Friday, March 13, 2009

What Ever Happened to: War of Necessity Only?

Bush Doctrine of Preventive War is Immoral

By: Dr. J. P. Hubert

Once upon a time it was part of conventional wisdom--based as it was in the "golden rule ethic" that "picking a fight" was immoral--whether by nation states or individuals. This moral tenet flowed from the first and second principles (of right reason) of the Natural Law: 1) do good/avoid evil and 2) treat your neighbor fairly--summarized by "do unto others as you would have them do unto you."

When/where the golden rule ethic still reigned, it was understood that even though one could legitimately defend oneself against aggression, it was always and everywhere morally wrong to instigate hostilities. That is to say, it is always morally licit to defend against aggression but never to cause it.

Several fundamental underlying assumptions are basic to understanding the “golden rule” as it is applied to war.

First, in moral philosophy one must assume that human nature is fixed and not changing that is to say, all human beings are assumed to be of equal worth and their essence (nature or quiddity [what-ness]) is constant i.e. unchanging (This in no way means that all human beings have equal talents and abilities). It is important to note that there is no empirical (scientific) evidence that human nature is changing—cumulative evidence establishes the opposite and of course Divine Revelation calls for a fixed human nature as well (All the major Theistic belief systems ascribe to this view). Moreover, the empirical evidence which is available clearly demonstrates that human beings are the most highly developed and complex entities in material existence. There are no defensible bases on which to assert that all human beings are not of equal worth which do not reduce to vacuous claims of unwarranted entitlement.

While a “fixed human nature” may conflict with what radical Darwinists who embrace metaphysical naturalism may propound, such a view is a philosophical not scientific notion and an incoherent one at that. The very notion that it would be possible to determine right and wrong--if human nature is constantly changing—is pure fantasy. Only if human nature is fixed does it become possible to hold that right and wrong in the moral sense exists or is discernible. If human nature is evolving; then right and wrong is evolving as well—a situation which is unintelligible. Virtually any behavior can be justified since it can be effectively argued that some people are more evolved than others and therefore their behavior no matter how apparently objectionable is also acceptable. This leads to complete social Darwinism—survival of the fittest where “might” alone “makes right”—a prescription for total moral anarchy.

Second, any moral philosophy worthy of the name must include the notion of universality—that is, its moral tenets must be applicable to all human beings—a reality which flows from the existence of a fixed human nature (anthropology). If this is not the case, it becomes impossible to determine right and wrong at all. Identical behavior(s) can be considered morally acceptable by one person and not another or by one nation but not another simply by refusing to apply the relevant moral principles universally. What otherwise would always and everywhere be wrong for example might be right for some but wrong for others simply because of who it is that is performing the moral calculus in question. Under these circumstances, “intent” is allowed to become controlling since it can make behavior which is obviously wrong appear justifiable. Such a situation is very common in contemporary International Relations where the classical tripartite Aristotelian/Thomistic synthesis (means, ends, and circumstances) that is moral calculus has been abandoned for rank Utilitarianism—too often resulting in obvious moral injustices.

Beginning with the Bush administration in the wake of the September 11, 2001 attacks, the United States discarded a 2000+ year old golden rule ethical proscription against initiating wars of aggression in which only legitimate defense not offense was understood to be acceptable—i.e. defensive war as a last resort only! It is difficult to overestimate just how radical this notion is. Particularly troublesome is the fact that the attacks themselves--in the words of Osama bin Laden--were the result of perceived immoral behavior on our part (the unilateral support of Israel over the Palestinian Arabs including our dismissal of their terrible plight and our garrisoning of US forces in the Holy Lands of Mecca and Medina; apparently contrary to the teachings of the Prophet Mohammed among other things).

While the intentional killing of innocent human beings (as occurred on 9/11) can never be morally justified, it would be foolish of us not to recognize that our behavior abroad can have disastrous consequences when we fail to consider our actions in terms of the two principles outlined above. That is to say; Palestinian Arabs are unwilling to accept that their lives are not worth as much as are Israelis and rightfully so since all human beings by virtue of their fixed human nature are equally valuable-- if any are valuable at all. For Theists and particularly Christian Theists this is axiomatic of course by virtue or the fact that man is created in the image of God (imago Dei). Moreover, we would by the principle of universality detest the stationing of foreign troops on our land and thus the fact that Muslim Arabs do as well is completely understandable. To suggest otherwise is irrational and or dishonest in the extreme.

For anyone to allege that the use of nuclear weapons in an offensive manner could under any conceivable set of circumstances be morally licit (in the recent Presidential campaign Hillary Clinton, Barack Obama and John McCain all did so) is to completely depart from the golden rule ethic which has governed humanity for over 2 millennia. By their very nature, both strategic and tactical nuclear weapons intentionally kill innocent human beings. This is 100% certain from an objective perspective and therefore provides the moral certitude required in performing the relevant moral calculus. Under no circumstances can nuclear weapons be used offensively. Moreover, it is extremely doubtful that they could ever be utilized defensively either due to the fact that they invariably would be associated with the killing of innocent non-combatants (It is impossible for the author to see how such a use could avoid the mass intentional killing of innocent human beings. It is not legitimate to argue that such killing would represent so-called “collateral damage “since it would be completely foreseeable and thus avoidable). While conventional weapons are potentially usable in a morally licit way (for defensive purposes only), from a moral perspective, it is clear that the use of nuclear weapons under any set of circumstances is morally illicit due to the moral certitude that doing so always results in the intentional killing of innocent human beings and in tremendous numbers.

We have over the past 7+ years in a sense crossed the Rubicon where the waging of war is concerned, meaning we have stepped over the “red-line.” It has now become acceptable ala the “Bush Doctrine” to instigate offensive wars of aggression based on nothing more than a probability calculation that a given country might someday under certain imagined circumstances represent an actual or imminent threat to American national security or survival. This cannot be justified or accepted when subjected to rational/traditional (scholastic) moral philosophical precepts and must be rejected by all human beings of good will.

Unfortunately, there is no credible evidence available to establish that the Obama administration has repudiated the so-called "Bush Doctrine" of preventive war. Moreover, President Obama has demonstrated vis a vis the Charles Freeman affair that he is unwilling/unable to oppose the Israel (radical Zionist) Lobby. Americans should be especially concerned that Zionist hawk and new Israeli Prime Minister Benjamin Netanyahu will maneuver the President into a preventive attack on Iran--which would be catastrophic for the US and the world.

Thursday, March 12, 2009

The Tactics Of the Israel Lobby


The Zionist (referred to in this piece as the Israel Lobby) Lobby currently controls US foreign policy in a way which is not in the interest of the United States or modern Israel. It is aligned with the ultra right-wing of the Israeli political spectrum--in particular the Likud Party of Benjamin Netanyahu the new Prime Minister.

The fact that Charles Freeman--after a massive and disreputable attack by the Lobby--has been forced to withdraw as chair of the NIC is a very bad sign that the Obama administration will be unable/unwilling to serve as a fair, just and honest broker in furtherance of the Israeli/Palestinian peace process. This portends poorly for overall US foreign policy as well which presumably will remain overly militaristic, hegemonic and tied to Zionist aims to the detriment of our relations with the rest of the world, particularly Muslims.

Until the United States breaks free of Zionist control and influence in foreign relations, there will be no peace in the Middle East or anywhere else for that matter. As this episode indicates it is simply impossible to discuss the problem in public which indicates just how much power the Zionist Power Configuration has in controlling the US media and our overall political process. It is truly a sad day. Moreover, it is not an overstatement to say that radical Zionism and Zionist Lobby control of US foreign policy is the most important non-domestic problem currently facing our country. It must be effectively dealt with if we are to survive as a nation.

We cannot allow the US government to utilize our hard-earned tax money (in our names) for the continuation of Zionist policies. Americans citizens must adequately educate themselves on the Israeli/Palestinian issue and then begin to speak out--in good conscience. Not to do so is to fail not only in the cardinal virtue of justice but in courage (fortitude) as well.

--Dr. J. P. Hubert

By Charles Freeman

March 11, 2009 "WSJ" -- -To all who supported me or gave me words of encouragement during the controversy of the past two weeks, you have my gratitude and respect.

You will by now have seen the statement by Director of National Intelligence Dennis Blair reporting that I have withdrawn my previous acceptance of his invitation to chair the National Intelligence Council.

I have concluded that the barrage of libelous distortions of my record would not cease upon my entry into office. The effort to smear me and to destroy my credibility would instead continue. I do not believe the National Intelligence Council could function effectively while its chair was under constant attack by unscrupulous people with a passionate attachment to the views of a political faction in a foreign country. I agreed to chair the NIC to strengthen it and protect it against politicization, not to introduce it to efforts by a special interest group to assert control over it through a protracted political campaign.

As those who know me are well aware, I have greatly enjoyed life since retiring from government. Nothing was further from my mind than a return to public service. When Admiral Blair asked me to chair the NIC I responded that I understood he was "asking me to give my freedom of speech, my leisure, the greater part of my income, subject myself to the mental colonoscopy of a polygraph, and resume a daily commute to a job with long working hours and a daily ration of political abuse." I added that I wondered "whether there wasn't some sort of downside to this offer." I was mindful that no one is indispensable; I am not an exception. It took weeks of reflection for me to conclude that, given the unprecedentedly challenging circumstances in which our country now finds itself abroad and at home, I had no choice but accept the call to return to public service. I thereupon resigned from all positions that I had held and all activities in which I was engaged. I now look forward to returning to private life, freed of all previous obligations.

I am not so immodest as to believe that this controversy was about me rather than issues of public policy. These issues had little to do with the NIC and were not at the heart of what I hoped to contribute to the quality of analysis available to President Obama and his administration. Still, I am saddened by what the controversy and the manner in which the public vitriol of those who devoted themselves to sustaining it have revealed about the state of our civil society. It is apparent that we Americans cannot any longer conduct a serious public discussion or exercise independent judgment about matters of great importance to our country as well as to our allies and friends.

The libels on me and their easily traceable email trails show conclusively that there is a powerful lobby determined to prevent any view other than its own from being aired, still less to factor in American understanding of trends and events in the Middle East. The tactics of the Israel Lobby plumb the depths of dishonor and indecency and include character assassination, selective misquotation, the willful distortion of the record, the fabrication of falsehoods, and an utter disregard for the truth. The aim of this Lobby is control of the policy process through the exercise of a veto over the appointment of people who dispute the wisdom of its views, the substitution of political correctness for analysis, and the exclusion of any and all options for decision by Americans and our government other than those that it favors.

There is a special irony in having been accused of improper regard for the opinions of foreign governments and societies by a group so clearly intent on enforcing adherence to the policies of a foreign government – in this case, the government of Israel. I believe that the inability of the American public to discuss, or the government to consider, any option for US policies in the Middle East opposed by the ruling faction in Israeli politics has allowed that faction to adopt and sustain policies that ultimately threaten the existence of the state of Israel. It is not permitted for anyone in the United States to say so. This is not just a tragedy for Israelis and their neighbors in the Middle East; it is doing widening damage to the national security of the United States.

The outrageous agitation that followed the leak of my pending appointment will be seen by many to raise serious questions about whether the Obama administration will be able to make its own decisions about the Middle East and related issues. I regret that my willingness to serve the new administration has ended by casting doubt on its ability to consider, let alone decide what policies might best serve the interests of the United States rather than those of a Lobby intent on enforcing the will and interests of a foreign government.(Editor's emphasis throughout)

In the court of public opinion, unlike a court of law, one is guilty until proven innocent. The speeches from which quotations have been lifted from their context are available for anyone interested in the truth to read. The injustice of the accusations made against me has been obvious to those with open minds. Those who have sought to impugn my character are uninterested in any rebuttal that I or anyone else might make.

Still, for the record: I have never sought to be paid or accepted payment from any foreign government, including Saudi Arabia or China, for any service, nor have I ever spoken on behalf of a foreign government, its interests, or its policies. I have never lobbied any branch of our government for any cause, foreign or domestic. I am my own man, no one else's, and with my return to private life, I will once again – to my pleasure – serve no master other than myself. I will continue to speak out as I choose on issues of concern to me and other Americans.

I retain my respect and confidence in President Obama and DNI Blair. Our country now faces terrible challenges abroad as well as at home. Like all patriotic Americans, I continue to pray that our president can successfully lead us in surmounting them.

Wednesday, March 11, 2009

Defending Human Embryonic Life - Essay

“Intermediate” or “Special Status” for the human embryo is invalid

By Dr. John P. Hubert MD, FACS
Advisor to Common Good
Catholic Online
2/27/2006 - 8:15 AM PST

I. Introduction

This essay addresses the moral status of the human embryo. It asserts that on the basis of biology and metaphysics, the human embryo should be accorded full moral status, that is, inviolability. While this is also the position afforded it by the Catholic Church on the basis of divine revelation and elsewhere, the case will not be argued on that basis in this brief. Instead it will provide a critique of the so-called “intermediate” or “special status” which has been proposed by some ethicists including several of the members of the President’s Council on Bioethics. In so doing it will demonstrate why anything other than full moral status for the human embryo is biologically and philosophically untenable.

Save the Embryonic Humans

By Deacon Keith Fournier
Catholic Online, available HERE...

With the stroke off a Presidential pen human embryos will become property, capable of being “manufactured” like a commodity and available to be used as spare parts.

We must speak for human embryonic Life as we speak for all human life. We must expose and oppose this new form of genetic slavery wherein an entire class of human persons is being labeled as property to be used by those who are more powerful.

CHESAPEAKE, Va. (Catholic Online) - Two years before he would give his “Yes” to the invitation of the Holy Spirit to become the successor of Peter, Karol Cardinal Wotyla, spoke to the U.S. Bishops. His ominous observation was republished in the Wall Street Journal on November 9, 1978:

“We are now standing in the face of the greatest historical confrontation humanity has gone through. I do not think that wide circles of the American society or wide circles of the Christian community realize this fully. We are now facing the final confrontation between the Church and the anti-Church, of the Gospel and the anti-Gospel. This confrontation lies within the plans of divine providence. It is a trial which the whole Church… must take up.”

And take it up we must. The task is huge and the implications beyond what we can begin to expect. The challenges we face in undertaking this task include the insults, accusations and calumny of even our fellow citizens. We will, for example, be accused of being against progress and even “anti-science”, when nothing could be further from the truth. We are simply Pro-life and believe that science exists to serve the person, the family and the common good. Science, after all, can become a force for evil and our common history has shown how that can occur when the human heart and capacity for making the right choice has been so clearly corrupted.

On Monday, March 9, 2009, President Barrack Obama, whose election offered the promise of "hope and change", will hold a signing ceremony where he will sign one more Executive Order against life. This one is expected to remove all restraints from the use of the always deadly process of extracting stem cells from human embryonic life for experimentation. It will also open up the funding of such lethal efforts with Federal tax dollars. This is so even though research has clearly demonstrated that other types of stem cell research, for example the use of adult stem cells which can be extracted with the consent of the donor and which do not kill, have produced even greater promise and results. In addition, cells derived from fetal cord blood have shown significant promise but have received little or no attention or research support.

Recent reports have heralded the discovery of what may be an alternative to the deadly process of extracting embryonic stem cells and killing the embryonic human person in the process. They have led to hopes of using what are being called “induced pluripotent stem cells”, or iPS cells. These can now be produced by activating genes in adult cells which "reprogram" them and do not require the use of dangerous viruses or involve the taking of a human life. However, the signing of this Executive Order is expected to open the door not to the promotion of these life friendly alternatives but rather to the unlimited production of human embryonic life which could then be killed and used.

With the stroke of a Presidential pen human embryos will become property, capable of being “manufactured” like a commodity and available to be used as spare parts in experimentation which has produced no discernible scientific results. Make no mistake, every so called “extraction” of embryonic stem cells kills a living human embryo.

In 1987, the Congregation for the Doctrine of the Faith of the Holy See issued its important teaching entitled “Instruction on Respect for Human Life in its Origin and on the Dignity of Procreation”. Among the many questions it answered with absolute clarity was: “What Respect is due to the human embryo, taking into account his nature and identity?” The answer given by the Magisterium: “The human being must be respected - as a person - from the very first instant of his (her) existence.”

Unfortunately, the prevailing view of human rights entrenched in American judicial precedent and legislation denies the equal protection of the law to the human embryonic person. American law refuses to recognize that human embryos have a right to life and a right to a future. There are a number of differing philosophical arguments offered to promote the lie that these fundamental rights are conferred by positive civil law rather than by the Natural Law. Most of these arguments reserve the use of the concept of “person” to those humans who are deemed to somehow be “independent” and/or “autonomous”. They are also promoted by people who now call themselves “medical ethicists”. These folks have substantial academic degrees and professional pedigree and sit on Advisory Councils.

Some of these new “ethicists” try to make a distinction between “potential” and “actual” human persons and relegate the child in the womb to the category of being only a “potential” human person. Others view interdependency as a negative and insist on independence and “autonomy” as a criterion for any human rights to ever attach. Some equate the human embryo’s
dependency on the mother as a form of “non-personhood”. Still others propose a progressive notion of consciousness as indicative of a growing presence of “personhood”. A few concede that human embryos are human beings but deny they are persons. We find all of these ideas in the field sadly referred to these days as “Bio-Ethics” even though such positions are anything but ethical. We find them in textbooks being used to teach the subject to future medical practitioners. (See, e.g., Singer and Kuhse, “Bioethics”)

One of these “ethicists”, Michael Tooley denies the child in the womb should have any rights at all. His rationale evolved over time. In each version, as scientific research cast serious doubt on his claims, he conveniently shifted his ground to reach the same conclusion. Yet, human embryology and developmental biology affirm that a human embryo is not distinct in kind from a human being, but a human being at an early stage of development. Even prior to implantation, a human embryo is a unique living human being with the genetic constitution and epigenetic primordial that continues to develop throughout his or her life. However, the right not to be killed in the womb, the right to be born and the right to participate in human relationships are rejected for these little persons. Human embryonic lives are reduced to what one astute Catholic philosopher and lawyer, Robert George, called a “pre-personal way of being human”.

The idea that people can be less than persons is now being applied to other stages of human development outside of the womb. The disabled (physically and mentally), the aged and the infirmed are increasingly denied the protection of the law. There is an emphasis on individual rights over relation and autonomy over solidarity. The late Servant of God John Paul wrote in “The Gospel of Life” concerning what he called this “remarkable contradiction”. He further elaborated: “…the roots of the contradiction between the solemn affirmation of human rights and their tragic denial in practice lies in a notion of freedom which exalts the isolated individual in an absolute way, and gives no place to solidarity, to openness to others and service of them.”(Par. 19) This counterfeit notion of freedom also views comatose human beings as no longer worthy of being called “persons”. Their caregivers are encouraged to stop giving them food and water. Seriously ill children are viewed as interlopers who should not continue to use medical and social resources. Whether the criteria for being recognized as a human person is a satisfactory level of brain function, an agreed upon notion of self awareness, non-dependency, individual autonomy, or some similar “acceptable” level of physical or mental capacity, this reduces the human being to a human doing, valuable not simply because they are members of our human family and gifts to be received but based upon their functionality and subject to deadly treatment once they are no longer of economic value.

There can be do debate about this fact, we were all once human embryos. We all lived in the first home of the whole human race, our mothers womb. For the Christian, we further profess that the Son of God, the Incarnate Word, the Second Person of the Blessed Trinity, was a human being, who, in the embryonic stage, lived in his mother’s womb. At every age and stage of our “human-being- ness”, be it in the womb, as an infant, as a child, an adolescent, an adult, in our times of illness, in our old age, we have always been dependent on others and vulnerable. This is what it means to be a human being. The emphasis of the proponents of the culture of death on independence and autonomy informs a worldview that Pope John Paul II taught threatens the “…entire structure of human rights.” (Gospel of Life, Par. 19)

So, we must rise and suffer the indignities of being verbally pilloried, accused of being anti-science” or “impeding progress”. We must speak for human embryonic Life as we speak for all human life. We must expose and oppose this new form of genetic slavery wherein an entire class of human persons is being labeled as property to be used by those who are more powerful. In conclusion, I speak specifically to my fellow Catholics; we will be at the front line. Why? Because our Church has been absolutely clear in her unbroken teaching on the dignity of every human person, including what the Congregation for the Doctrine of the Faith recently called “embryonic persons”. Be ready to be called, as happened recently in response to our opposition to the appointment of dissident Catholic Kathleen Sebelius to the HHS, “Catholic Extremists”. The late beloved Servant of God John Paul II called it and he was indeed prophetic: “We are now facing the final confrontation between the Church and the anti-Church, of the Gospel and the anti-Gospel. This confrontation lies within the plans of divine providence. It is a trial which the whole Church… must take up.”

US Recession Could Last Up to 36 Months: Roubini

By Jane Wells

March 10, 2009 "CNBC" - -The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again."

As for the claim that the Treasury Department can't legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could "put them in receivership" if it had to.

Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.

He said that while U.S. GDP growth next year could be zero, global GDP could dip into negative territory.

"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.

Roubini listed a litany of negative omens: Capex spending down 20-30 percent for investment grade companies, self-perpetuating deflation, all making a bad situation worse.

"If you expect prices to be lower tomorrow, why would you buy today?", asked Roubini. He says it's easier to break out of an inflationary cycle than a deflationary one, and while a year of deflation "is okay," longer would be "a disaster."

So what can the government do? The easy part is lowering interest rates and buying toxic assets. The hard part, he says, will be tackling housing. Roubini says that the housing market, like a company restructuring in bankruptcy, needs to have "face value reduction of the debt." Rather than go through mortgages one by one, he says reduction has to be "across the board...break every mortgage contract."

Roubini also took issue with the $800 billion stimulus package, saying it's not enough. For one thing, there's only $200 billion upfront, and half of that is a tax cut, which Roubini calls "a waste of money" that is not going to make a difference.

Finally, while he says there will be "a light at the end of the tunnel", it'll probably get worse before it gets better. Those who believe in a second half recovery this year "are delusional" he says.

In fact, based on Roubini's calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.

Tuesday, March 10, 2009

Debt Relief and Regulation

By Mike Whitney

"We've explained the difference between a recession and a depression before. But we'll do it again. A recession is a pause in an otherwise healthy, growing economy. A depression is when the economy drops dead." Bill Bonner, The Daily Reckoning

March 09, 2009 "Information Clearing House" -- There's good news and bad news. The good news is that Obama's economics team understands the fundamental problem with the banks and knows what needs to be done to fix it. The bad news is that Bernanke, Summers and Geithner all have close ties to the big banks and refuse to do what's necessary. Instead, they keep propping up failing institutions with capital injections while concocting elaborate strategies for purchasing the banks bad assets through backdoor transactions. It's all very opaque, despite the cheery public relations monikers they slap on their various "rescue" plans. This charade has gone on for more than a month while unemployment has continued to soar, the stock market has continued to plunge, and the country has slipped deeper into economic quicksand.

Paul Krugman summed up the administration's response in Friday's column, "The Biig Dither":

"There’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern....

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets ... are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away. ...

What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions.(Paul Krugman, The Big Dither, New York Times)

Krugman is right about the "dithering" but wrong about the toxic waste. Geithner and Bernanke know exactly what these assets are worth--- just pennies on the dollar. That's why Geithner has avoided taking $5 or $10 billion of these mortgage-backed securities (MBS) and putting them up for public auction. That would be the reasonable thing to do and it would remove any doubt about their true value. But the Treasury Secretary won't do that because it would just draw attention to the fact that the banking system is insolvent; the vaults are full of nothing but garbage loans that are defaulting at a record pace. Instead, Geithner has cooked up a plan for a "public-private partnership" which will provide up to $1 trillion in funding for private equity and hedge funds to purchase toxic assets from the banks. The Treasury will offer low interest "non recourse" loans (with explicit government guarantees against any potential loss) to qualified investors. If the hedge funds or private equity firms don't turn a profit in three years, they simply return the assets to the Treasury and get their money back. In essence, Geithner's plan provides a lavish subsidy to private industry on a totally risk free investment. It's a sweetheart deal.

At the same time, the plan achieves Geithner's two main objectives; it gives the banks the chance to scrub their balance sheets of junk mortgages and it also allows them to keep the present management-structure in place. The $1 trillion taxpayer giveaway to the hedge funds is just another juicy bone tossed to Geithner's real constituents-- Wall Street speculators.

Unfortunately, markets don't like uncertainty, which is why Geithner's circuitous plan has put traders in a frenzy. Wall Street has gone from scratching its head in bewilderment, to a stampede for the exits. In the last month alone, the stock market has plummeted a whopping 18 percent, indicating ebbing confidence in the political leadership. Geithner is now seen as another glorified bank lobbyist like his predecessor, Paulson, who is in way over his head. His lack of clarity has only added to the widespread sense of malaise. Markets require transparency and details, not obfuscation, gibberish and Fed-speak. This is how Baseline Scenario blogger Simon Johnson summed it up:

"Confusion helps the powerful... When there are complicated government bailout schemes, multiple exchange rates, or high inflation, it is very hard to keep track of market prices and to protect the value of firms. The result, if taken to an extreme, is looting: the collapse of banks, industrial firms, and other entities because the insiders take the money (or other valuables) and run.

This is the prospect now faced by the United States.

Treasury has made it clear that they will proceed with a “mix-and-match” strategy, as advertised....The course of policy is set. For at least the next 18 months, we know what to expect on the banking front. Now Treasury is committed, the leadership in this area will not deviate from a pro-insider policy for large banks; they are not interested in alternative approaches (I’ve asked). The result will be further destruction of the private credit system and more recourse to relatively nontransparent actions by the Federal Reserve, with all the risks that entails.

"The road to economic hell is paved with good intentions and bad banks."(Simon Johnson Baseline Scenario)

This is unusually harsh criticism from a former head economist at the IMF, but Johnson's analysis is dead-on. Geithner is putting the interests of the banks before those of the country. The "public private partnership" is just a convoluted way of avoiding the heavy-lifting of rolling up the banks, wiping out shareholders, separating the bad assets, and replacing management. The same is true of Bernanke's Term Asset-Backed Securities Loan Facility (TALF) which is another futile attempt to restart Wall Street's failed credit-generating mechanism, securitization. It was securitization (which is the conversion of pools of mortgages into securities) which got us into this mess to begin with. It doesn't do any good to restore an inherently crisis-prone system that only works properly when the market is going up. There are more efficient ways to recapitalize the banks than the PPP, just as there are better ways to promote consumer spending than the TALF. Treasury should be looking into debt relief, jobs programs and higher wages, instead of barreling blindly down the same dead end. There are solutions that do not involve artificially low interest rates, government subsidies for toxic waste or lavish handouts to hedge funds. They simply require a commitment to rebuild the economy on sound principles of hard work, productivity and fair distribution of the the profits.

Even industry cheerleaders, like the Wall Street Journal, are skeptical of Bernanke's TALF and have denounced it as just another boondoggle.

Wall Street Journal: “If you missed the first hedge-fund boom, now may be the time to put up your shingle. Looking at the terms of the Federal Reserve’s new Term Asset-Backed Securities Loan Facility, investors using it should be able to generate hefty returns with little risk. The TALF effectively turns the Fed into a generous prime brokerage.”

Who needs a free market when Obama's Politburo is more than willing to prop up private industry with hundreds of billions of tax dollars?

There is another part of Geithner's plan that is even more troubling, that is, after the banks sell their dodgy assets to the hedge funds, what will they do with the money? Consumers are retrenching, so the pool of creditworthy customers will remain small. And businesses are trying to work off existing inventory, so they won't be borrowing to increase investment or retool anytime soon. If the opportunities for lending dry up, the banks will be forced to seek unconventional means for generating profits. My guess is the banks will put a large portion of their money into hedge funds for commodities speculation, which will push the price of oil, natural gas and other raw materials into the stratosphere just like they did last year when oil shot up to $147 bbl. The banks really have no choice; 65 percent of their business was securitized investments. That door has been slammed shut for good.


The Financial Times economics editor Martin Wolf warned in Friday's column of the dangers of our present course. He said:

"If large institutions are too big and interconnected to fail... then talk of maintaining them as “commercial” operations... is a sick joke. Such banks are not commercial operations; they are expensive wards of the state and must be treated as such.

The UK government has to make a decision. If it believes that costly bail-out must be piled upon ever more costly bail-out, then the banking system can never be treated as a commercial activity again: it is a regulated utility – end of story. If the government does want it to be a commercial activity, then defaults are necessary, as some now argue. Take your pick. But do not believe you can have both.
(Martin Wolf, Big risks for the insurer of last resort, Financial Times)

Citigroup is now officially a "ward of the state" although CEO Pandit and his scurvy band of pirates are still allowed to collect their paychecks and hang out by the water cooler. Citi's survival depends on the reluctant generosity of the US taxpayer who is now its biggest shareholder. The mega-bank has slumped from $58 per share to $1 per share in less than 2 years. It's now more expensive to buy a grande latte at Starbucks than it is to buy three shares of Citi...and, at least with the Starbucks, the buyer gets a buzz on. There's no upside to the Citi deal. It's a dead-loss. The real question is, how long will Geithner let this joke continue before he does his job?

Wolf is correct to draw attention to the myth of "too big to fail". In fact, the Kansas Federal Reserve President, Thomas Hoenig made the same point in a PDF released this week:

"We have been slow to face up to the fundamental problems in our financial system and reluctant to take decisive action with respect to failing institutions. ... We have been quick to provide liquidity and public capital, but we have not defined a consistent plan and not addressed the basic shortcomings and, in some cases, the insolvent position of these institutions.

We understandably would prefer not to "nationalize" these businesses, but in reacting as we are, we nevertheless are drifting into a situation where institutions are being nationalized piecemeal with no resolution of the crisis."
(Too Big has Failed, thanks to Calculated Risk)

Hoenig and Wolf are smart enough to know that the problem is not as simple as it sounds. They know that the largest financial institutions are lashed together in a net of complex counterparty contracts--mainly credit default swaps (CDS)--which run into tens of trillions of dollars, and, that if one player is allowed to default, it could pull all of the others down the elevator shaft along with it. The problem could be resolved with proper regulation which would force all CDS onto a regulated exchange so that government watchdogs could make sure that they are sufficiently capitalized to pay off whatever claims are levied against them. But, so far, no one in Congress has taken the initiative to propose the necessary regulation. Thus, the taxpayer continues to pay off hundreds of billions of dollars of insurance claims against AIG, which was so grossly under-capitalized, it couldn't meet its own obligations. The AIG fiasco provides a window into the real motivation behind financial engineering and the alphabet-soup of complex debt-instruments. (CDOs, MBSs, CDS) Wall Street knew that the fastest way to fatten the bottom line was to circumvent minimum capital requirements and expand leverage to unsustainable levels. In other words, a system of debt-fueled capitalism with only specks of capital. It worked beautifully, until it didn't.

Nobel prize-winning economist, Myron Scholes, who helped invent a model for pricing options, added his voice to the growing chorus of angry reformers who think the CDS market should be scrapped altogether. According to Bloomberg News: Scholes said "regulators need to ‘blow up or burn’ over-the-counter derivative trading markets to help solve the financial crisis. The markets have stopped functioning and are failing to provide pricing signals... The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over.” (Bloomberg)

Treasury and the Fed have taken the position that they will not fix the system until they are forced at gunpoint. This is a prescription for disaster, not just because of growing public frustration or the free-falling stock markets, but because the banks are just the tip of the iceberg. The other non bank financial institutions are brimming with mortgage-backed sludge that will require emergency treatment, too. MarketWatch gives us a glimpse of the magnitude of the problem in last week's article "Banks fall out of bed, Citi shares under a buck":

"Market strategist Ed Yardeni's latest research shows that.....80.6%, or $7.4 trillion, of the assets held by the S&P financials companies were Level 2," he said in a research report. Level 2 assets are so-called mark-to-model, which are carried at a value based on assumptions, not true market prices."

What does "Level 2 assets" mean? It means that the financial giants are short on liquid assets--like cash or US Treasurys--and loaded with sketchy mortgage-backed paper to which they have arbitrarily assigned a value that no one in their right mind would ever pay. The entire US financial system, including the pension funds and insurance companies, is one humongous debt-bloated time bomb that is set to blow at any minute.

Surprisingly, Bernanke thinks he can simply wave his wand and restart the moribund credit markets. That's what the TALF is all about. The problem is that even if the Fed buys all of the AAA securities held by the respective financial institutions, (most of them are non banks) that still only accounts for 20 percent of the bad paper on the books. Here's what Tyler Durden said on Zero Hedge web site:

"Unfortunately for Geithner, who apparently did not read too deeply into the data, the bulk of the $1 trillion decline in securitizations came from home equity lending and non agency RMBS (Residential Mortgage Backed Securities), which reflect the "non-conforming" mortgage market, i.e. the subprime, alt-A and jumbo origination, loans which are the cause for the credit crisis, and which are rated far below the relevant AAA level. The truly unmet market, which the Treasury is addressing is at best 20% of the revised total amount." (Tyler Durden, Could TALF be the biggest disappointment yet?, Zero Hedge)

That leaves Geithner and Bernanke with few good choices. Either they expand TALF to include crappy AA (and lower) graded securities--putting the taxpayer at even greater risk--or they devise some totally new lending facility that will bypass the financial institutions altogether and issue credit directly to consumers and small businesses. There is no third option.

The problem with the TALF is that it ignores the new economic reality, that consumer demand has collapsed from the massive losses in home equity and retirement accounts. When credit markets froze last year, housing values dropped sharply raising havoc with household balance sheets and forcing a radical change in spending habits. That cutback in spending created a negative feedback loop to the financial sector which made it impossible to re-inflate the credit bubble. The ultimate size of the financial system will be determined, to large extent, by the capacity of people to borrow again which depends on many factors including job security, savings, and optimism about the future. Needless to say, the growing worry over a 1930s-type Depression will not help to lift spirits or improve the chances for a speedy recovery. That said, there are positive steps the administration can take now to restore confidence in the markets and put the ship o' state on even keel. These measures fall under three main headings; debt reduction (forgiveness), regulation and accountability. Confidence is not built on inspiring oratory or personal charisma, but concrete actions to reestablish a rules-based system that penalizes crooks and fraudsters. Recovery isn't possible without a strong commitment to these basic changes. (Editor's emphasis throughout)

Monday, March 9, 2009

President Obama Confuses Politics with Ethics

Editorial Comment

By: Dr. J. P. Hubert

In his White House announcement and executive order today reversing the ban on federal funding of embryonic stem cell research (ESCR) the President left the door open to possible federal funding of human cloning for biomedical research (CBR) while indicating that cloning to produce children (CPC also termed reproductive cloning) will remain unfunded and given the largely negative public reaction to the very idea--one presumes illegal.

Human Cloning Not Controllable:

President Obama speaks as though human reproductive cloning and cloning for biomedical research are completely different. However, the first step in human cloning (the creation of a blastocyst) is the same in either case. As a result, there is no practical way to prevent human reproductive cloning once widespread federally funded human cloning for biomedical research is underway despite President Obama’s claims to the contrary (policing the process of blastocyst creation would be virtually impossible).

Human Cloning for Biomedical Research is Legal Now:

At present, it is legal in the United States to create cloned human embryos for biomedical research. Moreover, there is at least one private company (Advanced Cell Technology, [ACT]) currently engaged in that endeavor albeit privately funded for-profit.

Utilitarian Calculus vs: Traditional Moral Analysis:

From a traditional moral perspective, human cloning for any purpose is immoral as is any kind of embryonic stem cell research (human embryo’s must be killed in order to obtain the ESC’s--given current technology). Should it ever be possible to do so without killing the embryos—it would be morally licit to remove their stem cells only if any potential benefit accrued to the embryo in question (the embryo from which the cells were taken) exceeded the risk. It would remain morally illicit to utilize them for other persons and or purposes.

Those who embrace Utilitarianism like President Obama and the other advocates of ESCR and cloning for biomedical research (CBR) find nothing inherently wrong with killing human embryos and therefore deem it completely acceptable (in fact extremely useful) to do so as a “means” to the end of promoting ESCR. Presumably they do so believing (incorrectly) that human embryos are not actually but only “potentially” human beings or because they believe that since embryos do not resemble post-natal human beings—they are not--inherently valuable/to be protected as are other human beings. The former represents an error in analysis of the relevant and undisputed biological data, the latter an error in (illogical) intellection (size, shape, etc are irrelevant to the issue as can be seen in the case of triple amputees and other seriously physically disabled persons).

Most advocates of ESCR and CBR are unwilling to engage in a discussion of either the biologically or philosophically relevant issues—presumably because they are aware that their position on these matters will fail to pass intellectual muster. Nevertheless many advocates who recognize this reality (one assumes that some have the requisite analytical ability) continue to advocate for ESCR and CBR. This would appear to represent a Utilitarian calculus in which for them, the “means” employed are simply not relevant to the “end” desired even if the “means” in question are clearly morally illicit (it is never morally licit to intentionally kill an innocent human being) by traditional moral standards. That however is the nature of Utilitarianism as a “philosophy” of right and wrong. It does not recognize the object rationally chosen, “means” or proximate end, only the effect desired. Given that a legitimate moral philosophy must come to grips with an honest analysis of "means" vs: "ends", Utilitarianism is not really a moral philosophy at all in the traditional sense. Rather it is a political philosophy in which a tyranny of the majority can be foisted on the minority. In Utilitarianism the “principle of utility” is purposely allowed to circumvent all other concerns. While it has been around for over a century, only recently has it become the clear reigning ethical (immoral) philosophy in the United States and much of the developed West.

False Arguments:

In listening to ESCR advocates and commentators who opined after the post-executive order signing ceremony--several vacuous arguments were advanced. One completely absurd example was proffered today by Congresswoman Diane DeGette of Colorado (who by the way refused to answer the question of whether human embryos should be considered actual or potential life), is that since the embryonic stem cells which are derived by killing embryos might someday be helpful in preventing or treating dreaded diseases, it is really "pro-life" to kill them for this purpose. From the perspective of the embryonic human being who is killed, nothing could be further from the truth not to mention that there is no evidence in humans whatsoever, that ESCR will ever produce a clinically relevant treatment for disease. Moreover, results in animal models have at best been inconclusive and fraught with untoward side-effects .

Integrity not Politics in Science:

President Obama is correct to insist that integrity in scientific research is paramount and that the results of same not be adulterated or otherwise “spun” in order to advance certain political goals. However, his administration’s claims about ESCR represent an unfortunate example of that very problem. The hype with which today’s announcement and executive order were made regarding the purported efficacy of ESCR was excessive in light of the actual data available. Moreover, the extremely important results which have been obtained with Adult Stem Cell Research (ASCR) to date were completely ignored. This appears to have been a carefully calibrated political calculation.

Traditional Morality Removed from Scientific Research/Utilitarian Calculus:

The President reasons that it is high time to remove politics from science while engaging in that very practice himself. More to the point, what he really advocates is the removal of all traditional moral precepts (as found in the Aristotelian/Thomistic synthesis also know as the golden-rule ethic or the equality of life ethic) from the practice of scientific research; replacing it with a Utilitarian calculus where expediency is allowed to trump all other considerations. In so doing he would effectively eliminate the possibility that desperately needed moral clarification will take place--despite claiming that his administration will be extremely careful to proceed in an ethical (read Utilitarian) manner. The point--one fears--is being missed by the vast majority of Americans who are unaware that Utilitarianism has replaced traditional morality as the reigning ethical (immoral/amoral) construct in the US. It is becoming more and more common-place to find examples of "exigent circumstances" (through the application of a Utilitarian ethic) whereby innocent human beings are being legally killed in the United States (particularly at both extremes of life). The President's executive order and request for Congress to pass legislation compatible with it represent a further descent down the slippery slope which began over 30 years ago in the United States. Whether we like it or not, as Americans, we're all Utilitarians now!

Obama Lifts Bush’s Strict Limits on Stem Cell Research

The NEW York Times
Published: March 9, 2009

WASHINGTON — Pledging that his administration will “make scientific decisions based on facts, not ideology,” President Obama on Monday lifted the Bush administration’s strict limits on human embryonic stem cell research.

At a ceremony in the East Room of the White House, before an audience that included lawmakers, scientists and patients, several of them in wheelchairs, Mr. Obama announced that he was issuing an executive order intended to advance the research. He said he hoped Congress would follow with bipartisan legislation that would ease the existing restrictions even more.

The president acknowledged that studying stem cells extracted from human embryos, which are destroyed in the process, is deeply divisive.

“Many thoughtful and decent people are conflicted about, or strongly oppose, this research,” the president said. “I understand their concerns, and we must respect their point of view.”

But Mr. Obama went on to say that the majority of Americans “have come to a consensus that we should pursue this research; that the potential it offers is great, and with proper guidelines and strict oversight the perils can be avoided.”

In making his announcement, Mr. Obama drew a strict line against human cloning, an issue that over the years has become entangled with the debate over human embryonic stem cell research.

He said that he would ensure that his administration “never opens the door” to cloning for human reproduction, adding, “It is dangerous, profoundly wrong and has no place in our society or any society.”

Mr. Obama paired his executive order with another document, a presidential memorandum directing the head of the White House Office of Science and Technology Policy to “develop a strategy for restoring scientific integrity to government decision-making.”

Taken together, the two actions are the latest in a series of rebukes by Mr. Obama to his predecessor, former President George W. Bush.

Many Democrats criticized the Bush administration for politicizing science on a range of issues, from climate change to protecting endangered species to family planning.

Mr. Obama pledged during his campaign to chart a different course.

Already, abortion opponents are bracing for a battle over the stem-cell policy.

“The administration now steps onto a very steep, very slippery slope,” Douglas Johnson, legislative director for the National Right to Life Committee, said in anticipation of Mr. Obama’s action. “Many researchers will never be satisfied only with the so-called leftover embryos.”

One Republican lawmaker, Representative Christopher Smith of New Jersey, called Mr. Obama “the abortion president,” and organized an event Monday afternoon protesting the new policy. He invited some so-called snowflake children, those born after couples who underwent in-vitro fertilization released their remaining embryos for use by other couples, to attend.

“President Obama has chosen to turn back the clock,” Mr. Smith said in remarks prepared for the event, according to an advance text. “Human-embryo-destroying stem cell research is not only unethical, unworkable and unreliable, it is now demonstrably unnecessary.”

He was referring to progress that scientists have made using adult stem cells derived from nonembryonic sources, such as umbilical cord blood, bone marrow or skin.

Still, the president’s decision drew warm praise from a number of Democratic lawmakers. “Today, an extraordinary medical breakthrough was achieved with the stroke of a pen,” said Senator Edward M. Kennedy of Massachusetts. “With today’s executive order, President Obama has righted an immense wrong done to the hopes of millions of patients.”

The Bush administration, in a careful compromise eight years ago, allowed tax dollars to support studies on a small number of existing lines, or colonies, of stem cells that had already been derived from embryos, though not on creating new lines. That meant that a provision renewed by Congress every year since 1996, banning research in which embryos are destroyed, no longer stood as an absolute barrier to the stem cell work.

Mr. Obama’s new executive order will open the door wider, but not as wide as Congress would if it were to remove its legislative restrictions.

Because embryonic stem cells are capable of developing into any type of cell or tissue in the body, many scientists believe they hold the possibility for treatments and cures for ailments as varied as diabetes, Parkinson’s and heart disease. Some researchers say stem cells may someday be used to treat catastrophic injuries, such as spinal-cord damage.

The promise that these advances might help bring a cure for Alzheimer’s disease and other afflictions made Nancy Reagan an avid supporter of stem cell research. Her husband, the late president, suffered from Alzheimer’s.

Other prominent Republicans who opposed President Bush’s stance included Senator Gordon Smith of Oregon, who lost three family members to Parkinson’s, and Governor Arnold Schwarzenegger of California.

Limitations on federally funded research in American laboratories gave an indirect boost to such work abroad, particularly in Britain, where it received unabashed support.

“The current policy is eroding our national advantage on stem cell research,” Senator John Kerry, Democrat of Massachusetts, said during a congressional debate on the question in July 2006. “We’re tying our scientists’ hands. We’re holding back our doctors.”

Commentary on Embryonic Stem Cell Research

Editor's NOTE:

While several years old the commentary which follows outlines many of the still relevant issues involved in ESCR. The references are included for those who wish to avail themselves of more information.

--Dr. J. P. Hubert

Nature Medicine 7, 397 - 399 (2001)
Embryonic Stem cell research - The case against...
Michael Antoniou

Division of Medical and Molecular Genetics GKT School of Medicine, Guy's Hospital, London, UK

Although the United Kingdom government has approved the use of human embryonic stem (ES) cell/therapeutic cloning research—a move that was endorsed by the House of Lords on 22 January this year—it may not be apparent to the outside world that the British scientific community as well as the public at large is deeply divided over this issue. In the face of a substantial vote in favor of ES cell research, this division was articulated by some of those who gave evidence at the Lords session.

Despite our government's approval of this technique, some of us within the UK involved in research to develop therapies for debilitating, degenerative diseases agree with John Wyatt (Royal Free Hospital, London) when he says, "The creation and manipulation of living human embryos for the sole purpose of generating therapeutic tissue seems incompatible with respect for vulnerable human life. The redefinition of human embryos as mere biological material, as `totipotent stem cells' in order to allay public concerns, smacks of semantic trickery rather than responsible debate." (House of Lords Hansard, 22 January 2001).

Assertions that ES cells offer the only hope of a treatment for say Parkinson disease are not the case. What is evident from studies conducted to date is that adult stem (AS) cells show as much therapeutic potential as ES cells. Indeed, as Philip Jones (University of Oxford) told the Lords, AS cells offer far greater potential for cures than embryonic stem cells.

The isolation of human ES cells1, 2 and the demonstration of AS cell `plasticity'3 both took place in 1998. ES cells can be induced to differentiate into numerous cell types in culture4. Animal transplantation studies with ES cells are presently more limited, but they have been shown to contribute to the development and regeneration of the nervous system5, 6, 7. AS cell research in animal models is more extensive showing, for example, that bone-marrow−derived AS cells contribute to not only blood cell lineages but to all neuronal cell types8, muscle3, 9 and liver10, 11; neuronal AS cells have also been shown to have a broad differentiation potential12.

The main advantages of ES cells are that they can be propagated almost indefinitely under laboratory conditions; they can be easily genetically modified and, in principle, be induced to differentiate into any desired cell type. However, the wide-scale application of ES cells by necessity involves a `therapeutic cloning' step to overcome problems of tissue rejection after engraftment. This in turn raises major practical considerations. First, a large supply of human eggs will be required as this procedure is very inefficient; and second, the treatment procedure becomes very time consuming, labor intensive and as a result expensive. Moreover, ES cells will need to be induced to differentiate down the desired cell lineage before implantation in order to avoid teratoma (tumor) formation6. This potentially limits ES cell applications in certain circumstances as it renders them incapable of self replication, requiring further rounds of treatment as the original graft progressively ages and degenerates.

AS cells, however, can be readily obtained, grown and if necessary genetically modified from, for example, the patients' own bone marrow. Therefore, problems of rejection after engraftment back to the patient do not arise, thereby negating the need for a therapeutic cloning step. Admittedly, AS cells are, at present, more difficult to propagate en masse under laboratory conditions. The more restricted differentiation potential of AS cells is also seen as a major limitation to their use. However, from a safety point of view this may be advantageous as it reduces the chances of inadvertent AS cell proliferation in a part of the body where it is not desired. Many years' experience within the medical field of bone-marrow transplantation also shows that AS cells are not prone to teratoma formation. In addition, AS cells appear to retain their self-replicating capacity while contributing to tissue development or regeneration8, 9.

It has also recently been claimed, by Ilham Abuljadayel of the Dublin-based company Tristem, that T-cells can be induced to undergo a process of `retrodifferentiation' to generate virtually endless supplies of pluripotent AS cells13. Although this work has yet to undergo the scrutiny of scientific peer review, it has been independently verified in both academic (Adrian Newland, Royal London Hospital, London) and industry (Anthony Lockett, Covance, Harrogate, UK) settings, clearly raising further exciting therapeutic possibilities14.

Regardless as to which option is pursued, the clinical use of either ES or AS cell technology is still many years in the future. As Neil Scolding (Frenchay Hospital, Bristol, UK) warned attendees at the Lords' meeting, that, "there are two fallacies, one that cures from embryonic stem cells are imminent and the other that adult stem cells are unlikely to be as effective." This is a point agreed upon by the UK Chief Medical Officer Liam Donaldson's report of 1998 on ES cell/therapeutic cloning recommendations.

Peter Andrews (University of Sheffield, UK), who hopes to develop ES cell/therapeutic cloning technology, also acknowledged this point when he wrote, "I find it difficult to envisage routine use [of ES cells] on other than selected volunteers in the next 10 years"15. Therefore, there is a risk of raising false hopes within patient groups by giving the general public the impression that ES cell/therapeutic cloning treatments are about to happen once research is given the go-ahead.

As it is widely agreed that the generation of cloned human individuals is highly undesirable, it is important to appreciate that the distinction between `therapeutic' and `reproductive' cloning is slight, as these two options differ only after a viable, cloned human embryo (blastocyst) has been generated. We may find the thought of human clones abhorrent but there are organizations (for example, and and individuals, such as Severino Antinori in Rome16, that are totally committed to this end.

Even scientists who are staunch supporters of ES cell/therapeutic cloning technology within the UK have admitted that reproductive cloning is "inevitable"17. Thus, how will the UK government ensure that ES cell/therapeutic cloning techniques developed in Britain will not be abused by being taken forward to support reproductive cloning in an unregulated part of the world? Is our government prepared to lead the way in the establishment of not only national but also international law prohibiting reproductive cloning? Once in place how will governments police the `global village' to make sure this legislation is not violated? Would it not be wise to at least wait until international law is in place banning reproductive cloning before embarking on a program of ES cell/therapeutic cloning research?

Technical and legal problems can in principle always be overcome, but the major ethical and moral objections to the use of ES cell/therapeutic cloning are much more difficult to address and clearly constitute deep human concerns that can be neither ignored nor lightly dismissed. The issues raised include not only fears that ES cell/therapeutic cloning will ultimately lead to reproductive cloning and genetically engineered human beings, but also whether embryos should be created solely for the purpose of providing `spare parts' for others, reducing human life to a purely utilitarian value.

The UK has already received condemnation from Germany when the deputy chairman of the Reichstag's ethics committee, Hubert Hueppe, said that it was cannibalistic to "breed a human being, only to kill it, disembowel it and impregnate something with it." Such strong statements serve to highlight the fundamental nature of the ethical issues that are raised.

The UK position has also gone against not only the decision of the European Parliament (Strasbourg, 7 September 2000) but also the advice of a report sponsored by the European Commission by the 12-member European Group on Ethics in Science and New Technologies which recommended "prudence" and a precautionary approach saying that, "At present the creation of embryos for somatic cell transfer would be premature"18. John Wyatt expressed the ethical dilemma well when he said, "I and many of my fellow health professionals have a profound disquiet about the introduction of therapeutic cloning."

Eleven religious leaders headed by His Grace, the Archbishop of Canterbury, the Chief Rabbi, the Cardinal Archbishop of Glasgow, the President of the Muslim College, the Director of the Sikh Network and leaders of Christian denominations within the UK took the unprecedented step of cosigning a letter to the UK parliament House of Lords encouraging members not to endorse the British government's position to allow ES cell/therapeutic cloning research but to take time to reflect on the ethical and moral consequences of this work more carefully.

Therefore, despite the Government's vote in favor of allowing ES cell/therapeutic cloning research within the UK, debate and objections are as prevalent here as in those countries that are still undecided as to which route to take. In my view, given the lack of agreement over ES cell research within the scientific community as well as general society both nationally and internationally, governments around the world should back major initiatives in AS cell research which could harbor the same if not a greater and safer therapeutic potential, and avoid the problems of working with ES cell/therapeutic cloning. Moreover, these practical and especially ethical problems associated with the ES cell/therapeutic cloning should not necessarily be viewed as a setback, as they can encourage investigation into AS cell alternatives as has already happened in the USA (ref. 19).

Note: This commentary expresses the personal opinion of the author and does not represent a position statement of either the Division of Medical and Molecular Genetics or the GKT School of Medicine.


1. Thomson, J.A. et al. Embryonic stem cell lines derived from human blastocysts. Science 282, 1145–1147 (1998). | Article | PubMed | ISI | ChemPort |
2. Reubinoff, B. et al. Embryonic stem cell lines from human blastocysts: somatic differentiation in vitro. Nature Biotechnol. 18, 399–404 (2000). | Article | PubMed | ISI | ChemPort |
3. Ferrari, G. et al. Muscle regeneration by bone marrow-derived myogenic progenitors. Science 279, 1528–1530 (1998). | Article | PubMed | ISI | ChemPort |
4. Lee, S.-H. et al. Efficient generation of midbrain and hindbrain neurons from mouse embryonic stem cells. Nature Biotechnol. 18, 675–679 (2000). | Article | PubMed | ISI | ChemPort |
5. Benninger, Y. et al. Differentiation and histological analysis of embryonic stem cell-derived neural transplants in mice. Brain Pathol. 10, 330–341 (2000). | PubMed | ISI | ChemPort |
6. Liu, S. et al. Embryonic stem cells differentiate into oligodendrocytes and myelinate in culture and after spinal cord transplantation. Proc. Natl. Acad. Sci. USA 97, 6126–6131 (2000). | Article | PubMed | ChemPort |
7. Brüstle, O. et al. Embryonic stem cell-derived glial precursors: a source of myelinating transplants. Science 285, 754–756 (1999). | Article | PubMed | ISI | ChemPort |
8. Brazelton, T.R. et al. From marrow to brain: expression of neuronal phenotypes in adult mice. Science 290, 1775–1779 (2000). | Article | PubMed | ISI | ChemPort |
9. Gussoni, E. et al. Dystrophin expression in the mdx mouse restored by stem cell transplantation. Nature 401, 390–394. | PubMed |
10. Peterson, B.E. et al. Bone marrow as a potential source of hepatic oval cells. Science 284, 1168–1170 (1999). | Article | PubMed |
11. Alison, M.R. et al. Hepatocytes from non-hepatic adult stem cells. Nature 406, 257 (2000). | Article | PubMed | ISI | ChemPort |
12. Clarke, D.L. et al. Generalized Potential of Adult Neural Stem Cells. Science 288, 1660–1663 (2000). | Article | PubMed | ISI | ChemPort |
13. Abuljadayel, IMSS and Dhook, GJ. A method for preparing an undifferentiated cell. UK Patent GB2297558 (1995).
14. Times of London, 15 January 2001.
15. The Daily Telegraph, London, 24 January 2001.
16. The Sunday Times, London, 28 January 2001.
17. The Independent, London, 30 August 2000.
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19. European Ethics Committee. Ethics can boost science. Nature 408, 275 (2000). | Article | PubMed | ISI | ChemPort |

Obama Is Leaving Some Stem Cell Issues to Congress

Editor's NOTE:

If the following article is correct, President Obama will leave it to Congress to decide whether or not to attempt repeal of the so-called Dickey-Wicker amendment--which specifically bans the use of tax dollars used to create human embryos for experimentation/research.

According to the piece below, the President's "order will allow research on hundreds of stem cell lines already in existence, as well as ones yet to be created, typically from embryos left over from fertility treatments that would otherwise be discarded."

This means that it will become legal to utilize any already existent embryonic stem cell lines as well as those subsequently created either from already existent embryos or those "to be created embryos" brought into existence in fertility clinics. If Congress were to repeal the Dickey-Wicker amendment it would also allow federal funds to be spent in order to artificially produce human embryos destined for destruction in the process of removing their stem cells as well.

One of President Obama's science advisors Harold Varmus was quoted as saying the following with respect to the new executive order:

"As a result of lifting those limitations, the president is in effect allowing federal funding of embryonic stem cell research to the extent it's permitted by federal law -- that is work with stem cells themselves, not the derivation of those stem cells,"

The morally significant issue is whether it is morally licit to destroy (read kill) human embryos for any reason. Traditional morality answers a resounding no. A Utilitarian calculus answers yes in essence arguing that the further "end" of potentially providing life-saving treatments for patients justifies the proximate end or "means" of killing innocent embryonic human beings in order to obtain their stem cells. The obvious question then is: what other human beings can be killed in order to serve some identified potentially desirable "further end"?

--Dr. J. P. Hubert

The New York Times
Published: March 8, 2009

WASHINGTON — While lifting the Bush administration’s restrictions on federally financed human embryonic stem cell research, President Obama intends to avoid the thorniest question in the debate: whether taxpayer dollars should be used to experiment on embryos themselves, two senior administration officials said Sunday.

The officials, who provided details of the announcement Mr. Obama will make Monday at the White House, said the president would leave it to Congress to determine whether the long-standing legislative ban on federal financing for human embryo experiments should also be overturned.

Yet, people on both sides of the stem cell debate say Mr. Obama’s announcement could lead to a reconsideration of the ban on Capitol Hill, an idea so controversial and fraught with ethical implications that the mere discussion of it would have been unthinkable just a few months ago, when President George W. Bush was in office.

The ban, known as the Dickey-Wicker amendment, first became law in 1996, and has been renewed by Congress every year since. It specifically bans the use of tax dollars to create human embryos — a practice that is routine in private fertility clinics — or for research in which embryos are destroyed, discarded or knowingly subjected to risk of injury.

For a time, the ban stood in the way of taxpayer-financed embryonic stem cell research, because embryos are destroyed when stem cells are extracted from them. But in August 2001, in a careful compromise, President Bush opened the door a tiny crack, by ordering that tax dollars could be used for studies on a small number of lines, or colonies, of stem cells already extracted from embryos — so long as federal researchers did not do the extraction themselves.

On Monday, Mr. Obama will throw open the door much farther with an executive order that will “make clear that the government intends to support” human embryonic stem cell research, said Harold Varmus, the president of Memorial Sloan-Kettering Cancer Center, who advises Mr. Obama on science matters.

To the delight of patients’ groups and scientists, the order will allow research on hundreds of stem cell lines already in existence, as well as ones yet to be created, typically from embryos left over from fertility treatments that would otherwise be discarded.

The order comes just in time for researchers to take advantage of money in Mr. Obama’s economic recovery package and use it for stem cell studies. But because of the Dickey-Wicker amendment, federal researchers would still be unable to create their own stem cell lines.

Mr. Obama has no power to overturn the Dickey-Wicker ban. Only Congress, which attaches the ban to appropriations bills, can overturn it. Mr. Obama has not taken a position on the ban and does not intend to, Melody C. Barnes, his chief domestic policy adviser, said Sunday. The president believes stem cell research “should be done in compliance with federal law,” she said, adding that Mr. Obama recognizes the divisiveness of the issue.

“We are committed to pursuing stem cell research quite responsibly but we recognize there are a range of beliefs on this,” Ms. Barnes said.

Because embryonic stem cells are capable of developing into any type of cell or tissue in the body, many scientists and advocates for patients believe they hold the possibility for treatments and cures for ailments as varied as diabetes and heart disease. Some researchers say stem cells may someday be used to treat catastrophic injuries, like damage to the spinal cord.

Mr. Bush twice vetoed legislation that would have expanded his 2001 policy.

Although Mr. Obama’s action on Monday has broad bipartisan support, it could still be overturned by a successor so House Democrats are expected to draft legislation that would codify the president’s executive order.

But with Mr. Obama revisiting the Bush policy, Representative Diana DeGette, Democrat of Colorado and a leading advocate for embryonic stem cell research, said Sunday in an interview that overturning the embryo experiment ban might not be as far-fetched as some critics imagine.

Ms. DeGette said the first move for lawmakers would be to turn the steps Mr. Obama takes by executive order on Monday into law. But she said she was also talking to her colleagues about overturning the broader Dickey-Wicker restriction.

“Dickey-Wicker is 13 years old now, and I think we need to review these policies,” Ms. DeGette said. “I’ve already talked to several pro-life Democrats about Dickey-Wicker, and they seemed open to the concept of reversing the policy if we could show that it was necessary to foster this research.”

A senior House Democratic leadership aide, who was not authorized to speak publicly about the issue, said overturning the ban “would be difficult, but not impossible,” adding, “It’s not something that we would do right away, but it’s something that we would look at.”

Fertility researchers also believe the climate is ripe to allow federal money for their work, especially in light of the recent controversy over the birth of octuplets in California, said Sean Tipton, a spokesman for the American Society for Reproductive Medicine.

“I think we’re thrilled that the president is going to lift the restrictions on embryonic stem cell research,” Mr. Tipton said Sunday. “It is clear, though, that Congress needs to remove the restrictions it puts on other forms of embryo research.”

Already abortion opponents are bracing for a battle. “The administration now steps onto a very steep, very slippery slope,” said Douglas Johnson, legislative director for the National Right to Life Committee. “Many researchers will never be satisfied only with the so-called leftover embryos.”

One Republican lawmaker, Representative Christopher H. Smith of New Jersey, is calling Mr. Obama “the abortion president,” and is planning his own event on Monday to protest Mr. Obama’s new stem cell policy.

Mr. Smith said in an interview Sunday that he did not think lawmakers would go along with overturning the embryo experiment ban.

“I don’t think it will fly because the movement in the country is in favor of life,” he said. “For Congress to say that the new guinea pig will be human embryos, most Americans will find that highly offensive.”

Mr. Obama’s announcement on Monday will be part of a broader initiative to make good on his pledge to separate science and politics. Dr. Varmus, a former director of the National Institutes of Health who is a co-chairman of a panel that advises Mr. Obama on science issues, said the president would issue a memorandum to “restore public confidence in the process by which scientific policy is used to guide government action,” by directing his administration to draft guidelines for the use of scientific information and the appointment of outside science advisers.

In reversing the stem cell policy Mr. Bush put in place in August 2001, Mr. Obama will direct the National Institutes of Health to come up with new stem cell research guidelines within 120 days.

Ms. DeGette said she is already talking to the White House about what legislation codifying the executive order might say.

“It’s a wonderful development tomorrow,” she said, “but it’s really the first step in opening up ethical cell-based research.”

Sunday, March 8, 2009

The U.S. Financial System Is Effectively Insolvent: There is a grave risk of a global L-shaped depression

Editor's NOTE:

As regular readers are aware, this site has consistently warned since its inception about the imminent collapse of the US economy given our almost total loss of manufacturing infrastructure a direct result of aggressive outsourcing of jobs and off-shoring of production. Professor Roubini and a few others frequently posted here have been extremely accurate to date in their pronouncements and predictions vis a vis the US economic crisis particularly as concerns the US mega/investment banking system.

--Dr. J. P. Hubert

By Nouriel Roubini

March 07, 2009 "Forbes" March 05, 2009 -- -- For those who argue that the rate of growth of economic activity is turning positive--that economies are contracting but at a slower rate than in the fourth quarter of 2008--the latest data don't confirm this relative optimism. In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.

There is, in fact, a rising risk of a global L-shaped depression that would be even worse than the current, painful U-shaped global recession. Here's why:

First, note that most indicators suggest that the second derivative of economic activity is still sharply negative in Europe and Japan and close to negative in the U.S. and China. Some signals that the second derivative was turning positive for the U.S. and China turned out to be fake starts. For the U.S., the Empire State and Philly Fed indexes of manufacturing are still in free fall; initial claims for unemployment benefits are up to scary levels, suggesting accelerating job losses; and January's sales increase is a fluke--more of a rebound from a very depressed December, after aggressive post-holiday sales, than a sustainable recovery.

For China, the growth of credit is only driven by firms borrowing cheap to invest in higher-returning deposits, not to invest, and steel prices in China have resumed their sharp fall. The more scary data are those for trade flows in Asia, with exports falling by about 40% to 50% in Japan, Taiwan and Korea.

Even correcting for the effect of the Chinese New Year, exports and imports are sharply down in China, with imports falling (-40%) more than exports. This is a scary signal, as Chinese imports are mostly raw materials and intermediate inputs. So while Chinese exports have fallen so far less than in the rest of Asia, they may fall much more sharply in the months ahead, as signaled by the free fall in imports.

With economic activity contracting in 2009's first quarter at the same rate as in 2008's fourth quarter, a nasty U-shaped recession could turn into a more severe L-shaped near-depression (or stag-deflation). The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging-market economies are on the verge of a fully fledged financial crisis, starting with emerging Europe.

Fiscal and monetary stimulus is becoming more aggressive in the U.S. and China, and less so in the euro zone and Japan, where policymakers are frozen and behind the curve. But such stimulus is unlikely to lead to a sustained economic recovery. Monetary easing--even unorthodox--is like pushing on a string when (1) the problems of the economy are of insolvency/credit rather than just illiquidity; (2) there is a global glut of capacity (housing, autos and consumer durables and massive excess capacity, because of years of overinvestment by China, Asia and other emerging markets), while strapped firms and households don't react to lower interest rates, as it takes years to work out this glut; (3) deflation keeps real policy rates high and rising while nominal policy rates are close to zero; and (4) high yield spreads are still 2,000 basis points relative to safe Treasuries in spite of zero policy rates

Fiscal policy in the U.S. and China also has its limits. Of the $800 billion of the U.S. fiscal stimulus, only $200 billion will be spent in 2009, with most of it being backloaded to 2010 and later. And of this $200 billion, half is tax cuts that will be mostly saved rather than spent, as households are worried about jobs and paying their credit card and mortgage bills. (Of last year's $100 billion tax cut, only 30% was spent and the rest saved.)

Thus, given the collapse of five out of six components of aggregate demand (consumption, residential investment, capital expenditure in the corporate sector, business inventories and exports), the stimulus from government spending will be puny this year.

Chinese fiscal stimulus will also provide much less bang for the headline buck ($480 billion). For one thing, you have an economy radically dependent on trade: a trade surplus of 12% of GDP, exports above 40% of GDP, and most investment (that is almost 50% of GDP) going to the production of more capacity/machinery to produce more exportable goods. The rest of investment is in residential construction (now falling sharply following the bursting of the Chinese housing bubble) and infrastructure investment (the only component of investment that is rising).

With massive excess capacity in the industrial/manufacturing sector and thousands of firms shutting down, why would private and state-owned firms invest more, even if interest rates are lower and credit is cheaper? Forcing state-owned banks and firms to, respectively, lend and spend/invest more will only increase the size of nonperforming loans and the amount of excess capacity. And with most economic activity and fiscal stimulus being capital- rather than labor-intensive, the drag on job creation will continue.

So without a recovery in the U.S. and global economy, there cannot be a sustainable recovery of Chinese growth. And with the U.S, recovery requiring lower consumption, higher private savings and lower trade deficits, a U.S. recovery requires China's and other surplus countries' (Japan, Germany, etc.) growth to depend more on domestic demand and less on net exports. But domestic-demand growth is anemic in surplus countries for cyclical and structural reasons. So a recovery of the global economy cannot occur without a rapid and orderly adjustment of global current account imbalances.

Meanwhile, the adjustment of U.S. consumption and savings is continuing. The January personal spending numbers were up for one month (a temporary fluke driven by transient factors), and personal savings were up to 5%. But that increase in savings is only illusory. There is a difference between the national income account (NIA) definition of household savings (disposable income minus consumption spending) and the economic definitions of savings as the change in wealth/net worth: savings as the change in wealth is equal to the NIA definition of savings plus capital gains/losses on the value of existing wealth (financial assets and real assets such as housing wealth).

In the years when stock markets and home values were going up, the apologists for the sharp rise in consumption and measured fall in savings were arguing that the measured savings were distorted downward by failing to account for the change in net worth due to the rise in home prices and the stock markets.

But now with stock prices down over 50% from peak and home prices down 25% from peak (and still to fall another 20%), the destruction of household net worth has become dramatic. Thus, correcting for the fall in net worth, personal savings is not 5%, as the official NIA definition suggests, but rather sharply negative.

In other terms, given the massive destruction of household wealth/net worth since 2006-07, the NIA measure of savings will have to increase much more sharply than has currently occurred to restore households' severely damaged balance sheets. Thus, the contraction of real consumption will have to continue for years to come before the adjustment is completed.

In the meanwhile the Dow Jones industrial average is down today below 7,000, and U.S. equity indexes are 20% down from the beginning of the year. I argued in early January that the 25% stock market rally from late November to the year's end was another bear market suckers' rally that would fizzle out completely once an onslaught of worse than expected macro and earnings news, and worse than expected financial shocks, occurs. And the same factors will put further downward pressures on U.S. and global equities for the rest of the year, as the recession will continue into 2010, if not longer (a rising risk of an L-shaped near-depression).

Of course, you cannot rule out another bear market suckers' rally in 2009, most likely in the second or third quarters. The drivers of this rally will be the improvement in second derivatives of economic growth and activity in the U.S. and China that the policy stimulus will provide on a temporary basis. But after the effects of a tax cut fizzle out in late summer, and after the shovel-ready infrastructure projects are done, the policy stimulus will slacken by the fourth quarter, as most infrastructure projects take years to be started, let alone finished.

Similarly in China, the fiscal stimulus will provide a fake boost to non-tradable productive activities while the traded sector and manufacturing continue to contract. But given the severity of macro, household, financial-firm and corporate imbalances in the U.S. and around the world, this second- or third-quarter suckers' market rally will fizzle out later in the year, like the previous five ones in the last 12 months.

In the meantime, the massacre in financial markets and among financial firms is continuing. The debate on "bank nationalization" is borderline surreal, with the U.S. government having already committed--between guarantees, investment, recapitalization and liquidity provision--about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).

Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.

But even in this case, the distinction is only between partial nationalization and full nationalization: With 36% (and soon to be larger) ownership of Citi (nyse: C - news - people ), the U.S. government is already the largest shareholder there. So what is the non-sense about not nationalizing banks? Citi is already effectively partially nationalized; the only issue is whether it should be fully nationalized.

Ditto for AIG (nyse: AIG - news - people ), which lost $62 billion in the fourth quarter and $99 billion in all of 2008 and is already 80% government-owned. With such staggering losses, it should be formally 100% government-owned. And now the Fed and Treasury commitments of public resources to the bailout of the shareholders and creditors of AIG have gone from $80 billion to $162 billion.

Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

News and banks analysts' reports suggested that Goldman Sachs (nyse: GS - news - people ) got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.)

But some things are known: Goldman's Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

So for the Treasury to hide behind the "systemic risk" excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.