Archive for  November 2008

Home / November 2008
18 Posts

There is something specialy about this news.

The day after these attacks, the minister in charge of the home security in India resigned, he was feeling the heat for being responsible for these attacks, but after 9/11/2001, the man in charge of the US Central Intelligence Agency (CIA) not only did not resigned, but also received the Presidential Medal of Freedom from George W. Bush.

This tells you a lot about the US society doesn’t it? People are demonstrating in India and want to hold the government responsible for their failure, but the Americans not only question those who failed to stop the biggest terrorist attack in their homeland in history, but instead, started competing with each other about who has the most amount of flags on their car. And instead of calling Bush for an incompetent idiot (as he is) they gave him the biggest approval rating any president ever had in the history of the United States (just go to the link and see his approval rating befoer and after 9/11/2001)!

Indian minister resigns over Mumbai attacks –

India’s Home Minister Shivraj Patil submitted his resignation Sunday as the country investigated alleged Pakistani ties to the terrorist attacks that killed 183 people in Mumbai.

Indian Home Minister Shivraj Patil

Indian Home Minister Shivraj Patil addresses the media after a cabinet meeting with PM Manmohan Singh.

The fallout from the attacks is damaging the tenuous relationship between India and Pakistan, said CNN sister station in India, CNN-IBN.

The Indian government is considering suspending the five-year old cease-fire with Pakistan and perhaps even ending the dialogue process with the country, sources told CNN-IBN.

Pakistani security officials told CNN that if tensions with India escalate, it may shift its military forces from the Afghan border east to prepare for any conflict.

The 60-hour wave of violence began Wednesday night as gunmen surged into at least nine locations in Mumbai, killing 183 people and wounding about 300.

The official death toll does not include at least 11 gunmen killed in battles with security forces.

Authorities have said that some of the attackers, who arrived in Mumbai by boat, were from Pakistan.

“Yes, the captured terrorist was Pakistani, as the home minister and others have said. As far as the others, the accomplices, the investigation, the interrogation is under way and the details will become public very soon,” said Vilasrao Deshmukh, chief minister of Maharashtra.

Pakistan’s foreign minister, Shah Mahmood Qureshi, vowed Saturday to take action against any group within its borders if it is found to be involved with the attacks .

Officials say they found telephones and a global navigational device on an abandoned boat floating off the coast of Mumbai that was used by the terrorists, CNN-IBN reported. The television network showed photographs of a phone’s call log that revealed calls had been placed to Pakistan.

The boat had been hijacked, intelligence officials told CNN-IBN. Four crew members who had been on board were missing. The captain was found dead, face down with his hands bound behind his back.

The targets of the attacks included luxury hotels packed with foreign tourists. The 105-year-old Taj Mahal hotel was the site of the attackers’ final stand, as gunmen held hostages and refused to leave the facility. Victims share their tales of survival and escape »

The chairman of the company that owns the hotel told CNN that the company had been warned about the possibility of a terrorist attack before the massacre.

The hotel heightened security as a result, the chairman of the Tata Group and Taj Hotels, Ratan Tata, said in a taped interview with Fareed Zakaria on CNN’s “GPS.”

There were indications, though, that the hotel relaxed security before the attack.

“It’s ironic that we did have such a warning and we did have some measures,” Tata said. “People couldn’t park their cars in the portico where you had to go through a metal detector.”

“But if I look at what we had — which all of us complained about — it could not have stopped what took place. They didn’t come through that entrance,” he said.

“They came from somewhere in the back. They planned everything,” he said of the attackers. “I believe the first thing they did, they shot a sniffer dog and his handler. They went through the kitchen, they knew what they were doing.” Video Watch the destruction left at the hotel »

The security response to the attacks have brought criticism and led to the resignation of Patil, the home minister.

Patil, who had been widely criticized even before terrorists struck, submitted his resignation to Indian Prime Minister Manmohan Singh, a Home Ministry spokesman said.

Singh accepted the resignation and immediately named Finance Minister P. Chidambaram to take over the Home Ministry post, according to a source in the prime minster’s office.

N. Ram, editor-in-chief of The Hindu — a major Indian newspaper — said Patil’s departure was overdue.

“This man has been widely criticized for not being up to it and it was simply impossible that he could stay on after this,” Ram said.

The criticism of Patil was “that he has been very slow, that they haven’t delivered in the promise to improve intelligence.” Share tributes to those lost

The toll from the attacks is expected to rise as authorities count the casualties inside the Taj Mahal hotel, whose burned-out lobby was littered with shards of glass.

At least 18 foreigners were among the victims, including five Americans and eight Israelis.

Indian authorities found five bodies Friday of hostages at the Chabad House, a Jewish community center.


The carnage could have been worse, investigators said.

“We found bullets with them, hand grenades, bombs,” said R. R. Patil, deputy chief minister of Maharashtra state, where Mumbai is located. “Based on our investigation, we believe they had planned to kill 5,000 people.”

Ocean currents can power the world, say scientists – Telegraph

Ocean currents can power the world, say scientists

A revolutionary device that can harness energy from slow-moving rivers and ocean currents could provide enough power for the entire world, scientists claim.

Ocean currents can power the world, say scientists

Existing technologies require an average current of five or six knots to operate efficiently, while most of the earth’s currents are slower than three knots Photo: AP

The technology can generate electricity in water flowing at a rate of less than one knot – about one mile an hour – meaning it could operate on most waterways and sea beds around the globe.

Existing technologies which use water power, relying on the action of waves, tides or faster currents created by dams, are far more limited in where they can be used, and also cause greater obstructions when they are built in rivers or the sea. Turbines and water mills need an average current of five or six knots to operate efficiently, while most of the earth’s currents are slower than three knots.

The new device, which has been inspired by the way fish swim, consists of a system of cylinders positioned horizontal to the water flow and attached to springs.

As water flows past, the cylinder creates vortices, which push and pull the cylinder up and down. The mechanical energy in the vibrations is then converted into electricity.

Cylinders arranged over a cubic metre of the sea or river bed in a flow of three knots can produce 51 watts. This is more efficient than similar-sized turbines or wave generators, and the amount of power produced can increase sharply if the flow is faster or if more cylinders are added.

A “field” of cylinders built on the sea bed over a 1km by 1.5km area, and the height of a two-storey house, with a flow of just three knots, could generate enough power for around 100,000 homes. Just a few of the cylinders, stacked in a short ladder, could power an anchored ship or a lighthouse.

Systems could be sited on river beds or suspended in the ocean. The scientists behind the technology, which has been developed in research funded by the US government, say that generating power in this way would potentially cost only around 3.5p per kilowatt hour, compared to about 4.5p for wind energy and between 10p and 31p for solar power. They say the technology would require up to 50 times less ocean acreage than wave power generation.

The system, conceived by scientists at the University of Michigan, is called Vivace, or “vortex-induced vibrations for aquatic clean energy”.

Michael Bernitsas, a professor of naval architecture at the university, said it was based on the changes in water speed that are caused when a current flows past an obstruction. Eddies or vortices, formed in the water flow, can move objects up and down or left and right.

“This is a totally new method of extracting energy from water flow,” said Mr Bernitsas. “Fish curve their bodies to glide between the vortices shed by the bodies of the fish in front of them. Their muscle power alone could not propel them through the water at the speed they go, so they ride in each other’s wake.”

Such vibrations, which were first observed 500 years ago by Leonardo DaVinci in the form of “Aeolian Tones”, can cause damage to structures built in water, like docks and oil rigs. But Mr Bernitsas added: “We enhance the vibrations and harness this powerful and destructive force in nature.

“If we could harness 0.1 per cent of the energy in the ocean, we could support the energy needs of 15 billion people. In the English Channel, for example, there is a very strong current, so you produce a lot of power.”

Because the parts only oscillate slowly, the technology is likely to be less harmful to aquatic wildlife than dams or water turbines. And as the installations can be positioned far below the surface of the sea, there would be less interference with shipping, recreational boat users, fishing and tourism.

The engineers are now deploying a prototype device in the Detroit River, which has a flow of less than two knots. Their work, funded by the US Department of Energy and the US Office of Naval Research, is published in the current issue of the quarterly Journal of Offshore Mechanics and Arctic Engineering.

Kafka and Uighurs at Guantánamo           : Information Clearing House – ICH

Kafka and Uighurs at Guantánamo

By Ray McGovern

November 28, 2008 “Information Clearinghouse — “There is no right to due process for an alien who is not here,” insisted the 44th Solicitor General of the United States, Gregory G. Garre, proudly representing the President of the United States, George W. Bush.

Garre is a teacher of the law, you see, and was attempting to show a three-judge panel of the US Court of Appeals for the D.C. Circuit why one of their colleagues in a lower court had overreached.

Garre claimed that US District Judge Ricardo Urbina had exceeded his authority on Oct. 7, 2008, in ordering that 17 men held in Guantánamo for almost seven years be brought to his court for a fair hearing on the modalities of their release.

Urbina wanted government lawyers to face the 17 prisoners and present the government’s argument as to why they should remain in detention.

“Aliens have no rights,” Garre kept repeating. And they REALLY have no rights, he seemed to be saying, if they are “not physically in the United States.”

And that, of course, was precisely the reason former Defense Secretary Donald Rumsfeld and his clever band of Mafia lawyers wanted to keep such “aliens” offshore in the prison created at the US naval base in Guantánamo, Cuba.

Garre was determined to prevent their feet from “touching our soil,” as he put it, on the chance they might then persuade some judge to let them appear before an impartial court.


Never mind that the detainees had been deemed NON-enemy-combatants; never mind that the US government had already conceded that, despite initial suspicions that they were terrorists, the US government could adduce no evidence to support that accusation.

Never mind that they had been unlawfully incarcerated for almost seven years. Garre spoke of “unlimited Executive power” in these matters. He kept insisting, “We have the authority to detain them.” Garre added that the Justice Department had tried hard to find a country willing to accept them but failed.

The unfounded suspicion of terrorism, for which the US was responsible, did not make them attractive candidates for immigration. And besides, no country wanted to risk antagonizing China.

You see, these prisoners are Uighurs, a Turkic people of Central Asia (pronounced WEE’-gurz), five million of whom live in China’s northwestern province of Xinjiang. The Han Chinese have suppressed the Uighurs, their culture and their strong sense of nationalism for decades.

The Chinese government is fond of referring to Uighur nationalists as “terrorists,” and has been pleased to use the US-led global “war on terrorism” as an additional pretext to suppress them.

An ancient and gifted people, Uighurs created a “Uighur empire” that stretched from the Caspian Sea to Manchuria and lasted from 744 to 840 CE. They considered trying to conquer China, but chose instead an exploitative trade policy to drain off its wealth into Uighur coffers.

Compared to Europeans of the time, Uighurs were considerably more advanced. Documents show, for example, that a Uighur farmer could write down a contract, using legal terminology.

Some western scholars contend that acupuncture was not a Chinese, but rather a Uighur discovery. Famine and civil war brought down the Uighur Empire in the middle of the 9th century, and they were then overrun by other central Asian peoples.

Wrong Place, Wrong Time

So how did Uighurs get to Guantánamo?

Fleeing Chinese oppression, many Uighurs found their way to Afghanistan where they were living in a self-contained camp when the US attacked in October 2001. They were captured in the wake of the fighting, many of them by Pakistani bounty hunters who proceeded to sell them to US forces.

Twenty-two Uighurs ended up in Guantánamo, joining others with the undeserved Rumsfeldian sobriquet “the worst of the worst.” After “interviewing” them extensively by late 2003, US interrogators had concluded that few, if any, were a threat.

Under international law, the only country required to accept displaced persons is their country of origin. But China had been making a practice of incarcerating Uighurs with little if any proof of any involvement in violent acts. The Uighurs in Guantánamo did not want to trade one prison for another.

No third country, however, would accept them – except Albania, which welcomed five in 2006.

Some American judges have agreed with the two senior U.N. investigators, who have said that, under international law, the US must immediately release the Uighur detainees.

In December 2005, District Judge James Robertson ruled unequivocally in favor of releasing the Uighurs, asserting, “This indefinite imprisonment at Guantánamo Bay is unlawful.” He wanted them released in the US, but ended up deciding that existing law did not give him “the power to do what I believe justice requires.”

It was not until almost three years later that Judge Ricardo Urbina, on Oct. 7, 2008, took the bull by the horns and ordered the 17 Uighurs brought to the Washington, D.C. area where local Uighur families were prepared to shelter them, and Lutheran churches were eager to assist in the resettlement process.

But US government lawyers appealed, arguing that letting them come to the US would set a bad precedent with respect to others still held at Guantánamo, and the appeals court stayed Urbina’s order.

On Monday morning a three-judge appeals court met to hear arguments as to whether or not Urbina’s decision should be overturned. Judge Judith W. Rogers, appointed by President Bill Clinton, had objected strongly to the stay, pointing out, “The government can point to no evidence of dangerousness” from the Uighurs.

At the hearing, she subjected Barre to strong questioning. Her colleagues Karen Henderson and A. Raymond Randolph, both appointed by President George H. W. Bush, seemed much more sympathetic to the government’s position that the Uighurs should not set foot in the United States.

It was the tone of the Solicitor General’s argument that hit me strongest. Here is an unmitigated tragedy for which the US (together with Pakistani bounty hunters) is responsible.

Small wonder that on Oct. 7, Judge Urbina shouted, “Enough. Six-plus years is enough. Bring them here and let the government defend its extraordinary position.”

There has been no information on what the three-judge panel that met on Monday will eventually decide, or when. It may take weeks, we were told.

Meanwhile? For the Uighurs, more languishing in Guantánamo. Don’t be overly concerned, though, said Barre. He told the court that they had been moved to a “less restrictive part of the prison in Guantánamo, where there are amenities like DVD players.”

Aliens Have No Unalienable Rights?

I thought the Declaration of Independence was what we were all about as Americans:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness…”

Where does it say “except for Uighur aliens?”

When we were a younger country and much closer to our roots, France decided to mark the centenary of the Declaration of Independence by giving us the Statue of Liberty to watch over the streams of immigrants coming to our shores.

Aliens like my grandparents were not turned back – so long as they were found to be sound of body. The statue was not actually emplaced until October 1886, less than two years before my grandparents arrived in New York from Ireland.

My grandparents were aliens – but fortunate ones. They could go to Liberty Island; they could read Emma Lazarus’s sonnet and rejoice at the words:

“…Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me,
I lift my lamp beside the golden door!”

Guantánamo an Abomination

Maybe we need to pause this Thanksgiving. The Uighur prisoners should be at table with us, not in confinement watching DVDs. What has happened to us? Have we lost our soul?

Guantánamo is an abomination – a violation of the spirit and letter of the Constitution bequeathed to us and to our children. A negation of the Judeo-Christian heritage many of us claim. It could hardly be clearer:

“You shall not violate the rights of the alien.” (Deuteronomy 24:17)

My friend and mentor, Dean Brackley, S.J., distilled the Bible, long before he left for El Salvador to take the place of one of his brother Jesuits slain in November 1989, into this observation:

“It all depends on who you think God is, and how God feels when little people get pushed around.”


Yes, there is still much to celebrate this Thanksgiving.

A new President-elect, a lawyer with a sense of justice – and a new beginning. A person who not only claims to be, but also seems, so far, to be what he claims – a follower of Jesus of Nazareth, who was tough on hypocrisy: “How terrible for you teachers of the law and Pharisees, you hypocrites…” (Matthew 23: 13ff)

What we can be grateful for is a Constitution that provides for a change in government on a periodic basis, so that even when a President is allowed by cowardly politicians to ignore that precious gift of our Founders and amass king-like power, he can be dethroned by vote of the people.

We can be thankful for Barack Obama’s pledge to close the Guantánamo prison, and for the fact that we are free to keep pressing him to proclaim liberty to captives and set free the oppressed – including, of course, Uighurs and others in similar circumstances.

As the National Lawyers Guild has urged, Obama must ensure that all prisoners at Guantánamo are released, repatriated, resettled, or (if there is probable cause to believe any have committed a crime) brought to trial, in strict accordance with international and national law, and the principles of fundamental justice regarding criminal proceedings.

I would add the suggestion that we as a country make an open apology and ask the rest of the world for forgiveness for our straying so far from the ideals upon which our country was founded. Then there can be true thanksgiving for real closure, and an end to a particularly disgraceful chapter in our country’s history.

And then we shall ALL be set free – not only the Uighurs.

Ray McGovern works with Tell the Word, the publishing arm of the ecumenical Church of the Saviour in inner-city Washington, where he also teaches at the Servant Leadership School. He was a CIA analyst for 27 years and is on the Steering Group of Veteran Intelligence Professionals for Sanity (VIPS).

This article was first published at Consortium

Financial Meltdown: You Ain’t Seen Nothing Yet

“The problems we face today cannot be solved by the minds that created them” Albert Einstein

Obama hasn’t even been sworn in yet, and already the Wall Street cheerleaders are celebrating his first great triumph. According the pundits, the stock market staged a surprise 494 point rally on Friday because–get this–it was announced that Timothy Geithner would be appointed Obama’s Treasury Secretary.

Timothy who?

What nonsense. The sudden turn-around in stocks had a lot more to do with short-covering than anything else, but don’t let that get in the way of a good story.  Even so, the last minute surge on the NYSE couldn’t stop another week-long bloodbath that ended with the Dow and S&P 500 tumbling another 5 percent. That’s not to say that Geithner is not bright and talented guy. He is; and so is his White House counterpart, Lawrence Summers. But the media hype is way overdone. Geithner doesn’t drive the markets and he isn’t “change you can believe in”. In fact, he’s a protege of Henry Kissinger, a member of the Council on Foreign Relations, and has the same political pedigree as his predecessor, Henry Paulson. They’re both part of the ruling fraternity and their views of the world are nearly identical.  There’s no doubt that Geithner will be more competent and effective than Paulson but, then again, who wouldn’t be? Paulson may be the biggest flop at Treasury since Andrew Mellon steered the country onto the reef during the Great Depression. The recent flap over the Troubled Assets Relief Program (TARP) just proves the point. After convincing Congress to pass a $700 billion bailout plan–by invoking the specter of economic Armageddon and martial law–the former G-Sax chairman proceeded to set up a program for buying back mortgage-backed securities (MBS) and other junk paper from his banking buddies. Paulson argued that removing the crappy loans would help the banks get back on their feet and start lending again. Of course, no one could really figure out how the process was going to be executed, but maybe that’s just nit-picking.  Fortunately, Paulson never got a chance carry out his plan. He was torpedoed by the stock market which plunged seven days in a row losing nearly 20 percent of its value until Paulson threw in the towel and did what 200 economists had suggested from the very beginning—buy preferred shares in the banks so they could rev-up their credit engines again.

Will Geithner be that stubborn? Not likely. And Paulson is a hard-nosed class warrior, too. Notice how every dime of the bailout has gone to banksters while all the efforts to provide relief to autoworkers, consumers or struggling homeowners have been blocked. Anyone who isn’t in the upper 1 percent income bracket can forget about getting a helping hand.

Paulson shoveled $25 billion to Citigroup without even sending in the regulators to see if they were solvent or not. How smart was that? Citi’s stock has dropped 93% from its all-time high in May 2007 and ended Friday at a measly $3.77 per share. Its market cap. has gone from $280 billion to a skinny $20 billion in less than a year. Without a lifeline from the government, they won’t make it through December; the short-sellers will carve them up like a smoked ham. Will Paulson come to Citi’s rescue with more public cash? Absolutely. So why won’t he support a similar bailout for the Big Three auto-makers who employ nearly a million people?

There was a clue in Sunday’s paper as to why Paulson is stiffing the car companies.  According to UPI :

“GMAC Financial Services said Thursday it had applied to the U.S. Federal Reserve for bank holding company status, a step toward securing federal aid. The auto and home financing company said it had also submitted an application to the U.S. Treasury to participate in the Capital Purchase Program set up in the $700 billion financial firm bailout program known as the Emergency Economic Stabilization Act.

“As a bank holding company, GMAC would obtain increased flexibility and stability,” the company said in a statement.” (UPI)

So why would GMAC want to become a bank holding company if General Motors is headed for the chopping block? Could it be that the government is working out a secret deal with management to put the company through Chapter 11 (reorganization) just so it can crush the union and eliminate their pension and health care benefits in one fell swoop?

You bet. Car workers will be reduced to slave wages just like they are in sunny Alabama where sharecropping has moved indoors. And–no surprise–the Democrats are right on board with this labor-busting charade. The auto industry isn’t going to be shut down. That’s just more fear-mongering like the blather about martial law and WMD. Detroit is going to be transformed into a workers gulag; Siberia on Lake Michigan, which is why Paulson is withholding the $25 billion. It’s plain old class warfare.

Paulson has tried to spread the myth that his bailout eased the credit crunch, but it’s not true. The stress in the credit markets was caused by very precise factors (Libor, the TED Spread, OIS-Libor) which were intentionally allowed to rise to perilous levels so Paulson could coerce Congress into giving him his bailout loot. It wasn’t until Congress caved in that the FED addressed those market indicators by (setting up a new facility and) providing an explicit government guarantee on commercial paper and money markets. That’s what made Libor go down, not Paulson’s misguided TARP program which did absolutely nothing.

So, Yes, the banks do need to be recapitalized. But, No,  TARP did not address the specific conditions in the credit markets which were causing the problems. And, Yes, Congress is too blind to see that they were duped by a top-hat Wall Street land-shark who pulled the wool over their eyes and made off with $350 billion.

Geithner will never engage in the same cynical antics as Paulson. It was Paulson who set up the Super SIV (Structured Investment Vehicle) after 2 Bear Stearns hedge funds blew up so he could help Citigroup and other financial institutions pawn-off their off-balance sheets garbage to investors by placing the US treasury’s seal of approval on the rotten paper; another shameless rip-off shrink-wrapped in the Stars and Stripes.

Paulson’s “Hope Now” (1-888-995-HOPE) was another scam that was supposed to help banks and homeowners work out the details for a rate freeze on mortgage resets. Paulson assured the public that 500,000 homeowners would take advantage of the program which would dramatically reduce rate of foreclosures. As it stands, Hope Now hotline has provided counseling to just 36,000 borrowers. Representatives have suggested loan workouts for fewer than 10,000 of them, a small fraction of borrowers in need.” (Earlier Subprime Rescue Falters; Wall Street Journal)

“Only 10,000 homeowners; and Paulson promised 500,000?

Another slight miscalculation. The real purpose of Hope Now was to derail Shiela Bair’s FDIC from enacting a program that has a real chance of helping people stay in their homes. Paulson doesn’t like that idea; after all, there’s still plenty of freeway overpasses for people to sleep under.

Paulson also initiated “Project Lifeline”, which targeted homeowners who were delinquent 90 days or more on their mortgages. Here’s the run-down of how it works:

“Project Lifeline involves servicers sending letters to borrowers — prime, Alt-A, or subprime, we’re past pretense on that part — who are very seriously delinquent (90 days or three payments down or more). The letter says that if the borrower contacts the servicer within ten days, agrees to homeowner counseling, and provides sufficient financial documentation that the servicer can consider a case-by-case, deep-analysis style modification of the mortgage terms, the servicer will agree to put the foreclosure process on hold for 30 days while the workout is considered. If the borrower fails to respond to the letter, foreclosure proceeds.”

Ever heard of Project Lifeline? No one else has either. That’s because it was just another one of Paulson’s PR chimeras that passed into oblivion as soon as it served its purpose of making it look like the administration really gives a damn. That’s a laugh.


Geithner is nothing like Paulson. He’s discreet, practical, non ideological and diplomatic. His job is to find a way to plug the holes in a banking system that is undercapitalized by a whopping $2 trillion dollars while trying to keep the broader economy from crashing to earth.  He’s already concocted a stimulus plan (with Summers help) that should be big enough to get the country through the first quarter of ’09 ($700 billion), but it will take sustained government spending via infrastructure and green technologies programs to make up for the staggering losses to consumer spending. Expect the red ink to flow knee-deep from the purple mountains majesty all across the fruited plains, and pray that China and Japan keep buying US Treasurys or the country will face historic hyper-inflation.

Geithner knows that his mandate far exceeds his job description. Consumer confidence is at record lows because the public has lost faith in their institutions. The fear-mongering and the deception of the last 8 years have taken their toll; the pessimism is palpable. But market-based systems require confidence to function properly, otherwise people withdraw their savings and hoard their money. And that is exactly what is happening. We have entered a period of extreme risk aversion where there’s been a steady run on the financial system; investors have pulled their money out of commercial paper, structured investments, money markets, corporate bonds, and securities. The markets are in a state of panic. Investors are moving into safe havens like Treasurys while consumers are cutting back on spending. The whole system is contracting. The same thing happened during the Great Depression. The similarities are stunning. In Jason Zweig’s “1931 and 2008: Will Market history Repeat Itself” the author says:

“Over the two weeks ended Nov. 20, 2008, the Dow Jones Industrial Average fell 16%. Over the two weeks ended Nov. 20, 1931, the Dow fell 16%.

If you think that is scary, consider this: In the final five weeks of 1931, the Dow fell 20% further. Then it went on to lose yet another 47% before it finally hit rock-bottom on July 8, 1932

It is vital to realize that markets are never under some obligation to stop falling merely because they have already fallen by an ungodly amount. It also is vital to explore how bad the worst-case scenario can get and to think about how you would respond if it comes to pass.

When it comes to worst-case scenarios, 1931-1932 is it. When the Dow finally stopped going down, in July 1932, it had lost 88% in 36 months. At that point, only five of the roughly 800 companies that still survived on the New York Stock Exchange had lost less than two-thirds of their value from their peak in 1929.” (Wall Street Journal)

Geithner’s job is to restore confidence through transparency and consistency. No more lying. No more fudging the numbers to keep the public in the dark. Investors are already voting with their feet. It will take trust to get them to come back. Geithner has a clean slate to work with, but if he chooses Paulson’s route–the path of deception–he’ll fail, too. He’s got one chance to make good; otherwise….To his credit, he has made statements confirming his determination to reform the system. This is what he said to Congress in recent hearings:

“The United States will have to have to undertake substantial reforms to our financial system. There was a strong case for reform before this crisis, our system was designed in a different era for a different set of challenges. But the case for reform is stronger today. Reform is important because a strong and resilient financial system is integral to the performance of any economy. …I think the severity and complexity of this crisis makes a very compelling case for a broad and comprehensive reassessment of how we use regulation to achieve an appropriate balance between efficiency and civility. This is extremely complicated both in terms of the tradeoffs involved but also in terms of building the necessary consensus involved both here in the United States and around the world. It is going to require significant  changes in the way we regulate and supervise financial securities; changes that in my view, need to go well-beyond modest adjustments to some of the specific capital charges in the existing capital regime as it applies to banks.”

Good. Investors want rules, guidelines, supervision, regulations and most of all accountability. Justice should be the organizing principle in the financial system just as it is in the legal system. That means securities fraud has to be investigated and prosecuted. No free passes for banking mandarins and toffee-nose fund managers. Break the law and go to jail, just like Jeffrey Skilling. This is the biggest financial meltdown in US history and not one CEO or CFO has even been indicted. Instead, the SEC wastes its time harassing Dallas Maverick’s owner Mark Cuban in a politically-motivated witch hunt. What a fiasco. Why not clean up the cesspool on Wall Street first. That’s where the problem is and that’s how one reestablishes credibility.

Then there’s the heavy lifting of rebuilding financial markets while hedge fund redemptions are approaching 50 percent, corporate bonds have dropped by nearly half, commercial property is tanking, consumer spending is in the dumps, and the housing market continues to crumble. That’s not an easy task. And, at the same time, banking behemoth Citigroup needs an immediate injection of capital just to maintain operations. Once again, the Treasury will assume a gigantic liability to avoid wider damage to the system. According to the Wall Street Journal:

“The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank’s books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp….

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.”

What a nightmare. In a conference call held last Friday, Citi’s chief executive Vikram Pandit boasted that Citi “had a fantastic business model” and that “we are one of the best counterparties in the world based on our capital, and based on our liquidity.” Indeed, Pandit can count on virtually limitless liquidity from this point on.

Also, keep in mind, that when 2 Bear Stearns hedge funds went belly up in July 2007, the experts all agreed that there were probably only $200 to $300 mortgage backed securities (MBS) in the whole system. Now we find out that there are $300 billion on Citi’s balance sheet alone! More lies. In truth, there were more than $5 trillion in MBS created between 2000 and 2006. A large portion of those are held by banks. That means more trouble ahead.


So how will Geithner and Summers deal with the problems they’ll be facing just two months from now?

They’ll do whatever they need to do to stabilize the financial system and to get consumers spending again. That means at least another $2 trillion added to the ballooning national debt and some extremely dodgy ways of getting liquidity into the system.(With the Fed Funds rate already at 1 percent, monetary policy is limited)

Larry Summers, who will serve as Obama’s chief economics advisor, summed up his plan like this to Bloomberg News:

“At first I believed that any stimulus package should be timely, targeted, and temporary. But the situation has deteriorated so significantly from that point that I would now go for speedy, substantial, and sustained over a several year interval.”

But how will Summers get money into the system if monetary policy has been ineffective and the banks are not providing sufficient credit?

Economist Nouriel Roubini answers that question in his latest blog entry on Global EconoMonitor web-site:

“The Fed (will) directly purchase long term government bonds as a way of pushing downward their yield and thus reduce the yield curve spread. But even such action may not be very successful in world where such long rates depend as much as anything else on the global supply of savings relative to investment. Thus, even radical action such as outright Fed purchases of 10 or 30 year US Treasury bonds may not work as much as desired.”(MW: In other words, the Fed will buy its own debt to control long-term rates)

Next, the Fed could make “outright purchases of corporate bonds (high yield and high grade); outright purchases of mortgages and private and agency MBS as well as agency debt; forcing Fannie and Freddie to vastly expand their portfolios by buying and/or guaranteeing more mortgages and bundles of mortgages; one could decide to directly subsidize mortgages with fiscal resources; the Fed (or Treasury) could even go as far as directly intervening in the stock market via direct purchases of equities as a way to boost falling equity prices. Some of such policy actions seem extreme but they were in the playbook that Governor Bernanke described in his 2002 speech on how to avoid deflation. They all imply serious risks for the Fed and concerns about market manipulation.”

“Finally, the Fed could try to follow aggressive policies to attempt to prevent deflation from setting in: massive quantitative easing; such as letting the dollar weaken sharply, flooding markets with unlimited unsterilized liquidity; talking down the value of the dollar; direct and massive intervention in the forex to weaken the dollar.” (MW: Intentionally weakening the dollar to spur consumer spending and exports)

The bottom line is that Geithner and Summers will have to recapitalize the banks and deal with the massive corporate defaults at the same time they initiate their strategy for pumping liquidity into the system to keep the economy limping along. It’s a tall order and there’s no guarantee of success.

Mike Whitney is a frequent contributor to Global Research. Global Research Articles by Mike Whitney