The Black Death of Financial Collapse
By James Cumes
11/04/08 "Asia Times" -- -- The financial and economic crisis now upon us is by far the most menacing of the past century - even more so than the Great Depression of the 1930s. It is not just a "subprime" crisis; it is systemic - affecting the entire financial system. It is also global, affecting various countries in various ways but affecting them all. In achieving a certain "globalization", we have been uniquely successful in globalizing collapse, chaos and misery. It is a globalization which, in our short-sighted negligence, we never envisaged.
In this crisis, even a country such as Australia is no more than a subordinate, neo-colonial, financial and economic dependency. In essence, we have reverted to what we were before and during the Great Depression of the 1930s, when Whitehall, Westminster and the Bank of England played the tune to which we jigged. Then, from 1945 to 1969, for the first time, we played our own tune of full employment and stable economic growth. Wild radicals such as minister Eddie Ward in the governments of John Curtin (1941-45) and Ben Chifley (1945-49) warned us to be wary of Wall Street.
The cynics might now say that Eddie, who died in 1963, was right. After 1969, we forgot his warning. Indeed, the Americans themselves forgot to guard against the chicaneries of Wall Street, where eternal vigilance should always be the watchword. They forgot what the mania of Wall Street can do to the reality of Main Street; and we shared their amnesia.
From 1969 and especially from 1971, when the United States cut the dollar link with gold, Australia surrendered any worthwhile independence in its economic and financial thinking. We swallowed American financial and economic formulae, whether we were academics or policymakers, industrial entrepreneurs, banks or providers of "financial services."
We did not entirely switch off tunes played by Britain, the more so as its prime minister Margaret Thatcher formed her slapstick band with US president Ronald Reagan to drum up support for "free" markets, "free" trade, privatization, globalization and the free flow of almost everything, including speculative capital in unqualified pursuit of private profit. Corporation and consumer greed marched in step towards global disaster.
Rational economics based on real investment, productivity and production died in favor of speculative and often Ponzi pretensions. The cowboy junk-bond merchants of the 1980s metamorphosed into respectable, mostly young and usually idolized financial wizards who "perfected" sophisticated, highly complex credit devices. From the 1990s, these highly leveraged instruments took the form of derivatives, private-equity, hedge-fund and mortgage securities, abbreviated to CDOs, SIVs and the rest.
Allied with "free" markets, deregulation and the uninhibited flow of all kinds of finance, those financial devices destroyed industries and the jobs that go with them. With casual indifference, they also destroyed the self-reliant working and middle classes until then typical of robust free-enterprise economies.
Theirs was not Joseph Schumpeter's "creative destruction" but wholesale destruction of their own economies and, eventually, their own financial "system". They destroyed personal savings and created massive indebtedness. They undermined the power and security of the United States itself as they "outsourced" real economic strength and stability to countries especially in Asia.
The Asian Tigers, China and others grew into "powerhouses" whose creation, historically, would otherwise have taken them generations. Our eminently creditable aim of peaceful change through development of developing economies was distorted, largely through negligent inadvertence, into financial, economic and social self-destruction. Looming global collapse, with political and strategic uncertainties, are our inevitable legacy.
Consumerism rages, industry gutted
The speculative, Ponzi mania spread especially to Anglo-Saxon countries and to other developed countries in lesser degree. Australia took to "free" markets, "free" trade, free-floating currencies, deregulation, privatization, globalization, derivatives, hedge funds, private equity, wildcat mortgages and leverage-without-limit as a duck to water. Consumerism raged. Industry was gutted. Debts ballooned. The value of the currency fell at home and abroad. Despite low-cost imports, inflation flourished. In 2008, the Australian dollar can perhaps buy as much in real terms as five or 10 cents did in 1969.
A situation in which real public and private investment was replaced by "ownership investment", massive leverage and speculative finance, in which consumption grew and debts spread, could not persist, except so long as ever more money flooded in to support the insupportable. Once the flood slowed or stopped, a Ponzi-type collapse was inevitable.
But few saw it that way. Warren Buffet belatedly called derivatives weapons of mass destruction; but most saw the financial devices as belonging to a "new era". They represented a "new paradigm". Far from being a threat to stable growth in a stable financial system, they "spread risk" and made everyone more secure and of course more wealthy.
The wealth effect was a particular feature of the residential mortgage business. Funds were available from many new banking and non-banking sources, including hedge funds and private equity, as well as pension and mutual funds; and sources that, in their magnitudes, were new, such as the carry trade. Funds marketed wholesale and retail mortgages. Liability could be shifted even or especially for debt in the deepest sense sub-prime. Mortgages also enabled homeowners to expand consumption through mortgage-equity withdrawals (MEW).
In a real sense, MEWs were symptomatic of multitudes of individuals - and, in effect, whole societies - high-living it off their capital. That enabled a process of growth that was both irresistible and inherently unsustainable.
However, the Ponzi scheme to shame all others may yet be waiting to deliver its coup de grace. One commentator has drawn attention to "the bad news [which] is the US$500 trillion derivatives market". He says that "This is an area that the general public does not even know exists. Few professionals understand this market. There is no regulation as government just let it go ... and go it did. You must expect a 5% default problem. That is a $25 trillion number ... It can create insolvent institutions all over the world ... It is the making of the first global depression. The world is not ready."
Unprepared for depression
Australia is not ready either. Prime Minister Kevin Rudd told us late in March that Australia's economic prospects remain "sound, strong and good". The Reserve Bank of Australia shares that view. Eerily, they echo US President Herbert Hoover in 1929 immediately before the stock market crash of that year.
Australia's situation contains some positive features. High commodity prices, it can be argued, are likely to persist, even though volatile, at least in the short term. A member of Iceland's central bank board recently said that "fears of a meltdown in my sub-arctic homeland are vastly overblown. True, the current account deficit was 16% of GDP last year, but that's an improvement from more than 25% in 2006. And while net private-sector debt is about 120% of GDP, there is virtually no public debt in Iceland. This is largely the result of unparalleled political stability and continuity."
Australia's situation may not be as dire as Iceland's; or indeed as dire as that of the United States or New Zealand; but all three of us have some negatives like those of Iceland.
Like all booms of such size and speculative character, the Australian housing boom must soon demand payment of its account. From their peak, prices could fall 30% to 50%. Industry researcher BIS Shrapnel does not agree; but we must expect that our housing boom, even more robust than the American, will collapse along the same general lines as the bust occurring right now in the United States.
The high "unaffordability" of housing for the average home-seeker, as distinct from speculator, suggests that the bust will be savage. The real-estate, building and associated industries will suffer severely, with massive job losses. Simultaneously, profitable investment opportunities elsewhere may have vanished with the widespread collapse of the "financial services industry".
How likely is such a collapse? So far, although some non-banking financial institutions have gone to the wall, the four major banks have seemed largely immune. "The take-up of the Australian economy is still good," Rudd said last week in New York. Australia had "limited exposure" to the subprime mortgage woes that erupted in the United States last year, he said. "We have excellent balance sheets in terms of our principal corporates and the banks themselves ... The default rate in Australia is minuscule by Organization for Economic Cooperation and Development standards."
We don't know how far banks and other potentially exposed institutions have concealed their liabilities and to what extent and how soon they will be forced to reveal whatever bad news there is. Within this broad question, we also do not know how far they are exposed to losses from the massive and still largely mysterious menace of derivatives.
In some measure, Australia's major banks have certainly been involved in the wide range of structured securities - CDOs, SIVs, and the rest. A report on April 4, 2008, that local councils in New South Wales have lost US$200 million and perhaps up to $400 million on investments in CDOs is a worrying sign that other and even bigger losses may yet be revealed in a variety of institutions, including banks. It seems scarcely credible that an economy which, for so many years, has absorbed so much of American theory and practice - so much of the American financial character - can be wholly immune from the penalties inflicted on its American model.
The subprime crisis first hit the United States after a housing about-turn that began as far back as 2005 or 2006. An unequivocal downturn in housing in Australia has yet to check in; but non-bank lenders are already withdrawing from the market. Wholesale mortgage lenders are closing shop, perhaps as a prelude to a sharp housing decline.
The carry trade which has presumably provided funds for mortgages and other financial services in Australia has been volatile for some time. If it unwinds completely, that could not only intensify mortgage problems but also impact on Australia's external balances.
Our deficits have so far tended to persist at a less healthy level than the commodity boom might have encouraged us to hope. Our aggregate private overseas debt is said to amount to the order of half a trillion dollars. Against that background, the current depreciation of the United States dollar might foreshadow what awaits our own currency.
Lagging impact
Economic and financial change in the United States tends to have a lagging impact on Australia. An acute awareness of the severity of our crisis may consequently not emerge before the second half of 2008.
When it does, what will the Rudd government do? Currently, it seems as unaware of the magnitude of the challenge it faces as the James Scullin government was in 1929. So the present government might become just as bewildered as Scullin and stagger just as blindly and ineffectually when they are called on to act. In the 1930s, we listened to the likes of Otto Niemeyer of the British Treasury who was also a director of the Bank of England. Will the Rudd government this time listen to the Americans and the likes of US Federal Reserve chairman Ben Bernanke? If they do, catastrophic outcomes might not be in short supply.
Our only real hope lies in clear, independent thinking by those not too steeped in the flawed policies responsible for our current crisis. We must see clearly that fundamental, comprehensive financial and economic reform is imperative. We must adapt that fundamental reform to our own needs, as the John Curtin and Ben Chifley governments did between 1941 and 1949. As we did then, we must simultaneously try to guide the international community out of the calamitous course that has evolved since 1969, and return it to the goal of stable, peaceful, global change which, as a primary objective, we pursued between 1945 and 1969.
While we embark on this journey, a high level of political volatility in Canberra is inevitable. Rudd might succeed; but the Labor Party and government might split two or three ways as they did between 1929 and 1932. Another Joe Lyons, prime minister from 1932 to 1939, might emerge. Whoever he might be, the odds are that he will be even less likely to find quick or easy solutions than Lyons was during the long and bitter years of depression. Those years ended only in the even deeper tragedy of world war.
James Cumes is a former Australian ambassador to the European Union and Australian representative at the United Nations. He is the author of among other works The Human Mirror: The Narcissistic Imperative in Human Behaviour.
(Copyright 2008 James Cumes.)
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Saturday, April 12, 2008
Richardson: Clinton Campaign Pissed Him Off!
Don't feel like only the lonely, Bill. It pissed all of us off!
Bill Richardson Interview With LA Times: Some callers, who suggested Richardson had an obligation to back Clinton, did more harm than good. "I think the Clintons have a feeling of entitlement . . . that the presidency was theirs," Richardson said, and the persistent lobbying from "Washington establishment types" convinced him of a need for some fresher faces on the scene.
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Bill Richardson Interview With LA Times: Some callers, who suggested Richardson had an obligation to back Clinton, did more harm than good. "I think the Clintons have a feeling of entitlement . . . that the presidency was theirs," Richardson said, and the persistent lobbying from "Washington establishment types" convinced him of a need for some fresher faces on the scene.
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
We Are In A State Of Emergency!
Did anyone know that? I don't recalled being informed.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Bush Administration Memo Says Fourth Amendment Does Not Apply To Military Operations Within U.S.ACLU Calls For Immediate Release Of Withheld Legal Memo
FOR IMMEDIATE RELEASEApril 2, 2008CONTACT: James Freedland, (212) 519-7829 or (646) 785-1894; media@aclu.orgNEW YORK - A newly disclosed secret memo authored by the Department of Justice's Office of Legal Counsel (OLC) in March 2003 that asserts President Bush has unlimited power to order brutal interrogations of detainees also reveals a radical interpretation of the Constitution's Fourth Amendment protection from unreasonable search and seizure. The memo, declassified yesterday as the result of an American Civil Liberties Union lawsuit, cites a still-secret DOJ memo from 2001 that found that the "Fourth Amendment had no application to domestic military operations."The October 2001 memo was almost certainly meant to provide a legal basis for the National Security Agency's warrantless wiretapping program, which President Bush launched the same month the memo was issued. As a component of the Department of Defense, the NSA is a military agency.
"The recent disclosures underscore the Bush administration's extraordinarily sweeping conception of executive power," said Jameel Jaffer, Director of the ACLU's National Security Project. "The administration's lawyers believe the president should be permitted to violate statutory law, to violate international treaties, and even to violate the Fourth Amendment inside the U.S. They believe that the president should be above the law."
The Bush administration has never argued publicly that the Fourth Amendment does not apply to military operations within the nation's borders. The memo released yesterday publicizes this argument for the first time.
The ACLU has been aware of the Justice Department's October 2001 memo since last year, but until now, its contents were unknown. The Justice Department informed the ACLU of the memo's existence as a result of a FOIA lawsuit seeking information concerning the NSA's warrantless wiretapping program. The Justice Department acknowledged the existence of "a 37-page memorandum, dated October 23, 2001, from a Deputy Assistant Attorney General in OLC, and a Special Counsel, OLC, to the Counsel to the President, prepared in response to a request from the White House for OLC's views concerning the legality of potential responses to terrorist activity." Until now, however, almost nothing was known about the memo's contents - except that it was related to a request for information about the NSA's warrantless wiretapping program. The ACLU has challenged the withholding of the October 2001 memo and the issue is pending before the U.S. District Court for the District of Columbia.
The memo released to the ACLU yesterday cites the October 2001 memo but takes its argument even further. Relying on the earlier memo, the March 2003 memo argues that the president has authority as Commander-in-Chief to bypass not only the Fourth Amendment but the central due process guarantee of the Fifth Amendment as well.
"This memo makes a mockery of the Constitution and the rule of law," said Amrit Singh, a staff attorney with the ACLU. "That it was issued by the Justice Department, whose job it is to uphold the law, makes it even more unconscionable."
The March 2003 memo was declassified in response to a lawsuit filed by the ACLU, the New York Civil Liberties Union, and other organizations in June 2004 to enforce Freedom of Information Act (FOIA) requests for records concerning the treatment of prisoners in U.S. custody abroad. The ACLU has been fighting for the release of the March 2003 Yoo memo since filing the lawsuit. A few weeks ago, after the court ordered additional briefing on whether the Defense Department could continue to withhold the memo, the government reluctantly agreed to conduct a declassification review by March 31. The Defense Department released this memo after conducting the review.
The 2003 Department of Justice memo can be found online at: www.aclu.org/safefree/torture/34745res20030314.html
Documents relating to the ACLU's NSA FOIA lawsuit are available online at: www.aclu.org/safefree/nsaspying/30022res20060207.html
To date, more than 100,000 pages of government documents have been released in response to the ACLU's FOIA lawsuit related the abuse of prisoner in U.S. custody abroad. These documents are available online at: www.aclu.org/torturefoia"
If I am reading this correctly, it seems to me that this administration has justified its crimes by NOT suspending the state of emergency that went up on September 11, 2001. They are using emergency powers if you look at the whole of the spying, military actions inside the US, etc. I would wager that if asked, this administration will admit that we have been in a state of emergency for their tenure in office. Congress? Was the state of emergency lifted, yes or no?
Oh, just one more question: what are "military operations inside the U.S" actually and how often have these "operations" been carried out? Anyone? Bueller? Congress? Impeachment Table? Anyone?
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Rave On Barack!
Give 'em hell, Big Guy!
Billary and McCrackers are the ones who are out of touch with ordinary Americans, not to mention reality in general!
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Billary and McCrackers are the ones who are out of touch with ordinary Americans, not to mention reality in general!
From NBC/NJ's Aswini Anburajan
TERRE HAUTE, IN -- Last night, Obama tried to douse water on a potential political firestorm, after comments he made about voters in Pennsylvania being "bitter" drew strong criticisms from both Clinton and McCain.
At a closed fundraiser this past Sunday, Obama told the crowd that Pennsylvania voters were "bitter" because little had been done by both the Clinton and Bush Administrations to stem the loss of manufacturing jobs and improve the economy in small and economically depressed communities throughout the state. Those comments drew quick responses from his rivals who said that the comments reeked of condescension
"
Last night here, Obama responded with an impassioned justification, trying to rhetorically turn the word controversy into to his own advantage. "I was in San Francisco talking to a group at a fundraiser," he said. "And somebody asked me, 'Well, how are you gonna get votes in Pennsylvania? What's going on there? We hear that it's hard for some working-class people to get behind your campaign. Why is that?' I said, 'Well, look, they're frustrated. And for good reason, because for the last 25 years, they've seen jobs shipped overseas, they've seen their economies collapse. They have lost their jobs, they've lost their pensions. They've lost their health care. And for 25, 30 years, Democrats and Republicans have come before them and said we're going to make your community better. We're gonna make it right. And nothing ever happens.'"
"And of course they're bitter. Of course they're frustrated. You would be too -- in fact, many of you are. Because the same thing has happened here in Indiana, same thing happened across the border in Decatur, the same thing has happened across the country. Nobody's looking out for you. Nobody is thinking about you," he said to applause.
He repeated his comments that people turn to wedge issues to vote, but couched it in terms of his argument that it was Washington's fault. "So people end up, they don't vote on economic because they don't expect anybody's going to help them. Some people end up, you know, voting on issues like guns, are they gonna have the right to bear arms. They vote on issues like gay marriage. They take refuge in their faith and their families and the things they can count on. But they don't believe they can count on Washington."
Clinton campaign spokesman Phil Singer responded by saying that instead of taking an opportunity to apologize for his comments, Obama chose to embrace them. It’s unfortunate that Sen. Obama didn’t say he was sorry for what he said. Americans are tired of a President who looks down on them -- they want a President who will stand up for them for a change. The Americans who live in small towns are optimistic, hardworking and resilient. They deserve a president who will respect them.”
McCain spokesman Tucker Bounds also pounced on Obama's remarks. "Only an elitist who attributes religious faith and gun ownership to bitterness would think that tax cuts for the rich include families who make $75,000 per year. Only an elitist would say that people vote their values only out of frustration. Barack Obama thinks he knows your hopes and fears better than you do. You can't be more out of touch than that."
Obama was anything but contrite in his response, and he used it as an opportunity to label both McCain and Clinton as out of touch. "Here's what's rich," Obama said of Clinton's and McCain's attacks. "Sen. Clinton says, 'Well I don't think people are bitter in Pennsylvania. I think Barack's being condescending.' John McCain says, 'Oh, how could he say that? How could he say people are bitter. He's obviously out of touch with people.' Out of touch? Out of touch? I mean, John McCain, it took him three tries to finally figure out that the home foreclosure crisis was a problem, and to come up with a plan for it, and he's saying I'm out of touch?"
Obama returned to an old line of attack for Clinton, hitting her on her vote for the bankruptcy bill, which he claimed "made it harder for people to get out of debt after taking money from the financial services companies.
"And she says I'm out of touch?" he asked the crowd.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
The Economy SUCKS bigtime!
How many economists have you read or watched on television in recent years that claimed the economy was performing well while you struggled to make ends meat and keep up with the cost of living? Indeed, until recently a happy talk virus had infected a cabal of conservative plutocrats who preached the virtues of limited regulation, market forces and free trade as wages declined and predatory lenders had a party. It seemed we were hearing conservative politicians and their mouthpieces at the Heritage Foundation or Fox news refer to the economy as "the greatest story never told" at every opportunity.
Now that the housing and credit crisis has metastasized, conservative apparatchiks are fighting to minimize government intervention on behalf of regular folks while preserving corporate welfare. They accuse anyone who raises a fuss of waging class warfare. Instead these agents of the status quo prefer we erroneously obsess about Social Security going bust and agree to privatize it for Wall Street's benefit.
Thankfully, renowned economist and the director of the Living Standards Program for the Economic Policy Institute, Jared Bernstein is using his megaphone to fight the madness. With his new book, Crunch: Why Do I Feel So Squeezed? (And Other Economic Mysteries), Bernstein responds to dozens of questions asked by working Americans that relate to the dollars and cents concerns of real people. Bernstein who often appears as a commentator on CNBC wrote in the preface of his book that,
"I'm tired of being stuck in the studio engaging in rants with Darth Vaders with PhDs. Wouldn't it be more useful to have an open-ended, rant-free dialogue with real, everyday people about their economic questions."
With Crunch, Bernstein effectively validates the daily experience of working people struggling to keep up in a treadmill economy. He also adroitly writes with accessible prose and powerful anecdotes to both educate readers about economic nuances and empower them to influence politics in a more populist direction. Bernstein contends that the rich and powerful have as much influence on who benefits from the economy as the will of the market. He therefore hopes to inspire readers not to cede any more ground to the practitioners of hyper individualism at the expense of the American community.
One of the most memorable anecdotes in Bernstein's book describes how Circuit City announced it planned to lay off 3,400 sales associates in the spring of 2007 in order to appease their shareholders. Bernstein utilized this anecdote to illustrate how corporate greed is both heartless and self-defeating:
"Talk about in-your face management. I can absolutely see why a firm whose stock was down by a third over the past year would decide to make some big changes. But unless your workforce is truly overpaid, replacing a big chunk of it with lower-paid workers is a recipe for lousier service, fewer sales, and lower profits. At the time, many predicted that after the initial jump, stock prices would sink further. We were wrong, though. They never got that initial bump, and the stock just kept sliding, down 15 percent a few months later (while the overall stock market was up strong)."
It's that kind of prose that led former North Carolina Senator and populist presidential candidate John Edwards to issue the following praise:
"Jared Bernstein's new book is a must read for everyone who cares about restoring economic fairness in an America with the greatest income inequality since the Great Depression. Drawing on everyday examples, Crunch is an accessible explanation of economic principles presented with equal parts of insight, humor, and stimulation. In the process, Bernstein explains how we got to where we are, what to do to fix it, and why fighting for a fair society is so important."
An expert on issues of labor and income inequality, he frequently testifies on Capitol Hill. Bernstein is also the co-author of eight editions of The State of Working America and he posts frequently on Josh Marshall's blog, TPM Café. Longtime readers/listeners of the Intrepid Liberal Journal may recall an interview he did for my blog after his book, All Together Now: Common Sense For A Fair Economy was published in 2006.
Bernstein agreed to a podcast interview over the telephone about his current book and the current challenges confronting the American economy. Our conversation was approximately forty-eight minutes and among the issues covered includes the housing and credit crisis, needed regulatory reform, healthcare, globalization, Social Security, America's investment deficit and free trade.(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Friday, April 11, 2008
Remember The Keating Five? McCrackers Hopes You Don't.
Submitted by OurFuture.org Staff
April 9th, 2008
Related Topics:
William K. Black is Associate Professor of Law and Economics at the University of Missouri, Kansas City. He was counsel to the Federal Home Loan Bank Board during the savings and loan crisis of the 1980s and was a whistleblower in the Keating Five scandal. His book on the crisis is "The Best Way to Rob a Bank Is to Own One."
Twenty-one years ago today five U.S. senators met with federal savings and loan regulators at the request of Charles Keating, who controlled Lincoln Savings and Loan. They became known as the "Keating Five"—Alan Cranston, D-Calif., Dennis DeConcini, D-Ariz., John Glenn, D-Ohio, John McCain, R-Ariz., and Donald Riegle, D-Mich. The Keating Five meeting was the event that transformed the S&L debacle from a story buried in the business section to one of the worst financial and political scandals in U.S. history (though the current financial crises have proven even worse).
The Keating Five, including McCain, were perfectly situated to take action to protect their constituents. They could have held oversight hearings. They could have warned the widows. "All that is necessary for the triumph of evil is that good men do nothing," an anonymous commenter one said (in a statement generally, but inaccurately, attributed to Edmund Burke). These men did nothing.
Lincoln was (and remains) the most expensive S&L failure of an insured U.S. depository, costing the taxpayers $3.4 billion. Keating recruited the senators because the regulators were about to remove his control over Lincoln. The regulators had discovered that Lincoln had large losses and was engaged in widespread fraud and forgeries designed to hide its violation of the "direct investment" rule. That violation was the largest in history — over $600 million. S&Ls that had large amounts of direct investment always failed. Direct investments were fatal not because of their intrinsic risk, but because they were superb aids to accounting fraud, the "weapon of choice" of financial firms.
When Keating launched a jihad against the proposed direct investment rule in 1984, he used politicians as his most important ally. He began in the House of Representatives. Within a few weeks, he was able to get a majority of members to co-sponsor a resolution intended to kill the direct investment rule. The supporters included John McCain (then a congressman), Jim Wright, D-Texas, (soon to be the Speaker of the House), and Newt Gingrich, R-Ga., (soon to be Wright's nemesis and a strong critic of his aid to fraudulent S&L owners). McCain was, and remains, a strident opponent of financial regulation. Federal Home Loan Bank Board chairman Edwin Gray, convinced that direct investments posed a critical threat to the taxpayers, went ahead with the regulation.
Second, Keating tried to get President Reagan to fire Gray. Keating's lobbyist, "Mickey" Gardner, reported that they found significant support within the administration for this effort—particularly in the office of Vice President Bush (who chaired the administration's financial deregulation task force). The (Republican!) lobbyist reported in disgust that he couldn't get Gray fired because "like so many before him in this Administration, [Gray] would have to be criminally liable or worse before they would be removed."
Third, Keating followed Gardner's advice to stage a hostile takeover of the regulator in 1986. He had already used large political contributions and the lobbying of Alan Greenspan to recruit the "Keating Five." He now used several of the congressmen, principally McCain (the only Republican among the Keating Five), to help convince the Reagan administration to appoint two of his cronies to the Bank Board (which would have given Keating majority control of the agency).
Keating needed the senators' help to overcome rival candidates and internal opposition to the nominations. Phil Gramm, a more senior Republican senator on the banking committee, pushed the nomination of Durward Curlee, a Texas lobbyist representing the most notorious S&L frauds in Texas and, after Keating, the strongest opponent of S&L regulation. Keating was a major contributor to President Reagan, but he had never held elected office. His ability to convince the Reagan administration to reject Gramm's proposed nominee and agree to appoint both of Keating's proposed nominees was an astonishing demonstration of political power.
Keating also had to overcome serious internal opposition within the Reagan administration. The administration attempt to nominate Keating as U.S. ambassador to the Bahamas in the early 1980s had to be abandoned in embarrassment when it was revealed that Keating had signed a Securities and Exchange Commission consent decree to settle allegations that he had defrauded a financial institution. The White House personnel director, Robert Tuttle, was in charge of vetting Keating's proposed nominees. He called Republican contacts in Arizona (where Keating lived) and learned that Keating's had a reputation "for buying politicians." Tuttle recommended against the Keating appointments.
Keating's flaws were immediately obvious. In addition to his SEC problems, he was arrogant, domineering, rude, nasty, and a virulent bigot. Senator Garn (R. UT) refused to meet with him again after their first meeting. Treasury Undersecretary George Gould, instructed the Treasury guards to bar Keating from entry after their first meeting. Nevertheless, President Reagan rejected Tuttle's recommendation and tried to appoint both of Keating's choices. Had he succeeded, the cost of the debacle would have grown tenfold and the political scandal would have dwarfed Teapot Dome. Fortunately, Senator Dole blocked the nomination of one of Keating's choices.
President Reagan did make Lee Henkel a recess appointment in 1986. Henkel became Keating's "mole" on the Bank Board. His first substantive act was to propose an amendment to the direct investment rule (secretly drafted by Keating's lawyers) that would have immunized Lincoln's massive violation of the rule. (The amendment was cleverly drafted in a manner that did not mention Lincoln, but fit it like a glove.) Unfortunately for Keating and Henkel, I spotted the effort and blew the whistle. Henkel was severely criticized by the media and resigned in a deal with a Justice Department (in return, they dropped their investigation). (Years later, the Bank Board's successor agency "removed and prohibited" Henkel from the industry for his misconduct.) The Keating Five knew that Henkel had sought to amend the rule to immunize Lincoln, and they knew that he had resigned in disgrace. Appropriately, the resignation became public on April Fools' Day — the day before four of the senators (Riegle was a surprise no show) met with Bank Board Chairman Gray at Keating's request to urge Gray not to take any action against Lincoln's violation of the rule.
The Keating Five waged Keating's fourth political campaign against the direct investment rule. The context of the campaign was the Bank Board's effort to "recapitalize" the Federal Savings and Loan Insurance Corporation ("FSLIC Recap) in order to secure funds to further its top priority — closing the fraudulent S&Ls like Lincoln. The FSLIC Recap bill had a second vital element — it would restore the Bank Board's lapsed powers to close many state chartered S&Ls like Lincoln. This meant that Keating had a vital need to block passage of the bill.
Senator Cranston, at Keating's request, blocked passage of the bill in the Senate by placing a secret "hold" on the bill. House Majority Leader Jim Wright, D-Texas, and Representative Pryor openly blocked the bill in the House. Wright extorted Gray, demanding favorable treatment for Texas frauds Pryor, demanded that fewer Arkansas S&Ls be closed and sanctioned. (He would later serve on the Senate ethics committee investigating the Keating Five — so they truly had a jury of their peers!) FSLIC Recap was the Bank Board's ultimate priority. The FSLIC fund was down to $500 million — to insure an industry of over $1 trillion in liabilities that was insolvent by perhaps $100 billion in 1986. The S&L frauds' political allies had total leverage over Gray and he repeatedly made concessions demanded by Majority Leader (and Speaker of the House in January 1987), Jim Wright. The CEOs of each of the S&Ls that Wright sought favors for were looting "their" S&Ls — including Vernon Savings (after Lincoln, the worst S&L fraud).
Keating knew that adding the Keating Five's political clout in the Senate to Speaker Wright's domination of the House would doom the FSLIC Recap bill (which was reintroduced in 1987) and put irresistible pressure on Gray to back off from taking enforcement action against Lincoln. He made the threat explicit by telling Undersecretary Gould that he could induce five senators to either be a great help or strong opponents of the FSLIC Recap bill. (This is the conversation that caused Gould to bar Keating from the Treasury building.) By April 2, 1987, Speaker Wright's House allies had made a travesty of the FSLIC Recap bill — reducing the funding from $15 billion to $5 billion and mandating "forbearance" provisions designed to gut the Bank Board's ability to close failed S&Ls. Our only hope was that the Senate would pass a better version of the bill and that the conference committee would favor the Senate version. Keating had arranged for the Keating Five to pressure Gray at exactly the time they had maximum leverage over him.
Keating Prepares the Senators for the April 2, 1987 Meeting
Keating prepared the Senators carefully for the April 2 meeting. He sent them detailed explanations of how severely a Bank Board enforcement action would limit his ability to control Lincoln. He explained how passage of the FSLIC Recap bill would allow the Bank Board to end that control. He called Gray a "Mad Dog" and a "Nazi." He asked the Senators to convince Gray not to take any enforcement action against Lincoln in return for his promise that Lincoln would begin to make home loans.Senator DeConcini hosted the April 2 meeting. He carefully set up the meeting for deniability. His staff instructed Gray not to bring any staffers. Each of the Senators came to the meeting without any staff. The chances of that happening without prior agreement were non-existent. The meeting was designed to make sure that if things went badly it would be the word of five senators against that of Gray. The senators thought there was safety in numbers. They were disturbed that Senator Riegle did not attend the April 2 meeting.
McCain's Attendance at the April 2 Meeting
Senator McCain has said that upon reviewing Keating's written materials about what he wanted the Senators to do in their meeting with Gray he decided that Keating's requests were improper because they called for the Senators to negotiate an agreement to escape enforcement action on Keating's behalf. McCain informed Keating that he would not attend the meeting. Keating met with Senator Riegle and told him of McCain's decision — and said that McCain was "a wimp." Riegle's aide told McCain what Keating had said. McCain, enraged, summoned Keating to his office. Keating, who dominated virtually every conversation, could not get a word in during McCain's tirade. Keating's insult, of course, was absurd. McCain is the last person in the world that anyone would believe was a "wimp." Keating, however, apparently knew how successful his taunt would be with a man who still felt (against all reason) that he had not always sufficiently resisted his North Vietnamese torturers. McCain, despite believing that what Keating wanted the Senators to do was improper, decided to join his colleagues at the April 2 meeting.The April 2 Meeting
Senator DeConcini began the meeting by stating that "we" wanted Gray not to take enforcement action against Lincoln and that in return "our friend" Charles Keating would ensure that Lincoln would begin to make home loans. He was speaking on behalf of the group — and no Senator expressed any disagreement or difference with the position he articulated. The Senators also complained that the agency was harassing Lincoln and demanded Gray's explanation for the abuse. Gray told them there were 3000 S&Ls and he did not know the details of Lincoln's regulation, but that he had total confidence in the Bank Board's regulators for Lincoln at the Federal Home Loan Bank of San Francisco (FHLBSF). He said that if the Senators needed the details they would have to talk to the FHLBSF supervisors. Gray informed several of us at the Bank Board of what had happened at the meeting immediately after the meeting.The April 9 Meeting
All five of the Senators attended the April 9 meeting with James Cirona (FHLBSF President), Michael Patriarca (chief supervisor), Richard Sanchez (Lincoln's supervisory agent), and me. I took the only notes of the meeting. They are extraordinarily detailed. I circulated them to the other FHLBSF participants to ensure their accuracy and Gray sent Riegle a copy. Each of the Keating Five testified that the notes were accurate and complete. The Senators again excluded their aides from the meeting. Senator DeConcini began the meeting by again using the word "we" and proposing Keating's "quid pro quo" of dropping any enforcement action against Lincoln's violation of the direct investment rule in return for Lincoln making some home loans. No Senator disagreed or distinguished his position.
Senator Cranston accentuated the group nature of the Keating Five. He was the floor manager for a bill that was very important to him and was coming to a critical vote that night, yet he left the floor and came briefly to Senator DeConcini's office to state that he supported his colleagues' position. Each of the Senators was aware of the group position supporting Keating's efforts to immunize the massive violation of the direct investment rule.
At the meeting, because it was the only way to treat to get the Senators to back off their pressure, we revealed to them that we had decided to make criminal referrals against Lincoln's leaders because of widespread fraud. Mike Patriarca guaranteed that Lincoln would fail if it continued its investment practices.
The Keating Five Prove Lucky in their (Initial) Regulatory "Opponents"
The paradox is that the Keating Five proved so unlucky in their choice of Keating as their ally and so lucky in their initial regulatory "opponents." We were not the Keating Five's opponents, but that is how they perceived us. We were their public servants trying to warn them that they were being manipulated by a fraud that was causing enormous harm to their constituents and exposing the Senators to scandal. Had Gray caved, Lincoln would have been untouchable. Lincoln would have been able to resume its extraordinary growth and expand its direct investments. No line supervisory would have dared to take on Keating. Lincoln's losses would have grown at an even faster rate than its asset growth. By the time it collapsed losses would likely have exceeded $10 billion. The Keating Five's decisive role in producing these catastrophic results would have been undeniable. Gray, however, refused to be intimidated. Keating's timing, which had seemed so perfect, proved too late. Gray had decided that Speaker Wright simply increased his demands when Gray gave in to his extortion, and that he could not in good conscience continue to give in to Wright's pressure. The Bank Board moved to close Vernon Savings (the second worst S&L fraud) and publicly criticized Wright's efforts to secure regulatory favors for Vernon.
The Senators also proved lucky in that, while Gray did not cave in to their pressure, he also could not afford to criticize them publicly given the tenuous fate of the FSLIC Recap bill. Gray's term ended on June 30, 1987. (Wright and Treasury Secretary Baker had agreed at a secret meeting that Gray would not be reappointed.) Gray's successor, Danny Wall, was acceptable to Wright. Wall, while a Senate staffer, had encouraged Gray to give in to Wright's extortion. Among his first acts was to issue a gag order forbidding me to speak to the press.
The Keating Five Prove Unlucky in Allying with Keating
Keating proved to be the worst of the S&L looters, and Lincoln the most expensive failure at $3.4 billion. Deposit insurance meant that there were no identifiable individual victims when S&Ls failed. Lincoln's parent company, however, sold uninsured, worthless junk bonds out of Lincoln's branches. Worse, it targeted widows. This created individual victims who lost their life's savings — and the face of the victim was your grandmother. Keating then compounded the Senators' problems. The Associated Press recently reported the story as follows:
The banker's attitude was summed up the day a reporter asked whether his political donations to the senators encouraged their intervention.
"I want to say in the most forceful way I can, I certainly hope so," Keating replied.
The AP quotation is correct, and it is obviously the worst possible thing Keating could have said from Senators' perspective. The first sentence of the AP story, however, is wrong, and it shows that the reporter did not grasp the trait that made Keating the worst of the looters — audacity. Keating called a press conference, but he did not allow the reporters to ask any questions. He read written answers to questions he had prepared. This was a planned statement, not off the cuff.
Keating adds Speaker Wright's Pressure to that of the Keating Five
Wall, the self-described "child of the Senate", came into office determined to avoid conflicts with powerful politicians. He promptly ordered the FHLB examination and the enforcement investigation of Lincoln halted. Both actions were unprecedented. They followed a meeting between Bank Board staff and Lincoln's leadership. The FHLBSF was not informed that the meeting would occur. It was consulted prior to the order to stop the examination. Wall then ordered that the agency re-examine the FHLBSF's findings. This was unprecedented. The review disappointed Wall because it supported the FHLBSF's findings and found no basis for Keating's complaints against the FHLBSF. Despite these facts, the Bank Board refused to consider the FHLBSF's recommendations to place Lincoln in conservatorship or take stringent enforcement actions based on the violation of the direct investment rule and fraudulent acts. (FSLIC Recap passed in August 1987, and restored the Bank Board's lapse conservatorship powers.)
The Wall Bank Board also refused to be briefed by the FHLBSF on its recommendations. Both refusals were unprecedented. Wall then sought to induce the Federal Home Loan Bank of Seattle (FHLBS) to permit Lincoln to transfer to its jurisdiction. The FHLBS declined, stating that it agreed with the FHLBSF's concerns and that they were disturbed by Keating's response to their question of why he was neither an officer nor board member of Lincoln: "I don't want to go to jail." This action was unprecedented. While the Bank Board Chairman Wall and Board Member Martin declined to be briefed by the FHLBSF, they met several times with Keating. This was unprecedented.
When Bank Board and FHLBSF staff members were to meet with Keating in early 1988, Keating demanded that I be excluded from the meeting, and the Bank Board acceded to his demand. At another meeting with Lincoln's leaders the FHLBSF was allowed to have only one representative present — and only on the condition that he would not be permitted to speak. All of these actions were unprecedented.
Remember that by this juncture the Bank Board had confirmed that Lincoln had committed the largest violation of a rule in history, was engaged in widespread forgeries and other forms of deception that had led the agency to file an extensive criminal referral, was investing primarily in assets (direct investments) in quantities that had proved fatal in every S&L, and was growing rapidly. By any logical standard it should have been the agency's top enforcement priority. Instead it got unprecedented favors that destroyed the agency's integrity and exposed the taxpayers to enormous losses. Fear of Keating's political power was the only possible explanation for these actions. James Boland, Wall's chief of staff, emphasized this fear in discussions with the FHLBSF's top supervisor, Michael Patriarca. He said that Keating was so powerful that: "he can get you in ways you'll never know you've been got."
Keating's and Wall's mutual problem, however, was that the FHLBSF refused to back down. Keating's top priority became another unprecedented demand — Wall must remove the FHLBSF's jurisdiction over Lincoln. Keating now used the Keating Five to recruit Speaker Wright as an ally and to make Wall aware of that alliance. He used Senator Cranston to set up a late afternoon meeting with Wall for January 28, 1988. He used Senator Glenn to set up a luncheon with Speaker Wright on the same day. At the luncheon meeting Keating experienced the second occasion in which a prominent politician dominated the conversation. Speaker Wright dominated it, denouncing Gray and me. The Speaker then invited Keating to come to his chambers and work with his staff. Wright urged Keating to get me fired and to sue Gray and me. (He soon sued both of us for $400 million — suits eventually dismissed by the courts.) When Keating met with Wall he first made clear that he had just come from a meeting with Speaker and Senator Glenn. Keating next told Wall:
That is one man in Congress you would get along with much, much better if you took care of the problem in San Francisco. There is a red-bearded lawyer that's a real problem. If you took care of that problem, you would get along much better with Speaker Wright.
Keating was referring to me. Unfortunately, for Keating (and Wall), Wall could only fire me "for cause" and he had no cause. The only way to take care of the problem was to remove the FHLBSF's jurisdiction over Lincoln Savings. Wall promptly ordered his staff to reach an "amicable resolution" with Keating. The only way to do that was to remove our jurisdiction. In addition to that unprecedented act (which sent shock waves throughout federal regulators), Wall agreed that the FHLBSF's examination findings (which the Bank Board had confirmed to be accurate) could not be used. This too was unprecedented.
The result of Wall's surrender to political intimidation was devastating. Lincoln remains the most expensive insured depository failure in U.S. history. Lincoln's parent defrauded over ten thousand widows. The Bank Board's reputation was destroyed (the 1989 legislation terminated it). Wall, of course, denies that he capitulated to Keating's political power. To admit that he did so would have destroyed Wall's efforts to remain head of new S&L regulatory agency. The facts, however, falsify Wall's denial. Note that the Wall Bank Board never took any enforcement action against Lincoln's massive violation of the direct investment rule even though it agreed that it was the largest regulatory violation in the agency's history. This immunity is precisely what Keating sought to achieve through his mole's (Lee Henkel's) proposed amendment to the direct investment rule and the Keating Five's effort to induce the Bank Board not to take an enforcement action in return for Lincoln beginning to make home loans.
McCain's Relationship with Keating
Senator McCain is the only member of the Keating Five still in office. He was unique among the group on several dimensions. He was the only Republican. He had the longest, closest relationship with Keating. The relationship was social — Lincoln's airplanes flew Senator and Mrs. McCain, their children, and a nanny to stay at Keating's vacation home in the Bahamas. Senator McCain blames his failure to reimburse the expenses (which he was required to do by law), on his staff. He reimbursed only years later after the scandal broke. No other Senator had a close social relationship with Keating or similar airplane use issues. Keating was a bully and a nasty bigot, whom many politicians refused to deal with once they knew him, but Senator McCain viewed him as a personal friend (and major contributor) for a decade.
Only Senator McCain (and Lee Henkel) had a financial conflict of interest involving the direct investment rule. Senator McCain's wife and father-in-law were engaged in a direct investment with Lincoln. Had the Bank Board taken enforcement action against Lincoln's violation of the direct investment rule Senator McCain's wife and father-in-law's investment would have been placed in substantial risk of loss.
Only Senator McCain was in the House at the time Keating enlisted a majority of the House to co-sponsor his resolution designed to kill the direct investment rule. He was the only member of the Keating Five, therefore who was a co-sponsor. More generally, Senator McCain was the Senator most opposed to financial regulation in general and Gray's "reregulation" of S&Ls in particular. As his March 25, 2008 speech on the ongoing mortgage crisis makes clear, he continues to call for greater deregulation of the kind that is causing our financial crises to become more severe and more common.
Senator McCain's efforts to convince the Reagan administration to give Keating de facto control over the Bank Board by appointing two nominees chosen by Keating to run the agency were not unique among the Keating Five, but he was the most important support for Keating's effort because he was a Republican.
Senator McCain was not unique in not giving direct aid to Keating after the April 9 meeting. It is important to consider how Keating shaped Wall's perspective of the Keating Five's support. He used both Senator Cranston and Senator Glenn's active, continuing support (in February 1988, almost a year after the April 2 and April 9, 1987 meetings) to show Wall that he retained the Keating Five's loyalty and he used Senator Glenn to help recruit Speaker Wright as an ally — knowing that Wall had advised Gray to give in to Wright's political pressure. Wall had no way of knowing that Senator McCain and Senator Riegle were no longer taking affirmative actions to help Keating get the Bank Board not to bring an enforcement action against Lincoln.
Omission and Commission
None of the Keating Five members helped protect their constituents by supporting regulatory efforts to end Keating's looting of Lincoln. We told them in fair detail at the April 9, 1987 meeting that it was a fraudulent institution and that it was guaranteed to fail if it continued its policies. The Keating Five were well aware of their political power and Keating's political power. They were aware that the Wall Bank Board was taking unprecedented actions in favor of Keating. We could not act. We were gagged. We were forbidden to examine Lincoln. We were excluded from meetings or ordered to remain silent. The new examiners were forbidden by Wall to speak to us about Lincoln.
I noted that the senators structured the April 2, 1987 meeting to ensure deniability by designing it to be the word of five Senators against one "bureaucrat" should things go wrong. They knew that the meeting was dangerous because they knew agencies are supposed to take stringent enforcement actions against massive, intentional violations of rules — particularly when the nature of the violation causes failures. They also knew that Keating's mole, Lee Henkel, had just resigned in disgrace after we had blown the whistle on his attempt to immunize Lincoln's violation of the direct investment rule. This is why they excluded all staff from the April 2 meeting. When the meeting became public, along with Gray's criticism of their effort to pressure him to agree to Keating's quid pro quo deal, each of the Senators lied about the meeting. They lied by claiming that Gray had lied about their support for Keating's deal. (Eventually, it emerged that Senator DeConcini was reading from a staffer's memorandum that expressly stated the quid pro quo.)
The Senate ethics committee ignored the Senator's false statements about the meetings. (It also failed to investigate the impact of the Senator's actions in Keating's behalf.) I believe that structuring a meeting to set up a lie, lying, and defaming another person you know has told the truth (i.e., claiming that Gray's statement about the quid pro quo proposal was false), demonstrate severe character flaws and should be considered unethical in the context of the U.S. Senate.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Riding The Tiger: Great Insight
Riding the Tiger: Muqtada al-Sadr and the American Dilemma in Iraq
by Patrick Cockburn
Muqtada al-Sadr is the most important and surprising figure to emerge in Iraq since the U.S. invasion. He is the Messianic leader of the religious and political movement of the impoverished Shia underclass whose lives were ruined by a quarter of a century of war, repression, and sanctions.
From the moment he unexpectedly appeared in the dying days of Saddam Hussein’s regime, U.S. emissaries and Iraqi politicians underestimated him. So far from being the “firebrand cleric” as the Western media often described him, he often proved astute and cautious in leading his followers.
During the battle for Najaf with U.S. Marines in 2004, the U.S. “surge” of 2007, and the escalating war with the Supreme Islamic Iraqi Council, he generally sought compromise rather than confrontation. So far from being the inexperienced young man whom his critics portrayed — when he first appeared they denigrated him as a zatut (an “ignorant child,” in Iraqi dialect) — he was a highly experienced political operator who had worked in his father’s office in Najaf since he was a teenager. He also had around him activist clerics, of his own age or younger, who had hands-on experience under Saddam of street politics within the Shia community. His grasp of what ordinary Iraqis felt was to prove far surer than that of the politicians isolated in the Green Zone in Baghdad.
A Kleptocracy Comparable to the Congo
Mass movements led by Messianic leaders have a history of flaring up unexpectedly and then subsiding into insignificance. This could have happened to Muqtada and the Sadrists but did not, because their political and religious platform had a continuous appeal for the Shia masses. From the moment Saddam was overthrown, Muqtada rarely deviated from his open opposition to the U.S. occupation, even when a majority of the Shia community was prepared to cooperate with the occupiers.
As the years passed, however, disillusion with the occupation grew among the Shia until, by September 2007, an opinion poll showed that 73% of Shia thought that the presence of U.S. forces in Iraq made the security situation worse, and 55% believed their departure would make a Shia-Sunni civil war less likely. The U.S. government, Iraqi politicians, and the Western media habitually failed to recognize the extent to which hostility to the occupation drove Iraqi politics and, in the eyes of Iraqis, delegitimized the leaders associated with it.
All governments in Baghdad failed after 2003. Almost no Iraqis supported Saddam Hussein as U.S. troops advanced on Baghdad. Even his supposedly loyal Special Republican Guard units dissolved and went home. Iraqis were deeply conscious that their country sat on some of the world’s largest oil reserves, but Saddam Hussein’s Inspector Clouseau-like ability to make catastrophic errors in peace and war had reduced the people to a state in which their children were stunted because they did not get enough to eat.
The primal rage of the dispossessed in Iraq against the powers-that-be exploded in the looting of Baghdad when the old regime fell, and the same fury possessed Muqtada’s early supporters. Had life become easier in Shia Iraq in the coming years, this might have undermined the Sadrist movement. Instead, people saw their living standards plummet as provision of food rations, clean water, and electricity faltered. Saddam’s officials were corrupt enough, but the new government cowering in the Green Zone rapidly turned into a kleptocracy comparable to Nigeria or the Congo. Muqtada sensed the loathing with which the government was regarded, and dodged in and out of government, enjoying some of the fruits of power while denouncing those who held it.
Muqtada’s political intelligence is undoubted, but the personality of this highly secretive man is difficult to pin down. While his father and elder brothers lived he was in their shadow; after they were assassinated in 1999 he had every reason to stress his lack of ability or ambition in order to give the mukhabarat [Saddam Hussein’s secret police] less reason to kill him. As the son and son-in-law of two of Saddam Hussein’s most dangerous opponents, he was a prime suspect and his every move was watched.
When Saddam fell, Muqtada stepped forward to claim his forbears’ political inheritance and consciously associated himself with them on every possible occasion. Posters showed Muqtada alongside Sadr I and Sadr II [Muqtada’s father-in-law and father, both assassinated by Saddam] against a background of the Iraqi flag. There was more here than a leader exploiting his connection to a revered or respected parent. Muqtada persistently emphasized the Sadrist ideological legacy: puritanical Shia Islam mixed with anti-imperialism and populism.
Riding the Tiger of the Sadrist Movement
The first time I thought seriously about Muqtada was a grim day in April 2003 when I heard that he was being accused of killing a friend of mine, Sayyid Majid al-Khoei, that intelligent and able man with whom I had often discussed the future of Iraq. Whatever the involvement of Muqtada himself, which is a matter of dispute, the involvement of the Sadrist supporters in the lynching is proven and was the start of a pattern that was to repeat itself over the years.
Muqtada was always a man riding a tiger, sometimes presiding over, sometimes controlling the mass movement he nominally led. His words and actions were often far apart. He appealed for Shia unity with the Sunni against the occupation, yet after the bombing of the Shia shrine in Samarra in February 2006, he was seen as an ogre by the Sunni, orchestrating the pogroms against them and failing to restrain the death squads of the Mehdi Army. The excuse that it was “rogue elements” among his militiamen who were carrying out this slaughter is not convincing, because the butchery was too extensive and too well organized to be the work of only marginal elements. But the Sadrists and the Shia in general could argue that it was not they who had originally taken the offensive against the Sunni, and the Shia community endured massacres at the hands of al-Qaeda for several years before their patience ran out.
Muqtada had repeatedly demanded that Sunni political and religious leaders unequivocally condemn al-Qaeda in Iraq’s horrific attacks on Shia civilians if he was to cooperate with them against the occupation. They did not do so, and this was a shortsighted failure on their part, since the Shia, who outnumbered the Sunni Arabs three to one in Iraq, controlled the police and much of the army. Their retaliation, when it came, was bound to be devastating. Muqtada was criticized for not doing more, but neither he, nor anybody else could have stopped the killing at the height of the battle for Baghdad in 2006. The Sunni and Shia communities were both terrified, and each mercilessly retaliated for the latest atrocity against their community. “We try to punish those who carry out evil deeds in the name of the Mehdi Army,” says Hussein Ali, the former Mehdi Army leader. “But there are a lot of Shia regions that are not easy to control and we ourselves, speaking frankly, are sometimes frightened by these great masses of people.”
American officials and journalists seldom showed much understanding of Muqtada, even after [U.S. Coalition Provisional Authority head] Paul Bremer’s disastrous attempt to crush him [in 2004]. There were persistent attempts to marginalize him or keep him out of government instead of trying to expand the Iraqi government’s narrow support base to include the Sadrists. The first two elected Shia prime ministers, Ibrahim al-Jaafari and Nouri al-Maliki, came under intense pressure from Washington to sever or limit their connection with Muqtada. But government officials were not alone in being perplexed by the young cleric. In a lengthy article on him published in its December 4, 2006, issue, Newsweek admitted that “Muqtada al-Sadr may end up deciding America’s fate in Iraq.” But the best the magazine could do to assist its readers in understanding Muqtada was to suggest that they should “think of him as a young Mafia don.”
Of course, Muqtada was the complete opposite to the type of Iraqi leader who proponents of the war in Washington had suggested would take over from Saddam Hussein. Instead of the smooth, dark-suited, English-speaking exiles who the White House had hoped would turn Iraq into a compliant U.S. ally, Muqtada looked too much like a younger version of Ayatollah Khomeini.
Muqtada epitomized the central dilemma of the United States in Iraq, which it has never resolved. The problem was that the overthrow of Saddam Hussein and his Sunni regime was bound to be followed by elections that would produce a government dominated by the Shia allied to the Kurds. It soon became evident that the Shia parties that were going to triumph in any election would be Islamic parties, and some would have close links to Iran.
The Arab Sunni states were aghast at the sight of Iran’s defeat in the Iran-Iraq war being reversed, and spoke of a menacing “Shia axis” developing in Iran, Iraq, and Lebanon. Much of this was ignorance and paranoia on the part of the Arab leaders. Had the Iranians been tempted to make Iraq a client state they would have found the country as prickly a place for Iranians as it was to be for Americans. It was the U.S. attempt to create an anti-Iranian Iraq that was to play into Iranian hands and produce the very situation that Washington was trying to avoid.
The more Washington threatened air strikes on Iran because of its nuclear program, the more the Iranians sought to make sure that it had the potential to strike back at American forces in Iraq. Before he was executed, Sadr I believed that he had been let down by Iran; Sadr II had bad relations with Tehran; and at first Muqtada denounced his Shia opponents in SCIRI and the Marji’iyyah as being Iranian stooges. But American pressure meant that the Sadrists had to look to Iran for help, and in a military confrontation the Mehdi Army saw Iran as an essential source of weapons and military expertise.
The New Iraqi Political Landscape
On reappearing after his four-month disappearance in May 2007, Muqtada called for a united front of Sunni and Shia and identified the U.S. occupation and al-Qaeda in Iraq as the enemies of both communities. The call was probably sincere, but it was also too late. Baghdad was now largely a Shia city, and people were too frightened to go back to their old homes. The U.S. “surge” had contributed to the sharp drop in sectarian killings, but it was also true that the Shia had won and there were few mixed areas left.
The U.S. commander General David Petraeus claimed that security was improving, but only a trickle of Iraqis who had fled their homes were returning. Muqtada was the one Shia leader capable of uniting with the Sunni on a nationalist platform, but the Sunni Arabs of Iraq had never accepted that their rule had ended. If Sunni and Shia could not live on the same street, they could hardly share a common identity.
The political and military landscape of Iraq changed in 2007 as the Sunni population turned on al-Qaeda. This started before the “surge,” but it was still an important development. Al-Qaeda’s massive suicide bombs targeting civilians had been the main fuel for Shia-Sunni sectarian warfare since 2003. The Sunni Arabs and many of the insurgent groups had turned against al-Qaeda after it tried to monopolize power within the Sunni community at the end of 2006 by declaring the Islamic State of Iraq. Crucial in the change was al-Qaeda’s attempt to draft one son from every Sunni family into its ranks. Sunni with lowly jobs with the government such as garbage collectors were killed.
By the fall of 2007 the U.S. military command in Baghdad was trumpeting successes over al-Qaeda, saying it had been largely eliminated in Anbar, Baghdad, and Diyala. But the Sunni Arab fighters, by now armed and paid for by the United States, did not owe their prime loyalty to the Iraqi government. Muqtada might speak of new opportunities for pan-Iraqi opposition to the U.S. occupation, but many anti-al-Qaeda Sunni fighters had quite different ideas. They wanted to reverse the Shia victory in the 2006 battle of Baghdad.
A new breed of American-supported Sunni warlords was emerging. One of them, Abu Abed, is a former member of the insurgent Islamic Army. He operates in the Amariya district of west Baghdad, where he is a commander of the U.S.-backed Amariya Knights, whom the U.S. calls Concerned Citizens. His stated objectives show that the rise of the new Sunni militias may mark only a new stage in a sectarian civil war. “Amariya is just the beginning,” says Abu Abed. “After we finish with al-Qaida here, we will turn towards our main enemy, the Shia militias. I will liberate Jihad [the mixed Sunni-Shia area near Amariya taken over by the Mehdi Army], then Saadiya and the whole of west Baghdad.”
The al-Sadr family has an extraordinary record of resistance to Saddam Hussein, for which they paid a heavy price. One of the gravest errors in Iraq by the United States was to try to marginalize Muqtada and his movement. Had he been part of the political process from the beginning, the chances of creating a peaceful, prosperous Iraq would have been greater.
In any real accommodation between Shia and Sunni, the Sadrists must play a central role. Muqtada probably represented his constituency of millions of poor Shia better than anybody else could have done. But he never wholly controlled his own movement, and never created as well-disciplined a force as Hezbollah in Lebanon. None of his ambitions for reconciliation with the Sunni could take wing unless the Mehdi Army ceased to be identified with death squads and sectarian cleansing.
The war in Iraq has gone on longer than World War I and, while violence diminished in the second half of 2007, nothing has been resolved. The differences between Shia and Sunni, the disputes within the respective communities, and the antagonism against the U.S. occupation are all as great as ever. The only way the Sadrists and the Mehdi Army could create confidence among the Sunni that Muqtada meant what he said when he called for unity, would be for them to be taken back voluntarily into the areas in Baghdad and elsewhere from which they have been driven. But there is no sign of this happening. The disintegration of Iraq has probably gone too far for the country to exist as anything more than a loose federation.
Patrick Cockburn is the Iraq correspondent for The Independent in London. He has visited Iraq countless times since 1977 and was recipient of the 2004 Martha Gellhorn Prize for war reporting as well as the 2006 James Cameron Memorial Award. His book The Occupation: War and Resistance in Iraq, was short-listed for a National Book Critics Circle Award in 2007. This essay is the last chapter in his new book, Muqtada: Muqtada al-Sadr, the Shia Revival, and the Struggle for Iraq, just published by Scribner.
From Muqtada by Patrick Cockburn. Copyright © 2008 by Patrick CockburnReprinted by permission of Scribner, an Imprint of Simon & Schuster, Inc.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
Do Unto Others......
....and these people call themselves Christian?
UnFreakingBelievable!
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
UnFreakingBelievable!
Truth’s Wreckage
by Robert C. Koehler
The interests of war, which siphon off 40 percent of every dollar we pay in taxes, have no choice but to declare peace - or at least truth - anti-American, because the blood myth of national exceptionalism, and the perpetual insecurity it creates, is all they’ve got.
It’s also all they need.
Did anyone, for instance, expect the Petraeus-Crocker testimony before Congress this week to affect or even address what we’re actually doing in Iraq? The best we get is some mild criticism from the opposition party, stern words about our “missteps” in the waltz to victory, ineffective calls for a timetable for troop withdrawal that, sincere or wholly insincere, will not in fact lead to a timetable for troop withdrawal because nothing is on the line in this testimony; and, in any case, no congressperson dares trample on “the seeds of nascent democracy” our boys and girls have been planting over there for the last five years. And lo, “There has been growth,” the general declared. And those baby democracies are so cute!
Gathering the best of the ideas and the most grimly truthful of the testimony not heard in Congress this week, I make a plea on behalf of suffering Iraq that we stop the pretense that “the surge is working” or has done anything at all to further our security or nurture our ideals.
Our best and only hope is to convene a national truth commission on the order of the Winter Soldier gathering in Silver Springs, Md., last month, at which returning U.S. troops reclaimed their humanity by talking about what they had seen and done in Iraq and the hell into which that sad country is descending because of our criminal occupation. Only if we are able to hear the truth can we reach beyond it for the ideals that can save us.
“We know that no political solution can work without a change of consciousness that minimally includes an open-heartedness and willingness to recognize the humanity of the Other,” reads the statement, drafted by the Rabbi Michael Lerner, editor of Tikkun, that ran as a full-page ad in the New York Times this week, proposing a path to peace in the Middle East (with a focus on Israel and Palestine).
“The ‘cynical realists’ claim,” the statement reads, “that others are entrenched in their hatefulness, and that war and domination are the only way to battle them. This kind of thinking has led to five thousand years of people fighting wars in order to ‘end all wars’ - and it has not worked. It’s time now to try a new strategy of generosity, both economic generosity and generosity of spirit.”
This “anti-realist” and perhaps (some, I’m sure, would claim) “anti-American” statement courageously affirms “the sacredness of all human beings.” Is anything more easily mocked?
Here’s how we mock it in Iraq:
“At least since mid-2006, the US has been expanding its air capabilities in Iraq. Air bases have been enlarged and more planes and helicopters added to the arsenal. The build-up has led to a dramatic increase in air strikes within Iraq. . . . These missions have led to a five-fold increase in the amount of ordinance dropped in 2007. The tonnage of munitions dropped by aircraft increased to 222,000 pounds in the first half of 2007, compared to 61,500 during all of 2006.”
This passage is from a report called “U.S. War Crimes in the ‘Surge’ 2007: Petraeus Manual and Tactics Flout International Law,” written by Karen Parker, president of the Association of Humanitarian Lawyers, and policy analyst Bill Rau, for the organization ConsumersforPeace.org.
The authors maintain that, since the surge, Iraqi civilians have been dying at a faster rate, thanks to such tactics as the increased use of air power, a notoriously blunt and imprecise instrument for “promoting democracy” or anything else. For instance:
“In a raid in May 2007 on Sadr City, in eastern Baghdad,” the report notes, “American forces called in an air strike on nine cars that were seen positioning themselves to ambush the American and Iraqi troops on the raid . . . and five people suspected of being ‘terrorists’ . . . were killed in the attack. But an Interior Ministry official and residents of Sadr City said the cars were parked in a line of vehicles waiting at a gas station.”
The report also informs us: “Living conditions for most Iraqi citizens have worsened since the invasion and the cumulative impacts are widely evident and severe. While the absence of everyday security is often noted in the media, for millions of people the basic needs of life are not being met. Poverty rates are above 40 percent, childhood malnutrition exceeds 25 percent, and poor water supplies and sanitation have led to numerous outbreaks of diseases.”
What are we doing there? What have we become? As the Lerner-Tikkun statement declares: “Our own well-being depends on the well-being of everyone else on the planet.” We might as well be calling the air strikes on ourselves.
Robert Koehler, an award-winning, Chicago-based journalist, is an editor at Tribune Media Services and nationally syndicated writer. You can respond to this column at bkoehler@tribune.com or visit his Web site at commonwonders.com.
(c) 2008 Tribune Media Services, Inc.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
War Crimes Trials Ahead?
The law should be applied as it was when the crimes were committed. We are talking about torture here!
What moral person does not know that torture is pure evil? To make it American policy makes every American guilty by default.
Maybe the Democrats should be concerned with passing a health care bill. Given the mess this country is in, we need everyone in Washington to be focused on the well-being of the nation.
Perhaps, Junior and his sadistic, amoral crew of idiots should be left to the people whose good names have been besmirched by them. People who have resisted their insanity from day one and condemn it out right. We aren't talking about disagreements on foreign policy here. We are talking about torture as policy, directed from the very top of our government.
Bush and company should never, in their lives, feel safe again.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
What moral person does not know that torture is pure evil? To make it American policy makes every American guilty by default.
Maybe the Democrats should be concerned with passing a health care bill. Given the mess this country is in, we need everyone in Washington to be focused on the well-being of the nation.
Perhaps, Junior and his sadistic, amoral crew of idiots should be left to the people whose good names have been besmirched by them. People who have resisted their insanity from day one and condemn it out right. We aren't talking about disagreements on foreign policy here. We are talking about torture as policy, directed from the very top of our government.
Bush and company should never, in their lives, feel safe again.
Reacting to an ABC News report that “Vice President Cheney, former National Security Advisor Condoleezza Rice, Defense Secretary Donald Rumsfeld and Secretary of State Colin Powell, as well as CIA Director George Tenet and Attorney General John Ashcroft” “discussed and approved specific details of how high-value al Qaeda suspects would be interrogated by the Central Intelligence Agency,” The Atlantic’s Marc Ambinder says, “it remains one of those hidden secrets in Washington that a Democratic Justice Department is going to be very interested in figuring out whether there’s a case to be made that senior Bush Administration officials were guilty of war crimes.”
“Stories like these from ABC News,” Ambinder predicts, “will be as relevant a year from now as they are right now, perhaps even more so.”
Others aren’t so sure. Jack Balkin, a Yale law professor who blogs at Balkinization, says Ambinder’s “hidden secret” is “news to me.” He writes:
Remember that sections 8 and 6(b) of the Military Commissions Act of 2006 effectively insulated government officials from liability for many of the violations of the War Crimes Act they might have committed during the period prior to 2006. Moreover, as Marty [Lederman, a Georgetown law professor and Balkinization blogger] has pointed out, there’s a strong argument that a later Justice Department would not prosecute people who reasonably relied on legal advice from a previous Justice Department. Perhaps the Justice Department could argue that the officials’ reliance was unreasonable, but that might be difficult to show.
And putting aside the purely legal obstacles to a prosecution for war crimes, there’s also the political cost. Why would an Obama or Clinton Administration waste precious political capital early on with a politically divisive prosecution of former government officials? One can imagine the screaming of countless pundits arguing that the Democrats were trying to criminalize political disagreements about foreign policy. Such a prosecution would make politics extremely bitter and derail any chance for bipartisan cooperation on almost any significant issue. Obama or Clinton would rather get a health care bill passed, deal with the economy, or try to solve the Iraq mess, than have the first several years of their Administrations consumed by a prosecution for war crimes by officials in the Bush Administration.
“I’d love to know who’s whispering that in Ambinder’s ear,” adds Michael Goldfarb, who blogs for The Weekly Standard. “If this is a secret among Democrats, it certainly is well kept.”
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)
The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.
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