Friday, March 19, 2010

Collage of Nonsense: FOXNews

Infographic! AIG Bailout Charted for Your Displeasure

Freedom vs. The Cloud Log

Interview: Eben Moglen - Freedom vs. The Cloud Log
Eben Moglen interviewed by Glyn Moody

Free software has won: practically all of the biggest and most exciting Web companies like Google, Facebook and Twitter run on it. But it is also in danger of losing, because those same services now represent a huge threat to our freedom as a result of the vast stores of information they hold about us, and the in-depth surveillance that implies.

Eben Moglen - Prof. of Law at Columbia and former General Counsel for the FSF. Better than almost anyone, Eben Moglen knows what's at stake. He was General Counsel of the Free Software Foundation for 13 years, and helped draft several versions of the GNU GPL. As well as being Professor of Law at Columbia Law School, he is the Founding Director of the Software Freedom Law Center. And he has an ambitious plan to save us from those seductive but freedom-threatening Web service companies. He explained to Glyn Moody what the problem is, and how we can fix it.

Glyn Moody: So what's the threat you are trying to deal with?

Eben Moglen: We have a kind of social dilemma which comes from architectural creep. We had an Internet that was designed around the notion of peerage - machines with no hierarchical relationship to one another, and no guarantee about their internal architectures or behaviours, communicating through a series of rules which allowed disparate, heterogeneous networks to be networked together around the assumption that everybody's equal.

In the Web the social harm done by the client-server model arises from the fact that logs of Web servers become the trails left by all of the activities of human beings, and the logs can be centralised in servers under hierarchical control. Web logs become power. With the exception of search, which is a service that nobody knows how to decentralise efficiently, most of these services do not actually rely upon a hierarchical model. They really rely upon the Web - that is, the non-hierarchical peerage model created by Tim Berners-Lee, and which is now the dominant data structure in our world.

The services are centralised for commercial purposes. The power that the Web log holds is monetisable, because it provides a form of surveillance which is attractive to both commercial and governmental social control. So the Web, with services equipped in a basically client-server architecture, becomes a device for surveillance as well as providing additional services. And surveillance becomes the hidden service wrapped inside everything we get for free.

The cloud is a vernacular name which we give to a significant improvement in the server-side of the web - the server, decentralised. It becomes, instead of a lump of iron, a digital appliance, which can be running anywhere. This means that for all practical purposes servers cease to be subject to significant legal control. They no longer operate in a policy-directed manner, because they are no longer iron, subject to territorial orientation of law. In a world of virtualised service provision, the server which provides the service, and therefore the log which is the result of the hidden service of surveillance, can be projected into any domain at any moment and can be stripped of any legal obligation pretty much equally freely.

This is a pessimal result.

GM: Was perhaps another major factor in this the commercialisation of the Internet, which saw power being vested in a company that provided services to the consumer?

EM: That's exactly right. Capitalism also has its architectural Bauplan, which it is reluctant to abandon. In fact, much of what the network is doing to capitalism is forcing it to reconsider its Bauplan via a social process which we call by the crappy name of dis-intermediation. Which is really a description of the Net forcing capitalism to change the way it takes. But there's lots of resistance to that, and what's interesting to all of us I suspect, as we watch the rise of Google to pre-eminence, is the ways in which Google does and does not - and it both does and does not - wind up behaving rather like Microsoft in the course of growing up. There are sort of gravitational propositions that arise when you're the largest organism in an ecosystem.

GM: Do you think free software has been a little slow to address the problems you describe?

EM: Yes, I think that's correct. I think it is conceptually difficult, and it is to a large degree difficult because we are having generational change. After a talk [I gave recently], a young woman came up to me and she said: I'm 23 years old, and none of my friends care about privacy. And that's another important thing, right?, because we make software now using the brains and hands and energies of people who are growing up in a world which has been already affected by all of this. Richard or I can sound rather old-fashioned.

GM: So what's the solution you are proposing?

EM: If we had a real intellectually-defensible taxonomy of services, we would recognise that a number of the services which are currently highly centralised, and which count for a lot of the surveillance built in to the society that we are moving towards, are services which do not require centralisation in order to be technologically deliverable. They are really the Web repackaged.

Social networking applications are the most crucial. They rely in their basic metaphors of operation on a bilateral relationship called friendship, and its multilateral consequences. And they are eminently modelled by the existing structures of the Web itself. Facebook is free Web hosting with some PHP doodads and APIs, and spying free inside all the time - not actually a deal we can't do better than.

My proposal is this: if we could disaggregate the logs, while providing the people all of the same features, we would have a Pareto-superior outcome. Everybody – well, except Mr Zuckenberg - would be better off, and nobody would be worse off. And we can do that using existing stuff.

The most attractive hardware is the ultra-small, ARM-based, plug it into the wall, wall-wart server, the SheevaPlug. An object can be sold to people at a very low one-time price, and brought home and plugged into an electrical outlet and plugged into a wall jack for the Ethernet, or whatever is there, and you're done. It comes up, it gets configured through your Web browser on whatever machine you want to have in the apartment with it, and it goes and fetches all your social networking data from all the social networking applications, closing all your accounts. It backs itself up in an encrypted way to your friends' plugs, so that everybody is secure in the way that would be best for them, by having their friends holding the secure version of their data.

The SheevaPlug wall socket computer. And it begins to do all the things that we assume we need in a social networking appliance. It's the feed, it maintains the wall your friends write on - it does everything that provides feature compatibility with what you're used to.

But the log is in your apartment, and in my society at least, we still have some vestigial rules about getting into your house: if people want to check the logs they have to get a search warrant. In fact, in every society, a person's home is about as sacred as it gets.

And so, basically, what I am proposing is that we build a social networking stack based around the existing free software we have, which is pretty much the same existing free software the server-side social networking stacks are built on; and we provide ourselves with an appliance which contains a free distribution everybody can make as much of as they want, and cheap hardware of a type which is going to take over the world whether we do it or we don't, because it's so attractive a form factor and function, at the price.

We take those two elements, we put them together, and we also provide some other things which are very good for the world. Like automatically VPNing everybody's little home network place with my laptop wherever I am, which provides me with encrypted proxies so my web searching, wherever I am, is not going to be spied on. It means that we have a zillion computers available to the people who live in China and other places where there's bad behaviour. So we can massively increase the availability of free browsing to other people in the world. If we want to offer people the option to run onion routeing, that's where we'll put it, so that there will be a credible possibility that people will actually be able to get decent performance on onion routeing networks.

And we will of course provide convenient encrypted email for people - including putting their email not in a Google box, but in their house, where it is encrypted, backed up to all their friends and other stuff. Where in the long purpose of time we can begin to return email to a condition - if not being a private mode of communication - at least not being postcards to the secret police every day.

So we would also be striking a blow for electronic civil liberties in a way that is important, which is very difficult to conceive of doing in a non-technical way.

GM: How will you organise and finance such a project, and who will undertake it?

EM: Do we need money? Yeah, but tiny amounts. Do we need organisation? Yes, but it could be self-organisation. Am I going to talk about this at DEF CON this summer, at Columbia University? Yes. Could Mr Shuttleworth do it if he wanted to? Yes. It's not going to be done with clicking heels together, it's going to be done the way we do stuff: somebody's going begin by reeling off a Debian stack or Ubuntu stack or, for all I know, some other stack, and beginning to write some configuration code and some glue and a bunch of Python to hold it all together. From a quasi-capitalist point of view I don't think this is an unmarketable product. In fact, this is the flagship product, and we ought to all put just a little pro bono time into it until it's done.

GM: How are you going to overcome the massive network effects that make it hard to persuade people to swap to a new service?

EM: This is why the continual determination to provide social networking interoperability is so important.

For the moment, my guess is that while we go about this job, it's going to remain quite obscure for quite a while. People will discover that they are being given social network portability. [The social network companies] undermine their own network effect because everybody wants to get ahead of Mr Zuckerberg before his IPO. And as they do that they will be helping us, because they will be making it easier and easier to do what our box has to do, which is to come online for you, and go and collect all your data and keep all your friends, and do everything that they should have done.

So part of how we're going to get people to use it and undermine the network effect, is that way. Part of it is, it's cool; part of it is, there are people who want no spying inside; part of it is, there are people who want to do something about the Great Firewall of China but don't know how. In other words, my guess is that it's going to move in niches just as some other things do.

GM: With mobile taking off in developing countries, might it not be better to look at handsets to provide these services?

EM: In the long run there are two places where we can conceivably put your identity: one is where you live, and the other is in your pocket. And a stack that doesn't deal with both of those is probably not a fully adequate stack.

The thing I want to say directed to your point “why don't we put our identity server in our cellphone?”, is that our cellphones are very vulnerable. In most parts of the world, you stop a guy on the street, you arrest him on a trumped-up charge of any kind, you get him back to the station house, you clone his phone, you hand it back to him, you've owned him.

When we fully commoditise that [mobile] technology, then we can begin to do the reverse of what the network operators are doing. The network operators around the world are basically trying to eat the Internet, and excrete proprietary networking. The network operators have to play the reverse if telephony technology becomes free. We can eat proprietary networks and excrete the public Internet. And if we do that then the power game begins to be more interesting.

Sweden's New Greatest Hero...

Universal cuts CD prices to combat poor sales

Years late, Universal cuts CD prices to combat poor sales
By Chris Foresman

Sales of digital downloads have not been enough to make up for the decline of CD sales since its peak in 2000. Universal Music Group plans to soften the fall of CD sales by dropping prices across the board, to a maximum of $10.

The company plans to test lower prices beginning next month and continuing throughout 2010. Nearly all of UMG's CDs will priced between $6 and $10. UMG is hoping that increased volume will make up for the price drop, and the company plans to create more higher-priced "deluxe" versions for more hardcore fans.

"We think [the new pricing program] will really bring new life into the physical format," Universal Music Group Distribution president and CEO Jim Urie told Billboard.

Retailers have been clamoring for lower retails prices, with many believing that $10 is the magic number to spur sales. (I'll admit, I rarely buy a physical CD for more than $10 these days). A recent test from Trans World Entertainment showed that a $9.99 price point doubled CD sales in over 100 of its stores.

Forrester analyst Mark Mulligan thinks labels may have to consider pushing prices as low as $5 to further slow the decline of CD sales. "The CD is a dying music product format, but it has some life left in it because downloads haven't generated the format replacement they were expected to," he wrote. "With all previous music formats the successor format was firmly in the ascendancy by the time its predecessor was in terminal decline."

However, digital downloads won't ever generate format replacement. Music on CDs is already in digital format—if you own the CD already, there's no benefit in "replacing" it with a digital download. Furthermore, it will be hard to justify spending $10 on a compressed digital download over $6 for an actual physical disc that can be ripped into iTunes or any other media software in a matter of minutes, and can be done using lossless encoding (if so desired).

iTunes LP, thought by the record labels to help save the digital album from succumbing to single track downloads, isn't making much of a splash with consumers, either.

Effectively, what UMG is doing—and what other labels will do if they also decide that lowering prices will prop up dying CD sales—is giving consumers the expectation that albums should cost even less than $9.99. Because once consumers become accustomed to getting a whole album in physical form for $6, you'll have a much harder time convincing them to buy downloaded albums for more money later. Lowering prices on CDs will increase sales in the short term—good for labels because CD sales still account for about 65 percent of their revenue—but it will only slow its demise, and slow the uptake of digital as a primary format.

National Broadband Plan & Competition

The NBP and ISP competition: this fight's just beginning
By Nate Anderson

For a plan that puts "competition" as its number one goal, the National Broadband Plan is remarkably light on policies that will produce much of it in the wireline space. Talk of competition is everywhere, but all suggestions are remarkably general or terribly banal: "more data collection" and "future policy reviews" are everywhere. Suggestions about how such reviews should turn out is lacking.

But the reviews will still be held, and at some point the consensus-building NBP will devolve into ugly battles of wholesale access, special access (middle-mile connections), and ISP disclosure. The FCC commissioners know it, and they're already gearing up for the fights ahead.

All five commissioners issued statements when the Plan appeared, and everyone took on the issue of competition.

"We should be very concerned about the competitive state of broadband service," warned Mignon Clyburn. "We need to keep our eye on the ball here because evidence in the Plan suggests that by 2012 only 15 percent of households will have the 'luxury' of two providers offering the highest speeds of broadband service (up to 50Mbps). Seventy-five percent of households will have only one provider offering the highest speed. And the remainder of households will not have the highest speeds offered to them at all."

Clyburn made clear she is willing to take bold action, saying that "the Commission must stand ready to act where competition is lacking and be willing to use all available tools to protect consumers and to inject meaningful competition into the marketplace."

The longest-serving commissioner, Michael Copps, went directly after the lack of competition-creating policies in the Plan. "Lack of competition could conceivably require us to take actions going beyond what is generally discussed here," he said.

"I daresay that I don’t need to remind many people here that competition is not, to my mind, the defining hallmark of America’s current telecommunications sector. But it is at the core of our enabling statute. In competition, and elsewhere, should we find that we lack the tools we need to conduct effective public interest oversight of the evolving broadband network, we may have to invoke other available authorities already invested in the Commission—or, should we lack some authority that we need, we may have to request it."

The two Republican commissioners see the implicit threats of more government action here, and both rallied to beat it back. Robert McDowell praised the current deregulatory environment for promoting the robust competition we have today.

"As a direct result of adopting policies that ensured the ’Net would be regulated only with a light touch, the Internet environment is growing and evolving faster than any individual, company or government can measure...." he wrote. "As the Commission and Congress move to consider the ideas offered up by the Office of Broadband Initiative, we should make sure that we first and foremost do no harm."

"Broadband competition is healthy and vibrant," added Meredith Baker. "Under a light-touch targeted regulatory regime in both the Clinton and Bush Administrations, we have gone from a narrowband dial-up world to a multi-platform broadband world by crafting a regulatory framework that promotes facilities-based competition in lieu of prescriptive government requirements."

In other words, the US has moved towards a cable/telco duopoly ("facilities-based competition") and away from line-sharing rules ("prescriptive government requirements").

Let's get ready to rumble

The NBP reminds us that, within a few years, cable will be the only high-speed choice for most Americans unless the telcos start investing in fiber to replace their aging copper networks. Even now, in a well-off Chicago suburb, I have a single ISP choice if I want anything over 6Mbps.

Promoting competition might not require a return to line-sharing mandates—but it certainly requires something. If heavily taxed and highly regulated France can get a complete triple play package of phone, TV, and Internet for €30 a month, these claims about robust US competition look... less than robust.

So the big fights are coming. Baker asks for a "consensus-based broadband policy," but given the ground commissioners are already staking out, that seems difficult if not impossible once the important proceedings begin in earnest. The NBP punted on the toughest questions, perhaps in an effort to give its Plan the consensus that Baker wants, but they will be answered someday.

As for the FCC Chair, Julius Genachowski, he did not take up the line adopted by his Democratic colleagues. In praising the Plan, he noted that it is "idealistic, but not ideological. From my time in the private sector, I have personal appreciation for its focus on the vital role of private investment and competition; and on providing real solutions to real problems."

Genachowski has been good about making the FCC a collegial place once again, seeking common ground whenever possible and operating in a more transparent fashion. But, when the "comprehensive review of wholesale competition rules" begins, that approach may be tested to the breaking point.

ACTA will live on

Your life will some day end
ACTA will live on
By Nate Anderson | Last updated about 2 hours ago

The Anti-Counterfeiting Trade Agreement (ACTA) isn't just another secret treaty—it's a way of life. If ACTA passes in anything like its current form, it will create an entirely new international secretariat to administer and extend the agreement.

Knowledge Ecology International got its hands on more of the leaked ACTA text this week, including a chapter on "Institutional Arrangements" that has not leaked before. The chapter makes clear that ACTA will be far more than a standard trade agreement; it appears to be nothing less than an attempt to make a new international institution that will handle some of the duties of groups like the WTO and WIPO.

Why bother? Well, from the perspective of countries like the US, the existing institutions have problems. For one, they feature a huge number of nations, some of whom have blocked some of the anti-counterfeiting provisions desired by the US and others. Call this the UN problem—getting much done with so many people in attendance can be tricky, and ACTA has become a "coalition of the willing" who have decided to go form their own club instead.

But WIPO, especially, has also opened up over the last decade, and now has robust rules for the participation of consumer groups and other non-governmental organizations. It also requires far more transparency, with the publication of proposals and draft texts throughout a negotiating process. As we have seen too clearly, ACTA has none of this.

Jamie Love of KEI claims that the US Trade Representative has already "told members of Congress it is their intention to marginalize the participation by consumer interest organizations in the new forum."

The new ACTA secretariat won't be a mere administrator. The leaked chapter makes clear that the new governing body will "make recommendations regarding the implementation of ACTA" and will itself "identify and monitor techniques of piracy and counterfeiting."

In other ACTA news, a separate chapter has also leaked, and in it the EU wants to make sure that criminal penalties exist for "cases of willful trademark counterfeiting and copyright or related rights piracy on a commercial scale." On a "commercial scale" doesn't mean that such infringement must be done for financial gain, however; it also includes "significant willful copyright or related rights infringements that have no direct or indirect motivation of financial gain."

Despite the public support of President Obama, ACTA is running into bad press throughout the world. The European Parliament last week even managed to pass a strong resolution of displeasure with the ACTA process, which passed 633-13.

Temperate planet outside our solar system

What's more awesome than discovering a temperate planet outside our solar system?
Maggie Koerth-Baker
March 18, 2010

How about discovering a temperate planet outside our solar system that will actually be relatively easy to study? Spanish researchers have done just that, according to Science News. The newly spotted planet, COROT-9b, is 1,500 light years away. It isn't, itself, Earth-like—think something more akin to Jupiter or Saturn—but its atmosphere might contain water vapor, and, if it turns out to have any moons, those could be habitable. Most important, though, is the fact that researchers can actually study the thing.

Although a number of extrasolar planets with moderate temperatures have been discovered, only a planet that passes in front of -- or transits -- its star can be studied in depth. The starlight that filters through the atmosphere of the planet during each passage reveals the orb's composition, while the amount of starlight that is blocked outright indicates the planet's size.

All the other transiting planets seen so far have been "weird -- inflated and hot" because they orbit so close to their stars, notes study collaborator Didier Queloz of the Geneva Observatory in Sauverny, Switzerland. Deeg, Queloz, and their colleagues report their findings in the March 18 Nature.

Deeg, H.J. 2010A transiting giant planet with a temperature between 250K and 430K. Nature 464:384. doi:10.1038/nature08856

The Shrine Down the Hall

"The Shrine Down the Hall"

"Seven years after the beginning of the Iraq war and with U.S. troop deaths in Iraq and Afghanistan exceeding 5,000, a look at some of the bedrooms America's young war dead left behind.

Patton Oswalt - Sky Cake

U.S. kids even fatter than believed, study shows

Many face chronic health problems, shorter life spans
By JoAnne Allen
Thurs., March. 18, 2010

WASHINGTON - Extreme obesity among American children is much worse than previously believed, putting them at greater risk of serious health problems as they age, U.S. researchers said on Thursday.

A study of more than 700,000 children and teens in southern California found that more than 6 percent, or 45,000, were extremely obese and more boys than girls were far too heavy, the researchers reported in the Journal of Pediatrics.

"This study is unique because it is the first time that we've had a large up-to-date snapshot of what's happening with obesity in our children," co-author Dr. Amy Porter of Kaiser Permanente health care system said in a video statement.

"The prevalence of obesity in children is much higher than we ever thought it was" Porter said. She said the study also showed that extreme obesity was rising in almost every group.

It found that 7 percent of boys and 5 percent of girls were extremely obese, as were more than 2 percent of all children under 5 years old.

Co-author Corinna Koebnick, another researcher with Kaiser Permanente, said the results of the broad multiethnic study, with estimates for racial subgroups by age and sex, probably applied across the country.

"Children who are extremely obese may continue to be extremely obese as adults, and all the health problems associated with obesity are in these children's futures," Koebnick said in a statement.
"Without major lifestyle changes, these kids face a 10 to 20 years shorter life span and will develop health problems in their 20s that we typically see in 40-to-60-year-olds," she said.

First lady Michelle Obama is leading an administration effort to fight childhood obesity focused on improving nutrition in homes and in schools.

Two-thirds of American adults are overweight or obese and a third of children are obese, increasing the risk of heart disease, diabetes and other chronic illnesses, and adding about $150 billion a year to U.S. health care costs.

The researchers sought to determine how many children in a section of Southern California were extremely obese under a new U.S. Centers for Disease Control and Prevention definition.

Previous research based on a federal health survey suggested that 3.8 percent of children were extremely obese.
Doctors do not define obesity in children the same way they do for adults. Obese children are defined as those whose weight is above the 95th percentile for their age and height and extreme obesity is 1.2 times that measurement.

In the study, researchers looked at health records of 710,949 children and teens aged 2 to 19 enrolled in a managed health care plan in 2007 and 2008. The group was almost evenly split between girls and boys and about half were Hispanic.

They found the heaviest children were black teenage girls and Hispanic teenage boys. Asian-Pacific Islanders and white children had the lowest percentage of extreme obesity.

Arkansas Senator Blanche Lincoln, chairwoman of the Senate agriculture committee, introduced legislation on Wednesday that would set national nutrition standards for food sold in U.S. schools and set aside money for school gardens.

The provisions are part of a broader proposal by Lincoln that includes $3.2 billion in new funding over the next 10 years to help curb childhood obesity.

Appeals Court rules that Federal Reserve Must Disclose Bank Bailout Records

Federal Reserve Must Disclose Bank Bailout Records
By David Glovin and Bob Van Voris

March 19 (Bloomberg) -- The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that it could withhold the information under an exemption that allows federal agencies to refuse disclosure of “trade secrets and commercial or financial information obtained from a person and privileged or confidential.”

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.

Right to Know

If today’s ruling is upheld or not appealed by the Fed, it will have to disclose the requested records.

“We’re obviously pleased with the court’s decision, which is an important affirmation of the public’s right to know what its government is up to,” said Thomas Golden, a partner at New York-based Willkie Farr & Gallagher LLP and Bloomberg’s outside counsel.

“We are reviewing the decision and considering our options for reconsideration or appeal,” said Fed spokesman David Skidmore.

The court was asked to decide whether loan records are covered by FOIA. Historically, the type of government documents sought in the case has been protected from public disclosure because they might reveal competitive trade secrets. The Board of Governors of the Federal Reserve System had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury.”

Payment Processors

The Clearing House Association, which processes payments among banks, joined the case and sided with the Fed. The group includes ABN Amro Bank NV, a unit of Royal Bank of Scotland Plc, Bank of America Corp., The Bank of New York Mellon Corp., Citigroup Inc., Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co.

Oscar Suris, a spokesman for Wells Fargo, JPMorgan spokeswoman Jennifer Zuccarelli and RBS spokeswoman Linda Harper all declined to comment. Deutsche Bank spokesman Ronald Weichert couldn’t immediately comment.

Bloomberg, majority-owned by New York Mayor Michael Bloomberg, sued after the Fed refused to name the firms it lent to or disclose loan amounts or assets used as collateral under its lending programs. Most of the loans were made in response to the deepest financial crisis since the Great Depression.

Lawyers for Bloomberg argued in court that the public has the right to know basic information about the “unprecedented and highly controversial use” of public money.

Wall of Secrecy

“Bloomberg has been trying for almost two years to break down a brick wall of secrecy in order to vindicate the public’s right to learn basic information,” Golden wrote in court filings.

Banks and the Fed warned that bailed-out lenders may be hurt if the documents are made public, causing a run or a sell- off by investors. Disclosure may hamstring the Fed’s ability to deal with another crisis, they also argued.

Much of the debate at the appeals court argument on Jan. 11 centered on the potential harm to banks if it was revealed that they borrowed from the Fed’s so-called discount window. Matthew Collette, a lawyer for the government, said banks don’t do that unless they have liquidity problems.

FOIA requires federal agencies to make government documents available to the press and public. An exception to the statute protects trade secrets and privileged or confidential financial data. In her Aug. 24 ruling, U.S. District Judge Loretta Preska in New York said the exception didn’t apply because there’s no proof banks would suffer.

Three-Part Test

In its opinion today, the appeals court said that the exception applies only if the agency can satisfy a three-part test. The information must be a trade secret or commercial or financial in character; must be obtained from a person; and must be privileged or confidential, according to the opinion.

The court said that the information sought by Bloomberg was not “obtained from” the borrowing banks. It rejected an alternative argument the individual Federal Reserve Banks are “persons,” for purposes of the law because they would not suffer the kind of harm required under the “privileged and confidential” requirement of the exemption.

In a related case, U.S. District Judge Alvin Hellerstein in New York previously sided with the Fed and refused to order the agency to release Fed documents that Fox News Network sought. The appeals court today returned that case to Hellerstein and told him to order the Fed to conduct further searches for documents and determine whether the documents should be disclosed.

Balance Sheet

The Fed’s balance sheet debt doubled after lending standards were relaxed following Lehman’s failure on Sept. 15, 2008. That year, the Fed began extending credit directly to companies that weren’t banks for the first time since the 1930s. Total central bank lending exceeded $2 trillion for the first time on Nov. 6, 2008, reaching $2.14 trillion on Sept. 23, 2009.

More than a dozen other groups or companies filed friend- of-the-court briefs. Those arguing for disclosure of the records included the American Society of News Editors and individual news organizations.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

'Insurance firms have ‘hostaged’ Congress'

Saying insurance firms have ‘hostaged’ Congress, Democrat won’t vote for health bill

By Raw Story
Friday, March 19th, 2010

A liberal Democrat says he won't vote for President Barack Obama's signature healthcare bill, asserting that the measure is a giveaway to large health insurance and pharmaceutical companies.

“We’ve paid the ransom, but at the end of the day the insurance companies are still holding the hostages,” Rep. Stephen Lynch said in an interview with the Boston Globe on Thursday. “This is a very good bill for insurance companies and pharmaceutical companies. It might be good for Nebraska, I don’t know. Or Florida residents… But it’s not good for the average American, and it’s not good for my district. Or for Massachusetts.”

Lynch voted for the House version of the health care package when it was passed last December. But the House version included a provision for a "public option," or government-run competitor to private insurance firms. He says the final bill subsidizes the companies that Obama himself has demonized for preying on consumers.

“The insurers still rule,” Lynch said. “Were just pumping subsidies into the current system, but that won’t drive down costs.”

"Lynch had counted himself earlier this week as undecided. He said he decided to vote no within the last several days. He said he is also opposed to the parliamentary procedures Democrats plan to use," the Globe added. "Because their numbers in the Senate have diminished, they are planning to pass changes through a budget reconciliation process, which restricts the types of changes that can be made to ones that have a budgetary impact.

Newly installed Republican Massachusetts senator Scott Brown, who replaced the late Sen. Ted Kennedy, said unsurprisingly that he's joining all of his Republican Senate colleagues to oppose the bill.

"I agree with Congressman Lynch, and I was pleased to hear that he will vote against this health care bill that is bad for Massachusetts," US Senator Scott Brown said in a statement.

“There doesn’t appear to be any way to put reform into this bill,” Lynch said. “It’s a very poor bill.”

Liberal Rep. Dennis Kucinich (D-OH) originally opposed the bill under the same auspices, but decided to support the bill after traveling with President Obama on Air Force One to his district.

Lynch also attacked the Democrats' methods in seeking to have the bill "deemed" approved. Democratic House leadership has proposed a vote that would "deem" the legislation approved since some of its provisions are unsavory to liberal members. Lynch posited that it “may be unconstitutional.”

“It’s a stretch,” he said. “I think it hurts our credibility to try to pull a prank like that. We should stand up and tell voters where we stand.”

Democrats to dodge accountability on public option

Democrats to dodge accountability on public option

By Sahil Kapur
Friday, March 19th, 2010

They say they're for it, but it's likely we'll never know.

The last hope for an up-or-down vote on a public health insurance option faded on Friday, when one of its most outspoken backers scrapped his plans to force a vote on the provision.

Last week, Sen. Bernie Sanders (I-VT) told The Plum Line's Greg Sargent he'd "certainly be prepared to" introduce it in amendment, demanding that senators codify their stances.

But the self-described democratic socialist has since backed off, having "concluded that offering a public option amendment now could undermine the entire process," his spokesman told the Burlington Free Press.

The provision, which would provide consumers the choice of buying into a government-run insurance plan, has consistently polled well among the general public and is overwhelmingly favored by progressives. Staunchly opposed by the influential insurance industry, however, it has been subject to intense quarrels in Congress and was ultimately jettisoned from the Senate bill.

President Obama has repeatedly proclaimed his support for the public plan, only to exclude from his first-ever reform proposal, released just weeks ago. The House of Representatives passed it in its November bill, a month before Senate Democrats concluded they did not have 60 votes for cloture.

But now, under reconciliation, they need 51 votes, and at least 51 senators have suggested -- if not officially declared -- in statements or public appearances that they support the provision, according to unofficial whip counts conducted by the Progressive Change Campaign Committee and the liberal Firedoglake.

Tallying up its supposedly strong support among Senate Democrats, the Huffington Post's Ryan Grim concluded its passage was "a matter of will, not votes." Yet House Speaker Nancy Pelosi (D-CA) announced the provision's death last Friday, declaring that it's "not in reconciliation."

"This is what the Democratic Party does; it's who they are," said Salon's Glenn Greenwald, surmising that party leaders are too afraid to take on insurance companies. "They're willing to feign support for anything their voters want just as long as there's no chance that they can pass it."

So important is the public plan to progressive activists that a number of them, such as Jane Hamsher of Firedoglake, have campaigned to scuttle the current bill and reprimand Democrats who vote for a package without it.

"This is an incredibly disappointing moment," wrote Hamsher on her blog. "I just wish our representatives would have the decency not to lie to their supporters about what they will do, and not make promises they quickly break."

The Gods That Failed

The Consequences of Living in an Economic Free-For-All
By Larry Elliott and Dan Atkinson, Nation Books
March 19, 2010

Editor's note: The following is an excerpt from The Gods That Failed: How Blind Faith in Markets Has Cost Us Our Future by Larry Elliott and Dan Atkinson. Excerpted by arrangement with Nation Books, a member of the Perseus Books Group. Copyright © 2009.

Our inspiration for understanding the respective roles of government on the one hand and large-scale business, finance, and industry on the other is Theodore Roosevelt, U.S. president from 1901 to 1909 and cousin of Franklin Roosevelt, whom we quote at the head of this chapter. Teddy Roosevelt -- a Republican and an imperialist -- was about as far from being a dangerous leftist as it is possible to be, but he had this to say:

The vast individual and corporate fortunes, the vast combinations of capital which have marked the development of our industrial system, create new conditions and necessitate a change from the old attitude of the state and the nation toward property...More and more it is evident that the state, and if necessary the nation, has got to possess the right of supervision and control as regards the great corporations which are its creatures. (Quoted by Edmund Morris, Theodore Rex, Random House, 2001.)

In his presidential message to Congress on December 3, 1901, Roosevelt declared,

“It is no limitation upon property rights or freedom of contract to require that when they receive from the government the privilege of doing business under corporate form...they shall do so upon absolutely truthful representations...Great corporations exist only because they are created and safeguarded by our institutions and it is therefore our right and duty to see that they work in harmony with those institutions.” (Morris, Theodore Rex.)

In other words, we made you and we can break you. In that spirit we offer our suggestions, not in the spirit of establishing yet another international quango sitting in agreeable premises in New York, or Geneva or Paris, monitoring, consulting, surveilling, and early warning, headed by the very able chap who used to be deputy to another very able chap who has been tipped as the next head of the Bank for International Settlements, or the IMF, or similar. Britain’s New Olympians are never happier than when comparing themselves to the salty merchant adventures of the nation’s past, and no after-dinner speech in the city or glossy magazine article about London’s dominance as a financial center is complete without some reference to the swashbuckling traders whose galleons plied the seven seas and whose DNA has somehow been passed down to the bankers, dealers, and asset-strippers of the modern Square Mile.

The reality is that the investment banks, hedge funds, and others are creatures of our law, incapable of existence without life support from our legal system, entirely dependent on the juridical and political systems they effect to despise, just as the moon astronauts were utterly dependent for life itself on the items they had brought with them from earth, to which they were effectively attached by a sort of invisible umbilical cord.

It is we, through our elected representatives, who have created the limited liability company (which allows corporations to enjoy all the rewards of their successful activities while passing on much of the losses of their failed ones to society at large), the fractional reserve bank (which allows banks to create new money out of thin air), and the trust (which conveniently allows assets to own themselves).

The limited company is not only an extraordinary mechanism for privatizing profit and socializing losses, but allows shareholders and executives to escape much of any bad consequences of their behavior: In Britain, corporate signatures end in ‘Itd’, that means ‘limited liability’. The Latins are more poetic and descriptive: they use ‘SA’ -- Sociedad Anonima, or Society of the Nameless. It all adds up to the same thing: when the cops come, there’s nobody home. . . . This legal anomaly has led to all sorts of aberrant corporate behaviour. (Robert Townsend, Up the Organisation, Coronet, 1971.)

Fractional reserve banking, as already noted, allows banks to behave in a way that would be considered fraudulent in any other walk of life -- to lend out money that does not exist and, by doing so, to bring into existence the great majority of money in use in the economy. Those with loans or overdrafts may imagine their borrowings are made up of money belonging to depositors. Almost all of it is not; it is bank-created imaginary money, legally spun out of thin air by the bank in the form of loans. When banks create too much of it, generating inflation, they put up interest rates, which increases their return on their loans. Furthermore, central banks will usually step in to rescue any bank that has recklessly abused its credit creation ability.

Trusts, the slightly mysterious third sibling in this trio, perform one very simple task: they allow assets to be parked, away from any named owner. One iron law of finance is that every asset is ultimately owned by individuals. Companies, banks, partnerships, and investment funds are merely intermediate, artificial entities. Trusts are the one exception to this rule; they can be owners in their own right, without any immediate human beneficiary. The potential advantages of keeping assets for a time off any person’s books in terms of tax planning and many other maneuvers are obvious.

This trio -- limited companies, fractional reserve banks, and trusts -- are all creatures of law, creations of the political system. Their existence renders unintentionally amusing the following entry in a dictionary of economics: Law and economics: . . . The economics of law and economics is firmly in the liberal economics camp, favoring free markets and arguing that regulation often does more harm than good. (Matthew Bishop, Pocket Economist, Economist Books, 2000.)

Show us a real-life merchant adventurer who abjures these three vital legal props and instead hazards his own fortune, day in and day out, in the pursuit of business and we will be lusty in our demands that the state get off his back. We may even help him aboard his galleon and wave him off from the quayside. But we will offer long odds on his ever reappearing.

This, then, must be the starting point of reform—nothing more nor less than saying boo to the New Olympians, to breaking their spell and telling them that we are well within our rights to bring their activities back under democratic control.

Predators Reboot

A 'Time-Release' Depression

When Money Was For Nothing

The US economy is in the midst of a "time release depression". A Phd in economics isn't necessary to understand that the federal government has the capacity-- and willingness-- to paper the value of our currency by running printing presses 24/7-- allowing for the semblance of order like a mannequin in a store window. It all looks real and something that we'd like to buy. Instead of rampant unemployment characteristic of the Great Depression, we have 10 percent plus the long-term unemployed and chronic under-employed.

Here is what the Bureau of Labor Statistics has to say:

"About 2.5 million persons were marginally attached to the labor force in February, an increase of 476,000 from a year earlier... These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 1.2 million discouraged workers in February, up by 473,000 from a year earlier. ... Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities." (March 5, 2010)

The scope of devastation is hard to take in. New York Times writer Michiko Kakutani put it this way in a review of Michael Lewis', The Big Short:

"The global financial crisis of 2008 which economists estimate could result in several trillion dollars of losses and which has already cost American taxpayers billions of dollars in government bailouts, was triggered not by war or recession but by a crazy-man-made money machine, built on flawed mathematical models that most financial executives did not really understand themselves... The insanity of this growing and highly leveraged trade in mortgage derivatives continued even as the quality of the underlying loans grew increasingly likely that the American housing bubble was going to pop. The clear and present danger posed by this deranged edifice built on the unstable foundation of subprime mortgages was not foreseen by the chief executives of America's premier banks." (March 15, 2010)

"Not foreseen" puts too neat a bow on it. Those chief executives may have seen over the horizon and decided the best course of action was to take as much for themselves as possible in compensation, bonuses and stock options. In the late 1990s, massive wealth was being created overnight from companies whose executives didn't even need to shave. By the time the dot.coms busted, a whole new way to vast wealth had been diagrammed for the top echelon of American CEO's and their board of directors based on speculation and financial engineering.

In "Money For Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions", Gillespie and Zweig write:

"Under any system, elites always will run business. Even the Soviet communists proved that. The question is, whom do they serve? In our free enterprise system, at a minimum we expect them to serve us, the shareholders, more than they serve our hired hand-- the CEO-- and certainly more than they serve themselves. But the system as it exists today, together with the incentives and reforms instituted with the intent of making corporate governance more responsible and effective have ended up being perverted to serve the self-interests of the elite at the expense of the greater good." (page 96)

Lewis Ranieri, a star Wall Street bond trader for Solomon Brothers in the late 1970s, was one of the first to understand the opportunities. His innovation in bond markets would trigger the greatest jeopardy to the national economy since the Great Depression. Ranieri invented the market for mortgaged based securities by exploiting the spread between debt issued by government housing agencies and US Treasuries and corporate debt.

A 2004 Business Week report wrote, “… Ranieri recognized that "mortgages are math." He hired PhDs who developed the "collateralized mortgage obligation," which turns pools of 30-year mortgages into collections of 2-, 5-, and 10-year bonds that could appeal to a wide range of investors." By early 1985, the market he had invented for these securities had burgeoned to $270 billion.

In 1988, Ranieri bought Florida's Bank United, that became a major lender to real estate developers. His bank ownership enabled Ranieri to do for mortgage banking what Ford did for cars: vertically integrate derivative finance from Wall Street trading desks to the issuance of an original dollar of debt through a Florida mortgage owned by a homeowner looking for their slice of heaven in Florida. Ranieri sold the bank in 2000, after tripling his investment in just a couple of years, to Washington Mutual. The hugely profitable formula he had created to build wealth from finance was about to be taken on a midnight joy ride fueled by historic low monetary policy championed by Alan Greenspan, then chair of the Federal Reserve. We know what happened next.

It took less than a decade for Washington Mutual to become the biggest bank failure in US history, brought down by its book of financial derivatives that had nevertheless already rained fees in the billions to lawyers, accountants, bond salesman, Wall Street executives, and the Engineering Cartel. But if you were to ask industry executives about the causes of the historic meltdown that took down Lehman Brothers, Bear Stearns and hundreds of banks around the country to date, the answer you would get would be along the lines of a blameless financial tsunami, a perfect storm, a 100 year hurricane.

It wasn't blameless. In late January 2003, HUD Secretary Mel Martinez -- soon to be a US Senator from Florida-- layed out The Ownership Society to the annual meeting of the National Association Homebuilders in Las Vegas: “We … must work in close partnership to dispel the myth that our nation is experiencing a "housing bubble”. Bubbles of course do burst, but the housing market is not in the same category of other weaker and less competitive sectors of the economy… this Administration is making it easier for people to purchase their own homes - a change that will help drive home development and sales. And, it will help more minorities become homeowners.”

One of the ways the Bush Ownership Society worked to the benefit of the top CEO's was inhibiting regulation of financial derivatives at the same time as throttling regulation that blocked the growth of subdivisions and sprawl in the fastest growing areas of the nation, like California, Texas, Nevada, and above all-- Florida-- where the president's brother, Jeb Bush, had made it a primary purpose to innovate ways to assist development and construction and infrastructure industries knock down regulatory barriers to faster growth. Wetlands? Trust business to use market based mechanisms to protect them. Water quality? Trust industries to come up with better solutions than environmental agencies. The list goes on.

Here is what it also happened in 2003: Fannie Mae CEO, Franklin Raines, earned $20 million while using the nation's largest clearinghouse for mortgages to provide a key gear of the housing asset machinery. It was all about to go bust. When Raines left Fannie Mae in December 2004, the company had to make a $6.3 billion restatement of earnings, inflated to jack up his compensation and the compensation of key employees. There was more, much more to come.

Fannie Mae never recovered. What Franklin Raines achieved could never have happened without the cheering throngs of homebuilders and politicians back home, who were taking campaign contributions by the trailer-load full from every platted subdivision and condominium by the lake or bay that could shed mortgage backed derivatives and even more complex insurance products. Surely, such a solid basis for wealth could not turn against its particpants-- but AIG would sell the insurance to anyone, anyway. By the time the dust cleared, more than $90 billion in Fannie Mae shareholder value had been wiped out. In 2006, the OFHEO sued Raines in order to recover some or all of the $90 million in payments made to him on the overstated earnings. An editorial in The Wall Street Journal called the few millions surrendered by Raines a "paltry settlement" which allowed him and the other two executives to "keep the bulk of their riches." But the paper best positioned for a front row seat on unsustainable levels of greed that layed the foundation for the worst crisis since the Great Depression instead took nay-sayer's to task.

The massive wealth destruction that is transforming the US economy is still a work in progress. There is still no accountability of those CEO's and their corporate boards that unleashed so much jeopardy to our national economic security. It used to be called "the free market" but for a select few, it truly was money for nothing.

The Jobs Bill and Other Faux Remedies

The Need for Large Scale Public Investment and Employment

On March 17 Congress passed the “Hire Now Tax Cut” giving companies a break from paying Social Security taxes for the remainder of the year on any new workers hired who have been unemployed for at least 60 days.

The legislation is a token response to the emerging consensus in both the mainstream and independent media that the economy’s unemployment problem is cumulative, structural and long term. But the prescription is entirely inadequate to the diagnosis. This should come as no surprise, as official sources have offered muddled and confusing accounts of the patient’s malaise.

The Official Story: Unrealistic Optimism and Misleading Statistics

The White House and the Fed can’t seem to coordinate their stories. In January the president’s Council of Economic Advisors reported that the official unemployment rate would remain close to 10 percent for at least 3 years, through 2012. The Council foresees unemployment above 6% through 2015 and above 5% through 2020. But on Feb. 24 Ben Bernanke reported to Congress a projected unemployment rate of 6.5 to 7.5 percent by the end of 2012.

Both estimates almost certainly display the typical overoptimism of official economic forecasts. There are two main reasons for the chronic unrealistic optimism. The official measure of unemployment excludes both those who have given up looking for work because of the lack of jobs, and involuntary part-time workers. If these are taken into account, the more realistic unemployment rate would be at least 16-17 percent.

A second factor distorting unemployment projections is the unrealistic rate of economic growth projected by official sources. The Council assumed real GDP growth of 3.0 percent this year, and 4.3 percent in 2011. Bernanke forecast “a moderate-paced economic recovery, with economic growth of roughly 3 to 3.5 percent in 2010 and 3.5 to 4.5 percent in 2011, consistent with modern economic growth.” By “modern economic growth” Bernanke refers to the healthy growth rates of what economists call the “Golden Age”, the period from 1949 to 1973. This was the longest period of sustained economic expansion in American history: the economy grew at an average annual rate of 4.3 percent -the growth rate foolishly predicted, recall, for next year by the Council of Economic Advisors- and private-sector jobs increased at a rate of 3.5 percent a year. And in 1973 the real median wage was the highest it’s ever been.

The Golden Age is a benchmark for the authorities, and “recovery” is taken to mean a return to growth and employment rates at or close to those of 1949-1973.

It is worth looking at some of the ways the administration and the media suggest the implausible scenario that Golden-Age economic conditions are on the way to resurrection.

Statistical manipulation and half-truths are not uncommon. For example, in January the economy continued to bleed jobs, which is bad; it was also widely reported that the unemployment rate fell, which looks good. Both stats are accurate. How is this possible? The official unemployment rate fell because the number of workers leaving the workforce declined more rapidly than job losses.

For the week ending February 20, first-time jobless claims increased by 20,000. But we were told there was a silver lining: the number of unemployed workers collecting federally sponsored extended benefits dropped by 323,000. But this does not mean that those workers found employment. The decline is almost entirely due to workers having exhausted extended benefits prior to Congress approving another extension.

On February 25 the Commerce Department reported a 3 percent January increase in sales of durable goods. This looks especially promising: increased purchases of consumer durables such as autos, refrigerators and other big-ticket items had been a major factor in reversing most post-Second-World-War recessions. But a closer look reveals that when defense and aircraft purchases are subtracted durable goods sales fell by 2.9 percent. This comes as no surprise: with the number of unemployed continuing to increase, we should expect sales of higher-priced consumer goods to decline accordingly.

The media have claimed a rebound in manufacturing over the last few months, suggesting a corresponding job rebound in the making. In fact, an inventory bounce was in play. Businesses were re-stocking after an extended hiatus on new orders. The evisceration of US manufacturing which began with the “deindustrialization” of the late 1960s persists through the recession, with the reorganized General Motors currently planning the export of more jobs to low-wage countries. There is a telling indicator of the state of US manufacturing: we have no domestic consumer electronics industry.

Wal-Mart’s fortunes are considered a good measure of consumer spending. The company is after all the world’s largest retailer and the country’s single biggest employer. The business press reports that Wal-Mart’s profits continued to climb during the downturn, implying that consumers are managing to hold up in spite of the recession. But we want to know about the company’s domestic sales, a more accurate indicator of consumer purchasing power than total profits, which include overseas sales. In fact, Wal-Mart recently announced its first drop in domestic sales in its history, a decline of 1.6 percent, compared to a 2.4 percent increase for the same period a year ago. The relatively rosy profit picture is due to international sales, especially in Brazil and China. The sales decline is of course yet another indicator of cumulative unemployment.

Finally, there is the statistical sleight-of-hand of the Bureau of Labor Statistics (BLS). BLS performs a "net birth/death adjustment" on its unemployment data. The birth/death model uses business deaths to "impute" employment from business births. Thus, as more businesses fail, more new jobs are imputed to have materialized through business births. The birth/death model is based on statistics covering 1998-2002. This was a period during which explosive telecom and startups outumbered business failures. That period bears no resemblance to today's flat economic landscape. While the "surplus" jobs created by start-up firms has been revised lower this year, BLS continues to report from the indefensible assumption that jobs created by start-up companies tend to offset jobs lost by companies going out of business. John Williams of Shadow Government Statistics estimates that at least 50,000 birth/death jobs were conjured up in this way in the most recent BLS report.

The Overall Employment Picture and the Handwriting on the Wall

What’s relevant for assessing the health of the economy is that job losses continue to be cumulative. Things continue to get worse at a slower rate, but this should be no comfort in the context of an economy that has lost 8.4 million jobs since December 2007, including more than 4 million in the last 12 months alone. More than 15 million Americans are looking for work, and 6.3 million have been unemployed for 6 months or longer, the largest number since the government began keeping records in 1948 and more than double the number in the next-worst recession, Reagan-Volcker’s downturn of the early 1980s. 2.7 million will lose their unemployment benefits before the end of April unless Congress extends payments. On top of all this, the economy must add 100,000 new jobs every month just to absorb first-time entrants to the labor force.

Obama acolytes will point out that while this is a regrettable picture, it does not imply that administration policy has produced no jobs whatsoever. But on examination none of the job additions announced by the administration since the fourth quarter of 2009 is indicative of an economy in recovery or the return of permanent jobs. Most fall under the category of “saved” jobs. Employment improved for a while in sectors that are the direct beneficiaries of monetary or fiscal stimulus: government, healthcare, financial services, education and retail sales. These jobs don’t reflect the independent strength of the real economy; they would not have materialized absent the stimulus. Meanwhile, sectors such as manufacturing, the most reliable indicator of an intact real economy, continued to shed jobs at an alarming rate. The stimulus will not persist forever, and when it is withdrawn, the "saved" jobs will be among the first to go. Some have already begun to evaporate: schools, hospitals and state and local governments have been shedding jobs like crazy.

These data point to the atypical nature of the current stream of job losses. We are not witnessing the kind of unemployment that attends a garden-variety recession. That type of unemployment disappears as the economy recovers. Peter S. Goodman points out in a detailed analysis in The New York Times that the recovery, whenever it begins, will not bring sufficient jobs to absorb the record-setting ranks of the long-term unemployed. (“The New Poor: Millions of Unemployed Face Years Without Jobs”, February 21, 2010) He describes the new poor as “people long accustomed to the comforts of middle-class life who are now relying on public assistance for the first time in their lives – potentially for years to come.”

Goodman fleshes out an emerging consensus among mainstream business observers that he had described this time last year. In “Job Losses Hint at Vast Remaking of Economy” (NYT, March 7, 2009) we were told that “…growing joblessness may reflect a wrenching restructuring of the economy…. In key industries – manufacturing, financial services and retail – layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business. “These jobs aren’t coming back,” [said a chief economist at Wachovia] “a lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than in the United States. There are going to be fewer stores, fewer factories… Firms are making strategic decisions that they don’t want to be in their businesses.” The article quotes a Stanford Hoover Institution economist as saying “The decimation of employment in legacy American brands such as General Motors is a trend that’s likely to continue. We have to stimulate the economy to create jobs in other areas.” This was one of the first allusions to what is now referred to as “the new normal.”

The especially intractable unemployment problem is the result of structural and institutional changes in the economy. Institutional investors have come to own an increasing percentage of large companies. The new owners are driven to increase shareholder value by going for quick profits. Cutting payroll is standard procedure. The structure of the labor market has been affected by the decline of union power: employers can reduce costs by relying increasingly on part-time and temporary workers. Exporting manufacturing and even white collar jobs to lower-wage countries further reduces the demand for US labor.

Unless a political movement emerges with the explicit goal of directly reversing these tendencies, none of this will change under current policy.

That these developments have been in the making for decades is evident in employment changes in business cycles -the economy’s inhaling and exhaling, successive periods of expansion and contraction- since the 1950s. During the Golden Age, from the 1950s through the mid-1970s, private-sector jobs increased during economic upturns/expansions at a rate of 3.5 percent a year. During 1980s and 1990s expansions, job growth dropped to 2.4 percent annually. Since 2000, the figure fell to 0.9 percent. The pace of job growth has steadily declined in each post-Golden-Age expansion.

That this is indicative of an unfolding structural deficiency in the economy is also shown by trends in the time it takes for a cyclical upturn to regain the jobs lost in the preceding recession. Between 1950 and 1990 it took the economy an average of 21 months to return employment to its previous peaks. After the 1990 and 2001 recessions the respective durations were 31 and 46 months.

This ongoing deterioriation in the performance of the labor market has led to the notion of the “jobless recovery.” For most of US economic history this term would have been considered self-contradictory. That it is now part of common economic discourse is testimony to a major conceptual revision in the discourse of propaganda: that the economy is recovering is no reason to expect unemployed workers to find work. Economic recovery is now treated as consistent with declining standards of living. Lowered expectations and acquiescence in long term working-class hardship are now built into what we are told to regard as recovery.

The Old Economics as Irrelevant to the Current Crisis

Within the framework of mainstream neoclassical economic theory, there are two outstanding confusions concerning the notion of “recovery.” There is the misconception that once the economy begins its recovery it is on the way to sustained growth. That is not how capitalism works. The standard use of ‘recovery’ connotes a resumption of economic growth out of a cyclical recession. An economy has recovered when it has regained what was lost since the peak of the previous expansion. A new period of expansion is under way only if growth persists beyond the recovery. Restoring the economy to health requires not only a period of successful recovery, but also sustained growth beyond the previous peak. The prevailing talk erroneously assumes that only the first condition is at stake. As things stand now with respect to employment, spending, bank lending, sales of consumer goods, the downward trajectory of wages, and investment in the real economy, there is no policy in place that gives reason for optimism regarding a recovery. A fortiori, there is even less reason to expect renewed expansion.

A second confusion surrounds the very use of the term ‘recovery’. No alternative terminology is at hand, but ‘recovery’ needs to be replaced. For the term suggests a return to a prior state of economic normalcy, a healthy economy. But the state of the economy prior to the onset of the meltdown, prior to the burgeoning of the housing bubble, and even prior to the bubble, was neither normal nor healthy.

The bubble years began in the early 1990s, around the time Al Gore started nattering about the “information superhighway.” Bubble- and debt-driven growth is neither normal nor healthy. Since the late 1970s the US was well into deindustrialization, depressing net investment in the widget-producing economy and correlatively goosing investment in the financial sector, which began its now-infamous disproportionate growth relative to both total investment and GDP growth. Household debt had also begun racing ahead of the growth of both disposable income and GDP. Since 1973 the median wage has essentially flatlined. Put this all together and what do you get? GDP growth increasingly driven by speculative activity rather than real production, and household spending decreasingly fueled by current income and increasingly driven by debt, the mortgaging of future years’ expected income. “expected” is key here. Bubbles inevitably burst and the connection between the real and the financial economies reasserts itself with a vengeance. Income expectations are not met and debts cannot be repaid. Crisis ensues.

No serious commentator expects a return to anything resembling Golden-Age prosperity. The economy is in the process of reconfiguration. Postwar recessions through the 1970s were typically reversed by means including Fed monetary policy of reducing interest rates. The Fed is now treating the crisis as if it were a standard downturn, only a lot bigger. Accordingly, Bernanke has been releasing a virtually continuous flood of liquidity to no discernible effect.

A greatly expanded stimulus is needed, and one that directly creates jobs. The Obama administration has no such intention.

Obama’s Jobs Policy

The administration wants to get the credit machine running again so that the private sector can resume what is taken to be its natural function as principal creator of jobs. Obama’s advisors reason that since most Americans are employed by small businesses, priority must be given to enticing these operations to start hiring. So Obama proposed $33 billion in new tax credits for small businesses, and on Wednesday the Senate sent the “Hire Now Tax Cut” for Obama’s signature. The administration is pitch blind to the fact that businesses will not invest and hire unless they have reason to believe that they will have customers, consumers ready, willing and able to spend. Consumers would be ready and willing to spend were they able. But they are not. Piss-poor and declining wages, joblessness and record indebtedness are of course the principal obstacles. Commercial establishments hire when they expect customers/buyers, and capitalists invest in production when they expect profits. No rational employer/investor has any such expectations. The circle is vicious: businesses won’t hire because workers have no money, and workers have no money because businesses won’t hire.

The circle will remain unbroken unless the lead actor in this tragedy, the consumer/worker, is provided with the means of spending from a source outside the circle. This can only be government. As labor militancy forced FDR to acknowledge, government must become a direct provider of employment. Obama has ruled this out. At the December 3, 2009 “jobs summit” he repeated one of his favorite refrains: “I want to be clear: While I believe the government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector.” He admonished those who push for a government jobs program “to face the fact that our resources are limited….It’s not going to be possible for us to have a huge second stimulus, because frankly, we just don’t have the money.” He was of course referring to the massive federal budget deficit of $1.4 trillion. He left unnoted that the major reasons for the tripling of last year’s deficit and explosive growth of the national debt was the bailout of the banks and the titanic “defense” budget. (The administration plans to spend more on defense in real terms than any administration since 1948 – a period encompassing the entire duration of the Cold War. Recall that this includes two large-scale, protracted regional wars in Korea and Vietnam.) One searched in vain among the newspapers and magazines of the Ministry of Information for any critical suggestion that imperialism and the plutocracy are for Obama a higher priority than rescuing working people from creeping mass destitution.

Wednesday’s gesture towards addressing the jobs catastrophe is recognized as play-acting. A February 10 Associated Press report titled “Promises, Promises: Jobs bill won’t add many jobs” commented that the Senate bill “has a problem: It won’t create many jobs…. Even the Obama administration acknowledges the legislation’s centerpiece – a tax cut for businesses that hire unemployed workers – would work only on the margins.” The Congressional Budget Office has estimated that the tax break just passed will generate only 18 full-time jobs per $1 million spent.

The ineffectiveness of these policies is crystal clear. The administration either doesn’t care, or will not allow itself to grasp the obvious. It’s commitment to market fundamentalism requires blindness, and the requirement is met.

The Longstanding Travails of Small Business

The focus of the current legislation on small business is oblivious to finance capital’s decades-long disdain of this sector. In December 2009 the Federal Deposit Insurance Corporation (FDIC) released figures showing that the amount of loans outstanding in the nation's banks fell $210.4 billion in the third quarter of 2009. That was the largest quarterly decline since the FDIC began tracking loans in 1984. "We need to see banks making more loans to their business customers," Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair told reporters. The FDIC figures show that banks have been deemphasizing business lending for many years, long before the current contraction commenced. Since September 2008 the trend has intensified, with business lending contracting at a much faster pace than consumer lending.

The FDIC’s tracing of this shift over the past decade underscores banks’ increasing preoccupation with financial shenanigans at the expense of investment in the real economy. At the end of the third quarter of 1999, the assets of the nation's banks totaled $5.5 trillion. As of September 30 of 2009, bank assets had grown to $13.2 trillion. But commercial and industrial loans outstanding barely budged, only growing from $947 billion a decade ago to $1.27 trillion by September 30 this year. At the same time, loans secured by real estate increased from $1.43 trillion in the fall of 1999 to $4.5 trillion this fall. And investment in securities doubled, rising from $1.03 trillion to $2.4 trillion. Last month the FDIC reported that bank lending contracted 7.4 percent in 2009, at the fastest pace since 1942, the first year of US involvement in the Second World War

Banks have lent sparingly to businesses for the past 35 years. Businesses report that in each quarter since 1974 -the very beginning of post-Golden-Age austerity- ease of borrowing was either worse or the same as it was the prior quarter. Business loans were increasingly hard to get over this entire period.

The data reveal a secular shift away from productive lending to businesses toward nonproductive lending to consumers and speculative investments.

Here is yet another indication of the structural deficiencies and institutional transformations discussed above that are generating a reconfigured economy. Neither standard monetary pump-priming nor Obama’s anemic measures are up to the task of addressing this historic transformation of the US economy. The deindustrialized, financialized, debt-bloated private economy is no longer a feasible basis of economic revitalization. The public sector must shift into gear. How? Well, it’s not as if we lack historical precedent.

Two Kinds of Long-Term Public Investment/Employment

The administration’s opposition to long-range public investment is adamant. The Washington Post (November 8, 2009) noted that White House officials reject the idea because it “does not produce long-term value”. One suspects that “long-term value” means long-term private profit. But why should public investment be expected to produce private profit… unless the administration adheres to the metaphysical premise that all public and private needs can and should be met through the market. We have seen above that Obama is just such a metaphysician. He channels his advisors. Lawrence Summers, the chief economic advisor, asserted on October 19, 2007: “[P]olicy measures to spur growth or achieve other objectives should wherever possible go with, rather than against, the grain of the market….There is no such thing as the success of the American economy that doesn’t involve very substantial success for America’s entrepreneurs and for American companies.” This is the old-time economic religion that is adhered to by the Washington powerful, and which can be defeated only by mass action.

If we are talking seriously about a genuine economic recovery, we advocate what we might call a “national economic project”. I mean a large-scale public investment policy that would employ millions of workers in a range of projects and services designed to address immediate and pressing needs. Most advocates of such a plan envisage government-funded public works programs to hire the unemployed. They are right. But more is required, namely public-service employment designed to meet needs not addressed by relying solely on infrastructure projects.

The case for infrastructure rehabilitation is powerful. The most reliable source of information regarding the state of the US infrastructure is the American Society of Civil Engineers, which has released a “2009 Report Card for America’s Infrastructure”. (Read it here: The Report Card stresses the advanced decay of roads, surface transit and aviation, tunnels, dams, bridges, public parks and recreation, schools, drinking water, levees and sewerage facilities. Accordingly, Uncle Sam earned a grade of “D” . The engineers describe in exacting detail the most urgent problems, and price the investment need in infrastructure repair at $2.2 trillion.

In recent years there has been especially rapid deterioration in an infrastructure already in a state of advanced decay. There were, for example, almost four times as many “high hazard” deficient dams in 2007 (1,826) as there were in 2001 (488). The Report states that “Many state dam safety programs do not have sufficient resources, funding, or staff to conduct dam safety inspections, to take appropriate enforcement actions, or to ensure proper construction by reviewing plans and performing construction inspections.”

The $787 billion “stimulus package” monies that might address what is in fact an emergency situation are the $71.76 billion allocated to construction projects, most of which remains unspent. This comes to one thirtieth of the required $2.2 trillion, a shortfall of $1.176 trillion.

It is clear that the relevant project is national in scope and therefore requires the creation of new jobs on a coast-to-coast scale. This task cannot be met by the private sector alone.

In the light of what’s been outlined above, Obama’s promotion of alternative energy and “green” investment as a cure-all for mass unemployment is ridiculous. We have been told that incentivizing homeowners to weatherize their houses -“cash for caulkers”- would represent a major step in addressing the jobs crisis. Like Obama’s other proposals, “cash for caulkers” would have the teensiest impact on unemployment, but it will provide major bucks for special business interests like Home Depot, whose chief executive was the most enthusiastic proponent of this idea at the jobs summit.

The New Deal’s public employment projects were on the whole great successes. The 1933 Civilian Conservation Corps (CCC) provided men (no women) work in the national forests and employed 2.5 million through 1942. In the same year the Civil Works Administration was established by executive order and within one year it created jobs for 4.3 million people. The Works Progress Administration (WPA) of 1935 employed millions and oversaw, over the course of 8 years, the construction and repair of 650,000 miles of roads and the building of schools, libraries and recreational centers. It’s support of the construction of neighborhood parks employed skilled and unskilled workers, architects and artists. It also established the only federal arts program the US has ever had.

As for the administration’s claim that public investment “does not produce long-term value”, the CCC and WPA contributed hospitals, schools, auditoriums, museums, city halls, court houses, fire stations, water works, parks, fairgrounds, farmers’ markets, and a range of other facilities. Many of these are in use to this day. What was created is astonishing: Hoover Dam, the San Francisco Cow Palace, DC’s Reagan National Airport, Houston’s City Hall, the San Antonio River walk, Bandelier National Monument in New Mexico, the Mountain Theater on California’s Mount Tamalpais and the Eighteenth Precinct police station in New York City. Many of us have forgotten, or never knew, that these were New Deal projects. Most remember the collapse in August 2007 of the I-35W bridge in Minneapolis, opened in 1967. This drives home how impressive it is that a depression-era contribution to the US transportation system like New York’s Triborough Bridge still carries traffic every day.

The notion that government should assist or even take the lead in this kind of investment was not born of the Depression. It’s almost as American as apple pie. Alexander Hamilton, and later the early nineteenth century Whigs, advocated “internal improvements” like canals, turnpikes and, later on, railroads. (Hamilton’s motives were mixed. He intended of course to foster economic expansion westward, but he also had in mind the parallel development of America’s financial markets.) That government needed to be involved in these projects was plain economic good sense: because these undertakings required substantial initial outlays but delivered returns only over time, private investors could not foot the bill by themselves. They thus needed government assistance, either in the form of financing, or, as with the railroads, spectacular gifts of public land, to make them possible.
Investing in physical infrastructure and green energy will give the greatest stimulus to two kinds of jobs, construction and manufacturing. We who urge these types of spending have given insufficient attention to the distributive desiderata of public spending. We have not addressed two essential criteria of an equitable jobs program: public investments should be selected with the aims of maximizing the extent of immediate job creation, and of ensuring that the benefits of job creation are available to the broadest possible category of worker, especially the most vulnerable to job insecurity. The results of a recent study by the Levy Economics Institute of Bard College are helpful in this respect. The Levy research shows that social-sector investment in areas such as early childhood education and home-based care are especially suited to meet the needs identified by these two criteria.

Social care investment generates more than twice the number of jobs as infrastructure spending and 1.5 times the number of jobs as green energy spending. And social care investment is more effective than each of the other types in providing work to those with the least education, low-income households and women. It also creates jobs in occupations identified in a 2006 Bureau of Labor Statistics study as among those most likely to add the greatest number of jobs between 2006 and 2010: teaching, child care and home health care. While most social-care jobs would be suited to the above categories, a significant number of jobs would also require some college education and are geared toward middle- and top-income groups. Even Tim Geithner acknowledged two Januaries ago that “social sector job creation delivers more bang for the buck.”

We have seen that the administration’s predilection for indirect job provision, through financial institutions, will not succeed. Social care expansion consists in direct job-creating investment in social infrastructure, unlike the “welfare reform” welfare-to-work of Bill Clinton or public cash assistance. And mainstream-type arguments support social infrastructure investment: it is more cost effective than hospital or institutional care for certain chronic patients, and home-based care lifts a burden off family members and allows them to be more productive at work. According to a 1999 Metropolitan Life Insurance Company study, this would save the economy more than $33 billion a year in lost productivity. That should water the mouthes of private employers.

Appeals to the more progressive are also at hand. Women provide a treasury of unpaid care to children and the elderly. Social care investment would provide direct payment for these highly valued services.

The employment crisis is as urgent as urgent gets, and intractable under the present economic settlement. The inneffectuality of politics as usual could not be clearer. The stubborn liberal hope, that mainstream politicians - financial investments made flesh- can be talked or voted into repudiating their masters’ priorities, persists as if unfalsifiability were a virtue. This delusion cannot be undefeatable. That would mean, by implication, that history has come to its conclusion. But history has no conclusion. America has in hand the a workable and desirable middle-term prescription for ordinary folks’ mounting afflictions. The task is to get it out.

The Holes in the Fed

The Inquisition for Obama Appointees

The Obama Administration announced its three picks for the vacant positions at the Fed last week. Not surprisingly, no one on the list was among those who had warned of the housing bubble. This is not surprising because there is virtually no overlap between the list of people who had warned of the bubble and the list of people who are politically acceptable as appointees to the Fed.

It may not be possible to get someone who could see an $8 trillion housing bubble before its collapse wrecked the economy as a member of the Fed’s Board of Governors. However, before the Senate approves these picks it should make sure the new appointees can at least recognize the housing bubble and its significance after the fact.

Specifically, the Senate should insist that the nominees give their account of the run-up to the crisis and explain where the Fed made mistakes and what they would have done differently with the benefit of hindsight. This line of questioning is especially important in the case of Janet Yellen, President Obama’s nominee as vice-chair of the Board of the Governors.

Yellen’s fingerprints are already on this crisis, having served as a Fed governor in the 90s and more recently as a president of the San Francisco Federal Bank. Dr. Yellen is on record as explicitly saying that the Fed lacks the ability to recognize asset bubbles like the housing bubble. She argued further that it lacks the tools to effectively rein in an asset bubble. And, she argued that cleaning up after the collapse of the bubble is no big deal. In terms of economic analysis, she hit a grand slam in getting it absolutely as wrong as possible.

Presumably, Yellen has changed her views of what the Fed can and should do about asset bubbles. The banking committee should give Ms. Yellen the opportunity to go on record explaining her new position and how the events of the last three years have led her to change her mind on these issues. Of course, if she still adheres to her earlier position, then she clearly is not an appropriate person to be vice-chair of the Fed.

The other Fed picks should be given this opportunity as well. It is not too much to ask that appointees to the Fed’s top policymaking body have a clear understanding of the biggest monetary policy blunder in more than 70 years.

This line of questioning can be refreshing because there still has been remarkably little public acknowledgement of the fact that the country is suffering because of a combination of unbelievably inept economic policy and Wall Street greed. There is probably little that can be done to change the latter – the financial sector is all about making money – but we can in principle do something about the quality of economic policymaking.

The country lost an opportunity to make a big first step towards improving the quality of economic policymaking when the Senate approved Ben Bernanke for a second term as Fed Chairman. Having sat as Fed governor since 2002 and as Fed chairman since 2006, no one other than Alan Greenspan bears more responsibility for the current economic crisis than Ben Bernanke. Yet, in spite of the trail of disaster – job loss, foreclosures, devastated retirement accounts - caused by his policy mistakes, Bernanke was rewarded with another four-year term as chairman. This fact is pretty hard to justify.

The new Fed appointees need to be reminded (as we all do) that tens of millions of people are out of work or underemployed today, not because they are too lazy to work or lack the necessary skills and experience. They are out of work because the people who manage the economy could not do their job right. None of the people in policy positions lost their jobs because of this failure.

We have to end a system in which those at the top are never held accountable for the harm they inflict on the rest of society. At the very least, the new Fed picks better have a story as to what they think went wrong and how these mistakes could have been prevented. If they can’t provid

House may try to pass Senate health-care bill without voting on it

House may try to pass Senate health-care bill without voting on it
By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Tuesday, March 16, 2010

After laying the groundwork for a decisive vote this week on the Senate's health-care bill, House Speaker Nancy Pelosi suggested Monday that she might attempt to pass the measure without having members vote on it.

Instead, Pelosi (D-Calif.) would rely on a procedural sleight of hand: The House would vote on a more popular package of fixes to the Senate bill; under the House rule for that vote, passage would signify that lawmakers "deem" the health-care bill to be passed.

The tactic -- known as a "self-executing rule" or a "deem and pass" -- has been commonly used, although never to pass legislation as momentous as the $875 billion health-care bill. It is one of three options that Pelosi said she is considering for a late-week House vote, but she added that she prefers it because it would politically protect lawmakers who are reluctant to publicly support the measure.

"It's more insider and process-oriented than most people want to know," the speaker said in a roundtable discussion with bloggers Monday. "But I like it," she said, "because people don't have to vote on the Senate bill."

Republicans quickly condemned the strategy, framing it as an effort to avoid responsibility for passing the legislation, and some suggested that Pelosi's plan would be unconstitutional.

"It's very painful and troubling to see the gymnastics through which they are going to avoid accountability," Rep. David Dreier (Calif.), the senior Republican on the House Rules Committee, told reporters. "And I hope very much that, at the end of the day, that if we are going to have a vote, we will have a clean up-or-down vote that will allow the American people to see who is supporting this Senate bill and who is not supporting this Senate bill."

House leaders have worked for days to round up support for the legislation, but the Senate measure has drawn fierce opposition from a broad spectrum of members. Antiabortion Democrats say it would permit federal funding for abortion, liberals oppose its tax on high-cost insurance plans, and Republicans say the measure overreaches and is too expensive.

Some senior lawmakers have acknowledged in recent days that Democrats lack the votes for passage. Pelosi, however, predicted Monday that she would deliver.

"When we have a bill, then we will let you know about the votes. But when we bring the bill to the floor, we will have the votes," she told reporters.

Pelosi said Monday that House Democrats have yet to decide how to approach the vote. But she added that any strategy involving a separate vote on the Senate bill "isn't too popular," and aides said the leadership is likely to bow to the wishes of its rank and file.

As Pelosi and other congressional leaders pressed wavering lawmakers, President Obama highlighted how close the result may be as he focused his attention Monday on Rep. Dennis Kucinich (D-Ohio), who has been a stalwart no vote on health-care reform.

Kucinich, an uncompromising liberal, has rejected any measure without a government-run insurance plan. Obama invited Kucinich to join him aboard Air Force One for a trip to suburban Cleveland, where the president made a plea for reform, the third such pitch in eight days.

As he addressed a crowd of more than 1,400, Obama repeatedly called on lawmakers to summon the "courage to pass the far-reaching package." He painted the existing insurance system as a nightmare for millions of American who cannot afford quality coverage.

The president lashed out at Republican critics who have argued that the health-care initiative would undermine Medicare, and he argued that the measure would end "the worst practices" of insurance companies.

"I don't know about the politics, but I know what's the right thing to do," he said, nearly shouting as the crowd cheered. "And so I'm calling on Congress to pass these reforms -- and I'm going to sign them into law. I want some courage. I want us to do the right thing."

Asked whether he was reconsidering his position, Kucinich demurred. But Sen. Sherrod Brown (D-Ohio) said Kucinich is coming under intense pressure from Ohioans who want Congress to act, and from his colleagues in Washington.

"All of us -- the governor, the congressional delegation, the president -- are making clear to Dennis that we won't have another chance for a decade if this doesn't happen," Brown said.

Persuading liberals such as Kucinich to support the Senate bill is critical to the Democratic strategy, which has been rewritten since January, when Democrats lost their supermajority in the Senate. The Senate Democratic caucus, reduced to 59 seats, lost its ability to override Republican filibusters and soon abandoned plans to pass a revised version of the health-care bill that would reflect a compromise with House leaders.

As House leaders looked for a path that could get the Senate legislation through the chamber and onto Obama's desk, conservatives warned that Pelosi's use of deem-and-pass in this way would run afoul of the Constitution. They pointed to a 1998 Supreme Court ruling that said each house of Congress must approve the exact same text of a bill before it can become law. A self-executing rule sidesteps that requirement, former federal appellate judge Michael McConnell argued in a Wall Street Journal op-ed.

Democrats were also struggling Monday to put the finishing touches on the package of fixes. Under reconciliation rules, it is protected from filibusters and could pass the Senate with only 50 votes, but can include only provisions that would affect the budget.

Democratic leaders learned over the weekend that they may not be able to include a number of favored items, including some Republican proposals to stem fraud in federal health-care programs and a plan to weaken a new board that would be empowered to cut Medicare payments.

Rep. Chris Van Hollen (Md.), the Democratic leader tasked with protecting politically vulnerable incumbents, said Republicans would twist the nature of the health-care vote, no matter how the leadership proceeds. He defended the deem-and-pass strategy as a way "to make it clear we're amending the Senate bill."

Without that approach, Van Hollen warned, "people are going to try to create the impression that the Senate bill is the final product, and it's not."

Undecided Democrats appeared unconcerned by the flap. Rep. Bart Gordon (D-Tenn.), a retiring lawmaker who opposed the original House bill and is undecided on the new package, mocked Republican criticism of the process. Ultimately, he said, voters will hold lawmakers responsible for any changes in law.

"I don't think anybody's going to say that we didn't vote for the bill," he said.