Wall Street Smiles as Softened Financial Reform Bill Passes

(Just like the healthcare bill, just like TARP, and everything else that comes out of this crap congress & white house, the banks and big corporations get all that they desire in another watered down bill that does less for the people than it does for the banks.-jef)

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Banks Keep Derivatives Units, Volcker Rules Softened;
House-Senate Conference Passes Financial Reform Bill After Marathon Session
by Shahien Nasiripour
June 25, 2010 by Huffington Post

After nearly 20 hours over two final days filled with backroom dealing, House and Senate negotiators struck a grand compromise to merge the two chambers' competing bills to reform the nation's financial system in a party-line vote. But the long hours of closed-door meetings also appear to have fulfilled Wall Street's greatest wish: Many of the measures that offered the greatest chances to fundamentally reshape how the Street conducts business have been struck out, weakened, or rendered irrelevant.

Ultimately, despite widespread approval among those pushing for fundamental reform in the wake of the worst financial crisis since the Great Depression, yet perhaps aided by near-unanimous revulsion among those on Wall Street, crucial reforms were watered down in front of C-SPAN cameras. Good thing so few were watching. (AFP)Democrats unanimously supported passage; Republicans unanimously voted against it, warning that the bill doesn't accomplish its central objective: ending the perception that some financial firms are too big to fail.

The two most high-profile provisions were the last items to be considered. Neither emerged intact. One would have forced banks to stop trading financial instruments with their own capital and give up their stakes in hedge funds and private equity funds, named after their original proponent, former Federal Reserve Chairman Paul Volcker. The other would have compelled banks to raise tens of billions of dollars because they'd have to spin off their derivatives-dealing operations into separately-capitalized affiliates within the bank holding company, pushed by Senate Agriculture Committee Chairman Blanche Lincoln. As currently practiced both activities are highly lucrative, annually generating billions for the nation's megabanks.

The proposals were launched after perceived political vulnerabilities -- the Obama administration announced the "Volcker Rules" after Massachusetts Republican Scott Brown won Ted Kennedy's old Senate seat, while Lincoln announced her proposal under threat by a liberal challenger in Arkansas for her Senate seat. Both came to become litmus tests used to gauge whether policymakers were for Main Street or for Wall Street.

Ultimately, despite widespread approval among those pushing for fundamental reform in the wake of the worst financial crisis since the Great Depression, yet perhaps aided by near-unanimous revulsion among those on Wall Street, both were watered down in front of C-SPAN cameras beginning around 11 p.m. ET. Democratic lawmakers had been rushing to complete the bill by Friday morning under a self-imposed deadline. The final vote was recorded at 5:40 a.m. The conference began their final day just before 10 a.m. on Thursday.

The so-called Volcker Rules originally banned banks from using their own taxpayer-backed cash to speculate in the financial markets. The federal government stands behind bank deposits, and banks have access to cheap funds from the Federal Reserve. Volcker argued that banks shouldn't use that subsidy to speculate.

After days of leaks to the news media that the Senate was looking to ease the restrictions, on Thursday afternoon Senate conferees confirmed the rumors: banks could invest up to three percent of their tangible common equity in hedge funds and private equity firms. Tangible common equity -- considered to be the strongest form of bank capital -- is comprised of shareholder equity.

A few hours later, the Senate amended its proposal, changing the metric from tangible common equity to Tier One capital. Banks have more Tier One capital than they have tangible common equity, so changing the requirement to the weaker form of capital allows banks to invest more of their cash in hedge funds and private equity funds. The concession was confirmed by Steven Adamske, spokesman for House Financial Services Committee Chairman Barney Frank.

Using JPMorgan Chase, the nation's second-largest bank by assets with more than $2.1 trillion, as an example, the bank would be able to invest an additional 40 percent of its cash, or an extra $1.1 billion for a total of $4 billion, in the activities that Volcker wanted to prohibit banks from engaging in, according to the firm's latest annual filing with the Securities and Exchange Commission.

Rep. Paul Kanjorski became visibly angry. The longtime Pennsylvania Congressman tried to reverse, at least partly, the Senate's watering down of its own provision, calling it a "significant change."

"Some of our friends that are in the Senate ... are annoyed with that enlargement, as I am," Kanjorski said.

Noting of the Senate's new proposal that the House conferees "only had their offer for 20 minutes," Kanjorski added that his counter-proposal was a midway point between tangible common equity and Tier One capital.

Also, he noted, his compromise was "for purposes of getting along, but not to be taken advantage of, quite frankly."

His measure failed.

Senate negotiators also announced they were carving out a class of financial institutions from the restrictions. The most immediate beneficiaries are State Street Corp., the nation's 19th-largest bank with $153 billion in assets, and BNY Mellon, the nation's 13th-largest bank with $221 billion in assets. The exemptions were granted to secure the support of Brown, the Senator from Massachusetts.

That loophole survived.

As for the measure's proposed ban on banks trading with their own money, also known as proprietary trading, the agreed-upon provision calls for federal financial regulators to study the measure, then issue rules implementing it based on the results of that study. It could be anything from an outright ban to a barely-there limit.

Lincoln's provision, under fierce assault by the Treasury Department, the Obama administration, and a group of Wall Street-friendly Democrats called the New Democrat Coalition, also was softened.

Lincoln's proposal would have compelled the nation's megabanks to move their swaps-dealing units, which deal and trade in a type of financial derivative product, into a separately-capitalized institution within the larger bank holding company. The affected firms collectively would have to raise tens of billions of dollars to protect their swaps desks in case their bets went bad. Or, they could have disband the activity altogether.

Along with a few foreign banks, the nation's largest domestic banks essentially control the swaps market in the U.S. By forcing them to divest their units into separate affiliates, which in turn would compel them to raise money to capitalize these affiliates, Lincoln's measure could have forced them to scale down their operations. At the least, supporters say, it would have compelled them to have enough cash on hand in case their bets begin to sour, saving taxpayers from having to step in to prop up the banks like they did in 2008 -- taxpayer support that continues today.

Though Lincoln's measure had the support of three regional Federal Reserve Bank presidents -- James Bullard of St. Louis, Richard Fisher of Dallas, and Thomas Hoenig of Kansas City -- representing the Fed and bankers in the broad middle of the country from Kentucky to Colorado, they ultimately were outmatched. The Fed's Board of Governors, led by the nation's central banker, Ben Bernanke; Federal Deposit Insurance Corporation Chairman Sheila Bair; Treasury Secretary Timothy Geithner; and the nation's largest banks were united in their opposition.

Two minutes before midnight, Collin Peterson, a Minnesota Democrat, announced that a deal over Lincoln's divisive measure had been reached.

"There's been some work done by the administration and some of the senators on a potential compromise, I guess you could call it," said Peterson, chairman of the House Agriculture Committee, in a reference to the Obama administration.

The negotiations were not public.

Rather than banks being forced to spin off their swaps desks, they'd be allowed to keep those units dealing with "the biggest part of all these derivatives," Peterson said. The rest would be pushed out to an affiliate.

Under the agreement, reached late Thursday, banks would continue to be allowed to deal interest rate and foreign exchange swaps, "credit derivatives referencing investment-grade entities that are cleared," derivatives referencing gold and silver, and the firms would be allowed to hedge "for the banks' own risk."

Banks would be forced to push out to their affiliates derivatives referencing "cleared and uncleared commodities, energies and metals (with the exception of gold and silver), agriculture, credit derivatives referencing non-investment grade entities and all equities, and any uncleared credit default swaps," Peterson said.

"Frankly, the biggest part of all these derivatives, by far, are the ones that I named that are going to be able to stay in the bank," Peterson added. "Interest rate and foreign exchange are by far the greatest part of the amount of business that's involved here."

Lincoln, while praising the overall bill, acknowledged that there was only so much she could do.

"Our financial system is complicated and integrated and our time so limited that we couldn't afford to dig in our heels, but must do something," she said.

Wall Street vs. Main Street:

Final Showdown Threatens Reform
by Art Levine

June 24, 2010 by In These Times

WASHINGTON - The battle over financial reform reaches its final stages this week, withWall Street's lobbyists working, with considerable success, to gut key measures designed to rein in risky trading by banks and investment firms.

Americans for Financial Reform, a broad-based coalition of labor and progressive groups, delivered petitions to the local offices of House and Senate conferees while national labor groups weighed in to block the renewed business efforts to carve out loopholes in derivatives trading, consumer protection and speculative investments.

Heather Booth, the executive director of AFR, told In These Times about the final stages of reform: "It's hand-to-hand combat. Every Wall Street firm is showing their greed, their wanton disregard for the public interests, and the politicians are still willing to do Wall Street's bidding."

The organization will release new polling today (thursday) that shows that the public favors-if asked fair and accurate questions-cracking down on Wall Street, challenging other polling about doubts about financial reform. Yet even the reported lack of confidence that new rules will prevent another meltdown doesn't mean, as some right-wingers spin it, that the public opposes strong financial reform.

One of the few brighter signs: The consumer protection agency, while still housed within the pro-bank Fed, is generally considered one of the stronger elements of the bill now being finalized, although a Mack truck-sized loophole exempting auto dealers' loans from scrutiny is gaining traction.

Progressive and labor groups are also seeking to preserve a strong "Volcker rule," which would would ban U.S. banks from trading with their own capital and running hedge funds. But it's been weakened by a pending deal with Massachusetts Republican Scott Brown that would allow banks to invest up to 5 percent of their own capital in hedge funds, a maneuver done on behalf of State Street and other major financial firms in Brown's state.

As the Washington Post reported Wednesday (via Progressive Breakfast):

State Street isn't one of the iconic firms of Wall Street. It doesn't even make the top 10 largest bank holding companies in the country. But on Capitol Hill this week, as lawmakers finalize new rules regulating Wall Street, Boston-based State Street wields enormous influence.

The bank has a powerful advocate: Sen. Scott Brown (R-Mass.), whose vote the Democrats need to pass the financial overhaul bill. Brown is worried that a key provision in the regulations known as the "Volcker rule" would hurt State Street, BNY Mellon and other banks with major operations in his state. Even though Democrats have fought to include a strong version of the rule, which could restrict the kinds of trading banks engage in, Obama administration officials and Democratic aides on Capitol Hill say Brown is likely to get his way because his vote is critical for approval of the House-Senate draft.
If he does, many other banks across the country could benefit.

Mary Kay Henry, SEIU's new president, offered Wednesday a tough-minded overview of why these sorts of sell-outs to coporations should be opposed:

There is nothing radical in this bill. What's radical is the idea that working families are each and every day still paying the price for Wall Street's recklessness and greed.
American families can accept no excuse for voting against these common sense reforms. These new rules will protect our families from dangerous and deceptive financial products and prevent taxpayers from paying for Wall Street's future mistakes.
Congress must stand up to Wall Street CEOs and their high-priced lobbyists who are stepping up efforts to water down and defeat much-needed reforms. Toxic derivative deals and the shadow markets under which private equity firms operate were at the heart of our economic collapse. We need to pass strong new rules to police these products and bring them out of the shadows.
Each day Congress waits to finalize new rules for our financial system is another day Wall Street CEOs are allowed to engage in the same risky bets that crashed our economy.

At the same time, so-called moderate "New Democrats" are working with Wall Street firms to try to undermine a proposal by the labor-challenged Sen. Blanche Lincoln to force federally-backed banks to split off their derivatives trading desks, the risky bets that wrecked the economy.

Their latest talking point: if this passes, the derivatives business will just go overseas and deprive American businesses and workers of revenue. As Zach Carter of the Campaign for America's Future points out:

Astonishingly, as Wall Street reform enters its final hours a tired, generic corporate refrain against regulation is gaining traction. As bigwig bankers and their lobbyist brethren fight to defeat tough new rules on derivatives--the crazy casino that brought down AIG--all their sloganeers can come up with is the trite wail that serious rules will send this risky business overseas. It'd be funny if members of Congress weren't taking it seriously. 

"Oh no--the business will go overseas!" is the last-ditch, we're-about-to-lose-this-one cry of despair for corporate executives in every industry. Crack down on a profitable abuse in the United States, and the entire business will move to London or Mumbai, sending jobs and tax revenue abroad-- or so the argument goes. You only hear this line when CEOs know they have no case, and have to divert attention away from the real substance of the policy debate. In the case of Wall Street abuses, this nonsense is especially ridiculous. The bank lobby really just doesn't have any good arguments to launch in its favor, so it's falling back on generic corporate jargon. 

In reality, the U.S. has extremely broad authority to crack down on derivatives activity abroad, we just don't have a whole lot of good rules on derivatives for regulators to enforce.

That's one reason that some House moderates joined in a press conference and letter demanding tougher oversight of derivatives. As David Dayen of Firedoglake notes:

You may be wondering whether anybody inside Congress is working for stronger reforms. The answer is yes. Rosa DeLauro, Jackie Speier and Bart Stupak (!) put together a Dear Colleague letter calling for the strongest possible derivatives language from the conference committee. At the end of the day, if the derivatives title remains fairly intact from the Senate bill, that alone will give reformers a victory and could actually shrink that runaway sector.

Unfortunately, the House version that's being promoted by some conferees exempts as many as 50% of derivatives trading -- the dangerous bets on mortgages or other investment vehicles with underlying assets -- from oversight.

As Michael Masters, an equity fund manger who favors strong reform, summed up what's at stake in this arcane but critical issue:

Currently, derivatives trade in an opaque, completely unregulated $600 trillion "dark market." The risk that this presents to the U.S. economy is incalculable, and the new legislation rightly seeks to create transparency by forcing most derivatives transactions to clear through a central counterparty, or clearing house. 

The clearing house would stand in the middle of the transaction and guarantee both sides of the trade. If one counterparty to the transaction fails, then the central counterparty absorbs those losses, protecting the system as a whole from collapse. A similar system has worked very well for over 100 years in the exchange- traded futures markets. 

Wall Street firms hate this idea because their prodigious profits will dwindle when derivatives are traded in the light of day, letting their counterparties see the true costs. 

So Wall Street is pushing hard to exempt as many transactions as possible.... 

The House language, however, would exempt anyone hedging "balance sheet risk." Since every financial player has a balance sheet, it is estimated that more than 50% of the outstanding derivatives would go uncleared under the House plan, compared to just 10% under the Senate version.

Right now, the interest groups that best understand this shady world of investments are the big banks and investment firms, and unless citizen activists weighs in during these final days, Wall Street will get its way.
That's why AFR has  crafted this final appeal in its petition drive to Congress, emphasizing support for the Merkley-Levin amendment which would bar firms from making Goldman Sachs-style bets against their own customers or using taxpayer-backed funds to make investments from the firms' own accounts. That's an expansion of the Volcker rule.

This may sound like common sense, but AFR is facing an uphill battle in its last-minute citizen appeals:

You or your colleagues on the Conference Committee merging the two financial reform bills must work so that the STRONGEST provisions make it into the final bill. 

We need: 

A Consumer Agency with jurisdiction over all lenders - including auto dealers!
Transparency in the derivatives market: no more trading in the dark! And, banks should have enough money to cover their bets. 

Separate the riskiest trading from regular banking so taxpayers aren't on the hook for Wall Street's gambles. (You must support SENATE language on derivatives, including Senate Section 716, and the Volker rule with the Merkley-Levin language.)

This week will determine whether the legislators will listen the voices from Main Street over the donations from Wall Street and the millions spent on lobbyists.

For Clean Campaigns...

...DISCLOSE and Amend

by John NicholsJune 25, 2010 by The Nation

As promised in  the aftermath of the Supreme Court's January misruling in the case of Citizens United v. FEC -- which essentially freed corporations to spend whatever they like to buy elections and influence policymaking -- the Congressional Democrats have produced a legislative response.

But, while that response has some merit, it is insufficient -- and potentially doomed.

The House's 219 (217 Democrats, 2 Republicans) to 206 (170 Republicans, 36 Democrats) vote on Thursday approved a version of the "Democracy is Strengthened by Casting Light on Spending in Elections" (DISCLOSE) Act, which is designed to impose a measure of accountability on corporations. The measure intentions are sound. It would, for instance, require most groups that run so-called "independent expenditure" campaign  ads to disclose the identities of their top donors. This requirement is designed to expose the backdoor scheming by major corporations to promote their favored candidates and agendas using front groups.

The DISCLOSE Act also bars corporations with government contracts that are worth more than $10 million, along with corporations that have accepted federal bailout money, from engaging in independent political activity. And it bans companies with substantial levels of foreign ownership from mounting campaigns to influence U.S. elections.

All of these initiatives make sense, as President Obama argued in a statement hailing the action by the House and urging the Senate to advance the measure toward his desk.

"I congratulate the House of Representatives on today's passage of the DISCLOSE Act, a critical piece of legislation to control the flood of special interest money into our elections," said Obama. "The DISCLOSE Act would establish the strongest-ever disclosure requirements for election-related spending by special interests, including Wall Street and big oil companies, and it would restrict spending by foreign-controlled corporations. It would give the American public the right to see exactly who is spending money in an attempt to influence campaigns for public office. The House bill is not perfect – I would have preferred that it include no exemptions. But it mandates unprecedented transparency in campaign spending, and it ensures that corporations who spend money on American elections are accountable first and foremost to the American people. I urge the Senate to act swiftly on its version of the bill, and I look forward to working with both chambers on prompt enactment of final legislation."

Unfortunately, the exemptions that Obama mentions -- for membership organizations -- are all but certain to inspire legal challenges that, considering the character of the high court, will likely be used to undermine the most significant components of the legislation. (Indeed, the exemption for the National Rifle Association was so unsettling that a number of the Democratic "no" votes came from progressive members representing urban district, especially from members of the Congressional Black Caucus.)

So, for all the high-minded rhetoric about pushing back at the court, the prospect remains very real that corporations will be able to meddle in elections with few constraints -- and perhaps in ways that cloak their intentions and arrangements.

People for the American Way, one of a number of groups that is supporting a bolder response to the court's lawless attacks on the democratic process -- in the form of a Constitutional amendment that makes clear that corporations do not have the same political rights as citizens -- had the right reaction to the DISCLOSE Act.

“The Supreme Court’s decision in Citizens United overturned a century of established law in order to give big corporations unprecedented influence in our electoral process," said Marge Baker, the group's executive vice president. "We appreciate the work that members of Congress have done to try to dampen the effects of this disastrous decision and restore some transparency and accountability to our elections. As important as this measure is, in the long run the way to truly fix the damage done by Citizens United is to pass a Constitutional amendment to restore our government to the people."
 A new poll, released this week by People For the American Way, finds that 77 percent of Americans—including majorities of Democrats, Independents, and Republicans—now favor amending the Constitution to reverse the Citizens United ruling and to assure that the court no longer deliberately misinterprets the First Amendment to give corporations that power to dominite the debate and define the results of elections.

According to the poll, 74 percent of Americans say they would be more likely to vote for congressional candidates who favor amending the Constitution to prevent corporations from buying elections.

"It’s time," says Baker, "for members of Congress to catch up to their constituents and pass a Constitutional Amendment that will fully restore integrity to our democracy.”

There are several savvy amendment campaigns that are worthy of note, including Move to Amend and Free Speech for People.

And here is Public Citizen's backgrounder on the amendment fight.

Capital Speaks

How Big Foundations and Wall Street Elites are Legitimating Their Plans to Balance the Budget
By DARWIN BOND-GRAHAM

This Saturday tens of thousands of Americans, from all walks of life, men and women of all races, immigrants and citizens, young and old, from all regions of the country, will gather in hundreds of town hall meetings. There they will "weigh in on strategies for a sustainable fiscal future." This series of coordinated gatherings is called America Speaks, and its goals are to "educate the American public about the challenges facing our nation, provide Americans with a neutral space to explore the issues and weigh the trade offs, and deliver to political leaders in Washington a clear message about the shared priorities of a large, demographically representative group of Americans."

At least this is how the foundation funders and political operatives organizing America Speaks describe their well-funded exercise in hegemony. A more honest appraisal it deserves though. Following up a highly exclusive budget summit in Washington D.C. last month that featured the likes of Alan Greenspan and Robert Rubin, America Speaks is more for those of us who BP Chairman Carl-Henric Svanberg recently identified as the "small people." The town hall meetings being organized by America Speaks are in fact the latest and one of the largest and most sophisticated operations in securing consent to rule that the U.S. elite has ever attempted. Like the D.C. budget summit organized by Peter G. Peterson, the town hall meetings are intended to make an impression on President Obama's official commission which has been tasked with putting all options on the table in order to reduce the federal deficit.

Bankrolled by a strange cast of institutional and individual characters, the guiding force behind America Speaks' town hall meetings on the national budget is Peter G. Peterson, the billionaire founder of the Blackstone Group. In the 1970s Peterson left his post as CEO of Bell and Howell Corporation to begin his forays into public policy through official appointments and foundation initiatives. He served as President Nixon's Secretary of Commerce in 1972, and then naturally was appointed Chairman of Lehmen Brothers. It was at Lehmen where Peterson spent the majority of his business career making fistfuls of cash. In 1985 he set out with other captains of the financial industry to create the Blackstone Group which became the world's largest private equity firm.

Two years later Gordon Gekko, the fictive embodiment of Peterson's cohort, would tell America;

"The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons, and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market."

On Wall Street Peterson became known for his fiscal conservatism and free market faith which initially translated into strong support for the Republican Party. But Peterson has been more than a partisan. Democrats have also solicited his energies to rationalize cuts in welfare spending alongside federal policies to grease the wheels of wealth accumulation to the benefit of the elite. Throughout his career as a philanthropist Peterson has seemed equally displeased with both Republican and Democratic Party failures to structurally adjust the U.S. economy by balancing the budget on the backs of the poor. His lament is shared by many financial elites.

While one function of the U.S. government (perhaps the main function in recent decades) is to facilitate capitalist accumulation on ever-greater scales, another function, more a necessity growing out of the pain and dislocation that wealth accumulation creates, is to legitimate rule, oftentimes by stabilizing an otherwise brutal socioeconomic structure. This means placating the working poor with minimum wages, food stamps, and public housing, while rewarding the more politically powerful, if complacent, middle class with huge social welfare programs like Social Security or federally backed mortgages. Congress and the White House have essentially lost all sense of balance in this act, due in no small part to the nation's imperial overstretch as well as the power of corporations and the wealthy to insulate their fortunes from the grasp of the tax man.

During George H.W. Bush's term in office Peterson was moved to found the Concord Coalition which sounded alarms over the U.S. deficit, focusing a lot of attention on health care spending, social security, and other entitlements that stood in the way of greater sums of speculative profit and private wealth accumulation. A close observer and panderer to the needs of the financial elite, President Clinton appointed Peterson to the Bi-Partisan Commission on Entitlement and Tax Reform which built support for the "end to welfare as we know it." Clinton and the Republican controlled Congress brought some of the Commission's findings down like a bludgeon on tens of millions of low-income Americans with the 1996 Personal Responsibility and Work Opportunity Reconciliation Act.

With Peterson as its prime backer you can see where the America Speaks budget town halls are likely to be steered. Up for discussion: cutting welfare spending, health care, education. Not up for discussion? The backers of America Speaks have so far kept military spending off the table. They've also been conspicuously silent about one of the simplest solutions to the fiscal crisis, taxing corporate wealth and private equity.

Peterson is by no means alone in funding the America Speaks budget town hall meetings. Other powerful financial elites are bankrolling this exercise in legitimation. There's South Carolinian Roger Milliken, heir to an enormous private textile fortune. Milliken's contempt for social welfare programs is well-known, as is his support for ever greater levels of militarism. Milliken helped bankroll the Peace Through Strength PAC, and Freedom's Defense Fund. The former helped Cold War era politicians win elections and funnel the national treasury into pie-in-the-sky weapons systems. The latter has carried on this work while condemning welfare in most forms. According to their web site, Freedom's Defense Fund is "dedicated to the principles of limited government, as the Founders understood them," and works to liberate America from "the shackles of the nanny state."

Other anti-"nanny state" parties behind America Speaks include a cluster of Wyoming-based groups with roots in the oil, gas, and coal industries. This is due no doubt to Alan Simpson's influence. The former Senator from Wyoming is co-chair of President Obama's budget commission. The Wyoming Business Alliance, Casper Area Economic Development Alliance, Casper Community Foundation, Casper Events Center, City of Casper, Casper Rotary Foundation, along with two oil and gas businesses, Goolsby-Finley and Associates, and Gene George and Associates, are providing funding and in-kind support for the budget town halls.

Rounding out America Speaks are a few of the Democratic Party's Daddy Warbucks, including real estate investor Robert Monks, Rockefeller Brothers Fund trustee Richard G. Rockefeller, and hedge fund manager S. Donald Sussman.

What this seemingly bi-partisan caste holds in common is their fear over the U.S. deficit, but also their fear that the budget will be balanced to the detriment of the top 5 percent's ability to further accumulate wealth. And so on Saturday these AstroTurf town hall meetings, occurring in 19 major cities and dozens of other locations, will provide cover for what is otherwise a foregone set of conclusions that include recommendations that the Congress and White House cut and privatize many social programs.

There is an illustrative precedent to this exercise in fiscal hegemony. After Hurricane Katrina the Rockefeller Foundation financed an initiative called the Unified New Orleans Plan, or UNOP. UNOP's supposed function was to create a democratic process for the planning of the disaster-stricken city's future. In practice UNOP was an exercise in legitimating plans already in the works. UNOP town hall meetings, called "charrettes," a buzzword in planning and architecture circles, were filled with middle class white residents of the city. Displaced citizens had no voice, but still the campaign's organizers, ever-sensitive to creating the appearance of sensitivity and democracy, claimed to hold planning sessions in distant cities where black and working class residents were struggling to survive.

UNOP was mostly a failure. Multiple and competing plans were hatched by the Mayor, City Council, and foundations like Rockefeller, and disorganization consumed most everyone. Even so, parts of the foundation funded plan have purportedly been used as a base for the new city master plan (still in the works). Furthermore, the main goal from the start wasn't to actually plan the city's future. It was instead to create the appearance of inclusion and participation, and to give New Orleanians a sense that the future of their city, economy, and public sector was being democratically determined. All the while it was not.

Decisions to demolish tens of thousands of housing units were made behind closed doors, in concert with developers seeking to privatize them. Health care facilities like Charity Hospital were shuttered in the name of building newer and more profitable facilities, and also to create a base for the newest economic development scheme of the city's elite: a biomedical district. Public schools were closed down and replaced with a virtually all charter system. Public transport was drastically scaled back. All of these cuts were made possible by foundations and NGOs which provided a mask of pluralism and inclusion. Resistance to austerity measures was undermined with faux democracy and inclusion.

While "greed is good" may be the most quoted line from Wall Street, it's a different Gekkoism that provides deep insight into the dynamics of capitalism and the strategic thinking of its agents whose base of operations is the world of large foundations. At one point Gekko explains, "it's a zero sum game. Somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one person to another. Like magic." Transferred. Money is transferred.

In some respects the national budget question is a zero sum game. It's a pie that can split various ways. Military spending is currently the biggest "discretionary" slice. Welfare programs and tax rebates that aid the poorest citizens of the United States —such as TANF or EITC— are but a mere fraction of what is spent every year supplying the Pentagon and waging its wars. Who will win and who will lose if the pie shrinks? As it shrinks, and it has been shrinking, how will it be redistributed? So far it has been redistributed increasingly into the hands of the upper 5 percent of wealth holders. And how will the loss and sacrifice imposed upon the nation's most vulnerable be legitimated and explained? America Speaks is one answer to that question.

In another respect the federal budget isn't a zero sum game. The budget can grow if the vast deposits of wealth held by the top 5 percent are taxed more progressively. But America Speaks is being set up to keep this off the table too.

Major Loss ... for the Whales!

No Repeal of Whaling Ban
By ANTHONY DiMAGGIO

A five-day International Whaling Commission conference in Morocco failed to produce an agreement that would authorize hunting whales in national and international waters. Anti-whaling countries were defiant in their opposition to initiatives aimed at legitimizing whale hunting in the name of “conservation.” Whaling has been banned internationally for 24 years, but this did not stop countries like Japan, Norway, and Iceland from defying the ban – by claiming various loopholes to and exemptions from the 1986 ban.

Pro-whaling states decided to give up on pushing for a repeal of the ban in the Morocco meeting in light of resistance from the European Union and Latin American countries, among many others. The repeal was originally promoted by the United States, with Obama breaking a campaign promise that he would support the whaling ban if elected. The failure to break the ban was the subject of stern lectures by U.S. newspapers, whose reporters claimed that the attempted repeal of whaling prohibition was in reality an effort to protect whales. The New York Times, for example, reported that the failure to repeal the whaling ban will “leave management of whale populations in the hands of hunters. A compromise plan…would have allowed the three countries (Norway, Iceland, and Japan) to resume commercial whaling but at significantly lower levels and under tight monitoring.” The Washington Post similarly reported that the failed repeal will effectively “leave management of the population of the world’s largest animals essentially in the hands of whale hunters.”

Reporting in the U.S. press is starkly contrasted to that in Britain, where the Independent of London summarized that the failure to repeal the ban is a “victory for anti-whaling campaigners…the controversial attempt to scrap the 24 year old international moratorium in commercial whaling collapsed…to the frustration of Japan, Norway, and Iceland, the three countries which continue to hunt whales in defiance of world opinion.”

Reporters at the New York Times and Washington Post have relied on false portrayals of the Morocco meeting and the whaling ban on multiple levels. Both papers failed to report on the scientific findings, discovered by researchers at Stanford and Harvard University, and reported in the journal Science, that global humpback and great whale populations “are too low to resume commercial hunting.” Both papers also inaccurately suggest that Japan, Norway, and Iceland are reliant upon a new international agreement in order to set a lower quota for whale hunting, or end hunting altogether. The claim that the failure to repeal the ban leaves control over whaling “in the hands of whale hunters” is inaccurate. The 1986 whaling ban passed by the International Whaling Commission relies upon voluntary compliance of supporting states for its implementation. In reality, then, there is nothing to currently stop whaling countries from reducing their hunting at any time. The International Whaling Commission retains no authority to either reward or punish countries that enforce or violate the ban.

Contrary to the claims of pro-whaling countries, the attempt to repeal the ban has nothing to do with each state’s ability to reduce whaling quotas or end whaling altogether. Repealing the ban is meant simply to provide pro-whaling countries with the international legitimacy they desire in light of the decline of whale populations. As is well understood throughout the world, the 1986 ban merely cemented the earlier 1966 global whaling moratorium to end the hunting in light of dwindling whale populations and the entrance of numerous species onto the endangered species list. Significantly, whaling catches had fell to well below ten thousand a year by 1985 from a high of 70,000 a year in the 1960s.

This downward trend in killings following the 1966 and 1986 bans, however, was marginalized by the New York Times when it recently reported that “more than 33,000 whales have been killed since the ban took effect in 1986, undermining the [International Whaling] commission in the eyes of critics.”

A repeal on the whaling ban will likely lead to a tremendous increase in whaling, not a reduction or “controlled” hunting. Businesses within countries currently restricted by the ban would be free to engage in whaling, causing an expansion in the number of hunters and markets reliant upon whaling. This reality should be remembered when one reflects upon the motivations of officials in Japan, Iceland, Norway, and the United States. Norway’s “quotas” for whale hunters have steady increased from near zero in 1990 to nearly one thousand by 2010. Whale hunting countries, then, have no intention of using a repeal to push for “conservation” or “moderation” in whaling. They want to use it to provide cover for their increased reliance upon the whaling industry.

There is much to celebrate in the defeat of the whaling repeal. Whaling countries have failed in their public relations attempts to provide cover for their unsustainable hunting. At a time when scientists are discussing dwindling whale populations, pro-whaling countries should not be allowed to deceive and manipulate the global public. The justifications offered for the repeal were rightly rejected throughout most of the world, and this represents a major victory – not a defeat – for conservation.

The System and the Drug War

Douglas Valentine's "Strength of the Pack"
By ADAM ENGEL 

“Drugs were not Kissinger’s priority,” Jim Ludlum explained. “Drugs were a no-win situation.”

The Strength of the Pack by Douglas Valentine

Relentless is the pack in search of prey, relentless are the wolves.

Meticulous is the disclosure of truth about the real “war on drugs,” as chronicled by Douglas Valentine in THE STRENGTH OF THE PACK (“PACK”). There may be other historians out there with Valentine's attention to detail and access to solid resources, including interviews with agents themselves, but if there are, I haven't read them.

This isn't the standard “history,” it's not about a series of splashy drug busts or heroism, though those elements are there; mainly, it's about inner and outer dynamics, where inner workings interact with outer forces. PACK is a complex book, as complex as the interlocking systems that define it. It is Valentine's thorough examination of how the gears mesh.

The "wolf pack," which distinguishes “PACK” from Valentine's previous book, THE STRENGTH OF THE WOLF, is the multitude of agencies, and the agents and bureaucrats within them, that comprise “The System” (not only of Federal Law Enforcement, but U.S. adventures abroad).

Once, The Wolf, the lone Federal Bureau of Narcotics (FBN) agent, last of the noir cowboys, hard-boiled and streetwise, stalked his prey: Mafiosi, drug dealers both national and international (the French Connection), the occasional street junky, many of whom were useful as informants, and other ne'er'do-wells. But the rise of the American Superpower in the fifties and early sixties, saw the Lone Wolf FBN replaced by a bureaucratic system more suitable to Empire: The Pack. The wolf pack includes the FBI, Customs, BNDD, numerous other agencies with acronyms too numerous to mention, and eventually, the DEA, created specifically for the purpose of "winning the war on drugs."

Or was it?

“During his presidency, Bush sought over $8 billion dollars to fund the drug wars. Between 1989 and 1992, over 20 million Americans used illegal drugs, and around thirty-percent of Bush’s budget went to treatment and prevention. Ten-percent of the federal “drug supply reduction” budget went to the DEA while the military got the lion’s share, with nineteen-percent (twice what the DEA got) going to the Coast Guard alone. Instead of leaving drug law enforcement in the hands of trained professionals, Bush politicized and militarized it in ways Gordon Liddy never dreamed possible.” (pg. 391)

The “war on drugs” like the “war on terror” is about politics and political booty, stuffing deep pockets, creating bureaucracies for the deliberate purpose of obfuscation, and funding various paramilitary groups the State Department and/or CIA deems favorable to “national security.”

The buzz words, “national security,” allow the CIA and other sub-systems to get away with murder, literally.

“There is a famous photo of Donald Rumsfeld smiling broadly and pumping Saddam Hussein’s hand on December 20, 1983, knowingfull well 'the brutal dictator' was pouring chemical weapons on the Kurds. At almost the same moment, Bush was meeting with another brutal dictator, Manuel Noriega, to seal an equally devious deal. … [Colonel Oliver] North was so pleased with Noriega’s assistance that he suggested that the CIA’s Office of Public Diplomacy 'help clean up his image' and lift the ban on arms sales to the Panamanian Defense Force. He did this knowing that Noriega was cutting side deals with the Colombian cartels.” (pgs. 393-394)

Nothing is as it seems, at least not as it seems to us, for the information “We the People” receive is filtered through a compliant (and often complicit) media. According to the Mainstream Media fairy tale, the scenario described above is preposterous. “We” invaded Panama because Noriega was a “bad man” abusing power, inflicting woe upon his fellow Panamanians, or some such nonsense.

Valentine is concerned not only with systems, but the living, breathing human beings who give them energy and power; the people who define these systems and infuse them with life. All humans are flawed. But a flawed system corrupts all dependent and interdependent systems (and the human beings within) from the top down.

“Corruption becomes an unsolvable issue within the DEA when CIA officers suborn agents and get them to do their dirty work. Some idealistic agents think they are serving God and country by secretly working for the CIA; others see it in more practical terms, as career advancement. All fall into the abyss.” (pg. 346)


At the top are the State Department, the CIA, the Department of Justice, The Department of Defense. Essentially, the largest subsystems within The System.

Valentine finds boxes within boxes within boxes. Reporting on Operation Intercept, a botched attempt to subjugate Mexico to U.S. Drug policy, Valentine writes,

“Behind the scenes, the State Department viewed Intercept as a huge failure in foreign relations. It also prompted Henry Kissinger to involve the National Security Council more deeply in White House drug war policies, largely through his deputy General Alexander Haig, as well as through NSC narcotics advisors Arthur Downey and Arnold Nachmanoff and their staff. But Nixon was willing to pay the price, because Operation Intercept proved he was 'tough on crime.'” ( pg. 41)

Some of the players we know very well: Nixon, Kissinger, Reagan, the Bushes, J. Edgar Hoover, the Kennedys. But most are as obscure to most Americans as the acronyms by which the particular sub-systems from which they receive their paychecks are labeled.

“In October, 1975, the USA convened a grand jury and sought DEACON I intelligence regarding several drug busts. However, intelligence the CIA provides to the DEA cannot be used in prosecuting drug offenders; and because the CIA would not reveal the identity of its assets, or even to confirm the fact of its cooperation with the DEA in court, prosecutions were 'nolle prossed' on National Security Grounds. All were Latin American cases, many involving exile Cuban CIA 'assets' who trafficked in narcotics and engaged in terrorism; and ultimately they worked for Oliver North resupplying the Contras, as North Documented in his telltale diary. The line between the DEA investigations and CIA smuggling and terrorism, would continue to blur.”( pg. 306)

Valentine explains loudly and clearly that “We the People” haven't the faintest clue as to "what's going on." Then again, it's difficult to believe that anyone outside the highest echelons of power (State Department, CIA) really does know what's going on, as PACK chronicles the many ways the mission keeps veering off course. For instance, in one case, heads of DEA and CIA decide DEA is so corrupt they have to infiltrate CIA agents in as "secret" inspectors to root out wrong-doing DEA agents - but actually the CIA uses the "secret" inspection to mount truly secret operations.

“...the public got its first peek into the CIA’s corrupting influence on federal drug enforcement agents in 1975 when the Rockefeller Commission reported that the CIA, through its MKULTRA program, had tested LSD on unwitting persons, and that one had died as a result. … the CIA had tested a whole range of powerful drugs on unwitting persons; used electronic and photographic equipment to record their behavior at FBN safe houses … One MKULTRA subproject involved keeping seven criminals high on LSD for 77 days straight. Another used poisonous mushrooms; another used instruments that administered drugs through the skin without detection, as part of an 'Executive Action' assassination program. Perhaps most disturbing of all, one CIA document, dated February 10, 1954, described using hypnosis to create unsuspecting assassins.” (pg. 346)

Hence reality trumps fiction as the CIA tried to create its own “Manchurian Candidate.”

The "war on drugs," is the war on drug-dealers who are not aligned with US interests. If you pass muster with the CIA you can deal all the drugs you want. Whatever is made contraband to control its use is probably something people want and will do much to attain. As soon as a system is set up in which contraband materials (for which people demand and will pay dearly) are supplied by "underground" characters and blocked by agents whose jobs were created for the sole purpose of blocking supply, you have an unwinnable, internecine “war” on human greed, desire, ego, etc.

“Congresswoman Bella Abzug at the House Subcommittee on Government Information and Individual Rights was investigating [another narcotics case]. She submitted questions to DCI George H.W. Bush. As advised by Seymour Bolten, Bush explained in writing that the cover-up was legal under a 1954 agreement between the CIA and the Justice Department, giving the CIA the right to block prosecution or keep its crimes secret in the name of national security. In its report, the Abzug Committee stated: 'It was ironic that the CIA should be given responsibility of narcotic intelligence, particularly since they are supporting the prime movers.'”(pg. 319)

Despite the fog and mirrors of the “war on drugs” as portrayed in the media, and the alleged powers of the neutered DEA, U.S. Policy, as conducted by the CIA and State Department, is to use drugs as a vehicle for cash and influence in support of “friendly” terrorists, such as the Contras and groups worldwide too numerous to mention. Drug-dealing, with full knowledge that the drugs will enter the veins and noses of U.S. Citizens, is U.S. Policy, and the CIA are indeed “supporting the prime movers.”

“In the early seventies, when Cuban exile Alberto Sicilia Falcon, a major Latin American cocaine supplier also began to deal in sophisticated weaponry, supplied by CIA contacts, 'the war on drugs' entered both a more violent and sophisticated stage, with drug traffickers armed with automatic weapons, as well as being linked to CIA counter-revolutionary activities in Mexico and South America. Falcon admitted working for the CIA, 'to set up a network exchanging Mexican heroin and marijuana for weapons.' The guns were sent to guerrillas in hopes that besieged governments in Latin America would petition for US military aide. As recounted in UNDERGROUND EMPIRE, Peter Bensinger thought Falcon was a double agent for the Soviets, while several DEA agents thought he was a CIA informant reporting on Mexican revolutionaries in exchange for free passage. The CIA’s motive, naturally, was to destabilize the Mexican government, so US corporations could more easily manipulate Mexico’s competitive oil industry.” (pg. 311)

Valentine is as concerned with the CIA and U.S. involvement abroad as he is about drug enforcement within our borders, and rightfully so. How do the drugs get into our borders if we have a multi-billion dollar intelligence and enforcement apparatus in place?

The Wolves who serve U.S. foreign policy use drugs as currency to support causes they support, and destroy the drugs, or rather, the drug dealers, of enemies: communists, rebellious former allies, hapless nations sitting on valuable resources (Iraq) and other entities that allegedly threaten “National Security.”


Then again, what can you expect? You have a huge demand for something that is more valuable than gold, and of COURSE the Players in Power are going to use it to support black ops. Where else are they gonna get the money? Congress? Not without "compromising National Security." It's not the fact that the CIA deals drugs, or that the DEA is a puppet of Republican power brokers, not to mention the CIA, that's so disconcerting. It's the willful ignorance of the American public. Sure there are "rumors" about the CIA creating the crack epidemic, though given the CIA's dealings with the drug pushers of Afghanistan and South America, it's not a far stretch, but Valentine shows us concrete proof of many verifiable abuses large and small.

You cannot come away from reading PACK with your naivety intact. In addition to following the paper trail, Valentine actually interviewed many of the operatives, which lends further credence to the fact that people deep within The System "know what's going on," and the rest of us, or most of us, are in the dark, believing the CIA are the 'good spies,' the movies tell us they are.

The mad wolves are out of control. Systems break apart and the protagonists within those systems become antagonists to other systems, the nation they are allegedly serving, and life on the planet itself (all life now falling under the general rubric of “collateral damage.”).

The ease with which those who “go with the Program” (as developed by the CIA) attain money and prestige (doing right by the State Department and CIA never hurt anyone's career) can corrupt even the most straight-laced agent. Perhaps more significantly, those who do not follow the pack in search of career advancement and booty receive the same treatment as the NYPD once doled out to Frank Serpico:

“Whistle-blowers who revealed the Reagan Administration’s covert actions in Central America — especially its complicity in drug trafficking — were investigated, rather than officials like Oliver North who were involved in the trafficking. By aiding and abetting the Reagan Administration in this regard, senior DEA officials played a central and largely unreported role in the Iran-Contra cover-up.” ( pg. 374)

By the time of the Reagan era, when the White House's overt policy was to fund anti-communist reactionary forces abroad (think: Iran-Contra scandal; think: Afghanistan and “former” CIA asset Ossama Bin Laden).

“In the early 1980’s, Latin American drug traffickers were visiting terrible violence upon politicians they viewed as collaborating with the US government. Reagan, in a reversal of Carter’s Human Rights approach to foreign policy, responded with greater violence. He declared drug trafficking a threat to national security and the age of narco-terrorism began, dove-tailing neatly with Reagan’s lawless imperial ambitions. To neutralize the threat to US security posed by Nicaragua’s Sandinista government, Reagan’s Director of Central Intelligence, William Casey, put Vice President George Bush (with that lean and hungry look) in charge of a secret operation to organize an insurgent group dubbed the Contras. To skirt Congress, Casey, Bush, and Bush’s national security advisor Donald Gregg formed and operated a 'counter-terror network' of right-wing ideologues whose secret purpose was to illegally arm the Contras. Among them was former DEACON I asset Felix Rodriguez, who had served as Gregg’s 'counter-terror team' advisor in Vietnam. Assigned as an advisor to the Salvadoran Army’s Civil Affairs department, Rodriguez managed the CIA’s pacification effort in El Salvador and Guatemala, applying the same technique he had refined in Vietnam. General Paul Gorman, who commanded US forces in Central America in the mid-1980’s, defined this type of counter-terrorism as 'a form of warfare repugnant to Americans … in which non-combatant casualties may be an explicit object.'” (pg. 376)

Gradually DEA agents realized, along with the rest of the country, that they had no choice but to adapt to the whims of the “leaders of the pack.”

“DEA operations were now indistinguishable from White House political actions, comparable to General de Gaulle’s Service d’Action Civique. [Former DEA Operations Chief, David Westrate] rationalized the situation as follows: “DEA has always had a tremendous stable of sources overseas as you know, so it is not surprising that we developed information about the hostages. This continues today in the war on terror over and over again. We have always been a community player.” (pg. 378)


Let's not forget that “We the People” are paying for this, not only with our tax money, but with our future. Again, it's not the drugs that are the problem, but the people who use them – not typical users who imbibe drugs to get high, but the controllers, for whom drugs are currency to buy power, influence, weapons and promote US interests abroad.

Valentine does what all honest historians and journalists must do: find the truth and document it, though words of truth face stiff competition against the 24/7 barrage of television, videos, movies and other audio-visual media on all screens big and small. Of course, you’ll never find this kind of information on any screen — except a few “alternative” web sites; hence Valentine fires events, scenes, corroborations at the reader much like the TV news blasts its viewers nightly with a parade of horrifying images that numb and pacify. Valentine does anything but “numb and pacify.” He poses serious questions with his exposé, yet wisely refuses to answer them.

There is no answer for The System, as it stands, but inertia. Inevitable collapse and decay. What will replace it? Who knows. But Valentine is gracefully impartial in his treatment of the flawed human beings who comprise each sub-system within The System. There are a few truly evil characters along the lines of George H. W. Bush, Nixon and other miscreants, and there are a few straight-arrows, but the mass of agents, operatives, officials, bureaucrats etc. are products of the particular sub-systems — DEA, FBI, CIA — they happen to be working for. Though the CIA is nefarious above and beyond the call of duty in its recruitment of sadists and murderers, most agencies are comprised of people who think they are doing “the right thing,” and dedicate and risk their lives to “doing the right thing,” however wrong it may be when viewed “objectively” outside The System.

The System is relentless, and thus the book must be relentless if it is to be true. But again, it is his treatment of the living beings caught in and often ground under the machinery of The System and its various sub-systems that makes THE STRENGTH OF THE PACK a most “human” of books. Valentine has compassion for the players within The System, nearly all of whom believe, somewhat ridiculously, that they possess “free will.”

The Right of Reply

Can the Internet End Libel Laws?
By JULIE HILDEN

The advent of the Internet has profoundly changed the practical realities relating to libel law. Yet libel law -- which is a creature of state law, but incorporates important requirements imposed by Supreme Court First Amendment jurisprudence -- has not remotely caught up with these changes.

In this column, I'll discuss the alterations that I believe should be made to modernize libel law for the Internet age, and consider the challenges that the Internet poses in this area.

The Federalization of Libel Law Should Be a No-Brainer

One way in which libel law should change in light of the Internet, is clear, in my view: The law should be federalized -- that is, it should be precisely uniform across all fifty states, and all suits should be litigated in a single, national tribunal. Now that we have a truly national "marketplace of ideas," via the Internet, libel law should no longer be subject to state-by-state litigation.

Currently, the applicable law in a libel case is typically that of the plaintiff's home state, on the theory that that is where his or her reputation exists. Typically, too, the defendant must travel to the plaintiff's home state to litigate the case -- on the theory that the defendant took aim at the plaintiff's reputation which, again, primarily exists in that state.

This theory doesn't work, though, when the libel suit is weak or frivolous and no one was truly libeled; in such suits, no unfair targeting occurred in the first place, so there is no good reason at all to litigate in the plaintiff's home state. And there is a strong downside, always, to a home-state litigation rule: Local juries are likely to unfairly favor local plaintiffs.

There are other downsides, as well, to litigating libel cases state-by-state: Because of the subtle state-by-state variances in libel law, much costly attorney time is spent researching and litigating the ins and outs of fifty different states' varying libel law -- with these costs placing a heavy burden on media entities and predictably chilling constitutionally-protected speech. (Even a true statement that's a reputational bombshell for the subject may still be sued upon, in an attempt to protect the subject's reputation in the media.)

A single federal body of libel law would enable attorneys to become true libel-law gurus, easily keeping up on every single development in the field, and thus keeping costs down for clients.

Bizarrely, the home-state-reputation rule applies to ordinary people and the famous alike: For instance, if Al Gore were to sue in response to recent claims that his marriage was ended by an affair -- and not by mutual decision, as he has said -- then he would likely be able to invoke the libel law of Tennessee, where he owns a house, and force the defendant to litigate there.

But surely, since Gore has a national reputation, a federal -- not state -- libel standard ought to govern his suit. There is no good reason for a suit filed by Gore against a national publication or a nationally-accessible Website to be litigated in Tennessee in particular.

In the Age of the Internet, Even an Ordinary Person May Be Said to Have a National Reputation, In a Sense

Notably, too, what is true for Gore is true, albeit to a much lesser extent, for many Americans: The idea that one's reputation is located solely, or even primarily, where one lives is now a convenient fiction.

An American may well grow up and attend high school in one state, but ultimately live, study, and/or work in two or three others -- thus ending up with significant reputations in each of the various states. And those states are just the beginning: You have a reputation wherever you are talked about, or thought about. In the Internet Age, that could be in a dozen states, or even in every State in the Union.

Over time, the idea that your reputation exists only -- or at least primarily -- where you live, or have lived, is proving more and more false. A reputation now may stand or fall with comments that are made on Facebook, or with the result of a Google search -- and those comments may be made, and that search may be performed, from any State. As a result, topics -- which can be used to frame searches -- are increasingly important as a way of categorizing speech, while the writer's or searcher's location is often entirely beside the point.

Granted, libel law has always recognized that some people are celebrities in only one arena or on only one topic (say, fly-fishing or Scrabble-playing) -- and thus are only "limited-purpose" public figures. In that field of specialty, where such people already have an influential podium, the law takes into account that their replies to negative remarks concerning them will be carefully listened to by the relevant audiences. Thus, in that topic area alone, the law holds that these figures must face the higher First Amendment hurdles that general-purpose public figures (such as public officials) must face, in order to succeed in bringing a libel suit.

In sum, if you are a big fish in a small pond, then libel law treats you accordingly, as long as the statement at issue concerns that very pond.

But libel law has never grappled with the implications of its recognition of limited-purpose public figures, as the Internet has dramatically expanded that category: For many people now, online reputations are not only, or even primarily, geographic; they are topical. Accordingly, many of us could be considered to be limited-purpose public figures regarding a particular topic, or within a particular sub-community.

It used to be that the paradigm for a limited-purpose public figure would be, say, an amateur boxer who is well-known in boxing circles in his home state, and is often quoted in local media on the subject of boxing. Now, however, the paradigm for a limited-purpose public figure should, instead, be someone like movie reviewer Harry Knowles, of the website aintitcoolnews.

Knowles has a powerful podium when it comes to movies, so if he ever feels that he has been libeled regarding his movie reviews, we can be sure that his side of the dispute will get a fair hearing from the fans who belong to the same online community. Thus, it's fair to impose a high bar before Knowles is allowed to go to court to sue a person who he believes libeled him. Knowles already has recourse to his community to clear his name; he arguably doesn't necessarily need recourse to the law as well -- or, at least, he should be able to live with higher libel standards if he sues.

It's time to federalize libel law to reflect the reality that geographic reputation is increasingly being replaced by topical reputation, in light of the Internet's influence. As noted above, we can do so by instituting a uniform national set of libel-law standards, and by creating a national forum for libel cases that erases home-state jurors' likely bias in favor of home-state plaintiffs.

The Possibility of Replacing Libel Law with a Right-of-Conjoined-Reply and/or a Private Tribunal

More radically, the existence of the Internet makes a strong case not only for federalizing libel law, but also for possibly replacing legal remedies with a private right-to-reply solution.

Rather than having a right to sue, a would-be plaintiff would have a right to ensure that his or her reply must be appended to the original, allegedly libelous statement, wherever it appears on the Internet. The "strange bedfellows" of the remark and the reply could never be separated.

Such a remedy, if legally mandated, might trigger a valid constitutional objection, based on the theory that the government cannot, consist with the First Amendment, compel a speaker to speak, but it is still an interesting possible alternative to full-on libel litigation (and could often be a tool to settle such litigation). And if private parties consented to the system, via Terms of Use, the constitutional objection could be moot.

Interestingly, the chance to reply on the Internet may already be obviating the need for some libel suits. In a recent New York Observer article, John Koblin noted that, in recent years, retiring Time Inc. attorney Robin Bierstedt has seen a dramatic decline in libel suits against Time Inc. publications. Similarly, New York Times Company Assistant General Counsel George Freeman told Koblin that the company's level of libel suits has "never been lower."

Some blame the recession for this phenomenon. After all, it costs money to litigate, whether the money is the client's or a contingency-fee attorney's. Others suggest that -- as journalism's revenue increasingly shrinks -- embattled journalists and media institutions are less willing to risk lawsuits by making aggressive and damaging claims: Even if journalists are quite confident that such claims are true, it is another issue whether they can defend the claims' truth in court (or, at least, defend the reporter's state of mind in making the claims). Newspapers may well prefer to spend their diminishing budgets on reporting, not litigation.

But the most intriguing possible cause for the drop in libel suits, in my view, is the influence of the Internet. Koblin's article suggests two Web-based factors that could be responsible for the current low level of libel litigation:

First, the Web offers the chance for the target of a damaging remark to reply instantly, and/or to get a quick correction from the newspaper. Moreover, that reply or correction is subsequently likely to be part of the very same search results that contain the initial remark. Thus, even if the reply is not required to be appended to the original statement, in practice it will be.

In the past, only a truly diligent newspaper reader -- one with an excellent memory, who faithfully read the paper every day -- was likely to see both a damaging story and a correction or reply from the target of the story. But in the age of Google, it is very likely that both the story and the correction or reply will be unearthed by a given search -- especially if their titles are very alike, which the person writing the reply or correction can easily ensure.

Second, search results are so voluminous, and so quickly updated, that a damaging remark may soon be lost in the mix of our new, accelerated news cycle. Accordingly, the target of a libelous remark may fear that filing a lawsuit -- which will itself make news -- will only revive the remark, and thus do further damage. This second point, of course, holds more true for celebrities -- who are often the subject of a constant churn of news, with each news item fairly short-lived -- than for private individuals, each of whom may only make the news once in his or her lifetime.

I believe a third, and related factor may operate in some celebrity cases, as well: A denial may be a kind of declaration of "open season" on the denier, by the paparazzi. If a damaging remark is made, and no response is given, then it may die away. But if a strong denial is given -- and/or a suit filed -- it may invite a game of "Gotcha!" to prove that a celebrity is, for instance, cheating, drinking, or taking drugs.

In the end, private individuals and celebrities alike might benefit from the creation of a national tribunal that either adjudicates the truth of contested statements (in which case, the tribunal's neutrality and the judges' independence would need to be carefully ensured), or simply polices the faithfulness of the conjoining of the original allegation and the ensuing reply from the target.

With respect to all these issues, I believe the bottom line is that we will need to substantially reinvent libel law in what is truly a different media world. In today's world, concepts such as "YouTube celebrity" blur the line between private and public figures, and anyone can try to capture the attention of a large -- even national -- audience.

And in today's world, if a right of reply is guaranteed, and that reply is conjoined with the original posting, any of us may have a podium comparable to that of a major media organization.

These realities compel a wholesale rethinking of an area of law that has not changed much since the Supreme Court fused state-based libel law with federal First Amendment law in New York Times Co. v. Sullivan. That was forty-six years ago, in 1964; technology and culture have changed profoundly since then, and so should the law.

Time for a Second Stimulus

A General Fall
By MIKE WHITNEY
Alan Greenspan has joined the ranks of the deficit hawks and is calling for austerity measures to reduce government spending. In an op-ed in last Thursday's Wall Street Journal titled "U.S. Debt and the Greece Analogy", Maestro Greenspan made the case for fiscal belt-tightening and disputed leading economists, like Nobel prize winners Paul Krugman and Joseph Stiglitz, who believe that the Obama administration should provide a second round of stimulus. In the opening paragraph, Greenspan dismisses the idea that cuts in government spending will push the economy back into recession. Here's an excerpt:

"I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced. The current spending momentum is so pressing that it is highly unlikely that any politically feasible fiscal constraint will unleash new deflationary forces."

The op-ed features the same circular logic which became Greenspan's trademark during his tenure at the Fed. The real point of the article does not become clear until the very end when the ex-Fed chief levels an attack on Social Security. Here's a clip:

"The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees. 

We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.) 

Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit. I rule out large tax increases that would sap economic growth (and the tax base) and accordingly achieve little added revenues." ("U.S. Debt and the Greece Analogy", Alan Greenspan, Wall Street Journal)

Greenspan has been riding the "private accounts" bandwagon for more than a decade. Not satisfied with having reworked Social Security (under Reagan) to serve as a de facto flat tax levied on the working poor; Maestro now wants to divert the Mississippi River of revenue-streams into Wall Street's coffers. "The major attraction of personal accounts is that they can be constructed to be truly segregated from the unified budget, and therefore are more likely to induce the federal government to take those actions that would reduce public dis-saving," Greenspan opined in testimony before Congress in 2005.

Greenspan has allied himself with a small army of like-minded elites who continue to boost austerity as a path to prosperity. Deficit hawkery has replaced supply-side theory as the latest viral-form of voodoo economics. It turns established economic principle on its head to achieve a given political objective. This is from Bloomberg:

"Governments have proven they can spur expansion by focusing their belt-tightening on spending cuts rather than tax increases, according to studies by Harvard University professor Alberto Alesina and Goldman Sachs Group Inc. economists Kevin Daly and Ben Broadbent.

“There have been mountains of evidence in which cutting government spending has been associated with increases in growth, but people still don’t quite get it,” Alesina said in an interview. He made a presentation to European finance chiefs on the topic during their April meeting in Madrid. 

The key is an emphasis on cutting spending rather than raising taxes, said Goldman Sachs economists Broadbent and Daly in London. Lower spending means consumers and companies don’t fear higher taxes, so demand accelerates. A smaller public sector also helps reduce borrowing costs and makes economies more competitive as fewer government workers lighten labor expenses." ("Cameron Bets on Growth From Austerity as U.S. Delays", Simon Kennedy and Rich Miller, Bloomberg)

Cutting spending reduces economic activity and slows growth. The Bloomberg article merely presents the rationale for class warfare. Fiscal strangulation is not the path to economic recovery. Still, the deficit hawks have mounted an impressive public relations campaign and have powerful friends at the Fed, the Treasury, the White House, and Brussels. In the U.S., President Obama has appointed former Republican Sen. Alan Simpson to head a bipartisan commission to "fix the federal government's long-term budget problems", which is code for gutting social programs. In the E.U., German Chancellor Angela Merkel has taken the lead promising to hack $80 billion from the country's modest deficits. Even Tokyo, after enduring 15 years of excruciating deflation, is planning to slash long-term government spending. The groundswell for hair shirts increases the probability of another severe downturn.

Here's the problem: The bursting of a giant asset bubble pushed the economy into a long-term slump that required emergency action by the Central Bank. Fed chair Ben Bernanke's liquidity injections and zero rates helped to pull the financial system back from the brink, but households and consumers are still deep in the red. Now, their only choice is to pay-down debt and increase personal savings. But if consumers aren't spending, then the government must fill the void or unemployment will spike and the economy will shrivel.

As of March, the average U.S. household’s debt-to-disposable income ratio was 122%, considerably lower than its peak of 131% at the beginning of 2008. Economists believe that that number will eventually return-to-trend at 100% which portends years of sluggish consumer spending and slow growth. With more families forced to cut back to patch their balance sheets, fiscal stimulus must increase or the economy will slip back into recession. Belt tightening now will only increase the deficits by reducing government tax revenues. In a recent interview, Nomura economist Richard Koo was asked if the US should try to reduce their deficits by cutting back stimulus. Here's how Koo responded:

"Not until private sector deleveraging is over. At present, private sectors in the US, UK, Spain, Portugal, and Italy are still deleveraging. This means these countries should not try to reduce fiscal stimulus. Any attempt to cut deficit in these countries is likely to result in a weaker economy and a larger deficit as seen in Japan in 1997.... When private sector is deleveraging, money multiplier is negative at margin. No monetary stimulus will work in such an environment where people are trying to reduce debt, even with zero interest rates, in order to repair their damaged balance sheets. 

Until people realize that they have contracted a completely different disease called balance sheet recession where the private sector is minimizing debt instead of maximizing profits, a constructive policy dialogue is not likely to be possible. Once the exact nature of the disease is understood, the remedy (sufficient and sustained fiscal stimulus until private sector balance sheets are repaired) will become obvious to everyone." ("Interview: Richard C. Koo, Nomura Research Institute", Acemaxx Analytics)

Koo does not believe that the current recovery is self sustaining. The rebound is stimulus-driven and merely reflects improvements in the financial sector (and the markets) which plunged after Lehman Bros collapsed. The heavy-lifting of repairing household balance sheets (which suffered losses of nearly $12 trillion) is still in its early stages. President Obama's $787 billion fiscal stimulus has helped a bit, but it's mainly been used to pay unemployment claims, provide tax cuts and to make up for the losses in state revenues. And while it is not true that the stimulus "has done nothing" as the deficit hawks claim (IHS Global Insight, Macroeconomic Advisers and Moody's Economy.com all estimate it created around 2.5 million jobs.) its effects have largely been canceled-out by the gigantic state budget gaps. Conservative economist Bruce Bartlett explains in the Washington Post:

"The Center on Budget and Policy Priorities estimates that in 2011, the states will have to come up with a total of $180 billion. These budget shortfalls are the equivalent of a massive anti-stimulus....And because they cannot run deficits to hold them over until their economies improve, they're cutting services and raising taxes. Using the data for 2009 and 2010, and then projecting for 2011 and 2012, the Center on Budget and Policy Priorities expects the total state shortfall will reach $610 billion. Because some of the federal stimulus dollars were saved rather than spent, the effective stimulus we've had has been less than the $789 billion that's often touted. It might even be less than $610 billion shortfall in the states. Which would mean the anti-stimulus overwhelmed the stimulus. Or, you could look at it in reverse: Nick Johnson, who directs the State Fiscal Project at CBPP, says that "the effect of the federal stimulus was to wipe out the negative effect of the state contraction." ("You've seen the stimulus. Now, meet the anti-stimulus", Ezra Klein, Washington Post)

The Obama stimulus was a good start, but there's more work to be done. It prevented a downward spiral of falling asset prices and debt-deflation, but it wasn't big enough to put a dent in skyrocketing unemployment or lay the groundwork for another expansion. There needs to be a renewed commitment to long-term stimulus until households regroup and the economy gets back on track. Monetary policy alone will not succeed. The monetary transmission mechanism is on the fritz so reserves are piling up at the banks, but not getting into the hands of people who can generate more activity.

Consumer spending is flat, home prices are set to fall, unemployment will likely edge higher, private sector credit is still contracting, capacity utilization is far below pre-crisis levels, the CPI is slipping, and yields on US Treasuries are priced for deflation. The government must pick up the slack or their will be a general fall in prices that will trigger more layoffs, larger deficits, and social unrest. Premature fiscal consolidation can have unintended consequences as noted by Richard Koo:

"Pushing ahead with these misguided policies risks a collapse of social and economic foundations and could even threaten the survival of democratic structures."