The Federal Reserve Would Be Shut Down If It Was Audited

Sunday, June 14th, 2009

The Federal Reserve’s balance sheet is so out of whack that the central bank would be shut down if subjected to a conventional audit, Jim Grant, editor of Grant’s Interest Rate Observer, told CNBC.

With $45 billion in capital and $2.1 trillion in assets, the central bank would not withstand the scrutiny normally afforded other institutions, Grant said in a live interview.

“If the Fed examiners were set upon the Fed’s own documents—unlabeled documents—to pass judgment on the Fed’s capacity to survive the difficulties it faces in credit, it would shut this institution down,” he said. “The Fed is undercapitalized in a way that Citicorp is undercapitalized.”

Grant said he would support legislation currently making its way through Congress calling for an audit of the Fed.

Moreover, he criticized the way the Fed has managed the financial crisis, saying the central bank’s target rate should not be around zero.

“I think zero is the wrong rate for almost any economy,” Grant said, adding the Fed has “embarked on a vast experiment in moral hazard. Interest rates are the traffic signals in a market economy, and everything’s green. … You have to wonder whether these interest rates are the right clearing rate or rather they are the imposition of a central bank.”

Amid a disparity between analysts predicting there will be no rate hikes soon and the fed funds futures indicating tightening by the end of the year, Grant said he thinks the Fed indeed will begin raising rates as inflation creeps into the picture.

CNBC

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US accused of violating its amnesty in Iraq

Monday, May 4th, 2009

US-allied anti-Qaeda militia leader says his arrest violates amnesty deal with Americans.

BALAD, Iraq - A senior anti-Qaeda militia leader allied with American forces said on Monday that his arrest was a violation of an amnesty deal signed with the United States last year.

Iraqi police and the US military detained Mullah Nadim al-Juburi and his two brothers on Saturday at their home near Balad in central Iraq on charges of “terrorism”.

Speaking from an interior ministry prison in Balad, Juburi, a former Qaeda leader, said he had severed his relationship with the group in May last year after signing an immunity deal with the US military.

“We signed a ceasefire agreement with American forces, just as we signed an agreement to grant us immunity from the courts, even if we killed half the American army or shot down a plane,” he said in an interview.

“The case has been raised because I was in armed groups before… The complaints have been raised against us because we were in armed groups falsely accused of killing and kidnapping.”

After Juburi formed a Sahwa or Awakening militia to help US forces fight insurgents, he became a target of Al-Qaeda, surviving several assasination attempts, according to Iraqi police.

The Sahwa movement began in late 2006 when local tribes and former insurgents or Al-Qaeda members started turning on Al-Qaeda in Iraq and allying with the US military, and today it includes more than 90,000 fighters across the country.

In recent months dozens of Sahwa members have been arrested amid warnings from Prime Minister Nuri al-Maliki that they have no immunity from the law.

American and Iraqi forces arrested Juburi and two of his brothers on Saturday night at their home in Dhuluiyah.

“We received an order to arrest Mullah Nadim al-Juburi and his two brothers from the court of appeal for Salaheddin province in Tikrit,” Balad police colonel Jabbar Abed Oun said.

“He has been accused of the crimes of kidnapping and murder and is wanted by the anti-terrorism police in Tikrit,” he said.

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Surveillance Society

Tuesday, April 21st, 2009

Chris Grayling, the Shadow Home Secretary, writes:

Good Government is about achieving a sensible balance. We need to protect our society against those who would destroy it. But if we throw away the founding principles of a democratic state to do so, then we are doing the terrorists work for them. So I think that whenever we look at security issues, and potential new weapons for the fight against terror, we should ask one simple question - will this improve the protection of our citizens without undermining our core freedoms? Too often this Government has failed to find the right balance. Indeed, they seem to have lost any sense of proportion about the things that they are doing. The terrorist threat has become an excuse for introducing draconian new powers, and those powers have developed mission creep which means that the intrusion of the state seems to be spreading across our society.

We will seek to restore that balance.

So we will continue with the introduction of biometric passports - but we will scrap the compulsory ID cards that this Government seems to determined to pursue.

We will retain the electronic systems that will record who enters and leaves our country - but we will end the situation where the Government plans to store full details of the holidays, companions and payment details of every citizen for a decade.

We will end the mission creep for anti-terror laws, and limit the use of surveillance powers to the investigation of serious crimes. There is no place for the use of intercept evidence in council tax enforcement.

And there will be no giant big brother databases established under a Conservative Government.

It really is time for a change.

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Soldier suicides up to 56 in 2009

Monday, April 20th, 2009

As many as 13 soldiers are believed to have killed themselves in March, bringing the number of reported soldier suicides this year to 56, officials announced April 10.

None of the March cases under investigation have been confirmed, but about 90 percent of deaths involved in such investigations typically are ruled to be suicides.

The March total marks a decrease in suicides compared with the first two months of the year.

As many as 24 suicides were reported in January, but on March 4 officials removed one case because it was determined that the soldier was no longer on active duty when he died. Of the 23 remaining cases, 14 are confirmed suicides; nine are pending a determination.

Eight soldiers killed themselves in February, and the deaths of 10 others were still being investigated. Since the Army initially reported its February numbers, two other deaths also have come under investigation as possible suicides.

In all, 56 confirmed and suspected suicides have been reported across the Army since Jan. 1. Of the 56, 22 are confirmed suicides, 34 are pending.

According to data from the Army, all 13 suspected suicides from March involved male soldiers.

The Army has charged Vice Chief of Staff Gen. Peter Chiarelli with the service’s suicide prevention efforts, introduced new training materials, and ordered stand-downs and chain-teach sessions in an effort to curb suicide numbers that have risen steadily for four years.

As many as 143 soldier suicides were reported in 2008, the fourth year in a row the Army has seen an increase in suicides, and leaders have said factors such as the stress of deployments and personal relationships played a role in the deaths.

But Chiarelli also has said that the cause of the mounting suicides is not so clear-cut.

About a third of the soldiers who committed suicide in 2008 had no deployment experience, a third killed themselves while deployed overseas, and the rest had deployed before but were home at the time of their deaths.

In addition, the percentage of suicides among soldiers with multiple deployments was much smaller than among those with one deployment, and about 50 percent of the 143 soldiers who killed themselves in 2008 had sought help from mental health care providers.

Of the 143 cases, 128 were enlisted soldiers; 41 were in combat arms military occupational specialties; 85 were married; 134 were men; 110 were white.

“The Army’s charter is more about improving the physical, mental and spiritual health of our soldiers and their families than solely focusing on suicide prevention,” Chiarelli said in an April 10 statement. “If we do the first, we are convinced that the second will happen.”

Chiarelli recently completed an eight-day suicide prevention trip that included visits to six major Army posts. In his travels and in discussions with the media, Chiarelli has emphasized eliminating the stigma attached to seeking mental health care.

“Any soldier, from private to general, may need help at some time in their Army career,” he said. “Seeking that help, without fear of stigma, has to become second nature in our Army community; it has to become part of our culture.”

By the numbers

In March, 13 soldiers’ deaths were suspected to be suicides, pending confirmation.

 

• All were male

• Six were married, seven were single

• Three were deployed when they died

• 11 were enlisted, ranging in rank from E-1 through E-7

• Of the two officers, one was a chief warrant officer 2, the other a first lieutenant

• Two had deployed three times, three had deployed twice, six had deployed once and two had never deployed

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Councils’ surveillance powers under review

Sunday, April 19th, 2009

By Sarah Bunney |

A MOVE to review councils’ use of anti-terror laws to spy on the public has been welcomed by campaigners and politicians who fear we increasingly live in a Big Brother-style society.

Councils across the nation have been putting us under surveillance for suspected offences from dog fouling and dropping litter to counterfeiting and loan sharking.

Concerns these powers – given to public authorities under the Regulation of Investigatory Powers Act (Ripa) – were being used for “trivial offences” have prompted Home Secretary Jacqui Smith to launch a review.

The Tories and Lib Dems say Ripa had become a “snooper’s charter”.

Incidents in Wales include CCTV being installed in school toilets.

And last summer Wales on Sunday revealed how councils were using Ripa, which was originally brought in to help police and the security services combat serious crime and terrorism, to spy on their own employees.

Data released under the Freedom of Information Act found Conwy council used Ripa to monitor an employee who was under suspicion of taking drugs while at work, and Denbighshire council used the powers as it suspected an employee was using a council vehicle for his own use.

Newport council admitted using powers to check on a council employee who was at home while claiming to be working.

The same council put another employee under surveillance for allegedly working while on sickness absence.

For spying on the public, Bridgend council was Wales’ Ripa hotspot, with 254 authorisations within three years.

Jenny Willott, Liberal Democrat MP for Cardiff Central, said yesterday: “We definitely need to have a review of these powers. It’s becoming clear that they are not always being used in the way they were intended, and some councils are clearly abusing surveillance powers.

“The only way to tackle that is to look at what they are being used for, seeing how often and how they are being used. Then decisions can be made about the best way to deal with that and under what circumstances they should be needed.”

Liberty’s director of policy Isabella Sankey said: “There is no question that surveillance is a vital tool in the battle against serious crime and terrorism, but reports that mothers are tailed by council officers policing school catchment zones has seriously undermined public trust and confidence.

“We hope that the Government is now ready to listen to these concerns and restrict broadly drafted powers that have been widely used and abused.”

The dad of a 15-year-old girl who was spied on by CCTV cameras in her school toilets also welcomed the review. Anthony White, who took his daughter Jade out of Ysgol Dyffryn Teifi, Ceredigion, in January, said he was annoyed and upset that the school were allowed to install the cameras.

He said: “If a girl was standing looking in the mirror and adjusting her bra, the cameras would capture all of that. The toilets are the only place in school where a pupil can actually go for a bit of privacy, whether it’s a boy or a girl.”

Jade now attends another school after her parents withdrew her from the Welsh-language comprehensive.

Anthony added: “Other female pupils won’t go to the toilet there now because of the cameras – they wait until they go home. It’s about time something was done about the use of cameras in totally inappropriate places.”

A Welsh Local Government Association (WLGA) spokesman said: “Local authorities in Wales have duties under a wide range of laws to ensure certain rules are observed in the community, which are important in enabling councils to tackle the kinds of issues such as trading standards and public health issues.

“Where covert action is necessary for councils to enforce these laws, Ripa controls councils’ actions and ensures that people’s right to privacy is not unduly breached, as well as controlling the actions of council officers, making the council liable and totally accountable for its actions, and providing local people with the means to challenge councils about the way in which they do their work.

“The WLGA is currently working with Welsh councils to review their use of powers under Ripa, reviewing what these powers should be used for and ensuring they are used appropriately.”

JADE White’s dad took the 14-year-old out of school in January after CCTV cameras were installed in the toilets.

Anthony White, from Llandysul, said the cameras at Ysgol Dyffryn Teifi in Ceredigion were an “outrageous invasion” of his daughter’s privacy.

She said: “I am not going back while the cameras are there. It must be against the law to have them there.”

Her dad added: “The school is being pathetic. They don’t need security cameras in toilets.

“The whole place is like they’re on Big Brother. There are cameras all around the school, outside and in the corridors.”

Ceredigion Council said it had installed the cameras after incidents of “major concern”.

Spokeswoman Anwen Francis said: “Any such viewing of CCTV footage is undertaken by senior members of staff having Criminal Records Bureau (CRB) clearance.”

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Council uses anti-terror powers to spy on residents

Thursday, April 2nd, 2009

By Thais Portilho-Shrimpton |

Anti-terror powers are being invoked by Epsom council to spy on its residents over minor breaches of the law, it has emerged.

Epsom and Ewell Council has ordered surveillance designed to thwart terrorist bombings to catch unlicensed taxis, benefit fraudsters, alcohol licensees and noisy neighbours.

A Freedom of Information Act request by the Liberal Democrats revealed the council had utilised the Regulation of Investigatory Powers Act 2000 (Ripa) 36 times in the last five years.

Despite the large number of cases investigated only three led to prosecutuions.

Shadow home secretary Chris Grayling, MP for Epsom and Ewell, said: “I think it’s absolutely wrong these powers have been used by local authorities when they were originally designed for anti-terrorism policing.

“It’s not just a waste of money, it’s an inappropriate invasion of privacy.

“It’s using powers that are designed to fight terrorism for local purposes. That’s just wrong.

“I don’t think local authorities should be able to use them at all.”

Epsom and Ewell Liberal Democrat councillor Jonathan Lees said: “Nationally it is appalling these laws have been used so many times.

“Epsom and Ewell Council has used these 36 times, 29 of which have been authorised by management and only seven by senior management.

“I am very concerned these powers, which have the potential to infringe onto our civil liberties if used, are only used in extreme cases by the senior management of the council under tight guidance and control.

“They should be constantly monitored for misuse and if used, it should be documented why with a clear explanation.”

The council’s chief executive, two directors, four heads of service, one manager and three team leaders have the power to authorise the use of the anti-terror laws on council investigations.

A spokeswoman for the council admitted the use of new legislation “allows civil liberties to be breached in a legal manner”.

She said: “The council carries out investigations using powers under the Ripa in relation to benefit fraud, licensing and environmental health investigations.

“It does not do this on a routine basis, but only uses the powers where it feels they are appropriate.

“Local authorities have the power to regulate certain areas to ensure the safety and quality of life for our residents.

“Where offences are prosecutable surveillance in some cases is required to prove the offences.

“A local authority has to balance the rights of an individual against the rights and needs of the public as a whole when it carries out all of its functions.

“The staff who regularly authorise surveillance have been trained in the use of the proper powers and a refresher course led by external trainers was held last month.”

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FBI Declines 2 Of 3 Information Requests

Friday, March 13th, 2009

A private study said the FBI tells two out of every three Freedom of Information Act requesters that it can’t find the records they requested.

 

The study by the National Security Archive, a private group that publishes declassified government documents, said that failure rate is five times higher than other major federal agencies.

 

The Archive awarded the FBI its Rosemary Award for the worst Freedom of Information Act performance by a federal agency.

 

The award is named for former President Richard M. Nixon’s secretary Rose Mary Woods who’s known for claiming to have accidentally erased 18 1/2 minutes of a White House tape recording during the Watergate era.

 

The award is given annually around Sunshine Week, when journalism organizations promote open government and freedom of information.

 

An FBI spokesman said the reason for the huge number of no-records responses is that “it’s become a cult phenomenon to ask the FBI for records.”

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Iraq ’shoe-thrower’ sentenced

Thursday, March 12th, 2009

An Iraqi journalist who threw his shoes at George Bush, then US president, has been given a three-year jail sentence after pleading not guilty to assaulting a foreign head of state.The sentencing of Muntadher al-Zaidi, 30, by the Central Criminal Court in Baghdad on Thursday, was announced by Al-Baghdadiya television, his employer.

The journalist, who became a hero to many Iraqis after the December 14 incident, arrived at the court under a heavy police escort.

Judge Abdulamir Hassan al-Rubaie said he had taken into consideration that al-Zaidi is young and it was his first offence, the defence lawyers said.

Packed courtroom

There was standing room only at the courtroom on the edge of Baghdad’s Green Zone as some 200 family members, reporters and lawyers crowded in.

Al-Rubaie later cleared the court before returning his verdict.

Asked if he was innocent, al-Zaidi responded: “Yes, my reaction was natural, just like any Iraqi (would have done).”

Bush was speaking on December 14 at a joint news conference in Baghdad with Nuri al-Maliki, the Iraqi prime minister, when al-Zaidi hurled his shoes at him.

The shoes narrowly missed Bush, who later brushed the incident aside.

As well as throwing the shoe, al-Zaidi shouted “It is the farewell kiss, you dog”, before security forces wrestled him to the ground.

He later said he had been beaten and tortured in custody.

Shoe-hurling is considered an especially grave insult in the Arab and Muslim world and al-Zaidi had risked up to 15 years in jail on the charge of aggression against a foreign head of state.

‘Prisoner of war’

After the verdict on Thursday, al-Zaidi’s 25-strong defence team emerged from the  courtroom to scenes of chaos. Several family members screamed: “It’s an American court … sons of dogs.”

One of his brothers, Uday, said the decision was political.

“This is a political court. Muntadhar is being treated like a prisoner of war. He is not a normal prisoner … This decision has been taken by the prime minister’s office.”

Al-Zaidi shouted “Iraq, long live Iraq” after the verdict was read out, Yahia Attabi, a defence lawyer, said.

“We expected the decision because under the Iraqi criminal code he was charged with assaulting a foreign leader on an official visit.”

Appeal planned

Attabi said al-Zaidi will appeal the decision.

The family said they would not only appeal but also press ahead with plans to bring torture charges against Bush, al-Maliki and his bodyguards at a human rights court abroad.

Ehiya al-Sadi, the chief defence lawyer, had argued that his client’s motives were “honourable”.

“He was only expressing his feelings. What he could see was the blood of Iraqis at his feet when he watched the US president speaking about his achievements in Iraq.”

Al-Sadi also argued that although Iraqi law considered it an attack on a visiting head of state, “[al-Zaidi's] throwing of the shoe did not cause any injury or damage … His goal was to insult Bush for the pain Iraqis have suffered”.

Al-Zaidi’s account

The trial opened on February 19 but was adjourned to determine the nature of Bush’s December visit.

Al-Zaidi told the court last month that he had been outraged and was unable to control his emotions when Bush started speaking to the media.

“I had the feeling that the blood of innocent people was dropping on my feet during the time that he was smiling and coming to say bye-bye to Iraq with a dinner.

“So I took the first shoe and threw it but it did not hit him. Then spontaneously I took the second shoe but it did not hit him  either. I was not trying to kill the commander of the occupation forces of Iraq.”

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More than 1,000 UK police have criminal records

Wednesday, March 11th, 2009

More than 1,000 serving police officers in Britain have criminal records, figures obtained under freedom of information laws showed on Wednesday.

Convictions of the 1,063 officers include 77 for violence, 36 for theft and 96 for dishonesty.

Five of these officers were reinstated by the Home Office after being sacked by their local forces.

More than half the convictions were for speeding, drink-driving or other motoring offences, according to the figures obtained by the Liberal Democrats from 41 of Britain’s 52 police forces.

Another 210 officers have been dismissed or been required to resign in the past five years because of their criminal convictions.

Liberal Democrat Home Affairs Spokesman Chris Huhne said officers convicted of violence or dishonesty should be dismissed immediately.

“A serving police officer is expected by members of the public to be self controlled and self restrained in the use of force,” Huhne told BBC television.

“If there is dishonesty, police offices can’t actually do their duty in giving evidence … the defence would completely shred their credibility in court.”

The Association of Chief Police Officers said there were more than 140,000 officers in Britain and that it was very rare for anyone with a criminal conviction to be recruited.

“The police service expects good conduct and probity from its officers and staff at all times,” said Greater Manchester Police Chief Constable Peter Fahy.

“Where wrongdoing is alleged, police officers are investigated and action taken as appropriate to each case.”

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Iran lacks nuclear bomb fuel: US officials

Wednesday, March 11th, 2009

WASHINGTON (AFP) - Iran has yet to decide whether to build a nuclear bomb and currently lacks the weapons-grade highly enriched uranium needed to do so, top US intelligence officials told lawmakers on Tuesday.

But Tehran is enriching uranium in defiance of global sanctions and is “mastering” the know-how to build long-range missiles that can carry nuclear bombs to their targets oceans away, said director of intelligence Dennis Blair.

And most spy agencies believe Tehran will probably be able to produce highly enriched uranium somewhere in the 2010-2015 timeframe, with the US State Department’s apparatus setting the early date at 2013, he said.

“Although we do not know whether Iran currently intends to develop nuclear weapons, we assess Tehran at a minimum is keeping open the option to develop them,” said Blair told the Senate Armed Services Committee.

And he acknowledged that the US view was at odds with that of staunch ally Israel: “The Israelis are far more concerned about it, and they take more of a worst-case approach to these things from their point of view.”

To build a nuclear arsenal, Iran would need a stockpile of highly enriched uranium, would need to be able to build a warhead — a process it froze in mid-2003 and likely has not resumed — and would need long-range missiles.

US intelligence agencies have concluded that “Iran has not decided to press forward on all three tracks,” Blair said.

“We are in agreement on this,” Lieutenant Michael Maples, the director of the Pentagon’s Defense Intelligence Agency (DIA) told the same committee.

And “Iran will see government revenues decline in 2009 as oil prices remain at low levels. Defense spending will have to be balanced with social programs,” said Maples.

Maples and Blair noted that Iran was building and acquiring advanced defenses against air strikes — which experts see as a likely path for a military effort to destroy Iran’s nuclear program.

But doing so is “a separate decision” from whether to build a nuclear weapon, said Blair.

Blair also warned it will be “difficult” to convince Iran through diplomatic means to give up its nuclear ambitions.

Tehran might bow to a blend of “credible” incentives and “threats of intensified international scrutiny and pressures” but “it is difficult to specify what such a combination might be,” he said.

His comments came as US President Barack Obama wrestled with how to convince the Islamic republic to halt what the West views as a covert nuclear weapons drive.

Iran denies the allegations, saying it needs atomic power to generate electricity for civilian use.

“We assess convincing the Iranian leadership to forego the eventual development of nuclear weapons will be difficult, given the linkage many within the leadership see between nuclear weapons and Iran’s key national security and foreign policy objectives, and given Iran’s considerable effort from at least the late 1980s to 2003 to develop such weapons,” Blair warned.

US intelligence agencies estimate that Iran halted its nuclear weapons design and weaponization activities in late 2003 and that Tehran had not resumed them as of mid-2007, he told lawmakers.

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The Bottomless Bailout

Monday, March 9th, 2009

By Ralph Nader |

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Top US cybersecurity official quits over NSA dominance

Sunday, March 8th, 2009

AFP |

A top US cybersecurity official has quit, complaining in a resignation letter obtained by Wired magazine that US cyber protection efforts are being dominated by the super-secret National Security Agency (NSA).

The Department of Homeland Security (DHS) confirmed the resignation of Rod Beckstrom, director of the National Cyber Security Center (NCSC), but did not give a reason for his decision to step down.

“We thank Rod for his service, and regret his departure,” the DHS said in a statement emailed to AFP.

While declining to confirm the authenticity of the letter published by the online edition of Wired, the department stressed in its statement that it had a “strong relationship” with the NSA.

“The Department of Homeland Security has a strong relationship with the NSA, and continues to work in close collaboration with all of our federal partners on protecting federal civilian networks,” it said.

“We look forward to our continued, positive working relationship with all our partners on outreach to the private sector as we strive to further secure our nation’s cyber networks,” the department added.

Wired, in its “Danger Room” blog, published what it said was a copy of the resignation letter to DHS Secretary Janet Napolitano from Beckstrom, who was appointed to the post a year ago by former DHS secretary Michael Chertoff.

In the letter, Beckstrom complained that the NCSC had been effectively sidelined by the NSA and warned against putting the surveillance agency in charge of national cybersecurity.

“NSA effectively controls DHS cyber efforts,” Beckstrom said. “While acknowledging the critical importance of NSA to our intelligence efforts, I believe this is a bad strategy on multiple grounds,” he said.

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Why Did So Few Americans Give a Damn?

Friday, March 6th, 2009

By William Pfaff |

The documents currently being released by the Justice Department that demonstrate the Bush administration’s view of the president’s constitutional power in a “state of war” tell us things we suspected but didn’t want to know.

The first seven of these official memorandums issued last week dealt with claimed presidential powers to unilaterally abrogate international treaties; suspend constitutional guarantees of freedom of speech and press; and order warrant-less searches, wiretaps and seizures of documents and indefinite imprisonment inside the U.S. without trial or criminal charges. The memorandums claimed that Congress has no overriding authority in these matters.

The authors of all but one of these documents were John Yoo and Jay Bybee (both then of the Justice Department but now, respectively, a member of the University of California at Berkeley Law School faculty and a federal judge on the Ninth Circuit Court of Appeals). They were also the authors early in the Bush administration of two special memorandums defining torture much more narrowly than in the United States code of military justice or U.S. civil law.

They redefined torture to permit what ordinarily is illegal in U.S. military and civil law under the so-called Federal Maiming Statute. This law makes it a crime to disfigure faces and body parts with knives or razors, or to cause blindness, or cut out tongues, or perform other grotesque and gruesome tortures that this column will leave to the consciences of professor Yoo, Judge Bybee and the senior members of the Bush administration who wished to be advised on their exemption from such legal limits.

Professor Yoo’s view is that the president possesses unchecked authority “in a state of armed conflict.” At the time, this state of armed conflict consisted of a dozen or so stateless persons who had deliberately crashed aircraft into New York and Washington buildings. The two initial memos on torture were withdrawn when they became public.

The American use of torture has been public knowledge or surmise since very early in President Bush’s war on terror. Not many Americans seemed to take note or to protest at the time. There were individuals who protested; the American Civil Liberties Union was on the job, as were Amnesty International and other American nongovernmental organizations and citizens’ groups. They were mostly ignored. Questions were asked in Congress, but little ensued.

This was the amazing thing, really. Very few people among the American public seemed to care—except Fox television executives, who recognize a commercial opportunity when it hits them between the eyes.

Fox began a drama in which each program was devoted to the American president’s torturer doing whatever had to be done to thwart a new threat to the American republic. The hero would apply one of the tortures pronounced legally OK for Americans to use, until the terrorist, gasping or screaming, blurts out where the nuclear bomb has been planted.

This turned out to be one of the most popular programs on the air. It seems that President Bush himself watched. People in the torturing business joked that they got some good ideas from the program.

What if 65 years ago in Germany entertainment radio had broadcast a popular program in which SS and Gestapo officers tortured American OSS officers, or captured American or British airmen, to extract vital information from them at any cost? Adolf Hitler himself might have tuned in. He had decreed that Allied commandos in military uniform should be treated as terrorists rather than as soldiers.

The final thing I will say about this is that many or most of the documents now being issued on how President Bush might ignore the U.S. Constitution had to do with domestic surveillance and the (illegal) use of American military forces against the American public.

That probably would have begun in a small way. “Troublemakers” disappearing here and there. Protest groups rounded up and sent to camps. Possibly a day would have come when some conference of lawyers, or the United States Conference of Catholic Bishops, or Americans for Democratic Action, or the Cato Institute, or some political pressure group like the American Israel Public Affairs Committee, did something that seriously annoyed the White House.

If a battalion of military police took over the hall and the participants “disappeared,” it would certainly have made the newspapers, if the newspapers still reported such things. But considering the precedent of the American popular reaction to torture, what else would have happened? Possibly there would have been a popular new television program about the subversive forces at work in America, and how patriots should deal with them.

Visit William Pfaff’s Web site at www.williampfaff.com.

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Top Secret Credit Crisis Bailouts

Thursday, March 5th, 2009

Interesting stories are stacking up again so it’s time for some economic potpourri starting with secret dealings by the Fed.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg sued Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It sued Nov. 7.

In response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

In plain English: Bernanke Lied.

Japan clears cash hand-out bill

Japan’s parliament has passed legislation to give a cash hand-out to every resident in attempt to boost the recession-hit economy. Most people will get at least 12,000 yen ($121; £86) under the $20bn plan.

China Considering New Stimulus Measures

Chinese Premier Wen Jiabao is considering new stimulus measures, adding to a 4 trillion yuan ($585 billion) spending plan as the government tries to revive growth in the world’s third-biggest economy.

Wen will announce “a new stimulus package” in his annual address to the nation’s legislature tomorrow, former statistics bureau head Li Deshui told reporters in Beijing today. He didn’t say whether spending would increase or give further details.

“The existing stimulus package may not be adequate considering the total collapse of global trade,” said Isaac Meng, a senior economist at BNP Paribas SA in Beijing. “There should be more spending, especially on the social side to cushion unemployment. This is quite urgent.”

Doting On Animals In Hard Times

When markets drip tears and For Rent signs appear over products in shops that were once For Sale, people still spend almost as much resources, time and energy as ever on a completely wasteful economic category: pets.

I once did some consulting for the chairman’s office of A&P and assumed that surely, in tough times, poor people would choose the generic cat food rather than Hill’s Science Diet Culinary Creations cat food. But I was wrong. Consumers would rather buy plain-label generic creamed corn or tomato soup for themselves than subject their four-footed treasures to what they fear will be second-rate grub.

Ellen DeGeneres promotes her Halo line, with “holistic foods for pets’ total well-being. Highest quality meats, grain and fresh vegetables.” She could be joined by the producers of Haute Canine, the Natural Gourmet Dog Snack and Dandy Doggy Bowser Brittle (with rain-forest nuts).

Of course there are countless miserable stories of pets abandoned in foreclosed homes, left off from cars in parks and simply ignored once a summer vacation is over. The story is not wholly pretty and contains abundant cruelty, exploitation and heartlessness.

Nevertheless, for a sense of proportion about broad economic forces, go to a supermarket and watch the purchasers of pet food. Observe elemental mammalian life at work, for it has been around for an endlessly long time and will be present in the future.

Brown Will Urge World to ‘Seize Moment,’ Unite on Stimulus Plan

U.K. Prime Minister Gordon Brown will use a speech to both houses of the U.S. Congress today to urge countries to “seize the moment” following President Barack Obama’s election and agree on new global financial regulations.

“Now, more than ever, the rest of the world wants to work with you,” Brown, the fifth British prime minister to address Congress, will say, according to extracts of his speech released in advance. “Never before have I seen a world so willing to come together. Never before has that been more needed. And never before have the benefits of cooperation been so far-reaching.”

Never before has there been so much meaningless political sap.

Australian Economy Grinds To A Halt

THE global recession has caught up with Australia’s economy, forcing the first fall in output in eight years and making the Rudd Government revise lower the budget forecasts it made only four weeks ago.

Wayne Swan said the downturn made it unlikely the economy would achieve the optimistic 1 per cent growth this year forecast by Treasury just four weeks ago.

The Treasurer said it was likely that revenue would also fall short of the latest forecast, which was itself a $115 billion downward revision from budget. This will push the deficit out from Treasury’s estimate of $22.5 billion.

However, Mr Swan defended the Government’s actions in launching its first economic stimulus package last October, in the face of criticism from the Opposition that it was spending too much, too soon.

“There is absolutely no doubt that things in this country would have been far worse had the Government not acted when we did with the economic security strategy announced last October,” he said.

“If we pull together, if we keep doing whatever is necessary, we can come out of this stronger than ever,” he said.

Swan needs to get together with Brown, Obama, and Bernanke to sing Kumbaya.

Hawaii: Teachers union unit files for bankruptcy

The union that represents Hawaii’s public schoolteachers says the activities and finances of a subsidiary corporation had been “grossly mismanaged.”

Member Benefits Corp., which filed for bankruptcy Monday, has been shut down. It had managed the Hawaii State Teachers Association’s Voluntary Employees Benefits Association.

The HSTA decided to dissolve the corporation last year after determining the for-profit subsidiary didn’t fit within the union’s mission.

The union has told it members the mismanagement was discovered by an outside team of attorneys and accountants that was brought in as part of the process of closing the corporation.

Bernanke grilled on latest $30B bailout of AIG

Irritated lawmakers grilled Federal Reserve Chairman Ben Bernanke Tuesday over the latest bailout of American International Group, even as the Fed chief warned that an economic recovery hinges on the government’s success in stabilizing shaky financial markets and their major players.

“I share your concern, I share your anger,” Bernanke told the Senate Budget Committee. “It’s a terrible situation, but we’re not doing this to bail out AIG or their shareholders. We’re doing this to protect our financial system and to avoid a much more severe crisis in our global economy.”

Bernanke defended the government’s repeated rescue attempts on AIG, saying “the failure of major financial firms in a financial crisis can be disastrous for the economy.”

Sen. Ron Wyden, D-Ore., and others said the identities of banks and other so-called counterparties that do business with AIG and other bailed-out institutions should be made public. Those companies also should have to make some concessions, he added.

“They ought to … have some kind of consequence,” Wyden said. “The American people are in the dark on this issue, and I think it’s time for some sunlight. I think that the public really wants to know why are these people so important.”

Sunlight is illegal. Bernanke wants us in the dark. It’s Top Secret.

Pressure to reveal major AIG counterparties grows

Calls increased Tuesday to reveal the financial institutions that got almost $40 billion in collateral from American International Group shortly after the government first bailed out the insurer last year.

AIG almost collapsed in September after ratings agency downgrades triggered demands for billions of dollars in extra collateral from firms that had bought derivative-based protection from the insurer on complex mortgage-related products known as collateralized debt obligations, or CDOs.

AIG didn’t have that much money and faced bankruptcy. But it was saved by an $85 billion emergency loan facility from the Federal Reserve.

By Nov. 5, the insurer had paid out $37.3 billion of that money to counterparties who had purchased a certain type of derivative-based protection from AIG called multi-sector credit-default swaps, according to the company’s third-quarter regulatory filing.

“AIG has given the counterparties $20 billion. Those people could be just about anybody in the world. Why won’t the Fed disclose who those are?” Sen. Ron Wyden, D-Ore., asked Fed Chairman Ben Bernanke during congressional testimony on Tuesday.

Bernanke said the counterparties made “legal, legitimate, financial transactions” with AIG and presumed at the time that the contracts would remain private. “That is a consideration we have to take into account,” he added.

Sen. Mark Warner, D-Va., suggested that AIG’s counterparties should have to take a “haircut,” rather than be made whole, because some of them probably didn’t do enough due diligence on whether the insurer was financially strong enough to be selling such protection.

“In effect, what we’re saying is, consequently, folks who bought these instruments and that, at some point in their process, should have been doing some level of credit analysis of what AIG was selling who didn’t do that credit analysis are going to still come out whole for their lack of appropriate due diligence or responsible behavior,” he said.

“I’m as unhappy as you are about that, senator,” Bernanke replied. “I just don’t know what to do about it.”

There are many problems with the handling of AIG but it all starts with the initial decision to do something as opposed to nothing. Government has no business bailing out anyone and the decision is made all the more galling by making everything a secret.

Note that the Fed is picking winners and losers. There are other creditors of AIG who might have a better claim on its assets than who the Fed is picking. Remember that the Fed promised transparency. Instead, we have gotten noting but lies and secrecy from Bernanke, Paulson, and Geithner every step of the way.

Words cannot begin to express my disgust of the lies and secret shenanigans of the Fed and Treasury.

© 2009 Mike Shedlock, All Rights Reserved

Have Your Say: Top Secret Credit Crisis Bailouts
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The Two Documents Everyone Should Read to Better Understand the Crisis

Friday, February 27th, 2009

By William K. Black 

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an “epidemic” of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds. When the person that controls a seemingly legitimate business or government agency uses it as a “weapon” to defraud we categorize it as a “control fraud” (”The Organization as ‘Weapon’ in White Collar Crime.” Wheeler & Rothman 1982; The Best Way to Rob a Bank is to Own One. Black 2005). Financial control frauds’ “weapon of choice” is accounting. Control frauds cause greater financial losses than all other forms of property crime — combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a “criminogenic environment” (Big Money Crime. Calavita, Pontell & Tillman 1997.)

The FBI correctly identified the epidemic of mortgage control fraud at such an early point that the financial crisis could have been averted had the Bush administration acted with even minimal competence. To understand the crisis we have to focus on how the mortgage fraud epidemic produced widespread accounting fraud.

Don’t ask; don’t tell: book profits, “earn” bonuses and closet your lossesThe first document everyone should read is by S&P, the largest of the rating agencies. The context of the document is that a professional credit rater has told his superiors that he needs to examine the mortgage loan files to evaluate the risk of a complex financial derivative whose risk and market value depend on the credit quality of the nonprime mortgages “underlying” the derivative. A senior manager sends a blistering reply with this forceful punctuation:

Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.

Fraud is the principal credit risk of nonprime mortgage lending. It is impossible to detect fraud without reviewing a sample of the loan files. Paper loan files are bulky, so they are photographed and the images are stored on computer tapes. Unfortunately, “most investors” (the large commercial and investment banks that purchased nonprime loans and pooled them to create financial derivatives) did not review the loan files before purchasing nonprime loans and did not even require the lender to provide loan tapes.

The rating agencies never reviewed samples of loan files before giving AAA ratings to nonprime mortgage financial derivatives. The “AAA” rating is supposed to indicate that there is virtually no credit risk — the risk is equivalent to U.S. government bonds, which finance refers to as “risk-free.” We know that the rating agencies attained their lucrative profits because they gave AAA ratings to nonprime financial derivatives exposed to staggering default risk. A graph of their profits in this era rises like a stairway to heaven. We also know that turning a blind eye to the mortgage fraud epidemic was the only way the rating agencies could hope to attain those profits. If they had reviewed even small samples of nonprime loans they would have had only two choices: (1) rating them as toxic waste, which would have made it impossible to sell the nonprime financial derivatives or (2) documenting that they were committing, and aiding and abetting, accounting control fraud.

Worse, the S&P document demonstrates that the investment and commercial banks that purchased nonprime loans, pooled them to create financial derivatives, and sold them to others engaged in the same willful blindness. They did not review samples of loan files because doing so would have exposed the toxic nature of the assets they were buying and selling. The entire business was premised on a massive lie — that fraudulent, toxic nonprime mortgage loans were virtually risk-free. The lie was so blatant that the banks even pooled loans that were known in the trade as “liar’s loans” and obtained AAA ratings despite FBI warnings that mortgage fraud was “epidemic.” The supposedly most financially sophisticated entities in the world — in the core of their expertise, evaluating credit risk — did not undertake the most basic and essential step to evaluate the most dangerous credit risk. They did not review the loan files. In the short and intermediate-term this optimized their accounting fraud but it was also certain to destroy the corporation if it purchased or retained significant nonprime paper.

Stress this: stress tests are useless against the nonprime problems
What commentators have missed is that the big banks often do not have the vital nonprime loan files now. That means that neither they nor the Treasury know their asset quality. It also means that Geithner’s “stress tests” can’t “test” assets when they don’t have the essential information to “stress.” No files means the vital data are unavailable, which means no meaningful stress tests are possible of the nonprime assets that are causing the greatest losses.

The results were disconcertingA rating agency (Fitch) first reviewed a small sample of nonprime loan files after the secondary market in nonprime loan paper collapsed and nonprime lending virtually ceased. The second document everyone should read is Fitch’s report on what they found.

 

Fitch’s analysts conducted an independent analysis of these files with the benefit of the full origination and servicing files. The result of the analysis was disconcerting at best, as there was the appearance of fraud or misrepresentation in almost every file. 
[F]raud was not only present, but, in most cases, could have been identified with adequate underwriting, quality control and fraud prevention tools prior to the loan funding. Fitch believes that this targeted sampling of files was sufficient to determine that inadequate underwriting controls and, therefore, fraud is a factor in the defaults and losses on recent vintage pools.

 

Fitch also explained why these forms of mortgage fraud cause severe losses.

 

For example, for an origination program that relies on owner occupancy to offset other risk factors, a borrower fraudulently stating its intent to occupy will dramatically alter the probability of the loan defaulting. When this scenario happens with a borrower who purchased the property as a short-term investment, based on the anticipation that the value would increase, the layering of risk is greatly multiplied. If the same borrower also misrepresented his income, and cannot afford to pay the loan unless he successfully sells the property, the loan will almost certainly default and result in a loss, as there is no type of loss mitigation, including modification, which can rectify these issues.

 

The widespread claim that nonprime loan originators that sold their loans caused the crisis because they “had no skin in the game” ignores the fundamental causes. The ultra sophisticated buyers knew the originators had no skin in the game. Neoclassical economics and finance predicts that because they know that the nonprime originators have perverse incentives to sell them toxic loans they will take particular care in their due diligence to detect and block any such sales. They assuredly would never buy assets that the trade openly labeled as fraudulent, after receiving FBI warnings of a fraud epidemic, without the taking exceptional due diligence precautions. The rating agencies’ concerns for their reputations would make them even more cautious. Real markets, however, became perverse — “due diligence” and “private market discipline” became oxymoronic. These two documents are enough to begin to understand:

• the FBI accurately described mortgage fraud as “epidemic” 
• nonprime lenders are overwhelmingly responsible for the epidemic 

   

• the fraud was so endemic that it would have been easy to spot if anyone looked 

   

• the lenders, the banks that created nonprime derivatives, the rating agencies, and the buyers all operated on a “don’t ask; don’t tell” policy 

   

• willful blindness was essential to originate, sell, pool and resell the loans 

   

• willful blindness was the pretext for not posting loss reserves 

   

• both forms of blindness made high (fictional) profits certain when the bubble was expanding rapidly and massive (real) losses certain when it collapsed 

   

• the worse the nonprime loan quality the higher the fees and interest rates, and the faster the growth in nonprime lending and pooling the greater the immediate fictional profits and (eventual) real losses 

   

• the greater the destruction of wealth, the greater the (fictional) profits, bonuses, and stock appreciation 

   

• many of the big banks are deeply insolvent due to severe credit losses 

   

• those big banks and Treasury don’t know how insolvent they are because they didn’t even have the loan files 

   

• a “stress test” can’t remedy the banks’ problem — they do not have the loan files

Have Your Say: The Two Documents Everyone Should Read to Better Understand the Crisis
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