The Black Box Economy

Behind the recent bad news lurks a much deeper concern: The world economy is now being driven by a vast, secretive web of investments that might be out of anyone's control.

(AP) Boston Globe
By Stephen Mihm January 27, 2008

THE PAST YEAR has been a harrowing one for the world’s financial markets, shaken by subprime crises, credit crunches, and other ills. Things have only gotten stranger in the past week, with stock prices swinging wildly in every major market - drastically down, then back up.
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Last week the Federal Reserve announced the biggest cut in overnight lending rates in more than two decades. Congress, not to be outdone, is slapping together a massive deficit spending package aimed at giving the economy an emergency booster shot.

Despite the anxiety, nobody is stockpiling canned goods just yet. The prevailing assumption in today’s economy is that recessions and bear markets come and go, and that things will work out in the end, much as they have since the Great Depression. That’s because there’s a collective confidence that the market is strong enough to correct itself, and that experts in charge of the financial system will understand how to mount a vigorous defense.

Should we be so confident this time? A handful of financial theorists and thinkers are now saying we shouldn’t. The drumbeat of bad news over the past year, they say, is only a symptom of something new and unsettling - a deeper change in the financial system that may leave regulators, and even Congress, powerless when they try to wield their usual tools.

That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade - a web of extraordinarily complex securities and wagers that has made the world’s financial system so opaque and entangled that even many experts confess that they no longer understand how it works.

Unlike the building blocks of the conventional economy - factories and firms, widgets and workers, stocks and bonds - these new financial arrangements are difficult to value, much less analyze. The money caught up in this web is now many times larger than the world’s gross domestic product, and much of it exists outside the purview of regulators.

Some of these new-generation investments have been in the news, such as the securities implicated in the mortgage crisis that is still shaking the housing market. Others, involving auto loans, credit card debt, and corporate debt, are lurking in the shadows.

The scale and complexity of these new investments means that they don’t just defy traditional economic rules, they may change the rules. So much of the world’s capital is now tied up in this shadow economy that the traditional tools for fixing an economic downturn - moves that have averted serious disasters in the recent past - may not work as expected.

In tell-all books, financial blogs, and small-circulation newsletters, a handful of insiders have begun to sound the alarm, warning that governments and top bankers may simply no longer understand the financial system well enough to do anything about it.

“Central banks have only two tools,” says Satyajit Das, author of “Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives,” who has emerged as a voice of concern. “They can cut interest rates or they can regulate banks. But these are very old-fashioned tools, and are completely inadequate to the problems now confronting them.”

Since the last financial crisis that genuinely threatened the fabric of our society, the Great Depression, the United States has built a system of regulatory checks and balances that has, for the most part, worked. The system has worked because the new regulations enforced some semblance of transparency. Companies abide by an extensive set of rules and file information on their profits, losses, and assets.

Obviously, there are limits to transparency: Without withholding some information from public view, it would be hard for companies to take advantage of opportunities in the marketplace. But a modicum of transparency can go a long way, enabling both regulators and investors to make informed decisions. The advantages of the system are many; the costs of even a single case of nontransparency, as with Enron, can be high.

But when the mortgage crisis broke last summer, it opened a window on something else: The existence of a huge wilderness of investments in the financial sector that are nearly impossible to track or measure, and which operate out of the view of both investors and regulators. It emerged that investment banks, hedge funds, and other financial players had issued, bought, and sold hundreds of billions of dollars’ worth of esoteric securities backed in part by other securities, which in turn were backed by payments on high-risk mortgages.

When borrowers began defaulting on their loans, two things happened. One, banks, pension funds, and other institutional investors began revealing that they owned huge quantities of these unusual new securities, called collateralized debt obligations, or CDOs. The banks began writing them off, causing the massive losses that have buffeted the country’s best-known financial companies. And two, without a market for these securities, brokers stopped wanting to issue risky mortgages to new home buyers. Home values began their plunge.

In other words, a staggeringly complex financial instrument that most Americans had never heard of, and which many financial writers still don’t fully understand, became in a matter of months the most important influence on home values in America. That’s not how the economy is supposed to work - or at least that’s not what they teach students in Economics 101.

The reason this had been happening totally out of sight is not difficult to understand. Banks of all stripes chafe against the restraints that federal and state regulators place on their ability to make money. By cleverly exploiting regulatory loopholes, investment banks created new types of high-risk investments that did not appear on their balance sheets. Safe from the prying eyes of regulators, they allowed banks to dodge the requirement that they keep a certain amount of money in reserve. These reserves are a crucial safety net, but also began to seem like a drag to financiers, money that was just sitting on the sidelines.

“A lot of financial innovation is designed to get around regulation,” says Richard Sylla, professor of economics and financial history at NYU’s Stern School of Business. “The goal is to make more money, and you can make more money if you don’t have to keep capital to back up your investments.”

The hiding places for these financial instruments are called conduits. They go by various names - the SIV, or structured investment vehicle, is one that’s been in the news a great deal the past few months. These conduits and the various esoteric investments they harbor constitute what Bill Gross, manager of the world’s largest bond mutual fund, called a “Frankensteinian levered body of shadow banks” in his January newsletter.

“Our modern shadow banking system,” Gross writes, “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.”

The mortgage-driven securities that have been making headlines are but the tip of a much larger iceberg. Far larger categories of investment have sprung up, with just as much secrecy, and even less clarity into who holds them and how much they are truly worth.

Many of these began as conventional instruments of finance. For instance, derivatives - the broad category of investments whose value is somehow based on other assets, whether a stock, commodity, debt, or currency - have been traded for more than a century as a form of insurance, helping stabilize otherwise volatile markets.

But today, increasingly, a new generation of derivatives doesn’t trade on markets at all. These so-called over-the-counter derivatives are highly customized agreements struck in private between two parties. No one else necessarily knows about such investments because they exist off the books, and don’t show up in the reports or balance sheets of the parties who signed them.

As the derivatives business has grown more complex, it has also ballooned in scale. Broadly speaking, Das - author of a leading textbook on derivatives and complex securities - estimates that investors worldwide hold more than $500 trillion worth of derivatives. This number now dwarfs the global GDP, which tops out around $60 trillion.

Essentially unregulated and all but invisible, over-the-counter derivatives comprise a huge web of bets, touching every sector of the world economy, that entangles a massive amount of money. If they start to look shaky - or if investors need to start selling them to cover other losses - that value could vanish, with catastrophic results to the owner and unpredictable effects on financial markets.

Derivatives can ripple through the market and link players that might not otherwise be connected. With some types of new investments, that fusion takes place within the security itself.

For instance, some financial instruments are built of two or more different types of assets, linking together sectors of the economy that aren’t supposed to move in tandem. In the name of transferring risk - and in the interest of creating an appealing new product to sell to aggressive investors seeking higher returns - a bank could create a CDO, for instance, that packaged subprime mortgages together with corporate bonds. An economist would expect those to move independently, but thanks to a large - and unseen - investment in such a linked package, problems with one could drive down the other. A bad apple can ruin an entire barrel of fruit.

Again, it’s not as though anyone necessarily knows the composition of these structured securities. Nor do they know who has invested in them, thanks to the fact that they have not, until recently, counted as conventional assets subject to the normal rules of accounting. And because they don’t trade on open markets, their values are essentially guesses, calculated by computer algorithms.

Das disparages much of this as the product of bankers creating “complexity for the sake of complexity,” trying to wow their clients by inventing more sophisticated-seeming investments. “Financial innovation is a magical catch phrase,” he explains. “It’s very sophisticated and chi-chi.”

“Investment bankers want to make them more complex, so that they won’t be copied, and so that their clients won’t understand them,” he says. “When they ask whether they’re paying the right amount, they won’t know.”

But when reality comes home to roost, things can get ugly pretty quickly: If an investor is forced to sell a CDO, the onetime price realized on the open market may bear no relationship to the theoretical value generated by a computer formula. That means that everyone holding CDOs can no longer sleep well at night: the same thing can happen to them.

These risks are magnified, as they were during the stock bubble of the 1920s, by the fact that many of these assets are owned by investors who borrowed money to make the investments in the first place. When a market shock like the subprime crisis hits, it can send tremors through the system with incredible speed.

If the contagion spreads, the conventional wisdom holds that the Federal Reserve and other central banks around the world can step into the breach caused when consumers and investors start to lose their confidence. But what happens when all these complicated financial arrangements and instruments start to unravel? The market for one product alone - the credit default swap, or CDS - dwarfs this country’s economy. The Fed has an uphill battle, made harder by the fact that it is grappling, to a large extent, with unseen forces.

In theory, additional regulation may help with this. The Financial Accounting Standards Board, which establishes corporate accounting procedures and guidelines, took a first step in that direction this past November, ordering investment banks and anyone else holding complicated securities to assign market values to so-called Level 3 assets - a fancy name for assets for which there is no prevailing market price. This meant assigning a market value to all those CDOs.

Banks promptly began writing down tens of billions of dollars of assets, and their investors are still trying to sort through the results. It’s still too early to tell whether or not the effort will work, or whether the “market prices” that get reported are anything more than figments of in-house accountants’ imaginations. For his part, Das is skeptical. “It will help that people will know the poison they’re drinking,” he says. “Whether it will help stabilize the system is another question.”

It would be ideal if the financial markets became a bit less opaque and intelligible before that happens. That would be the job of regulators, but Das isn’t sure that regulators have the intellectual horsepower to figure out what they need to do. “If you’re bright and you can make $5 million a year on Wall Street,” he asks, “why would you settle for making 50K as a regulator?”

And in any case, transparency isn’t really what the denizens of Wall Street want, Das observes. “The regulators keep espousing things like clarity and transparency, but it’s in the investment bankers’ interest to keep things opaque.” Das pauses for a moment.

“It’s like a butcher. He doesn’t want the buyer to know what goes into making the sausage.” He chuckles, noting that it’s the same with financiers. “That’s what they’re all about and always have been.”

Exxon shatters profit records

Oil giant makes corporate history by booking $11.7 billion in quarterly profit; earns $1,300 a second in 2007.

NEW YORK (CNNMoney.com) -- Exxon Mobil made history on Friday by reporting the highest quarterly and annual profits ever for a U.S. company, boosted in large part by soaring crude prices.

Exxon, the world's largest publicly traded oil company, said fourth-quarter net income rose 14% to $11.66 billion, or $2.13 per share. The company earned $10.25 billion, or $1.76 per share, in the year-ago period.

The profit topped Exxon's previous quarterly record of $10.7 billion, set in the fourth quarter of 2005, which also was an all-time high for a U.S. corporation.

"Exxon can put out some amazing numbers and this is one of those cases," said Jason Gammel, senior analyst at Macquarie Securities in New York.

Exxon also set an annual profit record by earning $40.61 billion last year - or nearly $1,300 per second in 2007. That exceeded its previous record of $39.5 billion in 2006.

In the fourth quarter, the company said revenue rose 29.5% from a year ago to $116.64 billion.

Analysts were looking for the company to report quarterly profit of $10.36 billion on revenue of $114.9 billion, according to earnings tracker Thomson Financial.

Despite topping Wall Street's estimates, Exxon (XOM, Fortune 500) shares slipped in midday trading.

The company reported strong results in its worldwide exploration and production, or "upstream," business. Profit rose 32% to $8.2 billion during the quarter, offsetting some weakness earlier in the year.

Income in Exxon's refining, or "downstream," business rose 15.7% during the quarter to $2.27 billion.

Exxon attributed its impressive results to strong performance across its divisions, but a large part of the profit surge was underpinned by climbing oil prices.

Crude prices skyrocketed nearly 60% last year. The surge helped prices break through the $100 a barrel mark for the first time ever early last month. Since crossing that milestone, prices have eased to around $90 a barrel.

Natural gas prices also jumped last year, albeit marginally. But costs have also increased for the oil companies, which is why profits haven't risen as rapidly as crude prices.

Big oil companies that both pump oil and refine crude into gasoline have to spend more for crude but are unable to pass on all the extra cost to consumers, which eats in to gasoline profit margins.

The average price for a gallon of regular gasoline hit an all-time high of $3.23 in May, according to the motorist organization AAA. The high prices were blamed on strong demand and a series of accidents that shut down refineries in the U.S. But slack demand for gasoline in the latter half of last year kept gas prices from rising as dramatically as crude prices.

Exxon's record results, which coincide with smaller rival Chevron's (CVX, Fortune 500) profit jump, are likely to draw fire from consumer rights groups, who contend the oil industry is deliberately restricting supply and profiting on the back of U.S. motorists. They have previously called for a windfall profit tax on oil firms and have proposed breaking up the big oil companies created during the 1990s merger wave.

"Congratulations to Exxon Mobil and Chevron for reminding Americans why they cringe every time they pull into a gas station and for reminding Washington why it needs to act swiftly to break our dependence on foreign oil and rollback unnecessary tax incentives for oil companies," Sen. Charles Schumer, D-N.Y., said in a statement Friday.

Exxon and Chevron aren't the only two oil giants to report impressive earnings. Conoco (COP, Fortune 500), the nation's third-largest oil company, trounced profit estimates by nearly 25% when it reported last week. And Royal Dutch Shell PLC, Europe's largest oil company, reported a 60% increase in profits Thursday.

MSNBC: Key 9/11 Commission Report Testimony Based on Torture

911 Blogger
Friday February 1, 2008

(I subbed in the word "torture" in the above headline, where MSNBC will only say "waterboarding". Even though Chief Justice Mukasey won't say it, Malcolm Nance, "a former master instructor and chief of training at the U.S. Navy Survival, Evasion, Resistance and Escape School (SERE) in San Diego" says, I know waterboarding is torture - because I did it myself. So there you have it. -rep.)

9/11 Commission Controversy

By Robert Windrem and Victor Limjoco - January 30, 2008

The 9/11 Commission suspected that critical information it used in its landmark report was the product of harsh interrogations of al-Qaida operatives - interrogations that many critics have labeled torture. Yet, commission staffers never questioned the agency about the interrogation techniques and in fact ordered a second round of interrogations specifically to ask additional questions of the same operatives, NBC News has learned.

Those conclusions are the result of an extensive NBC News analysis of the 9/11 Commission’s Final Report and interviews with Commission staffers and current and former U.S. intelligence officials.

The analysis shows that much of what was reported about the planning and execution of the terror attacks on New York and Washington was derived from the interrogations of high-ranking al-Qaida operatives. Each had been subjected to "enhanced interrogation techniques." Some were even subjected to waterboarding, the most controversial of the techniques, which simulates drowning.

The NBC News analysis shows that more than one quarter of all footnotes in the 9/11 Report refer to CIA interrogations of al-Qaida operatives who were subjected to the now-controversial interrogation techniques. In fact, information derived from the interrogations is central to the Report’s most critical chapters, those on the planning and execution of the attacks. The analysis also shows - and agency and commission staffers concur - there was a separate, second round of interrogations in early 2004, done specifically to answer new questions from the Commission.

9/11 Commission staffers say they "guessed" but did not know for certain that harsh techniques had been used, and they were concerned that the techniques had affected the operatives’ credibility. At least four of the operatives whose interrogation figured in the 9/11 Commission Report have claimed that they told interrogators critical information as a way to stop being "tortured." The claims came during their hearings last spring at the U.S. military facility in Guantanamo Bay, Cuba.

"We were not aware, but we guessed, that things like that were going on," Philip Zelikow, the 9/11 Commission executive director, told NBC News. "We were wary…we tried to find different sources to enhance our credibility."

Specifically, the NBC News analysis shows 441 of the more than 1,700 footnotes in the Commission’s Final Report refer to the CIA interrogations. Moreover, most of the information in Chapters 5, 6 and 7 of the Report came from the interrogations. Those chapters cover the initial planning for the attack, the assembling of terrorist cells, and the arrival of the hijackers in the U.S. In total, the Commission relied on more than 100 interrogation reports produced by the CIA. The second round of interrogations sought by the Commission involved more than 30 separate interrogation sessions.

No one disputes that the interrogations were critical to the Commission’s understanding of the plot.

"What we did is the authoritative basis of knowledge on the interrogations until historians get to ply them years from now," said a former Commission staffer who worked with the CIA on the interrogation reports.

Errors pointed out
One critic of U.S. use of harsh interrogation techniques says that while the Commission Final Report remains credible, it was a mistake to base so much of it on what was retrieved from the interrogation sessions.

Karen Greenberg, director of the Center for Law and Security at New York University’s School of Law, put it this way: "You read it, the story still makes sense, forgetting the interrogations. What matters - who did it, who planned it - looks like the right story. But it should have relied on sources not tainted. It calls into question how we were willing to use these interrogations to construct the narrative."

According to both current and former senior U.S. intelligence officials, the operatives cited by the Commission were subjected to the harshest of the CIA’s methods, the "enhanced interrogation techniques." The techniques included physical and mental abuse, exposure to extreme heat and cold, sleep deprivation and waterboarding.

In addition, officials of both the 9/11 Commission and CIA confirm the Commission specifically asked the agency to push the operatives on a new round of interrogations months after their first interrogations. The Commission, in fact, supplied specific questions for the operatives to the agency. This new round took place in early 2004, when the agency was still engaged in the full range of harsh techniques. The agency suspended the techniques in mid-2004. Agency spokesmen have refused to identify what techniques were used, when they were used or the names of those who were harshly questioned.

Zelikow said the lack of direct access forced the Commission to seek secondary sources and to request the new round of questioning. In the end, says Zelikow, the Commission relied heavily on the information derived from the interrogations, but remained skeptical of it. Zelikow admits that "quite a bit, if not most" of its information on the 9/11 conspiracy "did come from the interrogations."

"We didn’t have blind faith," Zelikow tells NBC News. "We therefore had skepticism. The problems (in getting cooperation from the agency) enforced our concerns about the underlying interrogation.

A former senior U.S. intelligence official says the Commission never expressed any concerns about techniques and even pushed for the new round.

"Remember," the intelligence official said, "The Commission had access to the intelligence reports that came out of the interrogation. This didn't satisfy them. They demanded direct personal access to the detainees and the administration told them to go pound sand.

"As a compromise, they were allowed to let us know what questions they would have liked to ask the detainees. At appropriate times in the interrogation cycle, agency questioners would go back and re-interview the detainees, many of (those) questions were variants or follow ups to stuff previously asked."

Commission staffers interviewed by NBC News do not dispute the official’s assertion that they didn’t ask about interrogation techniques. "We did not delve deeply into the question of the treatment of the prisoners", as one put it. "Standards of treatment were not part of our mission." According to the other, "We did not ask specifically. It was not in our mandate."

The commission first requested access to the detainees early in 2004, around the same time the Abu Ghraib scandal broke. In that scandal, military interrogators at Baghdad’s most notorious prison were accused of torturing low level prisoners. The Commission wanted the access not to check on interrogation techniques or the operatives’ condition, but to get their own access.

Michael Ratner, president of the Center for Constitutional Rights, says he is "shocked" that the Commission never asked about extreme interrogation measures.

"If you’re sitting at the 9/11 Commission, with all the high-powered lawyers on the Commission and on the staff, first you ask what happened rather than guess," said Ratner, whose center represents detainees at Guantanamo. "Most people look at the 9/11 Commission Report as a trusted historical document. If their conclusions were supported by information gained from torture, therefore their conclusions are suspect."

Zelikow says the Commission tried its best to get inside the interrogation process.

"In early 2004, we conducted private interviews with (CIA Director George J.) Tenet. There were three interviews…five or six hours each, involving Zelikow, Kean and Hamilton," said a Commission staffer, referring to the commission director, and co-chairs, former New Jersey Governor Tom Kean and former Indiana congressman Lee Hamilton. "We talked to him about access at that point…Tenet doesn’t say no…the response was ‘Talk to my people."

Tenet’s "people" explained why the commission couldn’t question the operatives.

"The explanation was that the symbiosis between the interrogator and the prisoner would be harmed," added the staffer, "…that introducing external elements could unbalance the relationship. They wanted the prisoners to have total dependency on them…all this psychology."

Although he admits neither he nor his staff asked about interrogation techniques, Zelikow now believes perhaps he should have, that there were reasons for the agency’s lack of cooperation.

"A whole lot needed to be kept from us," he said he now realizes. "It would have revealed a lot of things that it was not in the government’s interest to reveal. They might have worried what we would have learned about the interrogation techniques."

Zelikow adds that one particularly telling position was the agency’s refusal to let the Commission interview the interrogators.

"We needed more information to judge reports we were reading," he said. "We needed information about demeanor of the detainees. We needed more information on the content, context, character of the interrogations."

Current and former agency officials say the commission had enough information to fulfill their mission.

"The CIA went to great lengths to meet the requests of the 9/11 Commission and provided the Commission with a wealth of information," said Mark Mansfield, the CIA’s chief spokesman. "The 9/11 Commission certainly had access to, and drew from, detailed information that had been provided by terrorist detainees. That's how they reconstructed the plot in their comprehensive report."

The former official said that senior intelligence staff feared that if the agency permitted the commission to send staffers to the CIA’s secret prisons to talk with the operatives, the locations of the prisons wouldn’t be secret for very long.

Zelikow agreed that the Commission specifically asked for the new round after reviewing the agency’s first interrogation reports. "That is correct," he said of the rationale for the new round of interrogations. "That was one of the ways they sought to deal with our concerns. They (the first round) had value but were not satisfactory."

"They were looking prospectively in their questioning…looking at current threats. We were looking retrospectively. So we needed the follow-up questions."

The NBC News analysis shows that there were 30 separate interrogation sessions in early 2004 when the second round of questioning began. Based on the number of references attributed to each of the sessions, they appear to have been lengthy.

Demise Of Al-Qaeda Leader Championed For Second Time

U.S. government, corporate media celebrate death of man they told us had been captured three years ago, succeed in out-Orwelling George Orwell

Paul Joseph Watson
Prison Planet
Friday, February 1, 2008

The death of "senior Al-Qaeda leader" Abu Laith al-Libi is being celebrated by Neo-Cons as a reason for continuing the endless war on terror - absent one crucial detail - the corporate media widely reported that another "senior Al-Qaeda leader" named al-Libi had been arrested back in May 2005. The American people have been fooled again in another case of mass public deception.

There was much lip-smacking and high-fiving three years ago about how the capture of "Al-Qaeda number three," a certain Mr. Al Libi, would lead to crucial information about Al-Qaeda's plans and even the whereabouts of fabled Goldstein mirage Osama "bin dead for years" Laden, presumably after al-Libi had received the proper welcome from the land of the free in the form of fifty thousand volts shooting through his genitals.

In actual fact, the al-Libi that had been caught was Abu Faraj al-Libi, not Abu Laith al-Libi. Abu Faraj al-Libi was described as Al-Qaeda "flotsam jetsam" by the London Times, ie some semi-retarded goatherder shoved onto the front lines under the threat of a beheading - and not the fearsome Laith al-Libi, third in command behind Al-Zawahiri and Bin Laden.

This mattered little to 99% of the corporate media, who enthusiastically championed the arrest as a key victory in the war on terror and justifications that the "arrest of Al-Qaeda number three showed we are making progress" spewed forth from every Neo-Con orifice.

No clarification, no retraction - the American people were fooled into thinking their tax dollars were helping to rip apart the command structure of Bin Laden's evil terror network and the propaganda was regurgitated ad infinitum for weeks on end.

Fast forward nearly three years to 2008 and the media celebrates the death of the same "senior Al-Qaeda leader" they told us was captured in May 2005, a man third in command behind Bin Laden and Al-Zawahiri named al-Libi. Perhaps we should commend them on spelling his middle name correctly this time around, but who knows, maybe al-Libi the third will pop up in a couple of years and we can all listen to Neo-Con hacks rant about how it's such a defining moment for the war on terror again.

The New York Times reports on "Senior Al-Qaeda leader" al-Libi's arrest in May 2005.

"Senior Al-Qaeda leader" al-Libi's demise championed again three years later!

This callous deception and the way in which it just keeps being re-applied boggles the mind. They have succeeded in out-Orwelling George Orwell. At least in 1984, the proles were told they were at war with East Asia one year and the next year they were fighting Eurasia - at least the names changed!

In this hyper-twilight zone dystopia, the architects are quite happy to recycle the same names over and over again without anyone calling them on it. How many times was al-Zarqawi captured or killed before he was finally dead? I ended up losing count.

Why do they resort to such base propaganda? To the average dumbed-down zombie, an al-Libi in 2005 and then another one in 2008 is readily accepted and consumed without question, they are none the wiser. To anyone that actually follows the news however, it acts as a blunt instrument to gradually batter them into propaganda fatigue, to the point where it's academic to raise a fuss because you know they'll just pull the same trick again a few years down the line.

We've become conditioned to accept logic being turned upside down and reality altered when it suits the propagandists' timetable.

No matter how many times they claim the same Al-Qaeda leader has been killed or captured, we need to continue to attack this assault on common sense for the farce it is, lest we be continually subjected to the manufactured delusional smoke and mirrors propaganda that veils the reality of the fact that the war on terror is a ridiculous hoax.

Is the Fed Bailing Out the Economy or the Banks?

The American Prospect

That is the question that reporters covering the latest rate reduction should be asking. When the Fed announced its 0.5 percentage point rate cut this afternoon, something very interesting happened: long-term interest rates rose. The 10-year treasury rate jumped by about 5 basis point when the Fed announced its rate cut. The current rate of 3.72 percent is about 34 basis points higher than the low hit earlier this year.

There is a simple story that could be told to explain the movement in long-term rates. The markets may increasing fear inflation and a falling dollar when they see the Fed cut short-term rates. This raises a serious problem from the standpoint of stimulating the economy. The long-term rate matters much more for the economy than the short-term rate since it affects the rate that people will pay on mortgages, car loans and most other important sources of credit. If the Fed's rate cuts lead to higher long-term rates, then it is possible that it is actually slowing growth by cutting rates.

There is another story in which the answer is less ambiguous. Banks borrow short-term and lend long-term. If they can borrow at a lower cost and lend at the same or higher interest rates, then they are unambiguous winners. For them, a rate cut that increases the spread between long-term rates and short-term rates is clearly good news.

So, if this pattern continues, and the Fed moves forward with further rate cuts, then it is reasonable to ask whether it is trying to help the economy or the banks.

--Dean Baker

Survey: 1m Iraqis killed by US invasion

Press TV
Friday February 1, 2008

More than one million Iraqis have died as a result of the US-led invasion according to a survey by one of Britain's leading polling groups.

The survey, conducted by Opinion Research Business (ORB) with 2,414 adults in face-to-face interviews, found that 20 percent of people questioned had at least one death in their household as a result of the conflict, rather than natural causes, Antiwar.com reported.

The last complete census in Iraq conducted in 1997 found 4.05 million households in Iraq, a figure ORB used to calculate that approximately 1.03 million people had died as a result of the war.
The margin of error in the survey, conducted in August and September 2007, was 1.7 percent, giving a range of deaths of 946,258 to 1.12 million.

ORB originally found that 1.2 million people had died, but decided to go back and conduct more research in rural areas to make the survey as comprehensive as possible and then came up with the revised figure.

The research covered 15 of Iraq's 18 provinces. Those that not covered included two of Iraq's more unstable Karbala and al-Anbar regions and the northern province of Arbil, where local authorities refused ORB a permit to work.

ORB, a non-government-funded group founded in 1994, conducts research for the private, public and voluntary sectors.

The director of the group, Allan Hyde, said that the group had no objective other than to record as accurately as possible the number of deaths among the Iraqi population caused by the US invasion.

How social services are paid bonuses to snatch babies for adoption

SUE REID
UK Daily Mail
Friday February 1, 2008

For a mother, there can be no greater horror than having a baby snatched away by the State at birth.

The women to whom it has happened say their lives are ruined for ever - and goodness knows what longterm effect it has on the child.

Most never recover from this trauma.

Imagine a baby growing in your body for nine months, imagine going through the emotion of bringing it into the world, only to have social workers seize the newborn, sometimes within minutes of its first cry and often on the flimsiest of excuses.

Yet this disturbing scenario is played out every day.

The number of babies under one month old being taken into care for adoption is now running at almost four a day (a 300 per cent increase over a decade).

In total, 75 children of all ages are being removed from their parents every week before being handed over to new families.

Some of these may have been willingly given up for adoption, but critics of the Government's policy are convinced that the vast majority are taken by force.

Time and again, the mothers say they are innocent of any wrongdoing.

Of course, there are people who are not fit to be parents and it is the duty of any responsible State to protect their children.

But over the five years since I began investigating the scandal of forced adoptions, I have found a deeply secretive system which is too often biased against basically decent families.

I have been told of routine dishonesty by social workers and questionable evidence given by doctors which has wrongly condemned mothers.

Meanwhile, millions of pounds of taxpayers' money has been given to councils to encourage them to meet high Government targets on child adoptions.

Under New Labour policy, Tony Blair changed targets in 2000 to raise the number of children being adopted by 50 per cent to 5,400 a year.

The annual tally has now reached almost 4,000 in England and Wales - four times higher than in France, which has a similar-sized population.

Blair promised millions of pounds to councils that achieved the targets and some have already received more than £2million each in rewards for successful adoptions.

Figures recently released by the Department for Local Government and Community Cohesion show that two councils - Essex and Kent - were offered more than £2million "bonuses" over three years to encourage additional adoptions.

Full article here.

Despite cut, mortgage rate rises

newsday.com

The 30-year mortgage rate rose from 5.57 percent to 5.88 percent in the past week, according to Bankrate.com's weekly survey, despite the Federal Reserve's interest rate cut Wednesday to boost the economy and relax the credit market.

Like other lenders, Bethpage Federal Credit Union barely moved its mortgage rate yesterday after the Fed's benchmark federal funds rate was lowered to 3 percent. In the past week or so, Bethpage's rate for 30-year mortgages fell to about 5.1 percent after the Fed's first emergency rate cut last week, then went up to 5.6 percent and settled at 5.5 percent yesterday.

Mortgage rates are not directly tied to the Fed rate, which looks at the economy short term. They are based on what investors will pay for mortgage-backed securities and on 10-year Treasury notes, which consider long-term prospects and sold at just less than 3.6 percent yesterday.

In the short term, the Fed is worried about a recession, so it lowers the rate to encourage growth, but the market may see signs of inflation in the long term, because outside the housing-related markets, several sectors are doing well.

"If the markets get concerned about the Fed lowering short-term rates too much and they're worrying about inflation, we can see the 10-year rate go up," said Bethpage's chief financial officer, Brian Clarke. He said that the Treasury yield can fall only so far and it's about as low as it gets, which means mortgage rates also can fall only so far.

Jonathan Pinard, head of the Empire State Mortgage Bankers Association, said potential investors in mortgage-backed securities won't buy if they get minimum returns. "Somebody's got a million dollars to invest and they say ... 'I don't want to buy the mortgages at that rate,'" he said, "then the mortgage rate goes up a little bit."

IMF chief predicts 'serious slowdown' of US economy

xinhua

The chief of the International Monetary Fund (IMF) Dominique Strauss-Kahn said in Davos on Saturday that he expected a "serious slowdown" of the US economy.

"Whatever the answer on a recession, what is clear is there will be a serious slowdown in the United States," Strauss-Kahn, the IMF's managing director, told a panel at the annual meeting of the World Economic Forum.

As 2,500 political and business leaders gathered at the Swiss ski resort, the meeting was clouded by mounting concern over the US economic outlook in the aftermath of the subprime mortgage crisis, with some economists even warning of a recession.

Strauss-Kahn said the IMF was scheduled to update its economic forecast next week, which was certain to have a lower growth figure for the US.

He added that although the developing economies would largely perform well, it was unlikely that they would be immune from the US slowdown because of their substantial links with the US economy.

IMF spokesman Masood Ahmed told reporters on Friday he saw a period of below-potential economic growth for the US, saying the recent sharp interest rate cut by the Federal Reserve was appropriate and helpful.

UN Says More Than 5M Will Lose Jobs

GENEVA (AP) — More than 5 million people will lose their jobs this year as the world economy slows, an official at the U.N. labor agency said Thursday.

Most job losses will occur in rich countries, but millions of "working poor" in the developing world who won't be counted also will suffer, said Dorothea Schmidt, an economist at the International Labor Organization.

Schmidt said the latest global growth figures from the International Monetary Fund prompted the labor agency to review its jobs forecast for 2008. The Washington-based IMF cut its growth projection from 4.4 percent to 4.1 percent Tuesday.

The Geneva-based ILO published a report last week predicting that the number of unemployed worldwide would increase to about 195 million from 190 million last year.

But with the IMF's revised growth rate, "there will be a larger impact than the 5 million we estimated," Schmidt said. She added it was too soon to give precise figures as job losses would depend on growth rates in individual countries.

Unemployment figures are drawn largely from industrialized countries that can afford to support workers who have lost their jobs, she said. Tens of millions of people in poorer countries would also be affected by a global downturn but would not appear in the unemployment figures.

"The 1.2 billion people at the working poverty level of $2 a day, and the additional almost 500 million working poor at the $1 a day level — this number will increase dramatically," Schmidt said.

Tuesday's IMF report was the second time the organization has cut its 2008 growth projection. Last July, the IMF estimated the world economy would grow 5.2 percent in 2008, but in October the estimate was reduced to 4.4 percent.

ILO said sound economic growth in 2007 helped stabilize the global unemployment rate at 6 percent, with roughly as many new jobs created as existing jobs lost.