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Today's Stories  July 26, 2006 Jonathan Cook Five Myths That Sanction Israel's War Crimes Patrick Cockburn Beware Iraqi Leaders Bearing Good News William Blum They Simply Can't Stop Lying, Can They? Joshua Frank Israel's Invasion Pretext Under Fire Gabriel Kolko Bankers Fear World Economic Breakdown Daniel Cassidy How the Irish Invented Dudes Uri Avnery Is Beirut Burning? July 25, 2006 Harry Browne Acquittal!: Activists Found Not Guilty in Irish Ploughshares Case Marjorie Cohn Willful Blindness: Bush Greenlights War Crimes Robert Bryce Israel and the Irony of UN Resolutions Sharat G. Lin Chronology of the Latest Chrisis in the Middle East George Bisharat Most Lebanese Now Know Who Their Real Tormentor Is CounterPunch News Desk Class War in the Blathersphere Zena El-Khalil "Tell Them That I'm Not Leaving. We Love Lebanon" Larry Lack The Bottled Water Madness Mike Mejia The Secret Behind "State Secrets" Ashraf Isma'il Why Israel Is Losing Website of the Day Peace on Trial July 24, 2006 Mark Levy The Whys and Wherefores of PTSD Robert Fisk Israelis Bomb Fleeing Villagers Maher Osseiran Beirut, 1982 Paul Craig Roberts Israel's Criminal Accomplice Patrick Cockburn More Than 100 Iraqis Being Killed Each Day Website of the Day sirnosir.com July 22-23, 2006 Jonathan Cook Israel's Indiscriminate Onslaughts Paul Craig Roberts The Shame of Being an American Gilad Atzmon Israel's New Math Robert Fisk Elegy for Beirut Ralph Nader Here's How to Halt This Horror Fred Gardner The Double Standard on Depression Christopher Reed The Right's Use of Sexpot Schoolgirls Dr. Susan Block Bush's Fecal World Najla Said Do People Know How Much We Hurt? Uri Avnery "Stop that Shit" July 21, 2006 George Galloway John Cornford and the Fight for the Spanish Republic P. Sainath Indian Prime Minister Faces the Dead Farmer Problem Aseem Shrivastava The Iraq War is a Huge Success Alexander Cockburn Hezbollah, Hamas and Israel: Everything You Need to Know Website of the Day FromIsraeltoLebanon July 20, 2006 William S. Lind Why Hezbollah is Winning Robert Jensen Florida Puts History on Probation John Ross AMLO Presidente! Tom Hayden I Was Israel's Dupe Paul Craig Roberts The Unfolding Horror Show July 19, 2006 Patrick Cockburn Massacres Soar in Central Iraq: Maliki Government Discredited Trish Schuh Israel Targets, Flattens Beirut TV Station HQ Jonathan Cook Is Israel Using Arab Villages As Human Shields? Vicente Navarro The Spanish Civil War, 70 Years On: The Deafening Silence on Franco's Genocide July 17 / 18 2006 Mike Whitney Israel's Shameful Attack on Gaza Kathleen Christison Atrocities in the Promised Land July 14 / 15, 2006 Weekend Edition Alexander Cockburn How Venice is Dying Tanya Reinhart The IDF is Hungry for War Robert Fisk Beirut Waits: Is Damascus the Key? Daniel Cassidy How the Irish Invented Jazz Winslow Wheeler Pentagon Budget Gimmickry: When a Cut is Actually an Increase Hugh O'Shaughnessy In Amazonia: Slavery and Deforestation M. Shahid Alam Israel, the US and the New Orientalism William S. Lind Two Signposts in Iraq Ramzy Baroud Racism Plagues Media Coverage of Gaza Assault Gilad Atzmon Echoes of the Wehrmacht Elizabeth Weill-Greenberg Railroading Your Rights Samar Assad A History of Israeli-Palestinian Prisoner Exchanges Ron Jacobs Japan and Pre-Emptive Strikes: Why Would They Want to Go There? Lee Ballinger A New Kind of Jim Crow? Walter Brasch A World Without Fajitas?: the Rightwing's Language Police Dave Lindorff The Bush Swingers?: They Broke the Law and People Died Clifton Ross Up from Below in Oaxaca Tom Crumpacker Planning for the Re-Colonization of Cuba Ricardo Alarcon The Mad Annexationist William Hughes Rev. Billy Graham: A War-Monger in the Pulpit Susie Day Bugging Hillary Farrah Hassen The Road to Gitmo: Dramatizing the Banality of Evil Poets' Basement Smith-Ferri, Engel and Davies July 13, 2006 Saul Landau Lies as Patriotism? Youmans / Erakat Divestment, Corporate Engagement and IsraelDave Lindorff Cut and Run: a Winning StrategyRon Jacobs Dogs of War Barking at the MoonCol. Dan Smith Iraq: Fool Me TwiceJune 22, 2006Marjorie Cohn Friendly Fire AmbushWinslow T. Wheeler Lockheed, the Senator and the F-22Tanya Reinhart A Week of Israeli RestraintMike Marqusee The Forest Gate RaidWilliam Blum Why Bush's Iraq is Worse Than Saddam's July 12, 2006 John Ross Mexico Splits in Half: the Election Hits the Streets John Stauber The CIA Propagandist and Former Prankster Stewart Brand: John Rendon's Long, Strange Trip in the Terror Wars Robert Boston Top 10 Powerbrokers of the Religious Right Wayne S. Smith Bush's New Cuba Plan: Embargoes, Blacklists and Assassination Plots John Graham Secrecy and the Curtain of Oz Ed Kinane Arrested for Failing to Obey a Lawful Order to Cease Protesting an Unlawful War: My Statement to the US District Court Kevin Prosen Goodbye Mr. Zeidler, You Will Be Missed Jonathan Cook Israel's Latest Bueaucratic Obscenity Website of the Day Addicted to Oil: Starring GW Bush   July 11, 2006 Dave Lindorff Does a State of War Give Bush the Right to Commit War Crimes? Dave Zirin Why I Wear My Zidane Jersey Mokhiber / Weissman Boeing's Criminal Agreement: Odd and Unusual Amira Hass A War on Families Clare Hanrahan The Last Free Fourth of July? Brian Cloughey Stop Blaming Pakistan Felice Pace The US Media and the World Cup Raed Jarrar Iraq: Raped Website of the Day Bad Boy of Gitmo   July 10, 2006 Paul Craig Roberts Courting Doom with North Korea Uri Avnery A One-Sided War Roger Burbach Democracy Betrayed: Electoral Fraud and Rebellion in Mexico Ron Jacobs The New SDS: Toward a Radical Youth Movement Joshua Frank Sectarian Flames in Iraq Missy Comley Beattie Bush's Stunning Admission to Larry King Alexander Cockburn The War in Iraq: a Dreadful Mistake July 8 / 9, 2006 Weekend Edition Stephen Green When War Criminals Retire Paul Craig Roberts Republic or Empire?: Lessons from Stanford Greg Moses Boots Down on the Rio Grande Ralph Nader The Wail of the Oceans Laura Carlsen Mexico's Election Lacks Credibility Conn Hallinan Dumping Musharraf: Is Pakistan Expendable? John Chuckman Afghanistan is No One's War Fred Gardner Big Pharma's Strange Holy Grail: Cannabis Without Euphoria? Dr. Tod Mikuriya Cannabis as a Frontline Treatment for Childhood Mental Disorders Pierre Tristam Missile Envy: Is N. Korea Bush's Most Reliable Ally? Lucinda Marshall Deep Sexing the News: the Rape of Iraq David Swanson Command Rape: the Ordeal of Suzanne Swift Heather Gray The Spiral of Violence: What the Dead Might Tell Us Dave Zirin / John Cox French Soccer and the Future of Europe: Le Pen's Racists vs. Zindane and Henry Mark Engler Mexico's Fear of Democracy: Elites, Fraud and the Status Quo Michael Lettieri Mexico: Don't Discount a Recount Ron Jacobs 2008 Might Be Too Late: the Case for Impeachment Now Jamal Juma' Globalizing the Occupation Jeffrey St. Clair Playlist: What I'm Listening to This Week Poets' Basement Engel and Kirbach   July 7, 2006 John Ross Anatomy of a Fraud Foretold: Mexico's Surreal Elections July 6, 2006 Nick Dearden Profiting from the Occupation: the Corporate Interests Behind the War on Palestine John Stanton Nationalize the Defense Industry Ralph Nader The Politics of the Minimum Wage Laray Polk Cambodia Then; Gaza Now Saul Landau Who Mourned the Victims of the US Covert War on Chile? Joshua Frank Sweet Angst, Power Chords and Politics: Farewell Sleater-Kinney William S. Lind To Be or Not to Be a State? Hamas and 4th Generation War Adelman / Lindorff Impeachment Comes to Main Street, USA Jonathan Cook An Experiment in Human Despair Website of the Day Adulterers in Chief? July 5, 2006 Mike Whitney Is Cheney Betting on Economic Collapse?: the Veep's Curious Investment Portfolio Saul Landau False Axioms: Star Democrats and Iraq Massacres Ramzy Baroud And Israel Shall Be Safe Again Missy Comley Beattie An Axis of Nuts: Ready, Aim, Fear Arthur Neslen A Way Out of the Gaza Crisis? Vincent Maruffi Party Politics in Connecticut: Lieberman, Lamont and the Greens Paul Cantor Aberrations: Hell, High Water and the Moral High Ground Paul D. Johnson Mystery Meat: Let's Be Honest About Food's Origin David Price Shouting Down Nazis in Olympia July 4, 2006 Col. Dan Smith Iraq and Independence Day: Lessons from the War of 1812 Chris Floyd American Power in Mahmudiyah Marjorie Cohn Israel's Collective Punishment of Gaza James Brooks Israel 9,000 Palestine 1: Destroying the Gaza Strip Medea Benjamin "Dictatress of the World:" Has America Become JQ Adams' Worst Nightmare? Matt Reichel An Independence Day Lesson for the American Left from France Elisa Salasin Why I am Fasting Today Rick Wilhelm Will Lieberman Apologize to Ralph Nader? Paul Craig Roberts Rape, Lies and Murder Website of the Day A Mighty Handsome Family   July 3, 2006 Robert Bryce Gaza in the Dark: Poor, Frustrated and Powerless Dr. Bouthaina Shaban "I Hope You're Not Here to Talk About the Palestinians" Julia Olmstead The Biofuel Illusion: Running on Top Soil Dave Lindorff The Real Meaning of the Hamdan Ruling: Bush Adm. Has Committed War Crimes Andres Gomez A Mockery of Justice Alan Singer Another Encounter with Chuck Schumer: Just as Hawkish as Hillary, But Nastier Alexander Cockburn Temple of Mammon, Planet of Doom July 1/2, 2006 Weekend Edition Paul Craig Roberts Bush's Assaults on Freedom: What's to Stop Him? Stephen T. Banko Echoes from Vietnam; Nightmares in Iraq Daniel Cassidy How the Irish Invented Slang: the Bunkum of Bunkum (for Dizzy Gillespie) Fawzia Afzal-Khan The Class Behind the Muslim Jeff Taylor The Sandy Foundation of the White House: a Bible-Believing Christian's View of Bush John Ross Mexico: There's a Riot Going On Greg Moses Psycho-Management Hits Mexico's Maquiladoras Laura Carlsen Mexico's Elections: a Choice for Change Justin E.H. Smith Lethal Injection and Other Fashion Trends Brian Cloughley Different Worlds: When Liberation is Worse Than Oppression Anthony Papa Punishing Addiction: No Walk in the Park for Dwight Gooden Mike Ferner Getting Busted for Wearing a Peace T-Shirt Jerry Tucker Liberalism's Long Goodbye: McGovern Hoists the White Flag Jane Goodall / Rick Asselta Remembering the Marshall Islands Phyllis Pollack Roll Over Beethoven: Chuck Berry is Back in Town Poets' Basement Salasin, Swindell, Ferri-Smith and Engel   June 30, 2006 Marjorie Cohn Supreme Rebuke: Bush Loses Gitmo Case Heather Williams Will Mexicans Ignore What Bolivians Learned? Burbach / Cantor Yellowback Democrats: the Party of Cut-and-Run (from Principle) Nick Dearden Crime in the Valley: Life on the Other Side of Palestine Michael J. Smith Under the Broadcast Flag: Intellectual Property as Intellectual Theft Brian Concannon The Return to Haiti: a Homecoming for Aristide? Virginia Tilley Israel's Appalling Act: Starving in the Dark   June 29, 2006 Bill Quigley Gutting New Orleans Ron Jacobs Killing a Nation to Rescue a Soldier Paul Craig Roberts The High Price of American Gullibility June 28, 2006 Jorge Mariscal Mexican-American Soldiers, Iraq and the Politics of Immigrant Bashing Greg Moses Down in Pinal County: Where the Pun's on Us Mark Weisbrot Mexico: Their Brand is Crisis Ramzy Baroud Re-Interpreting Iraq: the Latest Propaganda Campaign Dave Lindorff Redacting the Constitution: Why Signing Statements Matter William S. Lind Neither Shall the Sword: War in a Fouth Generation World Mike Ferner 50 Years Down the Wrong Direction: Taken for a Ride on the Interstate Highway System Zoltan Grossman Military Resistance: a Brief History   June 27, 2006 Marjorie Cohn Playing Politics with Timetables Benjamin / Jarrar Leading Dems Froth Over Amnesty Plan William Hughes Roadmap to Starvation Doug Giebel Showdown in Montana: Burns vs. Testor Uri Avnery The World Cup and Middle East Peace Alexander Cockburn Hitchens Hails the "Glorious War"   June 26, 2006 Don Santina American Rituals: Massacres, Baseball and Apple Pies Ralph Nader Beyond Binary Politics Dave Lindorff CounterPunch v. CounterPunch: Taking Impeachment on the Road Rafael Rodriguez-Cruz An Interview with Mumia Abu-Jamal on Hispanics and Latin America Evelyn Pringle Big Pharma's Big Graveyard: Drug Profits, Fraud and Death Jonathan Cook Israeli "Retaliation" and Double Standards June 23, 2006 Youmans / Erakat Divestment, Corporate Engagement and Israel Dave Lindorff Cut and Run: a Winning Strategy Ron Jacobs Dogs of War Barking at the Moon Col. Dan Smith Iraq: Fool Me Twice June 22, 2006 Marjorie Cohn Friendly Fire Ambush Winslow T. Wheeler Lockheed, the Senator and the F-22 Tanya Reinhart A Week of Israeli Restraint Mike Marqusee The Forest Gate Raid William Blum Why Bush's Iraq is Worse Than Saddam's June 21, 2006Ramzy Baroud Zarqawi's Death: Myth vs. RealityPatrick Cockburn Embassy Work as Death SentenceGary Leupp Making the Case for ImpeachmentGreg Moses Elite Logic at the BorderJune 20, 2006Fred Gardner The Long War on AspirinOmar Waraich Ode to Joy: Watching Blair SinkChristopher Reed Japan Nixes Payments to Its Wartime SlavesCP Newswire Coca Cola Takes a HitJonathan Cook Israel Engineers Another Cover-UpJune 19, 2006Bill Quigley HUD's Bulldozers and the Poor of New OrleansJohn Walsh Tears of a Clown: Al Franken's WarMike Whitney The Zoom Lens War: Bush's Baghdad Photo OpAlexander Cockburn The Left and the BlathersphereJune 16 / 18, 2006 Weekend EditionKathy / Bill Christision The Power of the Israel LobbyJoseph Nevins On the Migrant Trail: No More Walls, No More DeathsFarrah Hassen An Interview with Syria's Ambassador to the US, Dr. Imad MoustaphaGreg Moses The Real Mission of the Uniformed Ghost at the BorderNicole Colson "There's No Hope at Gitmo"John Scagliotti How MoveOn Wastes Its Donors' MoneyMokhiber / Weissmann Corporate DemocratsJune 15, 2006Kathy Kelly Look Them in the Eye: Honest Abe and the Residents of RamadiNorman Solomon Premature Triangulation: Hillary's Big ProblemRon Jacobs Publicity Stunts as Public PolicySam Bahour Cover Up on Gaza BeachRamzy Baroud Palestine on the BrinkCounterPunch Wire Death Squads at Colombia's UniversitiesGabriel Kolko Why a Global Economic Deluge LoomsWebsite of the Day Antje Duvekot: Music You've Been Waiting Years to HearJune 14, 2006Nicole Colson "They Want the Fear Level at a High Pitch": An Interview with Lawyer Lynne StewartJonathan Cook Israeli Law and OrderJoseph Schechla Bulldozing Palestine: an Open Letter to Caterpillar, Inc.Michael Carmichael Bolton at Oxford: Jeered and TauntedEvelyn Pringle Karl and George, the Teflon PartnershipWard Churchill My Trial By Media: Turning Quibbles Over Footnotes into FeloniesRev. William E. Alberts Decoding the Coders of Christ: Jesus the Political Insurgent?Website of the Day Marines Iraq Snuff FilmJune 13, 2006Medea Benjamin Take Back America Suppresses Anti-War Dissenters at HRC SpeechAnthony Alessandrini The Evil of Banality: the General, the New York Times and the Gitmo SuicidesPaul D'Amato The Meaning of HadithaDave Lindorff The Strange Death of Zarqawi: Was He Killed So He Wouldn't Talk?John Ross Elections and the World Cup: If Team Mexico Advances, Will Anyone Show Up to Vote for Lopez Obrador?Gabriel Garcia Venezuela and Drug Trafficking: Bush Bashes Chavez Despite Positive ResultsHilton Obenzinger DIvestment is a Stand for Equality in IsraelYitzhak Laor The Secret of AuthorityJuan Antonio Ocasio Rivera Puerto Rico at the UNJennifer Van Bergen The Story Behind Zarqawi's Death: What's the Legality of the Assassination?Website of the Day Paul Wright: a Real American Freedom FighterJune 12, 2006Paul Craig Roberts Bush's Armageddon Wish: a Final End to History?Patrick Cockburn The US Already Misses ZarqawiMike Marqusee Rebranding a Team: English Nationalism and the World CupLee Sustar "I Never Had the American Dream:" Left with No Future by GM and DelphiRobert Fisk Has Racism Invaded Canada?Michael J. Smith Enter Sandman; Exit KoslandFelice Pace NPR's Warped Covereage of the MIddle EastJennifer Loewenstein Setting the Record Straight on HamasWebsite of the Day Our Way HomeJune 10 / 11, 2006 Weekend EditionRobert Fisk Zarqawi's End is not a Famous VictoryDiane Christian Zarqawi's FaceJoe Allen The American Way of Atrocities: Marine Corps' Killer VirtuesRalph Nader Let Us All Praise the Dixie ChicksFred Gardner Tylenol Toxicity TerrorDave Lindorff Nothing New About HadithaDave Zirin / John Cox Will Racism Spoil the World Cup?Dennis Perrin Death is Patriotic: Necro-Porn, Live on CNNGreg Moses Militarizing the Border: Why Operation Jump Start Worries MeJohn Chuckman Terror in Toronto or Tempest in a Teapot?Michael J. Smith Babes in Kosland: Dem Blogfest, Day TwoRoger Burbach Bachelet in DC: Chilean President Refuses to Back Down to BushIra Moskowitz Israeli Court Finds Mad-Dog US Prof Libeled CounterPuncher Neve GordonSam Bahour The Gaza Air Strikes: Begging for a ResponseSeth Sandronsky Grocery Chains and Bush's Ownership Society: Profits Fall, Stores CloseMichael Berg A Father's Day Message: Both Parties Have Betrayed AmericaKirsten Roberts Desmond Dekker and the Music of the ShantytownsRon Jacobs Who's Fooling Who?Jeffrey St. Clair Playlist: What I'm Listening to This WeekPoets' Basement Jones, Davies, Engel and Louise Website of the Weekend Miles and Trane, So What?

July 26, 2006 Bankers Fear World Economic Meltdown By GABRIEL KOLKO On June 15 we published Gabriel Kolko’s essay on the enormous instability of the world’d financial system. In the ensuing weeks Professor Kolko has enlarged his analysis, and here we offer our readers his updated version. AC / JSC There has been a profound and fundamental change in the world economy over the past decade. The very triumph of financial liberalization and deregulation, one of the keystones of the “Washington consensus” that the U.S. government, International Monetary Fund (IMF), and World Bank have persistently and successfully attempted over the past decades to implement, have also produced a deepening crisis that its advocates scarcely expected. The global financial structure is today far less transparent than ever.  There are many fewer reporting demands imposed on those who operate in it. Financial adventurers are constantly creating new “products” that defy both nation-states and international banks. The IMF’s managing director, Rodrigo de Rato, at the end of May 2006 deplored these new risks – risks that the weakness of the U.S. dollar and its mounting trade deficits have magnified greatly. De Rato’s fears reflect the fact that the IMF has been undergoing both structural and intellectual crises. Structurally, its outstanding credit and loans have declined dramatically since 2003, from over $70 billion to a little over $20 billion today, doubling its available resources and leaving it with far less leverage over the economic policies of developing nations – and even a smaller income than its expensive operations require. It is now in deficit. A large part of its problems is due to the doubling in world prices for all commodities since 2003 – especially petroleum, copper, silver, zinc, nickel, and the like – that the developing nations traditionally export.  While there will be fluctuations in this upsurge, there is also reason to think it may endure because rapid economic growth in China, India, and elsewhere has created a burgeoning demand that did not exist before – when the balance-of-trade systematically favored the rich nations. The U.S.A. has seen its net foreign asset position fall as Japan, emerging Asia, and oil-exporting nations have become far more powerful over the past decade, and they have increasingly become creditors to the U.S.A. As the U.S. deficits mount with its imports being far greater than its exports, the value of the dollar has been declining – 28 per cent against the euro from 2001 to 2005 alone.  Even more, the IMF and World Bank were severely chastened by the 1997-2000 financial meltdowns in East Asia, Russia, and elsewhere, and many of its key leaders lost faith in the anarchic premises, descended from classical laissez-faire economic thought, which guided its policy advice until then. “…{O]ur knowledge of economic growth is extremely incomplete,” many in the IMF now admit, and “more humility” on its part is now warranted. The IMF claims that much has been done to prevent the reoccurrence of another crisis similar to that of 1997-98, but the international economy has changed dramatically since then and,  as Stephen Roach of MorganStanley has warned, the world “has done little to prepare itself for what could well be the next crisis.” The whole nature of the global financial system has changed radically in ways that have nothing whatsoever to do with “virtuous” national economic policies that follow IMF advice – ways the IMF cannot control. The investment managers of private equity funds and major banks have displaced national banks and international bodies such as the IMF, moving well beyond the existing regulatory structures. In many investment banks, the traders have taken over from traditional bankers because buying and selling shares, bonds, derivatives and the like now generate the greater profits, and taking more and higher risks is now the rule among what was once a fairly conservative branch of finance. They often bet with house money. Low-interest rates have given them and other players throughout the world a mandate to do new things, including a spate of dubious mergers that were once deemed foolhardy. There also fewer legal clauses to protect investors, so that lenders are less likely than ever to compel mismanaged firms to default. Aware that their bets are increasingly risky, hedge funds are making it much more difficult to withdraw money they play with. Traders have “re-intermediated” themselves between the traditional borrowers – both national and individual – and markets, deregulating the world financial structure and making it far more unpredictable and susceptible of crises. They seek to generate high investment returns – which is the key to their compensation – and they take mounting risks to do so. In March of this year the IMF released Garry J. Schinasi’s book, Safeguarding Financial Stability, giving it unusual prominence then and thereafter. Schinasi’s book is essentially alarmist, and it both reveals and documents in great and disturbing detail the IMF’s deep anxieties. Essentially, “deregulation and liberalization,” which the IMF and proponents of the “Washington consensus” advocated for decades, has become a nightmare. It has created “tremendous private and social benefits” but it also holds “the potential (although not necessarily a high likelihood) for fragility, instability, systemic risk, and adverse economic consequences.” Schinasi’s superbly documented book confirms his conclusion that the irrational development of global finance, combined with deregulation and liberalization, has “created scope for financial innovation and enhanced the mobility of risks.” Schinasi and the IMF advocate a radical new framework to monitor and prevent the problems now able to emerge, but success “may have as much to do with good luck” as policy design and market surveillance. Leaving the future to luck is not what economics originally promised. The IMF is desperate, and it is not alone. As the Argentina financial meltdown proved, countries that do not succumb to IMF and banker pressures can play on divisions within the IMF membership -– particularly the U.S. –- bankers and others to avoid many, although scarcely all, foreign demands. About $140 billion in sovereign bonds to private creditors and the IMF were at stake, terminating at the end of 2001 as the largest national default in history. Banks in the 1990s were eager to loan Argentina money,  and they ultimately paid for it. Since then, however, commodity prices have soared, the growth rate of developing nations in 2004 and 2005 was over double that of high income nations –- a pattern projected to continue through 2008 –- and as early as 2003 developing countries were already the source of 37 per cent of the foreign direct investment in other developing nations. China accounts for a great part of this growth, but it also means that the IMF and rich bankers of New York, Tokyo, and London have much less leverage than ever. At the same time, the far greater demand of hedge funds and other investors for risky loans, combined with low-interest rates that allows hedge funds to use borrowed money to make increasingly precarious bets, has also led to much higher debt levels as borrowers embark on mergers and other adventures that would otherwise be impossible. Growing complexity is the order of the world economy that has emerged in the past decade, and the endless negotiations of the World Trade Organization have failed to overcome the subsidies and protectionism that have thwarted a global free trade agreement and end of threats of trade wars. Combined, the potential for much greater instability – and greater dangers for the rich – now exists in the entire world economy. High-speed Global Economics The global financial problem that is emerging is tied into an American fiscal and trade deficit that is rising quickly. Since Bush entered office in 2001 he has added over $3 trillion to federal borrowing limits, which are now almost $9 trillion. So long as there is a continued devaluation of the U.S. dollar, banks and financiers will seek to protect their money and risky financial adventures will appear increasingly worthwhile. This is the context, but Washington advocated greater financial liberalization long before the dollar weakened. This conjunction of factors has created infinitely greater risks than the proponents of the “Washington consensus” ever believed possible. There are now many hedge funds, with which we are familiar, but they now deal in credit derivatives – and numerous other financial instruments that have been invented since then, and markets for credit derivative futures are in the offing. The credit derivative market was almost nonexistent in 2001, grew fairly slowly until 2004 and then went into the stratosphere, reaching $17.3 trillion by the end of 2005. What are credit derivatives? The Financial Times’ chief capital markets writer, Gillian Tett, tried to find out – but failed. About ten years ago some J.P. Morgan bankers were in Boca Raton, Florida, drinking, throwing each other into the swimming pool, and the like, and they came up with a notion of a new financial instrument that was too complex to be easily copied (financial ideas cannot be copyrighted) and which was sure to make them money. But Tett was highly critical of its potential for causing a chain reaction of losses that will engulf the hedge funds that have leaped into this market.  Warren Buffett, second richest man in the world, who knows the financial game as well as anyone, has called credit derivatives “financial weapons of mass destruction.” Nominally insurance against defaults, they encourage far greater gambles and credit expansion. Enron used them extensively, and it was one secret of their success – and eventual bankruptcy with $100 billion in losses. They are not monitored in any real sense, and two experts called them “maddeningly opaque.” Many of these innovative financial products, according to one finance director, “exist in cyberspace” only and often are simply tax dodges for the ultra-rich. It is for reasons such as these, and yet others such as split capital trusts, collateralized debt obligations, and market credit default swaps that are even more opaque, that the IMF and financial authorities are so worried. Banks simply do not understand the chain of exposure and who owns what –- senior financial regulators and bankers now admit this. The Long-Term Capital Management hedge fund meltdown in 1998, which involved only about $5 billion in equity, revealed this. The financial structure is now infinitely more complex and far larger – the top 10 hedge funds alone in March 2006 had $157 billion in assets. Hedge funds claim to be honest but those who guide them are compensated for the profits they make, which means taking risks. But there are thousands of hedge funds and many collect inside information, which is technically illegal but it occurs anyway. The system is fraught with dangers, starting with the compensation structure, but it also assumes a constantly rising stock market and much, much else. Many fund managers are incompetent. But the 26 leading hedge fund managers earned an average of $363 million each in 2005; James Simons of Renaissance Technologies earned $1.5 billion. There is now a consensus that all this, and much else, has created growing dangers. We can put aside the persistence of imbalanced budgets based on spending increases or tax cuts for the wealthy, much less the world’s volatile stock and commodity markets which caused hedge funds this last May to show far lower returns than they have in at least a year. It is anyone’s guess which way the markets will go, and some will gain while others lose. Hedge funds still make lots of profits, and by the spring of 2006 they were worth about $1.2 trillion worldwide, but they are increasingly dangerous. More than half of them give preferential treatment to certain big investors, and the U.S. Security and Exchange Commission has since mid-June 2006 openly deplored the practice because the panic, if not chaos, potential in such favoritism is now too obvious to ignore. The practice is “a ticking time bomb,” one industry lawyer described it. These credit risks – risks that exist in other forms as well – seemed ready to materialize when the Financial Times’ Tett reported at the end of June that an unnamed investment bank was trying to unload “several billion dollars” in loans it had made to hedge funds. If true, “this marks a startling watershed for the financial system.”  Bankers had become “ultracreative… in their efforts to slice, dice and redistribute risk, at this time of easy liquidity.” Low-interest rates, Avinash Persaud, one of the gurus of finance concluded, had led investors to use borrowed money to play the markets, and “a painful deleveraging is as inevitable as night follows day…. The  only question is its timing.” There was no way that hedge funds, which had become precociously intricate in seeking safety, could avoid a reckoning and “forced to sell their most liquid investments.” “I will not bet on that happy outcome,” the Financial Times’ chief expert concluded in surveying some belated attempts to redeem the hedge funds from their own follies. A great deal of money went from investors in rich nations into emerging market stocks, which have been especially hard-hit in the past weeks, and if they (leave then the financial shock will be great -- the dangers of a meltdown exist there too. Problems are structural, such as the greatly increasing corporate debt loads to core earnings, which have grown substantially from four to six times over the past year because there are fewer legal clauses to protect investors from loss –- and keep companies from going bankrupt when they should. So long as interest rates have been low, leveraged loans have been the solution. With hedge funds and other financial instruments, there is now a market for incompetent, debt-ridden firms. The rules some once erroneously associated with capitalism -- probity and the like -- no longer hold. Problems are also inherent in speed and complexity, and these are very diverse and almost surrealist. Credit derivatives are precarious enough, but at the end of May the International Swaps and Derivatives Association revealed that one in every five deals, many of them involving billions of dollars, involved major errors – as the volume of trade increased, so did errors. They doubled in the period after 2004. Many deals were recorded on scraps of paper and not properly recorded. “Unconscionable” was Alan Greenspan’s description. He was “frankly shocked.” Other trading, however, is determined by mathematical algorithm (“volume-weighted average price,” it is called) for which PhDs trained in quantitative methods are hired. Efforts to remedy this mess only began in June of this year, and they are very far from resolving a major and accumulated problem that involves stupendous sums. Stephen Roach, Morgan Stanley’s chief economist, on April 24 of this year wrote that a major financial crisis was in the offing and that the global institutions to forestall it– ranging from the IMF and World Bank to other mechanisms of the international financial architecture – were utterly inadequate. Hong Kong’s chief secretary in early June deplored the hedge funds’ risks and dangers. The IMF’s iconoclastic chief economist, Raghuram Rajan, at the same time warned that the hedge funds’ compensation structure encouraged those in charge of them to increasingly take risks, thereby endangering the whole financial system. By late June, Roach was even more pessimistic: “a certain sense of anarchy” dominated the academic and political communities, and they were “unable to explain the way the new world is working.” In its place, mystery prevailed. Reality was out of control. The entire global financial structure is becoming uncontrollable in crucial ways its nominal leaders never expected, and instability is increasingly its hallmark. Financial liberalization has produced a monster, and resolving the many problems that have emerged is scarcely possible for those who deplore controls on those who seek to make money – whatever means it takes to do so. The Bank for International Settlements’ annual report, released June 26, discusses all these problems and the triumph of predatory economic behavior and trends  “difficult to rationalize.” The sharks have outfoxed the more conservative bankers. “Given the complexity of the situation and the limits of our knowledge, it is extremely difficult to predict how all this might unfold.” The BIS (does not want its fears to cause a panic, and circumstances compel it to remain on the side of those who are not alarmist. But it  now concedes that a big “bang” in the markets is a possibility, and it sees “several market-specific reasons for a concern about a degree of disorder.” We are “currently not in a situation” where a meltdown is likely to occur but  “expecting the best but planning for the worst” is still prudent. For a decade, it admits, global economic trends and “financial imbalances” have created increasing dangers, and “understanding how we got to where we are is crucial in choosing policies to reduce current risks.” The BIS is very worried. Given such profound and widespread pessimism, the vultures from the investment houses and banks have begun to position themselves to profit from the imminent business distress – a crisis they see as a matter of timing rather than principle. Investment banks since the beginning of 2006 have vastly expanded their loans to leveraged buy-outs, pushing commercial banks out of a market they once dominated. To win a greater share of the market, they are making riskier deals and increasing the danger of defaults among highly leveraged firms. There is now a growing consensus among financial analysts that defaults will increase substantially in the very near future. But because there is money to be made, experts in distressed debt and restructuring companies in or near bankruptcy are in greater demand. Goldman Sachs has just hired one of Rothschild’s stars in restructuring. All the factors which make for crashes – excessive leveraging, rising interest rates, etc. – exist, and those in the know anticipate that companies in difficulty will be in a much more advanced stage of trouble when investment banks enter the picture. But this time they expect to squeeze hedge funds out of the potential profits because they have more capital to play with. Contradictions now wrack the world’s financial system, and a growing consensus now exists between those who endorse it and those, like myself, who believe the status quo is both crisis-prone as well as immoral. If we are to believe the institutions and personalities who have been in the forefront of the defense of capitalism, and we should, it may very well be on the verge of serious crises. Gabriel Kolko is the leading historian of modern warfare. He is the author of the classic Century of War: Politics, Conflicts and Society Since 1914 and Another Century of War?. He has also written the best history of the Vietnam War, Anatomy of a War: Vietnam, the US and the Modern Historical Experience.  His latest book, The Age of War, was published in March 2006. He can be reached at: kolko@counterpunch.org

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