The Recovery Plan From Hell: What Wall Street Wants

By MICHAEL HUDSON

Tuesday’s announcement of the Obama-Geithner recovery plan is basically an extension of the Bush-Paulson plan – yet more giveaways to financial insiders, with a view to concentrating the U.S. banking system into a cartel of just a few large banks. This is not altogether bad news for the still relatively healthy part of the banking system (healthy in the sense of still avoiding negative equity). Smaller, less troubled banks will be bought out by the large “troubled” ones, to the personal financial benefit of their stockholders. This cannot solve today’s financial problem: the fact that the debt overhead far exceeds the economy’s ability to pay. In fact, it will spread the distortions that the large banks have introduced, until the entire system presumably looks like Citibank, Bank of America, JP Morgan Chase and Wells Fargo.

But this clearly is only Stage One of a two-stage plan that has not yet been announced, although the Wall Street Journal’s op-ed page has provided enough hints trickling out for the past three months to tip the hand of Wall Street’s “dream recovery plan.”

It is not exactly what most people are hoping for. In fact, it threatens to be a nightmare scenario for the economy at large. Watch for the magic phrase: “equity kicker,” first heard in the S&L mortgage crisis of the 1980s.

The first question to ask about the Recovery Program is, “recovery for whom?” The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, what is it they want to recover? The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of “wealth creation”: wealth in the form of indebtedness of the “real” economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.

For the financial elites, the problem is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new credit or capital for the banking system will induce banks to provide credit to real estate that already is over-mortgaged, or to individuals and corporations already over-indebted. All professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in unstable conditions such as we are experiencing today.

While the Obama administration’s financial planners wring their hands in public and say “We feel your pain” to debtors at large, they also recognize that the past ten years have been a golden age for the banking system and Wall Street. The wealthiest 1 per cent of the population has raised its share of the returns to wealth – dividends, interest, rent and capital gains – from 37 per cent of the total ten years ago to 57 per cent five years ago, and an estimated 70 per cent today. Over two-thirds of the returns to wealth now go to the wealthiest 1 per cent of the population. This is the highest on record. We are approaching Russian kleptocratic levels.

Yet the financial Hard Right of the political spectrum – the lobbyists now in control of the Treasury, the Federal Reserve and the Justice Departments for starters – repeats the new Big Lie: that it is the poor who have brought the system down, “exploiting” the rich by trying to ape their betters and live beyond their means. Subprime families have taken out subprime loans, the lying poor have signed documents to obtain “liars’ loans,” as Alt-A, no-documentation loans are called in the financial junk-paper trade.

I learned the reality a few years ago in London, talking to a commercial bank strategist there. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.”

“What is it?” I asked, imagining that he was about to come out with yet a new junk mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who could have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today’s neoliberal Chicago School language, the poor behave “uneconomically.” That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.

As I said above, it was a golden age. The financial and real estate bubble is the world that America’s financial power elite would love to recover. The problem for them is how to start a new bubble and make yet another fortune. The alternative would be to keep what they have taken and run – not so bad, but a scenario that perhaps they can improve on.

Discussions about emergency bailouts have focused on putting in place enough new lending capacity by the banking system to start inflating prices on credit once again. But a new bubble can’t be started from today’s asset-price levels. This week’s $2 trillion or so in new bailout money for the banks (“capital,” and specifically finance capital, not to be confused with industrial capital) will only be lent out once prices fall by another 30 to 50 percent. So this can represent only Stage 1.

The question for Stage 2 is, how can the $10 to $20 trillion capital-gain run-up of the Greenspan years been repeated in an economy that is “all loaned up”?

One thing Wall Street knows is that to make money, you not only need asset prices to rise, they have to go down again – and up again, and down again. Without going down, after all, how can they rise up? The more frenetic the price fibulation, the easier it is for computerized buy-and-sell programs to make money on options and derivatives. What is being planned today looks like a similar up-and-down movement in real estate.

The first trick is to preserve the wealth of the creditor class – Wall Street, the banks and the other financial vehicles that enrich the wealthiest 1 per cent and indeed, the richest 10 per cent of the population. Stage One involves buying out their bad loans at a price that saves them from taking a loss. This is done by shifting the loss onto the “taxpayers” – labor, onto whose shoulders the tax burden has been shifted steadily, step by step since 1980, with the Greenspan Commission imposing an onerous Social Security tax on the middle class and using the proceeds to slash taxes on the higher brackets. Next comes an “aggregator” bank (sounds like “alligator,” from the swamps of toxic waste) to buy the bad debts and put them in a public agency. The government calls this the “bad” bank. But it does good for Wall Street – by buying loans that have gone bad – or perhaps nearer the truth, loans that never were good in the first place.

The harder part is to revive opportunities for creditors to make a new killing. (And it’s the economy that’s being killed.) Here’s how I imagine the plan might work.

Suppose a recent buyer has purchased a home for $500,000, with a $500,000 adjustable-rate mortgage scheduled to reset at 8 per cent. Suppose too that the current market price has fallen to $250,000 – a loss of 50 per cent by the end of 2009. After all, there needs to be enough time for prices to decline. Otherwise, there would be no economy to “rescue.” Mr. Geithner and Summers need to “feel your pain” to come out with the package that I’m describing. The government will swap “cash for trash,” printing new Treasury bonds (interest to be paid by “the taxpayer) in exchange for the $500,000 mortgage that is going bad, heading toward only a $250,000 market price.

The “Bad” bank that the Obama plan decided was not quite ready to be created this week will take the form of a public/private partnership (PPP), of the sort that Tony Blair made so notorious in Britain. It will be financed with private funds – in fact, with the funds now being given to re-capitalize America’s banks (headed by the Wall St. banks that have done so poorly). Banks will use the money they receive from the Treasury for selling their junk mortgages at par – along with other bailout funding – to buy shares in a new $5 trillion institution. Something like Fanny Mae or Freddie Mac will be created and its bonds guaranteed (that’s the “public” part – “socializing” the risk). The PPP institution will start with, say, $3 trillion in funds, and will have the power to buy and renegotiate the mortgages that have passed into the hands of the government and other holders. This “Middle Class Homeowner Recovery Trust” will use its private funding for the “socially responsible” purpose of “saving the taxpayer” and homeowners by renegotiating the mortgage down from its original $500,000 to the new $250,000 price.

Here’s the patter talk you can expect, with the usual Orwellian euphemisms. The “rescue the homeowners” PPP, a veritable Savior Bank, will go to a family strapped by its home mortgage debt and feeling more and more desperate as the price of its major asset plummets deep into Negative Equity territory. An offer will be made: “We’ve got a deal to save you. We’ll renegotiate your mortgage down to $250,000, the current market price, and we’ll also lower your interest rate to just 5.50 per cent. This will cut your monthly debt charges by nearly two thirds. You will escape from negative equity, and you can afford to stay in your home.”

The family probably will say, “Great.”

But they will have to make a concession. That’s where the new public/private partnership makes its killing. Its Savior Bank, funded with private money that is to take the “risk” (and also the rewards) will say to the family that agrees to renegotiate its mortgage: “Now that the government has taken a loss while we’ve let you stay in your home, we need to recover the money that’s been lost. So when the time comes for you to sell, or to renegotiate your mortgage, our Savior Bank will receive the capital gain up to the original amount written off. If we’ve made you whole, we want to be made whole too.”

In other words, if the homeowner sells the property for $400,000, the Savior Bank will get $150,000 of the capital gain. If the property sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50, then if the home sells for $600,000, the owner at that time will split the $100,000 further capital gain with the Savior Bank. The Savior Bank will thus make much more through its share of capital gains than it extracts in interest!

This plan will be even better for Wall Street than the Greenspan bubble was! Last time around, it was the middle class that got the gains. To be sure, it really was the bank that got the gains, because mortgage interest charges absorbed the entire rental value. But at least homeowners had a chance at the free ride, if they didn’t squander their money in refinancing their mortgages. And many did use their homes “like a piggy bank” to support their living standards.

But this time around, Wall Street is not obliged to make its money by making middle class homeowners rich. Debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! It can get for itself the capital gains that have been the driving force of U.S. “wealth creation,” Alan Greenspan bubble-style.

The irony is that the only kind of policies that are politically correct these days are those that make the situation worse: yet more government money in the hope that banks will create yet more credit/debt to raise house prices and make them even more unaffordable; to inflate a new bubble; to give what really should be called the “bad banks” – the Big Four or Five where the junk mortgages, junk CDOs and junk derivatives resulting from junk mathematics are concentrated – yet more money to buy out smaller banks that have not yet been infected with reckless financial opportunism.

And by the same token, lobbyists for these bad banks are screaming at the top of their voices that all solutions to the problem are politically incorrect: debt writedowns to bring the debt burden within the ability to pay. That is what the market is supposed to do – by bankruptcy in an anarchic collapse, if not by reasoned government policy. The bad banks, after demanding “free markets” all these years, have stopped the free market when it comes anywhere near them and their bonuses. For them, markets are free of regulation against predatory lending; free of taxing the wealthy so as to shift the burden onto labor; free for the financial sector to wrap itself around the “real” economy like a parasitic vine around a tree and extract the entire surplus in the form of financial engineering.

This is a travesty of freedom. But worst of all is the “freedom” of today’s economic discussion from the wisdom of classical political economy and from the experience of economic history regarding how societies have coped with the debt overhead through the ages.

An alternative policy to save the economy from being “rescued” by Wall Street

There is an alternative to ward all this off. A debt writedown, followed by a land tax so that the “free lunch” (what John Stuart Mill called the “unearned increment” of rising land prices, a gain that landlords made “in their sleep”) would serve as the tax base rather than labor and industry being burdened with an income tax.

One move would be to prevent banks from lending against the land’s value. They could lend against buildings, but not land. This would cut the maximum permissible loan to 50 to 60 per cent of the total property price – unless the government did what classical economists advocated and tax the land’s market price (its rental value) as the tax base, shifting the tax back off of labor. This would achieve the kind of free markets that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America’s first income tax in 1913.

A land tax would prevent housing prices from rising again. This would save homeowners from taking on so much debt in order to obtain housing. And it would save the economy from seeing “wealth creation” take the form of the “unearned increment” being capitalized into higher bank loans with their associated carrying charges (interest and amortization). The key to real estate bubbles is to inflate site valuations.

By MICHAEL HUDSON

Tuesday’s announcement of the Obama-Geithner recovery plan is basically an extension of the Bush-Paulson plan – yet more giveaways to financial insiders, with a view to concentrating the U.S. banking system into a cartel of just a few large banks. This is not altogether bad news for the still relatively healthy part of the banking system (healthy in the sense of still avoiding negative equity). Smaller, less troubled banks will be bought out by the large “troubled” ones, to the personal financial benefit of their stockholders. This cannot solve today’s financial problem: the fact that the debt overhead far exceeds the economy’s ability to pay. In fact, it will spread the distortions that the large banks have introduced, until the entire system presumably looks like Citibank, Bank of America, JP Morgan Chase and Wells Fargo.

But this clearly is only Stage One of a two-stage plan that has not yet been announced, although the Wall Street Journal’s op-ed page has provided enough hints trickling out for the past three months to tip the hand of Wall Street’s “dream recovery plan.”

It is not exactly what most people are hoping for. In fact, it threatens to be a nightmare scenario for the economy at large. Watch for the magic phrase: “equity kicker,” first heard in the S&L mortgage crisis of the 1980s.

The first question to ask about the Recovery Program is, “recovery for whom?” The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, what is it they want to recover? The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of “wealth creation”: wealth in the form of indebtedness of the “real” economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.

For the financial elites, the problem is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new credit or capital for the banking system will induce banks to provide credit to real estate that already is over-mortgaged, or to individuals and corporations already over-indebted. All professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in unstable conditions such as we are experiencing today.

While the Obama administration’s financial planners wring their hands in public and say “We feel your pain” to debtors at large, they also recognize that the past ten years have been a golden age for the banking system and Wall Street. The wealthiest 1 per cent of the population has raised its share of the returns to wealth – dividends, interest, rent and capital gains – from 37 per cent of the total ten years ago to 57 per cent five years ago, and an estimated 70 per cent today. Over two-thirds of the returns to wealth now go to the wealthiest 1 per cent of the population. This is the highest on record. We are approaching Russian kleptocratic levels.

Yet the financial Hard Right of the political spectrum – the lobbyists now in control of the Treasury, the Federal Reserve and the Justice Departments for starters – repeats the new Big Lie: that it is the poor who have brought the system down, “exploiting” the rich by trying to ape their betters and live beyond their means. Subprime families have taken out subprime loans, the lying poor have signed documents to obtain “liars’ loans,” as Alt-A, no-documentation loans are called in the financial junk-paper trade.

I learned the reality a few years ago in London, talking to a commercial bank strategist there. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.”

“What is it?” I asked, imagining that he was about to come out with yet a new junk mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who could have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today’s neoliberal Chicago School language, the poor behave “uneconomically.” That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.

As I said above, it was a golden age. The financial and real estate bubble is the world that America’s financial power elite would love to recover. The problem for them is how to start a new bubble and make yet another fortune. The alternative would be to keep what they have taken and run – not so bad, but a scenario that perhaps they can improve on.

Discussions about emergency bailouts have focused on putting in place enough new lending capacity by the banking system to start inflating prices on credit once again. But a new bubble can’t be started from today’s asset-price levels. This week’s $2 trillion or so in new bailout money for the banks (“capital,” and specifically finance capital, not to be confused with industrial capital) will only be lent out once prices fall by another 30 to 50 percent. So this can represent only Stage 1.

The question for Stage 2 is, how can the $10 to $20 trillion capital-gain run-up of the Greenspan years been repeated in an economy that is “all loaned up”?

One thing Wall Street knows is that to make money, you not only need asset prices to rise, they have to go down again – and up again, and down again. Without going down, after all, how can they rise up? The more frenetic the price fibulation, the easier it is for computerized buy-and-sell programs to make money on options and derivatives. What is being planned today looks like a similar up-and-down movement in real estate.

The first trick is to preserve the wealth of the creditor class – Wall Street, the banks and the other financial vehicles that enrich the wealthiest 1 per cent and indeed, the richest 10 per cent of the population. Stage One involves buying out their bad loans at a price that saves them from taking a loss. This is done by shifting the loss onto the “taxpayers” – labor, onto whose shoulders the tax burden has been shifted steadily, step by step since 1980, with the Greenspan Commission imposing an onerous Social Security tax on the middle class and using the proceeds to slash taxes on the higher brackets. Next comes an “aggregator” bank (sounds like “alligator,” from the swamps of toxic waste) to buy the bad debts and put them in a public agency. The government calls this the “bad” bank. But it does good for Wall Street – by buying loans that have gone bad – or perhaps nearer the truth, loans that never were good in the first place.

The harder part is to revive opportunities for creditors to make a new killing. (And it’s the economy that’s being killed.) Here’s how I imagine the plan might work.

Suppose a recent buyer has purchased a home for $500,000, with a $500,000 adjustable-rate mortgage scheduled to reset at 8 per cent. Suppose too that the current market price has fallen to $250,000 – a loss of 50 per cent by the end of 2009. After all, there needs to be enough time for prices to decline. Otherwise, there would be no economy to “rescue.” Mr. Geithner and Summers need to “feel your pain” to come out with the package that I’m describing. The government will swap “cash for trash,” printing new Treasury bonds (interest to be paid by “the taxpayer) in exchange for the $500,000 mortgage that is going bad, heading toward only a $250,000 market price.

The “Bad” bank that the Obama plan decided was not quite ready to be created this week will take the form of a public/private partnership (PPP), of the sort that Tony Blair made so notorious in Britain. It will be financed with private funds – in fact, with the funds now being given to re-capitalize America’s banks (headed by the Wall St. banks that have done so poorly). Banks will use the money they receive from the Treasury for selling their junk mortgages at par – along with other bailout funding – to buy shares in a new $5 trillion institution. Something like Fanny Mae or Freddie Mac will be created and its bonds guaranteed (that’s the “public” part – “socializing” the risk). The PPP institution will start with, say, $3 trillion in funds, and will have the power to buy and renegotiate the mortgages that have passed into the hands of the government and other holders. This “Middle Class Homeowner Recovery Trust” will use its private funding for the “socially responsible” purpose of “saving the taxpayer” and homeowners by renegotiating the mortgage down from its original $500,000 to the new $250,000 price.

Here’s the patter talk you can expect, with the usual Orwellian euphemisms. The “rescue the homeowners” PPP, a veritable Savior Bank, will go to a family strapped by its home mortgage debt and feeling more and more desperate as the price of its major asset plummets deep into Negative Equity territory. An offer will be made: “We’ve got a deal to save you. We’ll renegotiate your mortgage down to $250,000, the current market price, and we’ll also lower your interest rate to just 5.50 per cent. This will cut your monthly debt charges by nearly two thirds. You will escape from negative equity, and you can afford to stay in your home.”

The family probably will say, “Great.”

But they will have to make a concession. That’s where the new public/private partnership makes its killing. Its Savior Bank, funded with private money that is to take the “risk” (and also the rewards) will say to the family that agrees to renegotiate its mortgage: “Now that the government has taken a loss while we’ve let you stay in your home, we need to recover the money that’s been lost. So when the time comes for you to sell, or to renegotiate your mortgage, our Savior Bank will receive the capital gain up to the original amount written off. If we’ve made you whole, we want to be made whole too.”

In other words, if the homeowner sells the property for $400,000, the Savior Bank will get $150,000 of the capital gain. If the property sells for $500,000, the bank will get $250,000. And if it sells for more, thanks to some new clone of Alan Greenspan acting as bubblemeister, the capital gain will be split in some way. If the split is 50/50, then if the home sells for $600,000, the owner at that time will split the $100,000 further capital gain with the Savior Bank. The Savior Bank will thus make much more through its share of capital gains than it extracts in interest!

This plan will be even better for Wall Street than the Greenspan bubble was! Last time around, it was the middle class that got the gains. To be sure, it really was the bank that got the gains, because mortgage interest charges absorbed the entire rental value. But at least homeowners had a chance at the free ride, if they didn’t squander their money in refinancing their mortgages. And many did use their homes “like a piggy bank” to support their living standards.

But this time around, Wall Street is not obliged to make its money by making middle class homeowners rich. Debt-strapped homeowners are willing to settle merely for a plan that leaves them in their homes! It can get for itself the capital gains that have been the driving force of U.S. “wealth creation,” Alan Greenspan bubble-style.

The irony is that the only kind of policies that are politically correct these days are those that make the situation worse: yet more government money in the hope that banks will create yet more credit/debt to raise house prices and make them even more unaffordable; to inflate a new bubble; to give what really should be called the “bad banks” – the Big Four or Five where the junk mortgages, junk CDOs and junk derivatives resulting from junk mathematics are concentrated – yet more money to buy out smaller banks that have not yet been infected with reckless financial opportunism.

And by the same token, lobbyists for these bad banks are screaming at the top of their voices that all solutions to the problem are politically incorrect: debt writedowns to bring the debt burden within the ability to pay. That is what the market is supposed to do – by bankruptcy in an anarchic collapse, if not by reasoned government policy. The bad banks, after demanding “free markets” all these years, have stopped the free market when it comes anywhere near them and their bonuses. For them, markets are free of regulation against predatory lending; free of taxing the wealthy so as to shift the burden onto labor; free for the financial sector to wrap itself around the “real” economy like a parasitic vine around a tree and extract the entire surplus in the form of financial engineering.

This is a travesty of freedom. But worst of all is the “freedom” of today’s economic discussion from the wisdom of classical political economy and from the experience of economic history regarding how societies have coped with the debt overhead through the ages.

An alternative policy to save the economy from being “rescued” by Wall Street

There is an alternative to ward all this off. A debt writedown, followed by a land tax so that the “free lunch” (what John Stuart Mill called the “unearned increment” of rising land prices, a gain that landlords made “in their sleep”) would serve as the tax base rather than labor and industry being burdened with an income tax.

One move would be to prevent banks from lending against the land’s value. They could lend against buildings, but not land. This would cut the maximum permissible loan to 50 to 60 per cent of the total property price – unless the government did what classical economists advocated and tax the land’s market price (its rental value) as the tax base, shifting the tax back off of labor. This would achieve the kind of free markets that Adam Smith, John Stuart Mill and Alfred Marshall described, and which the Progressive Era aimed to achieve with America’s first income tax in 1913.

A land tax would prevent housing prices from rising again. This would save homeowners from taking on so much debt in order to obtain housing. And it would save the economy from seeing “wealth creation” take the form of the “unearned increment” being capitalized into higher bank loans with their associated carrying charges (interest and amortization). The key to real estate bubbles is to inflate site valuations.

The Recovery Plan From Hell: What Wall Street Wants

Casino Capitalism

This phrase was originally used to describe gambling on the stockmarket but takes on a new and very literal meaning with some of these 'credit default swaps' as described on Moon of Alabama.

Some of these CDS dont have an underlying asset and thus have no connection with the real economy, anymore than gambling at a casino has any connection with real work and value creation (except that it can lead the the ruin of jobs, careers, families and lives - or in the case of CDS, the ruin of the financial sector and the real economy along with it.)

'Credit default swaps' or 'derivatives' are simply a bet or a gamble. And you can bet on anything you like, eg, I'll pay you a dollar now, and if it rains 5mm or more between 4 and 5pm tomorrow, you pay me $100. If you say ok or negotiate a new agreed price, we have a contract.

They can have a useful insurance or hedging purpose, eg a premium paid in case my house gets burned down by a bushfire. But you dont have to own the asset hedged or insured. So what if 20 people who dont own my house also make a bet? There will be a very big payout in total if there is a fire. And they'll have an interest in fire, wont they? Perhaps go for a country drive, carelessly dispose of a cigarette or two, or have a barbecue during a total fire ban?

b:

We are now several month into this and some people still do not 'get it'. I'll try to give a slow but simple answer.

AIG signed insurances against bond defaults in form of Credit Default Swaps in a notional value of more than $450 billion. Some insured bonds defaulted and AIG paid out for these insurances. As it did not have the money to do so, the Bush and Obama administrations decided that the taxpayer should pay.

Up to November $150 billion were given to AIG and on Monday another $30 billion. But AIG still has $300 billion of CDS exposure and will likely make more high losses on that.

When Lehman Brothers went bankrupt -a 'credit event' - people who had insured their holdings of Lehman bonds asked their insurers to pay for their losses. Such a credit event was also triggered when Fannie and Freddie were taken into receivership.

AIG which had written insurances for the debt of those entities faced a big payout and the taxpayer had to cough up the money.

What is the moral justification for this [the taxpayer funded bailout when AIG couldnt pay]?

It was morally okay because the people and institutions insured by AIG were justified to expected the payout as their 'assets', i.e. Lehman bonds had really lost value. They had hedged a real risk like you do when you pay for fire insurance on your house. Insured you are right to expect a payout when your house burns down.

But their is another group of people and institution who got money from the taxpayer through AIG.

This second group never ever owned a Lehman or Freddie or Fannie bond. But they also had bought insurance from AIG against the default of these bonds. These people never invested in 'assets'. They payed a small monthly fee to AIG for a lottery slip and when Lehman failed they had a huge win. They went to AIG, pointed to the 'credit event' and demanded the payout. AIG obliged and the taxpayer gave the money.

Some may ask:

"While it is easy to understand the moral case for bailing out real bondholders that insured against default, what is the moral case for paying out to people who made pure bets? These people never owned a fire insured house at all. Why do they get taxpayer money when my house burns down?"

"If they had be given back the money they payed for the lottery slips, i.e. the small monthly insurance premium, that would probably be understandable, but why do the taxpayers pay out the lottery win when the private lottery organizer is bankrupt?"

Simple answer to those simple questions: Because the administration says so.

There are big numbers behind this.

Of a total of $600 billion real [Lehman Bros] bonds owned by lots of people only $150 billion were credit insured. When Lehman bonds defaulted, owners of $450 billion of its debt lost all their money.

Owners of $150 billion of that debt did not lose any money. They were payed out the insurance they had contracted and the insurers (backed by the taxpayers) carried the loss.

The total economic loss was $600 billion, $450 billion by bond owners and $150 billion by insurances. $600 million left the monetary system - poof.

But on top of that there were written insurances with a notional value of $250-$350 billion that insured people who never had the insured asset but were only playing the lottery. These people demanded money from the insurer and indeed they were payed.

This part of the 'event' did not have a real economic loss. No money left the system.

Instead money was payed from the insurer toward the insurance holder, the buyers of CDS'. As the insurer was backed by the taxpayer every one and his/her children now pays for the enormous lottery win for a few people, who had risked very little. This is money that is moving from the bottom of the society to the top in unprecedented amounts.

What is the moral justification for this?

There is none.

Who are those people who are getting huge payouts from the taxpayer for risking little?

AIG still has $300 billion in CDS exposure. If the Lehman quote of 1/3 real insurance and 2/3 lottery bets is the same with those CDS, which is likely, than a few rich people are waiting for a $200 billion free payout from the taxpayer.

Geithner does not want you or anyone else to know who profits from this scheme without having risked any real money. His rich friends do not want you to know that they are racking in billions of dollars in lottery wins that cost them little money and that the taxpayers are paying out because the private lottery operator went bust. They will pay off Geithner when his job is done and he finally gets kicked out.

People in the known and within the business are not likely to explain this... This is money moving from many persons at the bottom to very few at the top.

Geithner and his masters fear that if the public knew or understood that, they would probably only get the costs of the lottery slip disbursed - if at all.

They want the big one. AIG has still $300 billion at risk that you and your kids will have to pay for.

They want it. And they are getting it. And there is nothing you can do about that.

In comments b spells it out even more brutally:

The whole thing is not about what's cheaper but how do [the rich elite] make the most money out of it.

The Lehman bust made, as explained in my post above, some folks about 200-300bn in cash without having invested much more than a million or two. Did anyone of those people thought of how to make the bust "cheaper" for them - sure they did. If they could have gotten $200bn for a $1 investment they would have taken it.

I am devastate that otherwise intelligent people like you do not get this yet.

IT WAS A SCAM. Lehman was made to go bust because some people made A WHOLE LOT OF MONEY from the Lehman bust - not millions - hundreds of billons!

They "insured" themselves against the bust, then arranged it and the taxpayers paid the "insured" sum. What is so hard to understand with that?

From the taxpayer view there was never ANY need to pay anything at all. Those really insured against losses of assets they owned might have a moral case - might!!!

Those "insured" and never owned the "insured" asset never had a justifiable case to get anything from their bet.

The later make up for two thirds of what the taxpayer is paying out.

Why are the taxpayers, we and our children, paying for these?

---
"Saving Lehman" was never an option. The setup was clear for anyone who could read the market.

The question was and is how to save the taxpayer from taking the losses others take as profits.

If this is true, and I do feel some scepticism that it is as baldly manipulated as all that, then this is simply epic financial and political corruption.

b's solution is to Declare all Credit Default Swaps Null and Void. In comments to this post b is able to point out that a number of informed commentators are also calling for a similar solution to the derivatives nightmare which threatens to bring down the global financial system.

This phrase was originally used to describe gambling on the stockmarket but takes on a new and very literal meaning with some of these 'credit default swaps' as described on Moon of Alabama.

Some of these CDS dont have an underlying asset and thus have no connection with the real economy, anymore than gambling at a casino has any connection with real work and value creation (except that it can lead the the ruin of jobs, careers, families and lives - or in the case of CDS, the ruin of the financial sector and the real economy along with it.)

'Credit default swaps' or 'derivatives' are simply a bet or a gamble. And you can bet on anything you like, eg, I'll pay you a dollar now, and if it rains 5mm or more between 4 and 5pm tomorrow, you pay me $100. If you say ok or negotiate a new agreed price, we have a contract.

They can have a useful insurance or hedging purpose, eg a premium paid in case my house gets burned down by a bushfire. But you dont have to own the asset hedged or insured. So what if 20 people who dont own my house also make a bet? There will be a very big payout in total if there is a fire. And they'll have an interest in fire, wont they? Perhaps go for a country drive, carelessly dispose of a cigarette or two, or have a barbecue during a total fire ban?

b:

We are now several month into this and some people still do not 'get it'. I'll try to give a slow but simple answer.

AIG signed insurances against bond defaults in form of Credit Default Swaps in a notional value of more than $450 billion. Some insured bonds defaulted and AIG paid out for these insurances. As it did not have the money to do so, the Bush and Obama administrations decided that the taxpayer should pay.

Up to November $150 billion were given to AIG and on Monday another $30 billion. But AIG still has $300 billion of CDS exposure and will likely make more high losses on that.

When Lehman Brothers went bankrupt -a 'credit event' - people who had insured their holdings of Lehman bonds asked their insurers to pay for their losses. Such a credit event was also triggered when Fannie and Freddie were taken into receivership.

AIG which had written insurances for the debt of those entities faced a big payout and the taxpayer had to cough up the money.

What is the moral justification for this [the taxpayer funded bailout when AIG couldnt pay]?

It was morally okay because the people and institutions insured by AIG were justified to expected the payout as their 'assets', i.e. Lehman bonds had really lost value. They had hedged a real risk like you do when you pay for fire insurance on your house. Insured you are right to expect a payout when your house burns down.

But their is another group of people and institution who got money from the taxpayer through AIG.

This second group never ever owned a Lehman or Freddie or Fannie bond. But they also had bought insurance from AIG against the default of these bonds. These people never invested in 'assets'. They payed a small monthly fee to AIG for a lottery slip and when Lehman failed they had a huge win. They went to AIG, pointed to the 'credit event' and demanded the payout. AIG obliged and the taxpayer gave the money.

Some may ask:

"While it is easy to understand the moral case for bailing out real bondholders that insured against default, what is the moral case for paying out to people who made pure bets? These people never owned a fire insured house at all. Why do they get taxpayer money when my house burns down?"

"If they had be given back the money they payed for the lottery slips, i.e. the small monthly insurance premium, that would probably be understandable, but why do the taxpayers pay out the lottery win when the private lottery organizer is bankrupt?"

Simple answer to those simple questions: Because the administration says so.

There are big numbers behind this.

Of a total of $600 billion real [Lehman Bros] bonds owned by lots of people only $150 billion were credit insured. When Lehman bonds defaulted, owners of $450 billion of its debt lost all their money.

Owners of $150 billion of that debt did not lose any money. They were payed out the insurance they had contracted and the insurers (backed by the taxpayers) carried the loss.

The total economic loss was $600 billion, $450 billion by bond owners and $150 billion by insurances. $600 million left the monetary system - poof.

But on top of that there were written insurances with a notional value of $250-$350 billion that insured people who never had the insured asset but were only playing the lottery. These people demanded money from the insurer and indeed they were payed.

This part of the 'event' did not have a real economic loss. No money left the system.

Instead money was payed from the insurer toward the insurance holder, the buyers of CDS'. As the insurer was backed by the taxpayer every one and his/her children now pays for the enormous lottery win for a few people, who had risked very little. This is money that is moving from the bottom of the society to the top in unprecedented amounts.

What is the moral justification for this?

There is none.

Who are those people who are getting huge payouts from the taxpayer for risking little?

AIG still has $300 billion in CDS exposure. If the Lehman quote of 1/3 real insurance and 2/3 lottery bets is the same with those CDS, which is likely, than a few rich people are waiting for a $200 billion free payout from the taxpayer.

Geithner does not want you or anyone else to know who profits from this scheme without having risked any real money. His rich friends do not want you to know that they are racking in billions of dollars in lottery wins that cost them little money and that the taxpayers are paying out because the private lottery operator went bust. They will pay off Geithner when his job is done and he finally gets kicked out.

People in the known and within the business are not likely to explain this... This is money moving from many persons at the bottom to very few at the top.

Geithner and his masters fear that if the public knew or understood that, they would probably only get the costs of the lottery slip disbursed - if at all.

They want the big one. AIG has still $300 billion at risk that you and your kids will have to pay for.

They want it. And they are getting it. And there is nothing you can do about that.

In comments b spells it out even more brutally:

The whole thing is not about what's cheaper but how do [the rich elite] make the most money out of it.

The Lehman bust made, as explained in my post above, some folks about 200-300bn in cash without having invested much more than a million or two. Did anyone of those people thought of how to make the bust "cheaper" for them - sure they did. If they could have gotten $200bn for a $1 investment they would have taken it.

I am devastate that otherwise intelligent people like you do not get this yet.

IT WAS A SCAM. Lehman was made to go bust because some people made A WHOLE LOT OF MONEY from the Lehman bust - not millions - hundreds of billons!

They "insured" themselves against the bust, then arranged it and the taxpayers paid the "insured" sum. What is so hard to understand with that?

From the taxpayer view there was never ANY need to pay anything at all. Those really insured against losses of assets they owned might have a moral case - might!!!

Those "insured" and never owned the "insured" asset never had a justifiable case to get anything from their bet.

The later make up for two thirds of what the taxpayer is paying out.

Why are the taxpayers, we and our children, paying for these?

---
"Saving Lehman" was never an option. The setup was clear for anyone who could read the market.

The question was and is how to save the taxpayer from taking the losses others take as profits.

If this is true, and I do feel some scepticism that it is as baldly manipulated as all that, then this is simply epic financial and political corruption.

b's solution is to Declare all Credit Default Swaps Null and Void. In comments to this post b is able to point out that a number of informed commentators are also calling for a similar solution to the derivatives nightmare which threatens to bring down the global financial system.

Casino Capitalism

The Anti-Empire Report March 4th, 2009

The Anti-Empire Report

March 4th, 2009
by William Blum
www.killinghope.org

Being serious about torture. Or not.

In Cambodia they're once again endeavoring to hold trials to bring some former senior Khmer Rouge officials to justice for their 1975-79 war crimes and crimes against humanity. The current defendant in a United Nations-organized trial, Kaing Guek Eav, who was the head of a Khmer Rouge torture center, has confessed to atrocities, but insists he was acting under orders.1 As we all know, this is the defense that the Nuremberg Tribunal rejected for the Nazi defendants. Everyone knows that, right? No one places any weight on such a defense any longer, right? We make jokes about Nazis declaring: "I was only following orders!" ("Ich habe nur den Befehlen gehorcht!") Except that both the Bush and Obama administrations have spoken in favor of it. Here's the new head of the CIA, Leon Panetta: "What I have expressed as a concern, as has the president, is that those who operated under the rules that were provided by the Attorney General in the interpretation of the law [concerning torture] and followed those rules ought not to be penalized. And ... I would not support, obviously, an investigation or a prosecution of those individuals. I think they did their job."2 Operating under the rules ... doing their job ... are of course the same as following orders.

The UN Convention Against Torture (first adopted in 1984), which has been ratified by the United States, says quite clearly, "An order from a superior officer or a public authority may not be invoked as a justification of torture." The Torture Convention enacts a prohibition against torture that is a cornerstone of international law and a principle on a par with the prohibition against slavery and genocide.

Of course, those giving the orders are no less guilty. On the very day of Obama's inauguration, the United Nation's special torture rapporteur invoked the Convention in calling on the United States to pursue former president George W. Bush and defense secretary Donald Rumsfeld for torture and bad treatment of Guantanamo prisoners.3

On several occasions, President Obama has indicated his reluctance to pursue war crimes charges against Bush officials, by expressing a view such as: “I don't believe that anybody is above the law. On the other hand I also have a belief that we need to look forward as opposed to looking backwards.” This is the same excuse Cambodian Prime Minister Hun Sen has given for not punishing Khmer Rouge leaders. In December 1998 he asserted: "We should dig a hole and bury the past and look ahead to the 21st century with a clean slate."4 Hun Sen has been in power all the years since then, and no Khmer Rouge leader has been convicted for their role in the historic mass murder.

And by not investigating Bush officials, Obama is indeed saying that they're above the law. Like the Khmer Rouge officials have been. Michael Ratner, a professor at Columbia Law School and president of the Center for Constitutional Rights, said prosecuting Bush officials is necessary to set future anti-torture policy. "The only way to prevent this from happening again is to make sure that those who were responsible for the torture program pay the price for it. I don't see how we regain our moral stature by allowing those who were intimately involved in the torture programs to simply walk off the stage and lead lives where they are not held accountable."5

One reason for the non-prosecution may be that serious trials of the many Bush officials who contributed to the torture policies might reveal the various forms of Democratic Party non-opposition and collaboration.

It should also be noted that the United States supported Pol Pot (who died in April 1998) and the Khmer Rouge for several years after they were ousted from power by the Vietnamese in 1979. This support began under Jimmy Carter and his National Security Adviser, Zbigniew Brzezinski, and continued under Ronald Reagan.6 A lingering bitterness by American cold warriors toward Vietnam, the small nation which monumental US power had not been able to defeat, and its perceived closeness to the Soviet Union, appears to be the only explanation for this policy. Humiliation runs deep when you're a superpower.

Neither should it be forgotten in this complex cautionary tale that the Khmer Rouge in all likelihood would never have come to power, nor even made a serious attempt to do so, if not for the massive American "carpet bombing" of Cambodia in 1969-70 and the US-supported overthrow of Prince Sihanouk in 1970 and his replacement by a man closely tied to the United States.7 Thank you Richard Nixon and Henry Kissinger. Well done, lads.

By the way, if you're not already turned off by many of Obama's appointments, listen to how James Jones opened his talk at the Munich Conference on Security Policy on February 8: "Thank you for that wonderful tribute to Henry Kissinger yesterday. Congratulations. As the most recent National Security Advisor of the United States, I take my daily orders from Dr. Kissinger."8

Lastly, Spain's High Court recently announced it would launch a war crimes investigation into an Israeli ex-defense minister and six other top security officials for their role in a 2002 attack that killed a Hamas commander and 14 civilians in Gaza.9 Spain has for some time been the world's leading practitioner of "universal jurisdiction" for human-rights violations, such as their indictment of Chilean dictator Augusto Pinochet a decade ago. The Israeli case involved the dropping of a bomb on the home of the Hamas leader; most of those killed were children. The United States does this very same thing every other day in Afghanistan or Pakistan. Given the refusal of American presidents to invoke even their "national jurisdiction" over American officials-cum-war criminals, we can only hope that someone reminds the Spanish authorities of a few names, names like Bush, Cheney, Rumsfeld, Powell, Rice, Feith, Perle, Yoo, and a few others with a piece missing, a piece that's shaped like a conscience. There isn't even a need to rely on international law alone, for there's an American law against war crimes, passed by a Republican-dominated Congress in 1996.10

The noted Israeli columnist, Uri Avnery, writing about the Israeli case, tried to capture the spirit of Israeli society that produces such war criminals and war crimes. He observed: "This system indoctrinates its pupils with a violent tribal cult, totally ethnocentric, which sees in the whole of world history nothing but an endless story of Jewish victimhood. This is a religion of a Chosen People, indifferent to others, a religion without compassion for anyone who is not Jewish, which glorifies the God-decreed genocide described in the Biblical book of Joshua."11

It would take very little substitution to apply this statement to the United States — like "American" for "Jewish" and "American exceptionalism" for "a Chosen People".

Hell hath no fury like an imperialist scorned.

Hugo Chávez's greatest sin is that he has shown disrespect for the American Empire. Or as they would say in America's inner cities — He's dissed the Man. Such behavior of course cannot go unpunished lest it give other national leaders the wrong idea. Over the years, the United States has gotten along just fine with brutal dictators, mass murderers, torturers, and leaders who did nothing to relieve the poverty of their population — Augusto Pinochet, Pol Pot, the Greek Junta, Ferdinand Marcos, Suharto, Duvalier, Mobutu, the Brazil Junta, Somoza, Saddam Hussein, South African apartheid leaders, Portuguese fascists, etc., etc., terrible guys all, all seriously supported by Washington at one time or another; for none made it a regular habit, if ever, to diss the Man.

The latest evidence, we are told, that Hugo Chávez is a dictator and a threat to life as we know it is that he pushed for and got a constitutional amendment to remove term limits from the presidency. The American media and the opposition in Venezuela often make it sound as if Chávez is going to be guaranteed office for life, whereas he of course will have to be elected each time. Neither are we reminded that it's not unusual for a nation to not have a term limit for its highest office. France, Germany, and the United Kingdom, if not all of Europe and much of the rest of the world, do not have such a limit. The United States did not have a term limit on the office of the president during the nation's first 162 years, until the ratification of the 22nd Amendment in 1951. Were all American presidents prior to that time dictators?

In 2005, when Colombian President Alvaro Uribe succeeded in getting term limits lifted, the US mainstream media took scant notice. President Bush subsequently honored Uribe with the American Presidential Medal of Freedom. But in the period leading up to the February 15 referendum in Venezuela, the American media were competing with each other over who could paint Chávez and the Venezuelan constitutional process in the most critical and ominous terms. Typical was an op-ed in the Washington Post the day before the vote, which was headlined: "Closing in on Hugo Chávez". Its opening sentence read: "The beginning of the end is setting in for Hugo Chávez."12

For several years now, the campaign to malign Chávez has at times included issues of Israel and anti-Semitism. An isolated vandalism of a Caracas synagogue on January 30th of this year fed into this campaign. Synagogues are of course vandalized occasionally in the United States and many European countries, but no one ascribes this to a government policy driven by anti-semitism. With Chávez they do. In the American media, the lead up to the Venezuelan vote was never far removed from the alleged "Jewish" issue.

"Despite the government’s efforts to put the [synagogue] controversy to rest," the New York Times wrote a few days before the referendum vote, "a sense of dread still lingers among Venezuela’s 12,000 to 14,000 Jews."13

A day earlier, a Washington Post editorial was entitled: "Mr. Chávez vs. the Jews - With George W. Bush gone, Venezuela's strongman has found new enemies."14 Shortly before, a Post headline had informed us: "Jews in S. America Increasingly Uneasy - Government and Media Seen Fostering Anti-Semitism in Venezuela, Elsewhere"15

So commonplace has the Chávez-Jewish association become that a leading US progressive organization, Council on Hemispheric Affairs (COHA) in Washington, DC, recently distributed an article that reads more like the handiwork of a conservative group than a progressive one. I was prompted to write to them as follows:

Dear People,

I'm very sorry to say that I found your Venezuelan commentary by Larry Birns and David Rosenblum Felson to be remarkably lacking. The authors seem unable, or unwilling, to distinguish between being against Israeli policies from anti-semitism. It's kind of late in the day for them to not have comprehended the difference. They are forced to fall back on a State Department statement to make their case. Is that not enough said?

They condemn Chávez likening Israel’s occupation of Gaza to the Holocaust. But what if it's an apt comparison? They don't delve into this question at all.

They also condemn the use of the word "Zionism", saying that "in 9 times out of 10 involving the use of this word in fact smacks of anti-Semitism." Really? Can they give a precise explanation of how one distinguishes between an anti-Semitic use of the word and a non-anti-semitic use of it? That would be interesting.

The authors write that Venezuela's "anti-Israeli initiative ... revealingly transcends the intensity of almost every Arabic nation or normal adversary of Israel." Really. Since when are the totally gutless, dictator Arab nations the standard bearer for progressives? The ideal we should emulate. Egypt, Saudi Arabia, and Jordan are almost never seriously and harshly critical of Israeli policies toward the Palestinians. Therefore, Venezuela shouldn't be?

The authors state: "In a Christmas Eve address to the nation, Chávez charged that, 'Some minorities, descendants of the same ones who crucified Christ ... took all the world’s wealth for themselves'. Here, Chávez was not talking so much about Robin Hood, but rather unquestionably dipping into the lore of anti-Semitism." Well, here's the full quote: "The world has enough for all, but it turns out that some minorities, descendants of the same ones who crucified Christ, descendants of the same ones who threw Bolivar out of here and also crucified him in their own way at Santa Marta there in Colombia ..." Hmm, were the Jews so active in South America?

The ellipsis after the word "Christ" indicates that the authors consciously and purposely omitted the words that would have given the lie to their premise. Truly astonishing.

After Chávez won the term-limits referendum with about 55% of the vote, a State Department spokesperson stated: "For the most part this was a process that was fully consistent with democratic process." Various individuals and websites on the left have responded to this as an encouraging sign that the Obama administration is embarking on a new Venezuelan policy. At the risk of sounding like a knee-reflex cynic, I think this attitude is at best premature, at worst rather naive. It's easy for a State Department a level-or-so above the Bushies, i.e., semi-civilized, to make such a statement. A little more difficult would be accepting as normal and unthreatening Venezuela having good relations with countries like Cuba, Iran and Russia and not blocking Venezuela from the UN Security Council. Even more significant would be the United States ending its funding of groups in Venezuela determined to subvert and/or overthrow Chávez.
You've got to be carefully taught

I've been playing around with a new book for awhile. I don't know if I'll find the time to actually complete it, but if I do it'll be called something like "Myths of U.S. foreign policy: How Americans keep getting fooled into support". The leading myth of all, the one which entraps more Americans than any other, is the belief that the United States, in its foreign policy, means well. American leaders may make mistakes, they may blunder, they may lie, they may even on the odd occasion cause more harm than good, but they do mean well. Their intentions are honorable, if not divinely inspired. Of that most Americans are certain. And as long as a person clings to that belief, it's rather unlikely that s/he will become seriously doubtful and critical of the official stories.

It takes a lot of repetition while an American is growing up to inculcate this message into their young consciousness, and lots more repetition later on. Think of some of the lines from the song about racism from the Broadway classic show, "South Pacific" — "You've got to be taught" ...

You've got to be taught
from year to year.
It's got to be drummed
in your dear little ear.
You've got to be taught
before it's too late.
Before you are 6 or 7 or 8.
To hate all the people
your relatives hate.
You've got to be carefully taught.

The education of an American true-believer is ongoing, continuous. All forms of media, all the time. Here is Michael Mullen, chairman of the Joint Chiefs of Staff, the highest military officer in the United States, writing in the Washington Post recently:

"We in the U.S. military are likewise held to a high standard. Like the early Romans, we are expected to do the right thing, and when we don't, to make it right again. We have learned, after seven years of war, that trust is the coin of the realm — that building it takes time, losing it takes mere seconds, and maintaining it may be our most important and most difficult objective. That's why images of prisoner maltreatment at Abu Ghraib still serve as recruiting tools for al-Qaeda. And it's why each civilian casualty for which we are even remotely responsible sets back our efforts to gain the confidence of the Afghan people months, if not years. It doesn't matter how hard we try to avoid hurting the innocent, and we do try very hard. It doesn't matter how proportional the force we deploy, how precisely we strike. It doesn't even matter if the enemy hides behind civilians. What matters are the death and destruction that result and the expectation that we could have avoided it. In the end, all that matters is that, despite our best efforts, sometimes we take the very lives we are trying to protect. ... Lose the people's trust, and we lose the war. ... I see this sort of trust being fostered by our troops all over the world. They are building schools, roads, wells, hospitals and power stations. They work every day to build the sort of infrastructure that enables local governments to stand on their own. But mostly, even when they are going after the enemy, they are building friendships. They are building trust. And they are doing it in superb fashion."16

How many young servicemembers have heard such a talk from Mullen or other officers? How many of them have not been impressed, even choked up? How many Americans reading or hearing such stirring words have not had a lifetime of reinforcement reinforced once again? How many could even imagine that Admiral Mullen is spouting a bunch of crap? The great majority of Americans will swallow it. When Mullen declares: "What matters are the death and destruction that result and the expectation that we could have avoided it", he's implying that there was no way to avoid it. But of course it could have been easily avoided by not dropping bombs on the Afghan people.

You tell the true-believers that the truth is virtually the exact opposite of what Mullen has said and they look at you like you just got off the Number 36 bus from Mars. Bill Clinton bombed Yugoslavia for 78 days and nights in a row. His military and political policies destroyed one of the most progressive countries in Europe. And he called it "humanitarian intervention". It's still regarded by almost all Americans, including many, if not most, "progressives", as just that.

Now why is that? Are all these people just ignorant? I think a better answer is that they have certain preconceptions; consciously or unconsciously, they have certain basic beliefs about the United States and its foreign policy, most prominent amongst which is the belief that the US means well. And if you don't deal with this basic belief you'll be talking to a stone wall.
Notes

1. Associated Press, August 1, 2007 ↩
2. Press conference, February 25, 2009, transcript by Federal News Service ↩
3. Agence France Presse (AFP), January 20, 2009 ↩
4. New York Times, December 29, 1998 ↩
5. Associated Press, November 17, 2008 ↩
6. See William Blum, "Rogue State", chapter 10 ("Supporting Pol Pot") ↩
7. See William Blum, "Killing Hope", chapter 20 ("Cambodia, 1955-1973") ↩
8. http://www.realclearpolitics.com/articles/2009/02/jones_munich_conference.html ↩
9. Reuters news agency, January 30, 2009 ↩
10. The War Crimes Act (18 U.S.C. 2441) ↩
11. Haaretz, leading Israeli newspaper, January 30, 2009 ↩
12. Washington Post, February 14, 2009, column by Edward Schumacher-Matos ↩
13. New York Times, February 13, 2009 ↩
14. Washington Post, February 12, 2009 ↩
15. Washington Post, February 8, 2009 ↩
16. Washington Post, February 15, 2009, p. B7 ↩

–

William Blum is the author of:

* Killing Hope: US Military and CIA Interventions Since World War 2
* Rogue State: A Guide to the World's Only Superpower
* West-Bloc Dissident: A Cold War Memoir
* Freeing the World to Death: Essays on the American Empire

Portions of the books can be read, and signed copies purchased, at www.killinghope.org

Previous Anti-Empire Reports can be read at this website.

To add yourself to this mailing list simply send an email to bblum6@aol.com with "add" in the subject line. I'd like your name and city in the message, but that's optional. I ask for your city only in case I'll be speaking in your area.

(Or put "remove" in the subject line to do the opposite.)

Any part of this report may be disseminated without permission. I'd appreciate it if the website were mentioned.

www.killinghope.org

The Anti-Empire Report

March 4th, 2009
by William Blum
www.killinghope.org

Being serious about torture. Or not.

In Cambodia they're once again endeavoring to hold trials to bring some former senior Khmer Rouge officials to justice for their 1975-79 war crimes and crimes against humanity. The current defendant in a United Nations-organized trial, Kaing Guek Eav, who was the head of a Khmer Rouge torture center, has confessed to atrocities, but insists he was acting under orders.1 As we all know, this is the defense that the Nuremberg Tribunal rejected for the Nazi defendants. Everyone knows that, right? No one places any weight on such a defense any longer, right? We make jokes about Nazis declaring: "I was only following orders!" ("Ich habe nur den Befehlen gehorcht!") Except that both the Bush and Obama administrations have spoken in favor of it. Here's the new head of the CIA, Leon Panetta: "What I have expressed as a concern, as has the president, is that those who operated under the rules that were provided by the Attorney General in the interpretation of the law [concerning torture] and followed those rules ought not to be penalized. And ... I would not support, obviously, an investigation or a prosecution of those individuals. I think they did their job."2 Operating under the rules ... doing their job ... are of course the same as following orders.

The UN Convention Against Torture (first adopted in 1984), which has been ratified by the United States, says quite clearly, "An order from a superior officer or a public authority may not be invoked as a justification of torture." The Torture Convention enacts a prohibition against torture that is a cornerstone of international law and a principle on a par with the prohibition against slavery and genocide.

Of course, those giving the orders are no less guilty. On the very day of Obama's inauguration, the United Nation's special torture rapporteur invoked the Convention in calling on the United States to pursue former president George W. Bush and defense secretary Donald Rumsfeld for torture and bad treatment of Guantanamo prisoners.3

On several occasions, President Obama has indicated his reluctance to pursue war crimes charges against Bush officials, by expressing a view such as: “I don't believe that anybody is above the law. On the other hand I also have a belief that we need to look forward as opposed to looking backwards.” This is the same excuse Cambodian Prime Minister Hun Sen has given for not punishing Khmer Rouge leaders. In December 1998 he asserted: "We should dig a hole and bury the past and look ahead to the 21st century with a clean slate."4 Hun Sen has been in power all the years since then, and no Khmer Rouge leader has been convicted for their role in the historic mass murder.

And by not investigating Bush officials, Obama is indeed saying that they're above the law. Like the Khmer Rouge officials have been. Michael Ratner, a professor at Columbia Law School and president of the Center for Constitutional Rights, said prosecuting Bush officials is necessary to set future anti-torture policy. "The only way to prevent this from happening again is to make sure that those who were responsible for the torture program pay the price for it. I don't see how we regain our moral stature by allowing those who were intimately involved in the torture programs to simply walk off the stage and lead lives where they are not held accountable."5

One reason for the non-prosecution may be that serious trials of the many Bush officials who contributed to the torture policies might reveal the various forms of Democratic Party non-opposition and collaboration.

It should also be noted that the United States supported Pol Pot (who died in April 1998) and the Khmer Rouge for several years after they were ousted from power by the Vietnamese in 1979. This support began under Jimmy Carter and his National Security Adviser, Zbigniew Brzezinski, and continued under Ronald Reagan.6 A lingering bitterness by American cold warriors toward Vietnam, the small nation which monumental US power had not been able to defeat, and its perceived closeness to the Soviet Union, appears to be the only explanation for this policy. Humiliation runs deep when you're a superpower.

Neither should it be forgotten in this complex cautionary tale that the Khmer Rouge in all likelihood would never have come to power, nor even made a serious attempt to do so, if not for the massive American "carpet bombing" of Cambodia in 1969-70 and the US-supported overthrow of Prince Sihanouk in 1970 and his replacement by a man closely tied to the United States.7 Thank you Richard Nixon and Henry Kissinger. Well done, lads.

By the way, if you're not already turned off by many of Obama's appointments, listen to how James Jones opened his talk at the Munich Conference on Security Policy on February 8: "Thank you for that wonderful tribute to Henry Kissinger yesterday. Congratulations. As the most recent National Security Advisor of the United States, I take my daily orders from Dr. Kissinger."8

Lastly, Spain's High Court recently announced it would launch a war crimes investigation into an Israeli ex-defense minister and six other top security officials for their role in a 2002 attack that killed a Hamas commander and 14 civilians in Gaza.9 Spain has for some time been the world's leading practitioner of "universal jurisdiction" for human-rights violations, such as their indictment of Chilean dictator Augusto Pinochet a decade ago. The Israeli case involved the dropping of a bomb on the home of the Hamas leader; most of those killed were children. The United States does this very same thing every other day in Afghanistan or Pakistan. Given the refusal of American presidents to invoke even their "national jurisdiction" over American officials-cum-war criminals, we can only hope that someone reminds the Spanish authorities of a few names, names like Bush, Cheney, Rumsfeld, Powell, Rice, Feith, Perle, Yoo, and a few others with a piece missing, a piece that's shaped like a conscience. There isn't even a need to rely on international law alone, for there's an American law against war crimes, passed by a Republican-dominated Congress in 1996.10

The noted Israeli columnist, Uri Avnery, writing about the Israeli case, tried to capture the spirit of Israeli society that produces such war criminals and war crimes. He observed: "This system indoctrinates its pupils with a violent tribal cult, totally ethnocentric, which sees in the whole of world history nothing but an endless story of Jewish victimhood. This is a religion of a Chosen People, indifferent to others, a religion without compassion for anyone who is not Jewish, which glorifies the God-decreed genocide described in the Biblical book of Joshua."11

It would take very little substitution to apply this statement to the United States — like "American" for "Jewish" and "American exceptionalism" for "a Chosen People".

Hell hath no fury like an imperialist scorned.

Hugo Chávez's greatest sin is that he has shown disrespect for the American Empire. Or as they would say in America's inner cities — He's dissed the Man. Such behavior of course cannot go unpunished lest it give other national leaders the wrong idea. Over the years, the United States has gotten along just fine with brutal dictators, mass murderers, torturers, and leaders who did nothing to relieve the poverty of their population — Augusto Pinochet, Pol Pot, the Greek Junta, Ferdinand Marcos, Suharto, Duvalier, Mobutu, the Brazil Junta, Somoza, Saddam Hussein, South African apartheid leaders, Portuguese fascists, etc., etc., terrible guys all, all seriously supported by Washington at one time or another; for none made it a regular habit, if ever, to diss the Man.

The latest evidence, we are told, that Hugo Chávez is a dictator and a threat to life as we know it is that he pushed for and got a constitutional amendment to remove term limits from the presidency. The American media and the opposition in Venezuela often make it sound as if Chávez is going to be guaranteed office for life, whereas he of course will have to be elected each time. Neither are we reminded that it's not unusual for a nation to not have a term limit for its highest office. France, Germany, and the United Kingdom, if not all of Europe and much of the rest of the world, do not have such a limit. The United States did not have a term limit on the office of the president during the nation's first 162 years, until the ratification of the 22nd Amendment in 1951. Were all American presidents prior to that time dictators?

In 2005, when Colombian President Alvaro Uribe succeeded in getting term limits lifted, the US mainstream media took scant notice. President Bush subsequently honored Uribe with the American Presidential Medal of Freedom. But in the period leading up to the February 15 referendum in Venezuela, the American media were competing with each other over who could paint Chávez and the Venezuelan constitutional process in the most critical and ominous terms. Typical was an op-ed in the Washington Post the day before the vote, which was headlined: "Closing in on Hugo Chávez". Its opening sentence read: "The beginning of the end is setting in for Hugo Chávez."12

For several years now, the campaign to malign Chávez has at times included issues of Israel and anti-Semitism. An isolated vandalism of a Caracas synagogue on January 30th of this year fed into this campaign. Synagogues are of course vandalized occasionally in the United States and many European countries, but no one ascribes this to a government policy driven by anti-semitism. With Chávez they do. In the American media, the lead up to the Venezuelan vote was never far removed from the alleged "Jewish" issue.

"Despite the government’s efforts to put the [synagogue] controversy to rest," the New York Times wrote a few days before the referendum vote, "a sense of dread still lingers among Venezuela’s 12,000 to 14,000 Jews."13

A day earlier, a Washington Post editorial was entitled: "Mr. Chávez vs. the Jews - With George W. Bush gone, Venezuela's strongman has found new enemies."14 Shortly before, a Post headline had informed us: "Jews in S. America Increasingly Uneasy - Government and Media Seen Fostering Anti-Semitism in Venezuela, Elsewhere"15

So commonplace has the Chávez-Jewish association become that a leading US progressive organization, Council on Hemispheric Affairs (COHA) in Washington, DC, recently distributed an article that reads more like the handiwork of a conservative group than a progressive one. I was prompted to write to them as follows:

Dear People,

I'm very sorry to say that I found your Venezuelan commentary by Larry Birns and David Rosenblum Felson to be remarkably lacking. The authors seem unable, or unwilling, to distinguish between being against Israeli policies from anti-semitism. It's kind of late in the day for them to not have comprehended the difference. They are forced to fall back on a State Department statement to make their case. Is that not enough said?

They condemn Chávez likening Israel’s occupation of Gaza to the Holocaust. But what if it's an apt comparison? They don't delve into this question at all.

They also condemn the use of the word "Zionism", saying that "in 9 times out of 10 involving the use of this word in fact smacks of anti-Semitism." Really? Can they give a precise explanation of how one distinguishes between an anti-Semitic use of the word and a non-anti-semitic use of it? That would be interesting.

The authors write that Venezuela's "anti-Israeli initiative ... revealingly transcends the intensity of almost every Arabic nation or normal adversary of Israel." Really. Since when are the totally gutless, dictator Arab nations the standard bearer for progressives? The ideal we should emulate. Egypt, Saudi Arabia, and Jordan are almost never seriously and harshly critical of Israeli policies toward the Palestinians. Therefore, Venezuela shouldn't be?

The authors state: "In a Christmas Eve address to the nation, Chávez charged that, 'Some minorities, descendants of the same ones who crucified Christ ... took all the world’s wealth for themselves'. Here, Chávez was not talking so much about Robin Hood, but rather unquestionably dipping into the lore of anti-Semitism." Well, here's the full quote: "The world has enough for all, but it turns out that some minorities, descendants of the same ones who crucified Christ, descendants of the same ones who threw Bolivar out of here and also crucified him in their own way at Santa Marta there in Colombia ..." Hmm, were the Jews so active in South America?

The ellipsis after the word "Christ" indicates that the authors consciously and purposely omitted the words that would have given the lie to their premise. Truly astonishing.

After Chávez won the term-limits referendum with about 55% of the vote, a State Department spokesperson stated: "For the most part this was a process that was fully consistent with democratic process." Various individuals and websites on the left have responded to this as an encouraging sign that the Obama administration is embarking on a new Venezuelan policy. At the risk of sounding like a knee-reflex cynic, I think this attitude is at best premature, at worst rather naive. It's easy for a State Department a level-or-so above the Bushies, i.e., semi-civilized, to make such a statement. A little more difficult would be accepting as normal and unthreatening Venezuela having good relations with countries like Cuba, Iran and Russia and not blocking Venezuela from the UN Security Council. Even more significant would be the United States ending its funding of groups in Venezuela determined to subvert and/or overthrow Chávez.
You've got to be carefully taught

I've been playing around with a new book for awhile. I don't know if I'll find the time to actually complete it, but if I do it'll be called something like "Myths of U.S. foreign policy: How Americans keep getting fooled into support". The leading myth of all, the one which entraps more Americans than any other, is the belief that the United States, in its foreign policy, means well. American leaders may make mistakes, they may blunder, they may lie, they may even on the odd occasion cause more harm than good, but they do mean well. Their intentions are honorable, if not divinely inspired. Of that most Americans are certain. And as long as a person clings to that belief, it's rather unlikely that s/he will become seriously doubtful and critical of the official stories.

It takes a lot of repetition while an American is growing up to inculcate this message into their young consciousness, and lots more repetition later on. Think of some of the lines from the song about racism from the Broadway classic show, "South Pacific" — "You've got to be taught" ...

You've got to be taught
from year to year.
It's got to be drummed
in your dear little ear.
You've got to be taught
before it's too late.
Before you are 6 or 7 or 8.
To hate all the people
your relatives hate.
You've got to be carefully taught.

The education of an American true-believer is ongoing, continuous. All forms of media, all the time. Here is Michael Mullen, chairman of the Joint Chiefs of Staff, the highest military officer in the United States, writing in the Washington Post recently:

"We in the U.S. military are likewise held to a high standard. Like the early Romans, we are expected to do the right thing, and when we don't, to make it right again. We have learned, after seven years of war, that trust is the coin of the realm — that building it takes time, losing it takes mere seconds, and maintaining it may be our most important and most difficult objective. That's why images of prisoner maltreatment at Abu Ghraib still serve as recruiting tools for al-Qaeda. And it's why each civilian casualty for which we are even remotely responsible sets back our efforts to gain the confidence of the Afghan people months, if not years. It doesn't matter how hard we try to avoid hurting the innocent, and we do try very hard. It doesn't matter how proportional the force we deploy, how precisely we strike. It doesn't even matter if the enemy hides behind civilians. What matters are the death and destruction that result and the expectation that we could have avoided it. In the end, all that matters is that, despite our best efforts, sometimes we take the very lives we are trying to protect. ... Lose the people's trust, and we lose the war. ... I see this sort of trust being fostered by our troops all over the world. They are building schools, roads, wells, hospitals and power stations. They work every day to build the sort of infrastructure that enables local governments to stand on their own. But mostly, even when they are going after the enemy, they are building friendships. They are building trust. And they are doing it in superb fashion."16

How many young servicemembers have heard such a talk from Mullen or other officers? How many of them have not been impressed, even choked up? How many Americans reading or hearing such stirring words have not had a lifetime of reinforcement reinforced once again? How many could even imagine that Admiral Mullen is spouting a bunch of crap? The great majority of Americans will swallow it. When Mullen declares: "What matters are the death and destruction that result and the expectation that we could have avoided it", he's implying that there was no way to avoid it. But of course it could have been easily avoided by not dropping bombs on the Afghan people.

You tell the true-believers that the truth is virtually the exact opposite of what Mullen has said and they look at you like you just got off the Number 36 bus from Mars. Bill Clinton bombed Yugoslavia for 78 days and nights in a row. His military and political policies destroyed one of the most progressive countries in Europe. And he called it "humanitarian intervention". It's still regarded by almost all Americans, including many, if not most, "progressives", as just that.

Now why is that? Are all these people just ignorant? I think a better answer is that they have certain preconceptions; consciously or unconsciously, they have certain basic beliefs about the United States and its foreign policy, most prominent amongst which is the belief that the US means well. And if you don't deal with this basic belief you'll be talking to a stone wall.
Notes

1. Associated Press, August 1, 2007 ↩
2. Press conference, February 25, 2009, transcript by Federal News Service ↩
3. Agence France Presse (AFP), January 20, 2009 ↩
4. New York Times, December 29, 1998 ↩
5. Associated Press, November 17, 2008 ↩
6. See William Blum, "Rogue State", chapter 10 ("Supporting Pol Pot") ↩
7. See William Blum, "Killing Hope", chapter 20 ("Cambodia, 1955-1973") ↩
8. http://www.realclearpolitics.com/articles/2009/02/jones_munich_conference.html ↩
9. Reuters news agency, January 30, 2009 ↩
10. The War Crimes Act (18 U.S.C. 2441) ↩
11. Haaretz, leading Israeli newspaper, January 30, 2009 ↩
12. Washington Post, February 14, 2009, column by Edward Schumacher-Matos ↩
13. New York Times, February 13, 2009 ↩
14. Washington Post, February 12, 2009 ↩
15. Washington Post, February 8, 2009 ↩
16. Washington Post, February 15, 2009, p. B7 ↩

–

William Blum is the author of:

* Killing Hope: US Military and CIA Interventions Since World War 2
* Rogue State: A Guide to the World's Only Superpower
* West-Bloc Dissident: A Cold War Memoir
* Freeing the World to Death: Essays on the American Empire

Portions of the books can be read, and signed copies purchased, at www.killinghope.org

Previous Anti-Empire Reports can be read at this website.

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The Anti-Empire Report March 4th, 2009