Friday, October 31, 2008

The End of Prosperity

The End of Prosperity - by Stephen Lendman

From too much of a good thing. From the 1980s and 1990s excesses. From the longest ever US bull market. Heavily manipulated to keep it levitating. From August 1982 to January 2000. An illusory reprieve from October 2002 to October 2007. Fluctuations aside, all lost in the past 12 months. The wages of sin are now due, and payment is being painfully extracted. From all nations globally. Affecting ordinary people the most who had nothing to do with creating booms and busts. They got little on the upside but are paying dearly for the down.

Even "free-market" champions are unnerved. Arthur Laffer for one in his October 27 Wall Street Journal op-ed headlined: "The Age of Prosperity Is Over." He states that "This administration and Congress will be remembered like Herbert Hoover," but not for the right reasons. He continued: "what this administration and Congress have done will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity."

Readers will remember Laffer from the Reagan era. The "supply side trickle down" guru. More popularly called "Reaganomics." GHW Bush's "voodoo economics." The faux theory that tax cuts for the rich grow the economy and benefit everyone. By encouraging well-off recipients to earn more money. For more tax revenue. For the greater good of everyone.

What Reagan's budget director, David Stockman, called a "Trojan Horse." To con Congress into accepting "Republican orthodoxy (and pave the way for) the greed level, the level of opportunism, (to get) out of control." From tax cuts for the rich. Loopholes for special interests. Tax increases on low and middle-income households. Taking from the many for the few. What Laffer and others championed and still do. Along with believing markets work best so let them. Government is the problem, not the solution.

The results weren't encouraging. Macroeconomic growth for sure until it ended. The rich got much richer. The top 1%. Another 9% to some extent. Not the rest, however. Their well-being either stagnated or declined and now are in free-fall. Their savings and futures erased by rampant deleveraging. Market manipulation. Massive fraud. Leaving millions of households in trouble. With the worst likely yet to come. All Laffer can do is resurrect Hoover. The real villains are present and among us. Some active. Others not. Their venom corrosive and harmful. Hurting economies and people everywhere.

From boom now bust. Rampant speculation and fraud. In most asset classes. Especially equities, housing, commercial real estate, commodities, currencies, and huge leveraged debt for levitation.

As a consequence, world economies are reeling and leaders scrambling to contain them. With the most ambitious/outrageous rescue plans ever. Likely mindful, or they should be, that all their grand schemes can't undue nearly three decades of excess. The most extreme financial sins. The age of levitation is over. As financial expert and investor safety advocate Martin Weiss puts it:

Here's the "inescapable reality - Now that the global debt bubble has burst, all the world's leaders and all their radical new measures can't" contain, let alone undue, all the damage. They can't "turn back the clock or reverse decades" of excess and greed. "They cannot repeal the law of gravity or prevent investors from selling. Even as they sweep piles of bad debts under the carpet with bailouts and buyouts, mountains of new debts will go bad - another flood of mortgages that can't be paid, a new raft of credit cards falling behind, an avalanche of companies defaulting on their bonds."

No matter how many billions they throw at the problem, "trillions more in wealth will be wiped out in market declines. For a while longer, our leaders may try to play their last cards in a herculean effort to stop the fall." They may commit good money to save bad. "Inject more money into bankrupt banks, broken brokerage firms, endangered insurers and any company they deem essential to the economy."

It won't work. "It will be a blood transfusion with a failing heartbeat." Soon enough they'd better learn that "it's impossible to save the entire world." The right choice is to "accept the (inevitable) decline, manage it proactively," and avoid the perilous alternative. An "open floodgate (of) climatic selling. A crash producing "the final phase of the decline." Erasing "anywhere from 50% to 90% of (stocks, corporate bonds, real estate, foreign currencies and commodities valuations) in a matter of months or even weeks."

"As many as one-fourth (of S & P 500 companies) could go bankrupt." The entire index "flip(ing) from the black to the red." Around 20% of US workers could lose their jobs. The standard of living of American households seriously harmed. The potential for big trouble ahead is real and growing. The effect on world economies serious and spreading.

Weiss called the Fed's latest rate cut a "DUD," and said the big news was "the Fed's latest cockamamie effort to save the world." With $120 billion to Brazil, South Korea, Singapore and Mexico ($30 billion each). Besides committed IMF funds for Hungary ($25.5 billion), Ukraine ($16.5 billion), and Iceland ($2.5 billion) and a new $100 billion Short-Term Liquidity Facility offering short-term loans.

It's an illusion to think Bernanke can play "Santa Claus, the Pied Piper and the Fairy Godmother all in one act." In fact, he's "desperate" and resorting to "the most radical measures of all time. Playing his last cards." Knowing that if he fails, "it's game over. Taking huge risks - that his rescue-the-whole-world schemes will backfire in the form of falling confidence in the US government as a whole." Besides there's no way make banks lend. Consumers borrow. Continue to spend. Have the means to do it. Reverse decades of excess or repeal the law of gravity to keep markets levitating.

On October 28, more evidence of what he's up against from the Washington Post. In an article headlined: "Downturn Clobbers Public Pension Funds." According to staff writer Peter Whoriskey, they're being ravaged across the country, "with many state and local governments (losing) more than 20% of their retirements pools." Even worse because they were inadequately funded before the crisis, according to the Government Accountability Office. And the 20% figure is conservative given the severity of the October selloff.

According to Chicago-based Northern Trust Investment Risk and Analytical Services' William Frieske, "We expect this (will) be the worst year we've seen since we've been tracking the funds." They service 27 million people. Supported by taxpayer money, investment returns and employee contributions. The bear market "played havoc on" actuarial calculations to ensure enough is available for future retirees. Because about 60% of fund assets are in common stocks, according to the National Association of State Retirement Administrators.

What's ahead depends on economic prospects. Whether markets will continue to contract. How deep and for how long. When recovery will occur. Will it be sustainable, and is there enough time to make up the shortfall for retirees expecting their pensions. After the Dow bottomed in 1932, it took a generation to recoup losses. What investors hope won't repeat today.

Much will given the raft of bad news:

-- spreading layoffs across the country; on October 29, The New York Times reporting their painful impact in New York; spreading "well beyond Wall Street;" expected to "drive up the city's unemployment rate and strain the state's unemployment insurance fund;" hitting everywhere, including service firms; professional ones - law firms, banks, other financial services, publishers, tourism, besides tens of thousands on Wall Street;

-- official unemployment heading for the high single digits; the true number far higher and growing; real pain is being felt as a result;

-- the worst housing crisis since the 1930s; continued record home price declines, according to the S&P Case-Shiller Index; 16.6% in its latest (20 major metropolitan areas) reading; compounded by a glut of unsold homes;

-- in an October 28 news release, the Center for Economic and Policy Research (CEPR) reported grim findings; a comparison of ownership vs. rental costs "points to negative equity accruals in many markets over the next 4 years" even as prices keep falling; many homeowners won't ever accrue equity with many going under water; in the most inflated markets, homeownership costs outpace rents by as much as 300% placing enormous stress on household income, especially for middle and lower-income families;

-- declining production; autos especially hard hit; Chrysler sacking 25% of its salaried force; GM suspending employee benefits; all three auto makers closing or idling plants; steel affected as a result; 17 of the nation's 29 blast furnaces shut down; other industries also under stress;

-- economists lowering their GDP forecasts; many saying we're well into recession; fourth quarter results will be the worst since the severe 1981 - 82 one, and 2009 also looks even bleaker; third quarter ones out show an annualized .3% decline; most disturbing a minus 3.1% PCE (personal consumption expenditure) reading, the first drop since 1991; private investment also shrunk 1.9%;

-- against this backdrop, little relief is being proposed; where it's most needed; so beleaguered homeowners can keep their properties; to struggling households to stimulate demand; not for toxic assets or to fund giant bank acquisitions; what Alan Nasser reported in his article titled "The Bailout Lie Exposed;" that big banks won't lend out their windfall; that New York Times economics reporter Joe Nocera confirmed from an employee-only recording of a JP Morgan Chase conference he secured; that the bank will use bailout funds for acquisitions; leveraged buyouts; with public money; for assets at fire sale prices; courtesy of US taxpayers; for further consolidation; a multi-generational tradition; to crush competition and grow monopolies; with both presidential candidates on board; assuring reduced social spending and no return to enlightened New Deal policies when they're most needed.

In Times of Crisis, Bring Out the Heavy Artillery

It's a common tactic and the one used in 1929. Following Black Thursday (October 24), Black Monday (October 28) and Black Tuesday (October 29). Popularly called the Great Crash of 1929. After which the publication Variety headlined: "Wall Street Lays an Egg." A much larger one than at first realized but serious enough for the establishment to get John D. Rockefeller to state (on Black Tuesday):

"Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks." Fast forward to the present. History is again repeating. At another crisis time. No garden variety one. The most serious since the 1930s. With investor and public confidence severely shaken. Enough for a repeat of Rockefeller's bravado.

Dire enough to get Warren Buffett to do what he rarely if ever does. Pen an op-ed. On October 16 in The New York Times. To sound like John D. and say in spite of gloom and doom, he's "buying American stocks." To affirm his faith in "the long-term prosperity of the nation's many sound companies." To predict "most major companies will be setting new profit records 5, 10 and 20 years from now." At age 78, he may not be around to confront critics if he's wrong.

On October 27, the Wall Street Journal took aim at him. A very uncharacteristic gesture toward a large (and successful) investor. Let alone the most famous individual one and one of the richest. "Even the Oracle Didn't Time It Perfectly" headlined the Journal. His class A Berkshire Hathaway shares have taken a hit like most others year to date, but that's a side issue for the Journal.

It's troubled because "the Oracle of Omaha failed to see how bad the market was going to get." And he's even exposed to credit default swaps (CDSs). Increased his position to $8.8 billion from mid-2006 - mid-2008. Already took a $490 million loss in the first quarter. Another $136 million in the second, and likely much more unreported so far for the third and beyond.

These positions show he "was relatively comfortable about the prospects for US corporations and global stocks at a time when (other observers) were predicting a bust." Maybe it's "time for the Oracle to get a new crystal ball."

Warnings from Abroad

Overseas comments differ greatly from more optimistic ones here. Germany's finance minister, Peer Steinbruck, for example. On October 26, the Financial Times reported his fears about global financial markets collapsing. At least through 2009. He said: "The danger of a collapse is far from over. Any attempt to give the all clear would be wrong."

His government committed $635 billion to rescue troubled banks. A "financial market stabilization fund." With most of it in credit guarantees and a smaller portion to recapitalize banks and buy toxic assets. But unlike the Paulson plan, Germany won't compel banks to take it and many so far haven't. For fear investors will punish them for admitting they're in trouble and also over concerns that conditions imposed are too stringent. Steinbruck is working through this and said banks eschewing state aid are "irresponsible."

Leaders in Europe fear the financial crisis will tip the continent into serious recession. And cause a currency meltdown in the East. Across former Soviet bloc nations. Testing currency pegs "on the fringes of Europe's monetary union in a traumatic upheaval" reminiscent of the 1992 Exchange Rate Mechanism collapse. Bank of New York strategist Neil Mellor called it "the biggest currency crisis the world has ever seen."

On October 26, Ambrose Evans-Pritchard wrote about it in the UK Telegraph. He cites what experts fear. A "chain reaction within the eurozone itself." A surge in capital flight from Austria. The latest Bank of International Settlements data aren't encouraging. They show Western European banks in trouble. With the most exposure "to the emerging market bubble, now bursting with spectacular effect."

The amount involved is huge. Around three-fourths of "the total $4.7 trillion in cross-border bank loans to Eastern Europe, Latin America and emerging Asia." Much greater than America's subprime lending. Iceland was at the leading edge of the problem. Hungary and other states may follow. In a Paul Krugman New York Times op-ed, he discussed currency crises and said he "never anticipated anything like what's happening now."

He cited Morgan Stanley's chief currency strategist Stephen Jen (his former student) saying since Lehman's demise, we've seen world emerging market currency crises. "So far, the US financial sector has been (at) the epicentre of the global crisis. I fear that a hard landing in EM assets and economies (unfolding in Europe) will become the second epicentre in the coming months, with very damaging feedback effects on the developed world."

Already Austria, Hungary, Ukraine, Serbia, Belarus "queuing up for" IMF rescue packages. Jumping from the frying pan into the fire unless they can arrange no-strings loans. Given the gravity of the crisis and danger of its contagion, maybe so or at least escape the worst type IMF demands. They've swallowed enough neoliberalism already. It exacerbates their dire condition.

Europe is now reeling under stress. Heavily pressured by emerging market debt. The Eastern bloc borrowed heavily in dollars, euros and Swiss francs. Some in Hungary and Latvia in Yen. An unpublished 2006 IMF report warned about their most dangerous excesses in the world. Nothing was done to curb them, and finally its authors "had their moment of vindication as Eastern Europe went haywire." It hit Hungary, Romania and put Russia "in the eye of the storm, despite its energy wealth. The cost of insuring Russian sovereign debt (through CDSs) surged to 1200 basis points last week." More than Iceland "before Gotterdammerung struck Reykjavik."

With oil prices plunging, markets no longer believe that Russian state spending is viable, and the fear is that peripheral contagion will invade the eurozone's core. Yield spreads between German and Italian 10-year bonds are being watched. "They reached a post-EMU (European Economic and Monetary Union)" high of 93 in late October. No one knows the "snapping point" but it's feared that anything above 100 is cause for alarm.

BNP Paribas' chief currency strategist Hans Redeker cites "an imminent danger that East Europe's currency pegs will be smashed unless EU authorities wake up to the full gravity of the threat, and that in turn will trigger a dangerous crisis for EMU itself."

"The system is paralyzed," he said, "and starting to look like Black Wednesday 1992." He fears a very deflationary effect across Western Europe. One "almost guaranteed" to implode the euroland money supply. As for UK banks, they're lightly exposed to the former Soviet bloc. But not to emerging Asia. In the amount of $329 billion. Almost as much and America and Japan combined. Evan-Pritchard concludes with a sobering note for his UK readers. "Whether you realise it or not, your pension fund is sunk in Vietnamese bonds and loans to Indian steel magnates." Like for many other investments, that money's safety is far from secure.

Neither is Britain according to a Mail online October 27 article headlined: The country "may need 0% interest rate to avoid a depression, leading economist warns." He's Charles Goodhart. A founding member of the Bank of England's Monetary Policy Committee (MPC). Now a professor emeritus of banking and finance at the London School of Economics.

He told Channel 4's Dispatches program: "Interest rates will go down from now, by how far and how fast nobody knows. They could go to zero" like in Japan. And may have to. Yet other experts warn that at this stage big cuts are "too little, too late" because the country already faces a long severe recession.

On October 29, more confirmation from a UK Independent article headlined: "Repossessions soar by 70 per cent as joblessness rises." From new Financial Services Authority figures. Some 11,054 second quarter foreclosures. Up from under 6500 last year. Numbers expected to keep rising, and new Land Registry data revealed continuing house price declines. Around 8% in the past 12 months.

A gloomy picture, according to Howard Archer. Global Insight's chief UK economist. In his view, "The fundamentals continue to be largely stacked against the housing market, and it seems odds-on that prices will fall considerably further." Especially given "accelerating unemployment set to pick up significantly....recession (and) wages (held) down." Add to this a 167% rise in calls to the housing charity Shelter helpline. Its chief executive, Adam Sampson, said: "These figures are not only shocking and worse than expected, they highlight the crippling severity of the credit crunch on ordinary homeowners." It's hit Britain especially hard, but economic woes are little different throughout the continent.

In Japan as well after the benchmark Nikkei index hit a 26 year low and a scant 18% of its 1989 high. Despite a few days of rebound, it made front page (October 28) Wall Street Journal news in an article headlined: "Crisis Deals New Blow to Japan" in a feature story about the nation's largest bank. Mitsubishi UFJ Financial Group. On October 27, it said it would raise $10.7 billion in new capital. The result of its own vulnerabilities and Japan's economic turmoil. According to Kristine Li of Tokyo's KBC Securities: Mitsubishi's announcement was a "big blow" to investors' confidence. Its share price reflected it. Plunging 15% on October 27. Other banks hit as well. Major ones. They, too, need more capital and will have to raise it from investors.

Some in Tokyo believe the country can do little to reverse the downward trend. According to Credit Suisse's Toyko-based chief equity strategist, Shinichi Ichikawa, "The Japanese government alone can't fix" the nation's export woes or the deepening global crisis. "The factors hurting the market are beyond Japan's control."

The Financial Times paints a similar picture. The Nikkei down 53% through late October and has "the dubious honour of having been the worst performing leading developed country market last year." The current crisis hit Japan in several ways. Its banking and financial sectors "in spite of having relatively less exposure to toxic assets." Nonetheless, investors worry about their underlying strength or lack of it.

Japan is heavily export dependent. For most of its economic growth and health. It's hurt by a surging Yen. At a 13 year high against the dollar. In addition, hedge funds and foreign investors are bailing out. The way they're doing everywhere, but it's hurting Japan more than most because it relies so heavily on outside capital.

So does China in the form of foreign investment that doesn't affect how it manages its banks. At least in what they can invest in non-Chinese securities. Very little and why the government is spending nothing to bail them out. There's no need because they own scant amounts of toxic assets and use their own to fuel internal growth. What China needs badly for its large and growing population.

It's not insulated from the global crisis and will feel it in slower growth. Still expected to be impressively high although certain to drop from its 9.9% in the first nine months of 2008. Down from 12% last year. Amidst a deepening global slump. It's helped by strong domestic demand and its exports. Up an impressive 21.5% over last year. Heavily to Asia to make up for slumping Western demand.

It's affected China's toy manufacturers. China's customs agency reported that 52.7% of them shut down in the first seven months of 2008. Mass layoffs resulted. Other industries are also affected. Textiles, shoes, clothing, home appliances and electronics because of slumping Western markets. Millions of workers are at risk and why China announced an economic stimulus plan to keep growth as high as possible. A targeted minimum 8%. If achieved will be impressive by any standard.

A potential glimmer of light amidst a dismal global outlook with China determined to keep it that way although there's no assurance it can. The reason its stock market slumped like most others. However, it may rebound sooner given the government's commitment to big infrastructure spending increases. With its "embarrassment of riches" according to The Economist. Growing "at a staggering rate" says its Intelligence Unit. Its huge $1.75 trillion in foreign currency reserves. Likely to top $2 trillion by yearend. That can be used for roads, airports, nuclear power plants, hydro power stations, and more. To create new jobs for laid off workers. As many as possible. What America should do to stimulate growth. Not commit billions for corporate acquisitions. Bailouts that won't work. That will harm the economy, not heal it. The reason even in today's climate China's star is rising. In the US, it's growing dim.

The Worst Is Yet to Come

According to economist Nouriel Roubini. Called Dr. Doom for his gloomy views that today command worldwide respect. Opinions once dismissed now widely sought. He believes recession began in early 2008. Will last throughout 2009. Will be severe and painful with GDP contracting 4 - 5%. On October 29, he told Bloomberg: "We're entering a vicious circle where economies are spinning down, financial markets are spinning lower, and policy makers in my view - and that's my biggest fear - have lost control of what's going on in the financial markets."

In London in late October he predicted that hundreds of hedge funds will close down and given the extent of panic selling markets may have to suspend trading. Perhaps for a week or more before resuming. In September, Russia's stock exchanges shut down after their steepest ever one day fall. They did again in late October after falling nearly as much. Perhaps Wall Street is next. Maybe Europe.

If the latest (October 28 reported) consumer confidence report is an indication, it may happen sooner, not later. It was dismal by any standard. From the Conference Board. An all-time low and far below expectations. Surveyed economists forecast a reading of 52. It came in woefully short at 38 from an upwardly revised 61.4 September figure. Results were "significantly more pessimistic" on future business prospects and jobs. It signals trouble if translated into spending that, in turn, means lower profits and share prices already crushed over the past 12 months. With no end of pain in sight.

Yet markets remain volatile because of heavy insider manipulation for big profits up or down. The "not-so-invisible hand" working its magic. Killing the "free-market" according to author Ellen Brown. Making it hazardous for ordinary investors to risk anything in this climate. Casino capitalism with the odds heavily favoring the house. Getting Brown to quote a talk show commentator saying: "I'm fully diversified; some under the mattress; some under the floor boards; and some in the backyard." Better that than lose everything.

Because world economies are "at a breaking point" according to Roubini. "Essentially in free fall (and near) sheer panic." Played out in markets that reflect future expectations. Despite relief rallies, very much pointing down and signaling no end of crisis in sight. It got Roubini to state:

"Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom." Every time so far they were wrong. "They said it after Bear Stearns, after Fannie and Freddie, after AIG, and after" the $700 billion bailout plan. "Each time they have called the bottom, and the bottom has not been reached."

Despite everything world governments throw at their problems, Roubini thinks investors no longer trust them or believe they'll do the right things. For good reason. Because so far they haven't and what they're now doing is mostly woefully misdirected and inadequate. "Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to fail, even that has not helped." Economic fundamentals no longer apply. "We are reaching a breaking point frankly."

From his Hong Kong base, long-time investment advisor and fund manager Marc Faber publishes the "Gloom Boom and Doom" report. On how he views economic and financial prospects and investment opportunities worldwide. Given today's climate, he's more than ever in demand and shows up often in the financial press and on business channels like Bloomberg and CNBC. But not with good cheer.

He thinks that government interventions may be partially responsible for world market selloffs. Not least because in the current climate guaranteeing bank deposits leaves investors with no incentive to take risks. And other measures have been counterproductive as well. "They have increased volatility. It's impossible to forecast market movements when you have interventions."

Downward readjustments of company book values may be next in his view as happened in previous bear markets. That revealed overstated estimates. "If the global economy slows down as much as I think," he said, "then a lot of book values will have to be adjusted downward quite substantially." And rate cuts will create their own headache. "I think first we'll have a bout of deflation that will actually be quite substantial, but then the budget deficits will go through the roof and the Fed will print even more money (so that) later on we'll have very high inflation."

Morgan Stanley ("perennial bear") economist and chairman of the company's Asia operations Stephen Roach was extremely critical of Fed policy in an October 27 Financial Times op-ed titled: "Add 'financial stability' to the Fed's mandate." He called "the era of excess as much about policy blunders and regulatory negligence as about mistakes by financial institutions." We need a new system and new role for the Fed in his judgment. Explicitly to reference "financial stability."

Something critically needed for a "post-bubble, crisis-torn US economy." To make the Fed "tougher in its neglected regulatory oversight capacity." To counter "bubble denialists (like) Alan Greenspan." To mandate Fed policy "err on the side of caution." To expose the "fatal mistake" in trusting "ideology" over "objective metrics. Like all crises, this one is a wake-up call. The Fed made policy blunders of historic proportions that must be avoided in the future."

However, dealing with today's crisis requires an even bigger international rescue according to Roubini. And whatever's done, America faces "year(s) of economic stagnation." After a deep protracted downturn. If as true as he forecasts, it signals the end of prosperity. A new age of austerity and world economies in extreme disrepair and needing an alternative model in lieu of a clearly failed one. Hugely corrupted as well.

Will world leaders seize the challenge and act? Only if mass outrage demands it and even then change at best may be minimalist and short-lived. If history is a guide. What better time to prove history wrong. If not now, when? If not by us, who? If not soon, maybe never. If that's not incentive enough, what is?

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on Republic Broadcasting.org Mondays from 11AM - 1PM for cutting-edge discussions with distinguished guests on world and national topics. All programs are archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=10685

Wednesday, October 29, 2008

Targeting Dissent - The San Francisco Eight

Targeting Dissent: The San Francisco Eight - by Stephen Lendman

Throughout much of American history, dissent was never tolerated if thought to threaten entrenched interests. Especially in times of war, economic crisis, or social stress. During the great Red Scare from 1917 - 1920. Under the 1917 Espionage Act that barred mailing materials advocating insurrectionist or forcible resistance, and the 1918 Sedition Act that banned criticism of the government and ongoing war effort. Later targeting those on the left by the House Un-American Activities Committee (HUAC), the Smith Act, and during the age of Joe McCarthy. Post-9/11, anti-war activists, Latino immigrants, and Muslim Americans viciously targeted. The San Francisco Eight as well.

Former Black Panthers. On January 23, 2007, arrested in early morning raids in California, New York and Florida. Charged with the 1971 killing of a San Francisco police officer and various conspiracy acts from 1968 - 1973. A racist frame following decades of harassment and a ruthless vendetta against the Black Panther Party.

Targeted for destruction under COINTELPRO. The FBI's war against dissent. From 1956 - 1971 officially but it never ended and now is worse than ever. To disrupt, sabotage, and neutralize it. Against the Panthers from 1967 through the early 1970s. The party apparatus and its members. A "Black Nationalist Hate Group," according to the FBI. For J. Edgar Hoover, "the greatest threat to the internal security of the country." Along with the American Indian Movement, its primary target. The toll was devastating. Dozens incarcerated and killed. Including Fred Hampton and Mark Clark (in 1969) murdered in their sleep by Chicago police. George Jackson (in 1971) assassinated in San Quentin prison.

In 1968, eight Panthers (including Eldridge Cleaver, Bobby Hutton and David Hilliard) nearly killed when ambushed by Oakland police. They took cover in a basement that police quickly surrounded. Fired on it for over an hour. Then tear-gassed it. Cleaver was wounded. He and Hutton offered to surrender. Hutton first with his hands in the air and was shot 12 times and killed instantly. Murdered in cold blood.

A Brief History of the Panthers

In October 1966, Huey Newton and Bobby Seale founded the Black Panther Party for Self-Defense. Progressive, activist, militantly for ethnic justice, racial emancipation, and real economic, social, and political equality across gender and color lines. Radical ideas then and now. The party's ten-point program expressed them:

(1) freedom and "power to determine the destiny of our black community;"

(2) full employment for black people; for everyone;

(3) "an end to the robbery by the capitalists of our black community;"

(4) decent housing;

(5) education to expose "the true nature of this decadent American society (and teach) us our true history and our role in the present-day society;"

(6) for "all black men to be exempt from military service" at a time they were drafted for foreign wars;

(7) "an immediate end to police brutality and murder of black people;"

(8) "freedom for all black men held in federal, state, county and city prisons and jails;"

(9) for black people in court "to be tried....by a jury of their peer group or people from their black communities;" and

(10) "land, bread, housing, education, clothing, justice and peace."

It added words from the Declaration of Independence at the end:

-- "that all men are created equal";

-- "to secure (their) rights, governments are instituted among men, deriving their just powers from the consent of the governed;"

-- "that, whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it, and institute a new government;"

-- "to throw off (despotism), and to provide new guards for (peoples') future security."

They believed in the rule of law. Published a newspaper with 250,000 readers. Articulated fundamental wants and needs. Practiced what they preached with nutritious breakfasts for poor children. Groceries for needy families. Free clinics for medical care. A free ambulance service. Help for the homeless. Free legal aids and bussing to prisons. After-school and summer classes teaching black history. Voter registration drives for blacks. It helped elect Oakland's first black mayor, Lionel Wilson, in the city where the Panthers were founded.

They were young and idealistic. Willing to put their lives on the line for their beliefs and activism. Their goal - to make the world a better place. For black people and everyone. They were revolutionaries. Hostile to repression. In Huey Newton's words: "never a group of angry young militants full of fury toward the 'white establishment.' The Party operated on love for black people, not hatred of white people." They demanded change and fought for it. From over 30 branches throughout the country. By its over 2000 members.

They wanted redress of longstanding grievances - slavery, Jim Crow, segregation; neglect and abuse. The right to self-defense against them. A revolutionary agenda, and for practicing what Jefferson preached, the US government targeted them for destruction and largely succeeded. The 1960s civil rights gains as well so that today blacks are repressed, impoverished, and segregated. Stripped of their voting rights, and consigned to second class status by a society disdaining them. Targeted like the San Francisco Eight for crimes they didn't commit:

-- Ray Boudreaux, Richard Brown, Hank Jones, Richard O'Neal, Harold Taylor, and Francisco Torres;

-- Herman Bell and Jalil Muntaqim already imprisoned for 30 years; as political prisoners on trumped-up charges; and

-- a ninth man Ronald Stanley Bridgeforth still being sought.

No new evidence was found against any of them for decades. On February 7, 2008, the conspiracy charge against Boudreaux, Brown, Jones, Taylor, and O'Neal was dropped. The result of defense motions correctly challenging it on grounds that the three-year California statute of limitations expired. Similar motions for Bell, Muntaqim and Torres were heard by the California Appeals Court. O'Neal is now cleared of all charges.

Evidence in this case was obtained through torture. In 1973, on Taylor, John Bowman (recently deceased) and Ruben Scott. They were arrested and brutalized by New Orleans police. Assisted by two San Francisco detectives. Abuse continued for several days. Stripped naked for maximum effect and humiliation. Applied were electric shocks, cattle prods, beatings, sensory deprivation, plastic bags, and hot wet blankets for asphyxiation. Confessions finally extracted to end the pain. A federal court at the time ruled that torture was used and dismissed the case.

Ruben Scott is now believed to be the government's chief witness. To be used against the others. On the basis of torture-induced confessions. To get convictions and life sentences or perhaps the death penalty for innocent men. The result of continued COINTELPRO viciousness.Today as part of the "war on terror." Dissent and be targeted.

In 2003, the San Francisco police reopened the 1971 case. Along with FBI agents, visited dozens of people around the country. Pressured them to cooperate. When that failed, grand juries were convened (state and federal in 2003, 2004 and 2005) to subpoena people to testify. In 2005, Brown, Boudreaux, Taylor, Jones and Bowman were jailed for refusing to cooperate. Later released when the grand jury didn't indict them.

They responded by forming the Committee for Defense of Human Rights:

"to draw attention to human rights abuses perpetrated by the government of the United States and law enforcement authorities which were carried out in an effort to destroy progressive organizations and individuals. By building coalitions with organizations and groups that advocate for human and civil rights." Against extracting evidence through torture. Trying to make what was inadmissible 35 years ago acceptable today in a court of law. Legitimizing the "war on terror" on US soil. To be used against anyone the state targets. Their innocence irrelevant. Their guilt pre-ordained, case closed.

Activist blacks are again targets. The San Francisco Eight to send a message to others who resist. Six were released on bail. Thanks to heroic work by their families, supporters and lawyers. Two others, Muntaqim and Bell, are ineligible. They would be in New York where each served 30 years in prison. Their cases up for parole. Their transfer to San Francisco disqualifies them.

Bell was framed for the murders of two New York policemen. He's been a political prisoner since 1973. Muntaqim was arrested in 1971 on weapons charges. Later falsely implicated in the police officer killings. He's a founder of the Jericho Amnesty Movement for Political Prisoners and Prisoners of War. From organizations like the Panthers, American Indian Movement, MOVE, the Republic of New Afrika, and the Puerto Rican independence movement. Also North American anti-imperialist prisoners. Jailed for their solidarity with these movements and fighting for change in the current economic and political system. They're in prison for their activism. For being against racism, imperialism and injustice. For participating in the Black Liberation Struggle.

For the San Francisco Eight, delay is the prosecution's strategy. A preliminary hearing date approaches to decide if enough evidence exists to proceed. Thousands of document pages were delivered to the defense and a list of 180 potential witnesses. Enough time to review them and interview witnesses is needed. It was requested and granted. A new trial date has yet to be scheduled.

Meanwhile, Judge Philip Moscone refused to return Bell and Muntaqim to New York temporarily for their parole hearings. Both men may now lose any chance for release for years. It's to keep them and other activist blacks targeted and imprisoned. Victims of the "war on terrorism." For their efforts against it. Supporting the Black Liberation Struggle. Being the wrong color for the wrong cause at the wrong time and having only their raw grit in its behalf. United in solidarity as well. Along with others, committed against the power of the state. For the privileged, not the people. Determined to persist no matter how this case turns out. To prevail no matter how long it takes.

Support the San Francisco Eight. Demand their exoneration and release. Their struggle is ours.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM - 1PM for cutting-edge discussions with distinguished guests on world and national topics. All programs are archives for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=10685

Monday, October 27, 2008

Public Enemy Number One

Public Enemy Number One - by Stephen Lendman

A note before beginning. This article focuses on today's financial and economic crisis. Not affairs of state, war and peace or geopolitics. No guessing who's number one under those headings. That said:

With so many good choices, it's hard just picking one. But given the gravity of today's financial crisis, one name stands out above others. The "maestro," as Bob Woodward called him in his book by that title. The "Temple of Boom" chairman, according to a New York Times book review. Standing "bestride the Fed like a colossus." Now defrocked as the "maestro" of misery. Alan Greenspan. From August 11, 1987 to January 31, 2006, as head of the private banking cartel euphemistically called the Federal Reserve. That Ron Paul explains isn't Federal and has no reserves.

It represents bankers who own it. Big and powerful ones. Not the state or public interest. It prints money. Controls its supply and price. Loans it out for profit and charges the government interest it wouldn't have to pay if Treasury instead of Federal Reserve notes were issued. People, as a result, pay more in taxes for debt service. The nation is more crisis-prone. Over time they increase in severity. The current one the most serious since the Great Depression. Potentially the greatest ever. The result of Greenspan's 18 year irresponsible legacy.

He championed deregulation and presided over an earlier version of today's crisis. The Reagan-era savings and loan fraud. It bankrupted 2200 banks. Cost taxpayers around $200 billion and for many people their savings in S & Ls they thought safe.

In the 1990s, he engineered the largest ever stock market bubble and bust in history through incompetence, subservience to Wall Street, and dereliction of duty. In January 2000, weeks short of the market peak, he claimed that "the American economy was experiencing a once-in-a-century acceleration of innovation, which propelled forward productivity, output, corporate profits, and stock prices at a pace not seen in generations, if ever....Lofty stock prices have reduced the cost of capital. The result has been a veritable explosion of spending on high-tech equipment....And I see nothing to suggest that these opportunities will peter out anytime soon....Indeed many argue that the pace of innovation will continue to quicken....to exploit the still largely untapped potential for e-commerce, especially the business-to-business arena."

A week later, the Nasdaq peaked at 5048. Lost 78% of its value by October 2002. The S&P 500 49% from its March 2000 high to its October 2002 bottom. Individual investors were left high and dry as a result. For Mr. Greenspan, it was back to engineering multiple bubbles with 1% interest rates and a tsunami of easy money.

He advocated less regulation, not more. Voluntary oversight. The idea that markets work best so let them. Government intervention as the problem, not the solution. In the mid-1990s, he told a congressional committee:

"Risks in financial markets, including derivative markets, are being regulated by private parties. There is nothing involved in federal regulation per se which makes it superior to market regulation."

On October 23 before the House Government Oversight and Reform committee, he refused to accept blame for the current crisis, but softened his tone and admitted a "flaw" in his ideology. Confessed his faith in deregulation was shaken. Said he was in a "state of shocked disbelief." Unclear on what went wrong. Not sure "how significant or permanent it is," and added:

-- "We are in the midst of a once-in-a century credit tsunami (requiring) unprecedented measures;"

-- "This crisis has turned out to be much broader than anything I could have imagined;"

-- "fears of insolvency are now paramount;"

-- significant layoffs and unemployment are ahead;

-- a "marked retrenchment of consumer spending" as well;

-- containing the crisis is conditional on stabilizing home prices;

-- at best, it's "still many months in the future;"

What went wrong with policies that "worked so effectively for nearly four decades," he asked? Securitizing home mortgages. "Excess demand" for them, and failure to properly price them he answered. Unmentioned was unbridled greed. The greatest ever fraud. No oversight, and a predictable crisis only surprising in its magnitude and how it grew to unmanageable severity.

Greenspan is now softening on regulation but barely enough to matter. Too little, too late by any standard, and only to restore stability after which chastened investors "will be exceptionally cautious." In the end, in his view, "This crisis will pass, and America will reemerge with a far sounder financial system." Until another Fed chairman repeats his mistakes. Creates a crisis too big to contain. Destroys unfettered capitalism as we know it. Changes the world irrevocably as a consequence. Unless this time is the big one and does it sooner.

In March 1999, Greenspan was optimistic at the end of a robust decade (that James Petras calls "the golden age of pillage") with no worries about new millennium meltdowns. He addressed the Futures Industry Association and said it would be "a major mistake" to increase rules on how banks assess risks when they use derivatives. He added: "By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives." By a compounded 20% rate throughout the decade. Around 30% alone by banks in 1998. And, according to Greenspan, "The reason that (derivatives) growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risk....the value added of derivatives themselves derives from their ability to enhance the process of wealth creation (and) one counterparty's market loss is the (other's) gain."

Overall, they've increased the standard of living of people globally, he claimed. In fact, they contributed to global crises in the 1990s. Hot money in, and meltdowns when it exited. The problem is derivatives work well in bull markets, but are disastrous when they're down. Going up they do nothing for ordinary people, but during downturns receding tides sink all boats and all in them and aren't the zero sum game Greenspan suggested.

Worst of all are so-called credit default swaps (CDSs). The most widely traded credit derivative. In the tens of trillions of dollars. A $43 trillion market, according to PIMCO's Bill Gross. The International Swaps and Derivatives Association (ISDA) estimates it at $54.6 trillion. Down from $62 trillion at yearend 2007. Others place it higher, but key is what they are and how they're used. They resemble insurance (on risky mortgages), but, in fact, are for little more than casino-type gambling. Unregulated with no transparency in the shadow banking system that dwarfs the traditional one in size and risk.

Gross describes it this way. It "craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever." CDSs are at the center of shadow banking, and Gross and others warn about possible financial Armageddon if things begin collapsing.

A "Cheerleader for Imprudence"

That, according to James Grant, editor of Grant's Interest Rate Observer. Greenspan's "biggest mistake was inciting people to do imprudent things." He called him "marble-mouthed" for his "Greenspeak" and not simply admitting he "was as blind as those (he) pretended to lead. This sense of security that people invested in the idea of perfect control by an all-knowing brain at the top, that idea's been shattered."

In July, Grant was outspoken in a Wall Street Journal op-ed titled "Why No Outrage?" He quoted Mary Elizabeth Lease from the Populist era haranguing farmers to "raise less corn and more hell." He asked why today's financial victims aren't protesting Fed policy "of showering dollars on the (monied) people who would seem to (least) need them." Where are the "uncounted improvident?" Have they "not suffered (enough) at the hands of what used to be called The Interests? Have the stewards of other people's money not made a hash of high finance? Where is the people's wrath?" In the wake of the "greatest (ever) failure of ratings and risk management."

Greenspan's Fed cut interest rates to 1%. "House prices levitated as mortgage underwriting standards collapsed." He claimed earlier that property appreciation was a sign of prosperity and a strong economy and "while home prices do on occasion decline, large declines are rare." Most homeowners experience "a modest but persistent rise in home values that is perceived to be largely permanent."

Especially, according to Grant, at a time that "credit markets went into speculative orbit, and an idea took hold. Risk....was yesterday's problem." It led to "one of the wildest chapters in the history of lending and borrowing." As a consequence, an $8 trillion home valuation wealth bubble and an unprecedented oversupply of unsold properties. Now in even more oversupply as owners default. Are foreclosed on or simply walk away from unaffordable underwater assets. They sit empty with no one to buy them except for those able in distressed sales.

The whole episode criminal and avoidable had the Fed used its authority under the 1994 Home Ownership and Equity Protection Act. It authorized the central bank to monitor abuses and intervene, if necessary, to prevent abusive lender practices. It failed to do it.

The result was predictable. People and the economy in crisis. Greenspan orchestrated it. His successor Bernanke did nothing to curb it. Wall Street was on a roll until it crashed. Huey Long once compared JD Rockefeller to "the fat guy who ruins a good barbecue by taking too much." Wall Street thrives on it. Fed largesse enables it. The problem is their indigestion affects everyone. A stomachache spreading round the world. How bad it'll get and where it stops nobody knows. Blame it on Greenspan. Our "former clairvoyant," according to Grant.

The New York Times - Uncharacteristically Critical

Usually a "free-market" cheerleader, even The New York Times voiced criticism. In an October 8 Peter Goodman article titled "Taking Hard New Look at a Greenspan Legacy." It quoted him in 2004 saying: "Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient."

As already explained, he abhorred regulation and championed derivatives. The latter what investor George Soros won't touch "because we don't really understand how they work." What long-time investment banker Felix Rohatyn calls potential "hydrogen bombs." What Warren Buffett describes as financial "weapons of mass destruction." What Alan Greenspan thought regulating would be a huge mistake and even today his faith in these instruments remains unshaken.

Others see things differently "and the role that Mr. Greenspan played in setting up (the current) unrest." Law professor Frank Partnoy says "derivatives are a centerpiece of the crisis." Given their purchased market value in the hundreds of trillions of dollars. Up from a fraction of that years back. The fact that much of it is toxic junk, and the fear that writing enough off will bankrupt their holders and send shock waves through world economies. They're already being felt. Especially in emerging markets.

None of this should have happened. "If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman, many economists say, the current crisis might have been averted or muted. Over the years, Mr. Greenspan helped enable an ambitious American experiment in letting market forces run free. Now, the nation is confronting the consequences."

It was argued throughout the 1990s "that derivatives had become so vast, intertwined and inscrutable that they required federal oversight to protect the financial system." Even so, "Mr. Greenspan banked on the good will of Wall Street to self-regulate as he fended off (suggestions of) restrictions."

As the housing bubble burst and prices began collapsing, "Mr. Greenspan's record has been up for revision. Economists from across the ideological spectrum have criticized his decision to let the nation's real estate market continue to boom with cheap credit, courtesy of low interest rates, rather than snuffing out price increases with higher rates."

He championed adjustable rate mortgages and ignored the clear fraud from subprime ones. In a 2004 speech, he said that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage." He, in fact, endorsed the type abuses and the housing bubble they produced that Fed action should have prevented.

It will be a chapter in his legacy. Along with "the spectacular boom and calamitous bust in derivatives trading." He declined a Times interview request and referred instead to his record in his memoir, "The Age of Turbulence." In it, he stated that it's "superfluous to constrain trading in some of the newer derivatives and other innovative financial contracts of the past decade." Instead he "preached the transcendent, wealth-creating powers of the market." Not for Main Street. For Wall Street. What a friend of this writer calls "laissez-unfair."

Despite convincing evidence to the contrary, he claimed markets are best able to handle risks. Former Fed vice-chairman Alan Blinder said "Proposals to bring even minimalist regulation were basically rebuffed by Greenspan and various people in the Treasury. I think of him as consistently cheerleading on derivatives." In congressional testimony, he claimed the potential for serious crisis "extremely remote" and dismissively suggested that "risk is part of life." He also warned that too many rules would damage Wall Street and prompt traders to do business overseas.

Until the present, every debacle under him was resolved (enough at least) and markets stabilized and advanced. He got credit for his "steady hand at the Fed," and former Senator Phil Gramm said "You will go down down as the greatest chairman in the history of the Federal Reserve Bank." That comment may go down as the greatest misstatement in the history of the Senate.

This is the same Phil Gramm behind the 1999 Gramm-Leach-Bliley Act that repealed (1933 enacted) Glass-Steagall. It let commercial and investment banks and insurance companies combine and opened the door to rampant speculation, fraud and abuse.

In addition, the 2000 Commodity Futures Modernization Act (CFMA). At Gramm's behest, it was tucked undebated into an appropriations bill near the end of Clinton's tenure. It legitimized "swap agreements" and other "hybrid instruments" at the core of today's problems. It prevented regulatory oversight of derivatives and leveraging and turned Wall Street sharks loose on unsuspecting investors. Including world sovereign ones.

It also contained the "Enron Loophole." So the company could exploit its "Enron On-Line." The first internet-based commodities transaction system. Freeing electronic energy trading from regulation by rescinding supervisory restrictions in place since 1922. It empowered Enron to do as it pleased. Ended up fleecing investors. Bankrupting the company, and costing its employees their jobs and savings in worthless Enron stock. All because CFMA sailed through the House and Senate (below the radar), and Clinton signed it into law a month before he left office.

Much to Greenspan's approval. He sweet-talked Congress and said "There is a very fundamental trade-off of what type of economy you wish to have. You can have huge amounts of regulation and I will guarantee nothing will go wrong, but nothing will go right either." He added that Wall Street had tamed risk and "many of the larger (ones) are dramatically hedged." Legislators bought it or at least didn't object. The New York Times is less convinced. Better late than never but don't expect it to become a trend.

As Greenspan championed derivatives as a way of sharing risks, The Times said: "Shared risk has evolved from a source of comfort into a virus. As the housing crisis grew and mortgages went bad, derivatives actually magnified the downturn. In recent months, the financial crisis gathered momentum." Mr. Greenspan stayed conspicuously out of sight. Until October 23.

With the crisis unfolding, he wrote an epilogue to the paperback version of his memoir. Said "Risk management can never achieve perfection. Governments and central banks could not have altered the course of the boom." He has no regrets.

His critics do, and they're coming out of the woodwork, if slowly. Economist Jeff Sachs said "To a large extent, the US crisis was actually made by the Fed, helped by the wishful thinking of the Bush administration. One main culprit was none other than Alan Greenspan."

On October 24, the Seattle Times ran a piece on "Former hero Greenspan blamed for the credit crisis." He "found himself likened to one of the great goats of baseball." Called one of "three Bill Buckners." Referring to the 1986 Red Sox first baseman who let an easy ground ball through his legs that cost Boston the World Series as it turned out.

The Financial Times ran critical responses to a Greenspan article titled "We will never have a perfect model of risk" in which he argued for the inability to anticipate "all discontinuities in financial markets." Economics professor Paul de Grauwe called it "a smokescreen to hide his own responsibility in making the financial crisis possible."

Economist Michael Hudson challenged Greenspan's logic and misuse of empirical real estate data. Specifically land values. By spring 2006, "bankers knew there was a bubble." He wrote a Harpers cover story on it. But Fed officials compounded bad policy with more of it. Hudson added that "The financial system is now at a turning point. Bankers have shown that they can't regulate themselves when they're making so much money by feeding (off Fed created) bubble(s)."

Marx Was Right

According to David Cox before today's crisis emerged. In the London Guardian on January 29, 2007. He referred to globalization "laying bare the contradictions of capitalism" but extended the argument to "unbridled economic activity." Destroying "the world's climate, water supplies, farmland, forests and fish stocks." Additionally, "mountainous trading, governmental, corporate and personal debt threaten to precipitate world-wide economic collapse....Nothing but the re-engineering of global capitalism can head off the crisis that is beginning to confront it."

Fast-forward to now and the Guardian's "Maelstrom in the markets" article (September 16). Marx again featured. "It is a moment Karl Marx would have relished. From every angle financial capitalism is taking a battering....Two pillars of the modern economic system - greed and prosperity - are trembling in a manner unseen for a very long time."

On October 15, the Guardian headlined "Booklovers turn to Karl Marx as financial crisis bites in Germany. Karl Marx is back." According to German "publishers and bookshops who say that his works are flying off the shelves." Because people "recognise that the neoliberal promises of happiness have not proved to be true," according to publisher Karl-Dietz's Jorn Schutrumpf. Even Germany's finance minister, Peer Steinbruck, was chagrined enough to admit that "certain parts of Marx's theory are really not so bad."

He's on a "winning streak" others admitted, so it's worth noting what he wrote to Friedrich Engels: "The American Crash is a delight to behold and it's far from over." He referred to the Panic of 1857. An earlier banking crisis and recession that spread to Europe, South America and Asia.

Marx condemned "free-market" capitalism as "anarchic" and ungovernable. Because it alienates the masses. Prevents the creation of a humane society. Produces class struggle between the "haves" and "have-nots." The bourgeoisie (capitalists) and proletariat (workers). The destructive contradictions of the system. Exploited masses so a few can profit.

He predicted what's clear today. Competition over time produces a handful of winners. Powerful monopolies controlling nearly all production and commerce. Finance capitalism as well. Exploitation increases. Successive crises erupt, and ultimately fed up workers react. Recognizing their collective power and bringing down the system. Replacing it with a self-managed one. Ending exploitation and alienation. In his view, an inevitable socialist revolution.

His letter to Engels wasn't wrong. Just early, and perhaps by how change will evolve. Not the outcome. Just the method. With a whimper, not a bang. Not by workers. From the system's own corrosiveness. Internal contradictions. So unworkable. Crisis-prone. Fractured by inequities. So self-destructive it can't endure. So it won't. It will crumble on its own.

A Brief Update on Spreading Indigestion

Compared to other bouts, this one is scary and hitting everywhere. In his latest update, Nouriel Roubini states that:

"markets (are) in sheer panic and becoming literally dysfunctional and unhinged." So much so that "policy makers may soon (have to) close financial markets as the panic selling accelerates. Indeed, we have now reached a point where fundamentals and long term valuation considerations do not matter any more for financial markets. (They're in) free fall as most investors are rapidly deleveraging and we are on the verge of a capitulation collapse." Flows are now everything and in one direction. For the exits in a very destabilizing game.

Just as bad, economic fundamentals "are awful as investors are finally realizing that a severe US and Eurozone and G7 and emerging markets and global recession is coming (not a full-blown depression he believes) and will be deep and protracted." Before this ends, "equity prices may have to fall another 30% based on fundamentals alone...." Add the element of panic selling that may erase even more.

After Wall Street crashed in October 1929, the Dow lost 89% of its value by its low point in July 1932. No one today is predicting that. But given the current climate. Three decades of reckless excess. The greatest ever financial fraud. Multi-trillions of bad debt. Only the brave or foolish should imagine conditions won't be painful and protracted before they stabilize and improve.

What's sure is they're already awful, worsening, spreading, affecting everyone, and when finally ended - the world no longer will be the same as when the crisis emerged. But what it will look like and where it will head is anyone's guess.

For now, emerging economies are endangered. Iceland collapsed, and others, like Hungary, may have to default on their debt. More stable countries like India and Japan are also in trouble. For the first time in 26 years, Japan recorded a trade deficit as exports to the US dropped 21.8% from a year earlier. The steepest ever monthly decline. Recall also that at yearend 1989, Japan's Nikkei peaked at 38,915. It then plunged to 7831 in April 2003. On October 27, 2008, it sunk to a shocking 7163. About 18% of its peak value nearly 19 years earlier and its lowest valuation since October 1982. In the world's second largest economy. A hint of what may await the largest.

One money manager was so shaken he said we're "going back to the stone age." Across Asia it was bloody Friday. The same again on Monday and throughout the world. The worst on Friday was avoided. Armageddon was postponed until further notice. Beyond the timeline of this article, it may arrive sooner, not later.

Because markets are crashing. Equities, commodities, currencies, bonds considered risky. Anything investors can sell to raise cash. All signs are negative. In America, a key indicator is the Mortgage Bankers Association (MBA) figures on home loan applications. Its index tracking purchasing demand and for refinancing loans plunged 17% in its latest reading. Their lowest levels since October 2001 showing housing demand remains stubbornly weak and not likely to stabilize soon.

Other signs are just as worrisome. Fitch Ratings suggest that high-yield corporate debt defaults may end up the highest number on record. Hedge funds are hemorrhaging from forced liquidations and huge losses. US automakers are on their knees and may face bankruptcy. European ones are also wobbly. Credit is still frozen as who'll lend to borrowers who can't repay. And households are so over-indebted, they can't borrow nor will lenders accommodate them.

Global deleveraging is in play as well. According to Fitch Ratings, world credit growth peaked at almost 16% in 2007. By yearend, it will be 7% and lower still at 5% in 2009. Hardest hit will be "emerging Europe but (it) will spread to all regions." World recession is setting in. Most likely to be deeper, longer and worse than most predict.

In America, credit market debt as a percent of GDP began rising in the early 1980s and peaked at 350% in 2008. Comparable to its 1930s level. Money manager Jeremy Grantham's research shows that all markets revert to their means and generally way overshoot in the process. We're currently well into a massive repricing of risk and asset values. It may take years to play out. It will affect all over-valued markets. Stocks, bonds, commodities and leveraged debt. The cost will be in the trillions. The wreckage unimaginable. The result of monetary and fiscal irresponsibility with Greenspan deserving more blame than anyone.

In 1987, he was chosen to serve financial community interests. Largely Wall and major banks. He bailed them out on October 1987's black Monday. Again in 1998 after Long Term Capital Management's collapse. He flooded the market with easy money. Kept interest rates low. He could do no wrong, and even now, says he has "no regrets on any of the Federal Reserve's policies that we initiated." An astonishing statement given the gravity of today's crisis. The result of rampant speculation and fraud made possible by easy money. With Greenspan supplying it to all takers.

The Fed's job (or what it should be) is to promote stability. Smooth out the business cycle. Maintain a steady, healthy sustainable growth rate. Create price stability. Control inflation, and grow opportunities for everyone. Instead Greenspan fueled bubbles, and all he could say was that "irrational exuberance" may have "unduly escalated asset values" in a December 1996 speech. He did nothing to curb it. Claimed bubbles are hard to identify in real time, and the Fed is unable to diffuse them. He infamously said that it's "easier to clean up the mess after an asset bubble pops than to try and deflate (one) on the way up."

In fact, the Fed's job is to spot and moderate them. Not let them get out of hand. By raising interest rates. Margin requirements. Jawboning. Reducing the money supply to cool speculation and enhance stability. "Taking away the punch bowl," as former Fed chairman William McChesney Martin put it. Available tools Greenspan eschewed that would have worked if used. They weren't, and he denied all responsibility. The result is where we are today. Greenspan still avoiding a mea culpa and only expressing "shock" and "disbelief." But no regrets, and why not. His job was to transfer wealth from the public to the rich. In that he succeeded mightily but look at the cost.

-- markets crashing;

-- the economy sinking; in secular decline;

-- record budget and current account deficits;

-- a soaring national debt and federal obligations; $5 trillion alone in one day for the Fannie and Freddie takeover; hundreds of billions more so far and trillions more to come; taxpayers on the hook for it all;

-- rising personal and corporate bankruptcies;

-- mortgage loan delinquencies and defaults in the millions before this ends; the latest Realty Trac foreclosure filings survey reported default notices up 71% from third quarter 2007 and said figures likely were underestimated;

-- an unprecedented wealth gap;

-- record household debt and debt service levels as a percent of disposable income; around 25% of annual income to credit card companies alone;

-- the greatest housing crisis since the Great Depression;

-- flat wages;

-- high prices on basic items like food, fuel and health care;

-- rising unemployment; a wave of corporate-announced layoffs; across the board in nearly all sectors; biotech as well as banking; aerospace as well as autos;

-- conditions overall the worst in decades; maybe ever as things get more dire; how economist Paul Krugman (on October 26) described them in the words of a "guy who was told, 'Cheer up - things could be worse!' So he cheered up, and sure enough, things got worse."

The result of reckless and irresponsible policy. With lots of blame to go around. But none more than to the "maestro" of misery. Now 82 and unapologetic to the end.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org on Mondays from 11AM - 1PM US Central time for cutting-edge discussions with distinguished guests on world and national topics. All programs archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=10685

Friday, October 24, 2008

Seyed Mousavi - Guilty of Being Muslim in Police State America

Seyed Mousavi: Guilty of Being Muslim in Police State America - by Stephen Lendman

Seyed Mousavi is a US citizen of Iranian decent. A "family man, and a tireless servant" of the Southern California Muslim community where he lives and helped found the Islamic Shura Council of Southern California (ISCSC). It states its mission as follows: "to promote communications, understanding, cooperation, and coordination among the Muslim communities in Southern California at all levels (and) to help in the practice and propagation of Islam in the United States of America."

In 2000, Mousavi also founded the Hejrat Foundation. A Southern California religious, educational and charitable organization to do the following:

-- "educate Muslims and non-Muslims about Islam;"

-- teach them about issues affecting their lives;

-- work toward positive social progress;

-- build unity among people of all faiths; and

-- serve their needs "to improve their standard of living and assist in their economic advancement;" at first locally, then nationally and internationally.

Through Mousavi's direction and efforts, Hejrat became associated with the UN through its Department of Public Information (DPI)-NGO. Also under Hejrat, he administers the Al-Nabi Mosque and its broad range of activities. Including programs to educate people in religious, cultural, humanitarian, legal, national, and international issues of importance. It reflects his outreach and concern for others and why he's respected as a pillar of the community. Not a man supporting violence or terrorism.

Prior to founding Hejrat, Mousavi had broad and impressive goals. Well beyond religious ones. Encompassing a wide range of charitable initiatives. For schools, libraries, homeless shelters, free medical clinics, orphanages, domestic violence shelters, food banks, and various other community-related needs. More recently to raise funds for Midwest flood victims. Also focusing on youths to provide them the best possible guidance and support. They, in turn, express gratitude for how he changed their lives for the better.

Hejrat and the Islamic Shura Council promote peace and understanding. Not conflict and violence and do it through a broad outreach program. But it's not how the Bush administration sees them in its "war on terror" against anyone of Muslim faith. They treat them like enemies of the state. The way Nazis targeted Jews. Israelis Palestinians, and the strong do against the weak nearly everywhere. It's state-sponsored viciousness inflicting grave harm in defiance of the law or any sense of justice and fairness. It goes on because who'll stop it, and it means anyone may be as vulnerable as Mousavi. Especially prominent and activist Muslims at the wrong time in America.

Mousavi's Background

He was born in May 1948 in Abadan, Iran and until arrested had no criminal history. He's the youngest of six children and recalls his childhood as stable and secure. One of his teachers remembers him as one of his best students. A simple person. An honest one. Always helping classmates. Chosen to lead prayers because of his academic success.

He studied physics at Jonde Shapoor University. Graduated in the early 1980s. At age 18, he would normally have performed military service. He was exempted, however, because of poor vision and a bad back. In the 1980s, he never participated in the Iran - Iraq war that killed 53 members of his extended family.

On September 29, 1980, he was injured, however, when an incendiary exploded near him and caused severe injuries. Over the entire left side of his body. From his shoulder to his calf. He lost a finger on his left hand and sustained nerve damage. Underwent multiple surgeries. Electric stimulation with needles and extensive physical therapy. More surgery in Vienna to help restore mobility to his left arm. Nonetheless, he retained shrapnel in his body and one fragment close to his heart. Iran classified him as 40% disabled, and to this day he's lost partial use of his body's left side.

In 1986, he and his family emigrated to America and settled in Southern California. Because of his physical limitations and pain, he focused increasingly on spiritual activities. Became involved as a "lay minister" in the Muslim community. Active with youths and in allaying sectarian tensions.

An Islamic Society of Corona and Islamic Shura Council of Southern California board member wrote in his behalf:

he's a "hard-working, generous man. His dream was for a society of mutual understanding and respect. He encouraged interfaith dialogue and....pioneer(ed) in the 1980s (in) establish(ing) the Shura Council.... in 1995. It contributes....through joint research studies with many interfaith leadership organizations, collaborative social justice projects with non-governmental organizations and community based" ones.

The Islamic Society of Orange County's Vice-Chairman called him a "bridge builder" between Sunni and Shiite Muslims and among people of all faiths. A dedicated man promoting "peace, harmony and understanding between humanity."

To support his family, he held various jobs. Selling used cars. Driving a tow truck and as a clothing store sales manager. Later a Radio Shack sales associate and installing satellite dishes. All the while, he was active in the Muslim community. With the Shura Council and area mosques. Teaching classes for children. Engaging in a wide range of activities.

According to people who know him, he holds a more liberal Islamic vision than is typical in local mosques. His speaker program included children as well as scholars and Imams. He also provided a forum for youths to express concerns they're reluctant to tell their more traditional parents.

Among his many activities, he served as president of the San Bernardino United Islamic Youth Organization and its management of the only Southern California Muslim cemetery. A small mosque on its grounds as well.

In 2002, he attended a three-week Hajj pilgrimage to Mecca for the first time. It moved him so profoundly that he organized his own groups. Personally led them until he was incarcerated. Made it possible for many lower income people to go through discounts, special payment plans and loans.

His friends describe him as religious with a passion for performing tangible good works. Helping others. Building bridges, and improving the lives of people around him. After his arrest, over 100 individuals wrote letters on his behalf. About his character and respect for his work.

Arrest and Charges

On June 29, 2006, his ordeal began when the FBI and IRS raided his home and confronted him and his family at gunpoint. At 6AM, they heard loud banging on the front door and agents screaming "Emergency! Come out of the house NOW!" The family was terrified and responded. Agents swarmed in, and at the same time raided Mousavi's Al-Nabi Mosque. They were given keys but broke in. Damaged furnishings, and seized files, computers, recordings and other items still held as evidence even though nothing incriminating is on them. They followed the same procedure at Mousavi's home where he and his son were handcuffed. His family detained for hours. Supposedly on the pretext of not reporting income for tax purposes. It was bogus and just the beginning.

Muslims connected with the Hejrat Foundation were also questioned but not about taxes. About Mousavi's perceived political views. Alleged connections to the Iranian government, and beliefs of past religious scholars who spoke at a Hejrat-administered mosque. They were told it was "dangerous" and were asked to be informants, even though they assured agents that it's only for worship and cultural gatherings. Not a den for "terrorists" or secret dealings with foreign governments.

The FBI, nonetheless, hounded Mousavi. On August 22, 2007, things came to a head. After early morning prayer, he was arrested outside his mosque and charged with six felony counts under the catch-all International Emergency Economic Powers Act (IEEPA). It's used against innocent victims like Mousavi, other Muslims, or anyone the government wishes to entrap. Charges against him were bogus and included:

-- two counts of violating IEEPA for doing business with a Kuwaiti company linked to two Iranian ones; that he "entered into a contract with Al Mal Kuwait Co. to provide (consulting) services (for a mobile communication license) prohibited by the US trade embargo against Iran;" also that he established a bank and leasing company in Iran;

-- filing a false tax return that failed to report $45,000 from Al Mal Kuwait Co. and another $500,000 from his Hajj caravan travel "business;"

-- impeding the administration of tax collection;

-- illegally procuring citizenship by making false statements under oath; when asked, for not disclosing his (FBI-claimed) military service and affiliation with the following Iranian organizations:

(1) the Islamic Revolutionary Committee;

(2) the Islamic Revolutionary Court;

(3) the Office of the Governor General;

(4) the Housing Foundation in Khuzestan Province;

(5) the Committee of the Center for Industrial Expansion in Khuzestan Province;

(6) the Welcoming Committee of Imam Ummat (Ayatollah Ruhollah Khomeini);

(7) the Tribal Center of West Azerbaijan Province; and

(8) the Office of Public Security; as well as

-- making a false statement to federal investigators by not divulging the above information to FBI and IRS agents when questioned.

The charges against Mousavi are bogus. They have no basis in fact. Yet on April 24 he was convicted on all counts. He's been held without bail at the Los Angeles Federal Detention Center.

October 6 was to be a sentencing hearing. Instead Mousavi's lawyer, Ronald Kaye, submitted a motion for a new trial but was denied. He based it on substantial new evidence. Of Mousavi's innocence. Presented documents disproving the charges. Showed he never performed Iranian military service. That he was ordered to take government positions during the 1980s Iran - Iraq war. That the Welcoming Committee for Imam Ummat was a loose collection of "thousands/millions" of Iranians in 1979 welcoming Ayatollah Khomeini's return from exile. That money wired to him wasn't income. It was a loan. No contractual work was done. The Iranian embargo wasn't discussed nor did Mousavi do anything to violate it.

Kaye also asked that the Probation Officer's recommendation letter for Sentencing be revealed. This request was also denied.

October 14 might have been much grimmer for Mousavi. The prosecutor asked for a nine-year sentence. Instead he received 33 months imprisonment on three counts. All bogus and unjust. For:

-- filing false tax returns;

-- omitting group membership on naturalization forms; and

-- violating the US embargo against Iran.

His family will now ask the Ninth Circuit US Court of Appeals to review the lower court's ruling. Reverse the three charges and grant Mousavi justice. Otherwise, he'll remain confined despite his innocence.

Mousavi's Pre-Trial Ordeal

Since his August 22, 2007 arrest, Mousavi has been held in detention. At first, his $300,000 bail request was granted, but when prosecutors appealed it was denied. A $1,000,000 offer as well. In property offered by friends. The reason: that he was a flight risk to Iran in spite of going well out of his way to cooperate. Help authorities in their investigation and notify them (without being asked) of any planned foreign travel. He also offered but was denied the right to be under modified house arrest by wearing an electronic tracking device at all times.

At his bail hearing, prosecutors failed to substantiate their charges. They merely accused Mousavi of "high (Iranian) connections." Claimed he was a "terrorist," and went further at a second hearing. They never charged him with terrorism. Yet they presented classified "terrorist connections evidence" but denied his counsel's access to it so there's no way to rebut it.

Police state tactics denied Mousavi his rights. He remains unjustly detained, tried, convicted, and sentenced on bogus charges that will keep him imprisoned for another 33 months without an Appeals Court reversal. Like many others today, he's a political prisoner in Police State America. Victimized by the Bush administration's war on Islam and against anyone it calls a threat.

Mousavi's Ordeal in Detention

In detention, false rumors were spread to intimidate him. That he was a "terrorist" so his fellow inmates would shun and possibly harm him. Ever since, he's been endangered, and it was just the beginning of his long ordeal.

Food is another issue. Getting a proper amount. Sufficiently nutritious, and allowing for Mousavi's religious-based dietary restrictions. He requested what Islamic law allows, but instead got (prison-style) "kosher" that doesn't comply. He then suggested vegetarian choices but got vegetables alone that fall way short of a balanced diet. Things worsened on court days and during solitary confinement periods. The result - for a while his diet was inadequate. He lost considerable weight, and his health was affected.

Essential medical treatment is also crucial for a man in his condition. Being 40% disabled from previous severe injuries. He has constant knees and back pain and gets weaker every day. Yet he was malnourished. Denied care, and on court days kept chained and shackled for up to 12 hours ahead of proceedings. It constrains his movements. Causes severe pain, and requests for relief were ignored. For an entire court day, he got a cup of juice and a bologna sandwich that his diet forbids him from eating.

Yet for a time his ordeal worsened. On October 22, 2007, he was placed in solitary confinement. Told it was for "security reasons." Got no food or water the first day, and held there for a month. His Quran and prayer book were removed (later returned), and he got unheated vegetables plus some sparse purchased food that was cold and uncooked.

At night, he had one thin blanket that was inadequate. As a result, he was cold and shivered until morning. In addition, glaring cell lights stayed on 24 hours a day. He got one shower a week in scalding hot water. His toilet flushed once a day only. Noise on his floor was loud and nerve-racking. Sleep nearly impossible. Proper hygiene as well. Mousavi became severely ill. His knees and back pain increased, and remediating medical attention was denied.

He got one call a week for a limited few minutes plus two weekly one-hour family visits in shackles and double handcuffs. At first in a glass-separated room. Throughout his solitary confinement, he never knew why he was there. He broke no prison rules, yet was cruelly and inhumanely punished. To exert control. Crush his spirit. Dehumanize him, and inflict great pain and suffering for being Muslim at the wrong time in America.

Harsh treatment continued in the general prison population. He lost phone privileges for six months and got spurious reasons why. His appeal for reconsideration was denied and an extra year tacked on plus 30 days of no family visits. Other harassment as well that left him shaken and traumatized. Daily disruptive cell searches and efforts to convince other prisoners he's dangerous.

Plus unsettling floor changes. Regular prayer schedule disruptions. Lengthy delays getting mail, and having no access to books, computer literature print-outs, and other non-threatening material. It was a systematic scheme to destroy him. Emotionally and physically, and it affected him and his family who can do nothing to stop it.

His trial preparation was also impaired. Phone privileges were denied. During family visits, pens and paper weren't allowed, and he couldn't mail or receive legal documents to review in advance. He had limited face-to-face meetings with his lawyer and prevented from reaching him by phone. He was obstructed throughout his confinement, and it showed in court.

After conviction, Mousavi was returned to solitary confinement (on May 22), and it took its toll. He was isolated in a small room. Restricted to uncooked zucchini and cauliflower plus occasional uncooked rice that's inedible. After June 21, he was denied permission to buy food and water from the prison store. Previously, limited amounts of dates, oatmeal and chocolate were allowed. No longer for a time. In addition, all phone access was denied for another three years. These and other punitive measures were employed until finally they were relaxed later on.

Mousavi's Trial

It was classic police state justice. A common DOJ practice against "war on terror" targets. Figures like Sami Al-Arian, Rafil Dhafir, Sheik Mohammed Ali Hassan Al-Moayad, Mohammed Mohsen Yahya Zayed, and Lynne Stewart. Known for their prominence, leadership positions, charitable efforts, affiliations with Islamic organizations, or in the case of Lynne Stewart for being a notable civil rights lawyer. Devoting 30 years of her life championing the rights of the poor and underprivileged. Defending society's unwanted and controversial figures never afforded due process without an advocate like her.

On April 24, after three days of testimony, a jury convicted Mousavi on all counts. In spite of bogus evidence and the defense given no right to call witnesses or introduce refuting documents. A Kangaroo Court process that denies judicial fairness in most federal courts.

On each of six counts, here's what jurors never heard. Because defense counsel was late filing motions for experts to testify. The trial judge disallowed them and was within his right to do it. But it cost Mousavi dearly.

He lost money in the two years he was accused of paying no taxes. The alleged $500,000 from the Hajj Company (and Umrah Services) was from a non-profit Hejrat Foundation enterprise. It arranged Hajj pilgrimage trips to Mecca for religious purposes. It had nothing to do with "business" or an effort to yield "profits." There were none. It was solely to help fellow Muslims perform their religious duties and connect with their spiritual roots. In the two years in question (2003 and 2004), the enterprise lost money. Prosecutors claimed it wasn't reported, Yet Hejrat's accountant wasn't allowed to testify and explain. Nor could expenses be presented to prove the non-profit Hajj Company had losses and owed nothing.

Regarding a supposed violation of the International Emergency Economic Powers Act (IEEPA) and breaking (and "intending" to break) the embargo under the Iranian Transactions Regulations, here's what, in fact, happened. In 2002, a Kuwaiti company wanted Mousavi for a consulting job and invited him over to discuss it. It wished to sell Iran cell phones and buy sand and gravel in return. It prepared an "Incentive Plan." Not a contract. Listed the proposal in it, but ended up not pursuing it. Why? Because bureaucratic hurtles were too costly so the idea was scrapped.

Mousavi returned home and had no dealings with Iran or any of its companies. At trial, a government Office of Foreign Assets Control (OFAC) witness confirmed or at least implied that no contract existed, and no embargo violation occurred. Nonetheless, he was charged with one because the witness recalled another law. Believed it applied, and if so the embargo was broken.

Regarding illegally procuring citizenship, Mousavi was falsely charged with lying under oath about not being an "active and ranking member of the Iranian military." It was bogus like the other charges. As explained above, he was exempted from military service because of health and disability factors. His defense had Iranian government letters as proof but was prohibited from entering them as evidence. Because counsel hadn't presented them to the court.

The prosecution mistranslated documents to make its case. Another common anti-Muslim tactic. Misstate the language. Change its meaning. Present false evidence. Some that's irrelevant. Prevent defense from refuting it, and claim justice prevailed. In this case, the Farsi words for "police department" on Mousavi's (and all civilian licenses) were mistranslated to mean "military." In addition, the terms "janbaz" and "cart-e janbazan" were misused with the latter one called a "Devotee" or "suicide mission squad" card. It's actually a handicap one with an established international symbol stating degree of disability. Other documents were also mistranslated to "prove" bogus prosecution charges that unfortunately stuck.

A Final Comment

In a climate of fear, Muslims risk harassment, prosecution and incarceration. Especially prominent ones like Mousavi. His defense will appeal and seek exoneration at the appellate court level. For now, he's incarcerated and subjected to dehumanizing treatment. For being Muslim in America at the wrong time. Only his inner strength sustains him. And the love and admiration of his family, friends and supporters. In today's disturbing climate, we're all Seyed Mousavis.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM - 1PM US Central time for cutting-edge discussions on world and national topics with distinguished guests. All programs are archived for easy listening.

http://www.globalresearch.ca/index.php?context=va&aid=10596

Wednesday, October 22, 2008

This Time Is Different

This Time Is Different - by Stephen Lendman

Whatever we know about today's financial crisis. Think we know. Eventually will know in the fullness of time. This time is really different. In 1922, Henry Ford put it this way in his book titled "My Life and Work:"

"The (economy's) primary functions are agriculture, manufacture, and transportation. Community life is impossible without them. They hold the world together....The great delusion is that one may change the foundation. The foundations of society are the men and means to grow things, to make things, and to carry things."

Real enterprise producing value. Tangible products. Not casino capitalism. Computerized gambling. The illusion of wealth. Disappearing once liquidity dries up. Or even now when it's abundant. With a keyboard click, or when investors fear an approaching economic storm.

Until recently, and even now, many observers pretend that the US and major world economies will avoid recession. Or at worst experience a mild one with healthy growth resuming in 2009. Slowly and grudgingly, opinions are changing. Output is falling. Unemployment rising. Wages stagnant. Personal consumption falling and so are equity, bond and commodity prices. At the same time, households are way over-indebted and so are businesses, states, cities and the federal government. At issue is how bad things will get. For how long, and what, if any, corrective measures at this stage can stabilize and reverse conditions.

It's effects are broad-reaching. Chicago mayor Richard Daley faces a $469 million budget gap. As a result, he'll shut down "non-safety related city services" for six days over the holidays to save millions of dollars. California "faces the potential of a perfect storm created by the financial crisis effect on liquidity, lower-than-anticipated revenues currently coming into the state, and our late budget," according to governor Schwarzenegger's communication director. Another administration official agreed and said "the (revenue) window is shut, and if it stays shut, we are in deep trouble." The state needs an emergency $7 billion loan. It wants Washington to buy that amount of state bonds that it can't sell in the marketplace due to current conditions.

Other cities like New York are also strapped. With a projected $2.3 billion revenue shortfall in 2009 and gaps of around $5.2 billion in 2010 and 2011. To combat it, Mayor Bloomberg ordered a $1.5 billion spending cut and may raise property taxes by 7%. Other measures will follow as needed.

The Center on Budget and Policy Priorities reported that 29 or more states (and the District of Columbia) face an estimated $48 billion in total budget shortfalls for FY 2009. Unlike the federal government, states and cities can't run deficits or borrow like Washington for operating expenditures. They can only use available reserves, cut spending or raise taxes. Choosing the latter two will contract their economies further and contribute to a national slowdown.

Mountains of debt and multiple imploding bubbles are the problems. The housing one especially crucial for millions and the states where they live. It hits property tax revenues. Sales taxes from furniture, appliances, construction materials and other housing related products. Incomes taxes also from employment cutbacks at the same time demand for city services is increasing. Instead they're being cut for public health, education, the indigent, the elderly and disabled, and public workforces. All of which makes a bad situation worse. And according to some astute observers, it's only the beginning. The worst is yet to come.

Are We In Recession?

On October 17, the latest housing numbers added extra confirmation. New home construction hit a 17-year low in September. Housing starts fell 6.3% to a seasonally adjusted 817,000 annual rate. The lowest figure since January 1991, and single-family starts dropped 12% to 544,000. The worst showing since February 1982 in the depths of that period's severe recession. Until today called the deepest since the 1930s.

Building permits also fell 8.3% to 786,000. A 27-year low, and for single-family homes they dropped 3.8% to 532,000. The lowest in 26 years. Along with the data, the National Association of Home Builders reported that builder sentiment hit a record low in October and shows no signs of improvement. According to the University of Michigan/Reuters index (on October 17), so did consumer sentiment. Their latest reading fell to 57.5. Its biggest every monthly drop and nearing its all-time low 51.7 figure in May 1980.

Blame it on the housing slump and assets related to it causing a severe economic contraction. According to Merrill Lynch economist David Rosenberg, it will surpass the worst of the 1973 - 1975 one. He also sees huge and growing financial damage. Credit losses already around $600 billion ballooning to two or three times that amount before things stabilize. Economist Martin Feldstein, former US National Bureau of Economic Research head, sees the deepest US recession since WW II. He told CNBC: "The fact is that lenders don't want to lend, (and) asset buyers don't want to buy assets because of this tremendous uncertainty on what mortgage-backed securities are actually worth."

Investor Warren Buffett thinks a sharp downturn is underway, but he showed up in an October 17 New York Times op-ed saying now is a good time to own stocks. So he's buying. Others disagree and say we're in much more than a cyclical slump. The result of an unsustainable house of cards. No one knowing the amount of economic damage. From rampant speculation. Mountains of debt. The housing bubble, and the entire financial unraveling affecting households, businesses, all parts of the economy, and sentiment.

Noted economist Joseph Stiglitz is grim in his outlook. He sees "the most serious problem since the Great Depression (that) in some ways (is) worse in terms of the financial institutions....The reason, in part, is that while some of the same problems that occurred (then and since), such as excessive leverage, pyramid schemes, bubbles, have happened before, the so-called innovation of Wall Street, the financial innovations, that were supposed to manage risk, created a kind of non-transparency that is now so great that no one knows exactly the magnitude of the risk they face. It is particularly bad because our financial institutions are based on trust" that you can get your money out of banks you put it into.

Because of the current unraveling, that trust is fractured. "We are in the midst of micro-economic failure on a grand scale....rather than managing risk, the financial markets created" more of it. "The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression." The "country as a whole" lost out. What happened to "the American economy was avoidable." Stiglitz sees a protracted downturn, L-shaped at best, and lasting up to 18 months before it ends.

The economy may or may not face another Great Depression, but for many it'll feel like one. According to Yale economist Robert Shiller, it's possible. He devotes an entire chapter of his new book, "EconoPower," to it. He claims that the US economy is no longer "depression proof," and lists three potential scenarios that could threaten the nation's monetary system. The third is most ominous: "a series of unexpected events that could trigger a major financial accident - a run on the dollar, a real estate crisis, a major terrorist attack, or a natural disaster, that could overwhelm the monetary authorities."

Shiller sees the current real estate crisis far from over and so severe that the Fed and Treasury will have to take emergency measures to avoid collapse. Effective tools are available. Interest rates will be cut to zero and much more. Well beyond what's already done. Great Depression-like measures will be crucial to keep the economy afloat. In his judgment, if the right ones are adopted they'll work, but not swiftly or easily.

Others aren't as sure. Last year, even the central bank for central bankers, the Bank for International Settlements (BIS), was worried. It warned that loose Fed monetary policy, speculative finance, and excess household debt, among other factors, could cause another Great Depression. It passed without notice, and here we are today. Easy credit and no oversight brought us to the edge of the abyss. The possibility of a systemic meltdown and economic calamity. The consequences are unimaginable. The human wreckage incalculable. The toll already severe and increasing.

Proposed Bailout "Too Little, Too Late," and Counterproductive

Leading financial expert and investor safety advocate Martin Weiss is very critical of the Paulson plan and gave Congress his views. He called it "too little, too late (and) too much, too soon for the US bond market." It's apparent in rising bond prices and 30-year mortgage rates. Around 6.50% compared to about 5.75% in mid-September.

He recommended reconsidering "a broad bailout for US debts given the wide diversity of mortgage holders" and total outstanding debt in the country. Besides mortgages, over $20 trillion in private-sector consumer and corporate debt and other $2.7 trillion in municipal securities.

Among banks and thrifts with over $5 billion in assets, he estimates 61 banks and 25 thrifts heavily exposed to non-performing mortgages. He urges a greater understanding of the derivatives build-up and the consequences if enough of them sour. He calls established safety nets inadequate. FDIC for depositors. Securities Investor Protection Corporation (SIPC) for brokerage customers, and state guarantee associations for insurance policy holders. If the entire $700 billion was used responsibly (and it won't be), it's "just a drop in the bucket" to address the debt crisis.

He says it's foolhardy to expect the bond market to handle the bailout burden without upward pressure on interest rates. The opposite of what's needed. He sees skyrocketing federal deficits exacerbating things further and "aggravating the very debt crisis that the bailout plan seeks to alleviate."

Instead of protecting "imprudent institutions and speculators," he recommends strengthening "existing safety nets" for individuals and savers. Informing the public about significant systemic risks, and explaining how limited government is to contain them. He says savers and investors should avoid risk for safety.

He estimates 1479 FDIC member banks with $2.4 trillion in total assets at risk of failure. Another 158 S&Ls with $756 billion. A total of $3.2 trillion or 41 times the assets of banks on the FDIC's watch list. He notes $51 trillion in interest-bearing debts. Over $12 trillion in residential mortgages on single and multi-family homes. "Fannie, Freddie and GSAs still at risk" after being taken over. They hold $5.4 trillion in residential mortgages, but a government guarantee doesn't prevent them from deteriorating and requiring much larger funding than contemplated.

Private sectors and local governments also own residential mortgages:

-- asset-backed securities issuers - $2.1 trillion;

-- non-bank finance companies - $426 billion;

-- credit unions - $332 billion;

-- state and local governments - $159 billion'

-- life insurance companies - $62 billion; and more in

-- private pension funds, government retirement funds and households.

Commercial mortgages are also at issue and are souring. A total of $2.6 trillion "dispersed widely beyond the banking sector." And mortgages are less than half the problem. Add to them credit cards, auto and student loans, and various other kinds of private-sector debt. Consumer and corporate. Around $20 trillion in total plus nearly $15 trillion in residential and commercial mortgages.

State and local governments are at risk with $2.7 trillion in outstanding municipal securities and huge growing budget shortfalls given the current crisis.

The derivatives problem is especially ominous. At extreme levels and very dangerous. An estimated $180 trillion held by commercial banks alone meaning those with most of it are technically insolvent. JP Morgan Chase holds half of it. An "unprecedented concentration of risk in modern US history." The large counterparty default risk in this market isn't understood. Currently the Office of the Comptroller of the Currency (OCC) reports credit derivatives exposure (or risk of trading partner default) at $465 billion. Up 159% from 2007. Failure to address the derivatives time bomb "leaves a gaping hole through which financial panic can spread."

In addition, beyond the above lowball figure, no estimates are available of derivatives default amounts or forecasts of more likely in a continuing downturn.

In sum, a monumental problem. Too big to ignore, but precisely what Congress is doing. At enormous risk to the economy, businesses, households, the American way of life, and the nation as the world's economic superpower. Plus the effect on world economies and people everywhere.

Politics, Finance and Consumer Sentiment

With the November 4 election approaching, pocket book issues show up in consumer sentiment polls and have incumbents worried. Especially Republicans seen as mostly to blame. The October 15 Reuters/Zogby Index on the mood of the country plunged from 96.3 in September to 89.7 currently. Approaching a record low 87.7 number. The poll also gave George Bush his lowest ever job approval rating at 21%. Congress scored just above its worst reading at 10%. Zogby called the results "a double-whammy" and compared the public mood to the Great Depression's early years.

An October 6 - 8 Gallup tracking poll showed much the same results. A similarly dramatic difference from the previous month:

-- in September, 38% of respondents rated current conditions poor; in October, the number jumped to 59%;

-- in September, 78% expected conditions to worsen; in October, 90% were negative.

Gallup commented that the polling data trend suggests that "consumer confidence is reaching historic lows." Further, "given the current financial crisis and associated recession, it is likely to take some dramatic efforts to turn consumer confidence around." Gallup numbers vary up and down weekly. However, given the state of things and strong likelihood they'll worsen before improving, expect the trend ahead to stay decidedly negative. Meaning bad news for incumbents being blamed.

Maybe not for the most important job according to investigative journalist Greg Palast. He uncovered convincing evidence that the 2000 and 2004 presidential elections were stolen and now has a new article titled "It's Already Stolen." It follows his joint year-long investigation with Robert F. Kennedy, Jr. revealing "a systematic program of 'GOP vote tampering' on a massive scale." They cite:

-- swing-state Colorado Republican Secretaries of State "have quietly purged one in six names from their voter rolls;" a shocking "ten times the average state's rate of removal;"

-- among newly registered voters, "more than 2.7 million have had their registrations REJECTED under new procedures signed into law by George Bush;" individuals affected are largely blacks and Latinos; likely to vote Democrat;

-- "a fired US prosecutor....accus(ed) leaders of his own party, Republicans, with criminal acts in an attempt to block legal voters...."

-- in 2004, a little known practice called "caging" purged 1.1 millions voters; it's used to suppress minority voters by delisting them for failing to answer "do not forward" registered mail sent to homes they're away from for various reasons; Palast predicts far greater "caging" this November; and

-- post-2004, "states used dubious 'list management' rules to scrub at least 10 million voters from their roles."

Palast and Kennedy believe Republicans intend to steal the 2008 presidential election. Much like they did in 2000 and 2004. They state: "Republican operatives - the party's elite commandos of bare-knuckle politics (are) systematically disenfranchis(ing) Democrats. If Democrats are to win (in November), they must not simply beat John McCain...they must beat him by a margin that exceeds the level of GOP vote tampering."

If the latest Pew Research poll numbers are accurate and hold, Obama appears headed to do precisely that, and on November 5 headlines will read: "President-elect Obama." On October 21 (based on October 16 - 19 polling), Pew noted that "Barak Obama's lead over John McCain has steadily increased since mid-September," and he now "enjoys his widest margin yet over McCain among registered voters, at 52% to 38%" with 10% undecided or for other candidates. "When the sample of voters is narrowed to those most likely to vote, Obama leads by 53% to 39%."

Palast and Kennedy are on top of vote tampering whoever wins in November. They released a 24-page full-color comic book called "Steal Back Your Vote." It's available in print or can be downloaded on "StealBackYourVote.org."

Dirty politics and fraudulent finance are close bedfellows. Together they explain much about the current economic crisis. Its effect on ordinary people, and what might be expected ahead. Given the current climate (vote tampering notwithstanding), it should be a slam dunk election for Obama. People in distress mostly blame incumbents. It showed in 1932 when Franklin Roosevelt trounced Herbert Hoover carrying 42 of the (then) 48 states. A majority 57.4% to Hoover's 39.7% and 472 Electoral College votes to 59.

Given it was three years after Wall Street crashed. In July that year the Dow average had lost 89% of its peak valuation, and in August unemployment reached 25%. Using realistic figures, it's half that number today. But increasing to where it may reach alarmingly high levels before the current downturn bottoms.

Few today expect the 1930s to repeat, but economic conditions are worsening. Housing, consumption affecting retail sales, and production dropping 2.6% in September. The largest monthly decline since May 1980. The Philadelphia Fed said its manufacturing index plunged at the fastest pace in its 40-year history to a minus 37.5 reading. The sector overall had job cuts every month since July 2006.

It may be 2010 at the earliest before conditions stabilize. Consumer sentiment is near record lows. Millions of homeowners face foreclosure. Loss of income. Jobs and inadequate social safety net protections are in place for backup. People are worried, angry and with good reason. Yet if Palast and Kennedy are right, Republicans may retain the White House given the level of fraud they uncovered. It says much about our faux democracy and offers faint hope for better times in 2009.

Future Prospects - Bleak and Growing Bleaker

Maybe not as bad as Ambrose Evans-Pritchard saw them last month in the UK Telegraph. But who knows. He may be right. His September 22 column was headlined: "Crisis may make 1929 look (like) a walk in the park." He cites meager and fleeting effects from "buckets of liquidity" and quotes economist (92-year old) Anna Schwartz saying "Liquidity doesn't do anything in this situation. It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue."

Schwartz also gave the Wall Street Journal an October 18 interview in which she said Treasury and Fed policies are wrong. She repeated that liquidity isn't the problem. At issue is uncertainty "that the balance sheets of financial firms are credible." As a result, credit spreads haven't budged because you don't know who's solvent and who isn't and too many are in the latter category.

Liquidity was the issue in the 1930s when the money supply contracted sharply. Not today with bank problems on the asset side of their ledgers. "All these exotic securities that the market does not know how to value. They're toxic because you cannot sell them. Your balance sheet is not credible, and the whole market freezes up. We don't know who to lend to because we don't know who is sound." Schwartz is worried that Paulson is trying to save banks, not the system. Insolvent ones and said we shouldn't "be recapitalizing firms that should be shut down." They should be allowed to fail. "Everything works much better when wrong decisions are punished and good (ones) make you rich."

She commented also on what caused the current crisis. Like in the 1920s, it started with a "mania." In every case, it was expansive monetary policy generating an asset boom. She's very critical of Alan Greenspan dropping interest rates to 1%. Seeing the negative effect and doing nothing about it. She's no gentler with Ben Bernanke and accused him of fighting the last war. The result so far is failure. "So my verdict on this present Fed leadership is that they have not really done their job."

As a result, lenders are hoarding cash and economist Peter Spencer said that global authorities have just weeks to make things right. Instead they're making them worse. Unless changed, things may start to implode.

Economists like Nouriel Roubini aren't as dire but nonetheless see grim times ahead. His October 17 commentary echoed them:

-- continued negative economic surprises;

-- "a major surge in corporate default rates;"

-- a weak recovery "as the recession becomes severe" and credit spreads widen;

-- "the risk of a CDS (credit default swap) market blowout as corporate defaults" spike;

-- hundreds of hedge funds collapsing; liquidation of their assets and the toll on financial markets as a result;

-- major insurance companies in trouble;

-- "a slow motion refinancing and insolvency crisis for many toxic LBOs;"

-- "the risk that other systemically important financial institutions are insolvent" and need expensive rescue packages;

-- the continuing vicious circle of falling asset prices; the result of ongoing deleveraging into illiquid financial markets;

-- growing numbers of margin calls as asset prices fall; cascading them lower as a result;

-- the continuing housing slide "pushing over 20 million households into negative equity by 2009;" and

-- the risk of an emerging or developed country experiencing a severe financial crisis; much like Iceland in recent days.

Roubini calls the last factor "crucially important" and cites about 12 or more emerging economies "in serious financial trouble." Especially in Eastern Europe, including Turkey, but also Korea, Indonesia and Pakistan. The risk of contagion is worrisome as even tiny Iceland (population 300,000) sent tremors globally.

Overall, risks and vulnerabilities remain. They're growing, not receding. Not a hint of resolution is in sight and observers expressing near-term optimism need a reality check. The best to hope for is a severe, protracted recession. Most likely globally. Further, inadequate measures are in place, and more corrective ones are needed to avoid an economic meltdown. The longer they're delayed, the worse conditions will get.

Globally we have a severe recession combined with a financial and banking crisis. The result of the largest ever leveraged asset and credit bubbles. Multiple ones in housing, mortgages, credit, equities, bonds, commodities, private equities and hedge funds all simultaneously imploding. There's no simple or easy way out of this and overwhelming risks of something much more serious loom. Unmentioned in daily business news reporting that instead touts a market bottom and a great time to buy stocks. Leaving unexplained the risk of doing it in a very hazardous climate.

People today should be cautious and demand far more from elected officials than they're getting. Critical times like these require radical measures. So far only handouts to Wall Street. To fraudsters through what economist Michael Hudson calls a "con game (and an) unprecedented giveaway of financial wealth." What financial affairs author Ellen Brown brilliantly explains this way:

We seeing "the collapse of a 300 year Ponzi scheme. All the king's men cannot put the private banking system together again, for the simple reason that (it's) reached its mathematical limits." It needs new borrowers but doesn't have them. This racket has gone on for 300 years "ever since the founding of the Bank of England in 1694." The whole world now is "mired in debt to the bankers' private money monopoly." The dirty game has reached its finite limits. "The parasite has finally run out of its food source."

World governments are scrambling frenetically as a result. Supplying mountains of credit (liquidity) to support troubled and over-indebted banks. Leaving distressed households high and dry and sticking them with the bill.

Eventually the game will end badly. In this case, a lengthy asset and debt deflation. Long after bankers took the money and ran. Wrecking economies and throwing ordinary people to the wolves. Michael Hudson puts it this way:

"Neither the Treasury nor Congress is helping to resolve this problem." Newly issued debt won't re-inflate markets or stabilize the economy. Just the opposite. "As debt deflation eats into the domestic market for goods and services, corporate sales and earnings will shrink," and so will market valuations. The end result will be "the very bankruptcy that the bailout was supposed to prevent."

That prospect is nightmarish so here we are. America's economy is eroding. Government and Wall Street are orchestrating it. Maybe even willfully, and here's the legacy they're leaving. The nation "passing from democracy to oligarchy (and steering it is) a bipartisan financial kleptocracy" chuckling all the way to their offshore tax havens.

Stephen Lendman is a Research Associate of the Center of Research on Globalization. He lives in Chicago and can be reached at lendmanstephen@sbcglobal.net.

Also visit his blog site at sjlendman.blogspot.com and listen to The Global Research News Hour on RepublicBroadcasting.org Mondays from 11AM - 1PM US Central time for cutting edge discussions with distinguished guests on vital world and national issues. All programs are archived for easy listening.

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