Douglas Caddy

The Prosecution of George W. Bush for Murder

By Vincent Bugliosi

http://www.informationclearinghouse.info/article19903.htm

10/05/08 "CommonDreams" -- - There is direct evidence that President George W. Bush did not honorably lead this nation, but deliberately misled it into a war he wanted. Bush and his administration knowingly lied to Congress and to the American public — lies that have cost the lives of more than 4,000 young American soldiers and close to $1 trillion.

A Monumental Lie

In his first nationally televised address on the Iraqi crisis on October 7, 2002, six days after receiving the National Intelligence Estimate (NIE), a classified CIA report, President Bush told millions of Americans the exact opposite of what the CIA was telling him -a monumental lie to the nation and the world.

On the evening of October 7, 2002, the very latest CIA intelligence was that Hussein was not an imminent threat to the U.S. This same information was delivered to the Bush administration as early as October 1, 2002, in the NIE, including input from the CIA and 15 other U.S. intelligence agencies. In addition, CIA director George Tenet briefed Bush in the Oval Office on the morning of October 7th.

According to the October 1, 2002 NIE, “Baghdad for now appears to be drawing a line short of conducting terrorist attacks with conventional or CBW [chemical and biological warfare] against the United States, fearing that exposure of Iraqi involvement would provide Washington a stronger case for making war.” The report concluded that Hussein was not planning to use any weapons of mass destruction; further, Hussein would only use weapons of mass destruction he was believed to have if he were first attacked, that is, he would only use them in self-defense.

Preparing its declassified version of the NIE for Congress, which became known as the White Paper, the Bush administration edited the classified NIE document in ways that significantly changed its inference and meaning, making the threat seem imminent and ominous.

In the original NIE report, members of the U.S. intelligence community vigorously disagreed with the CIA’s bloated and inaccurate conclusions. All such opposing commentary was eliminated from the declassified White Paper prepared for Congress and the American people.

The Manning Memo

On January 31, 2003, Bush met in the Oval Office with British Prime Minister Tony Blair. In a memo summarizing the meeting discussion, Blair’s chief foreign policy advisor David Manning wrote that Bush and Blair expressed their doubts that any chemical, biological, or nuclear weapons would ever be found in Iraq, and that there was tension between Bush and Blair over finding some justification for the war that would be acceptable to other nations. Bush was so worried about the failure of the UN inspectors to find hard evidence against Hussein that he talked about three possible ways, Manning wrote, to “provoke a confrontation” with Hussein. One way, Bush said, was to fly “U2 reconnaissance aircraft with fighter cover over Iraq, [falsely] painted in UN colors. If Saddam fired on them, he would be in breach” of UN resolutions and that would justify war. Bush was calculating to create a war, not prevent one.

Denying Blix’s Findings

Hans Blix, the United Nation’s chief weapons inspector in Iraq, in his March 7, 2003, address to the UN Security Council, said that as of that date, less than 3 weeks before Bush invaded Iraq, that Iraq had capitulated to all demands for professional, no-notice weapons inspections all over Iraq and agreed to increased aerial surveillance by the U.S. over the “no-fly” zones. Iraq had directed the UN inspectors to sites where illicit weapons had been destroyed and had begun to demolish its Al Samoud 2 missiles, as requested by the UN. Blix added that “no evidence of proscribed activities have so far been found” by his inspectors and “no underground facilities for chemical or biological production or storage were found so far.” He said that for his inspectors to absolutely confirm that Iraq had no weapons of mass destruction (WMD) “will not take years, nor weeks, but months.”

Mohamed ElBaradei, the chief UN nuclear inspector in Iraq and director of the International Atomic Energy Agency, told the UN Security Council that, “we have to date found no evidence or plausible indication of the revival of a nuclear weapon program in Iraq.”

The UN inspectors were making substantial progress and Hussein was giving them unlimited access. Why was Bush in such an incredible rush to go to war?

Hussein Disarms, so Bush … Goes to War

When it became clear that the whole purpose of Bush’s prewar campaign — to get Hussein to disarm — was being (or already had been) met, Bush and his people came up with a demand they had never once made before — that Hussein resign and leave Iraq. On March 17, 2003, Bush said in a speech to the nation that, “Saddam Hussein and his sons must leave Iraq within 48 hours. Their refusal to do so will result in military conflict.” Military conflict — the lives of thousands of young Americans on the line — because Bush trumped up a new line in the sand?

The Niger Allegation

One of the most notorious instances of the Bush administration using thoroughly discredited information to frighten the American public was the 16 words in Bush’s January 28, 2003 State of the Union speech: “The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa.” The Niger allegation was false, and the Bush administration knew it was false.

Joseph C. Wilson IV, the former ambassador to Iraq, was sent to Niger by the CIA in February 2002 to investigate a supposed memo that documented the sale of uranium yellowcake (a form of lightly processed ore) to Iraq by Niger in the late 1990s. Wilson reported back to the CIA that it was “highly doubtful” such a transaction had ever taken place.

On March 7, 2003, Mohamed ElBaradei told the UN Security Council that “based on thorough analysis” his agency concluded that the “documents which formed the basis for the report of recent uranium transactions between Iraq and Niger are in fact not authentic.” Indeed, author Craig Unger uncovered at least 14 instances prior to the 2003 State of the Union address in which analysts at the CIA, the State Department, or other government agencies that had examined the Niger documents “raised serious doubts about their legitimacy — only to be rebuffed by Bush administration officials who wanted to use them.”

On October 5 and 6, 2002, the CIA sent memos to the National Security Council, National Security Advisor Condoleezza Rice, and to the White House Situation Room stating that the Niger information was no good.

On January 24, 2003, four days before the president’s State of the Union address, the CIA’s National Intelligence Council, which oversees all federal agencies that deal with intelligence, sent a memo to the White House stating that “the Niger story is baseless and should be laid to rest.”

The 9/11 Lie

The Bush administration put undue pressure on U.S. intelligence agencies to provide it with conclusions that would help them in their quest for war. Bush’s former counterterrorism chief, Richard Clarke, said that on September 12, 2001, one day after 9/11, “The President in a very intimidating way left us — me and my staff — with the clear indication that he wanted us to come back with the word that there was an Iraqi hand behind 9/11.”

Bush said on October 7, 2002, “We know that Iraq and the Al Qaeda terrorist network share a common enemy — the United States of America. We know that Iraq and Al Qaeda have had high level contacts that go back a decade,” and that “Iraq has trained Al Qaeda members in bomb-making and poisons and deadly gasses.” Of Hussein, he said on November 1, 2002, “We know he’s got ties with Al Qaeda.”

Even after Bush admitted on September 17, 2003, that he had “no evidence” that Saddam Hussein was involved with 9/11, he audaciously continued, in the months and years that followed, to clearly suggest, without stating it outright, that Hussein was involved in 9/11.

On March 20, 2006, Bush said, “I was very careful never to say that Saddam Hussein ordered the attack on America.”

Vincent Bugliosi received his law degree in 1964. In his career at the L.A. County District Attorney’s office, he successfully prosecuted 105 out of 106 felony jury trials, including 21 murder convictions without a single loss. His most famous trial, the Charles Manson case, became the basis of his classic, Helter Skelter, the biggest selling true-crime book in publishing history. The Prosecution of George W. Bush For Murder is available May 25.

To listen to Bugliosi discuss his book, click on the link below:

http://www.prosecutionofbush.com/

Edward T. Haslam, author of Dr. Mary's Monkey, will be interviewed on the international radio show coasttocoastam on Sunday, May 11. He will discuss the assassination of JFK.

For more information, go to:

http://www.coasttocoastam.com/

Israelis Claim Secret Agreement With U.S.

Americans Insist No Deal Made on Settlement Growth

By Glenn Kessler

Washington Post

Thursday, April 24, 2008; page A14

http://www.washingtonpost.com/wp-dyn/conte...ml?hpid=topnews

A letter that President Bush personally delivered to then-Israeli Prime Minister Ariel Sharon four years ago has emerged as a significant obstacle to the president's efforts to forge a peace deal between the Israelis and Palestinians during his last year in office.

Ehud Olmert, the current Israeli prime minister, said this week that Bush's letter gave the Jewish state permission to expand the West Bank settlements that it hopes to retain in a final peace deal, even though Bush's peace plan officially calls for a freeze of Israeli settlements across Palestinian territories on the West Bank. In an interview this week, Sharon's chief of staff, Dov Weissglas, said Secretary of State Condoleezza Rice reaffirmed this understanding in a secret agreement reached between Israel and the United States in the spring of 2005, just before Israel withdrew from Gaza.

U.S. officials say no such agreement exists, and in recent months Rice has publicly criticized even settlement expansion on the outskirts of Jerusalem, which Israel does not officially count as settlements. But as peace negotiations have stepped up in recent months, so has the pace of settlement construction, infuriating Palestinian officials, and Washington has taken no punitive action against Israel for its settlement efforts.

Israeli officials say they have clear guidance from Bush administration officials to continue building settlements, as long as it meets carefully negotiated criteria, even though those understandings appear to contradict U.S. policy.

Many experts say new settlement construction undermines the political standing of Palestinian Authority President Mahmoud Abbas -- who is to meet with Bush today at the White House -- and adds to Palestinian cynicism about the peace process. Palestinians view the settlements as an Israeli effort to claim Palestinian lands, and in a meeting yesterday with Rice, Abbas said settlement construction was "one of the greatest obstacles" to a peace deal.

U.S. and Israeli officials privately argue that Israel has greatly restricted settlement growth outside the settlements it hopes to retain in a peace deal with the Palestinians, and Olmert has said Israel has stopped building new settlements and confiscating Palestinian lands.

Housing starts -- not counting the Jerusalem settlements -- have declined 33 percent since 2003, according to the Israeli Central Bureau of Statistics. But officials say it is politically damaging for Olmert to admit that, so instead he publicly emphasizes that he is adding to the settlements, which now house about 450,000 Israelis.

"It was clear from day one to Abbas, Rice and Bush that construction would continue in population concentrations -- the areas mentioned in Bush's 2004 letter," Olmert declared in an interview with the Israeli newspaper Yedioth Ahronoth, published Sunday. "I say this again today: Beitar Illit will be built, Gush Etzion will be built; there will be construction in Pisgat Ze'ev and in the Jewish neighborhoods in Jerusalem," referring to new settlement expansion plans. "It's clear that these areas will remain under Israeli control in any future settlement."

In a key sentence in Bush's 2004 letter, the president stated, "In light of new realities on the ground, including already existing major Israeli populations centers, it is unrealistic to expect that the outcome of final status negotiations will be a full and complete return to the armistice lines of 1949."

In a companion letter to "reconfirm" U.S.-Israeli understandings, Weissglas wrote Rice that restrictions on the growth of settlements would be made "within the agreed principles of settlement activities," which would include "a better definition of the construction line of settlements" on the West Bank. A joint U.S.-Israeli team would "jointly define the construction line of each of the settlements."

Weissglas said that the letter built upon a prior understanding between then-Foreign Minister Shimon Peres and then-Secretary of State Colin L. Powell, which would allow Israel to build up settlements within existing construction lines. But Powell denied that. "I never agreed to it," he said in an e-mail.

Daniel Kurtzer, then the U.S. ambassador to Israel, said he argued at the time against accepting the Weissglas letter. "I thought it was a really bad idea," he said. "It would legitimize the settlements, and it gave them a blank check." In the end, Kurtzer said the White House never followed up with the plan to define construction lines. "Washington lost interest in it when it became clear it would not be easy to do," he said.

National security adviser Stephen J. Hadley, at a news briefing in January, suggested that Bush's 2004 letter was aimed at helping Sharon win domestic approval for the Gaza withdrawal. "The president obviously still stands by that letter of April of 2004, but you need to look at it, obviously, in the context of which it was issued," he said.

Weissglas said that in 2005, when Sharon was poised to remove settlers from Gaza, the Bush administration made a secret agreement -- not disclosed to the Palestinians -- that Israel could add homes in settlements it expected to keep, as long as the construction was dictated by market demand, not subsidies. He said the agreement was necessary because Sharon needed the support of municipal leaders in the main West Bank settlements. The settlement leaders, he said, focused on the "inner contradiction" of Bush's letter, mainly that it made no sense to have a settlement freeze in places that Bush said would become part of Israel.

Weissglas said he then negotiated a "verbal understanding" with deputy national security adviser Elliott Abrams that would permit new construction in those key settlements; Rice and Sharon then approved the Weissglas-Abrams deal. "I do not recall that we had any kind of written formulation," Weissglas said.

"There is no understanding," said White House National Security Council spokesman Gordon Johndroe.

Indeed, as settlement starts soared after the Middle East peace conference in Annapolis in November, Rice said "the United States doesn't make a distinction" among settlement locations.

Powell said that in 2004, he did not anticipate that Bush's letter would be perceived as a green light by Israel for adding to the settlements. "I consistently spoke against settlement growth, but as you know all I could do is talk against it," Powell said. "There would be no consequences and there still aren't."

Thanks, Peter, for posting a link to Ashton's site.

1. There are only a few authors on the site. One of them is a writer of pulp mysteries named Jon D'Arme. The lead character in D'Arme's book, featured on the cover of his book, is "the Colonel". In his photos, Ashton Gray is dressed up to look like "The Colonel". There is no bio given for Jon D'Arme. Ashton Gray is therefore probably Jon D'Arme. Since Jon D'Arme is most probably a nom de plume for someone with a less dramatic name than Ashton Gray, Ashton Gray is probably another nom de plume for this same gentleman. Take a look and see if this makes sense.

http://www.omenbooks.com/Murder_at_Wisteria_Pines.html

2. Ashton has three books all set to come out. One of them is an assault on the pharmaceutical industry. When Ashton began pushing his "timeline" on the Forum, he claimed he hadn't written it, but had only discovered it online and wanted to share it with us. He told us that it was just a coincidence that the timeline was written to push scientology, and imply that the CIA's fear of L. Ron Hubbard's discoveries re remote viewing was the core cause for Watergate. (or something like that). Now, not only does he have the timeline on his website, but it appears he is pushing the scientology agenda that pharmaceuticals are evil, and that the only way to get "clear" of your problems is to get "audited" by a trained scientologist. (Of course, this isn't free.) Ashton Gray is therefore the nom de plume of a fanatic scientologist, quite possibly working with other scientologists, in order to spread the gospel according to L. Ron.

While I suspected as much from the get-go, I was sorta hoping I was wrong. If such a joker can dupe so many on this site--where people are prone to be skeptical--what hope is there really that less skeptical people will be able to see through jokers like Bugliosi and Myers, when Reclaimng History is broadcast on HBO?

I think, Pat, that you have solved the puzzle of who was or is the person known in the forum as Ashton Gray. Within days of his joining the forum he implemented a plan, likely previously conceived by him with other scientologists, to sow dissention and confusion among our members and succeeded brilliantly in doing so for quite a length of time.

Distrubing on several levels. First, yet another group targeted for being spied on and set-up for all kinds of problems. On the Watergate part, Doug, can you help flesh-out further who was likely in the know who told him? And why do you think he still feels he has to keep this vague?

Below is a draft article that I have written which provides additional background information about Robert Merritt's claim:

DID THE WASHINGTON POLICE HAVE ADVANCE KNOWLEDGE OF THE WATERGATE BREAK-IN?

A FBI informant’s new revelation

By Douglas Caddy

Does a peripheral figure in Watergate, one whose name is virtually unknown even to those who have closely followed the scandal from its inception, hold the key that may unlock one of its closest held secrets?

We may soon know the answer. The peripheral figure is Earl Robert Merritt, Jr., a/k/a “Butch” Merritt. Beginning in 1970, Merritt, a gay person, served as an informant to the FBI and the Washington, D.C. police in their joint campaign to infiltrate and spy on gay and New Left organizations. During the effort, which lasted until 1973, he reported both to the FBI and also to Washington police detective Carl Shoffler, the officer who arrested the burglars on June 17, 1972, inside the Democratic Party offices in the Watergate.

Merritt first told much (but not all) of his story in a two-part lengthy article that was published in The Advocate, a national gay publication, on February 23, and March 9, 1977, titled, “Revelations of a Gay Informant.” The mainstream media ignored its explosive content.

Later, Jim Hougan, in his best selling book, “Secret Agenda: Watergate, Deep Throat and the CIA,” published in 1984, wrote: “The mysteries surrounding Carl Shoffler are peculiar in the extreme, and none more so than the allegations made by one of Shoffler’s informants, Robert “Butch” Merritt. A homosexual, Merritt was employed by the police and the FBI to spy on the New Left, a task that ultimately led to his infiltration of the Institute for Policy Studies (IPS), a bete noire of America’s right wing. According to Merritt, Shoffler approached him sometime after June 16, 1972, and asked him to undertake a bizarre assignment. If we are to believe the disaffected informant, Shoffler told him to establish a homosexual relationship with Douglas Caddy, stating falsely that Caddy was gay and a supporter of Communist causes. In fact, Caddy was about as conservative as they come, and there was no reason to suspect that he was anything but heterosexual.…Predictably, perhaps, Shoffler ridicules Merritt’s accusation, calling it absurd. One can only agree with the police detective, and yet, where Merritt is concerned there appears to have been more than meets the eye.”

Fast forward to the present time: the March 13, 2008 issue of MetroWeekly, the Washington, D.C. gay & lesbian magazine, contains an interview with Merritt that encapsulates the work he did for the FBI and the Washington, D.C. police in the months and days preceding the Watergate break-in. http://www.metroweekly.com/feature/?ak=3296

Of particular significance is the following excerpt from the MetroWeekly interview:

“MW: You also said you had advance knowledge of the Watergate break-in.

“MERRITT: I’m giving you the only piece – or one piece – I’ve been holding back. I’ve got to answer you in vague terms, but I knew about it two weeks ahead of time through someone who was, I found out later, a very close associate of Shoffler.

“I passed the information on to Carl. He was unaware of it, even though the person who told me knew Carl very well. He came to me the very next morning after spending the whole night through booking his prisoners and he says, ‘Butch,’ he hugged me and shook my hand, “you did it. You gave me the best information ever. Don’t ever talk about it.’”

If what Merritt is stating is true, the question arises: Who was the source that provided the advance knowledge of the break-in to him?

I recently received a letter from Merritt dated March 22, 2008, which was accompanied by a copy of the MetroWeekly interview and which read in part: “Dear Douglas: …I thought you would like to have the little prelude article on me. There will be many bigger stories coming out before the book! Your friend in love, Butch Merritt.” Merritt appears to be emboldened to tell what he knows because he recently came into possession of a treasure trove of documents after filing a Freedom of Information request with the government.

I have never met Merritt, as he failed in his efforts in 1972 to establish contact with me at the behest of the FBI and Washington police. However, he did telephone me about two years ago to ask that I serve as a reference for him in a negotiation in which he was engaged with a Hollywood producer about a Watergate film. This call took place after The Advocate of August 16, 2005, carried an article about me titled, “Our Deep Throat,” which detailed my role as the original attorney for the Watergate seven when I was a closeted-gay. I later spoke to the Hollywood producer and told him that I was uncertain if the person who had called me was the real McCoy or an impostor, but if he were Merritt then he did indeed have a riveting tale to tell. I never heard anything more until I received the March 22 letter quoted above.

Based on what I know about Watergate, Merritt’s claim of having advance knowledge of the break-in and of giving a heads-up about it to Shoffler has a certain ring of truth. Unfortunately, it appears that we shall have to await the further revelations that Merritt has intimated will soon be forthcoming before we learn the name of his source of advance information about the break-in. If this and the other revelations of Merritt survive the expected intense scrutiny, then the accepted history of Watergate will undergo a major revision.

A Trillion Dollar Rescue for Wall Street Gamblers

By MICHAEL HUDSON

April 14, 2008

www.counterpunch.org

http://www.counterpunch.org/hudson04142008.html

If the move to a Unitary Executive of unfettered presidential power frightens you, America's radical right turn to Unitary Finance should compound your fears--and your debts as well. The financial events of the last two weeks of March 2008 demonstrate that the "economic royalists" and "money changers" whom Franklin Delano Roosevelt (FDR) drove from the temple of finance have returned to mismanage our economy into dire straights of unprecedented risk--debt creation, euphemized as "leveraging" and "wealth creation."

The few checks and balances that remain in the way of the financial sector's increasingly centralized planning, especially at the state level, are being swept aside under the guise of "saving the system." Few Wall Street beneficiaries who use this phrase explain just what the system is. For starters, its political managers are industry lobbies appointed to high managerial and planning positions in the public agencies that are supposed to regulate these industries. Their idea of financial planning is to put a trillion dollars in government agency funds and credit guarantees at risk. This agency funding was supposed to be used to help average American families obtain housing and health care, and to protect their savings and provide for their retirement. Instead, it is being mobilized to support the economy's bankers and financial managers.

Indeed, the past few weeks have seen seemingly trillions of dollars committed for war making and bank support.

The banking system's free creation of credit, doubling each five years or so for the economy at large, threatens to culminate in debt peonage for many American families and also for industry and for state and local governments. The economic surplus is being quickly absorbed by a combination of debt service and government bailouts for creditors whose Ponzi schemes are collapsing right and left, from residential to commercial real estate and corporate takeover loans to foreign bubble-economy credit.

This is the context in which to view the past few weeks' financial turmoil surrounding Bear Stearns, JPMorgan/Chase and the rapidly changing debt landscape. "The system" that the Treasury, Federal Reserve and the New Deal agencies captured by the Bush Administration is trying to save is an economy-wide Ponzi scheme. By that I mean that the business plan is for creditors to lend debtors enough money for them to pay the interest costs so as to keep current on their loans.

For the past few years this system has depended on asset prices for real estate, stocks and bonds to be inflated by enough to enable debtors to pledge these assets as collateral at a higher market price for more and more new loans. But now that the real estate bubble has burst (and indeed, as stock prices sink), the problem is how to bail out the tip of our economic iceberg that has sunk into negative equity--a condition in which the debts attacked to property exceed its market value. Someone must take a loss--but whom?

Normally, it is the banker or investor who takes the loss. But they are now supposed to be "rescued." This is being presented as a return to stability. But it was a system that never was stable to begin with. In fact, for the rescue to work, most Americans will have to own less and owe more, while being told that all this is the path to wealth creation--as if it were their wealth, not that of their creditors. The Bear Stearns/JPMorgan Chase/monoline insurance giveaway to "save the financial system" provides a vivid illustration of how Unitary Finance has developed a parasitic relationship with American labor in its role as pension contributor, consumer and homeowner. The system being subsidized enables the FIRE sector to direct and live off the productive efforts of others--people who make real things and provide real services.

Saving Wall Street with a trillion-dollar bailout of bad mortgage debt

The bailout started on Sunday, March 16. The government and JPMorgan Chase had reason to be embarrassed about the negotiations, for the details trickled out on the Federal Reserve or Treasury websites and Mr. Paulson's speeches went far beyond just Chase and Bear Stearns. It turned out that on the same Sunday on which he had negotiated the $30 billion Fed bailout, Mr. Paulson started a frenetic ten days orchestrating actions by the Treasury, Federal Reserve, and other government agencies to earmark a trillion dollars to re-inflate financial markets for mortgage holders and their associated creditors and speculators. Behind the scenes, as matters turned out, the Bush Administration was mounting a financial surge: It decided to throw everything its mortgage financing agencies could muster to prevent property markets from collapsing on its watch.

The surge of support for the mortgage and real estate markets was headed by the two largest U.S. mortgage holders and packagers: the government-sponsored National Mortgage Association (FNMA) and Freddie Mac. These two agencies were created to develop tradable markets for mortgages that banks traditionally had kept on their own books by buying home mortgages from the banks and mortgage brokers that originated them. This created a vast new demand for mortgages by making them marketable in large packages for institutional investors such as pension and mutual funds. Being implicitly government-guaranteed, Fannie Mae and Freddie Mac were able to borrow at fairly low interest rates, and sell mortgages at a premium. Demand for these packaged mortgage securities provided an enormous new source of lending. It also turned banks into mortgage originators rather than mortgage holders.

Together, Fannie Mae and Freddie Mac bought more than three-fourths of all U.S. mortgages issued in the fourth quarter of 2007, bringing their holdings to $1.4 trillion. However, the fact that their capital base was under $70 billion--for a 20 to 1 debt-leveraging ratio--led investors to sell their stock steadily over the past year. Rather than insisting that Fannie Mae and Freddie Mac rebuild their capital position, the Office of Federal Housing Enterprise and Oversight (OFHEO) did just the opposite. It reduced their capital requirements from 30 percent to 20 percent, and encouraged them to use this increased leverage to pour an extra $200 billion to the nation's mortgage market. Limits on the size of mortgage loans that these two agencies could make were raised sharply in order to help re-inflate the troubled high-cost California and New York property markets in particular.

Designed to bring temporary relief, this maneuver threatened to further destabilize matters by simply kicking the can down the road. The same applied to the Federal Housing Administration (FHA), set up in 1934 as part of the New Deal. Its insurance fund of about $20 billion backs some 3.8 million mortgage loans totaling $365 billion, for an 18:1 debt-leverage ratio. On Monday, March 24, it promised $400 billion in new mortgage credit insurance. This means that government agencies can use their capital to lend much more money to prospective homebuyers. The FHA, Fannie Mae and Freddie Mac also will be on the line for any losses, "socializing the risk" to a higher degree than ever before.

What was so worrisome about this strategy was that the FHA already was in financial straits as a result of its subprime loans. For the first time in its history it was running a deficit. Over a third of the loans it insured were made by home sellers to new buyers to cover their down payment--enabling homes to be bought without any down payment at all. (Traditionally, 20 percent has been the norm.) This was a brand-new market, barely existing in 2000 on the eve of the Greenspan-Bush real estate bubble. The Secretary of the Housing and Urban Development Agency (HUD), Alphonso R. Jackson, told a Senate committee: "These types of loans have pushed F.H.A. to the brink of insolvency." And now it was to double its activities to prop up the real estate and mortgage market.

The Federal Housing Finance (FHF) board dutifully did its part to increase the system's debt leverage. It doubled the ability of the 12 regional Federal Home Loan Banks (FHLB) to leverage their purchase of mortgage securities, from three times their capital to six times, twice the existing debt/equity ratio. The aim was to help them serve their clients, the nation's eight thousand savings banks, S&Ls, credit unions and insurance companies, finance the purchase of $160 to $200 billion new mortgage-backed securities issued by Fannie Mae and Freddie Mac. The target was for these two agencies to buy up about half a trillion dollars worth of mortgage securities from the private sector this year.

The Federal Home Loan Banking system also announced plans to start offering its own "monoline" mortgage insurance against the looming economic downturn at prices way below what private-sector insurance writers were willing to match. The aim is to shore up the nation's crumbling mortgage-insurance coverage at taxpayer expense. Again, the concept of a "free market" is being subjugated in order to socialize the losses for the FIRE sector's big players. The situation is much like the government insurance of beachfront properties against flood damage, paying for a chronically losing proposition at public expense. Of course, a disproportionate number of the owners of those beachfront properties also come from the campaign-contributing class.

Gillian Tett of the Financial Times noted that this mortgage insurance subsidy is "likely to trigger further debate about how policymakers are turning to state, or quasi-state, entities to stabilise the financial sector" by addressing "an absence of the market." Instead of shaping the market along less risky, less debt-leveraged lines, it was now another case of the government socializing financial risk at below-market rates. John Price, chairman of the Federal Home Loan Bank board, claimed that this "is what Government State Enterprises are for.'" In view of the fact that private insurers would charge higher rates, But the government's present plan being coordinated by Treasury Secretary Paulson seeks to avoid letting markets work in a way that would raise costs to Wall Street and hence leave less revenue for homeowners to pledge for debt service. This policy is presented sanctimoniously as lowering the price at which the financial sector "serves" the economy, not as putting it at risk.

The most amazing moves were still to come. On March 11 the Federal Reserve created a new Term Securities Lending Facility to extend $200 billion in loans to primary bond and securities dealers against their holdings of mortgages and other packaged securities as collateral. The aim was to rapidly re-inflate mortgages that the free market was pricing as junk, as low as 20 percent of face value.

Then came the double bombshell. In a true showing of the green on St. Patrick's Day, March 17, the Fed extended nearly unlimited credit to non-bankers for the first time since the Great Depression. It accepted their toxic mortgages as collateral--dubious assets that "the market" was refusing to touch. So much for "market-based" solutions when it comes to high finance! For the first time since the 1930s, non-banks could borrow from the Fed's loan window against their junk mortgages, apparently at full face value. It was too late for Bear Stearns, but other investment bankers and brokerage houses saw the green lifeline as the Fed opened its discount window to non-bankers, that is, to investment bankers such as Lehman Brothers, in contrast to commercial bankers that are regulated by the Fed.

The volume of credit seemed to be unlimited, collateralized by mortgage-backed securities that "the marketplace" was pricing around the levels Third World loans were selling at after Mexico's 1982 insolvency. Labor economist Tom Palley wrote in his March 26 blog: "These subsidies are a travesty. Goldman Sachs, Lehman Brothers and Morgan Stanley are extraordinarily profitable. They also have been the drivers of the worst trends in the American economy over the past generation, pushing excessive CEO pay that has spread like a cancer throughout corporate America, even reaching into universities and non-profits. Additionally, they have pedaled the shareholder value paradigm that has pushed companies to emphasize short-term gain over long-term investment, and contributed to ripping up America's social contract. Meanwhile, their business model has promoted speculation that is behind repeated asset and commodity price bubbles."

It is to support this business model that the Fed and Treasury officials seem to be making up new rules on a daily basis--rules that receive only a superficial or perfunctory review by Congress. Critics point out that investment bankers are not subject to Federal Reserve oversight or other regulation. Perhaps even this does not really matter in view of the Fed's extreme non-regulatory mode ever since Alan Greenspan's four-term Chairmanship. Even more important, of course, is the fact that the Fed's new clients, investment banks and brokerage houses, do not serve the middle-class depositors in need of special protection for their life savings. The financial investments being saved from adverse market conditions are ultimately speculative in character.

It seems a biting irony that the institutions now being mobilized to bail out Wall Street creditors--the Federal Home Loan Banks to pump credit into the mortgage market, the Federal Housing Administration to insure mortgage loans, Fannie Mae and Freddie Mac to buy and package mortgages for bulk resale to institutional investors--were created to help homebuyers, not their creditors and speculators. But bailing out speculators and high finance has now becoming their primary function. This shift has turned America's housing, mortgage and banking agencies upside down. Wall Street of course has welcomed the capture of these New Deal and post-1945 institutions. But their doctrinaire ideology has accused Glass-Steagall, Social Security, and most recently Sarbanes-Oxley regulations by the Securities and Exchange Commission (SEC) as leading down the road to serfdom.

Politically, such bailouts require an ostensibly humanitarian cover story. They need to be presented as a subsidy not to banks and other wealthy creditors, but to debtors. This means that the "ideal" (that is, most smoothly hypocritical) bailout takes the form of new credit to pay banks and other bondholders and mortgage holders enough to keep the debt bubble afloat. That means enough more credit to keep it growing, at least by the amount of interest that must be paid.

The result is a true road to debt peonage. It is much more destructive--and certainly more real--than the imaginary road to serfdom that Hayek and other anti-government ideologues envision. While these free-enterprise boys wring their hands and denounce government power, their sponsors realize full well that when government steps back, the financial sector moves in to fill the vacuum. The banks and money managers become society's planners and resource allocators--in their own short-term interest. This interest leads them to oppose laws protecting, labor, consumers and debtors. This means that the "freedom" at issue is a one-way favoritism for employers, monopolistic privilege and creditors. What these vested interests mean by the "road to serfdom" is an economy managed by hands other than their own, an economy protecting the workers, consumers and debtors whom they seek to victimize.

No money left for Social Security and health insurance after the real estate bailout?

The American public may justifiably be puzzled by how the government can seem to come up trillions of dollars for foreign wars and banker bailouts, but so little for them. The United States is spending an estimated $3 trillion for an illegal war that has made us less safe, and $1 trillion so far to rescue bankers in a way that is destabilizing the economy. But it can't seem to secure health care or retirement security for all Americans. On Tuesday, March 25, fresh from providing a trillion dollars to underwrite the financial and real estate sector, Mr. Paulson revived the Bush Administration's pretense that there is no money to pay Social Security. Yet "fixing" Social Security--if indeed there is a problem (which is no means certain)--would be relatively easy. Merely restoring the Bush tax cuts for the top 1% of Americans (those earning over $414,000 a year) to the high 30-percent tax rates of the 1990s (nowhere near approaching the 94% top marginal rate of the 1940s, or even the 70-percent rates of the 1970s) would provide 46% more than the Congressional Budget Office's estimate of the Social Security shortfall. The Administration does not acknowledge such inconvenient truths, or do the reporters who simply pass on its handouts to the mass media.

The claim that there is no prospective funding to meet the government's Social Security and Medicare obligations was rendered blatantly incredible in the last week of March, which saw the five-year anniversary of the Bush Administration's war in Iraq. As its death toll to U.S. soldiers reached 4,000, newspaper accounts across the country reported the calculations by Nobel Prize winner Joseph Stiglitz that the war's cost has reached the $3 trillion mentioned above, taking into account its legacy of interest charges and medical treatment for the more than 25,000 troops that had been wounded or had post-traumatic and other psychiatric stress disorders. (Mr. Stiglitz recently updated his analysis to say $3 trillion is a conservative number.)

Five years, four thousand lives, and three trillion dollars for the war--but no money for Social Security and Medicare! Did Mr. Paulson not feel just a little bit discomfort in claiming with seeming urgency that Social Security funding would be exhausted in just over another thirty years, by 2041? Medicare is supposed to be in even worse shape, having accumulated enough wage set-asides to last only until 2019, due largely to rising health costs--which the Bush Administration refused to control by negotiating prices with the drug companies, among others.

The historical road to serfdom is that of debt peonage to a financial oligarchy concentrating wealth in its own hands. Contemporary anti-government "libertarianism" creates a vacuum that the financial sector moves to fill. The problem for society at large is that finance finds its major gains to lie not in raising living standards, but in promoting a free lunch for its customers--while turning corporate profits, monopoly rent-seeking and real estate price gains into a flow of interest to itself, by advancing the credit to finance the purchase of these assets and privileges.

There is only one way to reverse this evolution toward debt peonage. That is to scale back existing mortgages, especially for properties with negative equity, to reflect the plunge in property values today--admittedly under distress conditions, but nonetheless real constraints on the debtor's ability to pay. Once the principal was reduced to realistic levels, adjustable-rate mortgages would be replaced by fixed-rate mortgages.

The problem with this solution is that to the financial institutions, the housing crisis is not their problem. Their blame-the-victim attitude holds it to be the mortgage holders' problem--and now increasingly the taxpayers' problem. This perspective on how to resolve the housing crisis can only succeed by creating a populist rhetoric for public officials to use in promoting financial interests as if all this is in the best interest of homeowners and other debtors.

--------

Michael Hudson is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world's first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich's Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com

HARDCORE MARILYN

FBI'S MONROE SEX FLICK SOLD FOR $1.5M

April 14, 2008

New York Post

http://www.nypost.com/seven/04142008/news/...ilyn_106443.htm

Some really like it hot.

In the sordid tradition of peddling raunchy video footage of celebrities a la Paris Hilton, a long-buried sex movie of Marilyn Monroe recently hit the market, a top collector told The Post.

An illicit copy of the steamy, still-FBI-classified reel - 15 minutes of 16mm film footage in which the original blond bombshell performs oral sex on an unidentified man - was just sold to a New York businessman for $1.5 million, said Keya Morgan, the well-known memorabilia collector who discovered the film and brokered its purchase.

The footage appears to have been shot in the 1950s. When it came to light in the mid-'60s, then-FBI Director J. Edgar Hoover had his agents spend two weeks futilely trying to prove that Monroe's sex partner was either John F. Kennedy or Robert F. Kennedy, according to declassified agency documents and interviews, Morgan said.

The silent black-and-white flick shows Monroe on her knees in front of a man whose face is just out of the shot.

He never moves into the shot, indicating that he knew the camera was there, but Monroe never looks at the lens, said Morgan, who saw the footage.

Morgan said he discovered the film while doing research for a documentary on Monroe, after talking with a former FBI agent who told him about a confidential informant who tipped G-men to the existence of the film in the mid-'60s.

The feds eventually confiscated the original footage - but not before the informant made a copy of it, which is what was just sold by his son, Morgan said.

There are heavily redacted, declassified FBI documents talking about a "French-type" film.

They state the informant "exhibited [to agents] a motion picture which depicted deceased actress Marilyn Monroe committing a perverted act upon a unknown male," Morgan said.

The informant was with at least one mobster at the time, the documents state.

According to the documents, "Former baseball star Joseph DiMaggio in the past had offered [the informant] $25,000 for this film, it being the only one in existence, but he refused the offer.

"Source advised that [redacted name of the mole] informed them that he had obtained this film prior to the time Marilyn Monroe had achieved stardom."

Morgan said he got the deceased informant's name from the former FBI agent who tipped him off to the flick - and was floored after he found the mole's son in Washington, DC, and the man retrieved a film canister from a safe-deposit box and spooled it up.

"You see instantly that it's Marilyn Monroe - she has the famous mole," Morgan said.

"She's smiling, she's very charming, she's very radiant, but she's known for being radiant," he said. "She moves away, and then it [the footage] stops."

Last month, he brokered its sale, leading the informant's son to a wealthy New York businessman who wants to keep this unseemly part of Monroe's past buried.

"He said he's just going to lock it up," Morgan said.

"He said, 'I'm not going to make a Paris Hilton out of her. I'm not going to sell it, out of respect.' "

hasani.gittens@nypost.com

Douglas, I thought Whitney's article highly insightful. Thanks for posting it.

This whole episode of current and forthcoming bank bankruptcies (short of being bailed out that is) -- due of the piling up of excessive risky obligations that went bad -- is reminiscent of the global Sovereign risk debts implosion that visited major world banks during the late Eighties and early Nineties.

In those days, banks built up a portfolio of ever riskier sovereign debt, in the certain knowledge that many of the indebted sovereigns couldn't redeem their obligations. The game then, as now, was the "this year" profit streams and resulting bonuses, profit shares, promotional chances etc.

The baking regulatory authorities back then looked the other way and let the chaos happen.

The same is true today. The banking regulatory authorities could have simply stepped in and placed a damn great stop sign on the past leveraging bonanza, but chose not to. Astonishingly, in the US an act was passed by Congress (the Commodity Futures Modernization Act as outlined above) that restricted/inhibited regulation of this high risky debt. This Act passed muster almost 8 years ago and suggests to me that the risks were weighed back then and seen to be absolutely suspect but extremely profitable in the short/medium term.

Now the banking sector faces rescue by the taxpayer or being extinguished. Again.

Until such time as deadly serious regulation is brought legislated that corrals the banking sector from effectively risking our money in their casino for their benefit, I dare say that a similar scenario will be visited upon us all in the next 20 years or so, and thereafter at fairly regular intervals.

Hitherto, the banks incentive to greed at out expense is perennially rewarded.

An Economy Built On Lies

by Gary North

www.lewrockwell.com

April 13, 2008

http://www.lewrockwell.com/north/north619.html

In this report, I am going to present an astounding document. You have not heard of it. It is at the heart of the current residential real estate crisis. It has to do with xxxx loans.

By now, the term "xxxx loans" is common. Prospective house buyers provided false information to representatives of loan-initiating firms.

The loan-initiating firms knew that there were people who did this, but they winked at the practice. Their well-compensated job was to pass on the paperwork to a government-created agency, either Fannie Mae or Freddie Mac, who then sold scientifically diversified packages of statistically safe mortgages to investors.

Some of these investors were hedge funds. They in turn borrowed money from investment banks at up to 32-to-1 leverage (Carlyle Capital) to buy even more packages of statistically safe mortgages.

Everyone was happy until reality caught up with the lying borrowers, whose meager incomes did not allow them to keep paying their monthly mortgages.

The dominoes started to topple in August, 2007. The experts were caught flat-footed.

The mortgage interest rate re-sets will continue through 2009. This process is barely half over. Meanwhile, a recession has appeared.

From start to finish, from top to bottom, the entire structure was based on lies. It began with this one: "I'm from the government, and I'm here to help you." This is the third most widely believed lie in history, right after this:

And the serpent said unto the woman, Ye shall not surely die: For God doth know that in the day ye eat thereof, then your eyes shall be opened, and ye shall be as gods, knowing good and evil.

And this:

Of course I will still respect you as a person in the morning.

THE GREAT AMERICAN DREAM

We all remember the 1946 movie, It's a Wonderful Life. It centers around one family's funding of the great American dream: home ownership. We love the movie because it's about a man who is shown by an angel that his life really mattered. So, our lives really matter, too. We all like to believe that we also have a guardian angel, though perhaps not so incompetent as Clarence.

Jimmy Stewart's nemesis was the town's banker, Mr. Potter. He was a xxxx and a thief, preying on sin-loving local citizens (as we see in the sequence about Pottersville) and the likes of the kindly but imbecilic Uncle Billy.

Potter used the fractional reserve banking system to borrow short and lend medium. The Bedford Falls Building and Loan borrowed short and lent long.

Potter was able to survive the bank run because his bank had liquid reserves and assets it could sell. The Building and Loan survived because George Bailey had liquid reserves – his honeymoon money – and a script writer who ended the bank run at 6 p.m. and did not let it extend to the next day, which it obviously would have done when word got out that Jimmy's honeymoon money was gone.

Potter was a xxxx: he was lent medium. George Bailey was a much bigger xxxx: he was lent long.

The Federal Deposit Insurance Corporation was created in 1933 by the Roosevelt Administration as part of the Glass-Steagall Act. This bailed out the mini-liars: bankers. The Savings and Loan oligopoly then pressured Congress to provide something similar, which Congress delivered: the Federal Savings & Loan Corporation was created by the National Housing Act of 1934. This bailed out the bigger liars.

The American dream was extended to the masses by means of government insurance against runs by investors – who mistakenly thought they were depositors – in Savings & Loans. This did more to establish the economics of the carry trade – borrowing short to lend long – than anything in history. The investment world saw the profit potential. The carry trade has increased ever since.

But who will insure the middlemen who profit from the carry trade? Who has sufficient resources to bail out the profit-seeking, loss-avoiding hedge fund entrepreneurs who decided that the interest rate spread between short-term money paid to investment banks and long-term money paid by borrowers was just too tempting. In short, who will come to the rescue of our generation of George Baileys? Congress? It did in 1986 during the S&L collapse. But the on-budget Federal deficit is running at an estimated $410 billion this year. This deficit is accelerating.

Then how about the Federal Reserve System? It can swap Treasury debt for not-statistically-safe-after-all mortgages, but only until it runs out of Treasury debt, about $800 billion to go. Then it will have to create money. Lots and lots of money.

xxxx, xxxx, PANTS ON FIRE

We live in the FIRE economy: finance, insurance, and real estate.

The crucial insurance today is Federal insurance – explicit, implicit, and widely assumed even when legally absent. Big institutions are considered too big to fail, meaning too big for the government to allow to fail. Think Bear Stearns. So, promises made by the government serve as the ultimate back-up for the promises made by the largest carry traders.

The extent of the participation of the Federal government in the residential real estate markets can be seen in the law governing xxxx loans.

You need to read the following law. I realize that no one except lawyers reads a document like this one. It has two sentences. One of them is 291 words long. Only lawyers write sentences that are 291 words long. Nevertheless, I am asking you to read it.

Here is what you should understand after you have read it. There is hardly a nook or cranny left in the residential real estate market that is not covered by this law. The extent of government control, which derives from government insurance of real estate lending, is enormous. How enormous? Read for yourself.

Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way the action of the Farm Credit Administration, Federal Crop Insurance Corporation or a company the Corporation reinsures, the Secretary of Agriculture acting through the Farmers Home Administration or successor agency, the Rural Development Administration or successor agency, any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or of any regional agricultural credit corporation established pursuant to law, or a Federal land bank, a Federal land bank association, a Federal Reserve bank, a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or the Small Business Administration in connection with any provision of that Act, a Federal credit union, an insured State-chartered credit union, any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, any Federal home loan bank, the Federal Housing Finance Board, the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the Farm Credit System Insurance Corporation, or the National Credit Union Administration Board, a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and (3) of section 1( of the International Banking Act of 1978), or an organization operating under section 25 or section 25(a) [1] of the Federal Reserve Act, upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, or loan, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. The term State-chartered credit union includes a credit union chartered under the laws of a State of the United States, the District of Columbia, or any commonwealth, territory, or possession of the United States.

Did you read it? If so, I hope you noticed this passage: ". . . shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Here is the inescapable reality: the Federal government let the subprime disaster build up for many years. This law was never enforced. No one in the entire government-insured scam worried about it. The bureaucrats were in on the deal from day one.

All of the posturing by politicians about the exploited borrowers who lost their homes – liars – and the need for new laws to be passed by Congress to prevent unscrupulous mortgage brokers – liars – from ever exploiting the poor again, and also preventing them from endangering the solvency of the nation's financial institutions – liars – is nothing but election-year politicking by the biggest liars of all: politicians.

Do we need more laws? Hardly. A law that imposes a million-dollar fine and 30 years in jail is more than sufficient. This law's stiff penalties were supposed to make people take it seriously. But it was not taken seriously. No one ever intended to enforce the law. No one ever did. It was all posturing by the politicians.

The biggest housing bubble in American history, 1995–2005, took place under the watchful eyes of the entire Federal real estate bureaucracy, the bureaucracy listed by name in the law. No one in government issued a warning. No one in government saw the bubble coming. No one in government identified it as a bubble.

The appraisals were made, the loans were made, the mortgages were bought and re-packaged and sold again. The carry trade did its work. And now there is a line in front of the banks.

No, scratch that. There are no lines. There are instead collapsing prices in the scientifically packaged mortgage sector because investors now see that those mortgages, rated AAA by independent firms (it says here), are in fact packages of promises to pay made by liars.

Everyone knew. This is the famous bottom line. Everyone knew. Nobody cared.

We live in an economy built on lies. Everyone knows. Almost nobody cares.

Do you care? If so, what have you done to protect yourself?

WHO INSURES THE INSURERS?

The Federal Deposit Insurance Corporation insures bank accounts up to $100,000. It holds about a penny in reserve (in T-bills) for every dollar worth of insured deposits.

Who insures the T-bills? The Federal Reserve System. Who insures the Federal Reserve System? No one. It doesn't need insurance. It can create money.

Then who insures the purchasing power of the dollar? The central banks of the world, which hold dollars as legal reserves for their own currencies.

What happens if they decide not to add to their holdings of dollars?

That is the ultimate default today. If the liars known as central bankers decide that our central bank's liars are no longer to be trusted, there will be a great dumping of Treasury debt.

There will be no lines in front of American banks. There will instead be rising prices for imported goods. There will be rising domestic interest rates because foreign central banks are not buying Treasury debt any longer. There will be unemployment. There will be bankruptcies.

There will be defaults. Above all, there will be defaults. The lies will be exposed as lies. The promises will not be kept.

When the checks from Washington no longer buy much of anything, the great political transformation will begin.

The promises will not be fulfilled. I assume that you know this. The economy built on lies will fall. So will the political order.

When will this take place? I don't know. But we have seen it happen in our lifetime. The Soviet Union fell in three days: August 19–21, 1991. No one predicted this. The best and the brightest in the West did not see it coming. One man suspected it and did what he could to accelerate it: John Paul II. But the politicians were universally caught flat-footed.

The USSR was $140 billion in debt to the West in 1991. The West is now in debt to Russia by $500 billion. No one predicted that, either.

CHOOSE YOUR LIARS CAREFULLY

The modern economy is built on debt. It is therefore built on promises to pay. It is therefore built on lies.

As investors, we must look at the dominoes and try to get out from under the next one to topple.

If all of them topple, the division of labor will collapse. Then most of us will die. Think of a world without digital money. The trains would stop rolling. The trucks would stop rolling. The government would intervene and force some deliveries, such as coal to power plants in large cities. But the government would also have a problem: how to pay the bureaucrats and troops.

So, most of us cannot plan for a complete collapse of banking. That would bring down Western civilization. We have to assume that some lies will still be accepted, that some promises will be kept.

But which ones?

I think it is wise to have reserves that are not digital. You can't eat digits. But if your neighbors are starving, reserves won't help much. This is why you should not try to prepare for complete collapse today. You can't afford it.

I hope you have the familiar six months' of expenses in reserve. You could lose your job. If you don't, what about your spouse?

Today, most American families have about 19 days' worth of expenses. The chart on this decline since the year 2000 is shocking.

You must not follow the herd on this one.

CONCLUSION

The tissue of lies that held together the subprime market was believed by the best and the brightest. They were blind to what was coming. It has wiped out over $200 billion in assets.

We are assured that the worst is over. But who assures us of this? Salaried reporters in a dying field: newspapers and network TV.

The ill-informed tout the liars. We are assured that the liars know what went wrong and will not let it happen again.

Re-read the liars' law. That will give you some indication of how serious the liars were. They are no more serious today.

When they tell you the worst is over, batten down the hatches.

April 12, 2008

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com.He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Find this article at:

http://www.lewrockwell.com/north/north619.html

Douglas, I thought Whitney's article highly insightful. Thanks for posting it.

This whole episode of current and forthcoming bank bankruptcies (short of being bailed out that is) -- due of the piling up of excessive risky obligations that went bad -- is reminiscent of the global Sovereign risk debts implosion that visited major world banks during the late Eighties and early Nineties.

In those days, banks built up a portfolio of ever riskier sovereign debt, in the certain knowledge that many of the indebted sovereigns couldn't redeem their obligations. The game then, as now, was the "this year" profit streams and resulting bonuses, profit shares, promotional chances etc.

The baking regulatory authorities back then looked the other way and let the chaos happen.

The same is true today. The banking regulatory authorities could have simply stepped in and placed a damn great stop sign on the past leveraging bonanza, but chose not to. Astonishingly, in the US an act was passed by Congress (the Commodity Futures Modernization Act as outlined above) that restricted/inhibited regulation of this high risky debt. This Act passed muster almost 8 years ago and suggests to me that the risks were weighed back then and seen to be absolutely suspect but extremely profitable in the short/medium term.

Now the banking sector faces rescue by the taxpayer or being extinguished. Again.

Until such time as deadly serious regulation is brought legislated that corrals the banking sector from effectively risking our money in their casino for their benefit, I dare say that a similar scenario will be visited upon us all in the next 20 years or so, and thereafter at fairly regular intervals.

Hitherto, the banks incentive to greed at out expense is perennially rewarded.

Spread the Wealth and Give Workers a Raise

Want to Save the Economy?

By MIKE WHITNEY

Weekend edition

Counterpunch.org

April 12-13, 2008

http://www.counterpunch.org/whitney04122008.html

Insolvency's dark shadow hangs over Wall Street. One major player, Bear Stearns, has already gone under, and from the looks of it, another investment giant may be on the way down. It's getting ugly out there. The so-called TED spread*, which measures the reluctance of banks to lend to each other, has begun to widen ominously suggesting that the money markets think another dead body will be floating to the surface any day now.

The ongoing deleveraging of financial institutions and the persistent downgrading of assets has the Fed in a tizzy. Bernanke has backed himself into a corner by stretching the Fed's mandate to include everyone on Wall Street with a mailing address and a begging bowl. Now he's taken on the even larger task of fixing the plumbing that keeps credit flowing between the various investment banks. Good luck. There's plenty of more pain ahead. The IMF expects the final tally will be $945 billion, that means $3 trillion in lost loans for the banks. Bernanke better pace himself; this mess could last for years.

The US subprime fiasco has spiraled into what the IMF is calling "the largest financial shock since the Great Depression." America's capital markets are on the fritz. The corporate bond market is frozen, the banks are buckling from their losses, and the housing market is in a shambles. No one is buying and no one is lending. Private equity deals are off 75 per cent from last year and no one will touch a mortgage-backed security (MBS) with a ten foot pole. The mighty wheel of modern finance is grinding to a standstill and no one's quite sure how to rev it up again.

The US consumers are feeling the pinch, too. Credit cards are maxed out, student loans overdue, car payments in arrears, and mortgages entering foreclosure. Also, wages haven't kept pace with production and and the home-equity ATM has been shut down. Now that the credit tap has been turned off; the American worker is hurting, but no one is offering a bailout or a even helping hand; just a few table-scraps from Bush's "surplus package". 500 bucks will just about fill the tank of a normal-sized SUV. A new survey from the Pew research Center "Inside the Middle Class-Bad Times Hit the Good Life", shows that working families are in debt up to their ears and that fewer Americans "believe they are moving forward" than anytime in the last half century. The study also shows that most people believe "it's harder to maintain a middle class life style" and that "since 1999, they have not made economic gains." Average families are struggling just to make ends meet.

That's why so many people bought homes when they should have opened savings accounts. They were duped into speculating on housing so they could get a chunk of money. It looked like a good way to overcome stagnant wages and crappy hours. The cheer-leading TV pundits offered assurances that "housing prices never go down". It was all baloney. Now 15 million homeowners are upside-down on their mortgages and the very same experts are scolding workers for fudging the facts on their income disclosure forms. It's all backwards.

No wonder consumer confidence has dropped to record lows. Working people don't need lectures on saving money; they need a raise. The big-wigs at Bear Stearns are still dining on crab-cakes at the Four Seasons while the working folk are just trying to make their way through Greenspan's nuclear winter living on beef jerky and Big Gulps. Where's the justice?

Volumes have been written about the current crisis; subprime-this, subprime that. Everything that can be said about collateralized debt obligations (CDOs) credit default swaps(CDS) and mortgage-backed securities (MBS) has already been said. Yes, they are exotic "financial innovations" and, no, they are not regulated. But what difference does that make? There's always been snake oil and there have always been snake oil salesmen. Greenspan simply raised the bar a notch, but he's not the first huckster and he won't be the last. What really matters is underlying ideology; that's the root from which this economy-busting hydra sprung. 30 years of trickle down, supply-side gibberish; 30 years of idol worship for the waxy-haired reactionary, Ronald Reagun; 30 years of unrelenting anti-labor, free market, deregulated orthodoxy which inflated the biggest equity-Zeppelin in history.

Now the bubble is hissing out of the blimp and the escaping gas is wreaking havoc across the planet. There are food riots in Haiti, Egypt, and Kuwait. Wherever the local currency is pegged to the falling dollar, inflation is soaring and trouble is brewing. Also, European banks are listing from the mortgage-backed garbage they bought from brokerages in the US and need central bank bailouts to stay afloat. It's just more fallout from the subprime swindle. Finance ministers in every capital in every country are getting ready for a 1930's-type typhoon that could send equities crashing and food and energy prices rocketing into the stratosphere. And it can all be traced back to the wacko doctrines of neoliberalism. These are the theories that guide America's "screw-thy-neighbor" monetary policies and spread financial turmoil to every city and hamlet around the world.

The present stewards of the system are incapable of fixing the problem because they represent the interests of the people who benefit most from the disruptions. Paulson's latest "blueprint" for the financial markets is a good example; a more pro-business, self-serving scheme has never been put to paper. Gary North sums it up in his article "Really Stupid Loans":

"With the Federal Reserve System's latest proposal, presented to the public by Secretary of the Treasury Henry "Goldman Sachs" Paulson, the Fed is asking the United States government to make it the Great Protector of Capital....The new proposals will centralize power over finance in the hands of an agency that is officially run by the government but in fact is run by agents of the largest fractional reserve banks. ...Regulation by tenured staff economists will not make the system less fragile. It will make it more top-heavy and less flexible..

"Some version of this plan will probably pass in the next Congress. No matter whether it does or does not, the direction is the same: toward an economy controlled by the federal government in conjunction with titular private ownership of the means of production, that is, toward fascism."

(Gary North, "Really Stupid loans" lewrockwell.com)

The whole point is to put the markets in the Fed's control so that when the next financial crisis arises (from the next swindle) the Fed can bailout the bankers and hedge fund managers without consulting Congress.

Paulson's plan is a power-play; nothing more. The investment Mafia wants to take over the whole financial system lock, stock and barrel. They want to liquidate the SEC and any other government watchdog and put the investment banks, hedge funds and brokerages on the honor system. It's the end of transparency and accountability which, of course, are already in short supply.

Currently, Paulson and Bernanke are expanding the balance sheets of the Government Sponsored Enterprises (GSEs) so that Fannie Mae and Freddie Mac will underwrite 85 per cent of all mortgages while FHA will cover 10 per cent more. The mortgage industry is being nationalized to save banking fellowship while the taxpayer is on the hook for another $4.4 trillion of dodgy loans. Paulson doesn't care if the taxpayer gets stuck with the bill. What bothers him is the prospect that, somewhere along the line, workers will demand higher wages to keep pace with inflation. Then all hell will break loose. Paulson and Co. would rather see the economy perish in a deflationary holocaust than add another farthing to a working person's salary. He and his ilk take class warfare seriously; that's why they are winning. But their strategy also creates problems. When wages don't keep pace with production, demand decreases and the economy falters. That's what's happening now and Paulson knows it. Workers are over-extended and can't buy the things they make. They barely have enough to feed the kids and fill the tank for work. Consumer spending (which is 72 per cent of GDP) is nose-diving at the very same time the Fed's equity bubble is exploding.

Neoliberalism has a twenty-year record of producing the very same economic calamities. Why is this crisis different? Why should the US be spared the same predatory treatment as the many other victims of the global corporate oligarchy? After the Fed's equity bubble bursts, the corporate vultures will swoop down and buy up vital resources and industries for pennies on the dollar.

Economist Michael Hudson anticipated many of the present-day developments in the financial markets in an amazingly prescient interview in

CounterPunch in 2003 called "The Coming Financial Reality":

Michael Hudson: "Free enterprise under today's financial conditions threatens to bring about an unprecedented centralization of planning, not in the hands of government but by the financial conglomerates and money managers. Whatever government planning power is destroyed becomes available for them to appropriate, with plenty of vigorish left for the politicians whose campaigns they back and who will "descend from heaven" into high-paying private-sector jobs, Japanese style, after having performed their service for the new regime.

Question: The financial regime is nothing but parasites?

Michael Hudson: "The problem with parasites is not merely that they siphon off the food and nourishment of their host, crippling its reproductive power, but that they take over the host's brain as well. The parasite tricks the host into thinking that it is feeding itself.

"Something like this is happening today as the financial sector is devouring the industrial sector. Finance capital pretends that its growth is that of industrial capital formation. That is why the financial bubble is called 'wealth creation,' as if it were what progressive economic reformers envisioned a century ago. They condemned rent and monopoly profit, but never dreamed that the financiers would end up devouring landlord and industrialist alike. Emperors of Finance have trumped Barons of Property and Captains of Industry." (Michael Hudson, "The Coming Financial Reality", counterpunch, interviewed by Standard Schaefer.)

Bingo. Hudson not only explains how finance capitalism is inserting itself into the governmental power structure but, also predicts that "industrial capital formation" -- which is the production of things that people can really use to improve their lives -- will be replaced with complex debt-instruments and derivatives that add no tangible value to people's lives and merely serve to expand the wealth of an entrenched and increasingly powerful investor class.

Finance capitalism has "devoured landlord and industrialist alike" and created a galaxy of seductive liabilities which masquerade as assets. Derivatives contracts, for example, represent over $500 trillion of unregulated counterparty transactions; a "shadow banking system" completely disconnected from the underlying "real" economy, but large enough to send the world into a agonizing depression for years to come.

The goal should be to dismantle this corrupt Ponzi-system, which merely wraps debt in a ribbon, and rebuild the economy on a solid foundation of productive labor, worker solidarity and and above all the redistribution of income and hence purchasing power away from the system which now flow to the top two or three per cent.

Political power has to be taken from the financial mandarins or the disparity of wealth will continue to grow and democracy will wither. We've already seen our main institutions -- the courts, the congress, the media, and the presidency -- polluted by the steady flow of corporate contributions which only serve the narrow interests of elites.

Henry Liu expands on this idea in his excellent article "A Panic-stricken Federal Reserve":

"In the 1920s, the wide disparity of wealth between the rich and the average wage earner increased the vulnerability of the economy. For an economy to function with stability on a macro scale, total demand needs to equal total supply. Disparity of income eventually will result in demand deficiency, causing over-supply. The extension of credit to consumers can extend the supply/demand imbalance but if credit is extended beyond the ability of income to sustain, a debt bubble will result that will inevitably burst with economic pain that can only be relieved by inflation.....More investment normally increases productivity. However, if the rewards of the increased productivity are not distributed fairly to workers, production will soon outpace demand. The search for high returns in a low demand market will lead to consumer debt bubbles with wide-spread speculation .... Today, outstanding consumer credit besides home mortgages adds up to about $14 trillion, about the same as the annual GDP. "

Voila. A strong economy requires a strong workforce and an equitable distribution of wealth. When money is concentrated in too few hands, the political system atrophies and becomes unresponsive to the needs of its people. That's when the nation's laws and institutions are reshaped to reflect the ambitions of rich and powerful.

The financial system is doing exactly what it was designed to do, it is crumbling from the decades-long trickle-down experiment. Social programs have been gutted, civil infrastructure is in tatters, legal protections have been savaged, and workers rights have been trounced. Is it any wonder why we're embroiled in an unwinnable war and the financial system is on its last legs?

The only way to break the stranglehold of Wall Street's financial Politburo is to level the playing field through greater wealth distribution. That's the best way to rekindle democracy and make America the land of opportunity again. And it all starts with giving America's workers a raise.

*Initially, the TED spread was the difference between the interest rate for the three month U.S. Treasuries contract and three month Eurodollars contract as represented by the London Inter Bank Offered Rate (LIBOR). However, since the Chicago Mercantile Exchange dropped the T-bill futures, the TED spread is now calculated as the difference between the T-bill interest rate and LIBOR. The TED spread is a measure of liquidity and shows the flow of dollars into and out of the United States (Wikipedia).

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

Distrubing on several levels. First, yet another group targeted for being spied on and set-up for all kinds of problems. On the Watergate part, Doug, can you help flesh-out further who was likely in the know who told him? And why do you think he still feels he has to keep this vague?

About two years ago Merritt contacted me by telephone out of the blue and asked that I serve as a personal reference in a negotiation that he had entered into with a Hollywood producer for a movie about his role in Watergate. I then talked to the producer and told him that I was not certain that the person calling himself Merritt was the real McCoy or merely an impostor, but if he were the real thing he did indeed have a riveting story to tell.

I never heard anything more....until this past week when I received from Merritt in the mail a copy of the MetroWeekly of March 13, 2008, which contained the interview of him that I have posted above. In his letter to me Merritt stated that he would make other revelations about Watergate -- in advance of a book that he has written for which he has secured a publisher.

So I guess that we shall just have to wait to see what the other revelations are, which undoubtedly will include the name of the source who told him two weeks before the Watergate break-in about what was being planned.

This interview is significant because of the following excerpt:

"MW: You also said you had advance knowledge of the Watergate break-in.

"MERRITT: I'm giving you the only piece -- or one piece -- I've been holding back. I've got to answer you in vague terms, but I knew about it two weeks ahead of time through someone who was, I found out later, a very close associate of Carl Shoffler.

"I passed the information on to Carl. He was unaware of it, even though the person who told me knew Carl very well. He came to me the very next morning after spending the whole night through booking his prisoners and he says, ''Butch,'' he hugged me and shook my hand, ''you did it. You gave me the best information ever. Don't ever talk about this.”

---------

I have previously discussed in this Forum how Merritt targeted me during Watergate at the behest of the FBI and the Washington, D.C. Police Department. Jim Hougan, in his book, Secret Agenda, made reference to this.

In my opinion Merritt’s claim in the interview below that he had prior knowledge of the break-in of June 17, 1972 of the Democratic party headquarters in Watergate has the ring of truth to it. Who was his source?

---------

Inside Man

Butch Merritt was a leading spy in America's homegrown cold war against homosexuals

Interview by Will O'Bryan

Published on March 13, 2008

MetroWeekly

Washington’s Gay & Lesbian Newsmagazine

http://www.metroweekly.com/feature/?ak=3296

Earl Robert Merritt Jr., a.k.a. Butch Merritt, claims humble beginnings outside Charleston, W.Va. Had he remained in West Virginia, it's nearly certain his life would have been quite a bit simpler than the path he took to Washington as a young man, not long after President Kennedy was assassinated, though he says his move was prompted, in part, by sexual abuse at a Catholic high school he attended.

A few years after landing in the nation's capital and coming out as a gay man, Merritt says he was recruited by Carl Shoffler of the Metropolitan Police Department to spy on the District's GLBT community in a time of simmering civic discontent, anti-war demonstrations and COINTELPRO (Counter Intelligence Program), the acronym for the FBI's effort to spy on Americans.

Having accepted his mission from Shoffler, who would go on to make a name for himself in history as the MPD detective who arrested those breaking into Democratic National Committee offices in the Watergate in June 1972, Merritt weaves a tale full of the fantastic. After all, says Merritt, he's the one who tipped off Shoffler, now deceased, to the Watergate break-in two weeks before it happened.

Merritt's recollections, included as snippets here and there in various books and articles, might be easily dismissed, were it not for the crate full of documents he secured following a Freedom of Information Act request for his ''file.''

While the paperwork deals largely with Merritt's more mainstream work -- spying on the ''New Left,'' the Weathermen, the Institute for Policy Studies -- there are also bits specific to the gay community, such as his tip that the Gay Activists Alliance, precursor to the Gay and Lesbian Activists Alliance, was planning a protest at the Iwo Jima Memorial in January 1972 after police pulled off an anti-gay sting operation in the area. Thanks to Merritt's tip, U.S. Park Police were ready, arresting six protesters for not having the proper license.

It's Merritt's tales not in the file, however, that raise one's eyebrow highest. A gay man working at the Columbia Plaza Apartments listens to switchboard calls and befriends American Nazis in the building? That Merritt had a source in this particular building, which sits by the Watergate and plays a role in the infamous break-in, seems convenient. That the building also housed Nazis who would befriend a gay man is harder to believe. Then again, search Google for ''Columbia Plaza Apartments'' and ''switchboard,'' and one returned link is to a 2007 blog posting by ''Haman'' on the white-supremacist Stormfront.org page:

''In the late 1960s, when I was with the National Socialist White People's Party, I once shared an apartment with someone who wasn't in the party,'' writes Haman, regarding a topic that has nothing whatsoever to do with Watergate. ''At the time, we were both working at the Columbia Plaza Apartments as evening desk clerk/switchboard operators, a job that frequently goes to men in the Washington, D.C., area because of the high crime rate.''

And Carl Rizzi of The Academy of Washington, a decades-old association of female illusionists, says Merritt's Columbia Plaza contact, James Reed/''Rita Reed,'' was a member in years past, though his whereabouts today are unknown.

Looking for verification of events now nearly 40 years old is tricky, but one nevertheless stumbles into this sort of reinforcement again and again. There is, however, also the blurring that comes with time.

Frank Kameny, founder of the D.C. branch of the GAA, doesn't recall the Iwo Jima protest, though he says that's something his group would have done. Nor does he have a solid memory of Merritt.

''The name rings a very loud bell,'' Kameny says of Merritt. He adds, however, ''If someone said that we were being surveilled, I don't think anyone would've expressed surprise. It was a different era, of course, in many ways.''

Kameny speaks from experience, having been fired from the Army Map Service in 1957. Homosexuality could bar federal-agency employment till 1975, when the Civil Service Commission issued amended hiring guidelines.

Today, Merritt considers himself bisexual and lives in the Bronx with his wife, Debbie. Stories past, such as his claim to have targeted then-closeted Watergate attorney Douglas Caddy, float around in various books, periodicals and Web postings. More recent stories, such as his working as an informant for New York City Police, have also seen print. But, says Merritt, he is far from celebrated. He's seen the inside of more than one jail, recovered from a crack-cocaine addiction and today suffers from various medical conditions.

''I'm 63 years old. I have a heart condition. I have a back condition that I think entitles me to a prognosis of perhaps four or five more years to live and that's it.''

He wonders aloud if people in the gay community in D.C. might resent his betrayal.

Deacon Maccubbin, owner of Lambda Rising, on whom Merritt says he spied, is not scornful.

''I am sure that had I known what he was doing at the time, I would've been very angry,'' says Maccubbin. ''With the hindsight of 30 or 40 years, pity is probably the best word to use.''

Neither can Kameny muster much outrage: ''If what he said is truthful, I think he was contemptible. But that was what things were then.... These things go back to simply ancient history, which is gone.''

METRO WEEKLY: You look very clean-cut in your archival photo.

EARL ROBERT ''BUTCH'' MERRITT JR.: That's the way I was raised: very clean-cut. I was very shy, very bashful. I was an introvert who overnight became an extrovert.

MW: From your experience at the Catholic school?

MERRITT: From the Catholic experience and from the fact I was experiencing gay life. I was confused, frustrated. There was no such word as ''gay'' when I was coming out.

MW: How did you avoid military service?

MERRITT: I was 4-F. The group I was in, everybody was chicken. We'd go to a psychiatrist, pay $25 for a letter that says you're homosexual, take it to the draft board, and that was it. I remember taking my letter in and giving it to the woman a the draft board and she chastised me, saying, ''Humph! This is nothing to be proud of.''

MW: Then it was off to D.C. to join the Civil Rights Movement?

MERRITT: Yes, because in West Virginia we had a lot of rednecks who didn't want integration. And I was a rebel. I jumped on the bandwagons of different things.

MW: Did you fit in here?

MERRITT: I did. I don't know how, but I did. Just the civil-rights stuff. Every demonstration Dr. King had, I was at.

MW: Did you find work?

MERRITT: Yes. I found work at Children's Hospital as a post-mortem technician.

MW: Where were you living?

MERRITT: At the Envoy Towers. The property manager, also one of the owners, gave me an apartment free for six months because he liked me. [Laughs.] I was continuing to be prostituted, I suppose. He helped me get the job at Children's Hospital.

MW: So you settled in well. You were more liberated in D.C?

MERRITT: Oh, yes. Once I got away from West Virginia, I discovered that I wasn't the only [gay person] in the world, and that there were bars and other people to identify with.

MW: Do you remember which bars you frequented?

MERRITT: [A] Ninth Street grill, I think was one. That was very close to the FBI Building. And one by the bus station, the Brass Rail. Bobs-Inn on 14th Street, Nob Hill, Georgetown Grill.

MW: How did it evolve from there to becoming a Police/FBI informant?

MERRITT: I moved out of the Envoy Towers -- I was there for several years -- but I discovered Dupont Circle, the park. There was quite a diversity of people. I decided to take an apartment in that area, 1818 Riggs Place. Then, my most popular address, 2122 P Street. I had an apartment there in the alley.

I was living in Dupont Circle, hanging out with an unusual group of people -- I'd never met drag queens before. One was Christine Keeler, real name Gregory Sewell. Another was Rita Reed -- his name was James Reed. He was one of my sources during Watergate, unknowingly. He worked as a telephone operator at the Columbia Plaza Apartments beside the Watergate. He used to listen in on phone calls there and feed me information.

I had friends in the gay crowd, the drag-queen crowd. I also had straight friends in the hippie crowd. The communists were hanging out there. It was just a diversity of everything in Dupont Circle at that time. The circle used to be jam-packed, 24-7, with people in all phases of life, political to sexuality, everything under the sun. I used to hang out there.

Anyway, there was a hippie -- long hair, blue eyes, maybe a couple years older than me. He made very good friends with me, nothing sexual. I'd never had a straight friend before like him, who was so genuinely nice. We became very best of buddies. His name was Carl Shoffler. He turned out to be Detective Carl Shoffler.

Carl came one day and showed me his badge and he said, ''I'm a cop, Butch. I don't mean to deceive you, but we've been profiling you. I was asked to profile you.'' He said, ''We need someone to work this circle, to work this whole area, because everybody that you know are communists, anti-American, un-American, and they're involved in overthrowing the United States government, the presidency of the United States'' -- Nixon at the time -- ''and they're all planning this huge, anti-war demonstration.''

He said, ''Since you're 4-F'' -- he already knew that much, I never told him that -- ''then you can do something red, white and blue patriotic for your country since you didn't serve in the military, by working for us in an undercover capacity.''

Reluctantly, I did allow myself to be recruited. I guess I sort of believed him at the time, because I was very politically stupid, naïve -- as I am today, I suppose.

MW: When was that?

MERRITT: I'd say probably May of 1970.

MW: What were your reservations?

MERRITT: First of all, believing that the people I knew were such a danger to the United States of America. I was a hillbilly. We thought that everything was all red, white and blue in this country: the United States Constitution, civil rights, flags waving and all that good stuff. What he was telling me was just so to the contrary, I was in total disbelief.

MW: But there were some small acts of domestic terrorism at the time.

MERRITT: Yes, I did find out that. [shoffler] was able to influence me gradually by showing me pictures of people I was associating with who had criminal records, who were being watched by the FBI. He showed me their records. It started to make sense that maybe I was wrong in my judgment and that some of these people were extremely dangerous to our government.

Then again, looking back, with all these people I used to hang out with, I'm not sure if there was one, even one.... I know there were some people very closely associated with the Weatherman group, and I know they bombed [various sites]. The thing is, none of these people were gay.

[shoffler] was telling me one of the heaviest movements in this country was the gay people, that they were coming out.

MW: Shoffler recruited you primarily to spy on the gay community?

MERRITT: He started with that. It escalated very quickly. He knew what he was doing. He was working in the Third District as just a regular detective -- robberies, rapes, murders, that sort of thing. Then he escalated from that to the intelligence division. He was also working hand-in-hand with the FBI counterintelligence, COINTELPRO. At the same time, I was working for all these agencies, unbeknownst to me.

MW: Shoffler was your primary contact?

MERRITT: Yes, and he gave me a number, which was SE003. I used to amuse myself, ''How did I get to double-0 three and James Bond got to double-0 seven?'' I asked him what ''SE'' stood for, and he said, ''special employee. I used that number to pass information and also to get paid.

MW: How much of the surveillance work you did was on the gay community, specifically?

MERRITT: Oh, a vast amount. They gave me cameras to take pictures of people in the park, on the streets, in the bathrooms, at the P Street Beach in the woods. They also had other plants out there besides me to set [people] up, such as dropping my pants and them taking pictures.

I started with the gay groups as fast as they would come up: the Gay Activists Alliance (GAA), the Gay Liberation Front (GLF), Mattachine. Carl [shoffler] wanted me to tell the police and the FBI stories like, for example, the GLF commune house -- I think that was 1620 S St. NW -- that they had Molotov cocktails in the basement. None of that was true. I was only in that house two or three times in my whole life. I was never past the hallway, the living room. I had no idea what their kitchen or their basement looked like.

MW: Did the GLF guys seem militant to you?

MERRITT: No, not at all. In fact, I went on demonstrations with them. They made this paper pamphlet, maybe a single piece of paper folded over, and on the cover in big letters: ''Are You One Too?''

In a little caption, it said, ''The person handing you this is a homosexual.'' It was trying to get people to come out of the closet. We handed them out in front of -- I don't know, the Justice Department? Somewhere downtown.

But those were the stories they wanted me to pass on to make them look like dangerous radicals, that the GLF was a militaristic, gay, revolutionary group.

MW: So that's what you reported?

MERRITT: I did. It's not fun for people who lived through that era and who have files placed on them from me. Whether they like me personally, I don't frankly care one way or another. But if it wasn't me, it would have been someone else gay in my shoes, I'm sure.

MW: The files show your handlers had a particular interest in The Furies, a lesbian publication.

MERRITT: Oh, yes. The Furies, the Blade -- the Gay Blade then. Martina Morgan was the name I used to infiltrate women's groups to get publications and meeting places and all that mailed to me. They were considered just as radical as the male groups.

There were literally over 3,000 gay names turned in [to the Metropolitan Police Department], [names] I had submitted and then they asked to be spied on.

MW: Three thousand names?

MERRITT: Three thousand names, right.

MW: How did you collect them?

MERRITT: Easily: anti-war demonstrations, protest signatures, signatures from gay organizations to congressmen or senators about gay rights. I simply stole the original petitions.

The petitions were carelessly left around, places like the Community Bookshop, 2028 P St., I think. They even had a little flower shop there on the corner of 20th and P, across from the little bathroom at Dupont Circle called Third Day. All these petitions were placed in these places, so it was easy for me to just go in, steal them and walk out.

I would say that a lot of signatures on the lists, of course, were not always gay. The hippies, the leftists, were normal. They would sign the petitions quickly.

MW: You were just feeding the machine, so to speak?

MERRITT: Exactly. But when the FBI and the Police got a hold of these petitions, they were put down as subversives, as homosexuals, and they did not distinguish who was gay or straight.

MW: Who were good sources of information for you in the gay community?

MERRITT: Well, there was James Reed, who would go by his drag name, Rita Reed. He worked at the Columbia Plaza Apartments on the switchboard and he used to listen in on phone calls. When he gave me information, he did not know he was feeding me information. He was just gossiping with me. We were very, very close friends, and he used to tell me how he loved to listen in and gossip about people's private business.

He listened in on one group and befriended them, involved with American Nazi activities and had bombs. He told me about little bombs that they had. I said, ''Bring me a couple,'' and he did. I handed over the bombs to the FBI.

MW: You also said you had advance knowledge of the Watergate break-in.

MERRITT: I'm giving you the only piece -- or one piece -- I've been holding back. I've got to answer you in vague terms, but I knew about it two weeks ahead of time through someone who was, I found out later, a very close associate of Carl Shoffler.

I passed the information on to Carl. He was unaware of it, even though the person who told me knew Carl very well. He came to me the very next morning after spending the whole night through booking his prisoners and he says, ''Butch,'' he hugged me and shook my hand, ''you did it. You gave me the best information ever. Don't ever talk about this.''

MW: Aside from reporting on people, you say you were also an agitator, provoking police.

MERRITT: Oh, yes, absolutely. At demonstrations, I'd be the first one to throw the rock at the cop and hit him. At almost all demonstrations, that was my priority. I had a reputation as being an instigator, a provocateur.

MW: Your handlers, Carl Shoffler, knew you were gay, but that was okay?

MERRITT: I not only had a blessing, I had a license. I could do whatever the hell I wanted to do and nobody could stop me. I could go shoplifting -- I used to shoplift at People's Drugstore all the time. Anytime I wanted to activate my sex life, I'd just simply go in the woods and do it, and there was no fear of the cops.

MW: Do you have any message for people reading this, some of whom you likely reported to the MPD or the FBI?

MERRITT: I am sorry for what I did, from my heart, I really am. Of course they can point a finger of blame at me, because I am the instrument who did these things. I don't blame them if they love me or hate me. I'm sure a lot of people I hurt are very much alive like I am, and will live to see me in my grave. But the finger of blame should be upon the government. It should be upon the ''big brother'' who is watching you.

They're not going to stop the secret agencies, like the police, the FBI, military intelligence, CIA and National Security Agency until they start digging into their files: ''I want my file. I want my file! And I want it now!'' That's the message that's got to get across: Get your file. And why is it there? And when they start suing left and right, and inundating our court rooms with individual and class action lawsuits throughout the entire nation, that is when it will change, not until.

If they think I've been involved in their lives, they can contact me. If I remember a name, an event, I will help them. There are 3,000 people out there somewhere and they can't all be dead.

Bernanke's Next Big Bail Out Plan

By MIKE WHITNEY

www.counterpunch.org

Weekend Edition March 29-30, 2008

http://www.counterpunch.org/whitney03292008.html

The Federal Reserve is presently considering an emergency operation that is so risky it could send the dollar slip-sliding over the cliff. The story appeared in the Financial Times earlier this week and claimed that the Fed was examining the feasibility of buying back hundreds of billions of dollars of mortgage-backed securities (MBS) with public money to restore investor confidence and clear the struggling banks' balance sheets. The Fed, of course, denied the allegations, but the rumors abound. Currently the banking system is so clogged with exotic investments, for which there is no market, it can't perform its main task of providing credit to businesses and consumers. Bernanke's job is to clear the credit logjam so the broader economy can begin to grow again. So far, he has failed to achieve his objectives.

Since September, Bernanke has slashed interest rates by 3 per cent and opened various auction facilities (Term Securities Lending Facility, the Term Auction Facility, the Primary Dealer Credit Facility, and the new Term Securities Lending Facility) which have made $400 billion available in low-interest loans to banks and non banks. He has also accepted a "wide range" of collateral for Fed repos including mortgage-backed securities and collateralized debt obligations (CDOs) which are worth considerably less than what the Fed is offering in exchange. But the Fed's injections of liquidity have not solved the basic problem which is the fall in housing prices and the persistent downgrading of mortgage-backed assets that investors refuse to buy at any price. In fact, the troubles are gradually getting worse and spreading to areas of the financial markets that were previously thought to be risk-free. The credit slowdown has also put additional pressure on hedge funds and other financial institutions forcing them to quickly deleverage to meet margin calls by dumping illiquid assets into a saturated market at fire-sale prices. This process has been dubbed the "great unwind".

In the last six years, the mortgage-backed securities market has ballooned to a $4.5 trillion dollar industry. The investment banks are presently holding about $600 billion of these complex debt instruments. So far, the banks have written down $125 billion in losses, but there's a lot more carnage to come. Goldman Sachs estimates that banks, brokerages and hedge funds will eventually sustain $460 billion in losses, three times greater than today. Even so, those figures are bound to increase as the housing market continues to deteriorate and capital is drained from the system.

The Fed has neither the resources nor the inclination to scoop up all the junk bonds the banks have on their books. Bernanke has already exposed about half ($400 billion) of the Central Bank's balance sheet to credit risk. But what is the alternative? If the Fed doesn't intervene, then many of country's largest investment banks will wind up like Bear Stearns; DOA. After all, Bear is not an isolated case; most of the banks are similarly leveraged at 25 or 35 to 1. They are also losing more and more capital each month from downgrades, and their main streams of revenue have been cut off. In fact, many of Wall Street's financial titans are technically insolvent already. The Fed is the only force keeping them from bankruptcy.

Case in point: "Citigroup may write down $13.1 billion of assets including leveraged loans and collateralized debt obligations in the first quarter..... U.S. bank earnings overall will tumble 84 percent in the quarter....``We anticipate further downside to both estimates and stock prices'' because banks will be under pressure to mark down assets to reflect falling market indexes." (Bloomberg News)

It's generally accepted that the market for mortage-backed securities (MBS) will not improve until housing prices stabilize, but that's a long way off. Mortgages are the cornerstone upon which the multi-trillion dollar structured investment market rests. And that cornerstone is crumbling. If housing prices continue to fall, the MBS market will remain frozen and banks will fail; it is as simple as that. No one is going to purchase derivatives when the underlying asset is losing value. The Bush administration is pushing for a "rate freeze" and other clever ways to keep homeowners from defaulting on their mortgages. But it's a hopeless cause. The clerical work needed to change these complex mortgages is already proving to be a daunting task. Plus, since 60 percent of these mortgages were securitized, it is nearly impossible to change the terms of the contracts without first getting investor approval.

Also, the tentative plans to expand Fannie Mae and Freddie Mac, so they can absorb larger mortgages (up to $729,000 jumbo loans) is putting an enormous strain on the already-overextended Government Sponsored Enterprises (GSEs; financial services corporations created by the United States Congress. By attempting to reflate the housing bubble, the administration will only increase the rate of foreclosures and put the two mortgage behemoths at risk of default without any clear sign that it will revive the market.

Yesterday's release of the Case/Schiller Index of the 20 largest cities in the country, shows that housing prices have slipped 10.7 per cent in the last year while sales were down 23 per cent year over year. That means that retail equity of US homes just took a $2 trillion haircut. Still, prices have a long way to go before they catch up to the 50 percent decline in sales from the peak in 2005. From this point on, prices should fall and fall fast; following a trajectory as steep as sales. Many economists expect housing prices to drop at least 30 per cent, which means that $6 trillion will be shaved from aggregate home equity. In a slumping market, many homeowners will be better off just "walking away" from their mortgage instead of making payments on an asset of steadily decreasing value. Who wants to make monthly payments on a $500,000 mortgage when the current value of the house is $350,000? It's easier to pack the kids and vamoose then waste a lifetime as a mortgage slave. Besides, the Bush administration has no interest in helping the little guy stay out of foreclosure. It's a joke. All of the rescue plans are designed with just one purpose in mind; to save Wall Street and the banking establishment.

The Fed chairman has simply responded to events as they unfold. The collapse of Bears Stearns came just weeks after the SEC had checked the bank's reserves and decided that they had sufficient capital to weather the storm ahead. But they were wrong. The bank's capital ($17 billion) vanished in a matter of days after word got out that Bear was in trouble. The sudden run on the bank created a risk to other banks and brokerages that held derivatives contracts with Bear. Something had to be done; Rome was burning and Bernanke was the only man with a hose.

According to the UK Telegraph:

"Bear Stearns had total (derivatives) positions of $13.4 trillion. This is greater than the US national income, or equal to a quarter of world GDP - at least in 'notional' terms. The contracts were described as 'swaps', 'swaptions', 'caps', 'collars' and 'floors'. This heady edifice of new-fangled instruments was built on an asset base of $80bn at best.

"On the other side of these contracts are banks, brokers, and hedge funds, linked in destiny by a nexus of interlocking claims. This is counterparty spaghetti. To make matters worse, Lehman Brothers, UBS, and Citigroup were all wobbling on the back foot as the hurricane hit.

"' Twenty years ago the Fed would have let Bear Stearns go bust,' said Willem Sels, a credit specialist at Dresdner Kleinwort. 'Now it is too interlinked to fail.'"

Bernanke felt he had no choice but to step in and try to minimize the damage, but the outcome was disappointing. Bernanke and Secretary of the Treasury Henry Paulson worked out a deal with JP Morgan that committed $30 billion of taxpayer money, without congressional authority, to buy toxic mortgage-backed securities from a privately-owned business that was failing because of its own speculative bets on dodgy investments. The only people who made out were the investors who were holding derivatives contracts that would have been worthless if Bear went toes up.

Still,the prospect of a system-wide derivatives meltdown left Bernanke with few good options, notwithstanding the moral hazard of bailing out a maxed-out, capital impaired investment bank that should have been fed to the wolves.

It is worth noting that derivatives contracts are a fairly recent addition to US financial markets. In 2000, derivatives trading accounted for less than $1 trillion. By 2006 that figure had mushroomed to over $500 trillion. And it all can be traced back to legislation that was passed during the Clinton administration.

"A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December." ("What Created this Monster" Nelson Schwartz, New York Times)

The Fed chief is now facing a number of brushfires that will have to be put out immediately. The first of these is short term lending rates, which have stubbornly ignored Bernanke's massive liquidity injections and continued to rise. The banks are increasingly afraid to lend to each other because they don't really know how much exposure the other banks have to risky MBS. This distrust has sent interbank lending rates soaring above the Fed funds rate to more than double in the past month alone. So far, the Fed's Term Auction Facility (TAF; under the Term Auction Facility (TAF), the Federal Reserve will auction term funds to depository institutions) hasn't helped to lower rates, which means that Bernanke will have to take more extreme measures to rev up bank lending again. That's why many Fed-watchers believe that Bernanke will ultimately coordinate a $500 billion to $1 trillion taxpayer-funded bailout to buy up all the MBSs from the banks so they can resume normal operations. Of course, any Fed-generated scheme will have to be dolled up with populous rhetoric so that welfare for banking tycoons looks like a selfless act of compassion for struggling homeowners. That shouldn't be a problem for the Bush public relations team.

The probable solution to the MBS mess is the restoration of the Resolution Trust Corp., which was created in 1989 to dispose of assets of insolvent savings and loan banks. The RTC would create a government-owned management company that would buy distressed MBS from banks and liquidate them via auction. The state would pay less than full-value for the bonds (The Fed currently pays 85 per cent face-value on MBS) and then take a loss on their liquidation. "According to Joseph Stiglitz in his book, Towards a New Paradigm in Monetary Economics, the real reason behind the need of this company was to allow the US government to subsidize the banking sector in a way that wasn't very transparent and therefore avoid the possible resistance."

The same strategy will be used again. Now that Bernanke's liquidity operations have flopped, we can expect that some RTC-type agency will be promoted as a prudent way to fix the mortgage securities market. The banks will get their bailout and the taxpayer will foot the bill.

The problem, however, is that the dollar is already falling against every other currency. (On Wednesday, the dollar fell to $1.58 per euro, a new record) If Bernanke throws his support behind an RTC-type plan; it will be seen by foreign investors as a hyper-inflationary government bailout, which could precipitate a global sell-off of US debt and trigger a dollar crisis.

Reuter's James Saft puts it like this:

"It is also hugely risky in terms of the Fed's obligation to maintain stable prices.... it could stoke inflation to levels intolerable to foreign creditors, provoking a sharp fall in the dollar as they sought safety elsewhere." (Reuters)

Saft is right; foreign creditors will see it as an indication that the Fed has abandoned standard operating procedures so it can inflate its way out of a jam. According to Saft, the estimated price could be as high as $1 trillion dollars. Foreign investors would have no choice except to withdraw their funds from US markets and move them overseas. In fact, that appears to be happening already. According to the Wall Street Journal:

"While cash continues to pour into the U.S. from abroad, this flow has been slowing. In 2007, foreigners' net acquisition of long-term bonds and stocks in the U.S. was $596 billion, down from $722 billion in 2006, according to Treasury Department data. From July to December as jitters about securities linked to US subprime mortgages spread, net purchases were just $121 billion, a 65% decrease from the same period a year earlier. Americans, meanwhile, are investing more of their own money abroad." ("A US Debt Reckoning" Wall Street Journal)

$121 billion does not even put a dent the $700 billion the US needs to pay its current account deficit. When foreign investment drops off, the currency weakens. It's no wonder the dollar is falling like a stone.

Mike Whitney can be reached at fergiewhitney@msn.com

Even tough I am far from an expert, I'd like to throw this question in the air:

Don't you find it rather unbelievable that in this case, the experts have to rely on audiotape to determine whether a victim has been shot by two guns and therefore by two assailants?

(The use of audio material reminds me of the HSCA findings and the subsequent JFK -case acoustics test relating to the alleged open mirophone of a motorcycle officer.)

What happened to ballistics, forensic autopsy etc.? Wouldn't the traditional and normal methods relating to a homicide investigation reveal such basic facts, as the use of more than one weapon, bullet caliber, as well as the assumed position of the assailant and victims?

These should, then in turn, result in a straight forward case against the gunman (gunmen) that is, considering that there were also numerous eye witnesses to this case, not to mention cameras and as we now know audio tape. No?

http://www.anopenandshutcase.com/

The link above describes the contents of a new book written by Robert Joling and Phil Van Praag, two distinguished experts who believe there was a serious miscarriage of justice in the Los Angeles Police Department investigation of the Robert Kennedy assassination. Your attention is called especially to the synopsis that contains numerous new revelations.

Mr. Joling appeared on the radio show coasttocoastam last night (March 27, 2008) and in clear, lucid language described what had occurred. After listening to him I am convinced that there were two shooters involved, not just Sirhan Sirhan.

Mr. Joling also explained why the only tape recording of the incident has proved so critical in determining that 13 shots were fired. Sirhan only got off 8 shots. Some of the 13 shots in the recording are spaced so closely in time that it is clear more than one gun was firing.

The link below leads to the coasttocoastam show. For a nominal fee one can listen on the Internet to a rebroadcast of the interview with Mr. Joling, which took place in the show’s first hour.

http://www.coasttocoastam.com/shows/2008/03/27.html#recap

New evidence suggests second shooter killed RFK

David Edwards and Nick Juliano

Published: Wednesday March 26, 2008

www.rawstory.com

http://rawstory.com/news/2008/Scientists_M...ation_0326.html

Forty years after Democratic rising star Robert F. Kennedy was killed at a Los Angeles hotel during his presidential run, new evidence suggests the man serving a life sentence for his murder did not fire the shots that killed the charismatic senator.

Forensic scientists met at a conference in Connecticut this week to discuss their independent findings that cast serious doubt on the Kennedy assassination. Sirhan Sirhan is serving a life sentence in Kennedy's death, but the conference presenters argue he could not have fired the fatal shot that killed Kennedy.

One investigator, Dr. Robert Joling, has studied the Kennedy assassination for nearly four decades. He determined the fatal shot came from behind Kennedy, while Sirhan was four to six feet in front of the senator and never got close enough to shoot him from behind, an NBC affiliate reports.

Analysis by another forensics engineer, Philip Van Praag, of a Canadian journalists tape recording, known as the Pruszynski recording, determined that 13 shots were fired while Kennedy was killed, although Sirhan's gun only held eight bullets, according to the NBC reporter. This suggests that a second shooter was involved in the assassination.

Van Praag's analysis led him to conclude that a second gun that was fired matched a type owned by one of the security guards in Kennedy's entourage.

"When that security guard was asked about owning that gun at first he admitted, 'Yes I owned that kind of gun but I got rid of it two months before the assassination.'" correspondent Amy Parmenter said on MSNBC Wednesday. "It turns out upon further investigation, in fact, he did not get rid of that gun until five months after the shooting. Of course, you can see where we're going with this. ... That security guard, was in fact behind Senator Kennedy when the fatal shot was fired."

This video is from MSNBC News Live, broadcast March 26, 2008:

http://rawstory.com/news/2008/Scientists_M...ation_0326.html

Like one of the villagers from the town in “The Boy Who Cried Wolf” after hearing for the last two years an attack was imminent I’m a bit skeptical. Perhaps as in the parable one day I’ll be proven wrong, hopefully not. Ironically Fallon’s appointment was also supposedly a sign of an imminent invasion. It was argued that the only reason for appointing an admiral to command US forces in the region was if a major naval operation was planned.

Operation Cassandra

by William S. Lind

www.lewrockwell.com

March 26, 2008

Admiral Fallon's (forced?) resignation was the last warning we are likely to get of an attack on Iran. It does not mean an attack is certain, but the U.S. could not attack Iran so long as he was the CENTCOM commander. That obstacle is now gone.

Vice President Cheney's Middle East tour is another indicator. According to a report in The American Conservative, on his previous trip Cheney told our allies, including the Saudis, that Bush would attack Iran before the end of his term. If that report was correct, then his current tour might have the purpose of telling them when it is coming.

Why not just do that through the State Department? State may not be in the loop, nor all of DOD for that matter. The State Department, OSD, the intelligence agencies, the Army and the Marine Corps are all opposed to war with Iran. Of the armed services, only the Air Force reportedly is in favor, seeking an opportunity to show what air power can do. As always, it neglects to inform the decision-makers what it cannot do.

The purpose of this column is not to warn of an imminent assault on Iran, though personally I think it is coming, and soon. Rather, it is to warn of a possible consequence of such an attack. Let me state it here, again, as plainly as I can: an American attack on Iran could cost us the whole army we now have in Iraq.

Lots of people in Washington are pondering possible consequences of an air and missile assault on Iran, but few if any have thought about this one. The American military's endless "we’re the greatest" propaganda has convinced most people that the U.S. armed forces cannot be beaten in the field. They are the last in a long line of armies that could not be beaten, until they were.

Here's roughly how it might play out. In response to American air and missile strikes on military targets inside Iran, Iran moves to cut the supply lines coming up from the south through the Persian Gulf (can anyone in the Pentagon guess why it's called that?) and Kuwait on which most U.S. Army units in Iraq depend (the Marines get most of their stuff through Jordan). It does so by hitting shipping in the Gulf, mining key choke points, and destroying the port facilities we depend on, mostly through sabotage. It also hits oil production and export facilities in the Gulf region, as a decoy: we focus most of our response on protecting the oil, not guarding our army’s supply lines.

Simultaneously, Iran activates the Shiite militias to cut the roads that lead from Kuwait to Baghdad. Both the Mahdi Army and the Badr Brigades – the latter now supposedly our allies – enter the war against us with their full strength. Ayatollah Sistani, an Iranian, calls on all Iraqi Shiites to fight the Americans wherever they find them. Instead of fighting the 20% of Iraq's population that is Sunni, we find ourselves battling the 60% that is Shiite. Worse, the Shiites logistics lie directly across those logistics lines coming up from Kuwait.

U.S. Army forces in Iraq begin to run out of supplies, especially POL, of which they consume a vast amount. Once they are largely immobilized by lack of fuel, and the region gets some bad weather that keeps our aircraft grounded or at least blind, Iran sends two to four regular army armor and mech divisions across the border. Their objective is to pocket American forces in and around Baghdad.

The U.S. military in Iraq is all spread out in penny packets fighting insurgents. We have no field army there anymore. We cannot reconcentrate because we're out of gas and Shiite guerrillas control the roads. What units don't get overrun by Iranian armor or Shiite militia end up in the Baghdad Kessel. General Petraeus calls President Bush and repeals the famous words of Marshal I MacMahon at Sedan: "Nous sorrune dans une pot de chambre, and nous y serron emerdee." Bush thinks he's overheard Petraeus ordering dinner – as, for Bush, he has.

U.S. Marines in Iraq, who are mostly in Anbar province, are the only force we have left. Their lines of supply and retreat through Jordan are intact. The local Sunnis want to join them in fighting the hated Persians. What do they do at that point? Good question.

How probable is all this? I can't answer that. Unfortunately, the people in Washington who should be able to answer it are not asking it. They need to start doing so, now.

It is imperative that we have an up-to-date plan for dealing with this contingency. That plan must not depend on air power to rescue our army. Air power always promises more than it can deliver.

As I have warned before, every American ground unit in Iraq needs its own plan to get itself out of the country using only its own resources and whatever it can scrounge locally. Retreat to the north, through Kurdistan into Turkey, will be the only alternative open to most U.S. Army units, other than ending up in an Iranian POW camp.

Even if the probability of the above scenario is low, we still need to take it with the utmost seriousness because the consequences would be so vast. If the United States lost the army it has in Iraq, we would never recover from the defeat. It would be another Adrianople, another Manzikert, another Rocroi. Given the many other ways we now resemble Imperial Spain, the last analogy may be the most telling.

I have said all this before, in previous columns and elsewhere. If I sound like Cassandra on this point, remember that events ended up proving her right.

March 26, 2008

William Lind is an analyst based in Washington, DC.

Find this article at:

http://www.lewrockwell.com/lind/lind137.html

http://www.veoh.com/channels/douglascaddy

I am inaugurating a weekly Internet show in which I interview persons concerning local Houston, Texas, U.S. and international topics. Among these will be interviews dealing with the JFK assassination and Watergate.

The first interview will be posted in about two weeks. In the interim the show’s production company has posted the significant speech that President Kennedy gave on government secrecy not long before he was killed.

I found listening to his voice and what he said to be an especially moving experience. I hope you do, too.

Why we should fear a McCain presidency

By Anatol Lieven

Published: March 24 2008 19:12 | Last updated: March 24 2008 19:12

Financial Times

http://www.ft.com/cms/s/0/1a47e1ac-f9b0-11...0077b07658.html

It may seem incredible to say this, given past experience, but a few years from now Europe and the world could be looking back at the Bush administration with nostalgia. This possibility will arise if the US elects Senator John McCain as president in November.

Over the years the US has inserted itself into potential flashpoints in different parts of the world. The Republican party is now about to put forward a natural incendiary as the man to deal with those flashpoints.

The problem that Mr McCain poses stems from his ideology, his policies and above all his personality. His ideology, like that of his chief advisers, is neo-conservative. In the past, Mr McCain was considered to be an old-style conservative realist. Today, the role of the realists on his team is merely decorative.

Driven in part by his intense commitment to the Iraq war, Mr McCain has relied more on neo-conservatives such as his close friend William Kristol, the Weekly Standard editor. His chief foreign policy advisor is Randy Scheunemann, another leading neo-conservative and a founder of the Committee for the Liberation of Iraq. Mr McCain shares their belief in what Mr Kristol has called “national greatness conservatism”. In 1999, Mr McCain declared: “The US is the indispensable nation because we have proven to be the greatest force for good in human history . . . We have every intention of continuing to use our primacy in world affairs for humanity’s benefit.”

Mr McCain’s promises, during last week’s visit to London, to listen more to America’s European allies, need to be taken with a giant pinch of salt. There is, in fact, no evidence that he would be prepared to alter any important US policy at Europe’s request.

Reflecting the neo-conservative programme of spreading democracy by force, Mr McCain declared in 2000: “I’d institute a policy that I call ‘rogue state rollback’. I would arm, train, equip, both from without and from within, forces that would eventually overthrow the governments and install free and democratically elected governments.” Mr McCain advocates attacking Iran if necessary in order to prevent it developing nuclear weapons, and last year was filmed singing “Bomb, bomb Iran” to the tune of the Beach Boys’ “Barbara Ann”.

Mr McCain suffers from more than the usual degree of US establishment hatred of Russia, coupled with a particular degree of sympathy for Georgia and the restoration of Georgian rule over Abkhazia and South Ossetia. He advocates the expulsion of Russia from the Group of Eight leading industrialised nations and, like Mr Scheunemann, is a strong supporter of early Nato membership for Georgia and Ukraine. Mr Scheunemann has accused even Condoleezza Rice, secretary of state, of “appeasement” of Russia. Nato expansion exemplifies the potential of a McCain presidency. Apart from the threat of Russian reprisals, if the Georgians thought that in a war they could rely on US support, they might be tempted to start one. A McCain presidency would give them good reason to have faith in US support.

Mr McCain’s policies would not be so worrying were it not for his notorious quickness to fury in the face of perceived insults to himself or his country. Even Thad Cochran, a fellow Republican senator, has said: “I certainly know no other president since I’ve been here who’s had a temperament like that.”

For all his bellicosity, President George W. Bush has known how to deal cautiously and diplomatically with China and even Russia. Could we rely on Mr McCain to do the same?

Mr McCain exemplifies “Jacksonian nationalism” – after Andrew Jackson, the 19th-century Indian-fighter and president – and the Scots-Irish military tradition from which both men sprung. As Mr McCain’s superb courage in North Vietnamese captivity and his honourable opposition to torture by US forces demonstrate, he also possesses the virtues of that tradition. Then again, some of the greatest catastrophes of the 20th century were caused by brave, honourable men with a passionate sense of national mission.

Not just US voters, but European governments, should use the next nine months to ponder the consequences if Mr McCain is elected and how they could either prevent a McCain administration from pursuing pyromaniac policies or, if necessary, protect Europe from the ensuing conflagrations.

The writer is a professor at King’s College, Cambridge, and a senior fellow of the New America Foundation. His book, America Right or Wrong, analyses US nationalism

What Created This Monster?

By NELSON D. SCHWARTZ and JULIE CRESWELL

The New York Times

March 23, 2008

http://www.nytimes.com/2008/03/23/business...agewanted=print

LIKE Noah building his ark as thunderheads gathered, Bill Gross has spent the last two years anticipating the flood that swamped Bear Stearns about 10 days ago. As manager of the world’s biggest bond fund and custodian of nearly a trillion dollars in assets, Mr. Gross amassed a cash hoard of $50 billion in case trading partners suddenly demanded payment from his firm, Pimco.

And every day for the last three weeks he has convened meetings in a war room in Pimco’s headquarters in Newport Beach, Calif., “to make sure the ark doesn’t have any leaks,” Mr. Gross said. “We come in every day at 3:30 a.m. and leave at 6 p.m. I’m not used to setting my alarm for 2:45 a.m., but these are extraordinary times.”

Even though Mr. Gross, 63, is a market veteran who has lived through the collapse of other banks and brokerage firms, the 1987 stock market crash, and the near meltdown of the Long-Term Capital Management hedge fund a decade ago, he says the current crisis feels different — in both size and significance.

The Federal Reserve not only taken has action unprecedented since the Great Depression — by lending money directly to major investment banks — but also has put taxpayers on the hook for billions of dollars in questionable trades these same bankers made when the good times were rolling.

“Bear Stearns has made it obvious that things have gone too far,” says Mr. Gross, who plans to use some of his cash to bargain-shop. “The investment community has morphed into something beyond banks and something beyond regulation. We call it the shadow banking system.”

It is the private trading of complex instruments that lurk in the financial shadows that worries regulators and Wall Street and that have created stresses in the broader economy. Economic downturns and panics have occurred before, of course. Few, however, have posed such a serious threat to the entire financial system that regulators have responded as if they were confronting a potential epidemic.

As Congress and Republican and Democratic presidential administrations pushed for financial deregulation over the last decade, the biggest banks and brokerage firms created a dizzying array of innovative products that experts now acknowledge are hard to understand and even harder to value.

On Wall Street, of course, what you don’t see can hurt you. In the past decade, there has been an explosion in complex derivative instruments, such as collateralized debt obligations and credit default swaps, which were intended primarily to transfer risk.

These products are virtually hidden from investors, analysts and regulators, even though they have emerged as one of Wall Street’s most outsized profit engines. They don’t trade openly on public exchanges, and financial services firms disclose few details about them.

Used judiciously, derivatives can limit the damage from financial miscues and uncertainty, greasing the wheels of commerce. Used unwisely — when greed and the urge to gamble with borrowed money overtake sensible risk-taking — derivatives can become Wall Street’s version of nitroglycerin.

Bear Stearns’s vast portfolio of these instruments was among the main reasons for the bank’s collapse, but derivatives are buried in the accounts of just about every Wall Street firm, as well as major commercial banks like Citigroup and JPMorgan Chase. What’s more, these exotic investments have been exported all over the globe, causing losses in places as distant from Wall Street as a small Norwegian town north of the Arctic Circle.

With Bear Stearns forced into a sale and the entire financial system still under the threat of further losses, Wall Street executives, regulators and politicians are scrambling to figure out just what went wrong and how it can be fixed.

But because the forces that have collided in recent weeks were set in motion long before the subprime mortgage mess first made news last year, solutions won’t come easily or quickly, analysts say.

In fact, while home loans to risky borrowers were among the first to go bad, analysts say that the crisis didn’t stem from the housing market alone and that it certainly won’t end there.

“The problem has been spreading its wings and taking in markets very far afield from mortgages,” says Alan S. Blinder, former vice chairman of the Federal Reserve and now an economics professor at Princeton. “It’s a failure at a lot of levels. It’s hard to find a piece of the system that actually worked well in the lead-up to the bust.”

Stung by the new focus on their complex products, advocates of the derivatives trade say they are unfairly being made a scapegoat for the recent panic on Wall Street.

“Some people want to blame our industry because they have a vested interest in doing so, either by making a name for themselves or by hampering the adaptability and usefulness of our products for competitive purposes,” said Robert G. Pickel, chief executive of the International Swaps and Derivatives Association, a trade group. “We believe that there are good investment decisions and bad investment decisions. We don’t decry motor vehicles because some have been involved in accidents.”

Already, legislators in Washington are offering detailed plans for new regulations, including ones to treat Wall Street banks like their more heavily regulated commercial brethren. At the same time, normally wary corporate leaders like James Dimon, the chief executive of JPMorgan Chase, are beginning to acknowledge that maybe, just maybe, new regulations are necessary.

“We have a terribly global world and, over all, financial regulation has not kept up with that,” Mr. Dimon said in an interview on Monday, the day after his bank agreed to take over Bear Stearns at a fire-sale price. “I can’t even describe the seriousness of that. I always talk about how bad things can happen that you can’t expect. I didn’t fathom this event.”

TWO months before he resigned as chief executive of Citigroup last year amid nearly $20 billion in write-downs, Charles O. Prince III sat down in Washington with Representative Barney Frank, the chairman of the House Financial Services Committee. Among the topics they discussed were investment vehicles that allowed Citigroup and other banks to keep billions of dollars in potential liabilities off of their balance sheets — and away from the scrutiny of investors and analysts.

“Why aren’t they on your balance sheet?” asked Mr. Frank, Democrat of Massachusetts. The congressman recalled that Mr. Prince said doing so would have put Citigroup at a disadvantage with Wall Street investment banks that were more loosely regulated and were allowed to take far greater risks. (A spokeswoman for Mr. Prince confirmed the conversation.)

It was at that moment, Mr. Frank says, that he first realized just how much freedom Wall Street firms had, and how lightly regulated they were in comparison with commercial banks, which have to answer to an alphabet soup of government agencies like the Federal Reserve and the comptroller of the currency.

“Not only did Wall Street have so much freedom, but it gave commercial banks an incentive to try and evade their regulations,” Mr. Frank says. When it came to Wall Street, he says, “we thought we didn’t need regulation.”

In fact, Washington has long followed the financial industry’s lead in supporting deregulation, even as newly minted but little-understood products like derivatives proliferated.

During the late 1990s, Wall Street fought bitterly against any attempt to regulate the emerging derivatives market, recalls Michael Greenberger, a former senior regulator at the Commodity Futures Trading Commission. Although the Long-Term Capital debacle in 1998 alerted regulators and bankers alike to the dangers of big bets with borrowed money, a rescue effort engineered by the Federal Reserve Bank of New York prevented the damage from spreading.

“After that, all was forgotten,” says Mr. Greenberger, now a professor at the University of Maryland. At the same time, derivatives were being praised as a boon that would make the economy more stable.

Speaking in Boca Raton, Fla., in March 1999, Alan Greenspan, then the Fed chairman, told the Futures Industry Association, a Wall Street trade group, that “these instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it.”

Although Mr. Greenspan acknowledged that the “possibility of increased systemic risk does appear to be an issue that requires fuller understanding,” he argued that new regulations “would be a major mistake.”

“Regulatory risk measurement schemes,” he added, “are simpler and much less accurate than banks’ risk measurement models.”

Mr. Greenberger, still concerned about regulatory battles he lost a decade ago, says that Mr. Greenspan “felt derivatives would spread the risk in the economy.”

“In reality,” Mr. Greenberger added, “it spread a virus through the economy because these products are so opaque and hard to value.” A representative for Mr. Greenspan said he was preparing to travel and could not comment.

A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December.

Mr. Gramm, now the vice chairman of UBS, the Swiss investment banking giant, was unavailable for comment. (UBS has recently seen its fortunes hammered by ill-considered derivative investments.)

“I don’t believe anybody understood the significance of this,” says Mr. Greenberger, describing the bill’s impact.

By the beginning of this decade, according to Mr. Frank and Mr. Blinder, Mr. Greenspan resisted suggestions that the Fed use its powers to regulate the mortgage market or to crack down on practices like providing loans to borrowers with little, if any, documentation.

“Greenspan specifically refused to act,” Mr. Frank says. “He had the authority, but he didn’t use it.”

Others on Capitol Hill, like Representative Scott Garrett, Republican of New Jersey and a member of the Financial Services banking subcommittee, reject the idea that loosening financial rules helped to create the current crisis.

“I don’t think deregulation was the cause,” he says. “And had we had additional regulation in place, I’m not sure what we’re experiencing now would have been averted.”

Regardless, with profit margins shrinking in traditional businesses like underwriting and trading, Wall Street firms rushed into the new frontier of lucrative financial products like derivatives. Students with doctorates in physics and other mathematical disciplines were hired directly out of graduate school to design them, and Wall Street firms increasingly made big bets on derivatives linked to mortgages and other products.

THREE years ago, many of Wall Street’s best and brightest gathered to assess the landscape of financial risk. Top executives from firms like Goldman Sachs, Lehman Brothers and Citigroup — calling themselves the Counterparty Risk Management Policy Group II — debated the likelihood of an event that could send a seismic wave across financial markets.

The group’s conclusion, detailed in a 153-page report, was that the chances of a systemic upheaval had declined sharply after the Long-Term Capital bailout. Members recommended some nips and tucks around the market’s edges, to ensure that trades were cleared and settled more efficiently. They also recommended that secretive hedge funds volunteer more information about their activities. Yet, over all, they concluded that financial markets were more stable than they had been just a few years earlier.

Few could argue. Wall Street banks were fat and happy. They were posting record profits and had healthy capital cushions. Money flowed easily as corporate default rates were practically nil and the few bumps and bruises that occurred in the market were readily absorbed.

More important, innovative products designed to mitigate risk were seen as having reduced the likelihood that a financial cataclysm could put the entire system at risk.

“With the 2005 report, my hope at the time was that that work would help in dealing with future financial shocks, and I confess to being quite frustrated that it didn’t do as much as I had hoped,” says E. Gerald Corrigan, a managing director at Goldman Sachs and a former New York Fed president, who was chairman of the policy group. “Still, I shudder to think what today would look like if not for the fact that some of the changes were, in fact, implemented.”

ONE of the fastest-growing and most lucrative businesses on Wall Street in the past decade has been in derivatives — a sector that boomed after the near collapse of Long-Term Capital.

It is a stealth market that relies on trades conducted by phone between Wall Street dealer desks, away from open securities exchanges. How much changes hands or who holds what is ultimately unknown to analysts, investors and regulators.

Credit rating agencies, which banks paid to grade some of the new products, slapped high ratings on many of them, despite having only a loose familiarity with the quality of the assets behind these instruments.

Even the people running Wall Street firms didn’t really understand what they were buying and selling, says Byron Wien, a 40-year veteran of the stock market who is now the chief investment strategist of Pequot Capital, a hedge fund.

“These are ordinary folks who know a spreadsheet, but they are not steeped in the sophistication of these kind of models,” Mr. Wien says. “You put a lot of equations in front of them with little Greek letters on their sides, and they won’t know what they’re looking at.”

Mr. Blinder, the former Fed vice chairman, holds a doctorate in economics from M.I.T. but says he has only a “modest understanding” of complex derivatives. “I know the basic understanding of how they work,” he said, “but if you presented me with one and asked me to put a market value on it, I’d be guessing.”

Such uncertainty led some to single out derivatives for greater scrutiny and caution. Most famous, perhaps, was Warren E. Buffett, the legendary investor and chairman of Berkshire Hathaway, who in 2003 said derivatives were potential “weapons of mass destruction.”

Behind the scenes, however, there was another player who was scrambling to assess the growing power, use and dangers of derivatives.

Timothy F. Geithner, a career civil servant who took over as president of the New York Fed in 2003, was trying to solve a variety of global crises while at the Treasury Department. As a Fed president, he tried to get a handle on hedge fund activities and the use of leverage on Wall Street, and he zeroed in on the credit derivatives market.

Mr. Geithner brought together leaders of Wall Street firms in a series of meetings in 2005 and 2006 to discuss credit derivatives, and he pushed many of them to clear and settle derivatives trading electronically, hoping to eliminate a large paper backlog that had clogged the system.

Even so, Mr. Geithner had one hand tied behind his back. While the Fed regulated large commercial banks like Citigroup and JPMorgan, it had no oversight on activities of the investment banks, hedge funds and other participants in the burgeoning derivatives market. And the industry and sympathetic politicians in Washington fought attempts to regulate the products, arguing that it would force the lucrative business overseas.

“Tim has been learning on the job, and he has my sympathy,” said Christopher Whalen, a managing partner of Institutional Risk Analytics, a risk management firm in Torrance, Calif. “But I don’t think he’s enough of a real practitioner to go mano-a-mano with these bankers.”

Mr. Geithner declined an interview request for this article.

In a May 2006 speech about credit derivatives, Mr. Geithner praised the benefits of the products: improved risk management and distribution, as well as enhanced market efficiency and resiliency. As he had on earlier occasions, he also warned that the “formidable complexity of measuring the scale of potential exposure” to derivatives made it hard to monitor the products and to gauge the financial vulnerability of individual banks, brokerage firms and other institutions.

“Perhaps the more difficult challenge is to capture the broader risks the institution might confront in conditions of a general deterioration in confidence in credit and an erosion in liquidity,” Mr. Geithner said in the speech. “Most crises come from the unanticipated.”

WHEN increased defaults in subprime mortgages began crushing mortgage-linked securities last summer, several credit markets and many firms that play substantial roles in those markets were sideswiped because of a rapid loss of faith in the value of the products.

Two large Bear Stearns hedge funds collapsed because of bad subprime mortgage bets. The losses were amplified by a hefty dollop of borrowed money that was used to try to juice returns in one of the funds.

All around the Street, dealers were having trouble moving exotic securities linked to subprime mortgages, particularly collateralized debt obligations, which were backed by pools of bonds. Within days, the once-booming and actively traded C.D.O. market — which in three short years had seen issues triple in size, to $486 billion — ground to a halt.

Jeremy Grantham, chairman and chief investment strategist at GMO, a Boston investment firm, said: “When we had the shot across the bow and people realized something was going wrong with subprime, I said: ‘Treat this as a dress rehearsal. Stress-test your portfolios because the next time or the time after, the shot won’t be across the bow.’ ”

In the fall, the Treasury Department and several Wall Street banks scrambled to try to put together a bailout plan to save up to $80 billion in troubled securities. The bailout fell apart, quickly replaced by another aimed at major bond guarantors. That crisis was averted after the guarantors raised fresh capital.

Yet each near miss brought with it growing fears that the stakes were growing bigger and the risks more dangerous. Wall Street banks, as well as banks abroad, took billions of dollars in write-downs, and the chiefs of UBS, Merrill Lynch and Citigroup were all ousted because of huge losses.

“It was like watching a slow-motion train wreck,” Mr. Grantham says. “After all of the write-downs at the banks in June, July and August, we were in a full-fledged credit crisis with C.E.O.’s of top banks running around like headless chickens. And the U.S. equity market’s peak in October? What sort of denial were they in?”

Finally, last week, with Wall Street about to take a direct hit, the Fed stepped in and bailed out Bear Stearns.

It remains unclear, exactly, what doomsday scenario Federal Reserve officials consider themselves to have averted. Some on Wall Street say the fear was that a collapse of Bear could take other banks, including possibly Lehman Brothers or Merrill Lynch, with it. Others say the concern was that Bear, which held $30 billion in mortgage-related assets, would cause further deterioration in that beleaguered market.

Still others say the primary reason the Fed moved so quickly was to divert an even bigger crisis: a meltdown in an arcane yet huge market known as credit default swaps. Like C.D.O.’s, which few outside of Wall Street had ever heard about before last summer, the credit default swaps market is conducted entirely behind the scenes and is not regulated.

Nonetheless, the market’s growth has exploded exponentially since Long-Term Capital almost went under. Today, the outstanding value of the swaps stands at more than $45.5 trillion, up from $900 billion in 2001. The contracts act like insurance policies designed to cover losses to banks and bondholders when companies fail to pay their debts. It’s a market that also remains largely untested.

While there have been a handful of relatively minor defaults that, in some cases, ended in litigation as participants struggled over contract language and other issues, the market has not had to absorb a bankruptcy of one of its biggest players. Bear Stearns held credit default swap contracts carrying an outstanding value of $2.5 trillion, analysts say.

“The rescue was absolutely all about counterparty risk. If Bear went under, everyone’s solvency was going to be thrown into question. There could have been a systematic run on counterparties in general,” said Meredith Whitney, a bank analyst at Oppenheimer. “It was 100 percent related to credit default swaps.”

Amid the regulatory swirl surrounding Bear Stearns, analysts have questioned why the Securities and Exchange Commission did not send up any flares about looming problems at that firm or others on Wall Street. After all, they say, it was the S.E.C., not the Federal Reserve, that was Bear’s primary regulator.

Although S.E.C. officials were unavailable for comment, its chairman, Christopher Cox, has maintained that the agency has effectively carried out its regulatory duties. In a letter last week to the nongovernmental Basel Committee of Banking Supervision, Mr. Cox attributed the collapse of Bear to “a lack of confidence, not a lack of capital.”

IT’S still too early to assess whether the Federal Reserve’s actions have succeeded in protecting the broader economic system. And experts are debating whether the government’s intervention in the Bear Stearns debacle will ultimately encourage riskier behavior on the Street.

“It showed that anything important is going to be bailed out one way or the other,” says Kevin Phillips, a former Republican strategist whose new book, “Bad Money,” analyzes what he describes as the intersection of reckless finance and poor public policy.

Mr. Phillips says that it’s likely that the Fed’s actions have ushered in a new era in financial regulation.

“What we may be looking at is a rethinking of the whole role of the Federal Reserve and what they represent,” he says. “If they didn’t solve it in this round, I’m not sure they can stretch it out and do it again without creating a new law.”

On Capitol Hill, leading Democrats like Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, and Mr. Frank of the House Financial Services Committee are pushing for just that.

Last Thursday, Mr. Frank offered up a raft of suggestions, including requiring investment banks to disclose off-balance-sheet risks while also making the firms subject to audits — much like commercial banks are now. He also wants investment banks to set aside reserves for potential losses to provide a greater cushion during financial panics.

Earlier in the week, Mr. Dodd said the Fed should be given some supervisory powers over the investment banks.

But broad new rules aimed at systemic risk are likely to face strong opposition from both the industry and others traditionally wary of regulation. Analysts expect new, smaller-bore laws aimed at the mortgage industry in particular, which was the first sector hit in the squeeze and which affected Wall Street millionaires as well as millions of ordinary American homeowners.

THERE is an emerging consensus that the ability of mortgage lenders to package their loans as securities that were then sold off to other parties played a key role in allowing borrowing standards to plummet.

Mr. Blinder suggests that mortgage originators be required to hold onto a portion of the loans they make, with the investment banks who securitize them also retaining a chunk. “That way, they don’t simply play hot potato,” he says.

Mr. Grantham agrees. “There is just a terrible risk created when you can underwrite a piece of junk and simply pass it along to someone else,” he says.

Ratings agencies have similarly been under fire ever since the credit crisis began to unfold, and new regulations may force them to distance themselves from the investment banks whose products they were paid to rate.

In the meantime, analysts say, a broader reconsideration of derivatives and the shadow banking system is also in order. “Not all innovation is good,” says Mr. Whalen of Institutional Risk Analytics. “If it is too complicated for most of us to understand in 10 to 15 minutes, then we probably shouldn’t be doing it.”

Paulson's Gift to His Bankster Buddies

Winding Up Bear

By MIKE WHITNEY

March 20, 2008

www.counterpunch.org

http://www.counterpunch.org/whitney03202008.html

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

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

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

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

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

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

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

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

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

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

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

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

That's comforting. Bush is all over it.

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

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

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

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

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

Wall Street rallied on the cheery news.

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

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

The same was true of financial giant Goldman Sachs:

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

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

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

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

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

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

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

Look what has transpired just since Monday.

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

In other news, Reuters reports:

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

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

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

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

And, perhaps most important of all:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Investment Giant Rushed to ICU by Panicky Fed Chief

Bearly Alive

By MIKE WHITNEY

March 15/16 2008

www.counterpunch.org

http://www.counterpunch.org/whitney03152008.html

On Friday, Bear Stearns blew up. It was the worst possible news at the worst possible time. A day earlier, the politically-connected Carlyle Capital hedge fund defaulted on $16.6 billion of its debt. Carlyle boasted a $21.7 billion portfolio of AAA-rated residential mortgage-backed securities, but was unable to make a margin call of just $400 million. (Where did the $21.7 billion go?) The news on Bear was the last straw. The stock market started reeling immediately; shedding 300 points in less than an hour. Then, miraculously, the tide shifted and the market began to rebound.

If there was ever a time for Paulson's Plunge Protection Team to come to the rescue; this was it. For weeks, the markets have been battered with bad news. Retail sales are down, unemployment is up, consumer confidence is in the tank, inflation is rising, the dollar is on the ropes, and the credit crunch has spread to even the safest corners of the market. Facing these fierce headwinds, Washington mandarins and financial heavyweights had to decide whether to sit back and let one small investment bank take down the whole equities market in an afternoon or stealthily buy a few futures and live to fight another day? Tough choice, eh?

We'll never know for sure, but that's probably what happened.

We'll also never know if Bernanke's real purpose in setting up his new $200 billion auction facility was to provide the cash-strapped banks with a place where they could off-load the mortgage-backed junk that Carlyle dumped on the market when they went belly-up. That worked out well, didn't it? Now the banks can trade these worthless MBS bonds with the Fed for US Treasuries at nearly full value. What a deal! That must have been the plan from the get-go.

The Bear Stearns bailout has ignited a firestorm of controversy about moral hazard and whether the Fed should be in the business of spreading its largess to profligate investment banks. But the Fed had no choice. This isn't about one bank caving in from its bad bets. The entire financial system is teetering and a failure at Bear would have taken a wrecking ball to the equities market and sent stocks around the world into a violent death-spiral. The New York Times summed it up like this in Saturday's edition:

"If the Fed hadn't acted this morning and Bear did default on its obligations, then that could have triggered a widespread panic and potentially a collapse of the financial system".

Bingo.

So, what makes Bear so special? How is it that one of the smallest investment banks can pose such a threat to the whole system?

That's the question that will be addressed in the next couple weeks and people are not going to like the answer. For the last decade or so the markets have been reconfigured according to a new "structured finance" model which has transformed the interactions between institutions and investors. The focus has been on maximizing profit by creating a vast galaxy of exotic debt-instruments which increase overall risk and volatility in slumping market conditions.

Derivatives trading which, according to the Bank of International Settlements, now exceeds $500 trillion, has sewn together the various lending and investment institutions in a way that one failure can set the derivatives dominoes in motion and bring down the entire financial scaffolding in a heap. That's why the Fed got involved and (I believe) approached Congress in a closed-door session (which was supposed to be about FISA legislation) to inform lawmakers about the growing possibly of a major economic meltdown if conditions in the credit markets were not stabilized quickly.

The troubles at Bear and the danger they pose to the overall system were articulated in an article by Counterpunch co-editor, Alexander Cockburn in a November, 2006 article "Lame Duck: The Downside of Capitalism":

"In a briefing paper under the chaste title, 'Private Equity: A discussion of Risk and Regulatory Engagement', the FSA raises the alarm.

"Excessive leverage: The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent. Given current leverage levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable. This has negative implications for lenders, purchasers of the debt, orderly markets and conceivably, in extreme circumstances, financial stability and elements of the UK economy."

Translation: It's about to blow!

"The duration and potential impact of any credit event may be exacerbated by operational issues which make it difficult to identify who ultimately owns the economic risk associated with a leveraged buy out and how these owners will react in a crisis. These operational issues arise out of the extensive use of opaque, complex and time consuming risk transfer practices such as assignment and sub-participation, together with the increased use of credit derivatives. These credit derivatives may not be confirmed in a timely manner and the amount traded may substantially exceed the amount of the underlying assets."

Translation: "The world's credit system is a vast recycling bin of untraceable transactions of wildly inflated value."

The problem is that the oversight and stability of the world credit system is no longer within the purview of familiar international institutions like the International Monetary Fund or the Bank of International Settlements. Private traders are now installed at all the strategic nodes, gambling with stratospheric sums in such speculative pyramids as the credit derivative market which was almost nonexistent in 2001, yet which reached $17.3 trillion by the end of 2005. Warren Buffett, America's most famous investor, has called credit derivatives "financial weapons of mass destruction."

Cockburn's article anticipates the current problems at Bear and shows why the Fed cannot allow them to fester and spread throughout the system. The investment banks and brokerages all do business with each other, taking sides in trades as counterparties. If one player goes down it increases the likelihood of more failures. So the problem has to be contained.

The volume of derivatives contracts, that are not traded publicly on any of the major exchanges, has exploded in the last few years. These unregulated transactions, what Pimco's Bill Gross calls the shadow banking system, have taken center-stage as market conditions continue to deteriorate and the downward-cycle of deleveraging begins to accelerate. The ongoing massacre in real estate has left the structured investment market frozen, which means that the foundation blocks (ie mortgage-backed securities) upon which all this excessive leveraging rests; is starting to crumble. It's a real mess.

Derivatives trading, particularly in credit default swaps, is oftentimes exceeds the value of the underlying asset many times over. Credit Default Swaps are financial instruments that are based on loans and bonds that speculate on a company's ability to repay debt. (a type of unregulated insurance) The CDS market is roughly $45 trillion, whereas, the aggregate value of the US mortgage market is only $11 trillion; four times smaller. That's a lot of leverage and it can have a snowball effect when the CDS trades begin to unwind.

In truth, the biggest risk to the financial system is counterparty risk; the possibility that some large investment bank, like Bear, goes under and sucks the rest of the market with it from the magnitude of its losses. Last year, Bear was the 12th largest counterparty to CDS trades according to Fitch ratings. If they were to suddenly disappear, the effects to the rest of the system would be catastrophic.

Fed Chairman Bernanke sat on the board of the FOMC when the investment gurus and brokerage sharpies customized the markets in a way that enhanced their own personal fortunes while increasing the risks of systemic failure. The SIVs, the conduits, the opaque derivatives, the off-balance sheets operations, the dark pools, the massive leverage, and the reckless expansion of credit; all emerged during his (and Greenspan's) tenure. The Federal Reserve has its own large share of responsibility for the brushfire it is presently trying to put out.

Now, in capitalism's extreme crisis Bernanke, acting beyond his mandate, invokes a law that hasn't been used since the 1960s so the Fed can become the creditor for an institution that attempted to enrich itself through wild speculative bets on dubious toxic investments which are now utterly worthless.

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

I did read in the past that Barry Seals widow made the statement that Seal flew a getaway plane out of Dallas after the JFK assasination.Source Daniel Hopsicker i guess.

Since Wim Dankbaar is mentioned by Mr. Caddy, and knowing Wim a little, would it be safe to say that

your client was approached by Mr. Dankbaar, either directly or indirectly in the last weeks.

Mr. Caddy ?

If you wish an answer to this, you should direct your question to Mr. Dankbaar.

http://www.vanityfair.com/ontheweb/blogs/d...worthingto.html

March 12, 2008

The Magazine

Jack Worthington II Responds

Canada-based investment banker Jack Worthington II is the subject of a story in the current issue of Vanity Fair, which explores whether or not he is the long-lost son of President John F. Kennedy. Worthington has a MySpace page in which he decries the Vanity Fair piece, offers a rebuttal to his Houston family (who characterized his statements as "unequivocally false"), and calls for a boycott of the magazine and the Waverly Inn restaurant.

In addition, Worthington sent three e-mails to the magazine today and yesterday, which we reprint here.

MARCH 11 E-MAIL (Subject Field: Important Information)

…I risked public humiliation to bring this situation to public attention. You certainly did your part on public humiliation. I was hoping that ABC or Vanity Fair would discover the information below on their own, and bring a bit more light into this dark area of our history. Now, would you please look into the real story, as a matter of public service/duty? That is why I’ve come forward. I’m skeptical of the idea that American media will do anything with these facts, and that it must go international. Prove me wrong.

FACTS:

•

• The Bibbs were very close, lifelong friends and political allies of LBJ. Proven by letters written to Bob Bibb from LBJ contained in the LBJ library and reported by VF. My mother framed and gave me a note written to her by LBJ stating, "I had a nice talk with your daddy today. Your friend, Lyndon". Also framed LBJ inauguration invitation to my mother’s parents.

•

•

• The Bibbs were very close friends with Richmond Harper, a fellow resident, banker, business partner, and rancher of Eagle Pass, Texas (Maverick County). Richmond Harper’s name was frequently discussed in my family when growing up. I remember my family discussing it when he was arrested with Barry Seal. To verify the relationship: I believe they were co-owners of the bank that the Bibb’s owned. Or, ask any Eagle Pass old-timers about their relationship. I cannot remember the name of the bank, but the note LBJ wrote my mother is on a deposit slip. It’s in storage in the US and I can access it if needed. To locate that bank and its history officially: http://www.banking.state.tx.us/corp/bnkhistory.htm . The social network diagram for Richmond Chase Harper on http://www.namebase.org/cgi-bin/nb06?HARPER_RICHMOND_CHASE includes the Gambino family http://en.wikipedia.org/wiki/Gambino_crime_family , major Dallas/Ft Worth oilmen Clint Murchison and Sid Richardson amongst others who have been accused of being involved in the JFK assassination, and key leaders of American organized crime. Direct links.

•

•

• Richmond Harper was arrested by the FBI with Barry Seal, and Murray Kessler in 1972 for smuggling explosives and weapons to Anti-Castro Cubans in Mexico via the international border crossing at Eagle Pass (Maverick County), which the Bibb’s controlled. Comments on Richmond Harper, Barry Seal, etc… from the FBI agent assigned to investigate Barry Seal http://www.freerepublic.com/forum/a395415382bea.htm

•

•

• The Bibb’s controlled the Federal international border crossing at Eagle Pass via Customs, Naturalization and Immigration, and Maverick County politically for over 30 years. Vanity Fair and the Globe and Mail have research on the Bibbs. The Bibb’s relationship dynamic with LBJ is best understood via Barr McClellan’s book.

•

•

• Barry Seal and the following people are best understood via Jim Garrison’s work (Oliver Stone movie), and subsequently Wim Dankbaar. Seal trained under David Ferrie in the Civilian Air Patrol, where he also met Lee Harvey Oswald. Seal’s New Orleans office was operated or owned by Clay Shaw. Seal’s wife has said he was involved in the assassination. Barry Seal was closely associated with the prime suspects in the JFK assassination conspiracy theory proposed by Jim Garrison (Oliver Stone). More on Barry Seal: http://www.spartacus.schoolnet.co.uk/JFKseal.htm . http://www.spartacus.schoolnet.co.uk/CIAseal.htm Illumination on Barry Seal’s life: http://www.hightimes.com/ht/news/content.p...d=208&aid=3 <http://www.hightimes.com/ht/news/content.php?bid=208&aid=3> . http://educationforum.ipbhost.com/index.php?showtopic=6930 .

•

•

• Richmond Harper was a close friend and business partner of Murray Kessler, who was also arrested along with Seal and Harper in 1972. Murray Kessler was a nephew of mob boss Carlo Gambino.

•

•

• Douglas Valentine might be a good investigator to help out with this. http://www.douglasvalentine.com/ . Interview of Doug Valentine: http://www.scoop.co.nz/stories/HL0708/S00242.htm .

•

•

• My grandfather slept with a loaded pistol under his mattress. Well-known fact by all in my family. I slept in the same room with him when visiting.

•

•

• My mother inherited an important sum of money from the Bibbs. I don’t know the amount.

•

•

• My birthdate is 2 years prior to JFK’s assassination. My sister’s birthdate is 3 years prior to RFK’s assassination (the day he was shot – around midnight 4 June).

Douglas Valentine would be a good investigator to help out with this.

http://www.douglasvalentine.com/ . Interview of Doug Valentine: http://www.scoop.co.nz/stories/HL0708/S00242.htm .

It should be clear why the "Family" issued a statement disputing me. It should be clear why I’m coming forward with these facts. This is not about me. In my view, airing our dirty laundry is vitally important to the credibility of our claim to be a truly free and open society dedicated to the betterment of the human condition. In fact, I believe this purging process is awe inspiring in our world of cynicism. I’m willing to go through a public humiliation for it.

I don’t believe American journalists will go here. Prove me wrong.

MARCH 12 E-MAIL #1 (Subject Field: Additionally)

Porter Goss and George HW Bush knew Barry Seal very well.

MARCH 12 E-MAIL #2 (Subject Field: Bibb Link to Oswald)

Link from Bibb to Oswald:

In the Warren Commission interviews (Nodule 10 link: http://www.ajweberman.com/nodules2/nodulec10.htm

Under the section “TITO AND CONCHITA HARPER”

————————————————————————————————————————————————————

TITO AND CONCHITA HARPER

During his testimony before the Warren Commission, George DeMohrenschildt told Albert Jenner he had visited Tito and Conchita Harper on their ranch straddling the U.S./Mexican border. On July 3, 1972, The New York Times reported that Federal officials arrested nine men in Texas and Louisiana on charges of conspiring to smuggle munitions to Mexico. Among those arrested were Richmond C. Harper, 48, the brother of Tito Harper, a rancher and Director of the Frontier State Bank of Eagle Pass, Texas, and Marion Hagler, a former Inspector with the Immigration and Naturalization Service. Murray Kessler and Alder B. Seal were also arrested. Kessler, who was a house guest at the Harper ranch last June, had a record of six convictions in Federal and state courts on charges of interstate theft, transporting stolen property, bookmaking and conspiracy to possess heroin. Federal authorities described him as an associate of the Gambino organized-crime family.

———————————————————————————————————————————————————-

Richmond Harper is described as a Director of the Frontier State Bank of Eagle Pass, Texas. This is the bank owned by the Bibbs. Marion Hagler worked for the Bibbs as a Customs Inspector (the Bibbs fall guy above). This Warren Commission interview says it all. George DeMohrenschildt is a mutual friend of Lee Harvey Oswald and Richmond Harper per the Warren Commission. Seal and Kessler are CIA and Mafia respectively. JFK and RFK were assassinated on the birthday’s of Mary Evelyn Bibb’s children (my sister and I). I’ll bet it can be found that the Bibb’s were also friends of DeMohrenschildt. The Bibbs had a larger ranch outside Piedras Negras, Mexico than the Harpers, and still own it.

People are still alive to talk about this.

Seal was a friend of mine. I used to work for Radio KEPS Eagle Pass Texas, I know the Murchinsions. I am from Dallas. Peter Brewton (The Mafia CIA and George Bush; 1992; pgs 91-93-95) interviewed me many times as to some the above information.

I flew C-130's all around Iron Mountain, Eagle Pass, Lajitas MX (referenced and documented; Tri-State Drug Task Force) during the Iran/Contra resupply network. I worked an undercover federal interdiction program. Some of the information above is perhaps correct and some is not correct.

I would be very careful as to background research and where it came from on some of this information. I smell something funny here. Seal was in no way associated with Dallas and the assassination of JFK... I have gone over this years ago and produced documentation to that fact... I was called names because I would not go along with the story. I was in Mexico many times with Seal and have pictures and documentation to support that. I testified in the Seal case and I know some of the players. If you would like to talk about this with me, then Email me privately. If I do not hear from you then I know a con is in the works. Simkin has my email. and I'll be happy to talk with Mr. WorthingtonII and you in reference to this subject matter. However, I am sure some will advise you not to do that. AND that TOO, will tell me something about the credibility of this story.

http://toshplumlee.info/pdf/DEAfiles.pdf

Referenced documentation and file locator numbers:

1-99-J DH 39711 (RUC) 1989

1-99-J R- 39711-7

ITE-0653

1-99-R-DN-39711-3 10-17-89

Report of: Feb. 9, 1990 Classified Secret

SA Wayne Schmidt DEA

SA Hector Berrellez DEA

SA Susan Baldwin DEA

...also reference found as to the investigations of the murder of KiKi Camarena and his pilot Alverz. ...

... References as to Richmont Aviation Mena Ark. reference; C-130 N- 0699 P pilot W. Plumlee; C-123 pilot B Seal fuel forms; Setco aviation Costa Rico. ref; Plumlee aircraft, (Big Toad); B A Seal, aircraft (Fat Lady 1) Operation "Iron Butterfly"

It appears that with Mr. Plumlee the forum may have another Ashton Gray on its hands. We all remember him, don’t we? I have never met or corresponded with Mr. Plumlee. Yet, like Mr. Gray, Mr. Plumlee appears all too willing to engage in character assassination, implying that I am engaged in some sort of con, which is dictionary defined as a “swindle.” I have been an attorney for 38 years and this is the first time that someone, in this case a complete stranger, has used that term in connection with my professional reputation.

I got involved in the forum primarily because John Simkin started a thread on me, which can be found at

http://educationforum.ipbhost.com/index.php?showtopic=4727

Another reason I got involved in the forum was because Alfred Baldwin was willingly answering members’ questions about Watergate. Then Mr. Gray emerged from nowhere and engaged unceasingly in character assassination against Mr. Baldwin and myself for our roles in the scandal. Mr. Baldwin, apparently taking the understandable attitude of “who needs this crap?”, withdrew from the forum and with him an invaluable source of new information into Watergate dried up, thanks to Mr. Gray.

I decided to stick with the forum and not reply to Mr. Gray’s numerous verbal assaults, expecting that his rude and insulting behavior would expand to include other members and that such activity would eventually lead to his withdrawal from the forum, which indeed is what occurred.

I do not hold myself out as an expert on the assassination of JFK. (For that matter neither does Jack Worthington II.) My strategy has always been as I uncover promising lines for research that these should be posted on the forum in the event that real experts, such as John Simkin, Pat Speer, J. Raymond Carroll and other forum members, might find a clue therein worth further pursuit.

Mr. Worthington’s contention as to his JFK parentage has already produced one great embarrassment for two eminent scholars. Robert Caro and J. Robert Dallek, who are acknowledged as the foremost biographers of LBJ, are quoted in the April 2008 Vanity Fair article, “A Claim to Camelot”, as stating on page 238 that “they’ve never come across a reference to Johnson residing with” Maverick County Judge Robert Bibb.

Yet the Toronto Globe and Mail of February 18, 2008, in its article on the Bibbs’ relationship to Jack Worthington II, reported from Maverick County that “Lyndon Johnson spent the night at our house and my father spent the night in the White House,” said Gravis Bibb, the judge’s son. “My father was a very, very good friend of LBJ. They were buddies going way back.”

So here is a promising line of inquiry into the life and times of LBJ, heretofore not known, that serendipitously has been opened up as a result of the effort by Jack Worthington II to establish his parentage.

Mr. Plumlee appears above to object to the contents of the emails of Jack Worthington II that can be viewed on Vanity Fair’s blog. Vanity Fair saw fit to post these, so it is safe to assume that the magazine believed they are worthy of public attention.

Mr. Plumlee, like Mr. Gray, must learn one of life’s most basic lessons: employing common courtesy and good manners usually cause strangers to respond reciprocally, thus achieving one’s goal, whereas insults and boorishness get one nowhere.

http://www.vanityfair.com/ontheweb/blogs/d...worthingto.html

March 12, 2008

The Magazine

Jack Worthington II Responds

Canada-based investment banker Jack Worthington II is the subject of a story in the current issue of Vanity Fair, which explores whether or not he is the long-lost son of President John F. Kennedy. Worthington has a MySpace page in which he decries the Vanity Fair piece, offers a rebuttal to his Houston family (who characterized his statements as "unequivocally false"), and calls for a boycott of the magazine and the Waverly Inn restaurant.

In addition, Worthington sent three e-mails to the magazine today and yesterday, which we reprint here.

MARCH 11 E-MAIL (Subject Field: Important Information)

…I risked public humiliation to bring this situation to public attention. You certainly did your part on public humiliation. I was hoping that ABC or Vanity Fair would discover the information below on their own, and bring a bit more light into this dark area of our history. Now, would you please look into the real story, as a matter of public service/duty? That is why I’ve come forward. I’m skeptical of the idea that American media will do anything with these facts, and that it must go international. Prove me wrong.

FACTS:

•

• The Bibbs were very close, lifelong friends and political allies of LBJ. Proven by letters written to Bob Bibb from LBJ contained in the LBJ library and reported by VF. My mother framed and gave me a note written to her by LBJ stating, "I had a nice talk with your daddy today. Your friend, Lyndon". Also framed LBJ inauguration invitation to my mother’s parents.

•

•

• The Bibbs were very close friends with Richmond Harper, a fellow resident, banker, business partner, and rancher of Eagle Pass, Texas (Maverick County). Richmond Harper’s name was frequently discussed in my family when growing up. I remember my family discussing it when he was arrested with Barry Seal. To verify the relationship: I believe they were co-owners of the bank that the Bibb’s owned. Or, ask any Eagle Pass old-timers about their relationship. I cannot remember the name of the bank, but the note LBJ wrote my mother is on a deposit slip. It’s in storage in the US and I can access it if needed. To locate that bank and its history officially: http://www.banking.state.tx.us/corp/bnkhistory.htm . The social network diagram for Richmond Chase Harper on http://www.namebase.org/cgi-bin/nb06?HARPER_RICHMOND_CHASE includes the Gambino family http://en.wikipedia.org/wiki/Gambino_crime_family , major Dallas/Ft Worth oilmen Clint Murchison and Sid Richardson amongst others who have been accused of being involved in the JFK assassination, and key leaders of American organized crime. Direct links.

•

•

• Richmond Harper was arrested by the FBI with Barry Seal, and Murray Kessler in 1972 for smuggling explosives and weapons to Anti-Castro Cubans in Mexico via the international border crossing at Eagle Pass (Maverick County), which the Bibb’s controlled. Comments on Richmond Harper, Barry Seal, etc… from the FBI agent assigned to investigate Barry Seal http://www.freerepublic.com/forum/a395415382bea.htm

•

•

• The Bibb’s controlled the Federal international border crossing at Eagle Pass via Customs, Naturalization and Immigration, and Maverick County politically for over 30 years. Vanity Fair and the Globe and Mail have research on the Bibbs. The Bibb’s relationship dynamic with LBJ is best understood via Barr McClellan’s book.

•

•

• Barry Seal and the following people are best understood via Jim Garrison’s work (Oliver Stone movie), and subsequently Wim Dankbaar. Seal trained under David Ferrie in the Civilian Air Patrol, where he also met Lee Harvey Oswald. Seal’s New Orleans office was operated or owned by Clay Shaw. Seal’s wife has said he was involved in the assassination. Barry Seal was closely associated with the prime suspects in the JFK assassination conspiracy theory proposed by Jim Garrison (Oliver Stone). More on Barry Seal: http://www.spartacus.schoolnet.co.uk/JFKseal.htm . http://www.spartacus.schoolnet.co.uk/CIAseal.htm Illumination on Barry Seal’s life: http://www.hightimes.com/ht/news/content.p...d=208&aid=3 <http://www.hightimes.com/ht/news/content.php?bid=208&aid=3> . http://educationforum.ipbhost.com/index.php?showtopic=6930 .

•

•

• Richmond Harper was a close friend and business partner of Murray Kessler, who was also arrested along with Seal and Harper in 1972. Murray Kessler was a nephew of mob boss Carlo Gambino.

•

•

• Douglas Valentine might be a good investigator to help out with this. http://www.douglasvalentine.com/ . Interview of Doug Valentine: http://www.scoop.co.nz/stories/HL0708/S00242.htm .

•

•

• My grandfather slept with a loaded pistol under his mattress. Well-known fact by all in my family. I slept in the same room with him when visiting.

•

•

• My mother inherited an important sum of money from the Bibbs. I don’t know the amount.

•

•

• My birthdate is 2 years prior to JFK’s assassination. My sister’s birthdate is 3 years prior to RFK’s assassination (the day he was shot – around midnight 4 June).

Douglas Valentine would be a good investigator to help out with this.

http://www.douglasvalentine.com/ . Interview of Doug Valentine: http://www.scoop.co.nz/stories/HL0708/S00242.htm .

It should be clear why the "Family" issued a statement disputing me. It should be clear why I’m coming forward with these facts. This is not about me. In my view, airing our dirty laundry is vitally important to the credibility of our claim to be a truly free and open society dedicated to the betterment of the human condition. In fact, I believe this purging process is awe inspiring in our world of cynicism. I’m willing to go through a public humiliation for it.

I don’t believe American journalists will go here. Prove me wrong.

MARCH 12 E-MAIL #1 (Subject Field: Additionally)

Porter Goss and George HW Bush knew Barry Seal very well.

MARCH 12 E-MAIL #2 (Subject Field: Bibb Link to Oswald)

Link from Bibb to Oswald:

In the Warren Commission interviews (Nodule 10 link: http://www.ajweberman.com/nodules2/nodulec10.htm

Under the section “TITO AND CONCHITA HARPER”

————————————————————————————————————————————————————

TITO AND CONCHITA HARPER

During his testimony before the Warren Commission, George DeMohrenschildt told Albert Jenner he had visited Tito and Conchita Harper on their ranch straddling the U.S./Mexican border. On July 3, 1972, The New York Times reported that Federal officials arrested nine men in Texas and Louisiana on charges of conspiring to smuggle munitions to Mexico. Among those arrested were Richmond C. Harper, 48, the brother of Tito Harper, a rancher and Director of the Frontier State Bank of Eagle Pass, Texas, and Marion Hagler, a former Inspector with the Immigration and Naturalization Service. Murray Kessler and Alder B. Seal were also arrested. Kessler, who was a house guest at the Harper ranch last June, had a record of six convictions in Federal and state courts on charges of interstate theft, transporting stolen property, bookmaking and conspiracy to possess heroin. Federal authorities described him as an associate of the Gambino organized-crime family.

———————————————————————————————————————————————————-

Richmond Harper is described as a Director of the Frontier State Bank of Eagle Pass, Texas. This is the bank owned by the Bibbs. Marion Hagler worked for the Bibbs as a Customs Inspector (the Bibbs fall guy above). This Warren Commission interview says it all. George DeMohrenschildt is a mutual friend of Lee Harvey Oswald and Richmond Harper per the Warren Commission. Seal and Kessler are CIA and Mafia respectively. JFK and RFK were assassinated on the birthday’s of Mary Evelyn Bibb’s children (my sister and I). I’ll bet it can be found that the Bibb’s were also friends of DeMohrenschildt. The Bibbs had a larger ranch outside Piedras Negras, Mexico than the Harpers, and still own it.

People are still alive to talk about this.

Dr. Edgar Mitchell, the sixth astronaut to walk on the Moon, reveals in this recent audio interview that the incident at Roswell did occur and that the presence of aliens visiting planet Earth will soon be acknowledged.

The interview is not to be missed as Dr. Mitchell imparts new information and knowledge on a wide variety of vital topics. There is no charge for listening to the interview.

Merely click on the link below and then go to the top of the masthead and click on “listen now.”

The interview is recorded on the March 8, 2008 Dreamland program of www.unknowncountry.com.

http://www.unknowncountry.com/dreamland/?id=383

Edgar Mitchell: The Way of the Explorer

Here is Dr. Edgar Mitchell in one of his most moving and revealing interviews ever! Did you know that he grew up in Roswell, New Mexico? He speaks with total candor about his knowledge of the Roswell Incident, and about the issue of alien presence in general. His discussion of his new book, The Way of the Explorer is moving and highly informative, and his description of what happened to him on the way back from the moon is unforgettable.

Lynne McTaggart says of Edgar Mitchell, "His journey into outer space has been matched by a lifelong journey into inner space, where he investigated the final frontier, the nature of mind, and returned with nothing less than an extraordinary new science of life."

Dr. Edgar Mitchell’s website is EdMitchellApollo14.com.

His foundation, the Institute for Noetic Sciences is found at Noetic.org.