Tuesday, December 9, 2008

Deficits and the Future

Original Link: http://www.nytimes.com/2008/12/01/opinion/01krugman.html


Right now there’s intense debate about how aggressive the United States government should be in its attempts to turn the economy around. Many economists, myself included, are calling for a very large fiscal expansion to keep the economy from going into free fall. Others, however, worry about the burden that large budget deficits will place on future generations.

But the deficit worriers have it all wrong. Under current conditions, there’s no trade-off between what’s good in the short run and what’s good for the long run; strong fiscal expansion would actually enhance the economy’s long-run prospects.

The claim that budget deficits make the economy poorer in the long run is based on the belief that government borrowing “crowds out” private investment — that the government, by issuing lots of debt, drives up interest rates, which makes businesses unwilling to spend on new plant and equipment, and that this in turn reduces the economy’s long-run rate of growth. Under normal circumstances there’s a lot to this argument.

But circumstances right now are anything but normal. Consider what would happen next year if the Obama administration gave in to the deficit hawks and scaled back its fiscal plans.

Would this lead to lower interest rates? It certainly wouldn’t lead to a reduction in short-term interest rates, which are more or less controlled by the Federal Reserve. The Fed is already keeping those rates as low as it can — virtually at zero — and won’t change that policy unless it sees signs that the economy is threatening to overheat. And that doesn’t seem like a realistic prospect any time soon.

What about longer-term rates? These rates, which are already at a half-century low, mainly reflect expected future short-term rates. Fiscal austerity could push them even lower — but only by creating expectations that the economy would remain deeply depressed for a long time, which would reduce, not increase, private investment.

The idea that tight fiscal policy when the economy is depressed actually reduces private investment isn’t just a hypothetical argument: it’s exactly what happened in two important episodes in history.

The first took place in 1937, when Franklin Roosevelt mistakenly heeded the advice of his own era’s deficit worriers. He sharply reduced government spending, among other things cutting the Works Progress Administration in half, and also raised taxes. The result was a severe recession, and a steep fall in private investment.

The second episode took place 60 years later, in Japan. In 1996-97 the Japanese government tried to balance its budget, cutting spending and raising taxes. And again the recession that followed led to a steep fall in private investment.

Just to be clear, I’m not arguing that trying to reduce the budget deficit is always bad for private investment. You can make a reasonable case that Bill Clinton’s fiscal restraint in the 1990s helped fuel the great U.S. investment boom of that decade, which in turn helped cause a resurgence in productivity growth.

What made fiscal austerity such a bad idea both in Roosevelt’s America and in 1990s Japan were special circumstances: in both cases the government pulled back in the face of a liquidity trap, a situation in which the monetary authority had cut interest rates as far as it could, yet the economy was still operating far below capacity.

And we’re in the same kind of trap today — which is why deficit worries are misplaced.

One more thing: Fiscal expansion will be even better for America’s future if a large part of the expansion takes the form of public investment — of building roads, repairing bridges and developing new technologies, all of which make the nation richer in the long run.

Should the government have a permanent policy of running large budget deficits? Of course not. Although public debt isn’t as bad a thing as many people believe — it’s basically money we owe to ourselves — in the long run the government, like private individuals, has to match its spending to its income.

But right now we have a fundamental shortfall in private spending: consumers are rediscovering the virtues of saving at the same moment that businesses, burned by past excesses and hamstrung by the troubles of the financial system, are cutting back on investment. That gap will eventually close, but until it does, government spending must take up the slack. Otherwise, private investment, and the economy as a whole, will plunge even more.

The bottom line, then, is that people who think that fiscal expansion today is bad for future generations have got it exactly wrong. The best course of action, both for today’s workers and for their children, is to do whatever it takes to get this economy on the road to recovery.

Saturday, December 6, 2008

CEOs “Cashed Out” Prior To Economic Crisis

Original Link: http://www.futurefastforward.com/component/content/article/635

By Tom Eley

Balzac’s maxim that “behind every great fortune lies a great crime” may yet prove a fitting epitaph for American capitalism. A recent survey by the Wall Street Journal reveals that CEOs at major US financial and real estate firms converted tens of millions of dollars of overvalued stock into cash prior to the eruption of the current financial crisis, even as many of their corporations approached the precipice.

The Journal analyzed the fortunes of CEOs from 2003 to 2007 based on executive compensation and stock sale data. Fifteen of these CEOs took home more than $100 million in cash during this period. At the high end was Charles Schwab, who made over $816 million from his self-named accounting firm, almost all of it from stock sales.

Of the 120 publicly traded firms the Journal analyzed, CEOs cashed out a total of more than $21 billion. However, data was gathered only from publicly traded companies, and thus does not include similar fortunes that have been made by “hedge fund chiefs, Wall Street traders, and executives who sold their companies outright.” Nor did it include data related to exit packages, the multimillion-dollar “golden parachutes” awarded to retiring or fired executives.

The Journal’s findings underscore the parasitism and criminality of the US financial elite. Defenders have long justified extravagant CEO pay by claiming that these were the talented “risk-takers” who generated enormous wealth for investors. But the Journal’s data shows that there is no correlation between compensation and a firm’s success. On the contrary, many CEOs rewarded themselves just as their corporations approached ruin.

These included Richard Fuld, the CEO of Lehman Brothers, who transformed his firm’s stock into well over $100 million in cash. When added to his salary and bonuses, Fuld pocketed nearly $185 million in the five years before 2008, even as he guided his 150-year-old investment bank to ruin. James Cayne of Bear Stearns did nearly as well at his investment bank, collecting over $163.2 million, the vast majority of which was garnered from selling stock that would soon be scarcely worth the paper upon which it was printed.

Maurice Greenberg of American International Group (AIG) made $132.8 million between 2003 and 2005, when he was forced to resign. Well over $100 million of this came from windfall stock sales of the giant insurer. AIG collapsed in September, but was determined to be “too big to fail” by the federal government, and was bailed out twice in less than one month to the tune of some $120 billion.

In August, the sub-prime mortgage giant Countrywide Financial Group collapsed spectacularly, and was absorbed by Bank of America. In the previous five years, however, Countrywide’s CEO, Angelo Mozilo, took home $471 million, over $400 million of which came from sales of the company’s soon-to-be-worthless stock.

A look at the sectors of the economy where these richly remunerated executives worked, moreover, demonstrates the advanced rot of the US economy as a whole. Without exception, they represented corporations that engaged in financial speculation—“industries closely tied to the financial crisis,” as the Journal puts it—and that produced no real value. These until recently “vibrant” parts of the economy functioned only to siphon off enormous social wealth and deposit it in the bank accounts of the CEOs and big investors.

One example the Journal considered is the private student loan sector, which made Daniel Meyers, the CEO of a firm called First Marblehead, a very wealthy man. Marblehead specialized in servicing loans to students who had “exhausted the cheaper government-backed variety,” and then repackaging and selling the debt to big banks such as Bank of America. Meyers earned nearly $100 million, almost all of it in the sale of company stock; together with other Marblehead insiders, $660 million was taken. The Journal notes that Meyers used $10.3 million of his fortune to buy an ocean-front property in Rhode Island—the state with the highest unemployment rate. Meyers tore down the villa that was there and has put up a 38,000-square-foot mansion he named, befitting a pirate, “Seaward.”

Another sector of the economy that has proved highly lucrative for CEOs is that of home mortgages. In addition to the aforementioned case of Angelo Mozilo and Countrywide, the Journal highlights the case of New Century Financial, the nation’s second largest subprime lender. While the lender is now bankrupt, over a period of four years its three leading executives took home a combined $74 million. The Journal also mentions the case of Herbert and Marion Sandler, who made $2 billion off selling their mortgage firm, Golden West Financial Corp., to Wachovia in 2005. This purchase likely contributed to the demise of Wachovia, which collapsed in October and was bought out by Wells Fargo.

In the field of “credit-default swaps,” Michael Gooch made $82.5 million through his firm GTI Group. Over $77 million of this came from a remarkably well-timed sale in May of 2006. Since then, GTI’s stock has lost over 90 percent of its value. Gooch owns three mansions, and boasted to the Journal that he could pay off his only debt, a $1 million mortgage, “with the spare change in my bank account.”

The Journal notes with some surprise that one of the most highly remunerative fields was that of “home-building.” The wealth accumulated by CEOs in this sector is a clear byproduct of the speculative real estate bubble that emerged over the last decade. Toll Brothers, specializing in building suburban mansions, made Robert and Bruce Toll three quarters of a billion in cash, largely in stock sales. The company has lost 74 percent of its value in the past year.

Chad Dreier, CEO of Ryland Group, made $181 million building homes in “hot markets” such as Las Vegas that have now gone bust, exposing thousands of families to foreclosure. Dwight Schar, the CEO of a building firm called NVR, took home $626 million in 2003-2007, almost all from the sale of stock. Schar spent about $86 million of this fortune in 2005 to buy the Palm Beach, Florida estate of billionaire Ronald Perelman. The Journal notes that the 11-acre oceanfront complex includes two swimming pools and a tennis court.

It is perhaps a sign of the times that the Wall Street Journal, long a mouthpiece of US finance capital, would run a prominent article that questions the enormous personal fortunes built up by CEOs through dubious means even as their corporations sailed toward disaster. Running such an article aims in part, no doubt, to appease the rage of thousands of middling investors who have lost their shirts in the economic crisis.

In any event, the criminal methods of these CEOs, who have led their companies and American capitalism as a whole to the brink of ruin, do not derive from personal greed alone. In their criminality and nearsightedness the CEOs reflect, instead, the narrowing horizon and historical decline of US capitalism, in which the accumulation of extreme wealth long ago lost whatever connection it had to the creation of real value.

Every Trick in the Book

Original Link: http://forum.prisonplanet.com/index.php?action=printpage;topic=72856.0

By Mike Whitney

"Conditions have deteriorated on a scale and with a speed that no one could have predicted just a few months ago. Market conditions of unprecedented strength are roiling the world's financial markets. The global economy is either in, or close to, recession and 2009 is not likely to be a year of great recovery." Brett White, chief executive officer of CB Richard Ellis, LA Times

November 29, 2008 "Information Clearinghouse" -- Without any public debate or authorization from Congress, the Federal Reserve has embarked on the most radical financial intervention in history. Fed chairman Ben Bernanke is trying to avert another Great Depression by flooding the financial system with liquidity in an attempt to mitigate the effects of tightening credit and a sharp decline in consumer spending. So far, the Fed has committed over $7 trillion, which is being used to backstop every part of the financial system including money markets, bank deposits, commercial paper (CP) investment banks, insurance companies, and hundreds of billions of structured debt-instruments (MBS, CDOs). America's free market system is now entirely dependent on state resources.

With interest rates at or below 1 percent, Bernanke is "zero bound", which means that he will be unable to stimulate the economy through traditional monetary policy. That leaves the Fed with few choices to slow the debt-deflation which has already carved $7 trillion from US stock indexes and another $6 trillion from home equity. Bernanke will have to use unconventional means to stabilize the system and maintain economic activity in the broader economy.

Last Tuesday, Treasury Secretary Henry Paulson announced that the Fed would buy $600 billion of toxic mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac, in effect, buying up its own debt. This is one of the unconventional strategies that Bernanke outlined in a speech he gave in 2002 on how to avoid deflation. By moving the MBS from Fannie's balance sheet to the Fed's, Bernanke was able down interest rates by a full percentage point overnight, creating a powerful incentive for anyone thinking about buying a home. But Bernanke's plan is not risk free; it increases the Fed's long-term liabilities which, in turn, undermines the dollar. This calls into question the creditworthiness of the US Treasury which is becoming more and more uncertain every day.

The Fed also initiated a program to purchase $200 billion of triple A-rated loans from non bank financial institutions to try to revive the flagging securitization market. It's another risky move that ignores the fact that investors are shunning "pools of loans" because no one really knows what they are worth. The appropriate way to establish a price for complex securities in a frozen market is to create a central clearinghouse where they can be auctioned off to the highest bidder. That establishes a baseline price, which is crucial for stimulating future sales. But the Fed wants to conceal the true value of these securities because there are nearly $3 trillion of them held by banks and other financial institutions. If they were priced at their current market value ($.21 on the dollar) then many of the country's biggest banks would have to declare bankruptcy. So the Fed is trying to maintain the illusion of solvency by overpaying for these securities and providing the financing companies more capital to loan to businesses and consumers. Once again, the Fed is stretching its balance sheet by trying to resuscitate a structured finance system which has already proved to be dysfunctional.

Bernanke would be better off letting the market decide what these debt-instruments are really worth. There are always buyers if the price is right. Just look at what happened in Southern California last month, where there was a shocking turnaround in the housing market. Home sales in Orange Country shot up 55 percent year over year in October. That's because prices have dropped 36 percent from their peak in 2007. This proves that real estate---like complex securities--will recover when investors feel that prices are fair.

Does Bernanke really believe that his maneuvering will change the direction of the market or convince investors to pay full-price for dodgy securities?

Who knows; but we do know that the Fed has no mandate to prop up asset values which the market has already decided are worth considerably less. It's the equivalent of price fixing.


In the coming weeks, the Fed chairman will probably employ many of the radical policy options he laid out in his 2002 speech. Economist Nouriel Roubini points out that nearly all of these choices "imply serious risks for the Fed" as well as the American people. Roubini says:

"Such risks include the losses that the Fed could incur in purchasing long term private securities, especially high yield junk bonds of distressed corporations.... Pushing the insolvent Fannie and Freddie to take even more credit risk may be a reckless policy choice. And having a government trying to manipulate stock prices would create another whole can of worms of conflicts and distortions.

Finally, the Fed could try to follow...massive quantitative easing; flooding markets with unlimited unsterilized liquidity; talking down the value of the dollar; direct and massive intervention in the forex to weaken the dollar; vast increase of the swap lines with foreign central banks... aimed to prevent a strengthening of the dollar; attempts to target the price level or the inflation rate via aggressive preemptive monetization; or even a money-financed budget deficit."Nouriel Roubini's EconoMonitor)

Last Tuesday's announcement suggests that Bernanke may be dabbling in the stock market already. This forces anyone who is planning to short the market to reconsider his strategy because Bernanke could be secretly betting against him by dumping billions in the futures market to keep stocks artificially high. It just goes to show that all the bloviating about the virtues of "free market" is just empty rhetoric. When push comes to shove this is "their" system and they'll do whatever they can to preserve it. If that means direct intervention; so be it. Principles mean nothing.

Bernanke's actions are likely to wreak havoc in the currency markets, too. If currency traders suspect that Bernanke is printing money ("unsterilized liquidity") to rev up the economy, there will be a sell-off of US Treasurys and a run on the dollar. "Monetization" --the printing money to cover one's debts--is the fast-track to hyperinflation and the destruction of the currency. It's not a decision that should be taken lightly. And it is not a decision that should be made by a banking oligarch who has not been given congressional approval. Bernanke's shenanigans show an appalling contempt for the democratic process. He needs to be reigned in before he does more damage.

Bernanke's attempts to revive the securitization market is understandable, but it probably won't amount to anything. The well has already been poisoned by the lack of regulation and the proliferation of subprime loans. The problem is that the broader economy needs the credit that securitization produced via the non bank financials (investment banks, hedge funds etc) In fact, the non bank financial institutions were providing the lion's share of the credit to the financial system before the meltdown. But, now that the 5 big investment banks are either bankrupt or transforming themselves into holding companies (and the hedge funds are still deleveraging) the only option for credit is the banks, and they are incapable of filling the void. The Wall Street Journal estimates that the loss of Bear Stearns and Lehman Bros. will mean "$450 billion in lending capacity missing from markets". Think about that. If we include the other investment banks in the mix, then more than $2 trillion in credit will vanish from the system next year alone. Bottom line, the breakdown in securitization is choking off credit and pushing the country towards catastrophe. If the slide continues, there could be a 40 percent reduction in credit in 2009 making another great Depression unavoidable.

Does that mean we should revive the failed system?

No, just the opposite. The markets need to be re-regulated now to restore credibility. But the Fed should looking for ways to create an emergency National Bank, which operates like a public utility, so that credit can be made available to businesses and consumers who need it now. The Treasury should also be working with Congress on a plan for public education to forestall a panic as well as recommendations for stimulus to soften the economic hard landing just ahead.

The financial system is broken and institutions will not be able to releverage fast enough to normalize the credit markets or stop the impending collapse in consumer demand. What's needed is a constructive plan to rebuild the system while minimizing the suffering of normal people. There's no sense in trying to put the genie back in the bottle or re-energize a failed system. What's past is prologue. There needs to be a serious analysis of the factors which led to the present crack-up and a plan for course-correction. It's not enough to throw stones at the Fed and its misguided serial bubble-making escapades.


Our present dilemma can be traced back to the 1980s--the Reagan era--and the rise of an organized, industry-funded movement, which advanced their business-friendly, "trickle down" ideology which, when put into practice, has led to greater and greater income disparity, unprecedented expansion of credit and, ultimately, economic disaster.

The problem is the way that the system has been reworked to serve the interests of the investor class at the expense of working people. As Wall Street has tightened its grip on the political parties, more of the nation's wealth has gone to a smaller percentage of the population while the chasm between rich and poor has grown wider and wider. The United States now has the worst income and wealth disparity since 1929 and a whopping 75 percent of the labor force has seen a drop in their living standard since 1973. The average American has no savings and a pile of bills he is less and less able to pay. Apart from the ethical questions this raises, there is the purely practical matter of how a consumer-driven economy (GDP is 70% consumer spending in US) can maintain long-term growth when wages do not keep pace with productivity. It's simply impossible. The only way the economy can grow is if wages are augmented with personal debt; and that is exactly what has happened. The fake prosperity of the Bush and Clinton years can all be attributed to the unprecedented and destabilizing expansion of personal debt. Wages have been stagnate throughout.

It's clear that the architects of the present system knew what they were doing when they cooked up their supply side theory which postulates that everyone benefits when the rich get richer. Baloney. "All boats rise" is the familiar rallying cry. Of course, it was all nonsense as the current financial crisis proves. The creation of equity bubbles is just a clever means of social engineering, just like regressive taxation. It separates the wheat from the chaff, exacerbating dormant animosities between the classes. The Fed has skillfully aided its White House counterparts in creating the same divisions that existed during the Gilded Age, further fueling the animus towards workers. But now the massive debt bubble is crashing and threatens to bring down the whole system in heap. Bernanke and Paulson are frantically trying to plug the holes in the dam rather than rebuild on a solid foundation of fair pay for productivity.

It all gets down to wages, wages, wages. If wages don't grow, neither will the economy. Author Ravi Batra sums it up like this in his book "Greenspan's Fraud":

"A bubble economy is born when wages trail productivity for some time and result in ever-rising debt. Then profits grow faster than productivity gains, and share prices outpace GDP growth. However, a time comes when debt-growth slows down, and demand falls short of output, resulting in profit decline and a stock market crash. Thus, the very force that generates the stock market bubble seeds its crash." ("Greenspan's Fraud": Ravi Batra, Palgrave Macmillan, p 152)

Batra again: "The rising wage gap feeds profits on one side and debt on the other. A time comes when the debt binge slows. That is when the demand-supply imbalance, thus far masked by swelling debt and overinvestment, comes to the surface. That is when profit begins to fall, a the nation receives a sudden jolt. First, the stock market moves sideways. But as excess supply of goods continues, share prices begin to crash. (ibid: Ravi Batra, Palgrave Macmillan, p 153)

The "trickle down" Voodoo economic model was destined to fail because it was built on a fiction. Prosperity is not possible without the equitable distribution of wealth and fair worker compensation. As the financial crisis continues to ripple through the global economy through 2009 and 2010; the focus should be on creating a system that is sustainable, which means that the needs of workers should precede those of Wall Street.

George W. Bush Belongs in Prison

Original Link: http://www.informationclearinghouse.info/article21358.htm

By Joel S. Hirschhorn

November 30, 2008 "Information Clearinghouse" -- Electing Barack Obama president was the first step in redeeming American democracy. The second step must be indicting ex-president George W. Bush, giving him a fair trial, finding him guilty of many criminal acts and putting him in prison. Forget revenge. Think rule of law and justice.

I want President Obama soon after taking office to go on television and announce the formation of a special group of outstanding jurists and attorneys to make a recommendation whether or not the US Justice Department should bring criminal charges against George W. Bush. Based on earlier analyses, including work by the American Bar Association, I have no doubt they will recommend indictment.

If moral honesty and courage have any meaning, then the nation must take seriously the concept that no president can ever be allowed to be above the law. How can President Obama not strongly support this? Surely no president must be allowed to disrespect and dishonor the US Constitution. George W. Bush broke his oath of office. His behavior was treasonous. Instead of defending the Constitution he disgraced it. Instead of protecting constitutional rights, including privacy, he sullied them. He asserted his right to ignore or not enforce laws so he could break them. Respect for the office of the presidency must never be allowed to trump truth and justice.

Millions and millions of Americans and people worldwide know that George W. Bush made 9/11 the trigger for initiating an illegal war in Iraq that has killed and maimed so many thousands of people. What Vincent Bugliosi, author of “The Prosecution of George W. Bush for Murder" called “the most serious crime ever committed in American history.” I say convict Bush of myriad counts of criminally negligent homicide related to both Iraq and the Katrina disaster and put him in prison. A former president in prison would not disgrace the presidency. It would restore honor to the office and the Constitution.

Surely millions more people now understand that George W. Bush bears responsibility for creating the conditions that encouraged greed-driven capitalism to rape and murder the middle class and push us into the current global economic meltdown. By removing government oversight and regulation he committed the greatest acts of fraud in the history of mankind. After he made American democracy delusional he made prosperity delusional.

We the people are paying the price for George W. Bush’s criminal acts and so must he. When George W. Bush is sent to prison everyone will see that American democracy has earned the respect of the world. Everyone will better understand that evil comes in many forms and that even an elected president of the United States of America can and must be recognized as a perpetrator of horrendous criminal acts.

Please President-elect Obama, make it so. Be the principled person we want you to be. Make the USA the nation it is supposed to be. Have the courage to do what Congress refused to do when it did not impeach George W. Bush. Change history by showing the world that American justice applies as equally to the president as it does to anyone else. Do not let George W. Bush escape the justice and prison sentence he deserves. Do not let respect for the presidency trump respect for justice. If we do not bring George W. Bush to justice that probably only you can make happen, then surely we do not restore respect for the office that you worked so hard to achieve.

To ensure that no future president behaves like George W. Bush we must punish him. Not merely through the words of historians, but through the physical punishment that he has inflicted on so many millions of people. In previous eras citizens would have demanded “off with his head.” Now we must demand “lock him up.” How poetic for a pro-torture ex-president. As summed up at www.imprisonbush.com : “Bush must be made accountable to the law, to serve as a lesson to all those who would attempt to destroy the American system of laws and liberty for the sake of their own power.” This is a test for both President Obama and American democracy.

If there is any kind of God in the universe, then George W. Bush must go to prison. When he does, then and only then should God bless America.

Formerly a full professor at the University of Wisconsin, Madison and a senior official at the Congressional Office of Technology Assessment and the National Governors Association, Joel S. Hirschhorn is the author of nonfiction books, including Prosperity Without Pollution, Sprawl Kills and Delusional Democracy.

Robert Dreyfuss, an independent journalist in Alexandria, Virginia, is a contributing editor at the Nation magazine, whose website hosts his The Dreyfuss Report, and has written frequently for Rolling Stone, The American Prospect, Mother Jones, and the Washington Monthly. He is the author of Devil's Game: How the United States Helped Unleash Fundamentalist Islam.

Neo-cons Still Preparing for Iran Attack

Original Link: http://www.informationclearinghouse.info/article21385.htm

By Robert Dreyfuss

December 05, 2008 "Information Clearinghouse" -- What, exactly, does president-elect Barack Obama's mild-mannered choice to head the Department of Health and Human Services, former senator Tom Daschle, have to do with neo-conservatives who want to bomb Iran?

A familiar coalition of hawks, hardliners and neo-cons expects Obama's proposed talks with Iran to fail - and they're already proposing an escalating set of measures instead. Some are meant to occur alongside any future talks. These include steps to enhance coordination with Israel, tougher sanctions against Iran, and a region-wide military buildup of US strike forces, including the prepositioning of military supplies within striking distance of that country.

Once the future negotiations break down, as they are convinced will happen, they propose that Washington quickly escalate to war-like measures, including a US Navy-enforced embargo on Iranian fuel imports and a blockade of that country's oil exports. Finally, of course, comes the strategic military attack against the Islamic Republic of Iran that so many of them have wanted for so long.

It's tempting to dismiss the hawks now as twice-removed from power: first, figures like John Bolton, Paul Wolfowitz and Douglas Feith were purged from top posts in the George W Bush administration after 2004; then the election of Obama and the announcement on Monday of his centrist, realist-minded team of establishment foreign policy gurus seemed to nail the doors to power shut for the neo-cons, who have bitterly criticized the president-elect's plans to talk with Iran, withdraw US forces from Iraq, and abandon the reckless "war on terror" rhetoric of the Bush era.

'Kinetic action' against Iran
When it comes to Iran, however, it's far too early to dismiss the hawks. To be sure, they are now plying their trade from outside the corridors of power, but they have more friends inside the Obama camp than most people realize. Several top advisers to Obama - including Tony Lake, United Nations ambassador-designate Susan Rice, Tom Daschle and Dennis Ross, along with leading Democratic hawks like Richard Holbrooke, close to vice president-elect Joe Biden or secretary of state-designate Hillary Clinton - have made common cause with war-minded think-tank hawks at the Washington Institute for Near East Policy (WINEP), the American Enterprise Institute (AEI), and other hardline institutes.

Last spring, Tony Lake and Susan Rice, for example, took part in a WINEP "2008 Presidential Task Force" study which resulted in a report entitled, "Strengthening the Partnership: How to Deepen US-Israel Cooperation on the Iranian Nuclear Challenge". The Institute, part of the Washington-based Israel lobby, was founded in coordination with the American-Israel Public Affairs Committee (AIPAC), and has been vigorously supporting a confrontation with Iran. The task force report, issued in June, was overseen by four WINEP heavyweights: Robert Satloff, WINEP's executive director, Patrick Clawson, its chief Iran analyst, David Makovsky, a senior fellow, and Dennis Ross, an adviser to Obama who is also a WINEP fellow.

Endorsed by both Lake and Rice, the report opted for an alarmist view of Iran's nuclear program and proposed that the next president set up a formal US-Israeli mechanism for coordinating policy toward Iran (including any future need for "preventive military action"). It drew attention to Israeli fears that "the United States may be reconciling itself to the idea of 'living with an Iranian nuclear bomb'," and it raised the spurious fear that Iran plans to arm terrorist groups with nuclear weapons.

There is, of course, nothing wrong with consultations between the United States and Israel. But the WINEP report is clearly predisposed to the idea that the US ought to give undue weight to Israel's inflated concerns about Iran. And it ignores or dismisses a number of facts: that Iran has no nuclear weapon, that Iran has not enriched uranium to weapons grade, that Iran may not have the know-how to actually construct a weapon even if, at some time in the future, it does manage to acquire bomb-grade material, and that Iran has no known mechanism for delivering such a weapon.

WINEP is correct that the US must communicate closely with Israel about Iran. Practically speaking, however, a US-Israeli dialogue over Iran's "nuclear challenge" will have to focus on matters entirely different from those in WINEP's agenda. First, the US must make it crystal clear to Israel that under no circumstances will it tolerate or support a unilateral Israeli attack against Iran.

Second, Washington must make it clear that if Israel were indeed to carry out such an attack, the US would condemn it, refuse to widen the war by coming to Israel's aid, and suspend all military aid to the Jewish state. And third, Israel must get the message that, even given the extreme and unlikely possibility that the US deems it necessary to go to war with Iran, there would be no role for Israel.

Just as in the wars against Iraq in 1990-1991 and 2003-2008, the US hardly needs Israeli aid, which would be both superfluous and inflammatory. Dennis Ross and others at WINEP, however, would strongly disagree that Israel is part of the problem, not part of the solution.

Ross, who served as Middle East envoy for president George H W Bush and then Bill Clinton, was also a key participant in a September 2008 task force chaired by two former senators, Republican Daniel Coats and Democrat Chuck Robb, and led by Michael Makovsky, brother of WINEP's David Makovsky, who served in the Office of the Secretary of Defense in the heyday of the Pentagon neo-cons from 2002-2006. Robb, incidentally, had already served as the neo-cons' channel into the 2006 Iraq Study Group, chaired by former secretary of state James Baker and former Representative Lee Hamilton. According to Bob Woodward's latest book, The War Within: A Secret White House History 2006-2008, it was Robb who insisted that the Baker-Hamilton task force include an option for a "surge" in Iraq.

The report of the Coats-Robb task force - "Meeting the Challenge: US Policy Toward Iranian Nuclear Development" - went far beyond the WINEP task force report that Lake and Rice signed off on. It concluded that any negotiations with Iran were unlikely to succeed and should, in any case, be short-lived. As the report put the matter, "It must be clear that any US-Iranian talks will not be open-ended, but will be limited to a pre-determined time period so that Tehran does not try to 'run out the clock'."

Anticipating the failure of the talks, the task force (including Ross) urged "prepositioning military assets" coupled with a "show of force" in the region. This would be followed almost immediately by a blockade of Iranian gasoline imports and oil exports, meant to paralyze Iran's economy, followed by what they call, vaguely, "kinetic action".

That "kinetic action" - a US assault on Iran - should, in fact, be massive, suggested the Coats-Robb report. Besides hitting dozens of sites alleged to be part of Iran's nuclear research program, the attacks would target Iranian air defense and missile sites, communications systems, Iranian Revolutionary Guards Corps facilities, key parts of Iran's military-industrial complex, munitions storage facilities, airfields, aircraft facilities, and all of Iran's naval facilities. Eventually, they say, the US would also have to attack Iran's ground forces, electric power plants and electrical grids, bridges, and "manufacturing plants, including steel, autos, buses, etc".

This is, of course, a hair-raising scenario. Such an attack on a country that had committed no act of war against the United States or any of its allies would cause countless casualties, virtually destroy Iran's economy and infrastructure, and cause havoc throughout the region. That such a high-level group of luminaries should even propose steps like these - and mean it - can only be described as lunacy. That an important adviser to Obama would sign on to such a report should be shocking, though it has received next to no attention.

Palling around with the neo-cons
At a November 6 forum at WINEP, Patrick Clawson, the erudite, neo-conservative strategist who serves as the organization's deputy director for research, laid out the institute's view of how to talk to Iran in the Obama era. Doing so, he said, is critically important, but only to show the rest of the world that the US has taken the last step for peace - before, of course, attacking. Then, and only then, will the US have the legitimacy it needs to launch military action against Iran.

"What we've got to do is to show the world that we're making a big deal of engaging the Iranians," he said, tossing a bone to the new administration. "I'd throw everything, including the kitchen sink, into it." He advocates this approach only because he believes it won't work. "The principal target with these offers [to Iran] is not Iran," he adds. "The principal target of these offers is American public opinion and world public opinion."

The Coats-Robb report, "Meeting the Challenge", was written by one of the hardest of Washington's neo-conservative hardliners, Michael Rubin of the AEI. Rubin, who spent most of the years since 9/11 either working for AEI or, before and during the war in Iraq, for the Wolfowitz-Feith team at the Pentagon, recently penned a report for the Institute entitled: "Can A Nuclear Iran Be Deterred or Contained?" Not surprisingly, he believes the answer to be a resounding "no", although he does suggest that any effort to contain a nuclear Iran would certainly require permanent US bases spread widely in the region, including in Iraq:

If US forces are to contain the Islamic Republic, they will require basing not only in GCC [Gulf Cooperation Council] countries, but also in Afghanistan, Iraq, Central Asia and the Caucasus. Without a sizeable regional presence, the Pentagon will not be able to maintain the predeployed resources and equipment necessary to contain Iran, and Washington will signal its lack of commitment to every ally in the region. Because containment is as much psychological as physical, basing will be its backbone.

The Coats-Robb report was issued by a little-known group called the Bipartisan Policy Center (BPC). That organization, too, turns out to be interwoven with WINEP, not least because its foreign policy director is Michael Makovsky. Perhaps the most troubling participant in the Bipartisan Policy Center is Obama's eminence grise and one of his most important advisers during the campaign, Tom Daschle, who is slated to be his secretary of health and human services. So far, Daschle has not repudiated BPC's provocative report.

Ross, along with Richard Holbrooke, recently made appearances amid another collection of superhawks who came together to found a new organization, United Against Nuclear Iran (UANI), which is led by Mark Wallace, the husband of Nicole Wallace, a key member of Senator John McCain's campaign team. Among UANI's leadership team are Ross and Holbrooke, along with such hardliners as Jim Woolsey, the former director of the Central Intelligence Agency, and Fouad Ajami, the Arab-American scholar who is a principal theorist on Middle East policy for the neo-conservative movement.

UANI is primarily a propaganda outfit. Its mission, it says, is to "inform the public about the nature of the Iranian regime, including its desire and intent to possess nuclear weapons, as well as Iran's role as a state sponsor of global terrorism, and a major violator of human rights at home and abroad" and to "heighten awareness nationally and internationally about the danger that a nuclear-armed Iran poses to the region and the world".

Obama has, of course, repeatedly declared his intention to embark on a different path by opening talks with Iran. He's insisted that diplomacy, not military action, will be at the core of his approach to Tehran. During the election campaign, however, he also stated no less repeatedly that he will not take the threat of military action "off the table".

Organizations like WINEP, AIPAC, AEI, BPC, and UANI see it as their mission to push the United States toward a showdown with Iran. Don't sell them short. Those who believe that such a confrontation would be inconceivable under president Obama ought to ask Tony Lake, Susan Rice, Dennis Ross, Tom Daschle and Richard Holbrooke whether they agree - and, if so, why they're still palling around with neo-conservative hardliners.

Robert Dreyfuss, an independent journalist in Alexandria, Virginia, is a contributing editor at the Nation magazine, whose website hosts his The Dreyfuss Report, and has written frequently for Rolling Stone, The American Prospect, Mother Jones, and the Washington Monthly. He is the author of Devil's Game: How the United States Helped Unleash Fundamentalist Islam.

Saturday, November 29, 2008

Bases brace for surge in stress-related disorders

Original Link: http://www.bakersfieldnow.com/news/health/35258899.html

Some 15,000 soldiers are heading home to this sprawling base after spending more than a year at war in Iraq and Afghanistan, and military health officials are bracing for a surge in brain injuries and psychological problems among those troops.

Facing prospects that one in five of the 101st Airborne Division soldiers will suffer from stress-related disorders, the base has nearly doubled its psychological health staff. Army leaders are hoping to use the base's experiences to assess the long-term impact of repeated deployments.

The three 101st Airborne combat brigades, which have begun arriving home, have gone through at least three tours in Iraq. The 3rd Brigade also served seven months in Afghanistan, early in the war. Next spring, the 4th Brigade will return from a 15-month tour in Afghanistan. So far, roughly 10,000 soldiers have come back; the remainder are expected by the end of January.

Army leaders say they will closely watch Fort Campbell to determine the proper medical staffing levels needed to aid soldiers who have endured repeated rotations in the two war zones.

"I don't know what to expect. I don't think anybody knows," said Gen. Peter Chiarelli, vice chief of staff of the Army, as he flew back to Washington from a recent tour of the base's medical facilities. "That's why I want to see numbers from the 101st's third deployment."

What happens with the 101st Airborne, he said, will let the Army help other bases ready for similar homecomings in the next year or two, when multiple brigades from the 4th Infantry Division and the 1st Cavalry Division return.

Noting that some soldiers in the 101st Airborne units have been to war four or five times, Chiarelli said he is most worried the military will not be able to find enough health care providers to deal effectively with the troops needing assistance.

Many of the military bases are near small or remote communities that do not have access to the number of health professionals who might be needed as a great many soldiers return home.

More than 63,600 active duty Army soldiers have done three or more tours in Iraq or Afghanistan. That is a nearly 12 percent of the total number of soldiers who have deployed at least once. Roughly four in 10 soldiers who have gone to war have served more than one deployment - and that number is growing steadily.

One solution under discussion is the formation of mobile medical and psychological teams that can go to Army bases when they are expecting a surge in activity from returning units.

At Fort Campbell, the director of health services, Col. Richard Thomas, has roughly doubled his authorized staff of psychologists and behavioral specialists to 55 and is trying to hire a few more.

"I think we have enough staff to meet the demands of the soldiers here, but I could use more, and I'll hire more if I can," said Thomas. "I'll hire them until they tell me to stop."

He said he expects the increased staffing levels to last at least through next year.

For the first time, Thomas said, every soldier returning home will have an individual meeting with a behavioral health specialist and then go through a second such session 90 days to 120 days later.

The second one is generally the time when indications of stress surface, after the initial euphoria of the homecoming wears off and sleeplessness, nightmares, and other symptoms show up.

"We're seeing a lot of soldiers with stress related issues," he said. "They're not bipolar or schizophrenic. But they're deploying three and four times and the stress is tremendous. They're having relationship issues, financial issues, marital problems - all stress related."

According to Dr. Bret Logan, deputy commander for managed care at the base, extended war zone stints that have lasted as long as 38 months over the course of the wars in Afghanistan and Iraq have taken a severe toll.

More than 3,000 of the 15,000 troops returning home, Logan estimated, probably will experience headaches, sleep disorders, irritability, memory loss, relationship strains or other symptoms linked to stress disorder.

Medical staff at Fort Campbell say they also worry that there will be a new surge of suicides - an escalating problem in recent years, largely related to the stresses of war.

Jon Soltz, an Iraq war veteran and chairman of VoteVets.org, said more soldiers will have stress-related problems, and the military must be vigilant in diagnosing and treating post-traumatic stress disorder to head off more serious issues.

"The longer you are there (at war), the more PTSD you're going to see. You wonder when it's going to be your time," he said.

Each returning soldier is evaluated through a seven-day reintegration program. It includes medical checkups, tests, lectures on suicide prevention and relationships, and other sessions to help them transition back into life at the base and with their families.

During his visit to Campbell, Chiarelli took a spin on one of the base's simulators, which are used for soldiers having neurological or stress problems. The simulator can be used to test soldiers' reflexes or as a way to work someone back into everyday situations.

With occupational therapist Eileen Hayes watching over his shoulder, Chiarelli adeptly negotiated the city streets, sudden turns and other obstacles moving at him on the small screen.

The simulators said Logan, put patients in high stress scenarios to test their decision-making ability while under duress.

While soldiers have been routinely deploying for 15-month tours, most Marines serve about seven months and airmen deploy for about four months, although some may serve for tours of six months or longer.

Late this past summer, Pentagon leaders ordered a change, saying any soldier who deployed in August or after would serve 12-month tours. Army leaders say they want to reduce that to nine months, but doing so will be difficult considering the strains of fighting two wars at once.

Logan said that some 85 percent of those soldiers with stress disorder symptoms will recover with the help of some treatment or medication. But the other 15 percent will require more intensive help.

Friday, November 14, 2008

Franklin Delano Obama?

Original Link: http://www.nytimes.com/2008/11/10/opinion/10krugman.html

By Paul Krugman

Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world?

The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.

About the New Deal’s long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation’s economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn’t insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security.

Can Mr. Obama achieve something comparable? Rahm Emanuel, Mr. Obama’s new chief of staff, has declared that “you don’t ever want a crisis to go to waste.” Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come.

But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself.

Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?

Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.

This history offers important lessons for the incoming administration.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

Depression Economics Returns

Original Link: http://www.nytimes.com/2008/11/14/opinion/14krugman.html


The economic news, in case you haven’t noticed, keeps getting worse. Bad as it is, however, I don’t expect another Great Depression. In fact, we probably won’t see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that).

We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy — above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates — have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.

To see what I’m talking about, consider the implications of the latest piece of terrible economic news: Thursday’s report on new claims for unemployment insurance, which have now passed the half-million mark. Bad as this report was, viewed in isolation it might not seem catastrophic. After all, it was in the same ballpark as numbers reached during the 2001 recession and the 1990-1991 recession, both of which ended up being relatively mild by historical standards (although in each case it took a long time before the job market recovered).

But on both of these earlier occasions the standard policy response to a weak economy — a cut in the federal funds rate, the interest rate most directly affected by Fed policy — was still available. Today, it isn’t: the effective federal funds rate (as opposed to the official target, which for technical reasons has become meaningless) has averaged less than 0.3 percent in recent days. Basically, there’s nothing left to cut.

And with no possibility of further interest rate cuts, there’s nothing to stop the economy’s downward momentum. Rising unemployment will lead to further cuts in consumer spending, which Best Buy warned this week has already suffered a “seismic” decline. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction.

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress — and the stimulus plan won’t come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices.

One of these prejudices is the fear of red ink. In normal times, it’s good to worry about the budget deficit — and fiscal responsibility is a virtue we’ll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. F.D.R.’s premature attempt to balance the budget in 1937 almost destroyed the New Deal.

Another prejudice is the belief that policy should move cautiously. In normal times, this makes sense: you shouldn’t make big changes in policy until it’s clear they’re needed. Under current conditions, however, caution is risky, because big changes for the worse are already happening, and any delay in acting raises the chance of a deeper economic disaster. The policy response should be as well-crafted as possible, but time is of the essence.

Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it’s much better to err on the side of doing too much than on the side of doing too little. The risk, if the stimulus plan turns out to be more than needed, is that the economy might overheat, leading to inflation — but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall. So when depression economics prevails, prudence is folly.

What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year.

All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.

So the question becomes, will the Obama people dare to propose something on that scale?

Let’s hope that the answer to that question is yes, that the new administration will indeed be that daring. For we’re now in a situation where it would be very dangerous to give in to conventional notions of prudence.

Tuesday, October 14, 2008

Gordon Does Good

Original Link: http://www.nytimes.com/2008/10/13/opinion/13krugman.html


Has Gordon Brown, the British prime minister, saved the world financial system?

O.K., the question is premature — we still don’t know the exact shape of the planned financial rescues in Europe or for that matter the United States, let alone whether they’ll really work. What we do know, however, is that Mr. Brown and Alistair Darling, the chancellor of the Exchequer (equivalent to our Treasury secretary), have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.

This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs. It’s true that London is one of the world’s great financial centers, but the British economy is far smaller than the U.S. economy, and the Bank of England doesn’t have anything like the influence either of the Federal Reserve or of the European Central Bank. So you don’t expect to see Britain playing a leadership role.

But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.

What is the nature of the crisis? The details can be insanely complex, but the basics are fairly simple. The bursting of the housing bubble has led to large losses for anyone who bought assets backed by mortgage payments; these losses have left many financial institutions with too much debt and too little capital to provide the credit the economy needs; troubled financial institutions have tried to meet their debts and increase their capital by selling assets, but this has driven asset prices down, reducing their capital even further.

What can be done to stem the crisis? Aid to homeowners, though desirable, can’t prevent large losses on bad loans, and in any case will take effect too slowly to help in the current panic. The natural thing to do, then — and the solution adopted in many previous financial crises — is to deal with the problem of inadequate financial capital by having governments provide financial institutions with more capital in return for a share of ownership.

This sort of temporary part-nationalization, which is often referred to as an “equity injection,” is the crisis solution advocated by many economists — and sources told The Times that it was also the solution privately favored by Ben Bernanke, the Federal Reserve chairman.

But when Henry Paulson, the U.S. Treasury secretary, announced his plan for a $700 billion financial bailout, he rejected this obvious path, saying, “That’s what you do when you have failure.” Instead, he called for government purchases of toxic mortgage-backed securities, based on the theory that ... actually, it never was clear what his theory was.

Meanwhile, the British government went straight to the heart of the problem — and moved to address it with stunning speed. On Wednesday, Mr. Brown’s officials announced a plan for major equity injections into British banks, backed up by guarantees on bank debt that should get lending among banks, a crucial part of the financial mechanism, running again. And the first major commitment of funds will come on Monday — five days after the plan’s announcement.

At a special European summit meeting on Sunday, the major economies of continental Europe in effect declared themselves ready to follow Britain’s lead, injecting hundreds of billions of dollars into banks while guaranteeing their debts. And whaddya know, Mr. Paulson — after arguably wasting several precious weeks — has also reversed course, and now plans to buy equity stakes rather than bad mortgage securities (although he still seems to be moving with painful slowness).

As I said, we still don’t know whether these moves will work. But policy is, finally, being driven by a clear view of what needs to be done. Which raises the question, why did that clear view have to come from London rather than Washington?

It’s hard to avoid the sense that Mr. Paulson’s initial response was distorted by ideology. Remember, he works for an administration whose philosophy of government can be summed up as “private good, public bad,” which must have made it hard to face up to the need for partial government ownership of the financial sector.

I also wonder how much the Femafication of government under President Bush contributed to Mr. Paulson’s fumble. All across the executive branch, knowledgeable professionals have been driven out; there may not have been anyone left at Treasury with the stature and background to tell Mr. Paulson that he wasn’t making sense.

Luckily for the world economy, however, Gordon Brown and his officials are making sense. And they may have shown us the way through this crisis.

Thursday, October 9, 2008

Afghanistan facing 'downward spiral'

Original Link: http://seattletimes.nwsource.com/html/politics/2008244645_apafghanistanintelligence.html

By PAMELA HESS Associated Press Writer

The situation in Afghanistan now is the worst since the U.S.-led invasion of 2001 and the country is in danger of a "downward spiral" into violence and chaos, according to an intelligence report draft.

The nearly completed National Intelligence Estimate, the work of 16 intelligence agencies, says Afghanistan's deterioration has accelerated alarmingly in past two months. Bush administration officials say privately that Afghanistan is now the single most pressing security threat in the fight against terrorism.

"We are doing a review to look to see what more we can do," Secretary of State Condoleezza Rice told reporters Thursday. "We are looking to see where some of the strengths are and how we can support those strengths and also how we can help the Afghans when there are weaknesses."

A senior U.S. commander with recent experience in Afghanistan characterized the situation as "stagnant" rather than deteriorating.

"We're not making progress. And we're not making progress because of a lack of capability in the government and because the Taliban have a safe haven from which to plan, train, and launch attacks into Afghanistan," said the commander, who like others spoke on condition of anonymity because of the sensitive material.

A second military commander, who read the draft of the intelligence report, said it warns that action is needed quickly to prevent Afghanistan from heading into the "downward spiral." The secret report is expected to be completed mid-November and some conclusions could change.

Military figures show that Afghanistan has become far more dangerous for American troops than Iraq. More than twice as many Americans have died in Afghanistan than in Iraq since May, even though there are more than five times the number of U.S. troops in Iraq.

The White House has accelerated a review of how to reverse the security slide and shore up Afghan President Hamid Karzai's struggling government. Heading the review is Lt. Gen. Douglas Lute, President Bush's deputy national security adviser for Iraq and Afghanistan.

Gen. David Petraeus, fresh from Iraq and tapped to head U.S. Central Command, which oversees both war zones, was in Washington on Thursday to discuss the situation.

"They are trying hard not to do anything that boxes in or locks in the next administration," said a military official familiar with the review. "We want to make sure that when we emerge into the next fighting season, the Bush administration has done as much as it can to help." Fighting in Afghanistan abates during the winter snows because of the rough mountain terrain.

The administration has announced plans to send 3,500 additional Marines to Afghanistan before year's end and then an Army brigade of about 5,000 soldiers early in 2009. As many as three additional Army brigades could follow in the months after that. Currently the U.S. has 31,000 troops in Afghanistan. There also are 31,000 troops from NATO countries and other allies.

In addition to increasing troops strength, the review covers nonmilitary options including possible expansion of the effort to combat the heroin trade, which raises up to $100 million a year for the Taliban, according to the U.S. military.

Al-Qaida and the Taliban move freely in the border area of Pakistan, enabled by friendly militant tribes. They are conducting raids into Afghanistan with increasing impunity.

Defense Secretary Robert Gates pushed NATO allies at a meeting in Hungary to target the narcotics production to stem the flow of cash.

The draft national intelligence estimate also blames waning Afghan support for Karzai's government on corruption, a military official said. He said the corruption primarily involves bribery, rather than government cooperation with the Taliban.

Tuesday, October 7, 2008

New U.S. intelligence report warns 'victory' not certain in Iraq

Original Link: http://www.mcclatchydc.com/homepage/story/53605.html

By Jonathan S. Landay, Warren P. Strobel and Nancy A. Youssef McClatchy Newspapers

WASHINGTON — A nearly completed high-level U.S. intelligence analysis warns that unresolved ethnic and sectarian tensions in Iraq could unleash a new wave of violence, potentially reversing the major security and political gains achieved over the last year.

U.S. officials familiar with the new National Intelligence Estimate said they were unsure when the top-secret report would be completed and whether it would be published before the Nov. 4 presidential election.

More than a half-dozen officials spoke to McClatchy on condition of anonymity because NIE's, the most authoritative analyses produced by the U.S. intelligence community, are restricted to the president, his senior aides and members of Congress except in rare instances when just the key findings are made public.

The new NIE, which reflects the consensus of all 16 U.S. intelligence agencies, has significant implications for Republican John McCain and Democrat Barack Obama, whose differences over the Iraq war are a major issue in the presidential campaign.

The findings seem to cast doubts on McCain's frequent assertions that the United States is "on a path to victory" in Iraq by underscoring the deep uncertainties of the situation despite the 30,000-strong U.S. troop surge for which he was the leading congressional advocate.

But McCain could also use the findings to try to strengthen his argument for keeping U.S. troops in Iraq until conditions stabilize.

For Obama, the report raises questions about whether he could fulfill his pledge to withdraw most of the remaining 152,000 U.S. troops _ he would leave some there to deal with al Qaida and to protect U.S. diplomats and civilians _ within 16 months of taking office so that more U.S. forces could be sent to battle the growing Taliban insurgency in Afghanistan.

Word of the draft NIE comes at a time when Iraq is enjoying its lowest levels of violent incidents since early 2004 and a 77 percent drop in civilian deaths in June through August 2008 over the same period in 2007, according to the Defense Department.

U.S. officials say last year's surge of 30,000 troops, all of whom have been withdrawn, was just one reason for the improvements. Other factors include the truce declared by anti-U.S. cleric Muqtada al Sadr, the leader of an Iran-backed Shiite Muslim militia; and the enlistment of former Sunni insurgents in Awakening groups created by the U.S. military to fight al Qaida in Iraq and other extremists.

The draft NIE, however, warns that the improvements in security and political progress, like the recent passage of a provincial election law, are threatened by lingering disputes between the majority Shiite Arabs, Sunni Arabs, Kurds and other minorities, the U.S. officials said.

Sources of tension identified by the NIE, they said, include a struggle between Sunni Arabs, Kurds and Turkmen for control of the oil-rich northern city of Kirkuk; and the Shiite-led central government's unfulfilled vows to hire former Sunni insurgents who joined Awakening groups.

A spokesman for Director of National Intelligence Mike McConnell, whose office compiled the estimate, declined comment, saying the agency does not discuss NIE's.

The findings of the intelligence estimate appear to be reflected in recent statements by Army Gen. David Petraeus, the former top U.S. commander in Iraq, who has called the situation "fragile" and "reversible" and said he will never declare victory there.

Secretary of State Condoleezza Rice echoed that tone on Monday during a State Department awards ceremony for Petraeus and U.S. Ambassador to Iraq Ryan Crocker.

"Ladies and gentlemen, nothing is certain in this life. And success in Iraq is not a sure thing," Rice said in an uncharacteristically downbeat comment.

The NIE findings parallel a Defense Department assessment last month that warned that despite "promising developments, security gains in Iraq remain fragile. A number of issues have the potential to upset progress."

Trouble spots include whether the former Sunni insurgents, also known as the Sons of Iraq, find permanent employment; provincial elections scheduled for January; Kirkuk's status; the fate of internally displaced people and returning refugees; and "malign Iranian influence," the unclassified Pentagon report said.

The intelligence agencies' estimate also raises worries about what would happen if Sadr, the anti-U.S. cleric, attempts to reassert himself, according to senior intelligence officials familiar with its contents.

If Sadr abandons his cease-fire, it is unclear whether his former followers would rejoin his cause or whether his movement is permanently fractured, and thus harder to control.

The embattled Sons of Iraq program may prove to be the ultimate challenge to sustained stability in Iraq. The U.S. program to pay mostly Sunni former insurgents to protect their neighborhoods or in some cases to stop shooting at Americans is now moving into the hands of the Shiite-led government.

Many of the roughly 100,000 men of the mostly Sunni paramilitary groups have fled to Syria, while others remain in Iraq, worried that the Shiite government will disband and detain the men. The U.S. military has promised not to abandon the men, of whom about 54,000 were transferred to Iraqi government control this month.

(Leila Fadel contributed from Baghdad.)

America's $53 trillion debt problem

Original Link: http://www.cnn.com/2008/POLITICS/10/06/walker.bailout/index.html

By David M. Walker

Editor's Note: David M. Walker served as comptroller general of the United States and head of the Government Accountability Office (GAO) from 1998 to 2008. He is now president and CEO of the Peter G. Peterson Foundation.

David Walker says the $700 billion bailout is a pittance compared with the debt facing the United States.

The Emergency Economic Stabilization Act contains plenty to make lawmakers on the left and right shudder. On the right, it's the apparent abandonment of free-market principles. On the left, it's the absence of punishment for high-flying Wall Street CEO's.

Looking down the middle, what I found downright unnerving was how hard Washington struggled to pass a bill that, in reality, represents less than 1 percent of our current federal financial hole.

Don't get me wrong. Congress and the Bush Administration are to be commended for acting to relieve the credit crunch and trying to minimize any immediate, adverse effect on our economy and by consequence, on American jobs and access to credit.

The ultimate cost of the act should ring up at less than $500 billion, less than the advertised $700 billion because of anticipated proceeds from the government's sale of the assets it will acquire with the appropriated funds.

The nation's real tab, on the other hand, amounted to $53 trillion as of the end of the last fiscal year. That was the sum of our public debt; accrued civilian and military retirement benefits; unfunded, promised Social Security and Medicare benefits; and other financial obligations -- all according to the government's most recent financial statement of September 30, 2007.

The rescue package and other bailout efforts for Fannie Mae, Freddie Mac, AIG and the auto industry, escalating operating deficits, compounding interest and other factors are likely to boost the tab to $56 trillion or more by the end of this calendar year.

With numbers and trends like this, you might ask, "Who will bail out America?" The answer is, no one but us!

Since we're going to have to save ourselves, recent events could hardly be called encouraging. It took an additional $100 billion in incentives -- some would call them "sweeteners;" others might call them bribes -- to get lawmakers to pass the rescue package. Regardless of what you call these incentives, ultimately the taxpayers will have to pick up the tab, with interest.

The process that was employed to achieve enactment of this bill was hardly a model of efficiency or effectiveness. The original proposal represented an over-reach and under-communication by the administration.

Neither lawmakers nor ordinary citizens had enough information to properly assess the real risks, the need for action and what an appropriate course of action might be. Furthermore, the key players allowed the legislation to be characterized as a $700 billion bailout of Wall Street, which was neither an accurate nor a fair reflection of the legislation.

Passage of the credit-crunch relief provisions in the act was understandable, not just because of what risks and needed actions the Treasury and the Federal Reserve were aware of, but more importantly, because of what policymakers didn't know and eventually might have to address.

Let's face it -- the regular order in Washington is broken. We must move beyond crisis management approaches and start to address some of the key fiscal and other challenges facing this country if we want our future to be better than our past.

A good place to start would be for the presidential candidates to acknowledge our $53 trillion (and growing) federal financial hole and commit to begin to address it. Their endorsement of the need for a bipartisan fiscal future commission along the lines of the one sponsored by Rep. Jim Cooper, D-Tennessee, and Rep. Frank Wolf, R-Virginia, also would make sense.

Any such commission should, at a minimum, address the need for statutory budget controls, comprehensive Social Security reform, a first round of tax reform and a first round of comprehensive health care reform. It should hold hearings both inside and beyond the Beltway. And, its recommendations should be guaranteed to receive an up-or-down vote by Congress if a super-majority of the commission's members can agree on a comprehensive proposal.

Our fiscal time bomb is ticking, and the time for action is now!

Friday, October 3, 2008

Edge of the Abyss

Original Link: http://www.nytimes.com/2008/10/03/opinion/03krugman.html


As recently as three weeks ago it was still possible to argue that the state of the U.S. economy, while clearly not good, wasn’t disastrous — that the financial system, while under stress, wasn’t in full meltdown and that Wall Street’s troubles weren’t having that much impact on Main Street.

But that was then.

The financial and economic news since the middle of last month has been really, really bad. And what’s truly scary is that we’re entering a period of severe crisis with weak, confused leadership.

The wave of bad news began on Sept. 14. Henry Paulson, the Treasury secretary, thought he could get away with letting Lehman Brothers, the investment bank, fail; he was wrong. The plight of investors trapped by Lehman’s collapse — as an article in The Times put it, Lehman became “the Roach Motel of Wall Street: They checked in, but they can’t check out” — created panic in the financial markets, which has only grown worse as the days go by. Indicators of financial stress have soared to the equivalent of a 107-degree fever, and large parts of the financial system have simply shut down.

There’s growing evidence that the financial crunch is spreading to Main Street, with small businesses having trouble raising money and seeing their credit lines cut. And leading indicators for both employment and industrial production have turned sharply worse, suggesting that even before Lehman’s fall, the economy, which has been sagging since last year, was falling off a cliff.

How bad is it? Normally sober people are sounding apocalyptic. On Thursday, the bond trader and blogger John Jansen declared that current conditions are “the financial equivalent of the Reign of Terror during the French Revolution,” while Joel Prakken of Macroeconomic Advisers says that the economy seems to be on “the edge of the abyss.”

And the people who should be steering us away from that abyss are out to lunch.

The House will probably vote on Friday on the latest version of the $700 billion bailout plan — originally the Paulson plan, then the Paulson-Dodd-Frank plan, and now, I guess, the Paulson-Dodd-Frank-Pork plan (it’s been larded up since the House rejected it on Monday). I hope that it passes, simply because we’re in the middle of a financial panic, and another no vote would make the panic even worse. But that’s just another way of saying that the economy is now hostage to the Treasury Department’s blunders.

For the fact is that the plan on offer is a stinker — and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren’t: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they’re doing.

Despite this, as I said, I hope the plan passes, because otherwise we’ll probably see even worse panic in the markets. But at best, the plan will buy some time to seek a real solution to the crisis.

And that raises the question: Do we have that time?

A solution to our economic woes will have to start with a much better-conceived rescue of the financial system — one that will almost surely involve the U.S. government taking partial, temporary ownership of that system, the way Sweden’s government did in the early 1990s. Yet it’s hard to imagine the Bush administration taking that step.

We also desperately need an economic stimulus plan to push back against the slump in spending and employment. And this time it had better be a serious plan that doesn’t rely on the magic of tax cuts, but instead spends money where it’s needed. (Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority.) Yet it’s hard to imagine the Bush administration, in its final months, overseeing the creation of a new Works Progress Administration.

So we probably have to wait for the next administration, which should be much more inclined to do the right thing — although even that’s by no means a sure thing, given the uncertainty of the election outcome. (I’m not a fan of Mr. Paulson’s, but I’d rather have him at the Treasury than, say, Phil “nation of whiners” Gramm.)

And while the election is only 32 days away, it will be almost four months until the next administration takes office. A lot can — and probably will — go wrong in those four months.

One thing’s for sure: The next administration’s economic team had better be ready to hit the ground running, because from day one it will find itself dealing with the worst financial and economic crisis since the Great Depression.

Saturday, September 27, 2008

Where Are the Grown-Ups?

Original Link: http://www.nytimes.com/2008/09/26/opinion/26krugman.html


Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America’s financial system. They’re right to be outraged, but doing nothing isn’t a serious option. Right now, players throughout the system are refusing to lend and hoarding cash — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.

It’s true that we don’t know for sure that the parallel is a fair one. Maybe we can let Wall Street implode and Main Street would escape largely unscathed. But that’s not a chance we want to take.

So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge?

Earlier this week, Henry Paulson, the Treasury secretary, tried to convince Congress that he was the grown-up in the room, come to protect us from danger. And he demanded total authority over the rescue: $700 billion to be used at his discretion, with immunity for future review.

Congress balked. No government official should be entrusted with that kind of monarchical privilege, least of all an official belonging to the administration that misled America into war. Furthermore, Mr. Paulson’s track record is anything but reassuring: he was way behind the curve in appreciating the depth of the nation’s financial woes, and it’s partly his fault that we’ve reached the current moment of meltdown.

Besides, Mr. Paulson never offered a convincing explanation of how his plan was supposed to work — and the judgment of many economists was, in fact, that it wouldn’t work unless it amounted to a huge welfare program for the financial industry.

But if Mr. Paulson isn’t the grown-up we need, are Congressional leaders ready and able to fill the role?

Well, the bipartisan “agreement on principles” released on Thursday looks a lot better than the original Paulson plan. In fact, it puts Mr. Paulson himself under much-needed adult supervision, calling for an oversight board “with cease and desist authority.” It also limits Mr. Paulson’s allowance: he only (only!) gets to use $250 billion right away.

Meanwhile, the agreement calls for limits on executive pay at firms that get federal money. Most important, it “requires that any transaction include equity sharing.”

Why is that so important? The fundamental problem with our financial system is that the fallout from the housing bust has left financial institutions with too little capital. When he finally deigned to offer an explanation of his plan, Mr. Paulson argued that he could solve this problem through “price discovery” — that once taxpayer funds had created a market for mortgage-related toxic waste, everyone would realize that the toxic waste is actually worth much more than it currently sells for, solving the capital problem. Never say never, I guess — but you don’t want to bet $700 billion on wishful thinking.

The odds are, instead, that the U.S. government will end up having to do what governments always do in financial crises: use taxpayers’ money to pump capital into the financial system. Under the original Paulson plan, the Treasury would probably have done this by buying toxic waste for much more than it was worth — and gotten nothing in return. What taxpayers should get is what people who provide capital are entitled to: a share in ownership. And that’s what the equity sharing is about.

The Congressional plan, then, looks a lot better — a lot more adult — than the Paulson plan did. That said, it’s very short on detail, and the details are crucial. What prices will taxpayers pay to take over some of that toxic waste? How much equity will they get in return? Those numbers will make all the difference.

And in any case, it seems that we don’t have a deal.

This has to be a bipartisan plan, and not just at the leadership level. Democrats won’t pass the plan without votes from rank-and-file Republicans — and as of Thursday night, those rank-and-file Republicans were balking.

Furthermore, one non-rank-and-file Republican, Senator John McCain, is apparently playing spoiler. Earlier this week, while refusing to say whether he supported the Paulson plan, he claimed not to have had a chance to read it; the plan is all of three pages long. Then he inserted himself into the delicate negotiations over the Congressional plan, insisting on a White House meeting at which he reportedly said little — but during which consensus collapsed.

The bottom line, then, is that there do seem to be some adults in Congress, ready to do something to help us get through this crisis. But the adults are not yet in charge.

Thursday, September 25, 2008

Interrogator details pre-Abu Ghraib abuses

Original Link: http://www.guardian.co.uk/world/feedarticle/7827959

By PAMELA HESS, Associated Press Writer

A military interrogation expert, Air Force Col. Steven Kleinman, told Congress on Thursday that prior to the abuses at Abu Ghraib, he witnessed interrogations of Iraqi detainees that he considers violations of the Geneva Conventions.

One interrogation was conducted by an Air Force civilian and a contractor employed by his own organization, the Joint Personnel Recovery Agency. It had sent a small team to Iraq in September 2003 to help a special forces task force improve its interrogations of stubborn prisoners. The team was asked to demonstrate an interrogation on an Iraqi prisoner. It was an unusual role for the organization, which trains soldiers how to resist interrogations, not conduct them.

Kleinman said his two colleagues forcibly stripped an Iraqi prisoner naked, shackled him and left him standing in a dank, six-foot cement cell with orders to the guards that the prisoner was not to move for 12 hours. Had the prisoner passed out, he would have hit his head on a wall, Kleinman said.

Kleinman stopped the interrogation, which had veered from his careful plan into abuse.

"Until their time in Iraq they had never seen a real world interrogation," he said.

The men, Terrence Russell and Lenny Miller, had learned the harsh techniques working with the Survival, Evasion, Resistance and Escape (SERE) training program for U.S. forces, which conducts stressful mock interrogations to prepare soldiers to withstand and resist abusive questioning in the event they are taken prisoner. The program uses methods derived from the real-life experiences of American prisoners of war. The techniques include forced nudity, stress positions, exposure to extremes in weather and waterboarding, a form of simulated drowning.

Russell is a civilian JPRA employee involved in research and program development. Miller was a contractor who no longer works for JPRA, according to the military.

Joint Forces Command, which oversees JPRA, did not investigate Kleinman's allegations because they were made directly to the task force in Iraq, said spokesman Capt. Dennis Moynihan.

Attempts to locate Russell and Miller independently were unsuccessful.

At the time, Kleinman called his now retired commander, Col. John Moulton II, to express concern about the harsh methods he saw being used in several interrogations. He said Moulton checked with his superiors and called him back to say the techniques had been specifically approved. Moulton later told investigators that he understood that the Pentagon's general counsel or higher had approved the measures, and that the prisoners were considered terrorists and were not protected by the Geneva Conventions.

The Geneva Conventions, however, did apply in Iraq.

The Senate Armed Services Committee also released responses from Secretary of State Condoleezza Rice and legal counsel John Bellinger regarding their knowledge of the CIA interrogation program when Rice was the national security adviser and Bellinger was the National Security Council's top lawyer.

She and Bellinger were also briefed on SERE interrogation methods at the White House in 2002 or 2003.

"I recall being told ... that these techniques had been deemed not to cause significant physical or psychological harm," Rice wrote.

Rice told the committee the CIA had sought NSC approval before embarking on its own harsh interrogation program in the spring of 2002. Rice said she asked then-Attorney General John Ashcroft to review its legality. The Justice Department's Office of Legal Counsel, which advises the White House on legal matters, later determined the CIA's program to be legal.

Rice also said Bellinger advised her regularly about "concerns and issues" relating to the Pentagon's interrogation and detention program at Guantanamo Bay Naval Base. She said the Justice Department never discussed with her the FBI's now documented concerns with interrogation practices at Guantanamo Bay and CIA detention facilities.

Bellinger said he knew the FBI refused to participate in some CIA interrogations, which included waterboarding for at least three detainees. He was also aware of allegations of abuse at Guantanamo in 2003.

Also Thursday, the Senate Judiciary Committee took a step closer to forcing the Justice Department to hand over secret legal memos authorizing the Bush administration to use harsh and potentially illegal interrogation techniques on detainees.

By a 10-9 vote, the committee agreed to give the chairman, Sen. Patrick Leahy, D-Vt., authority to subpoena the memos from the Office of Legal Counsel. It is now up to Leahy to decide whether to issue the subpoena, which the Justice Department likely will fight because much of the information in the memos is highly classified.

Justice spokesman Brian Roehrkasse did not answer a question about whether the department would comply with such a subpoena.

"We regret that the committee authorized the subpoena," Roehrkasse said in a statement. "We will continue to work with them to ensure that their legitimate oversight needs are met."

CEOs who got out before crisis left with millions

Original Link: http://seattletimes.nwsource.com/html/businesstechnology/2008203291_apbailoutceopay.html

By RACHEL BECK and ELLEN SIMON, AP Business Writers

With a Wall Street bailout looming that will almost certainly limit CEO pay, some of the poster boys of the financial crisis have already fled the scene, taking millions of dollars in severance packages with them.

Stanley O'Neal walked away from Merrill Lynch with a package now worth about $66 million. Less than a year later, the storied investment house was forced into a takeover by Bank of America.

Ken Thompson was ousted from Wachovia in June with a "golden parachute" now worth more than $5 million, and Chuck Prince was forced out at Citigroup with a parting gift now valued at $16 million.

They are among the best-known former CEOs in the American banking industry - an industry that, after they left, was brought to its knees in a crisis that had lawmakers warning about the possibility of outright panic or even another Great Depression.

"These guys took all this risk, and ultimately they won't have to suffer the consequences of their decisions," said Barry Ritholtz, who writes the popular financial blog The Big Picture and is CEO of research firm FusionIQ.

Congress and the Bush administration were working Thursday on a bailout package, perhaps with an ultimate cost of $700 billion, that would have the government buy bad debt off the books of banks.

Those banks are staggering after the collapse of the housing market triggered a wave of foreclosures, thinned out the bloodlines of credit and left banks holding no-good mortgage-backed securities.

Under the government plan, the long-gone CEOs would not have to give anything back, said Steven W. Adamske, a spokesman for the House Committee on Financial Services. He said there was no constitutional way to recoup pay retroactively.

Recognizing a public outcry, lawmakers from both parties have been pushing to add curbs on executive pay to the bailout plan - meaning limits on what companies that take part in the bailout could pay their top officers from now on.

Those limits could include restrictions or even an outright ban on severance packages for current executives leading companies that go to the government for help.

"At many of these companies, there are new CEOs and they didn't cause the problems," said Lynn Turner, former chief accountant at the U.S. Securities and Exchange Commission and now an independent business consultant.

Meanwhile, the former CEOs who accepted fat severance packages from the banks at the heart of the crisis are long gone.

For Citigroup's Prince that means $10.4 million in cash, $1.5 million in perks and stock holdings valued at $22 million that he received on his departure in November 2007. That was after the nation's largest bank announced far bigger-than-expected losses on mortgage-related assets and other risky debt.

Under Prince's watch, Citigroup built up its exposure to mortgage and consumer credit markets, and he was paid handsomely for the effort. In his last fiscal year at the helm, his total pay package was nearly $25 million, according to an Associated Press CEO pay formula.

Responding to a request for comment by the AP, Citigroup spokesman Michael J. Hanretta said the "provisions of Mr. Prince's severance agreement reflected his contributions to the company over 30 years as well as retirement benefits and prior equity awards to which he was legally entitled."

The CEOs and the former employers of the other executives either declined to comment or did not return telephone messages.

At Merrill Lynch, O'Neal's pay package for his final year as a CEO was $46.4 million, according to AP figures. He was forced out in October 2007 following the investment bank's disclosure of $7.9 billion in unexpected losses related to the credit market turmoil.

His severance package of stock, options and retirement benefits built up over a 21-year career was valued at the time at $161 million. The market's downturn since then has driven the value down to about $66.5 million.

Merrill Lynch investors have had to face $30.5 billion in write-downs and reported losses of nearly $17 billion in the three full fiscal quarters since O'Neal left.

Earlier this month, Merrill's weakening financial condition forced it into a takeover by Bank of America, with an acquisition price of $29 a share - less than half what it was a year ago.

At Wachovia, Thompson was ousted by the bank's board in June after a series of missteps, the most pronounced being his purchase of a California mortgage lender for roughly $25 billion at the height of the nation's housing boom. The move has led to massive losses at the bank.

Thompson's total pay package for last year was nearly $16 million. When he left the bank, he got nearly $1.5 million in cash, plus stock options worth about $4 million today. He would have received other stock options, but they're worthless for now because the stock price has fallen so far.

The replacements for Prince, O'Neal and Thompson are unlikely to be lavished with such excess. The spotlight now shining on executive pay could lead some companies and their boards to start rethinking their pay strategies.

Thompson's replacement at Wachovia, Robert Steel, signed a contract in July that says he'll get no cash severance. Neither will John Thain, who replaced O'Neal at Merrill last December.

Patrick McGurn, executive vice president and special counsel at RiskMetrics Group's ISS proxy advisory division, thinks the landscape on pay could change - first with the market turmoil and bailout bill, then a new administration.

"The accelerant has been thrown on the fire with this credit crisis, and it will force change," McGurn said.