by Ismael Hossein-zadeh
Global Research, October 14, 2008
The sad and sick status of our public finance (the rising budget deficits, the soaring national debt, the curtailment of crucially important social spending, and the resulting neglect of both social and physical infrastructure) is a direct consequence of our warped fiscal policies that give priority to the interests of the super rich at the expense of everybody else. It is a direct result of the looting of our public money through a combination of (a) huge “supply-side” tax cuts for the wealthy, and (b) drastic increases in the share of military spending at the expense of non-military public spending.
In a real sense, even the current financial meltdown is a logical outcome of an economic philosophy that promotes extreme social inequality. Contrary to “expert” punditry and popular perceptions, it is not simply due to personal greed; more importantly, it is the result of a systemic failure, or the outcome of the diverging and conflicting class interests.
Progressive taxation, social spending, New Deal reforms, and the War on Poverty were designed not only to protect the poor and working people against the woes and vagaries of market mechanism, but also to save capitalism from itself. Instead of viewing public spending on social safety net programs as long-term investment in the future of the nation, trickle-down economic philosophy views such expenditures as overheads that need to be cut as much as possible.
To this effect, proponents of this philosophy have since the early 1980s been working very hard to cut taxes for the wealthy, to cut non-military public spending, and to reverse most of the social safety net programs that were put in place by FDR’s New Deal and LBJ’s War on Poverty.
Not surprisingly, the result has been an extreme concentration of national riches and resources in fewer and fewer hands, side-by-side with a steady deterioration of the living conditions of the overwhelming majority of our citizens. Unable to make ends meet, most of our citizens exceedingly resorted to borrowing.
Predatory lenders proved to be both creative and merciless in taking advantage of the economically vulnerable, or the legitimate aspirations and dreams of home-ownership. Unfettered by the irresponsible government deregulation policies, these rapacious lenders pushed loans, engaged in deceitful or fraudulent lending practices, and unscrupulously invented many shady financial instruments that resulted in the accumulation of massive amounts of fictitious assets that proved unviable, and eventually collapsed under their own dead weight.
Unless the lopsided national priorities and perverse fiscal policies, known as trickle down or neoliberal economics, which began under Ronald Reagan, are somewhat rectified or mitigated, and the resulting financial resources are invested through a broad and carefully-crafted plan of social and economic recovery, no bailout plan of the plutocrats, by the plutocrats, for the plutocrats can succeed in reversing the current cycle of economic decline.
Saturday, October 18, 2008
Financial Meltdown: The Greatest Transfer of Wealth in History
How to Reverse the Tide and Democratize the US Monetary System
By Ellen Brown
Global Research, October 17, 2008
"Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and Fed-Exed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We’re now no different from any of those Western European semi-socialist welfare states that we love to deride."– Bill Saporito, "How We Became the United States of France," Time (September 21, 2008)
On October 15, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.1
Congress hastily voted to approve Treasury Secretary Hank Paulson’s $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.
On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.
The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.
A Litany of Failed Rescue Plans
Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.
The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks’ books. But the banks’ risky assets include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion.2 The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson’s roundabout bailout plan, "this seems designed to help Hank’s friends offload trash, more than to clear a market blockage."3
By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn’t abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package – using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government’s books. In Plan B, the money would be spent on bank stock, increasing the banks’ capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday’s opening to Friday’s close.
One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called "crony capitalism" or "corporate welfare." The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers’ money. The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers’ investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks’ books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.
Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week’s plan is the Fed’s new "Commercial Paper Funding Facility," which is slated to be operational on October 27, 2008. The facility would open the Fed’s lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:
"The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .
"The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility."4
That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury’s "special deposit" will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating. The U.S. could be reduced to Third World status, with "austerity measures" being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion. Rather than solving the problem, these "rescue" plans seem destined to make it worse.
The Collapse of a 300 Year Ponzi Scheme
All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.5 The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:
"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources."6
The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.
The New Deal Revisited
Today’s credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.
The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and re-lending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don’t have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure.
Credit as a Public Utility
"Credit" can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before. The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in "fractional reserve" lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin’s colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.7
Like the Pennsylvania bank, a modern-day federal banking system would not actually need "reserves" at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply "the full faith and credit of the United States," something the United States should be able to issue directly without having to draw on "reserves" of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the "reserves" for a newly-reconstituted RFC.
Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.
By Ellen Brown
Global Research, October 17, 2008
"Admit it, mes amis, the rugged individualism and cutthroat capitalism that made America the land of unlimited opportunity has been shrink-wrapped by half a dozen short sellers in Greenwich, Conn., and Fed-Exed to Washington, D.C., to be spoon-fed back to life by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson. We’re now no different from any of those Western European semi-socialist welfare states that we love to deride."– Bill Saporito, "How We Became the United States of France," Time (September 21, 2008)
On October 15, the Presidential candidates had their last debate before the election. They talked of the baleful state of the economy and the stock market; but omitted from the discussion was what actually caused the credit freeze, and whether the banks should be nationalized as Treasury Secretary Hank Paulson is now proceeding to do. The omission was probably excusable, since the financial landscape has been changing so fast that it is hard to keep up. A year ago, the Dow Jones Industrial Average broke through 14,000 to make a new all-time high. Anyone predicting then that a year later the Dow would drop nearly by half and the Treasury would move to nationalize the banks would have been regarded with amused disbelief. But that is where we are today.1
Congress hastily voted to approve Treasury Secretary Hank Paulson’s $700 billion bank bailout plan on October 3, 2008, after a tumultuous week in which the Dow fell dangerously near the critical 10,000 level. The market, however, was not assuaged. The Dow proceeded to break through not only 10,000 but then 9,000 and 8,000, closing at 8,451 on Friday, October 10. The week was called the worst in U.S. stock market history.
On Monday, October 13, the market staged a comeback the likes of which had not been seen since 1933, rising a full 11% in one day. This happened after the government announced a plan to buy equity interests in key banks, partially nationalizing them; and the Federal Reserve led a push to flood the global financial system with dollars.
The reversal was dramatic but short-lived. On October 15, the day of the Presidential debate, the Dow dropped 733 points, crash landing at 8,578. The reversal is looking more like a massive pump and dump scheme – artificially inflating the market so insiders can get out – than a true economic rescue. The real problem is not in the much-discussed subprime market but is in the credit market, which has dried up. The banking scheme itself has failed. As was learned by painful experience during the Great Depression, the economy cannot be rescued by simply propping up failed banks. The banking system itself needs to be overhauled.
A Litany of Failed Rescue Plans
Credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank’s capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss from default wipes out $80 in capital, reducing the sum that can be lent by $1,000. Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately.
The bank bailout plan announced on October 3 involved using taxpayer money to buy up mortgage-related securities from troubled banks. This was supposed to reduce the need for new capital by reducing the amount of risky assets on the banks’ books. But the banks’ risky assets include derivatives – speculative bets on market changes – and derivative exposure for U.S. banks is now estimated at a breathtaking $180 trillion.2 The sum represents an impossible-to-fill black hole that is three times the gross domestic product of all the countries in the world combined. As one critic said of Paulson’s roundabout bailout plan, "this seems designed to help Hank’s friends offload trash, more than to clear a market blockage."3
By Thursday, October 9, Paulson himself evidently had doubts about his ability to sell the plan. He wasn’t abandoning his old cronies, but he soft-pedaled that plan in favor of another option buried in the voluminous rescue package – using a portion of the $700 billion to buy stock in the banks directly. Plan B represented a controversial move toward nationalization, but it was an improvement over Plan A, which would have reduced capital requirements only by the value of the bad debts shifted onto the government’s books. In Plan B, the money would be spent on bank stock, increasing the banks’ capital base, which could then be leveraged into ten times that sum in loans. The plan was an improvement but the market was evidently not convinced, since the Dow proceeded to drop another thousand points from Thursday’s opening to Friday’s close.
One problem with Plan B was that it did not really mean nationalization (public ownership and control of the participating banks). Rather, it came closer to what has been called "crony capitalism" or "corporate welfare." The bank stock being bought would be non-voting preferred stock, meaning the government would have no say in how the bank was run. The Treasury would just be feeding the bank money to do with as it would. Management could continue to collect enormous salaries while investing in wildly speculative ventures with the taxpayers’ money. The banks could not be forced to use the money to make much-needed loans but could just use it to clean up their derivative-infested balance sheets. In the end, the banks were still liable to go bankrupt, wiping out the taxpayers’ investment altogether. Even if $700 billion were fanned into $7 trillion, the sum would not come close to removing the $180 trillion in derivative liabilities from the banks’ books. Shifting those liabilities onto the public purse would just empty the purse without filling the derivative black hole.
Plan C, the plan du jour, does impose some limits on management compensation. But the more significant feature of this week’s plan is the Fed’s new "Commercial Paper Funding Facility," which is slated to be operational on October 27, 2008. The facility would open the Fed’s lending window for short-term commercial paper, the money corporations need to fund their day-to-day business operations. On October 14, the Federal Reserve Bank of New York justified this extraordinary expansion of its lending powers by stating:
"The CPFF is authorized under Section 13(3) of the Federal Reserve Act, which permits the Board, in unusual and exigent circumstances, to authorize Reserve Banks to extend credit to individuals, partnerships, and corporations that are unable to obtain adequate credit accommodations. . . .
"The U.S. Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the New York Fed in support of this facility."4
That means the government and the Fed are now committing even more public money and taking on even more public risk. The taxpayers are already tapped out, so the Treasury’s "special deposit" will no doubt come from U.S. bonds, meaning more debt on which the taxpayers have to pay interest. The federal debt could wind up running so high that the government loses its own triple-A rating. The U.S. could be reduced to Third World status, with "austerity measures" being imposed as a condition for further loans, and hyperinflation running the dollar into oblivion. Rather than solving the problem, these "rescue" plans seem destined to make it worse.
The Collapse of a 300 Year Ponzi Scheme
All the king’s men cannot put the private banking system together again, for the simple reason that it is a Ponzi scheme that has reached its mathematical limits. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top. The Wall Street Ponzi scheme is built on "fractional reserve" lending, which allows banks to create "credit" (or "debt") with accounting entries. Banks are now allowed to lend from 10 to 30 times their "reserves," essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.5 The problem is that banks create only the principal and not the interest necessary to pay back their loans. Since bank lending is essentially the only source of new money in the system, someone somewhere must continually be taking out new loans just to create enough "money" (or "credit") to service the old loans composing the money supply. This spiraling interest problem and the need to find new debtors has gone on for over 300 years -- ever since the founding of the Bank of England in 1694 – until the whole world has now become mired in debt to the bankers’ private money monopoly. As British financial analyst Chris Cook observes:
"Exponential economic growth required by the mathematics of compound interest on a money supply based on money as debt must always run up eventually against the finite nature of Earth’s resources."6
The parasite has finally run out of its food source. But the crisis is not in the economy itself, which is fundamentally sound – or would be with a proper credit system to oil the wheels of production. The crisis is in the banking system, which can no longer cover up the shell game it has played for three centuries with other people’s money. Fortunately, we don’t need the credit of private banks. A sovereign government can create its own.
The New Deal Revisited
Today’s credit crisis is very similar to that facing Franklin Roosevelt in the 1930s. In 1932, President Hoover set up the Reconstruction Finance Corporation (RFC) as a federally-owned bank that would bail out commercial banks by extending loans to them, much as the privately-owned Federal Reserve is doing today. But like today, Hoover’s plan failed. The banks did not need more loans; they were already drowning in debt. They needed customers with money to spend and to invest. President Roosevelt used Hoover’s new government-owned lending facility to extend loans where they were needed most – for housing, agriculture and industry. Many new federal agencies were set up and funded by the RFC, including the HOLC (Home Owners Loan Corporation) and Fannie Mae (the Federal National Mortgage Association, which was then a government-owned agency). In the 1940s, the RFC went into overdrive funding the infrastructure necessary for the U.S. to participate in World War II, setting the country up with the infrastructure it needed to become the world’s industrial leader after the war.
The RFC was a government-owned bank that sidestepped the privately-owned Federal Reserve; but unlike the private banks with which it was competing, the RFC had to have the money in hand before lending it. The RFC was funded by issuing government bonds (I.O.U.s or debt) and re-lending the proceeds. The result was to put the taxpayers further into debt. This problem could be avoided, however, by updating the RFC model. A system of public banks might be set up that had the power to create credit themselves, just as private banks do now. A public bank operating on the private bank model could fan $700 billion in capital reserves into $7 trillion in public credit that was derivative-free, liability-free, and readily available to fund all those things we think we don’t have the money for now, including the loans necessary to meet payrolls, fund mortgages, and underwrite public infrastructure.
Credit as a Public Utility
"Credit" can and should be a national utility, a public service provided by the government to the people it serves. Many people are opposed to getting the government involved in the banking system, but the fact is that the government is already involved. A modern-day RFC would actually mean less government involvement and a more efficient use of the already-earmarked $700 billion than policymakers are talking about now. The government would not need to interfere with the private banking system, which could carry on as before. The Treasury would not need to bail out the banks, which could be left to those same free market forces that have served them so well up to now. If banks went bankrupt, they could be put into FDIC receivership and nationalized. The government would then own a string of banks, which could be used to service the depository and credit needs of the community. There would be no need to change the personnel or procedures of these newly-nationalized banks. They could engage in "fractional reserve" lending just as they do now. The only difference would be that the interest on loans would return to the government, helping to defray the tax burden on the populace; and the banks would start out with a clean set of books, so their $700 billion in startup capital could be fanned into $7 trillion in new loans. This was the sort of banking scheme used in Benjamin Franklin’s colony of Pennsylvania, where it worked brilliantly well. The spiraling-interest problem was avoided by printing some extra money and spending it into the economy for public purposes. During the decades the provincial bank operated, the Pennsylvania colonists paid no taxes, there was no government debt, and inflation did not result.7
Like the Pennsylvania bank, a modern-day federal banking system would not actually need "reserves" at all. It is the sovereign right of a government to issue the currency of the realm. What backs our money today is simply "the full faith and credit of the United States," something the United States should be able to issue directly without having to draw on "reserves" of its own credit. But if Congress is not prepared to go that far, a more efficient use of the earmarked $700 billion than bailing out failing banks would be to designate the funds as the "reserves" for a newly-reconstituted RFC.
Rather than creating a separate public banking corporation called the RFC, the nation’s financial apparatus could be streamlined by simply nationalizing the privately-owned Federal Reserve; but again, Congress may not be prepared to go that far. Since there is already successful precedent for establishing an RFC in times like these, that model could serve as a non-controversial starting point for a new public credit facility. The G-7 nations’ financial planners, who met in Washington D.C. this past weekend, appear intent on supporting the banking system with enough government-debt-backed "liquidity" to produce what Jim Rogers calls "an inflationary holocaust." As the U.S. private banking system self-destructs, we need to ensure that a public credit system is in place and ready to serve the people’s needs in its stead.
Most Serious Financial Crisis in World History
October 17, 2008
Why the Bailout Scam Is More Likely to Fail than to Succeed
by Ismael Hossein-zadeh
Global Research, October 14, 2008
Leaving the issue of fraud aside, the bail out scam is also doomed to fail because it avoids diagnosis and dodges the heart of the problem: the inability of more than five million homeowners to pay their fraudulently ballooned mortgage obligations.
Instead of trying to salvage the threatened real assets or homes and save their owners from becoming homeless, the bailout scheme is trying to salvage the phony or fictitious assets of the Wall Street gambler and reward their sins by sending taxpayers’ good money after gamblers bad money. It focuses on the wrong end of the problem.
The apparent rationale for the bailout plan is that while the injection of tax payers’ money into the Wall Street casino may not be fair, it is a necessary evil that will free the “troubled assets” and create liquidity in the financial markets, thereby triggering a much-needed wave of lending, borrowing and expansion.
There are at least five major problems with this argument.
The first major problem is that the current financial disaster is not really a liquidity problem as it is repeatedly portrayed to be. It is a problem of faith and trust, or lack thereof, which in turn stems from the disproportionately large amount of junk assets or mortgages relative to real assets. It is true that lending and credit expansion has almost come to a halt and, in this sense, there is a serious liquidity crisis. But this illiquidity is not really due to a lack of good money or real assets in the system. It is rather because owners of such valuable assets are unwilling to lend their precious possessions to owners of troubled assets, or worthless papers.
As Herman E. Daly, University of Maryland economist, puts it, “The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit.”
The second major problem with the bailout scheme is that it is simply unfeasible and ineffectual because there is just not enough good money to redeem all the bad money that has ballooned or bubbled to a multiple of the good money and/or real assets.
The initial $700 billion bailout money falls way short of what is needed to rescue the Wall Street gamblers, as it is only a fraction of their accumulated bad debt. According to a September 29 Washington Post report:
“Twenty of the nation's largest financial institutions owned a combined total of $2.3 trillion in mortgages as of June 30. They owned another $1.2 trillion of mortgage-backed securities. And they reported selling another $1.2 trillion in mortgage-related investments on which they retained hundreds of billions of dollars in potential liability, according to filings the firms made with regulatory agencies. The numbers do not include investments derived from mortgages in more complicated ways, such as collateralized debt obligations.”
These three categories of mortgage-related financial instruments add up to a $4.7 trillion obligation for the twenty largest financial institutions. This is nearly seven times as large as the initial Paulson/Bernanke bailout plan of $700 billion, which means the plan is destined to be ineffectual.
Nationwide, the ratio of bad to good money is much higher. According to Herman E. Daly, “Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities.” This means that the initial $700 billion bailout fund is simply a drop in the sea of bad debt, and that, therefore, there is not enough good money to pay for the mountain of junk assets accumulated by the gambling financial institutions.
The third major flaw of the bailout plan is that, as mentioned earlier, it does not address the real problem: the problem of rescuing the financially-distressed homeowners. As Dr. Paul Craig Roberts points out, “the Paulson bailout does not address the core problem. It only addresses the problem for the financial institutions that hold the troubled assets. Under the bailout plan, the troubled assets move from the banks' books to the Treasury's. But the underlying problem--the continuing diminishment of mortgage and home values--remains and continues to worsen.”
Simply moving soured assets from fraudulent lenders to the Treasury, that is, buying junk mortgages at face value, will neither help the millions of homeowners facing homelessness, nor help mitigate the raging financial crisis. The bailout should, instead, focus on defrauded homeowners and real assets, not fictitious capital and its unscrupulous owners.
Instead of trying to salvage a mountain of soured assets and prop up bankrupt institutions, the government should allow for a market cleansing, or destruction, of such worthless assets by purchasing the threatened mortgages not at their inflated face value but at the current, depreciated, or market value—as the FDR government did in response the Great Depression of the 1930s.
This alternative, homeowner-based solution would have a number of advantages. First, and foremost, it would help citizens facing the specter of homelessness stay in their homes by allowing them to pay affordable mortgage installments based on reduced or realistic home prices.
By the same token, this solution would also allow the government to gradually recover the market-based home prices it would be paying the troubled commercial mortgage holders. Obviously, this means that, instead of the predatory banks and similar financial institutions, the government would now be the title holder of the rescued homes; of course, until such homes are paid for, upon which time the homeowners would take the possession of their home titles.
By cleansing the market of the dead-weight of tons of junk assets, and allowing threatened homeowners to pay affordable mortgage installments, this bottom-up solution would also help restore faith and trust in the financial system, and in the lending and borrowing mechanism—thereby also mitigating the liquidity crisis.
Furthermore, by bailing out homeowners (and real assets) instead of Wall Street gambler, the government would need only a fraction of the money needed to pay for the huge bubble of the junk assets that have ballooned on top of a much narrower base of real assets. Compared with the scandalous Paulson/Bernanke bailout scheme, this means that the government would end up with enough excess money to invest on a long-term, robust stimulus plan a la the New Deal of the 1930s.
And this brings us to the discussion of the fourth major problem of the Paulson/Bernanke bailout scam: lack of any economic stimulus plan, which is badly needed for economic revival. While government substitution for predatory lenders and the resulting institution of realistic or devalued mortgage installments will certainly lighten the financial burdens of the economically-pressed, it will not relieve them from the need to earn an income and make a decent living. Nor would it (by itself) provide the badly needed purchasing power or necessary demand to stimulate the economy.
To achieve such broader socio-economic objectives requires no less than duplicating (and perhaps even going beyond) FDR’s New Deal reform package that proved critical in ending the Great Depression of the 1930s. A comprehensive long-term public investment in both social and physical infrastructure (health, education, roads, bridges, levees, schools, green energy, etc.) is bound to create jobs, inject purchasing power and liquidity into the economy, and revive production and expansion.
Of course, such an urgently needed comprehensive investment in the future of our society requires extensive public financing, which, in turn, requires a careful and socially-responsible fiscal policy. And this brings us to the fifth major problem of the Paulson/Bernanke bail out scheme: absence of any mention, let alone change, of our warped or lop-sided fiscal policies and priorities.
Why the Bailout Scam Is More Likely to Fail than to Succeed
by Ismael Hossein-zadeh
Global Research, October 14, 2008
Leaving the issue of fraud aside, the bail out scam is also doomed to fail because it avoids diagnosis and dodges the heart of the problem: the inability of more than five million homeowners to pay their fraudulently ballooned mortgage obligations.
Instead of trying to salvage the threatened real assets or homes and save their owners from becoming homeless, the bailout scheme is trying to salvage the phony or fictitious assets of the Wall Street gambler and reward their sins by sending taxpayers’ good money after gamblers bad money. It focuses on the wrong end of the problem.
The apparent rationale for the bailout plan is that while the injection of tax payers’ money into the Wall Street casino may not be fair, it is a necessary evil that will free the “troubled assets” and create liquidity in the financial markets, thereby triggering a much-needed wave of lending, borrowing and expansion.
There are at least five major problems with this argument.
The first major problem is that the current financial disaster is not really a liquidity problem as it is repeatedly portrayed to be. It is a problem of faith and trust, or lack thereof, which in turn stems from the disproportionately large amount of junk assets or mortgages relative to real assets. It is true that lending and credit expansion has almost come to a halt and, in this sense, there is a serious liquidity crisis. But this illiquidity is not really due to a lack of good money or real assets in the system. It is rather because owners of such valuable assets are unwilling to lend their precious possessions to owners of troubled assets, or worthless papers.
As Herman E. Daly, University of Maryland economist, puts it, “The value of present real wealth is no longer sufficient to serve as a lien to guarantee the exploding debt. Consequently the debt is being devalued in terms of existing wealth. No one any longer is eager to trade real present wealth for debt even at high interest rates. This is because the debt is worth much less, not because there is not enough money or credit.”
The second major problem with the bailout scheme is that it is simply unfeasible and ineffectual because there is just not enough good money to redeem all the bad money that has ballooned or bubbled to a multiple of the good money and/or real assets.
The initial $700 billion bailout money falls way short of what is needed to rescue the Wall Street gamblers, as it is only a fraction of their accumulated bad debt. According to a September 29 Washington Post report:
“Twenty of the nation's largest financial institutions owned a combined total of $2.3 trillion in mortgages as of June 30. They owned another $1.2 trillion of mortgage-backed securities. And they reported selling another $1.2 trillion in mortgage-related investments on which they retained hundreds of billions of dollars in potential liability, according to filings the firms made with regulatory agencies. The numbers do not include investments derived from mortgages in more complicated ways, such as collateralized debt obligations.”
These three categories of mortgage-related financial instruments add up to a $4.7 trillion obligation for the twenty largest financial institutions. This is nearly seven times as large as the initial Paulson/Bernanke bailout plan of $700 billion, which means the plan is destined to be ineffectual.
Nationwide, the ratio of bad to good money is much higher. According to Herman E. Daly, “Financial assets have grown by a large multiple of the real economy—paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities.” This means that the initial $700 billion bailout fund is simply a drop in the sea of bad debt, and that, therefore, there is not enough good money to pay for the mountain of junk assets accumulated by the gambling financial institutions.
The third major flaw of the bailout plan is that, as mentioned earlier, it does not address the real problem: the problem of rescuing the financially-distressed homeowners. As Dr. Paul Craig Roberts points out, “the Paulson bailout does not address the core problem. It only addresses the problem for the financial institutions that hold the troubled assets. Under the bailout plan, the troubled assets move from the banks' books to the Treasury's. But the underlying problem--the continuing diminishment of mortgage and home values--remains and continues to worsen.”
Simply moving soured assets from fraudulent lenders to the Treasury, that is, buying junk mortgages at face value, will neither help the millions of homeowners facing homelessness, nor help mitigate the raging financial crisis. The bailout should, instead, focus on defrauded homeowners and real assets, not fictitious capital and its unscrupulous owners.
Instead of trying to salvage a mountain of soured assets and prop up bankrupt institutions, the government should allow for a market cleansing, or destruction, of such worthless assets by purchasing the threatened mortgages not at their inflated face value but at the current, depreciated, or market value—as the FDR government did in response the Great Depression of the 1930s.
This alternative, homeowner-based solution would have a number of advantages. First, and foremost, it would help citizens facing the specter of homelessness stay in their homes by allowing them to pay affordable mortgage installments based on reduced or realistic home prices.
By the same token, this solution would also allow the government to gradually recover the market-based home prices it would be paying the troubled commercial mortgage holders. Obviously, this means that, instead of the predatory banks and similar financial institutions, the government would now be the title holder of the rescued homes; of course, until such homes are paid for, upon which time the homeowners would take the possession of their home titles.
By cleansing the market of the dead-weight of tons of junk assets, and allowing threatened homeowners to pay affordable mortgage installments, this bottom-up solution would also help restore faith and trust in the financial system, and in the lending and borrowing mechanism—thereby also mitigating the liquidity crisis.
Furthermore, by bailing out homeowners (and real assets) instead of Wall Street gambler, the government would need only a fraction of the money needed to pay for the huge bubble of the junk assets that have ballooned on top of a much narrower base of real assets. Compared with the scandalous Paulson/Bernanke bailout scheme, this means that the government would end up with enough excess money to invest on a long-term, robust stimulus plan a la the New Deal of the 1930s.
And this brings us to the discussion of the fourth major problem of the Paulson/Bernanke bailout scam: lack of any economic stimulus plan, which is badly needed for economic revival. While government substitution for predatory lenders and the resulting institution of realistic or devalued mortgage installments will certainly lighten the financial burdens of the economically-pressed, it will not relieve them from the need to earn an income and make a decent living. Nor would it (by itself) provide the badly needed purchasing power or necessary demand to stimulate the economy.
To achieve such broader socio-economic objectives requires no less than duplicating (and perhaps even going beyond) FDR’s New Deal reform package that proved critical in ending the Great Depression of the 1930s. A comprehensive long-term public investment in both social and physical infrastructure (health, education, roads, bridges, levees, schools, green energy, etc.) is bound to create jobs, inject purchasing power and liquidity into the economy, and revive production and expansion.
Of course, such an urgently needed comprehensive investment in the future of our society requires extensive public financing, which, in turn, requires a careful and socially-responsible fiscal policy. And this brings us to the fifth major problem of the Paulson/Bernanke bail out scheme: absence of any mention, let alone change, of our warped or lop-sided fiscal policies and priorities.
Liquidating the Empire
By Patrick j. Buchanan
14/10/08 "Information Clearinghouse" --- “Liquidate labor, liquidate stocks, liquidate the farmers.”
So Treasury Secretary Andrew Mellon advised Herbert Hoover in the Great Crash of ‘29.
Hoover did. And the nation liquidated him — and the Republicans.
In the Crash of 2008, 40 percent of stock value has vanished, almost $9 trillion. Some $5 trillion in real estate value has disappeared. A recession looms with sweeping layoffs, unemployment compensation surging, and social welfare benefits soaring.
America’s first trillion-dollar deficit is at hand.
In Fiscal Year 2008 the deficit was $438 billion.
With tax revenue sinking, we will add to this year’s deficit the $200 to $300 billion needed to wipe the rotten paper off the books of Fannie and Freddie, the $700 billion (plus the $100 billion in add-ons and pork) for the Wall Street bailout, the $85 billion to bail out AIG, and $37 billion more now needed, the $25 billion for GM, Chrysler and Ford, and the hundreds of billions Hank Paulson will need to buy corporate paper and bail out banks to stop the panic.
As Americans save nothing, where are the feds going to get the money? Is the Fed going to print it and destroy the dollar and credit rating of the United States? Because the nations whose vaults are full of dollars and U.S. debt — China, Japan, Saudi Arabia, the Gulf Arabs — are reluctant to lend us more. Sovereign wealth funds that plunged billions into U.S. banks have already been burned.
Uncle Sam’s VISA card is about to be stamped “Canceled.”
The budget is going to have to go under the knife. But what gets cut?
Social Security and Medicare are surely exempt. Seniors have already taken a huge hit in their 401(k)s. And as the Democrats are crafting another $150 billion stimulus package for the working poor and middle class, Medicaid and food stamps are untouchable. Interest on the debt cannot be cut. It is going up. Will a Democratic Congress slash unemployment benefits, welfare, education, student loans, veterans benefits — in a recession?
No way. Yet, that is almost the entire U.S. budget — except for defense, the wars in Afghanistan and Iraq, and foreign aid. And this is where the axe will eventually fall.
It is the American Empire that is going to be liquidated.
Retrenchment has begun with Bush’s backing away from confrontations with Axis-of-Evil charter members Iran and North Korea over their nuclear programs, and will likely continue with a negotiated peace in Afghanistan. Gen. Petraeus and Secretary Gates are already talking “reconciliation” with the Taliban.
We no longer live in Eisenhower or Reagan’s America. Even the post-Cold War world of George H. W. Bush, where America was a global hegemon, is history. In both relative and real terms, the U.S.A. is a diminished power.
Where Ike spent 9 percent of GDP on defense, Reagan 6 percent, we spend 4 percent. Yet we have two wars bleeding us and many more nations to defend, with commitments in the Baltic, Eastern Europe, and the Balkans we did not have in the Cold War. As U.S. weapons systems are many times more expensive today, we have fewer strategic aircraft and Navy ships than Ike or Reagan commanded. Our active-duty Army and Marine Corps consist of 700,000 troops, 15 percent women, and a far higher percentage of them support rather than combat troops.
With so few legions, we cannot police the world, and we cannot afford more. Yet, we have a host of newly hostile nations we did not have in 1989.
U.S. interests in Latin America are being challenged not only by Cuba, but Venezuela, Bolivia, Ecuador, Nicaragua and Honduras. Brazil, Argentina and Chile go their own way. Russia is reasserting hegemony in the Caucasus, testing new ICBMs, running bomber probes up to U.S. air space. China, growing at 10 percent as we head into recession, is bristling over U.S. military sales to Taiwan. Iran remains defiant. Pakistan is rife with anti-Americanism and al-Qaida sentiment.
The American Empire has become a vast extravagance.
With U.S. markets crashing and wealth vanishing, what are we doing with 750 bases and troops in over 100 countries?
With a recession of unknown depth and duration looming, why keep borrowing billions from rich Arabs to defend rich Europeans, or billions from China and Japan to hand out in Millennium Challenge Grants to Tanzania and Burkina Faso?
America needs a bottom-up review of all strategic commitments dating to a Cold War now over for 20 years.
Is it essential to keep 30,000 troops in a South Korea with twice the population and 40 times the wealth of the North? Why are McCain and Obama offering NATO memberships, i.e., war guarantees against Russia, to a Georgia run by a hothead like Mikheil Saakashvili, and a Ukraine, millions of whose people prefer their kinship to Russia to an alliance with us?
We must put “country first,” says John McCain.
Right you are, Senator. Time to look out for America first
14/10/08 "Information Clearinghouse" --- “Liquidate labor, liquidate stocks, liquidate the farmers.”
So Treasury Secretary Andrew Mellon advised Herbert Hoover in the Great Crash of ‘29.
Hoover did. And the nation liquidated him — and the Republicans.
In the Crash of 2008, 40 percent of stock value has vanished, almost $9 trillion. Some $5 trillion in real estate value has disappeared. A recession looms with sweeping layoffs, unemployment compensation surging, and social welfare benefits soaring.
America’s first trillion-dollar deficit is at hand.
In Fiscal Year 2008 the deficit was $438 billion.
With tax revenue sinking, we will add to this year’s deficit the $200 to $300 billion needed to wipe the rotten paper off the books of Fannie and Freddie, the $700 billion (plus the $100 billion in add-ons and pork) for the Wall Street bailout, the $85 billion to bail out AIG, and $37 billion more now needed, the $25 billion for GM, Chrysler and Ford, and the hundreds of billions Hank Paulson will need to buy corporate paper and bail out banks to stop the panic.
As Americans save nothing, where are the feds going to get the money? Is the Fed going to print it and destroy the dollar and credit rating of the United States? Because the nations whose vaults are full of dollars and U.S. debt — China, Japan, Saudi Arabia, the Gulf Arabs — are reluctant to lend us more. Sovereign wealth funds that plunged billions into U.S. banks have already been burned.
Uncle Sam’s VISA card is about to be stamped “Canceled.”
The budget is going to have to go under the knife. But what gets cut?
Social Security and Medicare are surely exempt. Seniors have already taken a huge hit in their 401(k)s. And as the Democrats are crafting another $150 billion stimulus package for the working poor and middle class, Medicaid and food stamps are untouchable. Interest on the debt cannot be cut. It is going up. Will a Democratic Congress slash unemployment benefits, welfare, education, student loans, veterans benefits — in a recession?
No way. Yet, that is almost the entire U.S. budget — except for defense, the wars in Afghanistan and Iraq, and foreign aid. And this is where the axe will eventually fall.
It is the American Empire that is going to be liquidated.
Retrenchment has begun with Bush’s backing away from confrontations with Axis-of-Evil charter members Iran and North Korea over their nuclear programs, and will likely continue with a negotiated peace in Afghanistan. Gen. Petraeus and Secretary Gates are already talking “reconciliation” with the Taliban.
We no longer live in Eisenhower or Reagan’s America. Even the post-Cold War world of George H. W. Bush, where America was a global hegemon, is history. In both relative and real terms, the U.S.A. is a diminished power.
Where Ike spent 9 percent of GDP on defense, Reagan 6 percent, we spend 4 percent. Yet we have two wars bleeding us and many more nations to defend, with commitments in the Baltic, Eastern Europe, and the Balkans we did not have in the Cold War. As U.S. weapons systems are many times more expensive today, we have fewer strategic aircraft and Navy ships than Ike or Reagan commanded. Our active-duty Army and Marine Corps consist of 700,000 troops, 15 percent women, and a far higher percentage of them support rather than combat troops.
With so few legions, we cannot police the world, and we cannot afford more. Yet, we have a host of newly hostile nations we did not have in 1989.
U.S. interests in Latin America are being challenged not only by Cuba, but Venezuela, Bolivia, Ecuador, Nicaragua and Honduras. Brazil, Argentina and Chile go their own way. Russia is reasserting hegemony in the Caucasus, testing new ICBMs, running bomber probes up to U.S. air space. China, growing at 10 percent as we head into recession, is bristling over U.S. military sales to Taiwan. Iran remains defiant. Pakistan is rife with anti-Americanism and al-Qaida sentiment.
The American Empire has become a vast extravagance.
With U.S. markets crashing and wealth vanishing, what are we doing with 750 bases and troops in over 100 countries?
With a recession of unknown depth and duration looming, why keep borrowing billions from rich Arabs to defend rich Europeans, or billions from China and Japan to hand out in Millennium Challenge Grants to Tanzania and Burkina Faso?
America needs a bottom-up review of all strategic commitments dating to a Cold War now over for 20 years.
Is it essential to keep 30,000 troops in a South Korea with twice the population and 40 times the wealth of the North? Why are McCain and Obama offering NATO memberships, i.e., war guarantees against Russia, to a Georgia run by a hothead like Mikheil Saakashvili, and a Ukraine, millions of whose people prefer their kinship to Russia to an alliance with us?
We must put “country first,” says John McCain.
Right you are, Senator. Time to look out for America first
Saturday, September 27, 2008
Bailout Can't Hide It - The United States Is Broke
By Chris Powell
26/09/08 "Day Publishing" original HERE... -- - Even leading Republicans in Congress, including presidential nominee Sen. John McCain, recoiled from Treasury Secretary Henry M. Paulson's proposal to take absolute power over $700 billion to be borrowed by the federal government and used to purchase every sort of bad debt without ever having to answer for it - not to the courts, not to regulatory agencies, and only occasionally and incidentally to Congress itself.
The bad-debt bailout would be the biggest government patronage program in history and would amount to declaring martial law over the U.S. financial system and economy. Even if such martial law is necessary, its implementation should be put in democratic hands - a non-partisan agency with full transparency, statutory standards for its purchases, and close accountability to Congress.
All the same, even if it can work - that is, prop up insolvent financial institutions - the Treasury's proposal is still a proclamation of the collapse of the whole U.S. financial system. Even if some financial institutions are saved, the collapse will manifest itself in other ways, probably ways more damaging to the public. For who cares if Goldman Sachs and Morgan Stanley endure if the issuance of $700 billion more in government bonds drives interest rates way up, diverts credit from the private economy, devalues the already sinking dollar, and sends commodity prices soaring again?
In that case the financial class will have won another battle in its long war against the producing class. It will be again as was said about the maneuvers of the Second Bank of the United States two centuries ago: “The bank was saved; only the people were ruined.”
Injecting throughout the world financial system their bogus and unregulated financial instruments, like collateralized debt obligations and credit-default swaps, the big New York financial houses have taken the world economy hostage. The president and Congress should strive to save the hostages, not the kidnappers.
But the president and Congress have participated eagerly with the kidnappers in the total corruption of the financial system.
They have staffed the regulatory agencies largely from Wall Street and then diminished financial regulation.
They have let the financial houses finance presidential and congressional campaigns.
They have watched haplessly as accounting firms and credit-rating agencies engaged in conflict of interest and failed to do their jobs over and over again even as corporate scandal followed corporate scandal.
They have waged mistaken imperial war not with taxes but with huge amounts borrowed from abroad, making the country hostage to foreign nations, including some with hostile interests.
They have approved the government's falsification of inflation data and its surreptitious suppression of the price of gold so that interest rates could be set below the inflation rate, the government and everyone else could borrow more at lower interest, and the public would not become alarmed by monetary debasement.
Now the U.S. government is conjuring into existence via a few computer keystrokes fantastic, virtually inconceivable amounts of money. Unreal as these amounts are, they will be claims on the real goods and services of the country, and, if the rest of the world wants to keep playing along, which is doubtful, claims on the real goods and services of the rest of the world as well.
The purpose of all this will be to save the people who happen to be in charge of the payments system and to save the propertied class generally. But people without many assets, people who don't earn enough to own housing, people who could gain from lower housing prices and lower prices of everything else, are not even in the government's equation.
The country is simply busted. Its financial obligations are unpayable, its asset prices are illusions, and the great undertaking in Washington and New York is to preserve those illusions rather than face reality. If the price of preserving those illusions is $700 billion - and of course it is more likely to run into the trillions - could it really be more expensive to dispense with the illusions now? After all, instead of rescuing financial institutions that disregarded risk, the government just as easily could keep the country going by sending checks to everyone every month - as it already sends Social Security checks to retirees.
But as long as the government keeps paying ransom, the financial class will keep taking the country hostage.
NOTE:
I wish I could disagree with the author's assessment. Unfortunately, it is closer to reality than we might think. The real question is whether a bail-out/rescue plan will only delay the inevitable or allow enough time for a radical restructuring of the US financial system. The elite financial class will continue to resist any substantive changes as they hope to wring the last bit of potential profit out of a rapidly deteriorating system. They can then exit the country to more favorable off-shore locations as the implosion consumes those of us who lack the where-with-all to leave.
This is how morally and financially bankrupt over-extended empires are ultimately destroyed. The chickens of our profligate orgy are coming home to roost.
--Dr. J. P. Hubert
26/09/08 "Day Publishing" original HERE... -- - Even leading Republicans in Congress, including presidential nominee Sen. John McCain, recoiled from Treasury Secretary Henry M. Paulson's proposal to take absolute power over $700 billion to be borrowed by the federal government and used to purchase every sort of bad debt without ever having to answer for it - not to the courts, not to regulatory agencies, and only occasionally and incidentally to Congress itself.
The bad-debt bailout would be the biggest government patronage program in history and would amount to declaring martial law over the U.S. financial system and economy. Even if such martial law is necessary, its implementation should be put in democratic hands - a non-partisan agency with full transparency, statutory standards for its purchases, and close accountability to Congress.
All the same, even if it can work - that is, prop up insolvent financial institutions - the Treasury's proposal is still a proclamation of the collapse of the whole U.S. financial system. Even if some financial institutions are saved, the collapse will manifest itself in other ways, probably ways more damaging to the public. For who cares if Goldman Sachs and Morgan Stanley endure if the issuance of $700 billion more in government bonds drives interest rates way up, diverts credit from the private economy, devalues the already sinking dollar, and sends commodity prices soaring again?
In that case the financial class will have won another battle in its long war against the producing class. It will be again as was said about the maneuvers of the Second Bank of the United States two centuries ago: “The bank was saved; only the people were ruined.”
Injecting throughout the world financial system their bogus and unregulated financial instruments, like collateralized debt obligations and credit-default swaps, the big New York financial houses have taken the world economy hostage. The president and Congress should strive to save the hostages, not the kidnappers.
But the president and Congress have participated eagerly with the kidnappers in the total corruption of the financial system.
They have staffed the regulatory agencies largely from Wall Street and then diminished financial regulation.
They have let the financial houses finance presidential and congressional campaigns.
They have watched haplessly as accounting firms and credit-rating agencies engaged in conflict of interest and failed to do their jobs over and over again even as corporate scandal followed corporate scandal.
They have waged mistaken imperial war not with taxes but with huge amounts borrowed from abroad, making the country hostage to foreign nations, including some with hostile interests.
They have approved the government's falsification of inflation data and its surreptitious suppression of the price of gold so that interest rates could be set below the inflation rate, the government and everyone else could borrow more at lower interest, and the public would not become alarmed by monetary debasement.
Now the U.S. government is conjuring into existence via a few computer keystrokes fantastic, virtually inconceivable amounts of money. Unreal as these amounts are, they will be claims on the real goods and services of the country, and, if the rest of the world wants to keep playing along, which is doubtful, claims on the real goods and services of the rest of the world as well.
The purpose of all this will be to save the people who happen to be in charge of the payments system and to save the propertied class generally. But people without many assets, people who don't earn enough to own housing, people who could gain from lower housing prices and lower prices of everything else, are not even in the government's equation.
The country is simply busted. Its financial obligations are unpayable, its asset prices are illusions, and the great undertaking in Washington and New York is to preserve those illusions rather than face reality. If the price of preserving those illusions is $700 billion - and of course it is more likely to run into the trillions - could it really be more expensive to dispense with the illusions now? After all, instead of rescuing financial institutions that disregarded risk, the government just as easily could keep the country going by sending checks to everyone every month - as it already sends Social Security checks to retirees.
But as long as the government keeps paying ransom, the financial class will keep taking the country hostage.
NOTE:
I wish I could disagree with the author's assessment. Unfortunately, it is closer to reality than we might think. The real question is whether a bail-out/rescue plan will only delay the inevitable or allow enough time for a radical restructuring of the US financial system. The elite financial class will continue to resist any substantive changes as they hope to wring the last bit of potential profit out of a rapidly deteriorating system. They can then exit the country to more favorable off-shore locations as the implosion consumes those of us who lack the where-with-all to leave.
This is how morally and financially bankrupt over-extended empires are ultimately destroyed. The chickens of our profligate orgy are coming home to roost.
--Dr. J. P. Hubert
Saturday, July 26, 2008
Are You Ready to Face the Facts About Israel?
By Paul Craig Roberts
"On October 21 (1948) the Government of Israel took a decision that was to have a lasting and divisive effect on the rights and status of those Arabs who lived within its borders: the official establishment of military government in the areas where most of the inhabitants were Arabs."
- Martin Gilbert, Israel: A History
25/07/08 "ICH" -- - I had given up on finding an American with a moral conscience and the courage to go with it and was on the verge of retiring my keyboard when I met the Rev. Thomas L. Are.
Rev. Are is a Presbyterian pastor who used to tell his Atlanta, Georgia, congregation: "I am a Zionist." Like most Americans, Rev. Are had been seduced by Israeli propaganda and helped to spread the propaganda among his congregation.
Around 1990 Rev. Are had an awakening for which he credits the Christian Canon of St. George's Cathedral in Jerusalem and author Marc Ellis, co-editor of the book, Beyond Occupation.
Realizing that his ignorance of the situation on the ground had made him complicit in great crimes, Rev. Are wrote a book hoping to save others from his mistake and perhaps in part to make amends, Israeli Peace/Palestinian Justice, published in Canada in 1994.
Rev. Are researched his subject and wrote a brave book. Keep in mind that 1994 was long prior to Walt and Mearsheimer's recent book, which exposed the power of the Israel Lobby and its ability to control the explanation Americans receive about the "Israeli-Palestinian conflict."
Rev. Are begins with an account of Israel's opening attack on the Palestinians, an event which took place before most Americans alive today were born. He quotes the distinguished British historian, Arnold J. Toynbee: "The treatment of the Palestinian Arabs in 1947 (and 1948) was as morally indefensible as the slaughter of six million Jews by the Nazis. Though nor comparable in quantity to the crimes of the Nazis, it was comparable in quality."
Golda Meir, considered by Israelis as a great leader and by others as one of history's great killers, disputed the facts: "It was not as though there was a Palestinian people in Palestine and we came and threw them out and took their country away from them. They did not exist."
Golda Meir's apology for Israel's great crimes is so counter-factual that it blows the mind. Palestinian refugee camps still exist outside Palestine filled with Palestinians and their descendants whose towns, villages, homes and lands were seized by the Israelis in 1948. Rev. Are provides the reader with Na'im Ateek's description of what happened to him, an 11-year old, when the Jews came to take Beisan on May 12, 1948. Entire Palestinian communities simply disappeared.
In 1949 the United Nations counted 711,000 Palestinian refugees.
In 2005 the United Nations Relief and Works Agency estimated 4.25 million Palestinians and their descendants were refugees from their homeland.
The Israeli policy of evicting non-Jews has continued for six decades. On June 19, 2008, the Laity Committee in the Holy Land reported in Window Into Palestine that the Israeli Ministry of Interior is taking away the residency rights of Jerusalem Christians who have been reclassified as "visitors in their own city."
On December 10, 2007, MK Ephraim Sneh boasted in the Jerusalem Post that Israel had achieved "a true Zionist victory" over the UN partition plan "which sought to establish two nations in the land of Israel." The partition plan had assigned Israel 56 percent of Palestine, leaving the inhabitants with only 44 percent. But Israel had altered this over time. Sneh proudly declared: "When we complete the permanent agreement, we will hold 78 percent of the land while the Palestinians will control 22 percent."
Sneb could have added that the 22 percent is essentially a collection of unconnected ghettos cut off from one another and from roads, water, medical care, and jobs.
Rev. Are documents that the abuse of Palestinians' human rights is official Israeli policy. Killings, torture, and beatings are routine. On May 17, 1990, the Washington Post reported that Save the Children "documented indiscriminate beating, tear-gassing and shooting of children at home or just outside the house playing in the street, who were sitting in the classroom or going to the store for groceries."
On January 19, 1988, Israeli Defense Minister Yitzhak Rabin, later Prime Minister, announced the policy of "punitive beating" of Palestinians. The Israelis described the purpose of punitive beating: "Our task is to recreate a barrier and once again put the fear of death into the Arabs of the area."
According to Save the Children, beatings of children and women are common. Rev. Are, citing the report in the Washington Post, writes: "Save the Children concluded that one-third of beaten children were under ten years old, and one-fifth under the age of five. Nearly a third of the children beaten suffered broken bones."
On February 8, 1988, Newsweek magazine quoted an Israeli soldier: "We got orders to knock on every door, enter and take out all the males. The younger ones we lined up with their faces against the wall, and soldiers beat them with billy clubs. This was no private initiative, these were orders from our company commander.... After one soldier finished beating a detainee, another soldier called him 'you Nazi,' and the first man shot back: 'You bleeding heart.' When one soldier tried to stop another from beating an Arab for no reason, a fist fight broke out."
These were the old days before conscience was eliminated from the ranks of the Israeli military.
In the London Sunday Times, June 19, 1977, Ralph Schoenman, executive director of the Bertrand Russell Foundation, wrote: "Israeli interrogators routinely ill-treat and torture Arab prisoners. Prisoners are hooded or blindfolded and are hung by their wrists for long periods. Most are struck in the genitals or in other ways sexually abused. Most are sexually assaulted. Others are administered electric shock."
Amnesty International concluded that "there is no country in the world in which the use of official and sustained torture is as well established and documented as in the case of Israel."
Even the pro-Israeli Washington Post reported: "Upon arrest, a detainee undergoes a period of starvation, deprivation of sleep by organized methods and prolonged periods during which the prisoner is made to stand with his hands cuffed and raised, a filthy sack covering the head. Prisoners are dragged on the ground, beaten with objects, kicked, stripped and placed under ice-cold showers."
Sounds like Abu Gharib. There are news reports that Israeli torture experts participated in the torture of the detainees assembled by the American military as part of the Bush Regime's propaganda onslaught to convince Americans that Iraq was overflowing with al-Qaeda terrorists. On July 23, 2008, Antiwar.com posted an Iraqi news report that the Iraqi government had released a total of 109,087 Iraqis that the Americans had "detained." Obviously, these "terrorist detainees" had been used for the needs of Bush Regime propaganda. No one will ever know how many of them were abused by Israeli torturers imported by the CIA.
Rev. Are's book makes sensible suggestions for resolving the conflict that Israel began. However, the problem is that Israeli governments believe only in force. The policy of the Israeli government has always been to beat, kill, and brutalize Palestinians into submission and flight. Anyone who doubts this can read the book of Israel's finest historian Ilan Pappe, The Ethnic Cleansing of Palestine (2006).
Americans are a gullible and naive people. They have been complicit for 60 years in crimes that in Arnold Toynbee's words "are comparable in quality" to the crimes of Nazi Germany. As Toynbee was writing decades ago, the accumulated Israeli crimes might now be comparable also in quantity.
The US routinely vetoes United Nations condemnations of Israel for its brutal crimes against the Palestinians. Insouciant American taxpayers have been bled for a half century to provide the Israelis with superior military weapons with which Israelis assault their neighbors, all the while convincing America – essentially a captive nation – that Israel is the victim.
John F. Mahoney wrote: "Thomas Are reminds me of Dietrich Bonhoeffer: an active pastor who comes to the unsettling realization that he and his people have been fed a terrible lie that is killing and torturing thousands of innocent men, women and children. Not without ample research and prayer does such a pastor, in turn, risk unsettling his congregation. The Reverend Are has done his homework and, I suspect, has prayed often and long during the writing of this courageous book."
Bonhoeffer was a Lutheran theologian and pastor who was executed for his active participation in the German Resistance against Nazism.
Professor Benjamin M. Weir, San Francisco Theological Seminary, wrote: "This book will make the reader squirm. It asks you to lend your voice in behalf of the voiceless."
Americans who can no longer think for themselves and who are terrified of disapproval by their peer group are incapable of lending their voices to anyone except those who control the world of propaganda in which they live.
The ignorance and unconcern of Americans is a great frustration to my friends in the Israeli peace movement. Without outside support those Israelis who believe in good will are deprived, by America's support for their government's policy of violence, of any peaceful resolution of a conflict began in 1947 by Israeli aggression against unsuspecting Palestinian villages.
Rev. Are wrote his book with the hope that the pen is mightier than the sword and that facts can crowd out propaganda and create a framework for a just resolution of the Palestinian issue. In his concluding chapter, "What Christians Can Do," Rev. Are writes: "We cannot allow others to dictate our thinking on any subject, especially on anything as important as Christian faithfulness, which is tested by an attitude towards seeking justice for the oppressed. It's a Christian's duty to know."
Duty, of course, has costs. Rev. Are writes: "Speak up for the Palestinians and you will make enemies. Yet, as Christians, we must be willing to raise issues that until now we have chosen to dodge."
More than a decade later, President Jimmy Carter, a true friend of Israel, tried again to awaken Americans' moral conscience with his book, Palestine: Peace Not Apartheid. Carter was instantly demonized by the Israel Lobby.
Sixty years of efforts by good and humane people to hold Israel accountable have so far failed, but they are more important today than ever before. Israel has its captive American nation on the verge of attacking Iran, the consequences of which could be catastrophic for all concerned. The alleged purpose of the attack is to eliminate nonexistent Iranian nuclear weapons. The real reason is to eliminate all support for Hamas and Hezbollah so that Israel can seize the entire West Bank and southern Lebanon. The Bush regime is eager to do Israel's bidding, and the media and evangelical "Christian" churches have been preparing the American people for the event.
It is paradoxical that Israel is demonstrating that veracity lies not in the Christian belief in good will but in Lenin's doctrine that violence is the effective force in history and that the evangelical Christian Zionist churches agree.
"On October 21 (1948) the Government of Israel took a decision that was to have a lasting and divisive effect on the rights and status of those Arabs who lived within its borders: the official establishment of military government in the areas where most of the inhabitants were Arabs."
- Martin Gilbert, Israel: A History
25/07/08 "ICH" -- - I had given up on finding an American with a moral conscience and the courage to go with it and was on the verge of retiring my keyboard when I met the Rev. Thomas L. Are.
Rev. Are is a Presbyterian pastor who used to tell his Atlanta, Georgia, congregation: "I am a Zionist." Like most Americans, Rev. Are had been seduced by Israeli propaganda and helped to spread the propaganda among his congregation.
Around 1990 Rev. Are had an awakening for which he credits the Christian Canon of St. George's Cathedral in Jerusalem and author Marc Ellis, co-editor of the book, Beyond Occupation.
Realizing that his ignorance of the situation on the ground had made him complicit in great crimes, Rev. Are wrote a book hoping to save others from his mistake and perhaps in part to make amends, Israeli Peace/Palestinian Justice, published in Canada in 1994.
Rev. Are researched his subject and wrote a brave book. Keep in mind that 1994 was long prior to Walt and Mearsheimer's recent book, which exposed the power of the Israel Lobby and its ability to control the explanation Americans receive about the "Israeli-Palestinian conflict."
Rev. Are begins with an account of Israel's opening attack on the Palestinians, an event which took place before most Americans alive today were born. He quotes the distinguished British historian, Arnold J. Toynbee: "The treatment of the Palestinian Arabs in 1947 (and 1948) was as morally indefensible as the slaughter of six million Jews by the Nazis. Though nor comparable in quantity to the crimes of the Nazis, it was comparable in quality."
Golda Meir, considered by Israelis as a great leader and by others as one of history's great killers, disputed the facts: "It was not as though there was a Palestinian people in Palestine and we came and threw them out and took their country away from them. They did not exist."
Golda Meir's apology for Israel's great crimes is so counter-factual that it blows the mind. Palestinian refugee camps still exist outside Palestine filled with Palestinians and their descendants whose towns, villages, homes and lands were seized by the Israelis in 1948. Rev. Are provides the reader with Na'im Ateek's description of what happened to him, an 11-year old, when the Jews came to take Beisan on May 12, 1948. Entire Palestinian communities simply disappeared.
In 1949 the United Nations counted 711,000 Palestinian refugees.
In 2005 the United Nations Relief and Works Agency estimated 4.25 million Palestinians and their descendants were refugees from their homeland.
The Israeli policy of evicting non-Jews has continued for six decades. On June 19, 2008, the Laity Committee in the Holy Land reported in Window Into Palestine that the Israeli Ministry of Interior is taking away the residency rights of Jerusalem Christians who have been reclassified as "visitors in their own city."
On December 10, 2007, MK Ephraim Sneh boasted in the Jerusalem Post that Israel had achieved "a true Zionist victory" over the UN partition plan "which sought to establish two nations in the land of Israel." The partition plan had assigned Israel 56 percent of Palestine, leaving the inhabitants with only 44 percent. But Israel had altered this over time. Sneh proudly declared: "When we complete the permanent agreement, we will hold 78 percent of the land while the Palestinians will control 22 percent."
Sneb could have added that the 22 percent is essentially a collection of unconnected ghettos cut off from one another and from roads, water, medical care, and jobs.
Rev. Are documents that the abuse of Palestinians' human rights is official Israeli policy. Killings, torture, and beatings are routine. On May 17, 1990, the Washington Post reported that Save the Children "documented indiscriminate beating, tear-gassing and shooting of children at home or just outside the house playing in the street, who were sitting in the classroom or going to the store for groceries."
On January 19, 1988, Israeli Defense Minister Yitzhak Rabin, later Prime Minister, announced the policy of "punitive beating" of Palestinians. The Israelis described the purpose of punitive beating: "Our task is to recreate a barrier and once again put the fear of death into the Arabs of the area."
According to Save the Children, beatings of children and women are common. Rev. Are, citing the report in the Washington Post, writes: "Save the Children concluded that one-third of beaten children were under ten years old, and one-fifth under the age of five. Nearly a third of the children beaten suffered broken bones."
On February 8, 1988, Newsweek magazine quoted an Israeli soldier: "We got orders to knock on every door, enter and take out all the males. The younger ones we lined up with their faces against the wall, and soldiers beat them with billy clubs. This was no private initiative, these were orders from our company commander.... After one soldier finished beating a detainee, another soldier called him 'you Nazi,' and the first man shot back: 'You bleeding heart.' When one soldier tried to stop another from beating an Arab for no reason, a fist fight broke out."
These were the old days before conscience was eliminated from the ranks of the Israeli military.
In the London Sunday Times, June 19, 1977, Ralph Schoenman, executive director of the Bertrand Russell Foundation, wrote: "Israeli interrogators routinely ill-treat and torture Arab prisoners. Prisoners are hooded or blindfolded and are hung by their wrists for long periods. Most are struck in the genitals or in other ways sexually abused. Most are sexually assaulted. Others are administered electric shock."
Amnesty International concluded that "there is no country in the world in which the use of official and sustained torture is as well established and documented as in the case of Israel."
Even the pro-Israeli Washington Post reported: "Upon arrest, a detainee undergoes a period of starvation, deprivation of sleep by organized methods and prolonged periods during which the prisoner is made to stand with his hands cuffed and raised, a filthy sack covering the head. Prisoners are dragged on the ground, beaten with objects, kicked, stripped and placed under ice-cold showers."
Sounds like Abu Gharib. There are news reports that Israeli torture experts participated in the torture of the detainees assembled by the American military as part of the Bush Regime's propaganda onslaught to convince Americans that Iraq was overflowing with al-Qaeda terrorists. On July 23, 2008, Antiwar.com posted an Iraqi news report that the Iraqi government had released a total of 109,087 Iraqis that the Americans had "detained." Obviously, these "terrorist detainees" had been used for the needs of Bush Regime propaganda. No one will ever know how many of them were abused by Israeli torturers imported by the CIA.
Rev. Are's book makes sensible suggestions for resolving the conflict that Israel began. However, the problem is that Israeli governments believe only in force. The policy of the Israeli government has always been to beat, kill, and brutalize Palestinians into submission and flight. Anyone who doubts this can read the book of Israel's finest historian Ilan Pappe, The Ethnic Cleansing of Palestine (2006).
Americans are a gullible and naive people. They have been complicit for 60 years in crimes that in Arnold Toynbee's words "are comparable in quality" to the crimes of Nazi Germany. As Toynbee was writing decades ago, the accumulated Israeli crimes might now be comparable also in quantity.
The US routinely vetoes United Nations condemnations of Israel for its brutal crimes against the Palestinians. Insouciant American taxpayers have been bled for a half century to provide the Israelis with superior military weapons with which Israelis assault their neighbors, all the while convincing America – essentially a captive nation – that Israel is the victim.
John F. Mahoney wrote: "Thomas Are reminds me of Dietrich Bonhoeffer: an active pastor who comes to the unsettling realization that he and his people have been fed a terrible lie that is killing and torturing thousands of innocent men, women and children. Not without ample research and prayer does such a pastor, in turn, risk unsettling his congregation. The Reverend Are has done his homework and, I suspect, has prayed often and long during the writing of this courageous book."
Bonhoeffer was a Lutheran theologian and pastor who was executed for his active participation in the German Resistance against Nazism.
Professor Benjamin M. Weir, San Francisco Theological Seminary, wrote: "This book will make the reader squirm. It asks you to lend your voice in behalf of the voiceless."
Americans who can no longer think for themselves and who are terrified of disapproval by their peer group are incapable of lending their voices to anyone except those who control the world of propaganda in which they live.
The ignorance and unconcern of Americans is a great frustration to my friends in the Israeli peace movement. Without outside support those Israelis who believe in good will are deprived, by America's support for their government's policy of violence, of any peaceful resolution of a conflict began in 1947 by Israeli aggression against unsuspecting Palestinian villages.
Rev. Are wrote his book with the hope that the pen is mightier than the sword and that facts can crowd out propaganda and create a framework for a just resolution of the Palestinian issue. In his concluding chapter, "What Christians Can Do," Rev. Are writes: "We cannot allow others to dictate our thinking on any subject, especially on anything as important as Christian faithfulness, which is tested by an attitude towards seeking justice for the oppressed. It's a Christian's duty to know."
Duty, of course, has costs. Rev. Are writes: "Speak up for the Palestinians and you will make enemies. Yet, as Christians, we must be willing to raise issues that until now we have chosen to dodge."
More than a decade later, President Jimmy Carter, a true friend of Israel, tried again to awaken Americans' moral conscience with his book, Palestine: Peace Not Apartheid. Carter was instantly demonized by the Israel Lobby.
Sixty years of efforts by good and humane people to hold Israel accountable have so far failed, but they are more important today than ever before. Israel has its captive American nation on the verge of attacking Iran, the consequences of which could be catastrophic for all concerned. The alleged purpose of the attack is to eliminate nonexistent Iranian nuclear weapons. The real reason is to eliminate all support for Hamas and Hezbollah so that Israel can seize the entire West Bank and southern Lebanon. The Bush regime is eager to do Israel's bidding, and the media and evangelical "Christian" churches have been preparing the American people for the event.
It is paradoxical that Israel is demonstrating that veracity lies not in the Christian belief in good will but in Lenin's doctrine that violence is the effective force in history and that the evangelical Christian Zionist churches agree.
Monday, June 30, 2008
Zionism’s Dead End
Separation or ethnic cleansing? Israel’s encaging of Gaza aims to achieve both
By Jonathan Cook in Nazareth
The following is taken from a talk delivered at the Conference for the Right of Return and the Secular Democratic State, held in Haifa on June 21.
27/06/08 "ICH"' -- -- In 1895 Theodor Herzl, Zionism’s chief prophet, confided in his diary that he did not favour sharing Palestine with the natives. Better, he wrote, to “try to spirit the penniless [Palestinian] population across the border by denying it any employment in our own country … Both the process of expropriation and the removal of the poor must be carried out discreetly and circumspectly.”
He was proposing a programme of Palestinian emigration enforced through a policy of strict separation between Jewish immigrants and the indigenous population. In simple terms, he hoped that, once Zionist organisations had bought up large areas of Palestine and owned the main sectors of the economy, Palestinians could be made to leave by denying them rights to work the land or labour in the Jewish-run economy. His vision was one of transfer, or ethnic cleansing, through ethnic separation.
Herzl was suggesting that two possible Zionist solutions to the problem of a Palestinian majority living in Palestine -- separation and transfer -- were not necessarily alternatives but rather could be mutually reinforcing. Not only that: he believed, if they were used together, the process of ethnic cleansing could be made to appear voluntary, the choice of the victims. It may be that this was both his most enduring legacy and his major innovation to settler colonialism.
In recent years, with the Palestinian population under Israeli rule about to reach parity with the Jewish population, the threat of a Palestinian majority has loomed large again for the Zionists. Not suprisingly, debates about which of these two Zionist solutions to pursue, separation or transfer, have resurfaced.
Today these solutions are ostensibly promoted by two ideological camps loosely associated with Israel’s centre-left (Labor and Kadima) and right (Likud and Yisrael Beiteinu). The modern political arguments between them turn on differing visions of the nature of a Jewish state orginally put forward by Labor and Revisionist Zionists.
To make sense of the current political debates, and the events taking place inside Israel and in the West Bank and Gaza, let us first examine the history of these two principles in Zionist thinking.
During the early waves of Jewish immigration to Palestine, the dominant Labor Zionist movement and its leader David Ben Gurion advanced policies much in line with Herzl’s goal. In particular, they promoted the twin principles of “Redemption of the Land” and “Hebrew Labor”, which took as their premise the idea that Jews needed to separate themselves from the native population in working the land and employing only other Jews. By being entirely self-reliant in Palestine, Jews could both “cure” themselves of their tainted Diaspora natures and deprive the Palestinians of the opportunity to subsist in their own homeland.
At the forefront of this drive was the Zionist trade union federation, the Histadrut, which denied membership to Palestinians -- and, for many years after the establishment of the Jewish state, even to the remants of the Palestinian population who became Israeli citizens.
But if separation was the official policy of Labor Zionism, behind the scenes Ben Gurion and his officials increasingly appreciated that it would not be enough in itself to achieve their goal of a pure ethnic state. Land sales remained low, at about 6 per cent of the territory, and the Jewish-owned parts of the economy relied on cheap Palestinian labour.
Instead, the Labor Zionists secretly began working on a programme of ethnic cleansing. After 1937 and Britain’s Peel Report proposing partition of Palestine, Ben Gurion was more open about transfer, recognising that a Jewish state would be impossible unless most of the indigenous population was cleared from within its borders.
Israel’s new historians have acknowledged Ben Gurion’s commitment to transfer. As Benny Morris notes, for example, Ben Gurion “understood that there could be no Jewish state with a large and hostile Arab minority in its midst.” The Israeli leadership therefore developed a plan for ethnic cleansing under cover of war, compiling detailed dossiers on the communities that needed to be driven out and then passing on the order, in Plan Dalet, to commanders in the field. During the 1948 war the new state of Israel was emptied of at least 80 per cent of its indigenous population.
In physically expelling the Palestinian population, Ben Gurion responded to the political opportunities of the day and recalibrated the Labor Zionism of Herzl. In particular he achieved the goal of displacement desired by Herzl while also largely persuading the world through a campaign of propaganda that the exodus of the refugees was mostly voluntary. In one of the most enduring Zionist myths, convincingly rebutted by modern historians, we are still told that the refugees left because they were told to do so by the Arab leadership.
The other camp, the Revisionists, had a far more ambivalent attitude to the native Palestinian population. Paradoxically, given their uncompromising claim to a Greater Israel embracing both banks of the Jordan River (thereby including not only Palestine but also the modern state of Jordan), they were more prepared than the Labor Zionists to allow the natives to remain where they were.
Vladimir Jabotinsky, the leader of Revisionism, observed in 1938 -- possibly in a rebuff to Ben Gurion’s espousal of transfer -- that “it must be hateful for any Jew to think that the rebirth of a Jewish state should ever be linked with such an odious suggestion as the removal of non-Jewish citizens”. The Revisionists, it seems, were resigned to the fact that the enlarged territory they desired would inevitably include a majority of Arabs. They were therefore less concerned with removing the natives than finding a way to make them accept Jewish rule.
In 1923, Jabotinsky formulated his answer, one that implicitly included the notion of separation but not necessarily transfer: an “iron wall” of unremitting force to cow the natives into submission. In his words, the agreement of the Palestinians to their subjugation could be reached only “through the iron wall, that is to say, the establishment in Palestine of a force that will in no way be influenced by Arab pressure”.
An enthusiast of British imperial rule, Jabotinsky envisioned the future Jewish state in simple colonial terms, as a European elite ruling over the native population.
Inside Revisionism, however, there was a shift from the idea of separation to transfer that mirrored developments inside Labor Zionism. This change was perhaps more opportunistic than ideological, and was particularly apparent as the Revisionists sensed Ben Gurion’s success in forging a Jewish state through transfer.
One of Jabotinsky disciples, Menachem Begin, who would later become a Likud prime minister, was leader in 1948 of the Irgun militia that committed one of the worst atrocities of the war. He led his fighters into the Palestinian village of Deir Yassin where they massacred over 100 inhabitants, including women and children.
Savage enough though these events were, Begin and his followers consciously inflated the death toll to more than 250 through the pages of the New York Times. Their goal was to spread terror among the wider Palestinian population and encourage them to flee. He later happily noted: “Arabs throughout the country, induced to believe wild tales of ‘Irgun butchery’, were seized with limitless panic and started to flee for their lives. This mass flight soon developed into a maddened, uncontrollable stampede.”
Subsequently, other prominent figures on the right openly espoused ethnic cleansing, including the late General Rehavam Ze’evi, whose Moledet party campaigned in elections under the symbol of the Hebrew character “tet”, for transfer. His successor, Benny Elon, a settler leader and rabbi, adopted a similar platform: “Only population transfer can bring peace”.
The intensity of the separation vs transfer debate subsided after 1948 and the ethnic cleansing campaign that removed most of the native Palestinian population from the Jewish state. The Palestinian minority left behind -- a fifth of the population but a group, it was widely assumed, that would soon be swamped by Jewish immigration -- was seen as an irritation but not yet as a threat. It was placed under a military government for nearly two decades, a system designed to enforce separation between Palestinians and Jews inside Israel. Such separation -- in education, employment and residence -- exists to this day, even if in a less extreme form.
The separation-transfer debate was chiefly revived by Israel’s conquest of the West Bank and Gaza in 1967. With Israel’s erasure of the Green Line, and the effective erosion of the distinction between Palestinians in Israel and the occupied territories, the problem of a Palestinian majority again loomed large for the Zionists.
Cabinet debates from 1967 show the quandary faced by the government. Almost alone, Moshe Dayan favoured annexation of both the newly captured territories and the Palestinian population there. Others believed that such a move would be seen as transparently colonialist and rapidly degenerate into an apartheid system of Jewish citizens and Palestinian non-citizens. In their minds, Jabotinsky’s solution of an iron wall was no longer viable.
But equally, in a more media-saturated era, which at least paid lip-service to human rights, the government could see no way to expel the Palestinian population on a large scale and annex the land, as Ben Gurion had done earlier. Also possibly, they could see no way of persuading the world that such expulsions should be characterised as voluntary.
Israel therefore declined to move decisively in either direction, neither fully carrying out a transfer programme nor enforcing strict separation. Instead it opted for an apartheid model that accommodated Dayan’s suggestion of a “creeping annexation” of the occupied territories that he rightly believed would go largely unnoticed by the West.
The separation embodied in South African apartheid differed from Herzl’s notion of separation in one important respect: in apartheid, the “other” population was a necessary, even if much abused, component of the political arrangement. As the exiled Palestinian thinker Azmi Bishara has noted, in South Africa “racial segregation was not absolute. It took place within a framework of political unity. The racist regime saw blacks as part of the system, an ingredient of the whole. The whites created a racist hierarchy within the unity.”
In other words, the self-reliance, or unilateralism, implicit in Herzl’s concept of separation was ignored for many years of Israel’s occupation. The Palestinian labour force was exploited by Israel just as black workers were by South Africa. This view of the Palestinians was formalised in the Oslo accords, which were predicated on the kind of separation needed to create a captive labour force.
However, Yitzhak Rabin’s version of apartheid embodied by the Oslo process, and Binyamin Netanyahu’s opposition in upholding Jabotinsky’s vision of Greater Israel, both deviated from Herzl’s model of transfer through separation. This is largely why each political current has been subsumed within the recent but more powerful trend towards “unilateral separation”.
Not surprisingly, the policy of “unilateral separation” emerged from among the Labor Zionists, advocated primarily by Ehud Barak. However, it was soon adopted by many members of Likud too. Ultimately its success derived from the conversion to its cause of Greater Israel’s arch-exponent, Ariel Sharon. He realised the chief manifestations of unilateral separation, the West Bank wall and the Gaza disengagement, as well breaking up Israel’s rightwing to create a new consensus party, Kadima.
In the new consensus, the transfer of Palestinians could be achieved through imposed and absolute separation -- just as Herzl had once hoped. After the Gaza disengagement, the next stage was promoted by Sharon’s successor, Ehud Olmert. His plan for convergence, limited withdrawals from the West Bank in which most settlers would remain in place, has been dropped, but its infrastructure -- the separation wall -- continues to be built.
How will modern Zionists convert unilateral separation into transfer? How will Herzl’s original vision of ethnic cleansing enforced through strict ethnic separation be realised in today’s world?
The current siege of Gaza offers the template. After disengagement, Israel has been able to cut off at will Gazans’ access to aid, food, fuel and humanitarian services. Normality has been further eroded by sonic booms, random Israeli air attacks, and repeated small-scale invasions that have inflicted a large toll of casualties, particularly among civilians.
Gaza’s imprisonment has stopped being a metaphor and become a daily reality. In fact, Gaza’s condition is far worse than imprisonment: prisoners, even of war, expect to have their humanity respected, and be properly sheltered, cared for, fed and clothed. Gazans can no longer rely on these staples of life.
The ultimate goal of this extreme form of separation is patently clear: transfer. By depriving Palestinians of the basic conditions of a normal life, it is assumed that they will eventually choose to leave -- in what can once again be sold to the world as a voluntary exodus. And if Palestinians choose to abandon their homeland, then in Zionist thinking they have forfeited their right to it -- just as earlier generations of Zionists believed the Palestinian refugees had done by supposedly fleeing during the 1948 and 1967 wars.
Is this process of transfer inevitable? I think not. The success of a modern policy of “transfer through separation” faces severe limitations.
First, it depends on continuing US global hegemony and blind support for Israel. Such support is likely to be undermined by the current American misadventures in the Middle East, and a gradual shift in the balance of power to China, Russia and India.
Second, it requires a Zionist worldview that departs starkly not only from international law but also from the values upheld by most societies and ideologies. The nature of Zionist ambitions is likely to be ever harder to conceal, as is evident from the tide of opinion polls showing that Western publics, if not their governments, believe Israel to be one of the biggest threats to world order.
And third, it assumes that the Palestinians will remain passive during their slow eradication. The historical evidence most certainly shows that they will not.
By Jonathan Cook in Nazareth
The following is taken from a talk delivered at the Conference for the Right of Return and the Secular Democratic State, held in Haifa on June 21.
27/06/08 "ICH"' -- -- In 1895 Theodor Herzl, Zionism’s chief prophet, confided in his diary that he did not favour sharing Palestine with the natives. Better, he wrote, to “try to spirit the penniless [Palestinian] population across the border by denying it any employment in our own country … Both the process of expropriation and the removal of the poor must be carried out discreetly and circumspectly.”
He was proposing a programme of Palestinian emigration enforced through a policy of strict separation between Jewish immigrants and the indigenous population. In simple terms, he hoped that, once Zionist organisations had bought up large areas of Palestine and owned the main sectors of the economy, Palestinians could be made to leave by denying them rights to work the land or labour in the Jewish-run economy. His vision was one of transfer, or ethnic cleansing, through ethnic separation.
Herzl was suggesting that two possible Zionist solutions to the problem of a Palestinian majority living in Palestine -- separation and transfer -- were not necessarily alternatives but rather could be mutually reinforcing. Not only that: he believed, if they were used together, the process of ethnic cleansing could be made to appear voluntary, the choice of the victims. It may be that this was both his most enduring legacy and his major innovation to settler colonialism.
In recent years, with the Palestinian population under Israeli rule about to reach parity with the Jewish population, the threat of a Palestinian majority has loomed large again for the Zionists. Not suprisingly, debates about which of these two Zionist solutions to pursue, separation or transfer, have resurfaced.
Today these solutions are ostensibly promoted by two ideological camps loosely associated with Israel’s centre-left (Labor and Kadima) and right (Likud and Yisrael Beiteinu). The modern political arguments between them turn on differing visions of the nature of a Jewish state orginally put forward by Labor and Revisionist Zionists.
To make sense of the current political debates, and the events taking place inside Israel and in the West Bank and Gaza, let us first examine the history of these two principles in Zionist thinking.
During the early waves of Jewish immigration to Palestine, the dominant Labor Zionist movement and its leader David Ben Gurion advanced policies much in line with Herzl’s goal. In particular, they promoted the twin principles of “Redemption of the Land” and “Hebrew Labor”, which took as their premise the idea that Jews needed to separate themselves from the native population in working the land and employing only other Jews. By being entirely self-reliant in Palestine, Jews could both “cure” themselves of their tainted Diaspora natures and deprive the Palestinians of the opportunity to subsist in their own homeland.
At the forefront of this drive was the Zionist trade union federation, the Histadrut, which denied membership to Palestinians -- and, for many years after the establishment of the Jewish state, even to the remants of the Palestinian population who became Israeli citizens.
But if separation was the official policy of Labor Zionism, behind the scenes Ben Gurion and his officials increasingly appreciated that it would not be enough in itself to achieve their goal of a pure ethnic state. Land sales remained low, at about 6 per cent of the territory, and the Jewish-owned parts of the economy relied on cheap Palestinian labour.
Instead, the Labor Zionists secretly began working on a programme of ethnic cleansing. After 1937 and Britain’s Peel Report proposing partition of Palestine, Ben Gurion was more open about transfer, recognising that a Jewish state would be impossible unless most of the indigenous population was cleared from within its borders.
Israel’s new historians have acknowledged Ben Gurion’s commitment to transfer. As Benny Morris notes, for example, Ben Gurion “understood that there could be no Jewish state with a large and hostile Arab minority in its midst.” The Israeli leadership therefore developed a plan for ethnic cleansing under cover of war, compiling detailed dossiers on the communities that needed to be driven out and then passing on the order, in Plan Dalet, to commanders in the field. During the 1948 war the new state of Israel was emptied of at least 80 per cent of its indigenous population.
In physically expelling the Palestinian population, Ben Gurion responded to the political opportunities of the day and recalibrated the Labor Zionism of Herzl. In particular he achieved the goal of displacement desired by Herzl while also largely persuading the world through a campaign of propaganda that the exodus of the refugees was mostly voluntary. In one of the most enduring Zionist myths, convincingly rebutted by modern historians, we are still told that the refugees left because they were told to do so by the Arab leadership.
The other camp, the Revisionists, had a far more ambivalent attitude to the native Palestinian population. Paradoxically, given their uncompromising claim to a Greater Israel embracing both banks of the Jordan River (thereby including not only Palestine but also the modern state of Jordan), they were more prepared than the Labor Zionists to allow the natives to remain where they were.
Vladimir Jabotinsky, the leader of Revisionism, observed in 1938 -- possibly in a rebuff to Ben Gurion’s espousal of transfer -- that “it must be hateful for any Jew to think that the rebirth of a Jewish state should ever be linked with such an odious suggestion as the removal of non-Jewish citizens”. The Revisionists, it seems, were resigned to the fact that the enlarged territory they desired would inevitably include a majority of Arabs. They were therefore less concerned with removing the natives than finding a way to make them accept Jewish rule.
In 1923, Jabotinsky formulated his answer, one that implicitly included the notion of separation but not necessarily transfer: an “iron wall” of unremitting force to cow the natives into submission. In his words, the agreement of the Palestinians to their subjugation could be reached only “through the iron wall, that is to say, the establishment in Palestine of a force that will in no way be influenced by Arab pressure”.
An enthusiast of British imperial rule, Jabotinsky envisioned the future Jewish state in simple colonial terms, as a European elite ruling over the native population.
Inside Revisionism, however, there was a shift from the idea of separation to transfer that mirrored developments inside Labor Zionism. This change was perhaps more opportunistic than ideological, and was particularly apparent as the Revisionists sensed Ben Gurion’s success in forging a Jewish state through transfer.
One of Jabotinsky disciples, Menachem Begin, who would later become a Likud prime minister, was leader in 1948 of the Irgun militia that committed one of the worst atrocities of the war. He led his fighters into the Palestinian village of Deir Yassin where they massacred over 100 inhabitants, including women and children.
Savage enough though these events were, Begin and his followers consciously inflated the death toll to more than 250 through the pages of the New York Times. Their goal was to spread terror among the wider Palestinian population and encourage them to flee. He later happily noted: “Arabs throughout the country, induced to believe wild tales of ‘Irgun butchery’, were seized with limitless panic and started to flee for their lives. This mass flight soon developed into a maddened, uncontrollable stampede.”
Subsequently, other prominent figures on the right openly espoused ethnic cleansing, including the late General Rehavam Ze’evi, whose Moledet party campaigned in elections under the symbol of the Hebrew character “tet”, for transfer. His successor, Benny Elon, a settler leader and rabbi, adopted a similar platform: “Only population transfer can bring peace”.
The intensity of the separation vs transfer debate subsided after 1948 and the ethnic cleansing campaign that removed most of the native Palestinian population from the Jewish state. The Palestinian minority left behind -- a fifth of the population but a group, it was widely assumed, that would soon be swamped by Jewish immigration -- was seen as an irritation but not yet as a threat. It was placed under a military government for nearly two decades, a system designed to enforce separation between Palestinians and Jews inside Israel. Such separation -- in education, employment and residence -- exists to this day, even if in a less extreme form.
The separation-transfer debate was chiefly revived by Israel’s conquest of the West Bank and Gaza in 1967. With Israel’s erasure of the Green Line, and the effective erosion of the distinction between Palestinians in Israel and the occupied territories, the problem of a Palestinian majority again loomed large for the Zionists.
Cabinet debates from 1967 show the quandary faced by the government. Almost alone, Moshe Dayan favoured annexation of both the newly captured territories and the Palestinian population there. Others believed that such a move would be seen as transparently colonialist and rapidly degenerate into an apartheid system of Jewish citizens and Palestinian non-citizens. In their minds, Jabotinsky’s solution of an iron wall was no longer viable.
But equally, in a more media-saturated era, which at least paid lip-service to human rights, the government could see no way to expel the Palestinian population on a large scale and annex the land, as Ben Gurion had done earlier. Also possibly, they could see no way of persuading the world that such expulsions should be characterised as voluntary.
Israel therefore declined to move decisively in either direction, neither fully carrying out a transfer programme nor enforcing strict separation. Instead it opted for an apartheid model that accommodated Dayan’s suggestion of a “creeping annexation” of the occupied territories that he rightly believed would go largely unnoticed by the West.
The separation embodied in South African apartheid differed from Herzl’s notion of separation in one important respect: in apartheid, the “other” population was a necessary, even if much abused, component of the political arrangement. As the exiled Palestinian thinker Azmi Bishara has noted, in South Africa “racial segregation was not absolute. It took place within a framework of political unity. The racist regime saw blacks as part of the system, an ingredient of the whole. The whites created a racist hierarchy within the unity.”
In other words, the self-reliance, or unilateralism, implicit in Herzl’s concept of separation was ignored for many years of Israel’s occupation. The Palestinian labour force was exploited by Israel just as black workers were by South Africa. This view of the Palestinians was formalised in the Oslo accords, which were predicated on the kind of separation needed to create a captive labour force.
However, Yitzhak Rabin’s version of apartheid embodied by the Oslo process, and Binyamin Netanyahu’s opposition in upholding Jabotinsky’s vision of Greater Israel, both deviated from Herzl’s model of transfer through separation. This is largely why each political current has been subsumed within the recent but more powerful trend towards “unilateral separation”.
Not surprisingly, the policy of “unilateral separation” emerged from among the Labor Zionists, advocated primarily by Ehud Barak. However, it was soon adopted by many members of Likud too. Ultimately its success derived from the conversion to its cause of Greater Israel’s arch-exponent, Ariel Sharon. He realised the chief manifestations of unilateral separation, the West Bank wall and the Gaza disengagement, as well breaking up Israel’s rightwing to create a new consensus party, Kadima.
In the new consensus, the transfer of Palestinians could be achieved through imposed and absolute separation -- just as Herzl had once hoped. After the Gaza disengagement, the next stage was promoted by Sharon’s successor, Ehud Olmert. His plan for convergence, limited withdrawals from the West Bank in which most settlers would remain in place, has been dropped, but its infrastructure -- the separation wall -- continues to be built.
How will modern Zionists convert unilateral separation into transfer? How will Herzl’s original vision of ethnic cleansing enforced through strict ethnic separation be realised in today’s world?
The current siege of Gaza offers the template. After disengagement, Israel has been able to cut off at will Gazans’ access to aid, food, fuel and humanitarian services. Normality has been further eroded by sonic booms, random Israeli air attacks, and repeated small-scale invasions that have inflicted a large toll of casualties, particularly among civilians.
Gaza’s imprisonment has stopped being a metaphor and become a daily reality. In fact, Gaza’s condition is far worse than imprisonment: prisoners, even of war, expect to have their humanity respected, and be properly sheltered, cared for, fed and clothed. Gazans can no longer rely on these staples of life.
The ultimate goal of this extreme form of separation is patently clear: transfer. By depriving Palestinians of the basic conditions of a normal life, it is assumed that they will eventually choose to leave -- in what can once again be sold to the world as a voluntary exodus. And if Palestinians choose to abandon their homeland, then in Zionist thinking they have forfeited their right to it -- just as earlier generations of Zionists believed the Palestinian refugees had done by supposedly fleeing during the 1948 and 1967 wars.
Is this process of transfer inevitable? I think not. The success of a modern policy of “transfer through separation” faces severe limitations.
First, it depends on continuing US global hegemony and blind support for Israel. Such support is likely to be undermined by the current American misadventures in the Middle East, and a gradual shift in the balance of power to China, Russia and India.
Second, it requires a Zionist worldview that departs starkly not only from international law but also from the values upheld by most societies and ideologies. The nature of Zionist ambitions is likely to be ever harder to conceal, as is evident from the tide of opinion polls showing that Western publics, if not their governments, believe Israel to be one of the biggest threats to world order.
And third, it assumes that the Palestinians will remain passive during their slow eradication. The historical evidence most certainly shows that they will not.
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