There Is No Such Thing As A War For Free

J. E. Stiglitz and Linda Bilmes
Chicago Tribune
March 21, 2008

Five years ago, as the Bush administration was preparing to attack Iraq, it claimed that the war would cost $50 billion to $60 billion. We are now spending for military operations alone that amount every three months—and that sum does not even include future costs, such as disability and health benefits for returning troops. We estimate conservatively that by the time the war is over, it will have cost America in excess of $3 trillion, an amount so vast it is hard to fathom. The only way to grasp such numbers is to translate them into what a day or an hour of fighting costs, what economists refer to as the opportunity costs, what else we might have purchased. Many are worried about China’s growing influence in Africa. But what we spend in aid to Africa amounts to but 10 days of upfront costs of fighting in Iraq. President Bush talked about the enormous financial problems facing Social Security, saying that drastic reforms—even privatization—were needed. Well, for one-sixth of the cost of an Iraq war, one could put Social Security on firm financial footing for at least the next 50 to 75 years.

War is always expensive, but this war is particularly expensive. It is now the nation’s second longest (after Vietnam) and the second costliest (after the all-encompassing World War II). The cost per troop, even adjusted for inflation, is some eight times greater than earlier wars. Many of these costs arise because the administration tried to persuade the American people that they could have a war for free. The government kept upfront costs down, not spending money on, for instance, vehicles that would have protected our troops against improvised explosive devices, or IEDs, which have led to so many deaths and disabilities, even after they were urgently requested. This war is distinctive in the huge number of injuries, some 15 times the number of fatalities—a tribute to modern medicine, but an unfunded liability in excess of $600 billion, costs that we will be paying for decades. (The administration has done all it can to hide these numbers; working through veterans groups, we had to use the Freedom of Information Act to get the full scope of the injuries.)

This war relied more on National Guards, which are intended to protect us against domestic emergencies like Hurricane Katrina, not to fight foreign ventures. This war has been privatized more than any other war. The contractors have done well—just look at Halliburton Co.’s share prices, which almost tripled in value. But these strategies, too, have been penny-wise and pound-foolish.

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N.C. Teen Dies After Police Shock Him With Taser at Grocery Store

Associated Press
March 21, 2008

CHARLOTTE, N.C. — A Charlotte teenager has died after being shocked with a Taser during a confrontation with police at the grocery store where he worked.

Charlotte-Mecklenburg police said 17-year-old Darryl Wayne died Thursday. An autopsy is pending.

The Charlotte Observer reported Friday that officers responded to a call at a Food Lion and saw Turner throwing something at a store manager.

Police said Turner appeared agitated, refused their commands and advanced toward an officer before the Taser was used.

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The Triple Failing of the Big Private Banks

Damien Millet and Eric Toussaint
Counterpunch
March 21, 2008

Since August 2007, US and European banks have constantly made headline news concerning the deep crisis they are going through and its knock-on effect on the neoliberal economic system as a whole. Asset depreciation for these banks currently stands at over 200 billion dollars. Several banking research services and seasoned economists estimate that the final damage will exceed 1,000 billion dollars .

How did the banks manage to build such an irrational lending system? Eager for profit, mortgage companies made loans to a sector of the population that was already heavily indebted. The conditions attached to these mortgages–highly profitable for the lender–amounted to daylight robbery for the borrower: the interest rate was fixed and reasonable for the first two years but thereafter rose sharply. Lenders assured borrowers that the property they were buying would quickly appreciate thanks to the boom in the real estate sector. The problem was that the real estate bubble burst in 2007 and house prices started to go steadily down. The number of defaults on payment soared and mortgage brokers had trouble repaying their own loans. To protect themselves, the big banks either refused extra credit to the mortgage lenders or agreed to new loans at far higher interest rates. But the spiral did not stop there, since the big banks had bought up a large number of the original loans as off-balance sheet operations by creating specific companies called Structured Investment Vehicles (SIV), which finance the purchase of high yield mortgages converted into bonds (CDOs, or Collateralised Debt Obligations).

As from August 2007, investors stopped buying the unguaranteed commercial papers issued by SIVs, which no longer looked like a safe or credible option. Consequently, the SIVs lacked the liquidity needed to buy up mortgages and the crisis worsened. The big banks who had created the SIVs therefore had to bail them out to stop them going bankrupt. Up to then, SIV operations had not appeared in the banks’ accounts (thus allowing them to conceal the risks involved), but now the SIV debts had to come out of the closet and onto the books.

The result was general panic. In the US, 84 mortgage companies either went bankrupt or partially stopped doing business between 1 January and 17 August 2007, as opposed to only 17 similar cases for the whole of 2006. In Germany, the IKB BANK and SachsenLB were saved by the skin of their teeth. Recently, in England, the bankrupt Northern Rock has had to be nationalised. On 13 March 2008, the Carlyle Capital Corporation (CCC) fund, known to be close to the Bush clan, collapsed with debts 32 times its capital. The following day, the prestigious US bank Bear Stearns (5th US investment bank) called on the US Federal Reserve to provide an emergency credit line. Bear Stearns is being snapped up by JPMorgan Chase for a mere pittance.

Several branches of the lending market are shaky constructions on the point of collapse. They drag into their misadventures the powerful banks, hedge funds or investment funds through which they were created. The salvage of these private financial institutions requires massive intervention on the part of the public authorities. And thus once again, profits accrue to the private sector, and losses to the public purse.

Which brings us to a key question: how is it that banks can readily waive bad debts to the tune of tens of billions of dollars yet have constantly refused to cancel the debts of developing countries? Why should the one be feasible and the other impossible? It should be remembered that the debts claimed today from these countries go back in the past to criminal dictatorships, corrupt regimes and leaders pandering to major powers and investors. The big banks lavished loans on such notorious regimes as that of Mobutu in Zaire, Suharto in Indonesia, the Latin-American dictatorships of the 1970s and 1980s, not to mention the apartheid regime in South Africa. How can the banks persist in inflicting the burden of debt on people who have suffered the consequences of despotic regimes funded by the banks themselves? From a legal standpoint, many of the debts appearing in their accounts are odious and as such should not be repaid. But the banks continue to demand their pound of flesh.

We should also remember that the Third World debt crisis was caused by the drastic unilateral hike in interest rates imposed by the Fed in 1982. Up to then the private banks had been happily handing out variable rate loans to countries that were already over-indebted. The crash came when these countries could no longer sustain repayments. Today history is repeating itself, this time in the North: overindebted households in the US are faced with mortgages that they can never repay as they watch the value of their properties plummet.

The recent waiving of debts by banks can only justify the claims of those who, like the CADTM, demand the cancellation of Third World debt. Why? Because the long-term debt of Third World public authorities towards international banks reached 181.9 billion dollars in 2006 . Since August 2007, the banks have had to cancel a far greater amount, with more still to come.

It is clear that the big private banks have failed in three ways:

* they have built up catastrophic private lending structures that have led to the present disaster;

* they have lent to despotic regimes and forced the democratic governments that replaced them to repay this odious debt down to the last cent;

* they refuse to cancel the debts of developing countries, for whom repayment means ever-worsening living conditions for their people.

For all these reasons, the banks must be held to account for their actions over the last decades. The governments of the countries of the South must make a full audit of their debts, as Ecuador is doing today, and repudiate all debts that are odious and illegitimate. The bankers have shown them that such a step is perfectly feasible. It would also be the first step towards restoring the true role of finance, which is to be of service to men and women. Everywhere, without exception.

Translated by Judith Harris.

Foreign investors veto Fed rescue

By Ambrose Evans-Pritchard, International Business Editor

Last Updated: 12:11am GMT 19/03/2008

telegraph.co.uk

As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.

Contagion fears sweep across the Atlantic

Dollar plunges as Fed steps up moves

Read more of Ambrose Evans-Pritchard

Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."

The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.

Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.

It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.

Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.

The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.

With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.

Bear Stearns may be worse than LTCM collapse

Jeff Randall: A world addicted to easy credit must go cold turkey

How Bear Stearns ran out of the necessities

"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."

Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.

"It is like fighting a virus with antibiotics," he said.

We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.

But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.

The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.

Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.

Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?

As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.

As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?

The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.

The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.

Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.

It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.

I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.

Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.

The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.

The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.

Paulson's Gift to His Bankster Buddies

MIKE WHITNEY
Counterpunch
Thursday, March 20, 2008

Winding Up Bear

By MIKE WHITNEY

One picture tells the whole story. It's a photo of five grim looking men in gray suits staring ahead blankly like they were in the dock with Saddam awaiting sentencing. Every one of them looks downcast and dejected; shoulders rounded and jaws set. This is what desperation looks like, which is why the photo was kept off the front pages of the leading newspapers.

The group took no questions and, as far as the media was concerned, the meeting never happened. But it did happen; and it happened on Monday at the White House at 2PM. That's when President Bush convened the Working Group on Financial Markets, also known as the Plunge Protection Team, to explain their strategy for dealing with deteriorating conditions in the financial markets. The details of the meeting remain unknown, but judging by the sudden (and irrational) recovery in the stock market on Tuesday; their plan must have succeeded.

The Plunge Protection Team is a panel that includes Fed Chairman Ben Bernankee, Treasury Secretary Henry Paulson, Securities and Exchange Commission Chairman Christopher Cox, and acting Commodity Futures Trading Commission head Walter Lukken. According to John Crudele of the New York Post, the Plunge Protection Team's (PPT) objective is to redirect the stock market by ""buying market averages in the futures market, thus stabilizing the market as a whole."" In the event of a terrorist attack or a natural disaster, the group's activities could play an extremely positive role in saving the market from an unnecessary meltdown. However, direct intervention into supposedly "free markets" is less defensible when it is merely a matter of saving an over-leveraged banking system from its inevitable Day of Reckoning. And, yet, that appears to be the reason for the White House confab; to buy a little more time before the final explosion.

The psychology behind the PPT's activities is explained in greater detail by Robert McHugh Ph.D. who provides a description of how it works in his essay ""The Plunge Protection Team Indicator"":

The PPT decides markets need intervention, a decline needs to be stopped, or the risks associated with political events that could be perceived by markets as highly negative and cause a decline, need to be prevented by a rally already in flight. To get that rally, the PPT's key component -- the Fed -- lends money to surrogates who will take that fresh electronically printed cash and buy markets through some large unknown buyer's account. That buying comes out of the blue at a time when short interest is high. The unexpected rally strikes blood, and fear overcomes those who were betting the market would drop. These shorts need to cover, need to buy the very stocks they had agreed to sell (without owning them) at today's prices in anticipation they could buy them in the future at much lower prices and pocket the difference. Seeing those stocks rally above their committed selling price, the shorts are forced to buy -- and buy they do. Thus, those most pessimistic about the equity market end up buying equities like mad, fueling the rally that the PPT started. Bingo, a huge turnaround rally is well underway, and sidelines money from Hedge Funds, Mutual funds and individuals' rushes in to join in the buying madness for several days and weeks as the rally gathers a life of its own. (Robert McHugh Ph.D., "The Plunge Protection Team Indicator")

The powers of the PPT are greatly exaggerated; eventually the liquidity they provide has to be drained from the system. The popular myth that the Fed simply creates as much money as it chooses and spreads it around like confetti; is pure rubbish. The Fed has very definite balance constraints. The system is not quite as rigged as many people imagine. According to Bloomberg News, the Fed has already depleted most of its resources:

The Fed has committed as much as 60 percent of the $709 billion in Treasury securities on its balance sheet to providing liquidity and opened the door to more with yesterday's decision to become a lender of last resort for the biggest Wall Street dealers." ("Bernanke May Run Low on Ammunition for Loans, Rates", Bloomberg)

The troubles in the credit markets and real estate are bigger than the Fed or the PPT; and they know it. The next step is massive government intervention; mortgage-rate freezes, bailouts and fiscal stimulus. Big government is back; Reaganism has gone full-circle. That doesn't mean that the PPT cannot have an important psychological affect in soothing jittery markets or stalling a system-wide collapse. It just means, that markets will eventually correct regardless of what anyone does to stop them. The sharp downturn in the financial markets is the result of unsustainable credit expansion that can't be fixed by the parlor tricks of the PPT. The rate at which financial institutions are deleveraging and destroying capital will inevitably trigger an economic crisis equal to the Great Depression. What is needed is strong leadership and a re-commitment to transparency, not "more of the same" low interest crack and financial hanky-panky. It's time to come clean with the public and admit we have a problem.

"Sucker rallies", like Tuesday's 400 point surge on Wall Street just helps to conceal the deeply rooted problems that need to be addressed before investor confidence can be restored. Blogger Rick Ackerman summed it up succinctly in last night's entry:

These psychotic, 400-point rallies in the Dow do not augur renewed confidence. They are being driven almost entirely by short-covering, and even the otherwise clueless news anchors are starting to dismiss them as meaningless. One of these days, moments after the last surviving bear's short position has been liquidated, stocks are going to fall so steeply that even the Plunge Protection Team will call for back-up. Then, the financial collapse that so many have been expecting will unfold in just a few days, with enough power to leave the global economy in ruins for a generation." (Rik's Piks Rick Ackerman)

Whether Ackerman's dire predictions materialize or not, there's no denying that the situation is getting worse by the day. In the last week alone, two major financial institutions, Carlyle Capital and Bear Stearns have either gone under or been bailed out wiping out tens of billions in market capitalization. These flameouts have increased the rate of the deflation adding to the already-prodigious losses from housing foreclosures, delinquent credit card debt, defaulting car loans, and the deleveraging in the hedge fund industry. Fortress America has sprung a leak, and capital is escaping in a torrent.

"One thing is for certain, we're in challenging times," Bush opined on Monday after meeting with his top economic aides. ""But we are on top of the situation."

That's comforting. Bush is all over it.

Tuesday's 75 basis point rate cut by the Fed is another sign of desperation. The Fed Funds rate is now 2 percentage points below the rate of inflation; a obvious attempt on Bernanke to reflate the equity bubble at the expense of the dollar. Is that why Wall Street was so jubilant; another savage blow to the currency?

The Fed's statement was as bleak as any they have ever released sounding more like passages from the Book of the Dead than minutes of the Federal Open Market Committee:

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen .... uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today's policy action..should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain.

Wall Street rallied on the cheery news.

Also, on Tuesday, the battered investment banks began posting first quarter earnings which turned out to be better than expected. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. beat estimates which added to the stock market giddiness. Unfortunately, a careful reading of the reports, shows that things are not quite as they seem. The jubilation is unwarranted; it's just more smoke and mirrors.

"Lehman Brothers Holdings Inc. reported a 57% drop in fiscal first-quarter net income amid weakness in its fixed-income business, though results topped analysts' expectations." (Wall Street Journal)

The same was true of financial giant Goldman Sachs:

"Goldman Sachs Group Inc.'s fiscal first-quarter net income dropped 53% on $2 billion in losses on residential mortgages, credit products and investments ...The biggest Wall Street investment bank by market value reported net income of $1.51 billion, or $3.23 a share, for the quarter ended Feb. 29, compared to $3.2 billion, or $6.67 a share, a year earlier....Results included $1 billion in losses on residential mortgage loans and securities, and nearly $1 billion in losses on credit products and investment losses ..." (Wall Street Journal)

The bottom line is that both companies first quarter earnings dropped by more than a half in just one year alone while, at the same time, they booked heavy losses. That's hardly a reason for celebration. The major investment banks remain on the critical list because of the billions of dollars of toxic debt they still carry on their balance sheets. Consider industry leader Goldman Sachs, for example, which is sitting on a backlog of bad paper from the subprime/securitization debacle as well as an unknown amount of LBOs (Leveraged buyouts) and commercial real estate deals (CREs) that are heading south fast. Market analyst, Mark Gongloff, sheds a bit of light on the real condition of the big financials in his article ""Crunch Proves A Test of Faith For Street Strong"":

"All of the brokerage houses are highly leveraged, with a high ratio of assets to shareholders' equity, a sign they have used debt heavily to build up positions in hope of greater returns. Morgan Stanley, which will report Wednesday, had a leverage ratio of 32.6-to-1 at the end of last year, nearly as high as Bear's 32.8-to-1. Lehman was leveraged 30.7-to-1, and Merrill Lynch 27.8-to-1. And the would-be rock, Goldman? It was leveraged 26.2-to-1.""(""Crunch Proves A Test of Faith For Street Strong", WSJ)

Remember, Carlyle Capital was leveraged 32 to 1 ($22 billion equity) and went ""poof"" in a matter of days when it couldn't scrape together a measly $400 million for a margin call. How vulnerable are these other maxed-out players now that the credit bubble has popped and the whole system is quickly unwinding?

Not very safe, at all. As Gongloff points out:

"Based in part on numbers reported at the end of Bear's fourth quarter, estimated that Bear Stearns had $35 billion in liquid assets and borrowing capacity, enough to operate for 20 months. Turns out it had enough for three days.""

That's right; three days and it was over. Why would anyone think it will be different with these other equally-exposed banks? These institutions are basically insolvent now. The Federal Reserve is just trying to prop them up to maintain appearences. But it's a hopeless cause. As hyper-inflated assets are downgraded; structured investments and arcane hedges against default will continue to disintegrate and these profligate institutions will be crushed by a stampede of panicking investors. The flight to safety has already begun. Cash is king.

Look what has transpired just since Monday.

"Crude oil, copper and coffee led the biggest decline ever in commodities on speculation that a U.S. recession will stall demand for raw materials." (Bloomberg) All asset classes fall in a deflationary spiral, even commodities which many people thought would be spared. Not so. In fact, even gold has begun to retreat as hedge funds and other market participants are forced to relinquish their positions.

In other news, Reuters reports:

"The yield on U.S. 3-month Treasury bills fell below 1 percent on Monday to levels not seen in 50 years prompted by intense safety bids for cash spurred by the ongoing global credit crunch...Investors were pulling money out of stocks and even the booming commodity market even after the Federal Reserve conducted a fresh round of measures over the weekend to alleviate the credit crisis."

Here's another example of the "flight to safety" as investors recognize the warning signs of deflation. This trend is likely to intensify even though the Fed will continue to cut rates and real earnings on Treasuries will go negative. In another report from Reuters:

""The Chicago Board Options Exchange Volatility Index or VIX on Monday surged to its highest level in nearly two months as a fire sale of Bear Stearns and an emergency Federal Reserve cut in the discount rate reignited credit fears."

Fear is higher now than it has been in a long time. Option traders are loading up on index puts in the Standard & Poor's 500 index. The "Fear Gage, as it is called, is soaring to new heights as credit problems continue to mount and business begins to slow to a crawl.

And, perhaps most important of all:

"The cost of borrowing in dollars overnight rose by the most in at least seven years after the Federal Reserve's emergency cut in the discount interest rate stoked concern that credit losses are deepening....The London interbank offered rate, or Libor climbed 81 basis points to 3.86 percent, the British Bankers' Association said today. It was the biggest increase since at least January 2001. The comparable pound rate rose 28 basis points to 5.59 percent, the largest gain since Dec. 31, 2007." (Bloomberg)

This may sound like technical gibberish geared for market junkies, but it is critical for understanding the gravity of what is really going on. The Fed's rate cuts are not normalizing the lending between banks. In fact, the situation is actually deteriorating quite quickly. When banks don't lend to each other (because they are worried about getting their money back) the wheels of capitalism grind to a halt. The banks are the essential conduit for providing credit to the broader economy. If there's a slowdown in traffic, economic growth begins to slow immediatly. Presently, the banks are hoarding cash to cover the losses on their mortgage-backed investments and to shore up their skimpy capital reserves. As a result, consumer spending is sluggish and GDP is beginning to shrink.

"We know we're in a sharp (decline), and there's no doubt that the American people know that the economy has turned down sharply"," said Henry Paulson on NBC television on Sunday. "There's turbulence in our capital markets and it's been going on since August. We're looking for ways to work our way through it."

No kidding. But Paulson is clearly out of his depth. He's simply not the man to deal with a crisis of this magnitude. His only concern is bailing out his rich friends in the banking industry. The interests of workers and consumers are just brushed aside. Has anyone from the Dept of the Treasury (or the Fed) suggested a bailout for the 14,000 Bear Stearns employees who just lost not only their jobs but the entire retirement when the company was purchased by JP Morgan?

Of course, not. Because both Paulson and Bernanke take a class oriented approach to the problem that narrows their range of vision and limits their ability to pose viable remedies. They are unable to see the whole playing field. For example, Bernanke assumes that if he keeps cutting rates, he can reflate the equity bubble by stimulating consumer spending. But that is not going happen. First of all, the banks are not passing on the savings to customers. And, second, the banks are only lending to applicants with a flawless credit history. In other words, the Fed's cuts may be good for Bernanke and Paulson's buddies, but they do nothing for either the consumer or the broader economy. Also, as Michael Hudson notes in his latest article "Save the Economy, Dismantle the Empire" (counterpunch.org) the banks are taking the money they borrow from the Fed and investing it elsewhere:

"This week the Fed tried to reverse the plunge in asset prices by flooding the banking system with $200 billion of credit. Banks were allowed to turn their bad mortgage loans and other loans over to the Federal Reserve at par value (rather at just 20% "mark to market" prices). The Fed's cover story is that this infusion will enable the banks to resume lending to "get the economy moving again." But the banks are using the money to bet against the dollar. They are borrowing from the Fed at a low interest rate, and buying foreign euro-denominated bonds yielding a higher interest rate--and in the process, making a currency gain as the euro rises against dollar-denominated assets. The Fed thus is subsidizing capital flight, exacerbating inflation by making the price of imports (headed by oil and other raw materials) more expensive. These commodities are not more expensive to European buyers, but only to buyers paying in depreciated dollars.""

The banksters are "buying foreign euro-denominated bonds" during an economic crisis in America? Whoa. Now there's an interesting take on patriotism.

The Fed's strategy has even failed to lower mortgage rates which are pinned to the 30-year Treasury and which has actually gone up since Bernanke began slashing rates. This inability to pass on the Fed's rate cuts to potential mortgage applicants ensures that the housing meltdown will continue unabated well into 2009 and, perhaps, 2010.

In the last few days, the Fed has provided $30 billion to buy up the least-liquid speculative debts of a privately-owned investment bank, Bear Stearns, which was leveraged at 32 to 1 and which will remain unsupervised by federal regulators. How does that address the underlying issues of the credit crunch? Are Bernanke and Paulson really trying to put the financial markets back on solid footing again or are they merely expressing their bank-centered bias?

That question was answered in an article on Tuesday in the Wall Street Journal which explained the real reasons behind the Bear bailout:

"The illusion was shattered Saturday morning, when Mr. Paulson was deluged by calls to his home from bank chief executives. They told him they worried the run on Bear would spread to other financial institutions. After several such calls, Mr. Paulson realized the Fed and Treasury had to get the J.P. Morgan deal done before the markets in Asia opened on late Sunday, New York time.

"It was just clear that this franchise was going to unravel if the deal wasn't done by the end of the weekend," Mr. Paulson said in an interview yesterday.'" ("The Week that Shook Wall Street", Wall Street Journal)

So all it took was a little nudge from his banking cohorts for Paulson to swing into action and firm up the deal. That says it all. The interests of the American people were never even considered. It was all choreographed to bail out the financial industry. No wonder so many people believe that the Federal Reserve and the US Treasury are merely an extension of the banking establishment. The Bear bailout proves it.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

Jobless Claims Jump by 22,000

By MARTIN CRUTSINGER – 2 hours ago

WASHINGTON (AP) — The number of newly laid off workers filing for unemployment benefits rose last week to the highest level in nearly two months, providing more evidence that the weak economy is drying up jobs.

The Labor Department said Thursday that applications for jobless benefits totaled 378,000 last week. That was an increase of 22,000 from the previous week and was a far bigger jump than had been expected.

The four-week average for new claims rose to 365,250, which was the highest level since a flood of claims caused by the 2005 Gulf Coast hurricanes.

The current economic slowdown, which many economists believe has already turned into a full-blown recession, is starting to show up in the labor market in terms of higher layoffs and weaker hiring numbers.

The total number of payroll jobs fell by 63,000 in February, an even bigger decline that the drop of 22,000 jobs in January, which had been the first monthly decline since mid-2003.

"We have no doubt that the trend in claims is upwards and is approaching the levels seen in the earlier stage of the recession in 2001," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Part of the increase in benefit applications in recent weeks occurred because of a three-week strike at a major parts supplier to General Motors Corp., which has forced GM to close all or part of 28 plants, affecting more than 37,000 hourly workers.

The number of unemployed workers who are receiving benefits totaled 2.865 million, the largest amount since late August 2004.

Analysts said this increase was a worrisome sign that the economic weakness was boosting layoffs and making businesses cautious about hiring new workers.

"Hiring through 2007 was slower than the pace in 2006 and recent trends continue to suggest that businesses have pulled back even further on their hiring plans," said Andrew Gledhill of Moody's Economy.com.

The Federal Reserve this week cut a key interest rate by a sizable three-quarters of 1 percent, wrapping up the most aggressive two months of credit easing by the central bank in a quarter century.

The Fed has also greatly expanded its loans to cash-strapped banks and used a Depression-era process to supply money to Wall Street investment houses in an effort to keep a serious credit squeeze from pushing the country into a deep recession.

For the week ending March 8, 28 states and territories reported an increase in jobless claims and 25 reported declines. The states with the biggest increases were California, up by 3,755; Michigan, up by 2,236, and Indiana, with an increase of 2,158. The layoffs in Michigan and Indiana were attributed in part to higher layoffs in the auto industry.

The states with the biggest drop in claims two weeks ago were New York, down by 13,504, and Connecticut, which fell by 2,228.

China Says Tibet Protests Have Spread

BEIJING (AP) - China acknowledged Thursday that anti-government riots have spread to other provinces since sweeping through Tibet last week, as communist authorities announced the first group of arrests for the violence.

In India, the Dalai Lama told reporters he was "always ready to meet" Chinese leaders, in particular President Hu Jintao, though he said he would not travel to Beijing to do so.

But China has ignored calls for dialogue, accusing the Dalai Lama's supporters of organizing violence in Tibet in hopes of sabotaging this summer's Beijing Olympics and promoting Tibetan independence.

The Foreign Ministry said it was "seriously concerned" about a planned meeting between British Prime Minister Gordon Brown and the Dalai Lama, urging Brown not to offer support to Tibet's exiled Buddhist leader.

(AP) Armed Chinese paramilitary riot police get off a truck as they set up camp in Hutiaoxia, southeast... Full Image

Armed police and troops poured into far-flung towns and villages in Tibetan areas of adjacent provinces to reassert control as sporadic demonstrations continued to flare. Foreigners were barred from traveling there and tour groups were banned from Tibet, isolating a region about four times the size of France.

The protests against Chinese rule started peacefully in Tibet's capital, Lhasa, early last week, but erupted into riots on March 14. Authorities say 325 people were injured and 16 people died - including three protesters who allegedly jumped from windows while trying to escape police. China has denied Tibetan exile groups' claims that 80 people died.

In Aba county in northwestern Sichuan province, a Tibetan woman reached by phone Thursday said she had heard of numerous arrests of protesters in the area.

"There are many, many troops outside," she said.

"I'm afraid to leave the house," said the woman, who refused to give her name for fear of retaliation by authorities. Police were checking I.D. cards at checkpoints and could be heard shouting for protesters to turn themselves in.

The Xinhua news agency said the protesters attacked "shops and government offices" on Sunday in Aba, known as Ngawa in Tibetan, but made no mention of allegations by pro-Tibet groups abroad that troops fired on protesters, killing several.

The reports confirm previous claims by exile Tibet activist groups that the protests had spread. Foreign journalists have been banned from going to Tibet and have found it increasingly difficult to travel to areas in other provinces with Tibetan populations.

Zhang Yusheng, a spokesman for the Gansu provincial government, said a "small number of law breakers shouted reactionary slogans, raised the flag of separatism and adopted violent methods."

Shops, schools, homes, vehicles and government offices in Gansu's Gannan Tibetan Autonomous Prefecture were attacked, posing an "extremely grave threat" to social order, Zhang said Wednesday, according to state media.

Reinforcements were brought in and order was restored, he said. He mentioned no arrests.

(AP) Armed Chinese paramilitary riot police jump down from a truck as they set up camp in Hutiaoxia,... Full Image

Despite those reassurances, a receptionist who answered the phone at a hotel in the regional center of Luqu said employees and guests had been holed up inside since Tibetan protesters marched through the area on Sunday.

"The streets are now filled with police officers. Our hotel is booked out with tourists, but no one feels safe enough to set foot outside," said the woman, who refused to give her name or that of her hotel for fear of retaliation by authorities.

A police officer in the nearby town of Maqu refused to answer questions about the situation.

"We cannot tell you that information," he said before banging the phone down.

The Tibet Daily reported that 24 people had been arrested for endangering state security, and for other "grave crimes" for their roles in last Friday's riots in Lhasa.

(AP) Chinese paramilitary police unload equipment on a road on the outskirts of Hutiaoxia, southeast of... Full Image

"This incident has severely disrupted the social order, harmed people's life and property, and these illegal acts organized, pre-planned, and well-designed by the Dalai clique," Lhasa deputy chief prosecutor Xie Yanjun was quoted as saying.

Xinhua said previously that 170 people had surrendered for their role in the Lhasa riots.

The protests have been the biggest challenge in almost two decades to Chinese rule in Tibet, a Himalayan region that the People's Liberation Army occupied in 1950 after several decades of effective independence.

But authorities appeared to be regaining control in Tibet and surrounding provinces where more than half of China's 5.4 million Tibetans live. Moving from town to town, police checked IDs and set up roadblocks to keep Tibetans in and reporters out.

On Thursday morning, an Associated Press photographer was turned away from a flight to Zhongdian in Yunnan province. There were 12 policemen, including with automatic weapons at the check-in counter. The police said that no foreigners were allowed to travel to Tibetan areas due to the protests.

(AP) Map shows Tibet protests and also shows Tibetan land before Chinese occupation; 2c x 3 1/4 inches;... Full Image

In Yunnan province's Tiger Leaping Gorge, hundreds of paramilitary police aboard at least 80 trucks were seen traveling northwest along a main route into southern Tibet. Others appeared to be setting up camp and patrolling the Tibet town, a few with rifles. They were also unloading trucks with supplies.

Overall, the town appeared quiet with few people present on streets.

The security presence in areas of Tibet proper outside Lhasa seemed relatively low-key, according to an Austrian tourist who crossed the border into Nepal on Wednesday.

Andreas Steinbichler said he saw no troops or signs of violence, only routine passport checks, during the daylong drive from Lhasa.

"Traveling through Tibet you didn't realize there was any trouble at all," he said. "Outside of Lhasa we saw nothing."

The unrest has prompted discussion of a possible boycott of the Aug. 8 opening ceremony at the Beijing Olympics and calls for China to address Tibetans' grievances and engage in direct talks with the Dalai Lama.

Brown said he planned to meet with the Dalai Lama in Britain in May and told reporters he appealed to Chinese Premier Wen Jiabao to apply restraint in dealing with protests.

That drew an immediate response from Beijing, which demands countries not provide the Dalai Lama with a forum and has sought to punish those who meet or support him.

The Dalai Lama is a "political refugee engaged in activities of splitting China under the camouflage of religion," Foreign Ministry spokesman Qin Gang said in remarks issued by Xinhua.

Three Investment Banks Partake in Fed “Lending” Scam

Baltimore Sun
March 20, 2008

Three of the nation’s largest investment banks said they have borrowed from a program created this week by the Federal Reserve to stimulate lending amid concern that Wall Street faced a cash shortage.

“We have tested the window because we want to remove the stigma from the window,” said Morgan Stanley Chief Financial Officer Colm Kelleher in an interview yesterday, referring to the Fed lending program. “It’s meant to be there for normal business. It’s not meant to be there as a last-recourse thing.”

Erin Callan, chief financial officer of Lehman Brothers Holdings Inc., said the company used the window Tuesday night, adding: “We wanted to show some leadership.”

Michael DuVally, a spokesman for Goldman Sachs Group Inc., said his firm also is “testing” the Fed facility, which opened Monday, and will use it “if doing so makes sense from an economic and funding diversification point of view.”

Wall Street firms were reluctant to turn to the Fed earlier this week because of concern that it might make them appear financially weak, The Wall Street Journal reported yesterday.

Read entire article

Bin Laden accuses pope, slams EU over cartoons

Updated 2h 26m ago | Comments251 | Recommend24
USA Today

CAIRO (AP) — Al-Qaeda leader Osama bin Laden accused Pope Benedict XVI of helping in a "new Crusade" against Islam and warned in a new audiotape of a "severe" reaction for Europeans' publication of cartoons seen by Muslims as insulting Islam's prophet Muhammad.

The message raised concerns al-Qaeda was plotting new attacks in Europe. Some experts said bin Laden, believed to be in hiding in the Afghan-Pakistan border area, may be unable to organize such an attack himself and instead was trying to fan anger over the cartoons to inspire violence by supporters.

The Vatican spokesman, the Rev. Federico Lombardi, said bin Laden's accusation that Pope Benedict XVI has played a role in a worldwide campaign against Islam is "baseless." Lombardi said the pope on several occasions has criticized the cartoons, first published in several European papers in 2006 then republished in Danish papers in February.

Benedict raised widespread anger in the Muslim world with a 2006 speech in which he cited a medieval text that characterized some of the teachings of the prophet Muhammad as "evil and inhuman," particularly "his command to spread by the sword the faith." The pope later said he was "deeply sorry" about the reactions his remarks sparked and stressed that they did not reflect his own opinions — and since he has led a public campaign for dialogue with Muslims.

Bin Laden's audiotape was posted late Wednesday on a militant website that has carried al-Qaeda statements in the past and bore the logo of the extremist group's media wing Al-Sahab. An old, still image of bin Laden aiming with an assault rifle was posted along with the message.

"The response will be what you see and not what you hear and let our mothers bereave us if we do not make victorious our messenger of God," said a voice believed to be bin Laden's, without specifying what action would be taken.

"You went overboard in your unbelief and freed yourselves of the etiquettes of dispute and fighting and went to the extent of publishing these insulting drawings," he said. "This is the greater and more serious tragedy, and reckoning for it will be more severe."

He said the cartoons "came in the framework of a new Crusade in which the Pope of the Vatican has played a large, lengthy role," according to a transcript released by the SITE Institute, a U.S. group that monitors terror messages.

The five-minute message, bin Laden's first this year, made no mention of the fifth anniversary Wednesday of the U.S.-led invasion in Iraq.

It came as the Muslim world marks the prophet Muhammad's birthday Thursday and amid the reigniting of a two-year-old controversy over Danish cartoons deemed by Muslims to be insulting.

On Feb. 13, Danish newspapers republished one of the cartoons, which shows Muhammad wearing a bomb-shaped turban, to illustrate their commitment to freedom of speech after police said they had uncovered a plot to kill the artist.

Danish intelligence service said the reprinting of the cartoon had brought "negative attention" to Denmark and may have increased the risk to Danes at home and abroad.

The original 12 cartoons first published in a Danish newspaper, then in several papers across Europe, triggered major protests in Muslim countries in 2006.

There have been renewed protests in the last month, though not as large or widespread and with little violence. A few dozen university students held a demonstration Thursday in Islamabad, where larger rallies sparked violent unrest over the cartoons in 2006. The students, who waved banners and chanted slogans against Denmark, said they had not seen the bin Laden message and the protest was not sparked by it.

Muslims widely saw the cartoons as an insult, depicting the prophet as violent. Islamic law generally opposes any depiction of the prophet, even favorable, for fear it could lead to idolatry.

Ben Venzke, the head of IntelCenter, a U.S. group that monitors militant messages, called Wednesday's video a "clear threat against EU member countries and an indicator of a possible upcoming significant attack."

Talat Masood, a retired Pakistani general and security analyst, said bin Laden was likely too isolated to organize an attack. But the al-Qaeda leader may be hoping to use anger over the cartoons to inspire violence, he said.

"Even if he has not got the capacity (to launch an attack), he will try to infuse hatred. He is trying to whip up the anguish and anger in the Islamic world and capitalize on that. He is lending his support to that movement and saying, 'We are with you,"' Masood said.

Last year, a U.S. national intelligence estimate warned that al-Qaeda had been able to regroup in Pakistan's tribal regions after the government hatched peace deals with Taliban militants which later collapsed. slamic extremists have expanded their sway in the past year in the lawless border region with Afghanistan. Taliban militants, some with links to al-Qaeda, are blamed for a growing campaign of violence that has spread from the northwest to major cities nationwide, mostly targeting security forces.

The al-Qaeda leader's tape appeared to have been recorded since December because bin Laden refers to revelations made that month by the British press that former Prime Minister Tony Blair pushed to halt a fraud investigation against aerospace company BAE Systems PLC in part because he feared it would jeopardize an arms deal with Saudi Arabia.

Bin Laden also criticized the "aggressive policies" of President Bush.

"How it saddens us that you target our villages with your bombing: those modest mud villages which have collapsed onto our women and children," he said, addressing Europeans. "All of this (you do) without right and in conformity with your oppressive ally who — along with his aggressive policies — is about to depart the White House."

On Wednesday, Bush praised Sunni tribal leaders for rising up against al-Qaeda in Iraq and said that has led to similar uprising across the country. All that, combined with a strategic influx of U.S. troops last year, has "opened the door to a major victory in the broader war on terror," Bush said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

The Great Unwind has begun, Citigroup warns

Avoid leveraged companies, countries and consumers, bank's strategists say

By Alistair Barr, MarketWatch

Last update: 9:51 p.m. EDT March 19, 2008

SAN FRANCISCO (MarketWatch) -- The Great Unwind has begun, Citigroup Inc. strategists warned on Wednesday.

As markets and economies de-leverage across the globe, investors should avoid companies and countries that have grown to rely too much on borrowed money, they said.

That means favoring public-equity markets over hedge funds, private-equity and real estate, while leaning toward emerging market countries and away from developed nations like the U.S., the bank's global equity strategy team advised.

Within equity markets, the financial-services should be avoided because it's still over-leveraged, while other companies have stronger balance sheets, the strategists said.

"Steady growth, low inflation and rock-bottom interest rates encouraged economic and financial participants across the world economy to gear up over the past few years," Robert Buckland and his colleagues on Citi's global strategy team wrote in a note to clients. "Easy money encouraged many to buy a bigger house, a bigger car or a bigger speculative position."

"But now, any behavior that relied upon continued access to easy money is being dramatically reassessed," they added. "Leveraged banks must lend less, leveraged consumers must consume less, leveraged companies must acquire or invest less, and leveraged speculators must speculate less."

Financial-services companies are the most vulnerable to this reduction of borrowed money across the globe, they said.

During the last credit crisis in 1998, European banks were leveraged 26 to 1. In the early part of this decade, leverage grew to 32 to 1. Now the sector is geared 40 to 1 on average, according to Citi's European bank research team.

"The banks have a long way to go," the strategists said. "We would continue to avoid the sector while they are de-leveraging."

Other companies are in much better shape, having rebuilt cash from strong earnings since 2003. Emerging market companies have developed particularly strong balance sheets, having learnt hard lessons from the Asian financial crisis a decade ago.

However, even though some companies may not have much debt themselves, they may be exposed to over-leveraged customers or highly leveraged investors, Citigroup warned.

Automakers, home builders and electronics retailers benefited as customers borrowed money cheaply in recent years to buy cars, houses and flat-screen TVs. That attractive financing is now being withdrawn.

"There will be plenty of companies that have strong balance sheets, so may not be most immediately vulnerable to the credit crunch," Citi said. "But they may find that their leveraged customers are vulnerable."

The difference, or spread, between interest rates on investment-grade corporate bonds and Treasury bonds has jumped in recent months, even though most companies aren't very leveraged.

This widening may be caused by leveraged investors such as hedge funds having to sell good quality assets to meet margin calls, or requests for more cash or collateral.

"It is the leverage of the investors who hold these bonds that is now being brutally exposed," Matt King, a Citigroup credit strategist, said.

"We are now confronted by a broad bloodbath in the credit markets," Citigroup said. " The most leveraged paper is falling in value because it is leveraged, and now the least leveraged paper is also falling in value because it is owned by leveraged investors."

Investors should also avoid hedge funds themselves, along with private equity, Citi added. Both types of investment rely at least partly on borrowed money to generate returns.

"Private equity returns have been especially strong. Without leverage it will be much harder to meet excessive investor expectations [most surveys suggest 20% annual returns are expected from the asset class]," Citi warned. "Similarly, many hedge funds have generated healthy uncorrelated returns by adopting cautious underlying strategies, but applying significant leverage. Again, that looks unsustainable in the current environment."

Leveraged economies, like the U.S., should also be avoided, in favor of emerging market countries, which have reduced borrowing, the bank advised.

With less capital sloshing around the world, and the dollar falling, the U.S. may have to compete more to finance its deficits.

"The U.S. shows up as the world's greatest consumer of external capital," Citi noted. So it "has the most to lose as this capital becomes less freely available."

Alistair Barr is a reporter for MarketWatch in San Francisco.

Second Amendment Intended to Prevent Absolute Despotism

Herbert W. Titus and William J. Olson
Gun Owners of America
March 19, 2008

Compelled to take up arms to regain their liberties as Englishmen, America’s Founders knew that even the constitutional republic they had established could threaten the freedoms for which they had fought. In the First Amendment, they established a first line of defense — the freedoms of religion, speech, press, assembly and petition.

Knowing that words and parchment barriers alone would prove inadequate to restrain those elected as servants from becoming tyrants, they added the Second Amendment to secure "the right of the people to keep and bear Arms" — not to protect deer hunters and skeet shooters, but to guarantee to themselves and their posterity the blessings of "a free State."

Their foremost concern was the precipitating events of the American Revolution, wherein British troops in Massachusetts and Virginia seized American muskets, cannon and powder — actions the Declaration of Independence calls "a design to reduce (the colonists) under absolute Despotism."

Entrusting the nation’s sovereignty to the people, the amendment breaks the government’s military monopoly, guaranteeing to the people such firearms as would be necessary to defend against the sort of government abuse of their inalienable rights the British had committed.

Thus, the amendment’s "well regulated Militia" encompasses all citizens who constitute the polity of the nation with the right to form their own government. The amendment’s "keep and bear Arms" secures the right to possess firearms such as fully-automatic rifles, which are both the "lineal descendant(s) of … founding-era weapon(s)" (applying a 2007 court of appeals’ test), and "ordinary military equipment" (applying a 1939 Supreme Court standard).

No government deprives its citizens of rights without asserting that its actions are "reasonable" and "necessary" for high-sounding reasons such as "public safety." A right that can be regulated is no right at all, only a temporary privilege dependent upon the good will of the very government officials that such right is designed to constrain.

Media Declares "Victory" For Gun Rights As Second Amendment Is Systematically Destroyed

DC handgun ban case poses grave threat to constitutional rights
Steve Watson
Infowars.net
Wednesday, March 19, 2008

Comments made by justices in an ongoing landmark case, which seeks to address the very meaning of the second amendment, have been heralded as a "victory" for the individual right to bear arms, but in reality the second amendment is being completely eroded altogether.

Individual Right to Bear Arms Wins Favor in Court Argument, the headline from the New York Law Journal, was typical of the media output yesterday after most of the nine Supreme Court justices hinted that the right to bear arms is a "general right."

However, the case is likely to conclude with the introduction of several new regulations on hand gun ownership at the very least, and, if the government gets its way, a total ban on handguns.

The outcome will set the precedent for gun laws nationwide.

The NY Law Journal writes:

Justice Kennedy's comments appeared to spell trouble for efforts by the District of Columbia to revive its strict handgun ban, although lawyers for both the Bush administration and gun-rights advocates acknowledged that some lesser regulation of the right would be acceptable.

Counting Justice Kennedy, it appeared that five or more justices were ready to recognize some form of an individual right to keep and bear arms that is only loosely tethered, if at all, to the functioning of militias. What kind of regulation of that individual right will be allowed by those justices is uncertain.

[...]

When the arguments were over, gun-control advocates seemed less pessimistic than before the session began, though they did not predict victory.

Joshua Horwitz, director of the Education Fund to Stop Gun Violence, who filed a brief in the case and watched the arguments, conceded he cannot count five votes for a strictly militia-rights view of the Second Amendment that would allow for almost unlimited regulation of firearms. But he could conceive of five justices adopting an individual-rights view that will mean "a lot of regulations will be OK. The outcome is not necessarily poor for us."

The case, DC v. Heller, stems from proceedings filed by lawyers for security guard Mr Dick Anthony Heller, which state that the District's categorical restrictions are so broad that they cannot comply with the Second Amendment's protection of the right to bear arms.

An amicus curiae brief filed by U.S Solicitor General Paul D. Clement, on behalf of the Bush administration and the government, says that federal gun control measures should not be limited and proposes that a court may determine that a full scale ban on almost all self-defense firearms may be upheld as constitutional if it constitutes a “reasonable” restriction of constitutional rights.

Lawyer Alan Gura, opposing the law and representing Mr Heller said "We have here a ban on all guns for all people in all homes at all times in the nation's capital."

Read the transcript of yesterday's argument.

Read briefs in D.C. v. Heller.

Advocates of the ban and the representatives of the District of Columbia have attempted to argue that the history and context of the second amendment applies to the rights of militias and not to individuals.

However, there are thousands of quotes from the founding fathers that pour water on this weak argument. The founders said over and over that when a government seeks to take away individual weapons it constitutes tyranny and that government must be removed.

Here are a few choice quotes:

A strong body makes the mind strong. As to the species of exercises, I advise the gun. While this gives moderate exercise to the body, it gives boldness, enterprise and independence to the mind. Games played with the ball, and others of that nature, are too violent for the body and stamp no character on the mind. Let your gun therefore be your constant companion of your walks.
--- Thomas Jefferson to Peter Carr, 1785. The Writings of Thomas Jefferson, (Memorial Edition) Lipscomb and Bergh, editors.

We established however some, although not all its [self-government] important principles . The constitutions of most of our States assert, that all power is inherent in the people; that they may exercise it by themselves, in all cases to which they think themselves competent, (as in electing their functionaries executive and legislative, and deciding by a jury of themselves, in all judiciary cases in which any fact is involved,) or they may act by representatives, freely and equally chosen; that it is their right and duty to be at all times armed;
---Thomas Jefferson to John Cartwright, 1824. Memorial Edition 16:45, Lipscomb and Bergh, editors.

No freeman shall ever be debarred the use of arms.
---Thomas Jefferson: Draft Virginia Constitution, 1776.

[The Constitution preserves] the advantage of being armed which Americans possess over the people of almost every other nation...(where) the governments are afraid to trust the people with arms.
---James Madison,The Federalist Papers, No. 46.

To suppose arms in the hands of citizens, to be used at individual discretion, except in private self-defense, or by partial orders of towns, countries or districts of a state, is to demolish every constitution, and lay the laws prostrate, so that liberty can be enjoyed by no man; it is a dissolution of the government. The fundamental law of the militia is, that it be created, directed and commanded by the laws, and ever for the support of the laws.
---John Adams, A Defence of the Constitutions of the United States 475 (1787-1788)

Furthermore, even if you argue that the second amendment applies to militias, the very definition of the militia, according to the founders and their contemporaries, is THE PEOPLE:

Who are the militia? Are they not ourselves? Is it feared, then, that we shall turn our arms each man gainst his own bosom. Congress have no power to disarm the militia. Their swords, and every other terrible implement of the soldier, are the birthright of an American...[T]he unlimited power of the sword is not in the hands of either the federal or state governments, but, where I trust in God it will ever remain, in the hands of the people.
---Tenche Coxe, The Pennsylvania Gazette, Feb. 20, 1788.

Before a standing army can rule, the people must be disarmed; as they are in almost every kingdom in Europe. The supreme power in America cannot enforce unjust laws by the sword; because the whole body of the people are armed, and constitute a force superior to any band of regular troops that can be, on any pretence, raised in the United States. A military force, at the command of Congress, can execute no laws, but such as the people perceive to be just and constitutional; for they will possess the power, and jealousy will instantly inspire the inclination, to resist the execution of a law which appears to them unjust and oppressive.
---Noah Webster, An Examination of the Leading Principles of the Federal Constitution (Philadelphia 1787).

Last month a majority of the Senate and more than half of the members of the House issued a brief in which they urged the Supreme Court to uphold it's previous ruling that the District's handgun ban violates the second amendment.

The brief asked the Supreme Court to uphold the lower courts decision and allow the precedent of applying a stricter standard of review for gun control cases to stand.

In a separate letter, other representatives, including Congressman Ron Paul, called for the Clement/Bush administration brief to be withdrawn as it sets a precedent for further erosion of individuals’ Second Amendment rights to keep and bear arms.

Citing Constitutional concerns the letter stated:

“If the Supreme Court finds that the D.C. gun ban is a “reasonable” limitation of Second Amendment rights, the Court could create a dangerous precedent for the nation in the future. Such a decision could open the door to further regulation on American citizens’ Second Amendment rights on a large scale.”

Essentially the government is saying "You have the right to bear arms, unless we say so."

Where there is individual ownership of weapons there is liberty, where there is not there is tyranny because powerful organizations and governments will have a monopoly on it. The latest developments in this case are not a "victory" for the second amendment, on the contrary, they constitute its very undoing.

$200B added to mortgage pipeline

Regulators are lowering capital requirements for mortgage finance firms - a move that could pump hundreds of billions more into mortgage market but raises risks.

NEW YORK (CNNMoney.com) -- An additional $200 billion in financing is headed to the battered mortgage markets after federal regulators Wednesday said they would allow finance giants Fannie Mae and Freddie Mac to reduce the capital they keep on hand.

The move is the latest attempt by policymakers to ease the housing crisis, although it raises risks faced by two government-sponsored firms that are crucial to the functioning of global financial markets.

The rule change was announced by the Office of Federal Housing Enterprise Oversight, (OFHEO), a normally low-profile agency that sets rules for the two government sponsored companies that between them hold or guarantee nearly $5 trillion in mortgages.

Fannie (FNM) and Freddie (FRE, Fortune 500) are two publicly-traded companies set up by the federal government nearly 40 years ago to help provide financing needed by lenders looking to make home loans. With the change, they are expected to buy or guarantee $2 trillion in mortgages. That is about $200 billion more than they would have without the rule changes announced Wednesday.

Kieran Quinn, the chairman of the Mortgage Bankers Association, said the new rules are a crucial step in reestablishing the pipeline of funds that flow from investors through lenders to those buying a home or refinancing a mortgage.

"This will enhance lenders' ability to offer financing to a wide variety of borrowers," said Quinn. "This should help keep some at-risk borrowers in their homes which will help stabilize the real estate market."

Relief for troubled markets

Both firms have been working in recent years to clean up accounting problems. During that process, OFHEO has been requiring them to keep 30% extra capital in reserve. The rule change allows them to reduce that excess capital to only 20%.

Even as the market for mortgage-backed securities has melted down over the past year, the securities backed by the so-called conforming loans that met Freddie and Fannie criteria were considered the gold standard.

By the fourth quarter of 2007, the two firms between them were responsible for nearly three-quarters of mortgage backed securities on the market.

But the loans that backed those securities could not be made to borrowers who had less than top credit scores, did not have significant equity in their home or needed loans for more than $417,000.

Congress recently raised the limits for the loans that Fannie and Freddie can buy or insure up to $729,750, increasing the risks for the firm and the demands on their capital.

The new loan rules were seen as a necessary step to end the credit squeeze that has hammered home values across the nation and caused billions in losses and writedowns on Wall Street, raising the risk of a recession.

Change in thinking

The lower capital limits are important, not just for the additional $200 billion they make available, but for the change of thinking it signals in the Bush administration, said Jaret Seiberg, financial services analyst for policy research firm Stanford Group.

"The psychology is quite critical here," said Seiberg. "There is now an increasing view in the market that the administration understands the seriousness of the crisis and is willing to take steps it previously dismissed."

In recent weeks, Wall Street's appetite for mortgage-backed securities insured by Fannie and Freddie started to wane. That weakening demand helped force mortgage rates higher than they would have been.

"That showed that investors were starting to get nervous," said Seiberg. "That could have had a devastating impact on not just the mortgage market but the economy. Any step to make sure that market remains liquid is an important one."

But there are risks involved in Fannie and Freddie lowering their capital reserves and in buying larger loans. If problems in the housing and mortgage markets continue to deepen, it could in the worst case scenario lead to a federal government bailout of Fannie and Freddie. Seiberg believes that's a risk worth taking given the need to inject more cash into the market.

"There's a trade off when you lower capital levels, you take on more risk," said Seiberg. "That's unavoidable. The question going forward is whether Freddie and Fannie can manage that risk."

But some argued the risks are not worth it and this was the wrong move. "In truth, both Fannie and Freddie are already in a more precarious position than politicians or investors would like to admit," said Peter Schiff, president of Euro Pacific Capital, a brokerage firm focusing on overseas investments.

"Lowering reserve requirements is simply an irresponsible attempt to postpone the pain of falling home prices, but it will simply result in greater indebtedness and a deeper recession."

OFHEO Director James Lockhart said in a statement he was confident that both firms have resolved their accounting issues enough to allow the agency to lower its previous capital requirements. He pointed out that as part of this initiative, both companies announced that they will begin the process to raise significant additional capital.

"Let me be clear - both companies have prudent cushions above the OFHEO-directed capital requirements and have increased their reserves," he said. "We believe they can play an even more positive role in providing the stability and liquidity the markets need right now."

Fannie Mae CEO Daniel Mudd said while the rules changes are not a complete solution for the embattled housing and home loan markets, he believes it will help, even though the two firms will continue to focus on prime loans to borrowers with good credit and a large amount of equity in their homes.

"We hope it will help restart the housing engine that powers our economy," he said.

Fannie, Freddie get OK to buy more mortgages

Federal regulator Ofheo loosens capital requirements to prop up market

By Robert Schroeder, MarketWatch

Last update: 12:03 p.m. EDT March 19, 2008

WASHINGTON (MarketWatch) -- The federal government loosened strict capital requirements on Fannie Mae and Freddie Mac on Wednesday, allowing them to inject billions of dollars into the nation's sagging mortgage market by stepping up their purchase of more loans.

The Office of Federal Housing Enterprise Oversight said it is reducing Fannie Mae's and Freddie Mac's capital-surplus requirement to 20% from 30% previously. The companies will be clear to invest the additional capital in mortgages and mortgage-backed securities.

The move is expected to add up to $200 billion of immediate liquidity to the market for mortgage-backed securities. Wednesday's move by Ofheo, combined with other actions, should enable the two companies to buy or guarantee about $2 trillion in mortgages this year.

Ofheo is the federal regulator for the two companies. In response to accounting scandals at the two companies, Ofheo has been requiring that Fannie and Freddie hold 30% more capital than typically required.

"We believe they can play an even more positive role in providing the stability and liquidity the markets need right now," said Ofheo Director James Lockhart in a statement.

Both Fannie and Freddie are government-sponsored enterprises, or GSEs, that buy mortgages from banks and other lenders and repackage them as securities, thus freeing up liquidity in the mortgage market.

Lockhart noted that both companies will have "prudent" capital cushions above the Ofheo-directed requirements, and have boosted their reserves.

Shares of both companies quickly rose about 20% or more, on the heels of sizable Tuesday rallies, before pulling back. Shares of Fannie Mae lately were up nearly 10%, to $31, while Freddie Mac's shares climbed 12% to $29.18.

Help for foreclosures

Treasury Secretary Henry Paulson welcomed the move, saying freeing up additional capital "will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market."

Daniel Mudd, Fannie Mae's chief executive, said his company is working to minimize foreclosures, boost affordability and restore liquidity to the market. "This progressive, sustainable plan will help bring the stability the market needs," Mudd said in a statement.

Freddie Mac CEO Richard Syron said the uncertain mortgage and credit market environment "demonstrates the benefits of [Fannie and Freddie] to the U.S. economy.

"This approach allows us to continue to create these benefits in a way that balances our mission to provide stability, liquidity, and affordability consistent with safety and soundness while enhancing the interests of shareholders," Syron said.

Congressional Democrats also hailed the regulator's move, as did mortgage bankers.

Sen. Charles Schumer, D-N.Y., said Ofheo's action should help head off more problems in the housing and credit markets.

"One of the most important components to reducing the number of foreclosures is giving more flexibility to Fannie and Freddie," Schumer said in a statement. "So this is a major step forward that should help mitigate the spread of foreclosures and provide some relief to the credit markets in general."

Rep. Paul Kanjorski, D-Pa., who chairs a House Financial Services subcommittee on capital markets and GSEs, said the move will help more families buy or stay in their homes.

Ofheo's announcement "will provide a significant and immediate source of capital for America's mortgage markets at a very important time," the congressman said in a statement.