy at BNP Paribas in London.

The pressure of credit downgrades for companies follows, and in turn may encourage, falling home prices. Through May U.S. house prices had already slumped 18.3 percent since the peak in July 2006, according to S&P/Case Shiller index of 20 metropolitan areas.

Deep downgrades on even the safest, "AAA" rated mortgage bonds will lead to more credit tightening due to the need to raise capital reserves and take mark-to-market losses, Tawadey said in a note about "Hurricane Housing" on Friday.

"Turbulent market conditions lie ahead, would probably be an understatement" considering the early impact from Merrill Lynch & Co and other institutions that have taken "painful steps," he said.

For Fannie Mae and Freddie Mac, further drops in home prices since the first quarter will probably force them to increase reserves by a material amount, said Moshe Orenbuch, an analyst at Credit Suisse in New York. Their reluctance to deem market losses on Alt-A and subprime mortgage bonds they own as "other-than-temporary" will be challenged, he said in a note.

The more than 40 percent drop in the shares of Fannie Mae and Freddie Mac last month, and government plans to ensure backstop funding for the companies are indicators that writedowns for the companies are more likely, he said.

Analysts surveyed by Thomson Reuters expect Fannie Mae to report a second-quarter loss of $920.8 million, or 78 cents per share, compared with a $1.83 billion profit, or $1.86 a share a year ago. Freddie Mac is seen losing $319 million, or 59 cents a share, compared with net income of $729 million, or 96 cents per share a year earlier.

A monthly disclosure from Fannie Mae this week provided another clue on credit performance, according to Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia, and a former portfolio manager at the company.

Delinquencies on mortgages with "credit enhancement" increased to 3.56 percent in May from 3.33 percent in April, representing a "disproportionate" jump for certain loans, including Alt-A, he said.

Fannie Mae has about $70 billion in subprime and Alt-A securities in its portfolio. Freddie Mac is more at risk, with nearly $150 billion in the securities, analysts said.

The Economic Consequences of Mr. Bush

2008-08-02T22:05:00.000-07:00

Original Link: http://www.vanityfair.com/politics/features/2007/12/bush200712?printable=true¤tPage=all

by Joseph E. Stiglitz

The next president will have to deal with yet another crippling legacy of George W. Bush: the economy. A Nobel laureate, Joseph E. Stiglitz, sees a generation-long struggle to recoup.

The American economy can take a lot of abuse, but no economy is invincible. Illustration by Edward Sorel.

When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.

I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.

And it gets worse. After almost seven years of this president, the United States is less prepared than ever to face the future. We have not been educating enough engineers and scientists, people with the skills we will need to compete with China and India. We have not been investing in the kinds of basic research that made us the technological powerhouse of the late 20th century. And although the president now understands—or so he says—that we must begin to wean ourselves from oil and coal, we have on his watch become more deeply dependent on both.

Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle “worst president” when it comes to stewardship of the American economy. Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover. The economic effects of Bush’s presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America’s being displaced from its position as the world’s richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush.

Remember the Surplus?
The world was a very different place, economically speaking, when George W. Bush took office, in January 2001. During the Roaring 90s, many had believed that the Internet would transform everything. Productivity gains, which had averaged about 1.5 percent a year from the early 1970s through the early 90s, now approached 3 percent. During Bill Clinton’s second term, gains in manufacturing productivity sometimes even surpassed 6 percent. The Federal Reserve chairman, Alan Greenspan, spoke of a New Economy marked by continued productivity gains as the Internet buried the old ways of doing business. Others went so far as to predict an end to the business cycle. Greenspan worried aloud about how he’d ever be able to manage monetary policy once the nation’s debt was fully paid off.

This tremendous confidence took the Dow Jones index higher and higher. The rich did well, but so did the not-so-rich and even the downright poor. The Clinton years were not an economic Nirvana; as chairman of the president’s Council of Economic Advisers during part of this time, I’m all too aware of mistakes and lost opportunities. The global-trade agreements we pushed through were often unfair to developing countries. We should have invested more in infrastructure, tightened regulation of the securities markets, and taken additional steps to promote energy conservation. We fell short because of politics and lack of money—and also, frankly, because special interests sometimes shaped the agenda more than they should have. But these boom years were the first time since Jimmy Carter that the deficit was under control. And they were the first time since the 1970s that incomes at the bottom grew faster than those at the top—a benchmark worth celebrating.

By the time George W. Bush was sworn in, parts of this bright picture had begun to dim. The tech boom was over. The nasdaq fell 15 percent in the single month of April 2000, and no one knew for sure what effect the collapse of the Internet bubble would have on the real economy. It was a moment ripe for Keynesian economics, a time to prime the pump by spending more money on education, technology, and infrastructure—all of which America desperately needed, and still does, but which the Clinton administration had postponed in its relentless drive to eliminate the deficit. Bill Clinton had left President Bush in an ideal position to pursue such policies. Remember the presidential debates in 2000 between Al Gore and George Bush, and how the two men argued over how to spend America’s anticipated $2.2 trillion budget surplus? The country could well have afforded to ramp up domestic investment in key areas. In fact, doing so would have staved off recession in the short run while spurring growth in the long run.

But the Bush administration had its own ideas. The first major economic initiative pursued by the president was a massive tax cut for the rich, enacted in June of 2001. Those with incomes over a million got a tax cut of $18,000—more than 30 times larger than the cut received by the average American. The inequities were compounded by a second tax cut, in 2003, this one skewed even more heavily toward the rich. Together these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.

The administration crows that the economy grew—by some 16 percent—during its first six years, but the growth helped mainly people who had no need of any help, and failed to help those who need plenty. A rising tide lifted all yachts. Inequality is now widening in America, and at a rate not seen in three-quarters of a century. A young male in his 30s today has an income, adjusted for inflation, that is 12 percent less than what his father was making 30 years ago. Some 5.3 million more Americans are living in poverty now than were living in poverty when Bush became president. America’s class structure may not have arrived there yet, but it’s heading in the direction of Brazil’s and Mexico’s.

The Bankruptcy Boom

In breathtaking disregard for the most basic rules of fiscal propriety, the administration continued to cut taxes even as it undertook expensive new spending programs and embarked on a financially ruinous “war of choice” in Iraq. A budget surplus of 2.4 percent of gross domestic product (G.D.P.), which greeted Bush as he took office, turned into a deficit of 3.6 percent in the space of four years. The United States had not experienced a turnaround of this magnitude since the global crisis of World War II.

Agricultural subsidies were doubled between 2002 and 2005. Tax expenditures—the vast system of subsidies and preferences hidden in the tax code—increased more than a quarter. Tax breaks for the president’s friends in the oil-and-gas industry increased by billions and billions of dollars. Yes, in the five years after 9/11, defense expenditures did increase (by some 70 percent), though much of the growth wasn’t helping to fight the War on Terror at all, but was being lost or outsourced in failed missions in Iraq. Meanwhile, other funds continued to be spent on the usual high-tech gimcrackery—weapons that don’t work, for enemies we don’t have. In a nutshell, money was being spent everyplace except where it was needed. During these past seven years the percentage of G.D.P. spent on research and development outside defense and health has fallen. Little has been done about our decaying infrastructure—be it levees in New Orleans or bridges in Minneapolis. Coping with most of the damage will fall to the next occupant of the White House.

Although it railed against entitlement programs for the needy, the administration enacted the largest increase in entitlements in four decades—the poorly designed Medicare prescription-drug benefit, intended as both an election-season bribe and a sop to the pharmaceutical industry. As internal documents later revealed, the true cost of the measure was hidden from Congress. Meanwhile, the pharmaceutical companies received special favors. To access the new benefits, elderly patients couldn’t opt to buy cheaper medications from Canada or other countries. The law also prohibited the U.S. government, the largest single buyer of prescription drugs, from negotiating with drug manufacturers to keep costs down. As a result, American consumers pay far more for medications than people elsewhere in the developed world.

You’ll still hear some—and, loudly, the president himself—argue that the administration’s tax cuts were meant to stimulate the economy, but this was never true. The bang for the buck—the amount of stimulus per dollar of deficit—was astonishingly low. Therefore, the job of economic stimulation fell to the Federal Reserve Board, which stepped on the accelerator in a historically unprecedented way, driving interest rates down to 1 percent. In real terms, taking inflation into account, interest rates actually dropped to negative 2 percent. The predictable result was a consumer spending spree. Looked at another way, Bush’s own fiscal irresponsibility fostered irresponsibility in everyone else. Credit was shoveled out the door, and subprime mortgages were made available to anyone this side of life support. Credit-card debt mounted to a whopping $900 billion by the summer of 2007. “Qualified at birth” became the drunken slogan of the Bush era. American households took advantage of the low interest rates, signed up for new mortgages with “teaser” initial rates, and went to town on the proceeds.

All of this spending made the economy look better for a while; the president could (and did) boast about the economic statistics. But the consequences for many families would become apparent within a few years, when interest rates rose and mortgages proved impossible to repay. The president undoubtedly hoped the reckoning would come sometime after 2008. It arrived 18 months early. As many as 1.7 million Americans are expected to lose their homes in the months ahead. For many, this will mean the beginning of a downward spiral into poverty.

Between March 2006 and March 2007 personal-bankruptcy rates soared more than 60 percent. As families went into bankruptcy, more and more of them came to understand who had won and who had lost as a result of the president’s 2005 bankruptcy bill, which made it harder for individuals to discharge their debts in a reasonable way. The lenders that had pressed for “reform” had been the clear winners, gaining added leverage and protections for themselves; people facing financial distress got the shaft.

And Then There’s Iraq

The war in Iraq (along with, to a lesser extent, the war in Afghanistan) has cost the country dearly in blood and treasure. The loss in lives can never be quantified. As for the treasure, it’s worth calling to mind that the administration, in the run-up to the invasion of Iraq, was reluctant to venture an estimate of what the war would cost (and publicly humiliated a White House aide who suggested that it might run as much as $200 billion). When pressed to give a number, the administration suggested $50 billion—what the United States is actually spending every few months. Today, government figures officially acknowledge that more than half a trillion dollars total has been spent by the U.S. “in theater.” But in fact the overall cost of the conflict could be quadruple that amount—as a study I did with Linda Bilmes of Harvard has pointed out—even as the Congressional Budget Office now concedes that total expenditures are likely to be more than double the spending on operations. The official numbers do not include, for instance, other relevant expenditures hidden in the defense budget, such as the soaring costs of recruitment, with re-enlistment bonuses of as much as $100,000. They do not include the lifetime of disability and health-care benefits that will be required by tens of thousands of wounded veterans, as many as 20 percent of whom have suffered devastating brain and spinal injuries. Astonishingly, they do not include much of the cost of the equipment that has been used in the war, and that will have to be replaced. If you also take into account the costs to the economy from higher oil prices and the knock-on effects of the war—for instance, the depressing domino effect that war-fueled uncertainty has on investment, and the difficulties U.S. firms face overseas because America is the most disliked country in the world—the total costs of the Iraq war mount, even by a conservative estimate, to at least $2 trillion. To which one needs to add these words: so far.

It is natural to wonder, What would this money have bought if we had spent it on other things? U.S. aid to all of Africa has been hovering around $5 billion a year, the equivalent of less than two weeks of direct Iraq-war expenditures. The president made a big deal out of the financial problems facing Social Security, but the system could have been repaired for a century with what we have bled into the sands of Iraq. Had even a fraction of that $2 trillion been spent on investments in education and technology, or improving our infrastructure, the country would be in a far better position economically to meet the challenges it faces in the future, including threats from abroad. For a sliver of that $2 trillion we could have provided guaranteed access to higher education for all qualified Americans.

The soaring price of oil is clearly related to the Iraq war. The issue is not whether to blame the war for this but simply how much to blame it. It seems unbelievable now to recall that Bush-administration officials before the invasion suggested not only that Iraq’s oil revenues would pay for the war in its entirety—hadn’t we actually turned a tidy profit from the 1991 Gulf War?—but also that war was the best way to ensure low oil prices. In retrospect, the only big winners from the war have been the oil companies, the defense contractors, and al-Qaeda. Before the war, the oil markets anticipated that the then price range of $20 to $25 a barrel would continue for the next three years or so. Market players expected to see more demand from China and India, sure, but they also anticipated that this greater demand would be met mostly by increased production in the Middle East. The war upset that calculation, not so much by curtailing oil production in Iraq, which it did, but rather by heightening the sense of insecurity everywhere in the region, suppressing future investment.

The continuing reliance on oil, regardless of price, points to one more administration legacy: the failure to diversify America’s energy resources. Leave aside the environmental reasons for weaning the world from hydrocarbons—the president has never convincingly embraced them, anyway. The economic and national-security arguments ought to have been powerful enough. Instead, the administration has pursued a policy of “drain America first”—that is, take as much oil out of America as possible, and as quickly as possible, with as little regard for the environment as one can get away with, leaving the country even more dependent on foreign oil in the future, and hope against hope that nuclear fusion or some other miracle will come to the rescue. So many gifts to the oil industry were included in the president’s 2003 energy bill that John McCain referred to it as the “No Lobbyist Left Behind” bill.

Contempt for the World
America’s budget and trade deficits have grown to record highs under President Bush. To be sure, deficits don’t have to be crippling in and of themselves. If a business borrows to buy a machine, it’s a good thing, not a bad thing. During the past six years, America—its government, its families, the country as a whole—has been borrowing to sustain its consumption. Meanwhile, investment in fixed assets—the plants and equipment that help increase our wealth—has been declining.

What’s the impact of all this down the road? The growth rate in America’s standard of living will almost certainly slow, and there could even be a decline. The American economy can take a lot of abuse, but no economy is invincible, and our vulnerabilities are plain for all to see. As confidence in the American economy has plummeted, so has the value of the dollar—by 40 percent against the euro since 2001.

The disarray in our economic policies at home has parallels in our economic policies abroad. President Bush blamed the Chinese for our huge trade deficit, but an increase in the value of the yuan, which he has pushed, would simply make us buy more textiles and apparel from Bangladesh and Cambodia instead of China; our deficit would remain unchanged. The president claimed to believe in free trade but instituted measures aimed at protecting the American steel industry. The United States pushed hard for a series of bilateral trade agreements and bullied smaller countries into accepting all sorts of bitter conditions, such as extending patent protection on drugs that were desperately needed to fight aids. We pressed for open markets around the world but prevented China from buying Unocal, a small American oil company, most of whose assets lie outside the United States.

Not surprisingly, protests over U.S. trade practices erupted in places such as Thailand and Morocco. But America has refused to compromise—refused, for instance, to take any decisive action to do away with our huge agricultural subsidies, which distort international markets and hurt poor farmers in developing countries. This intransigence led to the collapse of talks designed to open up international markets. As in so many other areas, President Bush worked to undermine multilateralism—the notion that countries around the world need to cooperate—and to replace it with an America-dominated system. In the end, he failed to impose American dominance—but did succeed in weakening cooperation.

The administration’s basic contempt for global institutions was underscored in 2005 when it named Paul Wolfowitz, the former deputy secretary of defense and a chief architect of the Iraq war, as president of the World Bank. Widely distrusted from the outset, and soon caught up in personal controversy, Wolfowitz became an international embarrassment and was forced to resign his position after less than two years on the job.

Globalization means that America’s economy and the rest of the world have become increasingly interwoven. Consider those bad American mortgages. As families default, the owners of the mortgages find themselves holding worthless pieces of paper. The originators of these problem mortgages had already sold them to others, who packaged them, in a non-transparent way, with other assets, and passed them on once again to unidentified others. When the problems became apparent, global financial markets faced real tremors: it was discovered that billions in bad mortgages were hidden in portfolios in Europe, China, and Australia, and even in star American investment banks such as Goldman Sachs and Bear Stearns. Indonesia and other developing countries—innocent bystanders, really—suffered as global risk premiums soared, and investors pulled money out of these emerging markets, looking for safer havens. It will take years to sort out this mess.

Meanwhile, we have become dependent on other nations for the financing of our own debt. Today, China alone holds more than $1 trillion in public and private American I.O.U.’s. Cumulative borrowing from abroad during the six years of the Bush administration amounts to some $5 trillion. Most likely these creditors will not call in their loans—if they ever did, there would be a global financial crisis. But there is something bizarre and troubling about the richest country in the world not being able to live even remotely within its means. Just as Guantánamo and Abu Ghraib have eroded America’s moral authority, so the Bush administration’s fiscal housekeeping has eroded our economic authority.

The Way Forward

Whoever moves into the White House in January 2009 will face an unenviable set of economic circumstances. Extricating the country from Iraq will be the bloodier task, but putting America’s economic house in order will be wrenching and take years.

The most immediate challenge will be simply to get the economy’s metabolism back into the normal range. That will mean moving from a savings rate of zero (or less) to a more typical savings rate of, say, 4 percent. While such an increase would be good for the long-term health of America’s economy, the short-term consequences would be painful. Money saved is money not spent. If people don’t spend money, the economic engine stalls. If households curtail their spending quickly—as they may be forced to do as a result of the meltdown in the mortgage market—this could mean a recession; if done in a more measured way, it would still mean a protracted slowdown. The problems of foreclosure and bankruptcy posed by excessive household debt are likely to get worse before they get better. And the federal government is in a bind: any quick restoration of fiscal sanity will only aggravate both problems.

And in any case there’s more to be done. What is required is in some ways simple to describe: it amounts to ceasing our current behavior and doing exactly the opposite. It means not spending money that we don’t have, increasing taxes on the rich, reducing corporate welfare, strengthening the safety net for the less well off, and making greater investment in education, technology, and infrastructure.

When it comes to taxes, we should be trying to shift the burden away from things we view as good, such as labor and savings, to things we view as bad, such as pollution. With respect to the safety net, we need to remember that the more the government does to help workers improve their skills and get affordable health care the more we free up American businesses to compete in the global economy. Finally, we’ll be a lot better off if we work with other countries to create fair and efficient global trade and financial systems. We’ll have a better chance of getting others to open up their markets if we ourselves act less hypocritically—that is, if we open our own markets to their goods and stop subsidizing American agriculture.

Some portion of the damage done by the Bush administration could be rectified quickly. A large portion will take decades to fix—and that’s assuming the political will to do so exists both in the White House and in Congress. Think of the interest we are paying, year after year, on the almost $4 trillion of increased debt burden—even at 5 percent, that’s an annual payment of $200 billion, two Iraq wars a year forever. Think of the taxes that future governments will have to levy to repay even a fraction of the debt we have accumulated. And think of the widening divide between rich and poor in America, a phenomenon that goes beyond economics and speaks to the very future of the American Dream.

In short, there’s a momentum here that will require a generation to reverse. Decades hence we should take stock, and revisit the conventional wisdom. Will Herbert Hoover still deserve his dubious mantle? I’m guessing that George W. Bush will have earned one more grim superlative.

Cheney, Neocons Considered Killing Americans in Pretext to Attack Iran

2008-08-02T20:10:00.000-07:00

Original Link: http://www.infowars.com/?p=3681

By Kurt Nimmo

In the video here (http://www.youtube.com/watch?v=slgBrbNXrbs), taped at the Campus Progress journalism conference earlier this month, the Pulitzer-Prize winning journalist Seymour Hersh reveals how the neocons convened around Dick Cheney and brainstormed ways to kick off World War IV, as they fondly call their pet project to take out the Muslims and foment a contrived “clash of civilizations.”

According to Hersh, this meeting occurred after the neocons failed miserably to stage a rehashed version of the Gulf of Tonkin incident in the Strait of Hormuz, mostly because it is no longer 1964 and such Big Lies — thanks to the internet and bloggers — are far more difficult to float. “For all I know, our Navy was shooting at whales out there,” quipped LBJ about the imaginary act of North Vietnamese boats supposedly attacking U.S. ships, leading to the Gulf of Tonkin Resolution and undeclared war in Southeast Asia, ultimately resulting in the death of nearly 60,000 Americans and around 3 million Southeast Asians.

In an exclusive Think Progress story, we learn the meeting took place in Cheney’s office and the subject on the table was “how to create a casus belli between Tehran and Washington,” part of an ongoing effort to provide an excuse to attack Iran. “There was a dozen ideas proffered about how to trigger a war,” Hersh explains. “The one that interested me the most was why don’t we build — we in our shipyard — build four or five boats that look like Iranian PT boats. Put Navy seals on them with a lot of arms. And next time one of our boats goes to the Straits of Hormuz, start a shoot-up.”

Hersh would have us believe this scenario did not play out because “you can’t have Americans killing Americans,” an absurd explanation considering the fact the attacks of September 11 were just that — “Americans killing Americans,” a calculated and cold-blooded act of mass murder carried out by elements in the U.S. government as a “new Pearl Harbor,” a cynical pretext to launch the “war on terror,” now grinding into its seventh year.

Ominously, these “ideas” hark back to Operation Northwoods, the JSC plan to stage a false flag terror event — or a number of events — designed to provide a pretext to invade Cuba and take out Fidel Castro. Such “ideas” included “friendly Cubans” attacking the U.S. base at Guantanamo, shooting down a drone disguised as a chartered civil airliner and blaming it on Cuba, inciting riots and staging terror attacks in Miami, and other terrorist acts. Fortunately, then Secretary of Defense, Robert McNamara, put a kibosh to this insane plan.

More recently, in January, 2003, in the lead-up to the Iraq invasion George Bush and Tony Blair discussed painting planes in United Nations colors “in order to provoke an attack which could then be used to justify material breach” and thus set in motion an invasion, according to Philippe Sands, a leading British human rights lawyer (see Revealed: Bush and Blair discussed using American Spyplane in UN colors to lure Saddam into war, Channel Four News).

In fact, the neocons have not rested in their effort to foment war and force the support of the American people by way of deception. On May 16, 2008, Paul Joseph Watson, writing for Prison Planet, noted confidential recordings released under the Freedom of Information Act revealing the efforts of former Defense Secretary Donald Rumsfeld and top military analysts to cook up another terrorist attack on America in order to gain support for their ambitious plans to decimate Muslim culture. “The most extraordinary exchange takes place when Lt. Gen. Michael DeLong bemoans shrinking political support for Neo-Con war plans on Capitol Hill and suggests that sympathy for the Bush administration’s agenda will only be achieved after a new terror attack,” writes Watson. “Rumsfeld agrees that the psychological impact of 9/11 is wearing off and the ‘behavior pattern’ of citizens in both the U.S. and Europe suggests that they are unconcerned about the threat of terror.” Rumsfeld characterizes Bush as “a victim of success” because America has not suffered “an attack in five years” and for Rumsfeld and the neocons this state of affairs is indeed lamentable.

Obviously, the neocons will stop at nothing — including the murder of more Americans in a false flag terror attack — to realize their agenda.

Finally, Sy Hersh casts suspicion on himself during the interview when he admits he did not bother to write an article on the neocon casus belli brainstorming session because it did not go forward. “So I can understand the argument for not writing something that was rejected — uh maybe. My attitude always towards editors is they’re mice training to be rats…. But the point is jejune, if you know what that means.” It was “jejune” because Hersh believes the “American public, if you get the right incident, the American public will support bang-bang-kiss-kiss. You know, we’re into it.”

Of course, that may be true for some of the American public, even a large segment, but for those of us up to speed on the master plan of the neocons — total war, so the children of the neocons will “sing great songs about us years from now,” as Richard Perle once said — this comment stinks of irresponsibility. It avoids discussion of the criminal mindset of the neocons, who are determined to start WW IV, even if such a conflict leads to the distinct possibility the Prince of Darkness’ children may not be around to sing great songs.

Why the Debt Crisis Is Now the Greatest Threat to the American Republic

2008-08-02T19:00:00.000-07:00

Original Link: http://www.tomdispatch.com/post/174884

By Chalmers Johnson

The military adventurers of the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the "smartest guys in the room," the title of Alex Gibney's prize-winning film on what went wrong at Enron. The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay -- or repudiate. This utter fiscal irresponsibility has been disguised through many manipulative financial schemes (such as causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.

Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures -- so-called "military Keynesianism," which I discuss in detail in my book Nemesis: The Last Days of the American Republic. By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.

Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs," things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs -- an infinitely more efficient use of scarce resources than arms manufacturing. Let me discuss each of these.

The Current Fiscal Disaster

It is virtually impossible to overstate the profligacy of what our government spends on the military. The Department of Defense's planned expenditures for fiscal year 2008 are larger than all other nations' military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history. The United States has become the largest single salesman of arms and munitions to other nations on Earth. Leaving out of account President Bush's two on-going wars, defense spending has doubled since the mid-1990s. The defense budget for fiscal 2008 is the largest since World War II.

Before we try to break down and analyze this gargantuan sum, there is one important caveat. Figures on defense spending are notoriously unreliable. The numbers released by the Congressional Reference Service and the Congressional Budget Office do not agree with each other. Robert Higgs, senior fellow for political economy at the Independent Institute, says: "A well-founded rule of thumb is to take the Pentagon's (always well publicized) basic budget total and double it." Even a cursory reading of newspaper articles about the Department of Defense will turn up major differences in statistics about its expenses. Some 30-40% of the defense budget is "black," meaning that these sections contain hidden expenditures for classified projects. There is no possible way to know what they include or whether their total amounts are accurate.

There are many reasons for this budgetary sleight-of-hand -- including a desire for secrecy on the part of the president, the secretary of defense, and the military-industrial complex -- but the chief one is that members of Congress, who profit enormously from defense jobs and pork-barrel projects in their districts, have a political interest in supporting the Department of Defense. In 1996, in an attempt to bring accounting standards within the executive branch somewhat closer to those of the civilian economy, Congress passed the Federal Financial Management Improvement Act. It required all federal agencies to hire outside auditors to review their books and release the results to the public. Neither the Department of Defense, nor the Department of Homeland Security has ever complied. Congress has complained, but not penalized either department for ignoring the law. The result is that all numbers released by the Pentagon should be regarded as suspect.

In discussing the fiscal 2008 defense budget, as released to the press on February 7, 2007, I have been guided by two experienced and reliable analysts: William D. Hartung of the New America Foundation's Arms and Security Initiative and Fred Kaplan, defense correspondent for Slate.org. They agree that the Department of Defense requested $481.4 billion for salaries, operations (except in Iraq and Afghanistan), and equipment. They also agree on a figure of $141.7 billion for the "supplemental" budget to fight the "global war on terrorism" -- that is, the two on-going wars that the general public may think are actually covered by the basic Pentagon budget. The Department of Defense also asked for an extra $93.4 billion to pay for hitherto unmentioned war costs in the remainder of 2007 and, most creatively, an additional "allowance" (a new term in defense budget documents) of $50 billion to be charged to fiscal year 2009. This comes to a total spending request by the Department of Defense of $766.5 billion.

But there is much more. In an attempt to disguise the true size of the American military empire, the government has long hidden major military-related expenditures in departments other than Defense. For example, $23.4 billion for the Department of Energy goes toward developing and maintaining nuclear warheads; and $25.3 billion in the Department of State budget is spent on foreign military assistance (primarily for Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, the United Arab Republic, Egypt, and Pakistan). Another $1.03 billion outside the official Department of Defense budget is now needed for recruitment and reenlistment incentives for the overstretched U.S. military itself, up from a mere $174 million in 2003, the year the war in Iraq began. The Department of Veterans Affairs currently gets at least $75.7 billion, 50% of which goes for the long-term care of the grievously injured among the at least 28,870 soldiers so far wounded in Iraq and another 1,708 in Afghanistan. The amount is universally derided as inadequate. Another $46.4 billion goes to the Department of Homeland Security.

Missing as well from this compilation is $1.9 billion to the Department of Justice for the paramilitary activities of the FBI; $38.5 billion to the Department of the Treasury for the Military Retirement Fund; $7.6 billion for the military-related activities of the National Aeronautics and Space Administration; and well over $200 billion in interest for past debt-financed defense outlays. This brings U.S. spending for its military establishment during the current fiscal year (2008), conservatively calculated, to at least $1.1 trillion.

Military Keynesianism

Such expenditures are not only morally obscene, they are fiscally unsustainable. Many neoconservatives and poorly informed patriotic Americans believe that, even though our defense budget is huge, we can afford it because we are the richest country on Earth. Unfortunately, that statement is no longer true. The world's richest political entity, according to the CIA's "World Factbook," is the European Union. The EU's 2006 GDP (gross domestic product -- all goods and services produced domestically) was estimated to be slightly larger than that of the U.S. However, China's 2006 GDP was only slightly smaller than that of the U.S., and Japan was the world's fourth richest nation.

A more telling comparison that reveals just how much worse we're doing can be found among the "current accounts" of various nations. The current account measures the net trade surplus or deficit of a country plus cross-border payments of interest, royalties, dividends, capital gains, foreign aid, and other income. For example, in order for Japan to manufacture anything, it must import all required raw materials. Even after this incredible expense is met, it still has an $88 billion per year trade surplus with the United States and enjoys the world's second highest current account balance. (China is number one.) The United States, by contrast, is number 163 -- dead last on the list, worse than countries like Australia and the United Kingdom that also have large trade deficits. Its 2006 current account deficit was $811.5 billion; second worst was Spain at $106.4 billion. This is what is unsustainable.

It's not just that our tastes for foreign goods, including imported oil, vastly exceed our ability to pay for them. We are financing them through massive borrowing. On November 7, 2007, the U.S. Treasury announced that the national debt had breached $9 trillion for the first time ever. This was just five weeks after Congress raised the so-called debt ceiling to $9.815 trillion. If you begin in 1789, at the moment the Constitution became the supreme law of the land, the debt accumulated by the federal government did not top $1 trillion until 1981. When George Bush became president in January 2001, it stood at approximately $5.7 trillion. Since then, it has increased by 45%. This huge debt can be largely explained by our defense expenditures in comparison with the rest of the world.

The world's top 10 military spenders and the approximate amounts each country currently budgets for its military establishment are:

1. United States (FY08 budget), $623 billion
2. China (2004), $65 billion
3. Russia, $50 billion
4. France (2005), $45 billion
5. United Kingdom, $42.8 billion
6. Japan (2007), $41.75 billion
7. Germany (2003), $35.1 billion
8. Italy (2003), $28.2 billion
9. South Korea (2003), $21.1 billion
10. India (2005 est.), $19 billion

World total military expenditures (2004 est.), $1,100 billion
World total (minus the United States), $500 billion

Our excessive military expenditures did not occur over just a few short years or simply because of the Bush administration's policies. They have been going on for a very long time in accordance with a superficially plausible ideology and have now become entrenched in our democratic political system where they are starting to wreak havoc. This ideology I call "military Keynesianism" -- the determination to maintain a permanent war economy and to treat military output as an ordinary economic product, even though it makes no contribution to either production or consumption.

This ideology goes back to the first years of the Cold War. During the late 1940s, the U.S. was haunted by economic anxieties. The Great Depression of the 1930s had been overcome only by the war production boom of World War II. With peace and demobilization, there was a pervasive fear that the Depression would return. During 1949, alarmed by the Soviet Union's detonation of an atomic bomb, the looming communist victory in the Chinese civil war, a domestic recession, and the lowering of the Iron Curtain around the USSR's European satellites, the U.S. sought to draft basic strategy for the emerging cold war. The result was the militaristic National Security Council Report 68 (NSC-68) drafted under the supervision of Paul Nitze, then head of the Policy Planning Staff in the State Department. Dated April 14, 1950, and signed by President Harry S. Truman on September 30, 1950, it laid out the basic public economic policies that the United States pursues to the present day.

In its conclusions, NSC-68 asserted: "One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living."

With this understanding, American strategists began to build up a massive munitions industry, both to counter the military might of the Soviet Union (which they consistently overstated) and also to maintain full employment as well as ward off a possible return of the Depression. The result was that, under Pentagon leadership, entire new industries were created to manufacture large aircraft, nuclear-powered submarines, nuclear warheads, intercontinental ballistic missiles, and surveillance and communications satellites. This led to what President Eisenhower warned against in his farewell address of February 6, 1961: "The conjunction of an immense military establishment and a large arms industry is new in the American experience" -- that is, the military-industrial complex.

By 1990, the value of the weapons, equipment, and factories devoted to the Department of Defense was 83% of the value of all plants and equipment in American manufacturing. From 1947 to 1990, the combined U.S. military budgets amounted to $8.7 trillion. Even though the Soviet Union no longer exists, U.S. reliance on military Keynesianism has, if anything, ratcheted up, thanks to the massive vested interests that have become entrenched around the military establishment. Over time, a commitment to both guns and butter has proven an unstable configuration. Military industries crowd out the civilian economy and lead to severe economic weaknesses. Devotion to military Keynesianism is, in fact, a form of slow economic suicide.

On May 1, 2007, the Center for Economic and Policy Research of Washington, D.C., released a study prepared by the global forecasting company Global Insight on the long-term economic impact of increased military spending. Guided by economist Dean Baker, this research showed that, after an initial demand stimulus, by about the sixth year the effect of increased military spending turns negative. Needless to say, the U.S. economy has had to cope with growing defense spending for more than 60 years. He found that, after 10 years of higher defense spending, there would be 464,000 fewer jobs than in a baseline scenario that involved lower defense spending.

Baker concluded:

"It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment."

These are only some of the many deleterious effects of military Keynesianism.

Hollowing Out the American Economy

It was believed that the U.S. could afford both a massive military establishment and a high standard of living, and that it needed both to maintain full employment. But it did not work out that way. By the 1960s, it was becoming apparent that turning over the nation's largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities. The historian Thomas E. Woods, Jr., observes that, during the 1950s and 1960s, between one-third and two-thirds of all American research talent was siphoned off into the military sector. It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.

Nuclear weapons furnish a striking illustration of these anomalies. Between the 1940s and 1996, the United States spent at least $5.8 trillion on the development, testing, and construction of nuclear bombs. By 1967, the peak year of its nuclear stockpile, the United States possessed some 32,500 deliverable atomic and hydrogen bombs, none of which, thankfully, was ever used. They perfectly illustrate the Keynesian principle that the government can provide make-work jobs to keep people employed. Nuclear weapons were not just America's secret weapon, but also its secret economic weapon. As of 2006, we still had 9,960 of them. There is today no sane use for them, while the trillions spent on them could have been used to solve the problems of social security and health care, quality education and access to higher education for all, not to speak of the retention of highly skilled jobs within the American economy.

The pioneer in analyzing what has been lost as a result of military Keynesianism was the late Seymour Melman (1917-2004), a professor of industrial engineering and operations research at Columbia University. His 1970 book, Pentagon Capitalism: The Political Economy of War, was a prescient analysis of the unintended consequences of the American preoccupation with its armed forces and their weaponry since the onset of the Cold War. Melman wrote (pp. 2-3):

"From 1946 to 1969, the United States government spent over $1,000 billion on the military, more than half of this under the Kennedy and Johnson administrations -- the period during which the [Pentagon-dominated] state management was established as a formal institution. This sum of staggering size (try to visualize a billion of something) does not express the cost of the military establishment to the nation as a whole. The true cost is measured by what has been foregone, by the accumulated deterioration in many facets of life by the inability to alleviate human wretchedness of long duration."

In an important exegesis on Melman's relevance to the current American economic situation, Thomas Woods writes:

"According to the U.S. Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation's plant and equipment, and infrastructure, at just over $7.29 trillion. In other words, the amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock."

The fact that we did not modernize or replace our capital assets is one of the main reasons why, by the turn of the twenty-first century, our manufacturing base had all but evaporated. Machine tools -- an industry on which Melman was an authority -- are a particularly important symptom. In November 1968, a five-year inventory disclosed (p. 186) "that 64 percent of the metalworking machine tools used in U.S. industry were ten years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States' machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the Second World War. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry."

Nothing has been done in the period since 1968 to reverse these trends and it shows today in our massive imports of equipment -- from medical machines like proton accelerators for radiological therapy (made primarily in Belgium, Germany, and Japan) to cars and trucks.

Our short tenure as the world's "lone superpower" has come to an end. As Harvard economics professor Benjamin Friedman has written:

"Again and again it has always been the world's leading lending country that has been the premier country in terms of political influence, diplomatic influence, and cultural influence. It's no accident that we took over the role from the British at the same time that we took over… the job of being the world's leading lending country. Today we are no longer the world's leading lending country. In fact we are now the world's biggest debtor country, and we are continuing to wield influence on the basis of military prowess alone."

Some of the damage done can never be rectified. There are, however, some steps that this country urgently needs to take. These include reversing Bush's 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defense budget all projects that bear no relationship to the national security of the United States, and ceasing to use the defense budget as a Keynesian jobs program. If we do these things we have a chance of squeaking by. If we don't, we face probable national insolvency and a long depression.

U.S. Foreclosures Double as House Prices Decline

2008-08-02T16:19:00.000-07:00

Original Link: http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=aomtw8.Pro2E

By Bob Ivry

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

``Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, U.S. economist at Merrill Lynch & Co. in New York. ``That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

About 25 million U.S. homeowners risk owing more than the value of their homes, according to Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. That would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

New Home Sales

The Commerce Department today reported that new home sales fell less than expected, and a Standard and Poor's measure of homebuilder stocks rose as much as 6.1 percent.

Sales of new homes fell 0.6 percent to a 530,000 pace from 533,000 in May, a reading higher than previously estimated, the Commerce Department said in Washington. The number of properties on the market dropped by the most in four decades, today's report showed, indicating builders are making some headway in clearing out inventories.

Economists had forecast sales would decline to a 503,000 pace, from a previously reported 512,000 for May, according to the median of 75 projections in a Bloomberg News survey. Estimates ranged from 480,000 to 530,000. The Standard and Poor's Supercomposite Homebuilding Index rose 4.2 percent at 11:14 am, lowering its loss for the past 12 months to 42 percent. Pulte Homes Inc., a builder based in Bloomfield Hills, Michigan, was the biggest gainer, climbing 80 cents, or 7.3 percent, to $11.83 at 11:16 a.m. in New York Stock Exchange composite trading. The shares have lost 43 percent of their value in the past 12 months.

Doubling Projections

Falling home values, led by states such as Nevada and California that have the biggest default rate, have prompted RealtyTrac to almost double the projected number of foreclosures this year to about 2.5 million, said Rick Sharga, executive vice president for marketing.

``The big variable here is what effect the housing bill now being considered by the Senate is going to have on foreclosure activity in general,'' Sharga said in an interview. ``Based on market conditions themselves, we are nowhere near the end of this trip. Best-case scenario, we're looking at another year of this.''

The housing bill aims to help 400,000 Americans with subprime home loans refinance into 30-year, fixed-rate mortgages backed by the government. The measure passed the House of Representatives and President George W. Bush has said he would sign it.

Subprime mortgages were available to borrowers with bad or incomplete credit histories and default at five times the rate of prime mortgages, according to the Mortgage Bankers Association in Washington.

Bank Seizures Rise

Bank seizures in the first half of the year increased by 154 percent to 370,179 from the same period in 2007, RealtyTrac said. Last year's second-quarter data on bank repossessions was not available, according to RealtyTrac.

Forty-eight of 50 states and 95 of the 100 largest U.S. metropolitan areas had year-over-year increases in foreclosure filings in the second quarter, RealtyTrac said.

Nevada was the state with the highest rate. One in every 43 households received a foreclosure notice in the quarter, four times the national average and an increase of 147 percent from a year earlier, according to RealtyTrac.

Foreclosure filings tripled in California, where one in every 65 households was affected, the second-highest rate among states. Arizona had the third-highest rate, with one every 70 households, a more than threefold increase from the second quarter of 2007, RealtyTrac said.

Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts and Illinois rounded out RealtyTrac's top 10.

Fewer Mortgages Available

Lenders will cut in half the number of mortgages to purchase homes in 2008 compared with two years ago, said Guy Cecala, publisher of the Bethesda, Maryland-based trade publication Inside Mortgage Finance.

Bank repossessions, or REOs -- meaning ``real estate-owned'' -- accounted for 30 percent of total foreclosure activity in the second quarter, up from 24 percent of the total in the first quarter, RealtyTrac said.

Foreclosures push all home values down by an estimated 6 percent, and will contribute to national prices declining another 15 percent by the end of 2009, Ethan Harris and Michelle Meyer, Lehman Brothers Holdings Inc. economists in New York, said in a report yesterday.

Uncertainty

``I believe a big part of the problem we're facing in the market right now is uncertainty,'' Sharga said. ``Buyers aren't sure if this is the right time to get in, lenders aren't sure where to lend, investors aren't sure where to put their money in an environment of depreciating assets. The psychology of the market is as responsible as the financial part of the market.''

Seven of the 11 metropolitan areas with the highest rates of foreclosure filings in the second quarter were in California, according to RealtyTrac. The Stockton area, in California's Central Valley, had the highest incidence, with one in 25 households receiving filings.

In Riverside-San Bernardino, known as the Inland Empire, where the California Association of Realtors said home prices plummeted 35 percent in May compared with a year earlier, one in 32 households entered foreclosure, according to RealtyTrac.

Bakersfield, Sacramento, Oakland, Fresno and San Diego were the other California metro areas in the top 11.

The Las Vegas area, where home values fell 27 percent in May compared with a year earlier, according to the S&P/Case-Shiller Home Price Index, had the third-highest foreclosure rate, with one in every 35 households, RealtyTrac said.

Fort Lauderdale, Florida, Phoenix and Miami were the other metropolitan areas in RealtyTrac's top 11.

New York filings increased 62 percent from a year earlier to 16,025, with one in every 493 households in a stage of foreclosure, the 30th-highest rate.

New Jersey filings rose 140 percent. One in every 201 households in the state received notice, the 12th-highest rate in the U.S.

U.S. debt ceiling to rise to 10.6 trillion dollars

2008-08-02T16:07:00.000-07:00

With a 2009 budget deficit of $490 billion, there is proposal to increase the U.S. debt ceiling to $10.6 trillion, up from the current ceiling of $9.8 trillion.

McCain's Oil Drilling Hoax

2008-08-02T15:59:00.000-07:00

Original Link: http://www.creators.com/opinion/joe-conason.html

By Joe Conason

Forced to cancel a planned visit to an oil platform off the Mississippi coast last week because of inclement weather — and the untimely leaking of hundreds of thousands of gallons of oil by a shipwreck in the vicinity — John McCain finally got his photo op at a Bakersfield derrick on July 28. Speaking on site, the Arizona senator delivered extraordinarily good news to the beleaguered gasoline-consuming public as he explained why we must drill offshore.

Based on briefings that Sen. McCain says he received from "the oil producers," he said, "There are some instances [that] within a matter of months they could be getting additional oil. In some cases, it would be a matter of a year. In some cases it could take longer than that, depending on the location and whether you use existing rigs or you have to install new rigs, but there's abundant resources in the view of the people who are in the business that could be exploited within a period of months."

The prospect of significant new petroleum resources that could be available so soon would be excellent news — aside from the obvious impact of burning still more oil — if only what the senator said was true. But what he said actually made no sense whatsoever, as a statement about the future development of domestic oil, the alleged need to increase drilling off our coasts or the resources that such drilling might produce. So let's unpack that McCain statement (which was overshadowed by the news that his dermatologist had just removed a small lesion from the 71-year-old melanoma survivor's right cheek).

It may be true that "existing rigs" could produce additional barrels of domestic oil immediately, whether on land or in the ocean, as Sen. McCain suggests. If so, he might want to ask his friends in the oil business why those rigs aren't producing more oil now, at prices above $120 a barrel. An existing rig by definition is a rig that is operating legally on property already leased for exploration — and can produce oil unencumbered by any environmental constraints on drilling.
In case the senator doesn't understand, an existing rig is where someone has already drilled a well.

Where companies would have to install new rigs, the question is whether a lease already exists or whether the government would have to grant a new lease. New drilling on the Outer Continental Shelf would mean new leases that are now illegal.

But as the Associated Press reported last month, nearly 75 percent of the existing leases on federal lands held by petroleum companies are currently producing no oil. Those companies today hold nearly 30 million acres dormant, according to the AP. Nobody in the federal government even knows whether any exploration has taken place over the past decade.

Perhaps Sen. McCain should ask his friends in the industry why they aren't exploring or producing on the leases they already control. A truthful answer would be that those leases count as financial assets whether productive or not — and adding to them enhances an oil firm's bottom line.

The senator should also ask an oil company executive to step forward and explain how any new offshore oil lease can produce petroleum within the next few months or even a year. If that is possible, then the Department of Energy analysis of future domestic oil production is scandalously wrong. The department's Energy Information Agency released a study last year predicting that granting access to new offshore leases would not begin to produce any actual oil until around 2020, and would have no "significant impact on domestic crude oil and natural gas production or prices before 2030," if ever.

As the Republican presidential nominee — and a putative environmentalist — he suddenly seems eager to exploit voter discontent over high gasoline prices to promote offshore drilling. He may even think he can ride the energy crisis into the White House.

Voters may or may not believe the Senator's silly claims about his "briefings" from oilmen, which mainly seem to have involved handing over a fat check. Indeed, so far the only beneficiary of his offshore drilling offensive is the McCain presidential war chest. The Washington Post recently reported that the oil industry "gushed money after [his] reversal on oil drilling" last month.

They never gave him that kind of money when he talked straight.

Joe Conason writes for the New York Observer (www.observer.com). To find out more about Joe Conason, visit the Creators Syndicate website at www.creators.com.

Oil Industry Floods McCain With Cash After Offshore Drilling Reversal

2008-08-02T15:45:00.000-07:00

Original Link: http://www.washingtonpost.com/wp-dyn/content/article/2008/07/26/AR2008072601891.html

By Matthew Mosk

Campaign contributions from oil industry executives to Sen. John McCain rose dramatically in the last half of June, after the senator from Arizona made a high-profile split with environmentalists and reversed his opposition to the federal ban on offshore drilling.

Oil and gas industry executives and employees donated $1.1 million to McCain last month -- three-quarters of which came after his June 16 speech calling for an end to the ban -- compared with $116,000 in March, $283,000 in April and $208,000 in May.

McCain said the policy reversal came as a response to rising voter anger over soaring energy prices. At the time, about three-quarters of voters responding to a Washington Post-ABC News poll said prices at the pump were causing them financial hardship, the highest in surveys this decade.

Opening vast stretches of the country's coastline to oil exploration would help America eliminate its dependence on foreign oil, McCain said.

"We have untapped oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production," he said. "It is time for the federal government to lift these restrictions."

McCain delivered the speech before heading to Texas for a series of fundraisers with energy industry executives, and the day after the speech he raised $1.3 million at a private luncheon and reception at the San Antonio Country Club, according to local news accounts.

"The timing was significant," said David Donnelly, the national campaigns director of the Public Campaign Action Fund, a nonpartisan campaign finance reform group that conducted the analysis of McCain's oil industry contributions. "This is a case study of how a candidate can change a policy position in the interest of raising money."

Brian Rogers, a McCain campaign spokesman, said he considers any suggestion that McCain weighed fundraising into his calculation on drilling policy "completely absurd." Rogers noted that oil and gas money in June still accounted for a very small fraction of the $48 million raised by the campaign and by the Republican National Committee through its Victory Fund.

"John McCain takes positions because he thinks it's the right thing to do for America," Rogers said. "He has a long track record of doing that. And he's often made decisions that hurt with his fundraising base."

Oil and gas executives have not traditionally been a major source of campaign money for McCain. A breakdown of giving by the Center for Responsive Politics shows the industry falls 12th on a list of top donors, well behind securities firms, lawyers, banks, and real estate and health professionals.

McCain has historically sided against a number of the industry's interests, opposing efforts to open certain public lands to drilling and embracing proposals aimed at tackling global warming well before oil executives were ready to do so.

Patrick C. Oxford, chairman of the Texas-based law firm Bracewell & Giuliani, said there has been a contrast between the way the industry embraced George W. Bush, a favorite son, and McCain. Oxford said that until recently oil industry officials were motivated to back McCain because of talk by Sen. Barack Obama "about needing to tax the hell out of the oil companies."

That started changing in mid-June, he said. McCain's speech and subsequent visit to Texas served the purpose of reintroducing him to the oil industry. Oxford, whose law firm represents several large oil companies, wrote his first check to McCain on June 27.

Charting the political donations of oil executives may be the best way to evaluate the industry's level of interest in a presidential candidate, said Robin West, chairman of PFC Energy, an industry adviser. Unlike other businesses, oil and gas companies do not have a large labor force that can provide a candidate an army of volunteers. And oil and gas concerns are geographically confined, largely in states that are not viewed as central to a presidential election strategy.

"It's for those reasons that the oil industry has always tried to be a substantial contributor," West said.

And West said he thinks McCain gave energy executives what they needed to get more solidly in his corner -- a pledge to reverse a federal policy that has frustrated the industry for years.

"I think people thought it was a sensible thing that was long due," West said. "I think the industry was very appreciative."

How the Median House Price Will Fall from $215K to $70K

2008-08-02T10:43:00.000-07:00

Original Link: http://www.oftwominds.com/blogjuly08/70K-median7-08.html

I am constantly amazed (yes, I know I shouldn't be) by how many otherwise intelligent people expect housing to "recover" next year. I shouldn't be surprised, of course, because fantasy and hope are the key traits of all post-bubble busts.

Thus we had analyst after analyst in 2001 and 2002 calling "the bottom" in the Nasdaq, even as it fell from 5,000 to 3,000 to 2,000 and then finally to 1,000.

In a similar fashion, we now have a nearly universal belief that oil and commodities have "topped out" and the recent decline is a new trend. Happy days are here again, oil is heading back to $75/barrel, hoo-ha!

(NOTE: Before you jump on the "oil will just get cheaper and cheaper now" bandwagon, I heartily recommend the new Readers Journal essay by Portugal-based correspondent José de Freitas: Why the Trend in Oil Is Up.)

In a similar fashion, we should not be fooled that a brief market reaction is the start of a new trend, i.e. "housing will soon bottom." On the contrary, I predict the median price of a house in the U.S. will fall from $215,000 all the way down to $70,000.

According to the National Association of Realtors, the median home price was $215,100 in June 2008. These data sources suggest the median is around $230,00 and the average around $300,000: US: Median Price of Houses Sold including Land Price and US: Average Price of Houses Actually Sold.

Whatever number you pick, I predict a 2/3 decline from here, based on these long-term trends and historical patterns:

1. A further 30% decline is required to bring rents and the cost of ownership back into the long-term historical range/ratio. The only reason to buy a house/dwelling which costs far more than renting the equivalent residence is the investment belief that appreciation of the property will exceed (after all the tax benefits are calculated in, etc.) the appreciation of other asset classes. (Note: the ratio varies depending on locale, but in general it is still out of whack from the mean.)

In other words, it's an investment decision, not a decision about owning a place to live. If real estate proves to be a poor investment which only depreciates year after year, this belief (currently a near-religious belief of stupendous power in the U.S., based on the past 25 years of debt-fueled speculative frenzy), then housing will decline back to the historical ratio.

Now if rents are set to rise 30% above inflation, then the argument could be made that housing will not decline; but with wages in a long-term decline and the economy souring, what rise in income is foreseeable which would fuel a rise in rents? It is more likely that rents will decline in most markets as well, further pressuring the decline in housing values.

There are other reasons to believe buying will become ever more unattractive compared to renting:

2. The cost of money will rise for a generation. The two keys to appreciation in real estate are: cheap, easily available money/mortgages, and a highly liquid market in which any property can be quickly bought/sold.

Guess what's disappeared and won't be coming back: cheap, easy money and a liquid market. If you are fearful that you can't sell the house you're about to buy, then it's a Capital Trap you will want to avoid.

And if money becomes tight again, then a 20% down will be standard once again--and in a recession which has strangled credit, asset values and the economy, how many people will have saved up that much cash? How many will be willing to sink all that cash into a Capital Trap? Relatively few compared to the hordes who "qualified" in the era of liar-loans, no-down, interest-only loans, etc.)

3. Oversupply and vast overbuilding render the market illiquid. With almost 20 million empty dwellings (of which perhaps 4-5 million are true "vacation/second homes") and huge numbers of empty rooms in existing housing, the number of homes for sale will exceed the number of qualified buyers for a long time to come.

PIMCO's Bill Gross went on record recently suggesting 1 million homes should be dynamited; good idea, Bill, but that still leaves 15 million empty dwellings.

Please don't tell me about population growth: Immigration is already slowing because jobs are drying up, and household size in the U.S. can easily rise, enabling more people to live in the same number of dwellings.

The overbuilding was not the result of meeting demand for housing, it was all about meeting the demand for speculative vehicles. Once the speculators are slowly roasted year after year by declining prices, then eventually nobody will be thinking that housing is a "great investment." Once that belief system has been eradicated via everyone who acted on it being destroyed financially, then housing will once again be viewed as shelter rather than a speculative vehicle for investment or "get rich quick" deals.

I am continually astonished by the number of people who believe a house which tripled in price and has now fallen a mere 20% is "cheap." As I have written before, there are only two valid reasons for buying a dwelling, and appreciation is not one of them:

A. It's cheaper to buy than rent

B. You can make money on Day One by buying the dwelling and renting it out at local market rate rents.

Both carry this important caveat: you can afford to let your Capital be Trapped in an illiquid market for years. If you might have other uses for the cash, then it would unwise in the extreme to trap it in illiquid real estate.

4. Price-Earnings Compression occurs when risk re-enters a market. This is a well-known element in the stock market: in good times, a company earning a dollar per share will be valued at $25/share--a PE (price-earnings ratio) of 25. That is called PE expansion, and it results from euphoric belief that the economy will forever enable ever higher profits.

In recessions, losses reinject risk back into speculative and investment calculations, and PEs contract/compress. Thus the company may still be earning $1/share, but in a real recessionary trough it will be valued at a mere $8/share--a third of its euphoria-"real estate/tech/China/etc. only goes up" valuation.

Real estate is not immune to price-earnings compression. If a property keeps declining in value, then the ratio of its net income (from rents) to its value will shrink. Thus in a rising market a property might well be valued at $500,000 based on its rental income, but in a declining market its value may be compressed to $300,000 even if rents haven't dropped a dime. All the risks get priced in--risk that rents might drop, that vacancies may rise, etc.--and buyers turn wary and cautious.

5. Other investments will outshine real estate and money will continue to flow away from housing. If you could earn 10% on your cash, why sink it into a risky illiquid market in housing? Recall that real estate is based on leverage; if you put 20% down to buy a property and it drops 10% in value, if you have to sell you will lose 75% of your initial cash: 50% due to the decline in value and another 25% in transaction costs (realtors fees, closing costs, transaction taxes, etc.)

A mere 10% decline in a $500,000 house wipes out half the value of a $100,000 (20%) down payment. Leverage really destroys wealth quickly on the way down.

As interest rates rise globally, just parking your money in cash earning a nice return will look better than risking it in depreciating illiquid real estate.

Risk cannot be eradicated, it can only be obscured.

6. The inexorable rise in interest rates (i.e. the cost of money) will compress property values by as much as 50%. The reason is simple: if the average buyer can only afford (say) $1,500 a month for a mortgage and property taxes, then the value of the house will rise or fall in direct correlation with mortgage rates, i.e. what the buyer can afford.

If rates plummet, as they did in the past decade, then the buyer can afford (say) a $300,000 home for that $1,500/month at 5%. Magically, valuations rise to these levels. Conversely, when rates rise to 10%, the $1,500/month only enables the purchase of a $150,000 home--and so prices decline to what buyers can afford to pay.

This is simple supply and demand correlated to the cost of money, which is correlated to its own supply and demand and the level of risk.

Put another way: if you're lending money, and real estate has been declining for years, how much risk premium do you need to bury your bank's capital in a capital trap? As the recognition of risk rises, so do mortgage rates. And as risk rises, long-term fixed-rate mortgages vanish, effectively saddling the buyer with the risks that money will continue rising in cost. That adds another reason for buyers to hold off on sinking their capital and income into an illiquid property.

7. Residences near core jobs, transit and walkable neighborhoods will decline less than housing far from jobs and transit. Those houses will fall to zero value. Thus for median (and average) prices to fall to $70,000, we don't need a market overwhelmingly priced below $100,000--we only need millions of houses valued at near zero.

As readers of Jim Kunstler know, the suburban/exurban environment was based entirely on the presumption of endless cheap oil for transportation and commuting. Now that Peak Oil is cutting away at supply even as global growth catapults demand, then that presumption is no longer valid. There may well be oil available for decades, but it will no longer be cheap.

Demographically, there are many reasons for people to migrate from exurbs and suburbs to city cores. Cost of commuting is only one; another is health care. As hospitals and urgent care facilities close, aging Baby Boomers who want access to care must move back into cities and large towns.

Cities will remain comparatively job rich environments, and so staying close enough to get to work is another reason for migration to urban cores. Towns with a good hospital, clean water and some core of jobs (a college, a hydro-electric plant, farming, etc.) will attract residents who don't want to be stranded in an exurb graced with an abandoned strip mall and little else.

The poorer you are, the less money you have for cars, gasoline, etc., and so lower-income people have excellent motivations not to be warehoused in outlying worthless communities which are not served by rail or any public transit and which offer little or no social services (free clinics, libraries, parks, etc.).

These are all reasons to expect increasing numbers of residents per household and a reversal of the trend toward one-person households. As I have tirelessly proven in the case of the 2001 dot-bomb exodus from San Francisco and the Bay Area, cities can expand or contract in population by huge margins while their housing stock remains more or less constant. People move back home, people rent out an empty room, and so on. A 100,000 people can move in or out of a city without adding or subtracting a single dwelling.

Thus we can foresee housing and rents actually stabilizing in urban zones and towns with ready access to water, nearby cropland/food, jobs, transit, walkable neighborhoods, energy (think Oklahoma, Texas, locales with coal, large hydro-electric dams or huge solar or wind arrays, etc.) and some medical care (even the rationed sort will be welcome if the alternative is none at all). Areas with few to none of these assets will see their housing stock sink to near-zero in value.

Supply and demand will eventually rule, regardless of government bailouts, backstops, interventions, etc. There are at least 15 million surplus dwellings in the U.S., an overhang which will not disappear in a few quarters or years. Millions will lose value as they were built in an undesirable locale, while the rest will re-set according to the demand/supply/risk calculations based on the cost of money, demographics, Peak Oil and a number of other trends (scarcity of jobs and healthcare, reduction in government services, etc.)

Real estate, bonds and stocks rose during the generation-long trend of ever-lower interest rates from 1982-2005. Now that trend has reversed and cash will outperform all three assets which depend on ever-lower rates and ever-easier money to appreciate in value.

It's a shocking conclusion, I know: a house will return to being shelter, not an investment vehicle for staggering wealth generation.

The Economic Consequences of Mr. Bush

2008-08-02T10:26:00.000-07:00

Original Link: http://krugman.blogs.nytimes.com/2008/01/29/an-iraq-recession/

By Paul Krugman

One thing I get asked fairly often is whether the Iraq war is responsible for our economic difficulties. The answer (with slight qualifications) is no.

Just to be clear: I yield to nobody in my outrage over the way we were lied into a disastrous, unnecessary war. But economics isn’t a morality play, in which evil deeds are always punished and good deeds rewarded.

The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression. The $10 billion or so we’re spending each month in Iraq mainly goes to US-produced goods and services, which means that the war is actually supporting demand. Yes, there would be infinitely better ways to spend the money. But at a time when a shortfall of demand is the problem, the Iraq war nonetheless acts as a sort of WPA, supporting employment directly and indirectly.

There is one caveat: high oil prices are a drag on the economy, and the war has some — but probably not too much — responsibility for pricey oil. Mainly high-priced oil is the result of rising demand from China and other emerging economies, colliding with sluggish supply as the world gradually runs out of the stuff. But Iraq would be exporting more oil now if we hadn’t invaded — a million barrels a day? — and that would have kept prices down somewhat.

Overall, though, the story of America’s economic difficulties is about the bursting housing bubble, not the war

An Iraq recession?

2008-08-02T10:03:00.000-07:00

Recession-Plagued Nation Demands New Bubble To Invest In

2008-08-02T07:30:00.000-07:00

Original Link: http://www.theonion.com/content/news/recession_plagued_nation_demands

WASHINGTON—A panel of top business leaders testified before Congress about the worsening recession Monday, demanding the government provide Americans with a new irresponsible and largely illusory economic bubble in which to invest.

"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."

A prominent finance expert asks Congress to help Americans rebuild their ficticious dreams.
The current economic woes, brought on by the collapse of the so-called "housing bubble," are considered the worst to hit investors since the equally untenable dot-com bubble burst in 2001. According to investment experts, now that the option of making millions of dollars in a short time with imaginary profits from bad real-estate deals has disappeared, the need for another spontaneous make-believe source of wealth has never been more urgent.

"Perhaps the new bubble could have something to do with watching movies on cell phones," said investment banker Greg Carlisle of the New York firm Carlisle, Shaloe & Graves. "Or, say, medicine, or shipping. Or clouds. The manner of bubble isn't important—just as long as it creates a hugely overvalued market based on nothing more than whimsical fantasy and saddled with the potential for a long-term accrual of debts that will never be paid back, thereby unleashing a ripple effect that will take nearly a decade to correct."

"The U.S. economy cannot survive on sound investments alone," Carlisle added.

Congress is currently considering an emergency economic-stimulus measure, tentatively called the Bubble Act, which would order the Federal Reserve to† begin encouraging massive private investment in some fantastical financial scheme in order to get the nation's false economy back on track.

Current bubbles being considered include the handheld electronics bubble, the undersea-mining-rights bubble, and the decorative office-plant bubble. Additional options include speculative trading in fairy dust—which lobbyists point out has the advantage of being an entirely imaginary commodity to begin with—and a bubble based around a hypothetical, to-be-determined product called "widgets."

The most support thus far has gone toward the so-called paper bubble. In this appealing scenario, various privately issued pieces of paper, backed by government tax incentives but entirely worthless, would temporarily be given grossly inflated artificial values and sold to unsuspecting stockholders by greedy and unscrupulous entrepreneurs.

"Little pieces of paper are the next big thing," speculator Joanna Nadir, of Falls Church, VA said. "Just keep telling yourself that. If enough people can be talked into thinking it's legitimate, it will become temporarily true."

Demand for a new investment bubble began months ago, when the subprime mortgage bubble burst and left the business world without a suitable source of pretend income. But as more and more time has passed with no substitute bubble forthcoming, investors have begun to fear that the worst-case scenario—an outcome known among economists as "real-world repercussions"—may be inevitable.

"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal."

Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder.

"America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."

Can This Planet Be Saved?

2008-08-02T07:07:00.000-07:00

Original Link: http://www.nytimes.com/2008/08/01/opinion/01krugman.html

By PAUL KRUGMAN

Recently the Web site The Politico asked Nancy Pelosi, the speaker of the House, why she was blocking attempts to tack offshore drilling amendments onto appropriations bills. “I’m trying to save the planet; I’m trying to save the planet,” she replied.

Go to Columnist Page » Blog: The Conscience of a Liberal I’m glad to hear it. But I’m still worried about the planet’s prospects.

True, Ms. Pelosi’s remark was a happy reminder that environmental policy is no longer in the hands of crazy people. Remember, less than two years ago Senator James Inhofe — a conspiracy theorist who insists that global warming is a “gigantic hoax” perpetrated by the scientific community — was the chairman of the Senate’s Environment and Public Works Committee.

Beyond that, Ms. Pelosi’s response shows that she understands the deeper issues behind the current energy debate.

Most criticism of John McCain’s decision to follow the Bush administration’s lead and embrace offshore drilling as the answer to high gas prices has focused on the accusation that it’s junk economics — which it is.

A McCain campaign ad says that gas prices are high right now because “some in Washington are still saying no to drilling in America.” That’s just plain dishonest: the U.S. government’s own Energy Information Administration says that removing restrictions on offshore drilling wouldn’t lead to any additional domestic oil production until 2017, and that even at its peak the extra production would have an “insignificant” impact on oil prices.

What’s even more important than Mr. McCain’s bad economics, however, is what his reversal on this issue — he was against offshore drilling before he was for it — says about his priorities.

Back when he was cultivating a maverick image, Mr. McCain portrayed himself as more environmentally aware than the rest of his party. He even co-sponsored a bill calling for a cap-and-trade system to limit greenhouse gas emissions (although his remarks on several recent occasions suggest that he doesn’t understand his own proposal). But the lure of a bit of political gain, it turns out, was all it took to transform him back into a standard drill-and-burn Republican.

And the planet can’t afford that kind of cynicism.

In themselves, limits on offshore drilling are only a modest-sized issue. But the skirmish over drilling is the opening stage of a much bigger fight over environmental policy. What’s at stake in that fight, above all, is the question of whether we’ll take action against climate change before it’s utterly too late.

It’s true that scientists don’t know exactly how much world temperatures will rise if we persist with business as usual. But that uncertainty is actually what makes action so urgent. While there’s a chance that we’ll act against global warming only to find that the danger was overstated, there’s also a chance that we’ll fail to act only to find that the results of inaction were catastrophic. Which risk would you rather run?

Martin Weitzman, a Harvard economist who has been driving much of the recent high-level debate, offers some sobering numbers. Surveying a wide range of climate models, he argues that, over all, they suggest about a 5 percent chance that world temperatures will eventually rise by more than 10 degrees Celsius (that is, world temperatures will rise by 18 degrees Fahrenheit). As Mr. Weitzman points out, that’s enough to “effectively destroy planet Earth as we know it.” It’s sheer irresponsibility not to do whatever we can to eliminate that threat.

Now for the bad news: sheer irresponsibility may be a winning political strategy.

Mr. McCain’s claim that opponents of offshore drilling are responsible for high gas prices is ridiculous — and to their credit, major news organizations have pointed this out. Yet Mr. McCain’s gambit seems nonetheless to be working: public support for ending restrictions on drilling has risen sharply, with roughly half of voters saying that increased offshore drilling would reduce gas prices within a year.

Hence my concern: if a completely bogus claim that environmental protection is raising energy prices can get this much political traction, what are the chances of getting serious action against global warming? After all, a cap-and-trade system would in effect be a tax on carbon (though Mr. McCain apparently doesn’t know that), and really would raise energy prices.

The only way we’re going to get action, I’d suggest, is if those who stand in the way of action come to be perceived as not just wrong but immoral. Incidentally, that’s why I was disappointed with Barack Obama’s response to Mr. McCain’s energy posturing — that it was “the same old politics.” Mr. Obama was dismissive when he should have been outraged.

So as I said, I’m very glad to know that Nancy Pelosi is trying to save the planet. I just wish I had more confidence that she’s going to succeed.

Filthy Iraqi drinking water raises cholera fears

2008-08-02T00:45:00.000-07:00

Original Link: http://www.startribune.com/world/26182629.html

By SELCAN HACAOGLU , Associated Press

Just months after Americans repaired a sewage treatment plant in southern Baghdad, insurgents attacked the facility and killed the manager. Looters took care of the rest.

Nearly three years later, the plant remains an abandoned shell. Raw sewage is still flowing freely through giant pipes into the Tigris River, ending up in some of the capital's drinking water. And those pipes are hardly the only source of contamination.

Many residents only have to sniff the tap water to know something is not right.

"I fear giving it to my children directly unless I boil it," said Enam Mohammed Ali, a 36-year-old mother of four in the New Baghdad district in the eastern part of the city.

The water crisis began as a symptom of the problems that plagued reconstruction efforts in the early years of the war. Extremists attacked infrastructure projects, including electricity stations and sewage plants, to undermine support for the U.S. and its Iraqi allies. Law and order broke down, with looters stealing pipes, power lines and other equipment.

But now, the recent decline in violence is raising hopes that the government can focus on repairing critical public services crippled by war and neglect. Perhaps the most complex: trying to control what goes into waterways and what comes out of Baghdad taps.

Two-thirds of the raw sewage produced in the capital flows untreated into rivers and waterways, Stuart Bowen, special inspector general for Iraq reconstruction, said in his quarterly report released Wednesday.

U.S. and Iraqi officials insist that the tap water in most of Baghdad is of at least fairly good quality because it comes from less polluted areas north of the city. In fact, more Iraqis nationwide have access to potable water now than before the war — 20 million people compared with 12.9 million previously, according to Bowen's report.

But some Baghdad neighborhoods, notably New Baghdad and Baladiyat, are not so lucky.

There, the Tigris is so filthy with sewage and other pollutants that the local treatment facility can only do so much. To make matters worse, sewage then leaks into the potable water pipes. On Friday, the U.S. military announced the opening of a water distribution site to prevent the mixing of sewage and drinking water in New Baghdad and Baladiyat.

It comes none too soon.

A cholera outbreak in northern Iraq last year killed 14 people. A similar outbreak of the waterborne disease in Baghdad — home to about 6 million people — could be far worse.

"Iraq is on the cusp of a serious water crisis that requires immediate attention and resources," said Thomas Naff, a Middle East water expert at the University of Pennsylvania.

The World Bank has estimated that it would take $14.4 billion to rebuild the Iraqi public works and water system.

A U.S. Embassy official, who spoke on condition of anonymity because she was not authorized to talk to the media, said the actual need is higher. The United States has allocated $2.7 billion for water projects in Iraq, but the official said the money is running out.

Iraq has been slow in spending its billions in oil revenues on public works projects — despite insistence from U.S. military commanders who recommend quality-of-life improvements to undercut militants and win over Sunni districts wary of the Shiite-led government.

"Up to now we have seen nothing from the government," Sheik Ayad Abdul-Jabbar al-Jubouri complained to a top American commander during a July 12 meeting at a combat outpost in Radwaniyah, a Sunni community just west of the capital. He said the central government is sitting on U.S.-led projects to repair four small water treatment plants and improve two irrigation canals in Radwaniyah.

"We'll fix it," Maj. Gen. Jeffery Hammond assured the sheik.

Mustafa Hamid, a spokesman for the Iraqi environment ministry, said the water pipe network is more than 50 years old and suffers from corrosion "which allows sewage water to infiltrate."

But Hamid downplayed the risk. "There is contamination but not a serious one," he said, saying test results in most parts of the city generally met "safe standards."

Many residents are unconvinced.

Hassan Khalid, 13, said he took antibiotics for typhoid four months ago after drinking tap water. "I had fever, headaches and was throwing up all the time," he said.

Although bottled of water is sold in Iraq — much of it from Saudi Arabia — the majority of Baghdad residents use tap water. U.S. troops, however, are warned that the water is only for bathing, not drinking.

The U.S. Embassy official said she has seen black sewage water gushing into the Tigris from a giant pipeline during an aerial tour.

Farmers in Baghdad's northern districts of Azamiyah and Istiqlal, just a few miles from the Tigris, are forced to use sewage water to irrigate crops, the U.S. military said.

The Tigris, which cuts through the heart of the capital and provides most of its drinking water, runs brownish green in the summer. But it still attracts bathers seeking to escape the scorching heat.

"The water smells like dead fish," Giya Nouri, a 40-year-old construction worker, said as he swam with his two young sons. "When I was a kid, it was blue and clean."

But Nouri shrugged his shoulders when asked about the potential health risks. "We got used to it," he said.

So far there has been no outbreak of waterborne diseases in Baghdad.

Last year in Iraq, the World Health Organization confirmed more than 3,300 cases of cholera, a gastrointestinal disease typically spread by contaminated water, and at least 14 deaths from the acute and rapid dehydration it causes. The hardest hit areas were in northern Iraq.

Dr. Nagesh Kumar, a water expert in India, said Iraq's current drought "will make the water contamination situation worse" by drying up wells and lowering river levels.

In the capital, the Tigris is at its lowest level since 2001. Reeds stick up from the water on each bank.

Housing, Economy Still Far From Recovery: Greenspan

2008-08-02T00:30:00.000-07:00

Original Link: http://www.cnbc.com/id/25953040

By J. Scott Applewhite / AP

Former Federal Reserve Chairman Alan Greenspan said the US is “nowhere near the bottom” of the housing slump and is “right on the brink” of a recession.

In an exclusive interview on CNBC, Greenspan said the US economy is holding up “rather well” considering the “extraordinary pressures from the financial sector.” But he added that a recession appears inevitable.

Credit Crisis One Year Later: Winners and Losers

Wall Street Veteran: Fed's Actions Are a "Band-Aid"

“I think we’re right on the brink,” he said. “I’d be more surprised if we didn’t than if we did, given the financial state.”

Greenspan's remarks, which came shortly after 3 pm, helped accelerate the stock market's slide, with the Dow Jones Industrial Average closing down over 200 points.

Greenspan said the government "had no choice" but to step in and prevent the failure of Bear Stearns and mortgage giants Fannie Mae FANNIE MAEFNM

"You have to do the backstop," he said. "Because once you're at that particular point, your choices are limited."

But he said he was "uncomfortable" with the idea of the Fed getting involved in what he called a "fiscal policy situation" that was really the responsibility of Congress.

He also warned that "Fannie and Freddie are a major accident waiting to happen."

Watch the Accompanying Video for the Full Interview.

"I think the ultimate solution is a nationalization of both Fannie and Freddie and I hope a restructuring in that nationalization," he said. "And then split them up into five or ten separate entities and sell them back into the market."

Greenspan's comments pushed both stocks lower.

He also said that while the priority now is stabilizing the financial system, he is worried about the long-term issue of inflation.

"We will come out of this financial crisis," he said. "But we still have to confront that problem of changing balance between growth and inflation, or what we like to call 'stagflation.'"

Greenspan, who left the Fed in early 2006 and was succeeded by Ben Bernanke, has come under increasing criticism for allowing what many said was easy credit that set up the current financial crisis.

In the interview, Greenspan called the current crisis a "once-in-a-century phenomenon" that went beyond a liquidity crisis and was more what he called a "solvency problem."

"We haven't gotten closure yet," he said. "And it's going to take a while."

A year into credit crunch, more pain expected

2008-08-02T00:12:00.000-07:00

Original Link: http://www.marketwatch.com/news/story/anniversary-credit-crisis-more-pain/story.aspx?guid=%7b0FB57E25-4C42-48B8-956D-FE9F71C3F027%7d&dist=TQP_Mod_mktwN&print=true&dist=printMidSection

By Alistair Barr, MarketWatch

Last update: 7:37 p.m. EDT Aug. 1, 2008SAN FRANCISCO (MarketWatch) -- "Troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system," -- Federal Reserve Chairman Ben Bernanke, June 5, 2007, during a speech from Cape Town, South Africa.

Just two months later, last August, those words seemed a distant memory. The financial system was in disarray, forcing the Fed and the European Central Bank to pump more than $250 billion into short-term funding markets to keep them working properly. The subprime mortgage crisis had gone global and the credit crunch had begun.

As the first anniversary of the crisis arrives this coming week, the Dow Jones Industrial Average is down 14%, U.S. economic growth has more than halved, financial institutions have suffered $350 billion in write-downs and fired chief executives and thousands of workers, while house prices have slumped as much as 40% in some areas. Bear Stearns, the nation's fifth-largest investment bank, had to be bailed out by the Fed and J.P. Morgan Chase (JPMJPMorgan Chase & Co News, chart, profile, more FNM) and Freddie Mac (FREFreddie Mac FRE) , the bedrock of the U.S. mortgage market, may be next.

Eight U.S. banks have failed since the beginning of the year, including First Priority Bank of Bradenton, Fla. late Friday. See full story.

"I doubt we're even a third of the way through it," said Michael Burry, head of Scion Capital, LLC, an $800 million hedge fund firm, which made huge returns betting against riskier parts of subprime mortgage-backed securities. See related story. "A real recovery won't happen until late 2010 or early 2011. A lot of the bills from the credit bubble haven't come due yet."

Burry expects inflation to increase and the U.S. dollar to decline further as the government creates more dollars to try to ease the pain of the credit crunch. To prepare, he's invested in commodities, foreign currencies and overseas stocks, with a focus on Asia.

Nowhere near bottom

To be sure, Burry has profited from negative bets against the housing and mortgage markets and may be more bearish than others because of that. However, he isn't alone in his views.
"We probably have at least another year to two years to go in this process," said Eric Hovde, chief executive and portfolio manager at Hovde Capital, which manages a series of hedge funds focused on financial services.

House prices have taken another sharp leg down recently and that won't show up on the balance sheets of banks and other financial institutions for three to six months, he noted.

"Housing alone will keep credit destruction and depletion of capital in the financial sector at a rapid clip for another year," Hovde said.

Greg Case, chief executive of Aon Corp. (AOCAon Corporation News, chart, profile, more AOC) , the world's largest insurance broker, is perturbed by the beginning of what may be a slowdown in Europe.

"We're a very global firm operating in 120 countries. Our concern is that we're beginning to see some of the same characteristics in Europe as we've seen in the U.S.," Case said. "Overall economic pressure is increasing. That leads to tightness in credit and pressure on financial institutions. We see it everyday with our clients."

Max Bublitz, chief strategist at $5.8 billion investment firm SCM Advisors LLC, reckons the credit crunch is in its fourth or fifth inning. House price deflation is probably in the sixth or seventh inning.

However, a pullback by consumers, the engine of the U.S. economy, is still in the early stages, he warned.

"The consumer is dealing with their homes going down in value and their stock portfolios falling -- they're being hit on the asset side of their balance sheet," he said. "They're also suffering on the income side too, with wages stagnating and food and energy prices climbing."

Government intervention means there probably won't be a devastating decline in the U.S. economy, but Bublitz expects economic headwinds well into 2009. Growth in gross domestic product, adjusted for inflation, may not return until 2010, he added.

House prices

House prices have to stop falling before the credit crunch can begin to ease, Bublitz and Hovde said.

But how?

The residential real estate boom was partly fueled by new types of mortgages that helped many people buy homes that were previously too expensive. These loans were extended on the assumption that house prices would rise indefinitely.

Now that's turned out to be wrong, these mortgages have disappeared and won't come back for years, Scion's Burry said. Without such financing, buyers may struggle to pay up and home prices may languish, he explained.

Bank lending

The supply of loans for home purchases can begin to increase again when banks and other financial institutions resolve the bad debts that are weighing down their balance sheets, Burry and others said. That process will take time.

In the second quarter of 2007, just before the credit crisis hit, U.S. banks had set aside reserves representing just 1.23% of their total loans, according to data from RiskMetrics Group (RMGriskmetrics group inc com)

That was one of the lowest levels of reserves ever in the U.S. banking system and made banks look better capitalized than they actually were, Zach Gast, a financial sector analyst at RiskMetrics, said.

By the end of March, banks had increased reserves to 1.71% of total loans. But that didn't keep up with the speed at which their assets deteriorated during the first quarter, he noted.

RiskMetrics hasn't finished compiling data from the second quarter, but Gast reckons banks have increased reserves a lot more and have probably kept pace with rising bad loans.

The problem is, as reserves increase, that eats into banks' capital, which makes them less willing to lend, Gast explained.

"If banks don't have enough capital, they may not be able to grow assets by lending more," the analyst said. "People have to get comfortable that an increase in reserves isn't going to detract from the capital adequacy of banks. I don't know when we get there."

To get a sense of how long this may take, Gast looked back at previous downturns in the credit cycle and focused on how banks dealt with souring commercial and industrial loans, which are usually among the most volatile.

"Typically it takes three to five years to work through the system," Gast concluded.

In the current credit crunch, loan delinquencies began climbing just two quarters ago, he added, while noting that some types of bad loans, such as credit card debt, work their way through the banking system more quickly than commercial and industrial loans.

Purging process

The situation is clearer with securities that are collateralized by loans, such as mortgage-backed securities. Financial institutions have had to report the fair value of these assets based on market prices or computer models, Gast explained.

Recent write-downs and sales of these types of securities by Merrill Lynch (MERMerrill Lynch & Co., Inc MER) bolstered confidence because they suggest that some large financial firms may be finally dealing with problem assets. See full story.

However, efforts by the U.S. government to cushion the impact of the credit crunch has slowed this purging process, Burry said.

After Bear Stearns almost collapsed, the Fed began lending directly to brokerage firms for the first time since the Great Depression. That prevented more force selling by allowing some firms to continue financing large exposures to mortgage-related securities. But it also means such assets remain on the balance sheets of several financial institutions.

"The government should not be involved in bailing out financial companies that have taken risks incompatible with their survival," Burry said.

"This might all go very quickly if the government asks society to take responsibility for the troubles it brought upon itself," he added. "But instead, the government is creating dollars left and right to manipulate the economy into a better showing in the short term."

Such action will create longer-term problems, such as further drop in the U.S. dollar and rampant inflation, Burry said.

But policymakers probably had no choice. Without the bailout of Bear Stearns and plans to support Fannie and Freddie, there may have been a catastrophic economic slump, SCM's Bublitz argues.

"Hands-off government sounds great in theory, but who knows what it would be like without such support?" he said. "Bailouts, while repugnant to some, just had to happen because the alternatives were too dire."

Bublitz expects a less intense but longer credit crunch. But unlike Burry, he expects a sluggish economy to restrain overall inflation.

Step up and leverage up

The credit crunch could be eased sooner if a major investor steps up by borrowing more money and using that to buy trouble assets from financial institutions, Paul McCulley, managing director of fixed-income giant Pimco, wrote in a July note to investors.

That entity should be the U.S. government, he said.

Otherwise, financial institutions will continue to cut leverage and sell assets into a market of few buyers. This in turn will drive prices lower again, pressuring firms into more de-leveraging and more asset sales, McCulley explained.

"The federal government ... needs to lever up its balance sheet to absorb assets being shed through private sector de-levering, so as to avoid pernicious asset deflation," he wrote. "It really is as simple as that."

A structure similar to the Resolution Trust Corporation, or RTC, has been suggested by some economists, Bublitz noted.

RTC was a government-owned investment fund that bought bad loans after the savings and loan crisis at the end of the 1980's. The fund helped get financial institutions lending again by relieving them of soured debt.

"I do see some type of government entity," Hovde said.

But RTC was a conduit that eventually sold on bad loans to other investors. If a similar structure is used to relieve the current credit crisis, there will still need to be investors willing to buy after bad debts are resolved, he noted.

"Unfortunately a solution like this will cost taxpayers a ton of money," Hovde said.

Jobless rate zooms to 4-year high

2008-08-01T22:37:00.001-07:00

Original Link: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/08/01/financial/f124124D73.DTL

UNEMPLOYMENT RISES — The unemployment rate zooms to a four-year high in July. Almost half a million jobs have been lost since the year began.

WHY? — Businesses are hunkering down to weather the housing slump, credit crisis and rising energy prices.

WHAT'S NEXT — Another 500,000 jobs could disappear over the rest of this year, analysts predict. And, the unemployment rate could climb to 6.5 percent by the middle of next year.

Construction spending falls 0.4 percent in June

2008-08-01T22:25:00.000-07:00

Original Link: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/08/01/financial/f070546D63.DTL

By MARTIN CRUTSINGER, AP Economics Writer

Construction spending fell for the 11th time in the past 13 months in June as continued steep declines in housing activity offset strength in nonresidential building activity.

The Commerce Department reported Friday that building activity dropped by 0.4 percent in June, a decline that was in line with expectations. Home building plunged by 1.8 percent, the 15th straight drop, as builders continued to slash activity to cope with the steepest decline in housing in more than two decades.

Nonresidential activity jumped 0.8 percent to an all-time high of $408.1 billion at a seasonally adjusted annual rate, reflecting a big increase in building activity for hotels and motels and gains in a number of other commercial building projects.

The 0.4 percent fall in overall construction spending left total building activity at a seasonally adjusted annual rate of $1.08 trillion, a decline of 5.9 percent from a year ago.

Analysts believe that housing still has further to fall given that the backlog of unsold homes is remaining at near record levels. The problem is that a rising tide of mortgage foreclosures is forcing even more properties onto an already glutted market. Construction of new single-family homes has already declined nearly 60 percent from the peak in early 2006.

Economists are also concerned that the strength in nonresidential construction could soon start to falter, reflecting the tight credit conditions as banks cut back on all of their lending in the face of billions of dollars of losses on bad mortgage loans.

For June, construction spending by state and local governments fell by 0.4 percent to a seasonally adjusted annual rate of $278.3 billion. Economists expect this activity to weaken in the months ahead as local governments struggle with falling tax revenues in a weak economy.

Construction spending by the federal government rose by a strong 2.4 percent in June to an all-time high of $22.97 billion at an annual rate.

GOP hopes to skirt Minn. bridge issue

2008-08-01T19:40:00.000-07:00

Original Link: http://www.politico.com/news/stories/0708/12220.html

By ERIKA LOVLEY

It’s a year today since the Minneapolis bridge collapse that killed 13 people, but don’t expect Gov. Tim Pawlenty to showcase the reconstruction.

Indeed, with the Republican National Convention in St. Paul just a month away and Pawlenty reported to be high on John McCain’s running mate list, Republicans want to drive attention away from the infrastructure disaster that spotlighted the nation’s crumbling bridges and from the criticism the governor faced for what some critics said was a slow response.

The governor’s staff reports there are no plans to hold any events near the site of the bridge collapse, about 10 miles from the convention hall. And GOP convention planners have organized hundreds of buses to ease the congestion expected when some 45,000 conventioneers, guests and media commute to the hall.

“The anniversary of the bridge collapse is this Friday, and the convention isn’t for a month after that. The two things aren’t really related,” said Pawlenty spokesman Brian McClung.

Republicans say they would rather not dampen the convention by revisiting an old tragedy.

But critics suspect the GOP wants to prevent embarrassing a potential vice presidential nominee and avoid drawing attention to Congress’ slow response to the infrastructure crisis.

"A tragedy of that kind raises national visibility to those kinds of decisions,” said former Sen. Jim Talent (R-Mo.), an honorary chairman of the Alliance for Improving America’s Infrastructure, referring the bridge collapse and Pawlenty’s prospects to make the national ticket.

“They are based on a bunch of different factors and the weight nominees give to them,” Talent said. “Decisions can also change based on immediate political needs.”

Pawlenty was criticized by House Transportation Committee Chairman James L. Oberstar (D-Minn.) and other members of the state’s congressional delegation last year for being slow to apply for disaster funding relief after the tragedy and for vetoing state legislation that would have invested millions in the state’s infrastructure.

The state of Minnesota was recently highlighted in House legislation for spending only 51 percent of its federal bridge funding on bridges over the past five years. Just last weekend, a 1,200-pound slab of concrete fell from the bottom of a St. Paul bridge, damaging two vehicles. No one was injured.

“I would certainly hope that while members are in Minnesota, they would visit the new bridge and reflect on the country’s need for infrastructure funding,” said Ray McCabe, a bridge expert with engineering firm HNTB who has testified before Congress.

The governor, though, has not avoided all discussions about the nation’s infrastructure. He recently hosted New York Mayor Michael Bloomberg and Pennsylvania Gov. Ed Rendell on his radio show to talk broadly about the country’s needs. But the bridge was not a topic of discussion.

“Everyone is very careful about not making the I-35 bridge an issue,” said the Pennsylvania governor’s Washington representative, Peter A. Peyser. “Gov. Rendell and Mayor Bloomberg wanted to highlight the [infrastructure] issue but didn’t do it in a way to involve the bridge. Both were sensitive that people died there.”

Along with California Gov. Arnold Schwarzenegger, Rendell and Bloomberg chair the Building America's Future coalition, which plans to invite both presidential campaigns to join in a forum on the broader infrastructure issue this fall.

Increased national attention could mean increased scrutiny of Congress, as well. Last month, the House successfully passed a bill sponsored by Oberstar that allocates $1 billion to repair the nation’s bridges, a sliver of the estimated $140 billion needed.

The Minnesota Department of Transportation and other states bemoaned the legislation, however, because it would prevent state officials from transferring the funds to non-bridge projects.

“It takes away flexibility from the states to spend the money where it’s most needed,” said the Brad Larsen, director of federal relations for the Minnesota Transportation Department.

But with Congress headed out on its August recess, similar legislation has yet to be introduced in the Senate — and the Bush administration is already promising a presidential veto.

Wall Street slides on GDP, jobless data

2008-07-31T22:43:00.000-07:00

Original Link: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/07/31/financial/f132210D69.DTL

By TIM PARADIS, AP Business Writer

Wall Street sank Thursday, after weak readings on economic growth and the job market touched off renewed concerns about the financial health of businesses and consumers. The Dow Jones industrial average fell more than 200 points.

The Commerce Department's report that gross domestic product grew at a 1.9 percent pace in the second quarter disappointed investors. Economists polled by Thomson Financial/IFR had expected growth of 2.4 percent in the broad measure of the economy's health.

Investors were also concerned about Labor Department data saying that the number of people seeking jobless benefits jumped to the highest level in five years. Economists warned the weekly figures can be volatile, however, and some dismissed them as an aberration.

A $4.5 billion cash offer from Bristol-Myers Squibb Co. for its cancer drug partner ImClone Systems Inc. kept the Nasdaq composite index from falling as sharply as other indexes. In other positive news, oil prices declined, and an index of Midwestern business activity indicated growth.

But Wall Street could not shake off its worries about the economy — particularly after sobering remarks from Former Federal Reserve Chairman Alan Greenspan on CNBC late in the afternoon. Greenspan said he would be more surprised if the United States did not enter recession than if it did.

The comments came after Treasury Secretary Henry Paulson said in a speech in Washington that the economy will continue to grow at a moderate pace for the rest of the year, and the government's $168 billion stimulus package had helped grease the economy's wheels.

But Larry Smith, chief investment officer at Third Wave Global Investors in Greenwich, Conn., said tightness in credit markets and high oil prices continue to weigh on the economy and the stimulus package won't deliver a permanent fix.

"Tax rebates have been a very effective way of propping up the economy in the second quarter, and less so in the third quarter," Smith said. "To fix the economic growth problems, you have to restore liquidity to the system."

The Dow Jones industrial average fell 205.67, or 1.78 percent, to 11,378.02, continuing its string of erratic, triple-digit daily swings.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 16.88, or 1.31 percent, to 1,267.38, while the Nasdaq fell 4.17, or 0.18 percent, to 2,325.55.

During the month of July, the Dow inched up 0.25 percent, the S&P fell 0.99 percent, and the Nasdaq rose 1.42 percent. It was certainly a better showing than in June, during which the Dow dropped 10.19 percent, the S&P fell 8.60 percent, and the Nasdaq lost 9.10 percent.

Bond prices jumped following the economic readings. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.95 percent from 4.05 percent late Wednesday. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude fell $2.69 to settle at $124.08 a barrel on the New York Mercantile Exchange after rising more than $4.50 on Wednesday. Oil has fallen more than $20 since hitting a high above $147 on July 11, raising hopes that inflation pressures could ease.

Thursday's stock market pullback follows bets investors made this week that the beaten-down financial sector would rebound and that the Labor Department's employment report on Friday would show a less gloomy jobs market.

But other stock rallies have fizzled in recent weeks. Investors have remained concerned about the housing and credit markets, the health of financial companies and the effect of high commodities prices.

The latest GDP reading, which reflected consumers cashing tax rebate checks, still shows the economy grew at a faster pace than the weak 0.9 percent seen in the first quarter. But revised numbers also revealed for the first time that the economy shrank in the fourth quarter last year.

The mixed economic figures are making it hard for investors to have much conviction, observers say.

"I think in the short run, it's going to be a tug-of-war between the optimists and the pessimists," said Jack Caffrey, equities strategist at JPMorgan Private Bank. "I think both sides are going to be able to find enough information to support their case."

At some point one side will give in, he said.

"The challenge is, you can't identify what the catalyst is that will change psychology."

Investors sifted through a flurry of quarterly profit reports for clues about the economy.

Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion, the largest quarterly profit ever by a U.S. corporation. But the per-share earnings fell well short of Wall Street's forecast, which assumed that record crude prices would push earnings even higher. The stock fell $3.95, or 4.7 percent, to $80.43 and weighed on the Dow industrials.

The Walt Disney Co. fell $1.32, or 4.2 percent, to $30.35 after the company reported a slowdown in the U.S. advertising market in the current quarter and weak box office results in the period that ended in June.

Motorola Inc. jumped 96 cents, or 12.5 percent, to $8.64 after posting a surprise profit for its second quarter. The company said it shipped more cell phones than in the first quarter.

Eastman Kodak Co. reported a second-quarter profit but the results missed Wall Street's forecast. The stock declined $1.13, or 7.2 percent, to $14.64.

In other news, Wall Street applauded Bristol-Myers' offer $60 per share for ImClone, a 30 percent premium to ImClone's closing price of $46.44 Wednesday. Bristol-Myers, which already owns about 17 percent of ImClone, is a U.S. partner for the colon and head and neck cancer drug Erbitux. ImClone surged $17.49, or 37.7 percent, to $63.93. Bristol-Myers slipped 39 cents to $21.12.

Declining issues outpaced advancers by about 3 to 2 on the New York Stock Exchange. Consolidated volume came to 5.16 billion shares, up from 5.06 billion shares.

The Russell 2000 index of smaller companies fell 4.34, or 0.60 percent, to 714.52.

Overseas, Japan's Nikkei stock average closed up 0.07 percent. Britain's FTSE 100 fell 0.16 percent, Germany's DAX index rose 0.30 percent, and France's CAC-40 fell 0.19 percent.

Federal judge rules Bush's aides can be subpoenaed

2008-07-31T21:19:00.000-07:00

Original Link: http://www.examiner.com/a-1515162~Federal_judge_rules_Bush_s_aides_can_be_subpoenaed.html

By MATT APUZZO, AP

President Bush's top advisers are not immune from congressional subpoenas, a federal judge ruled Thursday in a long-running dispute between the two political branches.

Congressional Democrats called the ruling a ringing endorsement of the principle that nobody is above the law. They swiftly announced that the Bush officials who have defied their subpoenas, including Bush's former top adviser Karl Rove, must appear as part of a probe of whether the White House directed the firings of nine federal prosecutors. Democrats announced plans to open hearings at the height of election season.

The Bush administration was expected to appeal.

In his ruling, U.S. District Judge John Bates said there's no legal basis for Bush's argument and that his former legal counsel, Harriet Miers, must appear before Congress. If she wants to refuse to testify, he said, she must do so in person. The committee also has sought to force testimony from White House chief of staff Joshua Bolten.

House panel votes to cite Rove with contempt "Harriet Miers is not immune from compelled congressional process; she is legally required to testify pursuant to a duly issued congressional subpoena," Bates wrote. He said that both Bolten and Miers must give Congress all nonprivileged documents related to the firings.

Bates, who was appointed to the bench by Bush, issued a 93-page opinion that strongly rejected the administration's legal arguments. He noted that the executive branch could not point to a single case in which courts held that White House aides were immune from congressional subpoenas.

"That simple yet critical fact bears repeating: the asserted absolute immunity claim here is entirely unsupported by existing case law," Bates wrote.

The ruling is a blow to the Bush administration's efforts to bolster the power of the executive branch at the expense of the legislative branch. Disputes over congressional subpoenas are normally resolved through political compromise, not through the court system. Had Bush prevailed, it would have dramatically weakened congressional authority in oversight investigations.

House Speaker Nancy Pelosi, D-Calif., left open the prospect of a full House vote on a contempt citation against Rove, who defied his subpoena to appear before the Judiciary Committee on July 10.

"It certainly strengthens our hand," she said of Bates' ruling. "This decision should send a clear signal to the Bush administration that it must cooperate fully with Congress and that former administration officials Harriet Miers and Karl Rove must testify before Congress."

That wasn't clear at all to the White House or Rove's attorney.

Bush administration lawyers were still considering whether to appeal, but there was no doubt what they thought of the ruling.

"We disagree with the district court's decision," White House spokeswoman Dana Perino said.

With only a few months left in Bush's presidency, there appeared to be no sense of urgency to come to a decision.

"I have not yet talked with anyone at the White House ... and don't expect that this matter will be finally resolved in the very near future," Rove attorney Robert Luskin said in an e-mail.

The House Judiciary Committee's senior Republican, Rep. Lamar Smith of Texas, said he was pleased the court ruled in Congress' favor, but he cautioned that an ongoing showdown in federal court could ultimately curtail Congress' powers, and he urged Democrats and the White House to strike an agreement.

"Unfortunately, today's victory may be short-lived," Smith said in a statement. "If the administration appeals the ruling, our congressional prerogatives will once again be put at risk."

The chairmen of the House and Senate Judiciary Committees quickly demanded that the White House officials subpoenaed appear before their panels.

Rep. John Conyers, D-Mich., chairman of the House Judiciary Committee, signaled that hearings would commence in September on the controversy that scandalized the Justice Department and led to the resignation of a longtime presidential confidant, Attorney General Alberto Gonzales.

"We look forward to the White House complying with this ruling and to scheduling future hearings with Ms. Miers and other witnesses who have relied on such claims," Conyers said in a statement. "We hope that the defendants will accept this decision and expect that we will receive relevant documents and call Ms. Miers to testify in September."

Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., said, "I look forward to working with the White House and the Justice Department to coordinate the long overdue appearances."

Alaska's 'earmarks' king Stevens, now indicted

2008-07-31T05:55:00.000-07:00

Original Link: http://www.csmonitor.com/2008/0731/p01s11-uspo.html

By Yereth Rosen, Correspondent of The Christian Science Monitor

Some predict the charges may end the career of an Alaskan icon who has dominated the state's political scene since territorial days.

It is, according to federal prosecutors, the scene of the crime. But as potential illegal payout, it appears a paltry trade for what could be the ruin of Alaska Sen. Ted Stevens's long legacy of public service.

The modest chalet-style house on a dirt road south of Anchorage has peeling brown paint, a front lawn in need of mowing, and a pair of handmade campaign signs. The house, the official Alaska residence of Senator Stevens, was expanded and remodeled through unreported gifts from VECO Corp., a company that was once a giant in both the Alaska oil fields and the halls of political power, according to a federal indictment issued in Washington Tuesday.

The charges against Stevens are part of a federal probe of political corruption in Alaska that so far has sent three former state lawmakers to prison. The investigation is forcing Alaskans, who receive more federal funds in earmarks per person than residents of any other state, to take a harder look at their heavy reliance on US tax dollars and to ask whether the mutual back-scratching that has long characterized business and politics here needs to be reconsidered.

With Stevens's indictment, some see an end of that era. Others predict it may also end the career of an Alaskan icon who has dominated the political scene since territorial days.

"The phrase that comes to mind is 'sic transit gloria.' It is the end of an era," says Jerry McBeath, a University of Alaska Fairbanks political scientist.

The indictment, the first issued against a sitting senator since 1993, charges Stevens with seven felony counts involving a failure to report gifts, worth more than $250,000, bestowed from 1999 to 2006 by VECO and its chief executive – mostly in the form of materials and labor used to double the size of his Girdwood home. While Stevens is not charged specifically with taking bribes, the indictment alleges that he helped steer lucrative federal contracts to VECO and took other actions that benefited the company.

Though the most powerful figure entangled so far, the senator is not likely to be the last. His son, former state Senate President Ben Stevens, has been fingered in court testimony by VECO executives as the recipient of $243,000 in VECO bribes that they said were disguised as payments for "consulting" work.

The elder Stevens, the longest-serving Senate Republican in history, proclaimed his innocence in a terse statement Tuesday. "I have proudly served this nation and Alaska for over 50 years. My public service began when I served in World War II. It saddens me to learn that these charges have been brought against me. I have never knowingly submitted a false disclosure form required by law as a U.S. Senator," said the statement, released by his Senate office.

He also said that in line with Senate GOP rules, he would temporarily give up leadership positions. Stevens is a senior Republican on the Commerce Committee and Appropriations Committee.

His campaign issued a statement as well, insisting that his bid for a seventh term, in which he was already lagging in the polls against popular Anchorage Mayor Mark Begich, "is continuing to move full steam ahead."

After being appointed to office in 1968 and coasting to victory in every Senate election since, an indicted Stevens is now the decided underdog against Mayor Begich, a Democrat, and may not even survive the Aug. 26 GOP primary, says Ivan Moore, a pollster and political consultant who generally works for Democrats.

"Is Ted Stevens going to win in November? No. Is Ted Stevens going to win the Republican primary? He could, but I think it's unlikely," says Mr. Moore.

In fact, within minutes of the indictment, the Congressional Quarterly changed its rating of this race from Leans Republican to Leans Democratic.

"Even before the indictment, this race was already very competitive," says Jennifer Duffy, who tracks Senate races for the Cook Political Report in Washington. "What some people don't appreciate is that Senator Stevens has a primary race, and now it might be tougher to see him come out of it."

For Alaska, it would be a seismic shift.

Stevens has long been lionized as a pillar of the economy here. The state is reliant on North Slope oil and the money it generates, and it has been at least equally reliant on generous amounts of federal spending, otherwise known as "Stevens dollars," that is distributed throughout Alaska. "Stevens dollars" are particularly appreciated in the rural bush, where some Native villages still lack running water and rely on plastic-bag-lined "honey buckets" for toilets.

The nickname "Uncle Ted" is bestowed more in awe than in affection, according to Mr. McBeath.

"Stevens is not a likable person because of the nature of his personality. But I've rarely seen a public official as respected as he is because of his effectiveness," he says.

Alaskans have shown their appreciation over the years. At about the time the Justice Department says VECO's unreported gifts began, Stevens was honored as "Alaskan of the Century" by a civic group and by the state Legislature, and the airport in Anchorage was named after him.

In the Lower 48, Stevens has been much lampooned for his angry outbursts on the Senate floor, his promotion of big-ticket budget earmarks that appear preposterous outside of Alaska, and his oft-quoted speech about how the Internet is a "series of tubes."

True to the old Alaska saying "We don't care how they do it Outside," with "Outside" referring to every place that is not Alaska, Stevens shows little concern about being unpopular in the Lower 48. He even seems to relish his cantankerous image, donning an "Incredible Hulk" tie for major political clashes on the Senate floor.

If Stevens does not care what people say "Outside," however, several younger Alaska leaders do.

"Unfortunately, it's been that perception by mostly the Outside media that ... has been, 'What are you guys doing up there to clean up any corruption or perceived corruption?' " Gov. Sarah Palin said at a news conference in Juneau Tuesday. "We recognize that we have, perhaps, that reputation at this point." Governor Palin, a Republican who won her office on an anticorruption platform, touts several reform measures that she and lawmakers have put into place. She has also instructed budget writers to scale back the state's requests for federal dollars.

The governor drew ire from Stevens and US Rep. Don Young (R) for canceling state work on an expensive project that they had championed but was ridiculed as a "bridge to nowhere."

Other younger leaders also say Alaska needs to reassess its reliance on federal money and move on to a new era. Between Alaska's current oil wealth and the growing federal budget deficit and overall hardships in the Lower 48, it's the wrong time for the state to make big demands on the federal treasury, they say.

If oil prices average $120 a barrel for the current fiscal year, Alaska could reap a $9 billion surplus, notes state Sen. Hollis French (D). "Right now, we're sort of floating on a sea of oil," he says.

The move-on message was echoed Tuesday by Begich, who held a previously scheduled news conference intended to promote a new city program to convert to energy-efficient lighting. At the event, held on the sidewalk just below Stevens's office in the city's federal building, Begich found himself fending off reporters' questions about the man he hopes to replace in Washington.

"It's basically a sad day for Alaska, but we're going to keep focusing on the future of this great state," said the mayor, who was only 6 when Stevens was first sent to the Senate. "We're resilient. We're Alaskans. And we'll move forward."

Little progress since bridge collapse

2008-07-30T22:21:00.000-07:00

Original Link: http://abcnews.go.com/US/wireStory?id=5482458

By ROBERT TANNER, STEVE KARNOWSKI and FRANK BASS Associated Press Writers

A year after the worst U.S. bridge collapse in a generation brought calls for immediate repairs to other spans, two of every three of the busiest problem bridges in each state — carrying nearly 40 million vehicles a day — have had no work beyond regular maintenance.

An Associated Press review of repairs on each state's 20 most-traveled bridges with structural deficiencies found just 12 percent have been fixed. In most states, the most common approach was to plan for repairs later rather than fix problems now.

The bridges reviewed by the AP — 1,020 in all — are not in imminent danger of collapse, state engineers and highway officials say. But the officials acknowledge the structures need improvement, many sooner rather than later.

The collapse of the eight-lane Interstate 35W bridge into the Mississippi River on Aug. 1, 2007, killed 13 people and brought immediate calls for repairs to bridges across the nation.

The failure to follow through was not because of lack of effort, officials said. Soaring construction costs, budget shortages, election-year politics, a backlog of bridge projects, competing highway repairs and bureaucracy often held bridge work to only incremental progress.

The AP gathered information on repair status from 48 states and Washington, D.C. In six states, data could not be obtained for some locally owned bridges. Louisiana and Nevada failed to respond.

The AP findings:

—Sixty-four percent of the bridges received no work beyond regular maintenance, though most were targeted for some kind of future work.

—Twelve percent had their structural defects fixed — usually through a major rehabilitation or outright replacement.

—An additional 24 percent have seen a partial improvement, either through a short-term repair to temporarily address the defect or an ongoing project that is not yet complete.

The worst were Indiana, Oklahoma, New Hampshire and South Carolina, where work was conducted on only one of each state's 20 most heavily traveled structurally deficient bridges.

"At some point, relying on miracles is not going to be the best way to manage our system," said Pete Rahn, the transportation commissioner of Missouri. "I would pray we don't have to have another disaster to bring about the right attention to this. I see very little political will there."

Adds Pennsylvania Gov. Ed Rendell: "The Minneapolis incident obviously caused people to stand up and take notice, but I think it got dwarfed by the bad economic news."

"There's plenty of blame to go around," said Rendell, who has joined a national campaign to demand more federal investment in infrastructure. He argues the federal government bears a larger share than states, which are struggling to make do with limited help.

Rahn, one of many state transportation officials interviewed who said it is long past time for Congress and the states to invest in bridges and roads, blames the federal government most of all.

But as Congress debates highway spending, some members criticize states for not devoting enough highway money to bridges. Also, the Bush administration has promised to veto the latest $1 billion proposed increase, itself a fraction of the estimated $140 billion needed for repairs on bridges alone.

"Thirteen people were killed and not much happened," said engineer William Schutt, a critic of the status quo of bridge assessment and repair. "Who's to blame? Congress, the American people — for putting up with it."

Bridges deemed structurally deficient have elements that need monitoring and parts that need to be scheduled for repair or replacement. The designation does not necessarily mean a bridge is unsafe, although it is one of the factors used to determine when a bridge is at risk, and which ones quality for federal money.

"Structural deficiency ultimately determines whether a bridge will stand or fall," said Kris Kolluri, New Jersey's transportation commissioner. But recognizing the problem is only the first step.

"If you look at the full picture of bridges and the task that transportation professionals have," Kolluri said, "it's an overwhelming task."

The Minneapolis bridge, one of the busiest in Minnesota, collapsed during a Wednesday evening rush hour into a tangle of steel and concrete and crushed cars. In addition to the 13 killed, 145 people were injured. A school bus with 52 children aboard that came to rest on an angled piece of pavement provided one of the enduring images of the tragedy.

Investigators have yet to issue their final determination on the cause of the Minneapolis collapse but have said an error in the original design was the critical factor. Certain gussets — steel plates that fastened the trusses together — were roughly half the 1-inch thickness they should have been, investigators said. A National Transportation Safety Board lab report made public Tuesday noted at least two gussets broke partially along lines of corrosion.

The disaster has generated a rush of emergency bridge inspections, an extra $1 billion from Congress for bridge repairs so far and vows from leaders to tackle the problems spotlighted by the tragedy.

Washington state Gov. Chris Gregoire called the I-35W collapse a "wake-up call to this nation." She vowed to tackle two of her state's overdue bridge projects, telling state lawmakers: "We need to take them down, not leave it to Mother Nature!" The Alaskan Way Viaduct along Seattle's waterfront is to be demolished by 2012, and work to replace the SR 520 floating bridge over Lake Washington should begin the same year.

In all, 17 states proposed ambitious bridge and road spending totaling $13.7 billion. To date, $8.3 billion has won approval in six states, including $160 million in Maine, $600 million in Missouri and $6.6 billion in Minnesota.

But in 33 states and Washington, D.C., there was no significant new spending, and little debate.

The AP started its review by identifying the 20 most heavily trafficked structurally deficient bridges in each state, using a Federal Highway Administration inventory of data submitted by states.

But the inventory, which includes about 70,000 structurally deficient bridges nationwide, doesn't reflect the latest work — most of that information from the states was gathered before the collapse.

So the AP asked state transportation departments to explain the current status of repairs on each of those bridges and disclose future plans and whether officials had identified any new heavily trafficked, structurally deficient bridges since the last update to the federal government.

Some states wound up with more than 20 structurally deficient bridges in the AP analysis because they had additional, newly categorized, busy bridges that were structurally deficient.

Understandably, Minnesota's response has been among the most vigorous.

The Democratic-controlled Legislature, with some Republican help, overrode GOP Gov. Tim Pawlenty's veto of the $6.6 billion transportation spending plan, which raised the gas tax, local sales taxes and vehicle registration fees. The Senate then sacked his transportation commissioner, who had resisted the increased spending and higher taxes.

In June, a new commissioner outlined a $2.5 billion draft bridge improvement plan that would replace 11 major spans over the next decade using the new money. By 2018, 120 bridges that lack structural redundancies — like the doomed I-35W bridge — or that rank poorly on the structural sufficiency scale would be repaired, replaced or under construction.

Minnesota officials abruptly closed or partially closed three busy bridges after those inspections found flaws. The state also moved swiftly to replace the I-35W bridge.

Contractors aim to complete work by Sept. 15 — 100 days ahead of the deadline.

Missouri was another bright spot, where the Legislature moved ahead on a stalled bridge-improvement plan that was put on a fast track weeks after the Minneapolis collapse.

Lawmakers agreed on a measure to award a single 30-year contract to fix and maintain 802 of the state's worst bridges, despite a price tag of $600 million that analysts say could easily double over the contract's lifetime.

Politics dashed ambitious plans in Colorado and Virginia.

Despite initial support from the governor, months of study and accusations that opponents were playing "structurally deficient bridge roulette," Colorado lawmakers killed proposals to raise car registration fees, sales and gas taxes.

In Virginia, transportation may have been the biggest single issue of the last several years. The governor's $1 billion transportation plan became a political, partisan showdown and, despite a special session in July, wound up a stalemate.

The debate echoes from statehouses to Washington.

Last week, the U.S. House overwhelmingly approved another $1 billion for bridge work, though the White House has opposed the increase and has promised a veto.

The nation's bridges depend significantly on the federal government. In 2004, $10.5 billion was invested across the country on bridge improvements, according to the FHWA. The federal Highway Bridge Program provided $5.1 billion, with another $1.5 billion coming from other federal aid; states and local government paid $3.9 billion.

Much of the federal support comes out of the Highway Trust Fund, which is financed largely through fuel taxes — a potential problem because high pump prices have led people to drive less.

"The federal government has basically ignored infrastructure at every level," said Rendell, who, with California Gov. Arnold Schwarzenegger and New York Mayor Michael Bloomberg, has launched a group called Building America's Future to demand infrastructure investment. "They've just literally abdicated their responsibility."

According to the American Association of State Highway and Transportation Officials, a projected $14 billion shortfall means only about $27 billion in federal money will be available next year to states and local governments for new highway and bridge investments — a 34 percent reduction — even though the current federal highway act calls for spending $41 billion a year.

The risks of another Minneapolis-style collapse aren't getting smaller as bridges age and traffic and weather take their toll.

Even annual inspections — twice as often as the standard federal requirement — don't guarantee a bridge is safe.

On Saturday afternoon, 1,200 pounds of concrete chunks fell from the underside of a 50-year-old bridge in St. Paul over I-35E, a few miles from last summer's fatal collapse.

Two cars were damaged but nobody was injured. The bridge was inspected last August; since it is structurally deficient, it was due for another inspection soon.

The bridge is safe to carry traffic, said Dan Dorgan, Minnesota's chief bridge engineer, though the previous inspection had noted that deteriorating concrete had been fixed.

"It is not acceptable for us to have concrete falling off a bridge," he said.

Iraq's rebuilding planned at nearly $120 billion

2008-07-30T22:11:00.000-07:00

Original Link: http://abcnews.go.com/Politics/wireStory?id=5477372

By PAULINE JELINEK, The Associated Press

Iraq's coffers are bulging with oil money, yet some Baghdad residents go without electricity for much of the day and others get drinking water tainted with sewage.

"They don't need more money," said Stuart Bowen, special inspector general for Iraq reconstruction. "But they are having a difficult time, apparently, spending the money that they have."

Bowen Wednesday is releasing his quarterly report to Congress on efforts to rebuild Iraq's shattered nation — a program now expected to spend $117.79 billion.

Aided by money from a postwar record in oil production, Baghdad itself is now set to spend an amount almost equal to the U.S. share, the report says. That is, as of the end of the quarter on June 30 the U.S. has appropriated $50.46 billion, the Iraqis are contributing $50.33 billion and international donors have pledged $17 billion.

Bowen said that on a number of fronts, Iraq made progress in the last quarter toward standing on its own — a key to bringing home U.S. troops.

Amid improved security, the Iraq economy has continued to expand and essential services to residents have improved somewhat.

"But they remain uneven and are not adequate to meet current demand," the 270-page report said. "Improved security across the country has helped reduce attacks on oil pipelines, and the electricity sector's expanded operations and maintenance programs have helped increase production."

The government of Iraq still struggles to develop effective water and sewer services.

"Emblematic of this struggle is the fact that two-thirds of the raw sewage produced in Baghdad flows untreated into rivers and waterways," the report said. Sewage water is mixing with tap water in several areas of Baghdad, experts say.

The Iraqi government also is still far from its goal of achieving political reconciliation; and it lacks some skills to run the government, the report says.

"They obviously have made enormous economic progress by virtue of improving their oil sector and they've made significant security progress," Bowen said in an interview.

"However on the governance and political front, there are still hurdles," he said, naming the need to pass an oil law and hold provincial elections.

And they are still having trouble executing their budgets at the national level and particularly in the provinces.

"For progress to really occur across Iraq, they're going to have to remedy that," Bowen said.

There was no figure available for how much of the allocated Iraqi money had been spent. Of the $17 billion pledged internationally, only $2.5 billion had been disbursed. And at of the end of the quarter, the U.S. had spent $33.28 billion of the more than $50 billion Congress appropriated, Bowen said.

He said American taxpayers did not always get their money's worth.

One success story was a $34 million project that built a system of ditches, berms, fences and other security to protect pipelines from attacks.

"The success of the program is evident in the fact that there have been no successful attacks on northern oil lines this year," the report said, noting that contributed to the increased oil production.

The Iraqis have refused to take over control of some of the facilities built for them, forcing the U.S. to "unilaterally transfer" hundreds of projects without formal agreement and increasing the risk that the U.S. investment will be wasted, Bowen said.

Some of the projects were rejected because they were incomplete, some because they didn't meet Iraqi expectations and others because the Iraqis deemed them unnecessary, Bowen said, recommending a new U.S.-Iraqi agreement for such transfers.

Other details in the report said:

—The quarter's oil production averaged 2.43 million barrels a day, the highest reported since the reconstruction program began five years ago, but below prewar levels of 2.58 million.

As of June 30, the United States had spent $1.86 billion on rebuilding the oil industry.

— Average daily electricity production for the quarter was 12 percent higher than the same time last year and the second highest quarterly average since the start of the war. Still, publicly available power, which is provided virtually without fees, only meets about 55 percent of increasing demand, forcing people to buy power buy power from private generators run by neighbors or small businessmen.

The United States has spent nearly $4.62 billion in this sector.

— Only 47 percent of people in rural areas use drinking water supplied via pipes to their homes. Only 20 percent of families outside of Baghdad province have access to working sewage facilities.

The United States has $2.4 billion in the water sector.

— Despite better security, "violence continues to pose a deadly threat to personnel involved in reconstruction activities." The State Department reported that 15 U.S. civilians died in Iraq this quarter. Since the beginning of the U.S. reconstruction effort, 271 U.S. civilians have died in Iraq.

House panel votes to cite Rove for contempt

2008-07-30T22:06:00.001-07:00

Original Link: http://seattletimes.nwsource.com/html/politics/2008080937_aplameduckoversight.html

By LAURIE KELLMAN, Associated Press Writer

A House panel Wednesday voted to cite former top White House aide Karl Rove for contempt of Congress as its Senate counterpart explored punishment for alleged Bush administration misdeeds.

Voting 20-14 along party lines, the House Judiciary Committee said that Rove had broken the law by failing to appear at a July 10 hearing on allegations of White House influence over the Justice Department, including whether Rove encouraged prosecutions against Democrats such as former Alabama Gov. Don Siegelman.

The committee decision is only a recommendation, and a spokesman for Speaker Nancy Pelosi, D-Calif., said she would not decide until September whether to bring it to a final vote.

With little more than three months before Election Day, it wasn't clear whether majority Democrats could take any substantial action in a political environment in which time for the current Congress is running short and lawmakers face a host of daunting legislative problems and a cluttered calendar.

The House committee vote occurred as members of the Senate Judiciary Committee delved into allegations of wrongdoing ranging from discriminating against liberals at Justice to ignoring subpoenas and lying to Congress.

For his part, Rove has denied any involvement with Justice decisions, and the White House has said Congress has no authority to compel testimony from current and former advisers. His attorney, Robert Luskin, had urged the panel in letter not to vote for a citation, calling it a "gratuitously punitive" action that would serve no purpose because the question of executive privilege is already pending in two other cases in federal court.

Republicans who unanimously opposed the measure accused Democrats of staging political theater.

"Instead of conducting witch hunts, we should consider bipartisan legislation to reduce the price of gas, reduce crime and secure the borders," said Rep. Lamar Smith of Texas, the top panel Republican.

But Democrats cited recent internal audits finding that politics heavily shaped Justice Department hiring, and they said that Rove had left them with no choice but to support a contempt citation.

"His name has come up repeatedly in the hearings on this subject," said Judiciary Chairman John Conyers, D-Mich. "Yet he refuses to testify based on legally invalid claims of immunity privilege."

The Senate proceedings were the latest congressional review of the White House, a constitutionally mandated power that majority Democrats are eager to use. Justice Department Inspector General Glenn A. Fine, who reported this week that former department officials broke the law by letting administration politics dictate the hiring of prosecutors, immigration judges and career government lawyers, Fine said his office and Justice's Office of Professional Responsibility are investigating.

He said specifically that they're trying to determine whether Bradley Schlozman, former head of the department's Civil Rights Division, used political or ideological criteria to make hiring decisions.

Under questioning by Sen. Arlen Specter of Pennsylvania, the panel's senior Republican, Fine said he uncovered no evidence that any Justice officials involved made false statements to Congress or violated criminal law. Politicization of the hiring process for career positions is a violation of civil law and department policy, he said.

The Senate probe sprang from Justice's firings of nine federal prosecutors that sparked congressional investigations last year and led to the resignation of Attorney General Alberto Gonzales.

House and Senate Democrats said the findings of Justice's IG's office affirmed their contention that career employees there were hired and fired based on whether they were deemed sufficiently conservative, a violation of law. Conyers said earlier that he was considering bringing criminal charges against some of the former officials named in Fine's report who may have lied to his committee. Lying to Congress is a crime, but there's little agreement among Democrats on whether a perjury referral against some of the officials is warranted.

Sen. Chuck Schumer, D-N.Y., who led the investigation into the prosecutor firings, is pressing Fine to say whether making such a disregard of civil service rules a crime would deter the kind of conduct his investigation uncovered.

Similar legislation will be considered in the House.

"I will be asking Chairman Conyers to consider legislation to ensure that the politicization of hiring of career employees at the Justice Department never happens again," Pelosi said in a statement.

S&P: Home prices drop by record 15.8 pct. in May

2008-07-29T22:48:00.000-07:00

Original Link: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/07/29/financial/f060534D10.DTL

By J.W. ELPHINSTONE, AP Business Writer

Home prices tumbled by the steepest rate ever in May, according to a closely watched housing index released Tuesday, as the housing slump deepened nationwide.

The Standard & Poor's/Case-Shiller 20-city index dropped by 15.8 percent in May compared with a year ago, a record decline since its inception in 2000. The 10-city index plunged 16.9 percent, its biggest decline in its 21-year history.

No city in the Case-Shiller 20-city index saw price gains in May, the second straight month that's happened. The monthly indices have not recorded an overall home price increase in any month since August 2006.

Home values have fallen 18.4 percent since the 20-city index's peak in July 2006.

Nine metropolitan cities — Las Vegas, Miami, Phoenix, Los Angeles, San Diego, San Francisco, Seattle, Wash., Portland, Ore., and Washington, D.C. — posted record declines in May. And the value of housing in Detroit is now lower than it was in 2000.

But a possible bright spot in an otherwise dismal report, seven metros — Tampa, Fla., Boston, Detroit, Minneapolis, New York, Dallas and Atlanta — showed smaller annual declines.

Las Vegas recorded the worst drop, with prices plunging 28.4 percent in the month. Miami came in a close second, with prices down 28.3 percent.

Charlotte, N.C., posted the smallest drop at 0.2 percent. Until April, the North Carolina city had been the last metro still showing price gains.

Criminal case ices GOP plans

2008-07-29T21:52:00.000-07:00

Original Link: http://www.politico.com/news/stories/0708/12162.html

By: Martin Kady II and John Bresnahan

Beleaguered congressional Republicans woke up Tuesday morning thinking they’d gained traction with their focus on offshore oil drilling and hoping that they could pin the “culture of corruption” on Democrats.

By lunchtime, the longest-serving Republican senator in history had been indicted on charges that he hid $250,000 in gifts from an oil company looking for favors.

Can it get any worse for the GOP?

“This is very bad for the party,” a retiring Senate Republican told Politico as news of Ted Stevens’ indictment echoed across Capitol Hill on Tuesday. “The timing on this couldn’t be worse.”

One year ago today, Stevens pleaded with his Republican colleagues to “stay with me” as he rode out a Justice Department investigation and an FBI raid on his Alaska home.

Now, there’s an arrest warrant out for the 84-year-old senator. He’s been stripped of his top committee rankings. His iconic career is crumbling. His hopes for reelection are in serious doubt.

And Senate Republicans have no idea what to do about it.

GOP Senate leader Mitch McConnell of Kentucky was a congressional intern in 1964, when Stevens was planning his first run for the Senate. McConnell can’t and won’t ask a legend to resign, at least at this point.

The Senate ethics committee says it won’t do anything until the criminal case runs it course.

Senate Majority Leader Harry Reid (D-Nev.) has left the ball in McConnell’s court, saying it’s “all up to [Republicans]” to decide how to handle Stevens.

Rep. Adam Putnam of Florida, the House Republican Conference chairman who had hoped to spend Tuesday blaming Barack Obama for Democratic inaction on energy, instead was left to argue that the indictment of the Senate’s most senior Republican was somehow “bad for both parties.”

The conservative National Review called for Stevens’ resignation. Democrats across the country called on their Republican opponents to return Stevens’ campaign contributions. Illinois Rep. Mark Kirk, a Republican, used Stevens’ indictment to demand passage of legislation that would deny congressional pensions to members convicted of felonies.

Stevens proclaimed his innocence Tuesday, saying he “never knowingly submitted a false disclosure form required by law as a U.S. senator.” But the details laid out by the Department of Justice are blistering, suggesting a seven-year pattern of failing to disclose the “gifts” provided to the senator by the Alaska oil field services company VECO.

The indictment charges Stevens with failing to report on his financial disclosure forms $250,000 in “things of value” including remodeling work on his home, a Viking grill and a sweetheart deal on a Land Rover.

The indictment further alleges that “during the same time he was concealing his continued receipt of these things of value from VECO and [VECO executive Bill J.] Allen,” that Stevens “received solicitations for official actions from Allen and other VECO employees, and that Sen. Stevens used his position and office on behalf of VECO during that same time period.”

In exchange, according to the indictment, the oil services company asked Stevens for help with company projects in Pakistan and Russia, as well as a National Science Foundation grant to a VECO subsidiary.

Matthew Friedrich, the acting assistant attorney general, said that prosecutors have not been able to establish the quid pro quo necessary for bribery charges. However, he said that the investigation is ongoing.

Stevens has a reputation as a fighter, so he may very well launch a counterattack on the Justice case against him. His campaign has said it’s “full steam ahead” for the fall election, adding that Stevens’ office has been “flooded” with calls and e-mails from supporters urging him to press on.

“The message from them is clear: Alaska needs Ted Stevens in the U.S. Senate.”

Stevens is a former Senate Appropriations Committee chairman who has funneled billions of dollars in earmarks and federal funds back to his home state, but he become the butt of jokes over the so-called “bridge to nowhere” earmark that became a symbol of Washington excess.

While he’s known in Washington for his explosive temper, Stevens is beloved in Alaska, where Republican Gov. Sarah Palin said Tuesday that news of the senator’s indictment had “rock[ed] the foundation of our state.”

“A lot of people here see him like he’s our uncle,” said McHugh Pierre, a spokesman for the Alaska Republican Party. “A lot of people want to help him” in his time of need, he added.

Sen. Daniel Inouye (D-Hawaii), a longtime Stevens friend, said he wasn’t surprised by the news because Stevens has been under investigation for so long. He said, however, that he believes Stevens is innocent.

Other senators responded with caution. “I need to learn more of the facts before I comment,” said Sen. John Warner (R-Va.). “I have the highest personal regard for him,” Warner added. “He is a strong man. He fought hard for his state, which he loved. All of us have unexpected moments in our career. All of us have to do our best to work through them. I wish him the best.”

Sen. Richard J. Durbin of Illinois, emerging from the Democrats’ weekly policy lunch, said there had been a “somber” reaction to word of Stevens’ indictment. Sen. Chris Dodd (D-Conn.) said he was saddened by the news.

Appearing on MSNBC on Tuesday afternoon, Republican National Committee Chairman Mike Duncan said that the indictment involves “a serious allegation” but insisted that it wouldn’t be a distraction from John McCain’s presidential campaign. “This presidential campaign will not be about the senior senator from Alaska,” Duncan said. “It’s going to be about big issues, about energy, about tax policy; it’s going to be about the future of America. This is a blip along the way.”

McCain, who has clashed repeatedly with Stevens in the past, issued no statement on the indictment.

Late Tuesday, an Appropriations Committee aide said that Sen. Thad Cochran (R-Miss.) will replace Stevens as ranking member on the Appropriation Committee’s Defense subcommittee “through the end of this Congress or until such time as Sen. Stevens is able to resume his duties as ranking member.”

Patrick O’Connor and Daniel W. Reilly contributed to this story.

Ted Stevens indicted, longest-serving GOP senator

2008-07-29T21:36:00.000-07:00

Original Link: http://www.guardian.co.uk/world/feedarticle/7687341

By LARA JAKES JORDAN, Associated Press Writer

Sen. Ted Stevens, the nation's longest-serving Republican senator and a major figure in Alaska politics since before statehood, was indicted Tuesday on seven felony counts of concealing more than a quarter of a million dollars in house renovations and gifts from a powerful oil contractor that lobbied him for government aid.

Stevens, 84, is the first sitting U.S. senator to face federal indictment since 1993. He declared, ``I am innocent of these charges and intend to prove that.''

He is accused of lying on his annual Senate financial disclosure reports between 1999 and 2006 - an indictment that caps a lengthy FBI investigation that has upended Alaska politics and brought unfavorable attention to both Stevens and his congressional colleague, GOP Rep. Don Young. Both are running for re-election this year.

Stevens' indictment further damages Republican prospects in the November election as Senate Democrats, who now enjoy a 51-49 majority, try to capture a filibuster-proof 60-vote majority. Stevens faces both Democratic and Republican challengers who are trying to capitalize on his legal woes.

The Justice Department accused Stevens of accepting expensive work on his home in Girdwood, Alaska, a ski resort town outside Anchorage, from oil services contractor VECO Corp. and its executives. VECO normally builds oil processing equipment and pipelines, but its employees helped do the work on Stevens' home.

Prosecutors said that work included a new first floor, garage, wraparound deck, plumbing and electrical wiring. He also is accused of accepting from VECO a Viking gas grill, furniture and tools, and of failing to report swapping an old Ford for a new Land Rover to be driven by one of his children.

From May 1999 to August 2007, prosecutors said, the senator concealed ``his continuing receipt of hundreds of thousands of dollars worth of things of value from a private corporation.''

Stevens said in a statement distributed by his office: ``I have proudly served this nation and Alaska for over 50 years. My public service began when I served in World War II. It saddens me to learn that these charges have been brought against me. I have never knowingly submitted a false disclosure form required by law as a U.S. senator.''

He said that in line with Senate GOP rules he was temporarily giving up the ranking positions his seniority has given him. If the Republicans were to take over the Senate, the party's most-senior senator would be in line to become president pro tempore, a mostly symbolic title but one that would make him third in line for the presidency after the vice president and speaker of the House.

Stevens was expected to turn himself in, prosecutors said. The case was assigned to U.S. District Judge Emmet G. Sullivan, who was appointed to the bench by President Clinton, a Democrat.

Tuesday's charges tarnish one of the most powerful and savvy of the GOP lions in the Senate. Stevens has coasted to re-election six times in Alaska but this year is in what has been viewed as the toughest race of his career against Anchorage Mayor Mark Begich.

Young, who is under scrutiny for his fundraising practices involving VECO, called Stevens ``one of the most effective and honest legislators I have ever worked with.''

``He has worked diligently to serve Alaska and has fought to make life better for people in every region of our state,'' Young said in a statement. ``I hope people will not rush to judgment and will let the judicial process work. The process is based on being innocent until proven guilty.''

Said Senate Majority Leader Harry Reid, D-Nev.: ``It's a sad day for him, us, but you know I believe in the American system of justice, and he's presumed innocent.''

At the White House, press secretary Dana Perino said, ``The president has been working with Senator Stevens for many years, and he appreciates his strong leadership on key issues. This is a legal matter that the Department of Justice is handling, and so we will not comment further on it.''

Prosecutors said Stevens ``took multiple steps to continue'' receiving things from VECO and its founder, Bill Allen. The indictment says Allen and other VECO employees were soliciting Stevens for ``multiple official actions ... knowing that Stevens could and did use his official position and his office on behalf of VECO during that same time period.''

VECO's requests included funding and other aid for the company's projects and partnerships in Pakistan and Russia. It also included federal grants from several agencies, as well as help in building a national gas pipeline in Alaska's North Slope Region, according to the indictment filed in Washington.

Stevens has maintained he didn't do anything for VECO that he didn't do for any other constituent or pro-Alaska interest. The indictment stops short of charging Stevens with bribery or other traditional corruption crimes.

Had prosecutors been able to prove any special treatment for VECO, that could have triggered much more serious charges.

VECO was once the dominant force in Alaska oil services industry. Its founder, Allen, and vice president, Rick Smith, have pleaded guilty to bribing state lawmakers to push legislation to help the company. Allen agreed to cooperate with the FBI as part of a plea deal for a lesser penalty. That cooperation included letting the FBI tape his phone calls with Stevens, though those calls do not appear as part of the indictment.

Throughout the investigation, Stevens has remained an iconic figure in Alaska. A moderate Republican, he has served almost 40 years in the Senate, where he unabashedly steered money to his remote and sparsely populated home state. He often drew criticism from outside Alaska for going around the traditional appropriations process to obtain hundreds of millions of dollars for pet projects.

The Justice Department has closely followed that money, looking for where it intersects with the senator's son, Ben, who also is under investigation concerning financial ties to a company that stood to make millions off a piece of federal legislation his father wrote.

Tuesday's indictment comes a year after another Republican senator, Larry Craig of Idaho, pleaded guilty to charges arising out of a Minneapolis airport men's room sex sting.

On Capitol Hill, Sen. John Warner, R-Va., called Stevens a hero, adding, however, he didn't know any details about the indictment. ``All of us have times that we have to deal with that are tough,'' Warner said. ``I wish him the best.''

Another GOP colleague, Arlen Specter of Pennsylvania, said, ``I've known Ted Stevens for 28 years, and have always known him to be impeccably honest.''

The last sitting senator to be indicted in federal court was Republican Sen. David Durenberger of Minnesota, who was charged in 1993 with conspiring to file fraudulent claims for Senate reimbursement of $3,825 in lodging expenses. He eventually pleaded guilty to misdemeanor charges and was sentenced to one year of probation and a $1,000 fine.

In the Stevens case, Acting Assistant Attorney General Matthew Friedrich, chief of the Justice Department's criminal division, said prosecutors followed their policy of keeping politics out of the decision-making process.

``We bring cases based on our evaluation of the facts and the law,'' Friedrich said. ``We bring cases when they are ready to be charged, and that's what happened here.''

Sen. Stevens Indicted in Alaska Corruption Probe

2008-07-29T21:07:00.000-07:00

Original Link: http://www.cqpolitics.com/wmspage.cfm?docID=news-000002928658

By Kathleen Hunter, CQ Staff

Sen. Ted Stevens of Alaska, the senior Republican in the Senate, was indicted Tuesday by a federal grand jury in Washington on seven felony counts of making false statements on his financial disclosure forms.

The 28-page indictment — the latest in an ongoing probe of corruption in Alaska politics — claims Stevens concealed receiving more than $250,000 worth of benefits from oil services company Veco Corp. and its former chief executive, Bill Allen, from 1999-2006.

The benefits allegedly included substantial renovation and enlargement of his house in Girdwood, Alaska, household goods and automobiles that were significantly more valuable than ones he offered in exchange.

His home was raided in July 2007 by the FBI and the IRS, which was reportedly investigating whether Veco may have covered Stevens’ home renovation costs.

The indictment also claims Stevens used his Senate position to aid Veco at the request of Allen and other company employees.

Stevens, 84, an icon in Alaska politics since first winning his seat by appointment in December 1968, denied wrongdoing in a statement and said he was giving up his positions as ranking Republican on the Commerce, Science and Transportation Committee and two subcommittees.

“It saddens me to learn that these charges have been brought against me. I have never knowingly submitted a false disclosure form required by law as a U.S. senator,” Stevens said. “I am innocent of these charges and intend to prove that.”

Matthew Friedrich, acting assistant attorney general for the Criminal Division, said Stevens “will be allowed to turn himself in. He will not be arrested.”

Allen and former Veco vice president Richard L. Smith pleaded guilty in May 2007 to providing more than $400,000 in corrupt payments to Alaska public officials.

Two lobbyists and three Alaska state lawmakers have also been convicted in the scandal, including Peter Knott, the former speaker of the Alaska House, who was convicted of extortion, bribery and conspiracy last year and sentenced to six years in prison.

Colleagues Cautious
Stevens’ closest friend in the Senate and a fellow World War II veteran, Hawaii Democrat Daniel K. Inouye , said Stevens should be considered “innocent until proven guilty,” adding that the indictment should not impact Stevens’ ability to do his job.

Another fellow World War II and Senate veteran, John W. Warner , R-Va., said Stevens has “been a hero and a fighter, and he’s been a fighter for his country’s interests and a fighter for his state ever since.”

Sen. Stevens Indicted in Alaska Corruption Probe
Stevens, the longest-serving Republican senator in history, ranks seventh in all-time Senate seniority. He was chairman of the Appropriations Committee from 1997 to 2005 — except when Democrats held the chamber for 18 months in 2001 and 2002 — and remains ranking Republican on the Defense Appropriations Subcommittee. Stevens also is ranking Republican on the Homeland Security and Governmental Affairs Disaster Recovery Subcommittee.

Senate Republican Conference rules required him to relinquish those posts.

An Appropriations Committee aide said committee Republicans would recommend Thad Cochran of Mississippi take Stevens’ place on the Defense subcommittee. Cochran is ranking Republican on the full committee.

Earlier, outside watchdogs groups that had been critical of the Senate Ethics Committee’s failure to investigate allegations against Stevens hailed the Justice Department’s action and called on GOP leaders to strip him of his committee leadership posts.

Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, said, “We think the indictment is overdue. We are very happy to see the Justice Department is taking action when the Senate wouldn’t.”

Added Steve Ellis, vice president of Taxpayers for Common Sense: “Senator Stevens is entitled to due process and remains innocent until proven otherwise. But considering his role as a powerful appropriator and ranking member of Commerce, Science and Transportation Committee, he should be immediately removed from those capacities.”

Among the favors Stevens was accused of doing for Veco in the indictment was helping the company win a federal contract to provide logistical support services such as transportation, clothing and housing to National Science Foundation outposts in the Arctic. Ellis said the 5-year contract was worth $170 million and Veco “had little experience in the area.”

The indictment also accuses Stevens of aiding Veco by securing funds for a new natural gas pipeline from Alaska’s North Slope region to Chicago in the fiscal 2005 military construction spending bill (PL 108-324).

Veco’s lobbyist on the pipeline issue, former Alaska Teamster official Gerald L. Hood, became local district director for Rep. Don Young , R-Alaska, on Nov. 1, 2006, the day after he stopped lobbying for the company, according to federal databases.

Stevens faced little electoral risk when he announced in 2006 that he would seek a seventh full term this year. But the ongoing scandal has eroded his support to the point where his likely Democratic opponent, Anchorage Mayor Mark Begich, leads in some polls.

Democratic Senatorial Campaign Committee Chairman Charles E. Schumer , D-N.Y., declined to comment on how Stevens’ indictment might influence what was already considered a pickup opportunity for Democrats.

“I feel bad for him and his family. That’s all I want to say today,” Schumer said.

Stevens also faces opposition in the Aug. 26 GOP primary from David Cuddy, a wealthy real estate developer who lost to Stevens in the 1996 primary after spending more than $1 million in personal funds, and five lesser-known candidates including Republican minister Gerald L. Heikes.

Sen. Stevens Indicted in Alaska Corruption Probe
Stevens’ campaign spokesman Aaron Saunders said the campaign is moving “full steam ahead. Our office has been flooded today with calls and e-mails from supporters urging the senator to press on.”

But in the aftermath of the indictment, CQ Politics is changing its rating of the Alaska Senate race from Leans Republican to Leans Democratic.

Stevens Indictment Means Trouble for GOP on Senate Seat

2008-07-29T20:59:00.000-07:00

EPA tells staff don't talk to investigators, press

2008-07-28T21:12:00.000-07:00

Original Link: http://www.examiner.com/a-1509285~EPA_tells_staff_don_t_talk_to_investigators__press.html

By DINA CAPPIELLO, AP

The Environmental Protection Agency is telling its pollution enforcement officials not to talk with congressional investigators, reporters and even the agency's own inspector general, according to an internal e-mail provided to The Associated Press.

The June 16 message instructs 11 managers in the EPA's Office of Enforcement and Compliance Assurance, the branch of the agency charged with making sure environmental laws are followed, to remind their staff members to keep quiet.

"If you are contacted directly by the IG's office or GAO requesting information of any kind ... please do not respond to questions or make any statements," reads the e-mail sent by Robbi Farrell, the division's chief of staff. Instead, staff members should forward inquiries to a designated EPA representative, the memo says.

Public Employees for Environmental Responsibility obtained the e-mail and provided it to the AP. The group is a nonprofit alliance of local, state and federal professionals. Its Web site carries the slogan, "Protecting Employees Who Protect Our Environment."

"The clear intention behind this move is to chill the cubicles by suppressing any uncontrolled information," said Ruch.

The EPA, in an official statement, said Monday the e-mail was aimed at making agency responses to the press, EPA's inspector general and Congress' General Accountability Office more efficient, consistent and coordinated. The EPA also said officials could still talk to investigators as long as they checked in with the appropriate representatives. About 900 lawyers and technical support staff are employed by the division at EPA headquarters in Washington.

"There is nothing ... that restricts conversation between enforcement staff, the press, GAO and the IG, and the procedure is consistent with existing agency policies," the statement said. "No one has to get permission or approval to speak with the IG or GAO."

The e-mail, according to EPA, was a response to a May 2007 audit by the Inspector General's Office that found the agency had not responded to earlier IG reports on problems with water enforcement and other matters. However, the audit did not make any specific recommendations about communications between staff and the inspector general's office.

In a statement issued Monday, the Office of Inspector General said it did not approve of the language in the e-mail and was engaged in discussions with enforcement officials to ensure the electronic dispatch would not hinder its access to information.

"All EPA officials and employees are required to cooperate with OIG," the statement said. "This cooperation includes providing the OIG full and unrestricted access to EPA documents, records, and personnel."

A spokesman for the congressional GAO said Monday that that agency will deal with access issues as they arise.

The EPA is currently under pressure from several congressional committees to disclose documents relating to its position on global warming and its denial of a petition by California to control greenhouse gases from motor vehicles. Just last week, EPA Administrator Stephen Johnson denied a request to appear before two Senate committees to discuss whether the agency's decisions comply with its staff's technical and legal recommendations.

Sen. Barbara Boxer, the California Democrat who heads the Senate environment committee, said Monday the administrator had turned "the EPA into a secretive, dangerous ally of polluters, instead of a leader in the effort to protect the health and safety of the American people."

In a letter sent to EPA's inspector general on Friday, Senate Judiciary Chairman Patrick Leahy, D-Vt., asked for a probe into President Bush's claims of executive privilege over the California documents and other "White House interference" into decisions by the agency.

On Monday, Leahy said, "I hope this e-mail is not akin to the wide range of tactics this administration has used to thwart accountability."

US deficit zooming to half trillion as Bush leaves

2008-07-28T21:01:00.001-07:00

Original Link: http://www.examiner.com/a-1509741~US_deficit_zooming_to_half_trillion_as_Bush_leaves.html

By ANDREW TAYLOR, AP

The government's budget deficit will surge past a half-trillion dollars next year, according to gloomy new estimates, a record flood of red ink that promises to force the winner of the presidential race to dramatically alter his economic agenda.

The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn't include, and the total could be higher yet if the economy fails to recover as the administration predicts.

The result: the biggest deficit ever in terms of dollars, though several were higher in the 1980s and early 1990s as a percentage of the overall economy.

Neither campaign is backing off campaign promises - McCain to cut taxes and Obama to expand health and education programs - in light of the bleaker new figures.

But Democrats controlling Congress suggest that may have to change once President Bush's successor takes office.

"Whoever becomes the next president will have a very, very sobering first week in office," said Senate Budget Committee Chairman Kent Conrad, D-N.D.

McCain promises to renew the full roster of Bush tax cuts enacted in 2001 and 2003 and add many more for businesses and upper income people who pay the alternative minimum tax. The Bush tax cuts expire at the end of 2010 and renewing them would soon cost well over $200 billion a year. Eliminating the alternative minimum at the same time would cost almost as much.

Obama would repeal tax cuts on wealthier taxpayers and investors but would leave most of the Bush tax cuts in place while seeking additional cuts for senior citizens, the middle class and the working poor. And he also wants lots of new spending for health care, education and many other federal programs.

"There's a total disconnect between today's report and what we're hearing on the campaign trail," said Robert Bixby of the Concord Coalition budget watchdog group.

The deficit situation confronting the next president is reminiscent of that which Bill Clinton faced in 1993. Under Wall Street pressure, Clinton abandoned promises of tax cuts and pushed a tax-heavy deficit reduction plan through a Democratic Congress.

The administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. But the numbers could go even higher if the economy performs worse than the White House predicts.

The budget office predicts the economy will grow at a rate of 1.6 percent this year and will rebound to a 2.2 percent growth rate next year. That's a half point higher than predicted by the widely cited "blue chip" consensus of business economists. The administration also sees inflation averaging 3.8 percent this year, but easing to 2.3 percent next year - better than the 3 percent seen by the blue chip panel.

"The nation's economy has continued to expand and remains fundamentally resilient," said the budget office report.

A $482 billion deficit would easily surpass the record deficit of $413 billion set in 2004. The White House in February had forecast that next year's deficit would be $407 billion.

The deficit numbers for 2008 and 2009 represent about 3 percent of the size of the economy, which is the measure seen as most relevant by economists. By that measure, the 2008 and 2009 deficits would be smaller than the deficits of the 1980s and early 1990s that led Congress and earlier administrations to cobble together politically painful deficit-reduction packages.

Still, the new figures are so eye-popping in dollar terms that they may restrain the appetite of the next president to add to the deficit with expensive spending programs or new tax cuts. In fact, pressure may build to allow some tax cuts enacted in 2001 and 2003 to expire as scheduled, with Congress also feeling pressure to curb spending growth.

The administration actually underestimates the deficit since it leaves out about $80 billion in war costs. In a break from tradition - and in violation of new mandates from Congress - the White House did not include its full estimate of war costs.

On a slightly brighter note, the deficit for the 2008 budget year ending Sept. 30 will actually drop from an earlier projection of $410 billion to $389 billion, the report said.

McCain used the new 2009 estimates to slam both the Bush White House for its "profligate spending" and Democratic rival Obama, who has declined to endorse the goal of McCain - and congressional Democrats - to balance the budget.

"I have an unmatched record in fighting wasteful earmarks and unnecessary spending in the U.S. Senate, and I have the determination and experience to do the same as president," McCain said in a statement. McCain again called for a full plate of multi-trillion dollar tax cuts, though campaign adviser Douglas Holtz-Eakin said some modifications could be made to McCain's economic plan to try to reach balance.

Obama's campaign used the new numbers to assail McCain for embracing Bush's tax cuts. As for Obama's plans, campaign adviser Furman said the candidate would cut wasteful spending, close corporate loopholes and roll back the Bush tax cuts on upper brackets while still promising to make "health care affordable and putting a middle class tax cut in the pocket of 95 percent of workers and their families."

Monday's figures capped a remarkable deterioration in the United States' budgetary health under Bush's time in office.

He inherited a budget seen as producing endless huge surpluses after four straight years in positive territory. That stretch of surpluses represented a period when the country's finances had been bolstered by a 10-year period of uninterrupted economic growth, the longest expansion in U.S. history.

In his first year in office, helped by projections of continuing surpluses, Bush drove through a 10-year, $1.35 trillion package of tax cuts.

However, faulty estimates, a recession in March 2001 and government spending to fight the war on terrorism contributed to pushing the deficit to a record in dollar terms in 2004.

There had been progress since then, with a $161.5 billion deficit for 2007 representing the lowest amount of red ink since an imbalance of $159 billion in 2002.

White House sees record budget gap in 2009

2008-07-28T20:53:00.000-07:00

Original Link: http://www.reuters.com/article/GCA-inflation/idUSN2847371220080728

By Jeremy Pelofsky and David Lawder

The Bush administration on Monday projected the U.S. budget deficit will soar to a record of nearly half a trillion dollars in fiscal 2009 as a housing-led economic slowdown cuts into government revenues.

The economic and fiscal deterioration will complicate efforts to bring the budget to balance and pose challenges for whoever takes over the White House in January, either Republican Sen. John McCain or Democratic Sen. Barack Obama.

"I believe whoever becomes the next president will have a very, very sobering first week in office," predicted Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat.

Reacting to the White House's new prediction that the budget deficit will hit $482 billion in the fiscal year that starts October 1, Conrad said that number easily could rise by an additional $80 billion when the full costs of the Iraq war are tallied next year.

The economy has been hobbled by the housing market collapse and soaring food and energy prices. In February, the Democratic-controlled Congress and President George W. Bush approved a $168 billion, two-year stimulus plan to ward off recession.

With the slowing economy and the cost of the economic stimulus plan, the White House said it thinks the deficit will hit a record $482 billion in fiscal 2009. However, it cut its forecast for the current fiscal year to $389 billion.

White House budget chief Jim Nussle cited the government stimulus checks and slower economic growth as primary reasons for larger deficits in 2008 and 2009. "The determination was made that getting the economy back on track was a higher priority than immediate deficit reduction," he told reporters.

In February, the administration forecast the deficit would hit $410 billion this year and drop to $407 billion in 2009.

The new report said the budget deficit would fall to $178 billion in 2010, and surpluses would emerge in 2012.

However, the deficit projections did not include the full amount of funding for the wars in Iraq and Afghanistan or costly tax law changes, and acknowledged it would be a "challenge" to reach surpluses in 2012.

Nussle also poured cold water on the idea of a second economic stimulus package floated by some Democrats and instead pressed lawmakers to approve energy legislation to boost the economy, including permitting offshore drilling.

"The proposals we hear about sound a lot more like election stimulus or political stimulus than it does economic stimulus," Nussle told reporters.

The White House also lowered its forecast of 2008 economic growth to 1.6 percent from 2.7 percent -- bringing it into line with private-sector projections. It said growth should pick up to 2.2 percent next year, showing more optimism than many private economists.

It forecast inflation at 3.8 percent this year, but said it should ease to 2.3 percent in 2009.

"We don't think this is a rosy scenario in any way. We think it's a realistic scenario," said Edward Lazear, chairman of the White House Council of Economic Advisers.

"Our hope is that we will be through most of the issues that are plaguing those markets right now and that we won't see continued increases in energy prices," he said, adding that falling or stabilizing energy prices will boost the economy.

BUDGETARY STRAINS

In addition to the efforts to give a lift to the economy, the budget has been sapped by the prolonged wars in Iraq and Afghanistan that came as Bush's tax cuts went into effect. Economists have also warned about an expected rise in health care spending as members of the baby boom generation retire.

Democrats have blasted the Republican administration for squandering budget surpluses and nearly doubling the national debt, from $5.6 trillion when Bush took office in 2001 to over $9.5 trillion now.

"President Bush has mortgaged our future with record deficit spending on the wrong priorities," Democratic House Speaker Nancy Pelosi said. "An unnecessary and extraordinarily costly war in Iraq has turned record surpluses into record deficits."

Nussle defended Bush's fiscal record during an eight-year term that started with record budget surpluses but will end with a record deficit. He said Bush inherited a recession that hurt revenues and needed to quickly ramp up spending on homeland security and the military after attacks on New York and Washington in 2001.

As the White House predicted more red ink, the Treasury Department said it expects to sell $171 billion in debt securities over the July-September quarter, marking its second-highest quarterly borrowing after the January-March quarter's record $244 billion.

It estimated net borrowing through Treasury bonds, notes and bills for fiscal 2008 will total $555 billion, compared with $134 billion a year earlier.

Is Our $3 Trillion War Fueling a Recession?

2008-07-28T01:14:00.001-07:00

Original Link: http://washingtonindependent.com/view/is-our-3-trillion

By Mary Kane

As the war approaches its sixth year, and the fight over its future heats up during an election cycle, the economic costs are attracting more attention. For a war of this length, it's not unusual to begin tallying up total spending and pursuing whether money is being wasted.

But these questions have already been transformed into a contentious battle of words, escalated recently by a new book from the Nobel laureate economist Joseph Stiglitz, who charges that war costs have been hidden and may total a staggering $3 trillion. At the same time, the economy already appears on shaky ground, either heading into a recession or already there, prompting arguments over the extent of the war's contribution to the current slowdown.

"We're a rich country and we can afford to spend a lot of money in a lot of areas," said Steven Kosiak, director of budget studies at the Center for Strategic and Budgetary Assessments, a non-partisan research institute in Washington. "But at the same time we're talking about a large amount of money in budgetary terms being spent on the war. The costs at first didn't appear to be foremost in people's minds. But the further it gets from 9-11, the more people start having questions."

During a talk in London recently, Stiglitz upped the ante, citing war costs as as a hidden cause of the subprime housing meltdown now dragging down the economy. He charged that the Federal Reserve flooded the economy with cheap credit to cover up for the government's extensive spending on the war.

No one previously has linked war costs with the subprime mess, which has usually been attributed to lax lending standards, problems with rating agencies, Wall Street greed and other causes. Even among economists who oppose the war, Stiglitz' theory draws few supporters.

"Stiglitz is a very good economist," said Dean Baker, co-director of the Center for Economic and Policy Research. "But this one doesn't make any sense."

Interest rates plummetted in 2001, predating the war, Baker noted. They fell even lower in 2003, after the war started. "Furthermore, the housing bubble began in the mid-1990s as a spinoff from the tech bubble. It had already grown dangerously large by 2002...basically, nothing fits the Stiglitz story," he said in an email.

Like Stiglitz, however, some liberal advocacy groups including MoveOn.org, along with former Democratic presidential candidate John Edwards, are trying to tie war costs more closely to the economy's problems. While it's worthwhile to ask whether military dollars could be better spent elsewhere to stimulate the economy, it's overly simplistic to link the war's costs - Kosiak puts the current tab at $500 billion and counting - directly to a possible recession. That lets lenders and investors escape responsibility for their roles in the collapse of the $8 trillion housing bubble, which vastly overshadows the war in its economic impact, Baker said. "People say, 'Ok, we have economic problems because of the war,' and they misunderstand this," Baker said in an interview.

Expect the misunderstandings to continue. Determining the war's effects on the economy is like wading through the country's political divide, with many on the far left blaming a possible recession entirely on the war and those who support it contending it's a question that shouldn't even be asked. Between Stiglitz' book, the war's coming anniversary, the presidential election and the worsening credit crunch, arguments over the the war's cost to the the economy are likely to ratchet up even more.

"Economists are slightly arrogant when they think they can measure everything," said Irwin Stelzer, a conservative economist who supports the war. "This is really an existential battle over American values."

The battle began even before the war, when the Bush administration declined to discuss potential costs in the buildup to the invasion. In 2002, White House economic advisor Lawrence Lindsey pegged the costs as high as $100 billion to $200 billion; he was dismissed later that year. Former Defense Secretary Donald Rumsfeld in 2003 predicted total costs of just $50 billion.

The back and forth seemed to matter little. Early in the war, budget figures weren't the focus of public attention. Critics of the war risked being attacked as unpatriotic, and wading into the numbers question wasn't exactly encouraged. But in a mostly low-profile way, economists continued the debate. Yale's William Nordhaus came up with a high-end estimate of nearly $2 trillion in 2002 dollars. Scott Wallsten, a resident scholar at the American Enterprise Institute, and Steven Davis, a University of Chicago economist, also attempted to crunch the numbers. A small but growing number of economists found it perfectly appropriate to probe the economic impact of waging war. After all, a cost-benefit analysis routinely accompanies most public policy proposals.

That view isn't universally shared. Other economists, in particular those who support the war, say it's not useful to try to put a price on fighting terrorism and keeping the country safe.

"I don't want my six kids being killed by a terrorist as I put them in bed for the night," said Diana Furchtgott-Roth, a senior fellow at the Hudson Institute, a conservative think tank. "We're spending this money to make sure we're not attacked again. It is true that defense spending is talking a lot from our economy, but it's also ensuring our safety. Terrorists are out to get us and we need to do something about it. We can't just say we need to spend money on health insurance, education and national parks and close our eyes to it."

That kind of talk has both discouraged and obscured what some economists see as the bigger question: What role war spending plays in an economy.

In response to Stiglitz' $3 trillion estimate, White House spokesman Tony Fratto put it this way: "People like Joe Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure."

That kind of talk has both discouraged and obscured what some economists see as the bigger question: What role war spending plays in an economy.

In general, war spending early on in a conflict stimulates the economy; jobs are created, defense contractors thrive. World War II usually is credited for pulling the U.S. out of the Great Depression. But if a war continues for many years, war costs can weaken an economy, and the dilemma becomes whether all the military spending is pulling resources away from other places that would benefit from the money.

During Vietnam, former President Lyndon B. Johnson expanded spending on domestic social programs like Medicare while fighting the war. A long period of stagflation in the 1970s followed, which usually was attributed to Johnson's guns and butter strategy. In hindsight, many economists now say inflationary problems stemmed from the oil shock of the early 1970s and from the inability at the time to manage monetary policy, not from the war and domestic spending, which helped contribute to low unemployment. As a sign of how contentious war spending debates can become, however, not all economists agree, and more than three decades after the war's end they're still arguing about it.

Most, however, say that war spending is especially key during a recession, to act as a stimulant. If the war ended tomorrow, "it would only add to the recessionary pressures we have in place," said Paul Davidson, an economist at the The New School in New York who has studied what happens to economies once the fighting ends.

That's not to say economists are pushing for the war to continue to avoid a recession. But they are pointing to the stimulant effect of war spending to prove that substantial public investment can benefit the economy, in a far more efficient way than military spending. "It's a tragedy we require a war to do these things," said Robert Pollin, co-director of the Political Economy Research Institute at UMass-Amherst.

In 2007, the U.S. could have generated one million new jobs, provided health coverage for all the uninsured, and invested in energy conservation and education by using all the money spent on the Iraq War and by rescinding the Bush tax cuts, Pollin concluded. With the economy in trouble and local and state governments facing smaller budgets and cutbacks in services, views like his are gaining in favor.

"I come from Minneapolis and I have relatives who cross that bridge that broke down last summer every day," said Greg Speeter, executive director of the National Priorities Project, a Northampton, Mass., nonprofit that analyzes federal data and features a real-time Iraq War costs counter on its website. "We should be spending money on things that save lives and don't give us a rotten reputation around the world."

On the other side, Stelzer, the economist, looks at it this way: "I put a very, very high premium on Iraq being eliminated as a source and a haven for terrorists."

While the debate continues, the housing slump is deepening, and oil prices keep hitting record highs. Unlike during Vietnam, the U.S. entered this war with an economy that wasn't in such great shape to begin with. If consumers begin to feel more pain from a recession soon, the fight over war costs and the economy will only find its way further into the long-running debate over Iraq.

A $3 trillion debacle

2008-07-28T01:07:00.000-07:00

Original Link: http://www.boston.com/bostonglobe/editorial_opinion/editorials/articles/2008/03/15/a_3_trillion_debacle/

NEARLY FIVE years since the start of the Iraq war, the Bush administration is still funding much of it through emergency appropriations, and only partially through the regular defense budget. This is one of several ways in which the administration has managed to hide the true cost of the war from the American people. Until Congress insists on a full and open accounting, the nation won't know how much of a drag it is on the economy.

more stories like thisEconomists once believed that wars stimulated an economy. But when much of the funding goes to Iraqi or Filipino contractors working in Iraq, the benefit to the US economy diminishes, especially in light of what the funding could achieve if used for home-front needs.

In the run-up to the war, President Bush's top economic adviser, Larry Lindsey, said it might cost as much as $200 billion. Defense Secretary Donald Rumsfeld said the actual amount would be just $50 billion to $60 billion, calling Lindsey's projection "baloney," much as Rumsfeld had belittled General Eric Shinseki's estimate that it would take several hundred thousand US troops to fight the war successfully.

Both Lindsey and Rumsfeld were far from the mark. Nobel laureate economist Joseph Stiglitz and Harvard University's Linda Bilmes have just published "The Three Trillion Dollar War: The True Cost of the Iraq Conflict," and they consider that figure a conservative estimate.

In their estimate, Stiglitz and Bilmes include the long-term costs for care of the wounded and the financing costs of paying for the war with borrowed money. Calculating the cost for veterans' care was not easy. While the government discloses figures on those wounded by hostile action, Stiglitz and Bilmes had to use Freedom of Information Act lawsuits to learn the total injured in Iraq.

The two authors make much of what the country could be getting if it were not paying for the war. For a fraction of the war's cost, Stiglitz has noted, Congress could put the Social Security system "on solid financial footing." The entire federal budget for autism research, about $108 million, is spent every four hours in Iraq. With just $1 trillion, the country could provide 43 million students with scholarships for four years at public universities.

Wasted dollars are just one of the costs of the war, and not the most important. Nearly 4,000 US troops and at least tens of thousands of Iraqis have lost their lives. The conflict has left Iraq divided along its religious and ethnic fault lines, strengthened the theocracy in Iran, and made Uncle Sam a pariah in much of the Islamic world. This toll in human life and geopolitical consequences is all too obvious. Congress should make sure the country understands the economic cost of the war, too

The Iraq money pit

2008-07-28T00:50:00.000-07:00

Original Link: http://www.theweekdaily.com/article/index/40617/3/briefing_the_iraq_money_pit

How much has the war cost so far?

About $600 billion since 2003, and the total is rising fast. Because of soaring fuel costs and the high price of repairing or replacing damaged equipment, the U.S. is spending about $12 billion a month this year, up from $4 billion a month in 2003. About $1.5 billion of the monthly total covers reconstruction, and perhaps an additional $4.5 billion flows to private contractors doing everything from serving food to guarding diplomats. The remainder covers fuel, ammunition, and equipment, as well as the cost of paying, feeding, housing, and providing medical care to more than 150,000 U.S. military personnel. The $600 billion figure does not include such costly consequences as higher oil prices, the interest on the billions borrowed to pay for the war (see below), and the burden of long-term care and benefits for Iraq war veterans.

So what’s a more realistic figure?

Anywhere from $1 trillion to $5 trillion. The nonpartisan Congressional Budget Office recently said that the war’s cost would amount to $1.2 trillion to $1.7 trillion by 2017. Harvard researcher Linda Bilmes and Nobel Prize–winning economist Joseph Stiglitz, in their book The $3 Trillion War, say that the war’s long-term cost will range from $2 trillion to $5 trillion. Iraq is already the second most expensive war in U.S. history. Only World War II cost more, about $5 trillion, adjusted for inflation. As a point of perspective, consider what the $600 billion we’ve spent already could have purchased, says Bilmes. “The money spent on the war could have fixed Social Security for 75 years or provided health insurance to all American children,” she says.

Has the money been well spent?

In many cases, no. Audits and oversight groups have found that tens of billions have been squandered in waste, fraud, and corruption. Contractors hired to rebuild the country’s infrastructure or provide security have overcharged the U.S. for everything from soft drinks—$45 a can—to gasoline. Millions of dollars in no-bid reconstruction contracts were diverted to things such as Super Bowl tickets, prostitutes, watches, and jewelry. And much of the reconstruction work has been substandard. The U.S., for example, paid $72 million to Parsons, a U.S. contractor, to build a police academy in Baghdad. But the building was so badly put together that raw sewage seeps from its walls and ceilings. “This became the lens through which Iraqis now see America—incompetence, profiteering, arrogance,” said House Democrat Henry Waxman of California, a vocal critic of the war.

Are the Iraqis chipping in for reconstruction?

Barely, and that’s a sore point with Congress. With oil nearing $120 a barrel, the Iraqi government is looking at a $70 billion windfall in oil revenues this year—twice what it expected when it drew up its $48 billion budget for 2008. But instead of financing the reconstruction of Iraq’s decrepit electrical grid, sewer systems, roads, and public buildings, most of the money is going unspent. “The Iraqis have translated their oil revenues into budget surpluses rather than effective services,” said Missouri Democratic Rep. Ike Skelton. Congress has cut off further funds for reconstruction and is looking into ways to prod the Iraqi government into shouldering more of the load.

Why is reconstruction going so slowly?

In part because it’s hard to work in a combat zone, where unguarded workers can be killed by snipers and bombs. The largest share of any reconstruction contract in Iraq goes to security. But corruption plays a large role, too. The former head of Iraq’s anti-corruption commission recently told Congress that at least $18 billion of Iraq’s own funds has been lost to corruption, with much of the money ending up in the hands of Shiite militias and Sunni insurgent groups. That total doesn’t include the losses from oil smuggling and theft. When the U.S. renovated Iraq’s oil pipelines, it failed to install meters to monitor the flow of oil. So no one can say how much oil has been siphoned off illegally.

Is life at least better for the Iraqi people?

By some measures, unquestionably. Recent polls show that 45 percent of Iraqis expect conditions to improve over the next 12 months, up from 29 percent in 2007. Unlike in the Saddam Hussein era, when political opponents were killed or tortured and only state-sponsored media were permitted, Iraq now has 268 privately owned newspapers and 54 commercial TV stations. Thanks to the surge of 28,000 additional U.S. forces and peacekeeping deals with “Sunni awakening” groups, war-related deaths among Iraqi civilians have dropped to fewer than 600 a month, compared to almost 1,800 a month in 2006. But more than 60,000 Iraqis have died in the sectarian violence thus far, and many portions of the country remain dangerous. In Baghdad, electricity is available less than 12 hours a day, and many areas have no running water or sewer systems. Unemployment stands at around 33 percent, and inflation is soaring. About 2 million Iraqis have fled Iraq, mostly to Syria and Jordan, and many vow not to go back. Meanwhile, the political impasse between the government and Sunnis and insurgent Shiite groups keeps the country stuck in a primitive, largely dysfunctional state. Americans “are the best in destroying things,” said 26-year-old Zaid Saleem, who mans a stall in a Baghdad market. “But they are the worst in rebuilding.”

The credit card war

The Iraq war, says economist Joseph Stiglitz, is “the first U.S. war financed entirely on credit.” When the war started, the Bush administration said it would cost no more than $60 billion. But the U.S. budget was already in deficit, so the administration had to borrow money to finance the invasion. About 40 percent of the money was borrowed from China and other international investors—the first time since the Revolutionary War that foreigners financed a U.S. war. At the same time, the administration and Congress lowered taxes instead of raising them, as is customary in wartime. The Federal Reserve kept interest rates low, which encouraged middle-class Americans to go on a consumption binge financed by credit cards and home-equity loans. Today, say Stiglitz and other economists, the bills for the country’s spending spree are starting to come due, in the form of higher prices, a weakened dollar, and lower living standards. “There’s no such thing as a free war,” Stiglitz said. “The U.S.—and the world—will be paying the price for decades to come.”

The Three Trillion Dollar War: The True Cost of the Iraq Conflict

2008-07-28T00:35:00.000-07:00

Original Link: http://codesmithy.wordpress.com/2008/03/05/the-three-trillion-dollar-war-the-true-cost-of-the-iraq-conflict/

Nobel Prize-winning economist Joseph E. Stiglitz and Linda J. Bilmes wrote a new book about the Iraq War called “The Three Trillion Dollar War: The True Cost of the Iraq Conflict.” Gary Kamiya wrote an excellent piece called “The cold price of hot blood” over at salon.com.

Joseph E. Stiglitz has been a critic of George W. Bush administration before, writing a piece in Vanity Fair called “The Economic Consequences of Mr. Bush.”

The first thing to remember about the Iraq War and its costs, as Kamiya points out, is how dismissive Bush administration officials were of more accurate estimates for the wars costs. Recently the White House has turned to a new strategy.

One can’t even begin to put a price tag on the cost to this nation of the attacks of 9/11. It is also an investment in the future safety and security of Americans and our vital national interests. $3 trillion? What price does Joe Stiglitz put on attacks on the homeland that have already been prevented? Or doesn’t his slide rule work that way?

It bears repeating that Iraq had next to nothing to do with the 9/11 attack. Secondly, all indications are that the 9/11 attack was carried out by a small but determined band of people upset by the American presence in the Middle East. In this respect, the Iraq War has been a tremendous American policy failure since it has emboldened a new wave of anti-American sentiment throughout the region. Third, how did Mr. Fratto learn of these new attacks on the homeland? Through the torture of prisoners that were suspected of being terrorists, as if any confession given under torture or threat of torture is reliable.

It is really hard to imagine how much money three trillion dollars is. So, we’ll put it in terms of the stock market. Market capitalization is term for the current price of a stock multiplied by the number of outstanding shares. It is approximately how much money it would take to completely buy out the company at present market value. Now, such a value tends to be too low, so let’s say we double the market capitalization on any given company, or put another way, how many companies could be buy with 1.5 trillion.

And still have 18 billion left over. Again, we are paying double the current stock price for all these companies and this would purchase all the shares.

The Iraq War may finally come down to a simple reality: can we afford to continue it? And like the war, we shouldn’t expect a sudden shock, but rather an economic quagmire of higher taxes, and fewer services due to a burdensome debt.

Money is being wasted. No one is allowed to say, “mistakes were made.” No on is allowed to say, “we didn’t know.” The evidence is there, staring us right in the face. The only question is whether we heed the warnings and respond to it appropriately.

Iraq war hits U.S. economy: Nobel winner

2008-07-28T00:31:00.000-07:00

Original Link: http://www.reuters.com/article/topNews/idUSN2921527420080302

By Daniel Trotta

The Iraq war has contributed to the U.S. economic slowdown and is impeding an economic recovery, Nobel-winning economist Joseph Stiglitz says.

Meanwhile, the U.S. government is severely underestimating the cost of the war, Stiglitz and co-author Linda Bilmes write in their book, "The Three Trillion Dollar War" (W.W. Norton), due to be published on Monday.

The nearly 5-year-old war, once billed as virtually paying for itself through increased Iraqi oil exports, has cost the U.S. Treasury $845 billion directly.

"It used to be thought that wars are good for the economy. No economist really believes that anymore," Stiglitz said in an interview.

Stiglitz and Bilmes argue the true costs are at least $3 trillion under what they call an ultraconservative estimate, and could surpass the cost of World War Two, which they put at $5 trillion after adjusting for inflation.

The direct costs exclude interest on the debt raised to fund the war, health care costs for veterans coming home, and replacing the destroyed hardware and degraded operational capacity caused by the war.

In addition, there are costs not accounted for in the budget such as rising oil prices and social and macroeconomic costs, which the book details.

To illustrate how the money could be spent elsewhere, Bilmes cited the annual U.S. budget for autism research -- $108 million -- which is spent every four hours in Iraq. A trillion dollars could have hired 15 million additional public school teachers for a year or provided 43 million students with four-year scholarships to public universities, the book says.

Stiglitz and Bilmes say they were excessively conservative in calculating the $3 trillion figure, overcompensating for their bias in having opposed the war.

'FLOODING THE ECONOMY'

Asked if the war has contributed to the U.S. slowdown, Stiglitz said, "Very much so."

"To offset that depressing effect, the Fed has flooded the economy with liquidity and the regulators looked the other way when very imprudent lending was going up," Stiglitz said. "We were living on borrowed money and borrowed time and eventually a day of reckoning had to come, and it has now come."

The war has also altered how the United States has reacted to its current economic troubles, he said.

"When America's financial institutions had a problem, they had to turn to the sovereign wealth funds in the Middle East for recapitalization, for the bailout," he said.

"The reason was obvious. The war had led to high oil prices. The war had meant that America had to borrow more money. There weren't sources of liquid funds in the United States. The sources of the liquid funds were in the Middle East," he said.

Bilmes, a former assistant secretary and chief financial officer of the U.S. Customs Department, said the war also limited options for the $168 billion stimulus package signed into law by President George W. Bush on February 13.

"We really had very little wiggle room in order to pass this because of the fact that we're spending $16 billion a month on Iraq and Afghanistan," Bilmes said. "Actually the country could have used a larger fiscal stimulus but there is (no) cash to accommodate it."

The authors said they were surprised by the hidden costs their research found, citing, for example, what they called the underreporting of casualty figures by the Pentagon.

The official Pentagon figure of nearly 30,000 wounded in action fails to account for an addition 40,000 service members who have required medical attention for non-combat injuries or illness, Bilmes said. She based her conclusion on official Defense Department data from a restricted Web site.

Nobelist Stiglitz Tallies Iraq War's Outrageous Cost: Review

2008-07-28T00:27:00.001-07:00

Original Link: http://www.bloomberg.com/apps/news?pid=20601088&sid=aJWW_q5WSn1I

Review by Charles Taylor

March 4 (Bloomberg) -- The title tells the story of ``The Three Trillion Dollar War: The True Cost of the Iraq Conflict.'' Joseph E. Stiglitz and Linda J. Bilmes have produced a devastating argument against the American invasion of Iraq.

By demonstrating that the cost of the war has dealt a body blow to American military preparedness and to the strength of our economy, by laying out the way the war has been financed with budgets beyond our resources, Stiglitz and Bilmes show that the right-wingers still defending the war are acting against bedrock conservative principles.

When it comes to the necessity and probable value of the war, the American right wing cannot decide whether it wants to be Pollyanna, putting a happy face on this mismanaged fiasco, or Emperor Hirohito, insisting on myths of endurance and national might as our resources dwindle.

To the authors' great credit, this book presents not just the economic cost of the war but the price we are paying in both morale and morality.

Stiglitz, winner of the Nobel Prize in Economics and a Columbia University professor, and Bilmes, of Harvard's John F. Kennedy School of Government (both of them late of the Clinton administration), have calculated what they call a conservative estimate of the war's cost. Total expenditures and appropriations to date are just the beginning. The authors also make plain the expenditures hidden as regular operating costs in the Pentagon budget, and adjust the whole lot for inflation.

Future Costs

They also factor in what the war will cost in the future, including health-care costs for returning veterans and the price of restoring the military (both personnel and equipment) to prewar levels. Stiglitz and Bilmes are careful to add the price of benefits to returning soldiers like Social Security and the G.I. Bill. And they don't forget the interest.

Then there is the effect on the economy from disabled vets not being able to enter the workforce and family members possibly having to drop out of their own jobs to care for them.

Finally, Stiglitz and Bilmes calculate the macroeconomic effect, including money diverted from things like infrastructure repair and education; money needed to pay interest on loans; and the higher oil prices that have resulted from the war. The numbers are thorough and shattering.

But though the authors are persuasive that our continued presence in Iraq may only inflame a volatile situation, they don't adequately address what moral responsibility we have in a mess of our own making. While it's certainly possible that an immediate withdrawal will serve our self-interest as well as Iraq's future, it seems to me a morally lax finish to an already shameful episode. As the poet Philip Larkinwrote in 1969, ``Next year we shall be living in a country / That brought its soldiers home for lack of money ... / Our children will not know it's a different country. / All we can hope to leave them now is money.''

``The Three Trillion Dollar War'' is published by Norton (311 pages, $22.95).

The $3,000,000,000,000 War is a Domestic Issue

2008-07-28T00:19:00.000-07:00

Original Link: http://www.realclearpolitics.com/articles/2008/03/the_3000000000000_war_is_a_dom.html

By Arianna Huffington

As our seemingly endless primary process reaches the homestretch and the focus shifts to the general election, we need to pull the plug on the media's disturbing habit of acting as if foreign policy and domestic policy are completely separate entities -- a pair of high stakes board games that can only be taken off the shelf and played one at a time. To hear the media tell it, combining the two would make about as much sense as using your Monopoly pieces to play Risk.

But while there is almost nothing about the Iraq war that can be labeled a success, we can declare that it has been exceedingly successful in showing how intertwined foreign and domestic policy actually are. In the book The Three Trillion Dollar War: The True Cost of the Iraq Conflict, Nobel Prize-winning economist Joseph Stiglitz, along with co-author Linda Bilmes, argue that, even using "conservative assumptions," the Iraq war will cost at least $3,000,000,000,000, and likely as much as $5,000,000,000,000.

Stiglitz also argues that the war has played a major role in the current subprime credit crisis and our long, hard slog toward recession. Because of the cost of the war, the Fed flooded the system with credit. "The regulators were looking the other way and money was being lent to anybody this side of a life-support system," Stiglitz told The Australian's Peter Wilson.

The book (excerpted here by the Times of London, and here's an interview with the authors at Democracy Now) notes that the cost is 60 times the $50 - 60 billion we were told the war would cost by Don Rumsfeld. The Iraq war is already the second costliest war in American history, trailing only World War II.

Stiglitz makes the case that no country can fight a protracted war without deep and long-lasting effects on domestic policy. Particularly a protracted war paired with tax cuts. Now this doesn't mean a war shouldn't be fought (see World War II), but it does mean that our leaders should be honest about what the real costs will be. And not just in terms of dollars and cents but also in opportunity costs.

The single defining constant of the war over its disastrous, almost-five-years has been the complete and total lack of honesty from those who got us into it and have championed its continued prosecution -- including head war cheerleader John McCain. And although the driver of the 100 Year War Express is fond of offering frequent, empty, and clichéd nods to "sacrifice," he somehow thinks that's all the discussion that's needed about the costs of the war. Note to McCain: your protestations about "out of control" government spending would carry more weight if they weren't accompanied by calls for making permanent the tax cuts you once opposed as "not appropriate" in a time of war.

Maybe Saddam Hussein's head was worth $3,000,000,000,000 -- $5,000,000,000,000, maybe it wasn't (like most of the country, I believe the latter), but if McCain wants us to be there for 100, or 1,000, or a million years, he should be forced to make the case that the benefits outweigh the costs -- foreign and domestic.

As Crooked Timber's Daniel Davies notes, "the cost of the Iraq War could have underwritten Social Security for fifty years."

Or, as Aida Edemariam puts it in the Guardian, it would have paid for "8 million housing units, or 15 million public school teachers, or healthcare for 530 million children for a year, or scholarships to university for 43 million students." Of course, as John McCain himself has told us, he "doesn't really understand economics." But foreign policy does not exist in an economics vacuum.

Yet does anybody doubt that the general election is going to feature article after newscast after editorial extolling McCain's "foreign policy expertise?" Even if he's asked about the cost of remaining in Iraq, McCain will likely respond with some version of the Bush spin. "People like Joe Stiglitz," said the White House "lack the courage to consider the cost of doing nothing and the cost of failure. One can't even begin to put a price tag on the cost to this nation of the attacks of 9/11."

Ah, the well-worn 9/11 trump card -- up to now, always an effective debate-ender. Will it still work come this fall? To a large extent that will depend on whether the media are as cowed by it as they have been since the run-up to the Iraq invasion.

If the coverage of the "surge" is any indication, the odds aren't great there will be more truth telling this time. The media seem to have decided that the surge is already a notch on McCain's foreign policy belt. It's a notch the candidate will be able to finger long past November since, the way things have shaken out, the surge has only served to deepen our foothold in Iraq. In fact, many believe that was the point all along.

As Sam Brannen of CSIS notes, "The United States is now the thread that binds Iraq, and it is clear that a serious unraveling of the situation would occur were this thread suddenly to be pulled away." Which led Judah Grunstein to conclude: "In other words, instead of making it easier for us to leave Iraq, the Surge has made it more difficult. And if that doesn't qualify a military tactic as a failure, I don't know what does."

This, in turn, led Andrew Sullivan to say: "I'm not sure that the surge wasn't in retrospect a deliberate attempt to make it all but impossible for the US to leave Iraq any time soon. And less out of a genuine security worry, than in order to save face for Bush and Cheney."

So will John McCain be called to account for the surge, and the rising costs of the continuing occupation the surge has enabled? Not likely. Getting the media to avoid a full accounting of the costs of the war -- both in terms of dollars spent and lives lost or ruined -- was one of the primary goals of the surge. And, in that respect, it has been sadly successful.

The thing about $3,000,000,000,000 is that, at a certain point, it becomes hard to ignore. As the red ink from the approaching recession continues to spill, you can bet the media will be all over the story -- the economy headlined as America's top domestic worry. The question is, will the media connect the dots between the war John McCain loves so much and the economic devastation it's helped cause? The answer could determine who is the next president of the United States.

Studies: Iraq war will cost $12 billion a month

2008-07-28T00:09:00.000-07:00

Original Link: http://www.msnbc.msn.com/id/23551693/

The flow of blood may be ebbing, but the flood of money into the Iraq war is steadily rising, new analyses show.

In 2008, its sixth year, the war will cost approximately $12 billion a month, triple the "burn" rate of its earliest years, Nobel Prize-winning economist Joseph E. Stiglitz and co-author Linda J. Bilmes report in a new book.

Beyond 2008, working with "best-case" and "realistic-moderate" scenarios, they project the Iraq and Afghan wars, including long-term U.S. military occupations of those countries, will cost the U.S. budget between $1.7 trillion and $2.7 trillion — or more — by 2017.

Interest on money borrowed to pay those costs could alone add $816 billion to that bottom line, they say.

The nonpartisan Congressional Budget Office (CBO) has done its own projections and comes in lower, forecasting a cumulative cost by 2017 of $1.2 trillion to $1.7 trillion for the two wars, with Iraq generally accounting for three-quarters of the costs.

Variations in such estimates stem from the sliding scales of assumptions, scenarios and budget items that are counted. But whatever the estimate, the cost will be huge, the auditors of the Government Accountability Office say.

In a Jan. 30 report to Congress, the GAO observed that the U.S. will be committing "significant" future resources to the wars, "requiring decision makers to consider difficult trade-offs as the nation faces an increasing long-range fiscal challenge."

These numbers don't include the war's cost to the rest of the world. In Iraq itself, the 2003 U.S.-led invasion _ with its devastating air bombardments — and the looting and arson that followed, severely damaged electricity and other utilities, the oil industry, countless factories, hospitals, schools and other underpinnings of an economy.

Untold economic damage

No one has tried to calculate the economic damage done to Iraq, said spokesman Niels Buenemann of the International Monetary Fund, which closely tracks national economies. But millions of Iraqis have been left without jobs, and hundreds of thousands of professionals, managers and other middle-class citizens have fled the country.

In their book, "The Three Trillion Dollar War," Stiglitz, of Columbia University, and Bilmes, of Harvard, report the two wars will have cost the U.S. budget $845 billion in 2007 dollars by next Sept. 30, end of fiscal year 2008, assuming Congress fully funds Bush administration requests. That counts not just military operations, but embassy costs, reconstruction and other war-related expenses.

That total far surpasses the $670 billion in 2007 dollars the Congressional Research Service says was the U.S. price tag for the 12-year Vietnam War.

Although American military and Iraqi civilian casualties have declined in recent months, the rate of spending has shot up. A fully funded 2008 war budget will be 155 percent higher than 2004's, the CBO reports.

Surge in spending

The reasons are numerous: the "surge" of additional U.S. units into Iraq; rising fuel costs; fattened bonuses to attract re-enlistments; and particularly the need to "reset," that is, repair or replace worn-out, destroyed or damaged military equipment. Almost $17 billion is appropriated this year for advanced armored vehicles to protect troops against roadside bombs.

Looking ahead, both the CBO and Stiglitz-Bilmes construct two scenarios, one in which U.S. troop levels in Iraq and Afghanistan drop sharply and early — to 30,000 by late 2009 for the CBO, and to 55,000 by 2012 for Stiglitz-Bilmes — and a second in which the drawdown is more gradual.

Significantly, the two studies view different time frames, the CBO calculating possible costs met in the next 10 years, while Stiglitz and Bilmes also include costs incurred during that period but paid for later, such as equipment replaced in post-2017 budgets.

Official projections too short-sighted?

This factor figures most in the category of veterans' medical care and disability payments, where the CBO foresees $9 billion to $13 billion in costs by 2017. Stiglitz and Bilmes, meanwhile, project $422 billion to $717 billion in costs over the lifetime of soldiers who by 2017 are wounded or otherwise mentally or physically disabled by the wars.

"The CBO is only looking 10 years out on everything," Bilmes noted in an interview.

For its part, a CBO critique suggested that Bilmes and Stiglitz might be overstating the expense of treating veterans' brain injuries, a costly category.

The two economists say their calculations are conservative, because they don't encompass many "hidden" items in the U.S. budget. Their basic projections also exclude the potentially huge debt-service cost — on which CBO approximately agrees — and the cost to the U.S. economy of global oil prices that have quadrupled since 2003, an increase analysts blame partly on the Iraq upheaval.

Critics: Leaving has costs, too
Estimating all economic and social costs might push the U.S. war bill up toward $5 trillion by 2017, they say.

Their book already figures in the stay-or-leave debate over Iraq.

When Stiglitz testified on Feb. 28 before the congressional Joint Economic Committee, the ranking Republican, Rep. Jim Saxton, complained that such projections are too imprecise to help determine relative costs and benefits of the Iraq war.

Saxton said a rapid U.S. pullout could lead to full-scale civil war and Iranian domination of Iraq, "enormous costs" that he said should be weighed in any calculation.

Iraq war cost estimates run into the trillions

2008-07-28T00:07:00.000-07:00

Original Link: http://www.csmonitor.com/2008/0310/p16s01-wmgn.html

By David R. Francis

Next week, the Iraq war enters its sixth year. As casualties mount (about 4,000 American soldiers killed since the start of the war in March 2003), so do the bills.

"The cost is going up every month," says Linda Bilmes, an expert at Harvard University's Kennedy School of Government. She estimates the short-term, "running cost" has reached $12.5 billion a month. That's up from $4.4 billion a month in 2003. Add in long-term factors, such as the care of veterans and interest on federal debt incurred as a result of the war, and the cost piles up to $25 billion a month nowadays.

Last September in a phone interview, Ms. Bilmes estimated the war's total price tag as easily exceeding $2 trillion. In a book published last month, she and Joseph Stiglitz, a Nobel Prize-winning economist from Columbia University, New York, estimated the total long-run cost at $3 trillion in 2007 valued dollars. If you add in Afghanistan and various costs to the economy, the sum reaches $4.95 trillion.

When the book was released in London, it prompted questions in the House of Commons because it puts the cost to Britain of the Iraq war through 2010 at approximately $40 billion – twice the amount previously estimated.

Now all these numbers are inexact, especially projections into the future.

Scott Wallsten, an economist at the Georgetown Center for Business and Public Policy in Washington, figures Iraq war costs through 2015 will be close to $1 trillion. Remarkable as it may seem, Mr. Wallsten says his estimates are "not so far off" from the Bilmes-Stiglitz $3 trillion estimate. For one thing, Wallsten doesn't include in his estimate some "macro" economic costs, such as a rise of $5 to $10 per barrel of oil that Bilmes and Stiglitz blame on the war. In 2003, oil was priced in the futures market at $25 a barrel. Now it is more than $100 a barrel. But other factors, such as the huge rise in demand for petroleum in China and India, also have helped push prices up.

Further, Wallsten uses a much lower medical inflation rate for the cost of treating veterans into the future than Bilmes-Stiglitz. That makes a significant difference over time.

Whatever the complex statistical issues, the costs of the war are plainly enormous. Democratic presidential candidate Barack Obama speculates sometimes on how the money could have been better spent on domestic programs.

To make the numbers a bit more real to citizens, Wallsten and graduate student Katrina Kosec have compared the cost of the war to the US Treasury of $415 billion in the years 2003-07 with approximate amounts spent on other federal agencies over that same period: Education, $370 billion; Transportation, $310 billion; State Department $64 billion; Corps of Engineers, $35 billion.

The war's cost, of course, is far larger than the $100 billion to $200 billion "upper bound" estimate by presidential economic adviser Lawrence Lindsey prior to the war, an estimate that got him into hot water in the White House. Then Defense Secretary Donald Rumsfeld talked of "something under $50 billion."

Wallsten notes that Yale economist William Nordhaus in 2002 reckoned the war would cost anywhere from $100 billion to $1.9 trillion, far closer to reality. And Wallsten says this demonstrates the value of making serious cost-benefit analysis when government leaders make major policy decisions. In his original study, Professor Nordhaus noted: "The historical record is littered with failed forecasts about the economic, political, and military outcomes of wars."

Iraq gives him another example of such a failure.

Like Wallsten, University of Chicago economist Steven Davis holds more analysis and planning is needed before launching a war. But this was "actively resisted" by the Defense Department before the war. "Quite unfortunate," he says.

Professor Davis and some colleagues did publish in 2006 a look at the cost of continuing the prewar containment policy involving economic sanctions on Iraq, disarmament requirements, weapons inspections, northern and southern no-fly zones within Iraq, and maritime interdiction to enforce trade restrictions. The cost, they calculate, would have run in the range of $350 billion to $700 billion. "It is difficult to gauge whether the Iraq intervention is more costly than containment," they wrote.

But Bilmes-Stiglitz war-cost estimates are much higher. And it is unclear whether more Iraqis would have died prematurely if Saddam Hussein had remained in power than have already been killed during the war and the subsequent occupation.

In any case, the next president will be faced with the difficult issue of what to do next about the war. Bilmes figures a Democratic president would make a faster drawdown of troops than a Republican president, but "not as rapid as one might hope."

Another Temporary Fix

2008-07-28T00:04:00.000-07:00

Original Link: http://www.nytimes.com/2008/07/28/opinion/28krugman.html

By PAUL KRUGMAN

So the big housing bill has passed Congress. That’s good news: Fannie and Freddie had to be rescued, and the bill’s other main provision — a special loan program to head off foreclosures — will help some hard-pressed families. It’s much better to have this bill than not.

But I hope nobody thinks that Congress has done all, or even a large fraction, of what needs to be done.

This bill is the latest in a series of temporary fixes to the financial system — attempts to hold the thing together with bungee cords and masking tape — that have, at least so far, succeeded in staving off complete collapse. But those fixes have done nothing to resolve the system’s underlying flaws. In fact, they set the stage for even bigger future disasters — unless they’re followed up with fundamental reforms.

Before I get to that, let’s be clear about one thing: Even if this bill succeeds in its aims, heading off a severe credit contraction and helping some homeowners avoid foreclosure, it won’t change the fact that this decade’s double bubble, in housing prices and loose lending, has been a disaster for millions of Americans.

After all, the new bill will, at best, make a modest dent in the rate of foreclosures. And it does nothing at all for those who aren’t in danger of losing their houses but are seeing much if not all of their net worth wiped out — a particularly bitter blow to Americans who are nearing retirement, or thought they were until they discovered that they couldn’t afford to stop working.

It’s too late to avoid that pain. But we can try to ensure that we don’t face more and bigger crises in the future.

The back story to the current crisis is the way traditional banks — banks with federally insured deposits, which are limited in the risks they’re allowed to take and the amount of leverage they can take on — have been pushed aside by unregulated financial players. We were assured by the likes of Alan Greenspan that this was no problem: the market would enforce disciplined risk-taking, and anyway, taxpayer funds weren’t on the line.

And then reality struck.

Far from being disciplined in their risk-taking, lenders went wild. Concerns about the ability of borrowers to repay were waved aside; so were questions about whether soaring house prices made sense.

Lenders ignored the warning signs because they were part of a system built around the principle of heads I win, tails someone else loses. Mortgage originators didn’t worry about the solvency of borrowers, because they quickly sold off the loans they made, generally to investors who had no idea what they were buying. Throughout the financial industry, executives received huge bonuses when they seemed to be earning big profits, but didn’t have to give the money back when those profits turned into even bigger losses.

And as for that business about taxpayers’ money not being at risk? Never mind. Over the past year the Federal Reserve and the U.S. Treasury have put hundreds of billions of taxpayer dollars on the line, propping up financial institutions deemed too big or too strategic to fail. (I’m not blaming them — I don’t think they had any alternative.)

Meanwhile, those traditional, regulated banks played a minor role in the lending frenzy, except to the extent that they had unregulated, “off balance sheet” subsidiaries. The case of IndyMac — which failed because it specialized in risky Alt-A loans while regulators looked the other way — is the exception that proves the rule.

The moral of this story seems clear — and it’s what Barney Frank, the chairman of the House Financial Services Committee, has been saying for some time: financial regulation needs to be extended to cover a much wider range of institutions. Basically, the financial framework created in the 1930s, which brought generations of relative stability, needs to be updated to 21st-century conditions.

The desperate rescue efforts of the past year make expanded regulation even more urgent. If the government is going to stand behind financial institutions, those institutions had better be carefully regulated — because otherwise the game of heads I win, tails you lose will be played more furiously than ever, at taxpayers’ expense.

Of course, proponents of expanded regulation, no matter how compelling their arguments, will have to contend with very well-financed opposition from the financial industry. And as Upton Sinclair pointed out, it’s hard to get a man to understand something when his salary — or, we might add, his campaign war chest — depends on his not understanding it.

But let’s hope that the sheer scale of this financial crisis has concentrated enough minds to make reform possible. Otherwise, the next crisis will be even bigger.

Eyeing the wages of war

2008-07-27T15:01:00.000-07:00

Original Link: http://www.economist.com/books/displaystory.cfm?story_id=10843030

Two economists take an unflinching look at the costs of invading Iraq

SUPPOSE that, five years ago, George Bush had asked every American household to stump up $25,000 to pay for an imminent war on Iraq. How would they have responded?

That money, suitably husbanded, would have paid for arming, provisioning and remunerating the troops; treating the wounded; and restoring the army's strength in the aftermath. It would have paid just compensation for the death and injury of American servicemen and contractors, and it would have covered America's outlays on reconstruction. It would also have allowed America to subsidise the price of oil by $10 a barrel—offsetting the disruption to Iraq's supply.

Mr Bush never asked, of course. But this hefty sum is nonetheless just part of the toll the war may take on America by the time it is over, according to a new book by Joseph Stiglitz, a Nobel prize-winner in economics, and Linda Bilmes, a budget and public finance expert at Harvard's Kennedy School of Government.

How do the authors arrive at the $3 trillion figure of the title, and the still bigger numbers they report inside? To the administration's own requests for money they add other costs to the taxpayer that either appear elsewhere in the budget (such as the bonuses required to attract recruits put off by the war) or do not yet appear at all (such as the future disability claims of wounded veterans). They put a dollar figure on the American lives lost or damaged by debilitating injury. And they also estimate the damage the war has done to the American economy, by raising the price of oil and diverting spending from domestic investment to foreign adventures.

Along the way, they accuse the administration of both mortgaging the nation's future and short-changing the troops and of deceiving the public and deluding itself. The administration still treats a five-year war as an unforeseen contingency to be paid for by an extra, emergency appropriation outside its regular budget request. And it has indulged in false economies that shave the cash requirements of the war today—by, for example, hesitating to purchase mine-resistant vehicles—only to store up much bigger burdens for the future, such as the cost of caring for veterans injured by roadside bombs.

Critics have questioned some of the authors' estimates, since these were first rehearsed in an academic paper in 2006. The head of the non-partisan Congressional Budget Office, for example, thinks that paper overestimated the burden of brain injuries, overstated the cost of replacing munitions and equipment, and misattributed other military expenses. But the authors have taken pains to answer those quibbles, and they disclose their sources so that readers can add or subtract as they see fit.

They go on to pursue the war's trail through every twist and turn of the macroeconomic labyrinth. Here, their reasoning is a bit too ingenious. They argue, for example, that the government's spending abroad prevented it from giving America a needed fiscal boost at home. Even if you believe America has suffered from a shortfall of demand in the past five years, surely the blame cannot be pinned on the Iraq war. It must lie instead with the Federal Reserve, which is supposed to maintain full employment as best it can.

Indeed, what is remarkable is how small a macroeconomic price America has paid for its adventure. Not only has the war been financed by borrowing rather than taxes, but also the borrowing has been dirt cheap. Neo-imperialists worry that America has the responsibilities of a global superpower, but an electorate unwilling to shoulder them. For better or worse, though, the combination of volunteer soldiers, hired guns and Asian creditors has lightened the load.

Unlike some other economists, Mr Stiglitz and Ms Bilmes do not weigh the cost of the war against the obvious counterfactual: the cost of containing Saddam Hussein. (They do subtract the cost of enforcing the no-fly zones over the country). Keeping a big force in the region—big enough to cow the dictator into letting weapons inspectors do their job—would not have been cheap, although with hindsight the strategy looks like a bargain. Nor do they pay much attention to the benefits of the invasion, however meagre. For example, the world now knows for sure that Saddam will never lay his hands on weapons of mass destruction. That knowledge may not be worth $3 trillion. But it is surely worth something.

The book mixes the patience of an auditor with the passion of a polemicist; it combines forensic intelligence with prosecutorial zeal. This reviewer responded more to its quieter virtues. As the authors say, the book is not just about the big number on the cover. More importantly, “by examining the costs, we come to understand better the implications of the war.”

Great powers almost never pay for their wars up front. Even in America's war of independence, the revolutionaries printed money to finance their campaign. But a government contemplating war should surely provide a credible advance estimate of the final bill, akin to what Mr Stiglitz and Ms Bilmes have done. If they cannot, it is a good sign they have not fully weighed the implications of their venture. If so, perhaps they should not undertake it at all.

The Three Trillion Dollar Shopping Spree

2008-07-27T14:57:00.003-07:00

Original Link: http://bravenewfilms.org/blog/35459-the-three-trillion-dollar-shopping-spree

The cost of the Iraq War is a grave issue. We are committed to spreading awareness about the devastating financial toll the war is taking on each and every one of us, let alone our economy.

$3 trillion. That is what Nobel prize-winning economist Joseph Stiglitz estimates the war will cost our country. Make no mistake, this $3 trillion bill is crippling our economy and causing our Iraq recession. To put this colossal amount of cash into perspective, we've designed a game to help people really understand what $3 trillion dollars can buy.

Get ready to go on a 3 Trillion Dollar Shopping Spree!

When the war was already hurting our economy two years ago, President Bush announced that Americans should go shopping—a brilliant plan to remedy our ailing economy. So follow the President's advice in this virtual shopping bonanza and rack up a $3 trillion tab like he has in real life. All you have to do is stroll down through our online store, add items to your cart for yourself or friends, and check out. It's just that easy!

Whether you buy serious gifts like healthcare for all Americans or frivolous ones like building the world's tallest building, we hope you'll begin to see just how far $3 trillion could go and help others understand the cost of this war.

This "game" is designed to build further awareness, and we need your help to make that happen, just as you have done on previous successful campaigns from FOX Attacks to the War on Greed to Hurricane Katrina recovery.

Please buy gifts for your all your friends and loved ones, and send them e-mails to let them know you've found better ways to spend our nation's money than the President. We need to help Americans understand the war's

The Three Trillion Dollar Shopping Spree

2008-07-27T14:57:00.001-07:00