Today's Stories

May 19, 2009

Ray McGovern
How Colin Powell Got Duped by the CIA

Vijay Prashad
The Indian Elections: a Game Changer?

May 18, 2009

Dave Lindorff
The US is Using White Phosporous in Afghanistan

Abdul Malik Mujahid
Thirty Years of Tragedy in Afghanistan

Jonathan Cook
How Many Secret Prisons Does Israel Have?

Ben Rosenfeld
Police Violence: How Many Kicks to the Head Does It Take?

Patrick Cockburn
These Killings Will Only Strengthen the Taliban

Ralph Nader
They Want It All: New Tricks From the Old Energy Lobby

Stephen Soldz
Psychologist Bryce Lefever Clarifies Defense of Torture

Eugenia Tsao
On the Devaluation of Labor

Walter Brasch
Cheney's Magical Mystery Media Tour

Roberto Rodriguez
War and Torture

Charlotte Laws
Politics and American Idol

Website of the Day
Disbar the Torture Lawyers

May 15-17, 2009

Alexander Cockburn
King of the Hate Business

Jeffrey St. Clair
The Case of the Missing H-Bomb

David Rosen
Sexual Torture: What is Acknowledged and What Remains Unknown

Mike Whitney
From My Lai to Bala Baluk: Obama Picks Up Where Bush Left Off

Bruce Page
A Real History of Rupert Murdoch

Jeremy Scahill
The Black Shirts of Guantánamo

Fred Gardner
Tortured Reasoning: Judge Bybee Rules Against Brian Epis

Tom Barry
Fighting the Drug War at Homeland Security

Mats Svensson
On the Beach in Tel Aviv

Ramzy Baroud
The Drones Are Coming

Mark Engler
Science Fiction From Below

Mark Weisbrot
Stealth Move by IMF to Get $100 Billion Without Congressional Debate

Farzana Versey
Of Scapegoats and Separatists

Ron Jacobs
It's Up to You to Save Troy Davis

Hannah Wolfe
What to Tell the Children

Cal Winslow
Fresno, the New Ground Zero in the Battle Between the SEIU and NUHW

David Macaray
Labor Needs a Southern Strategy

Christopher Brauchli
Involuntary Baptism

Mark Seth Lender
The Lion Tamer's Story

Robert Fantina
Lapel Pins, Arugula and Mustard

David Ker Thomson
Last Man Walking

Stephen Martin
Lipstick Nightmare for Spin Merchant

Charles R. Larson
Double Exile

Chase Madar
"Angels & Demons" and the Extraordinary Power of Imaginary Heretics

Kim Nicolini
Vaginas From Outer Space! Boldly Sitting Through Star Trek

David Yearsley
Handel's Ghost

Lorenzo Wolff
Killer Virtues

Poets' Basement
Gibbons, Jordan and Moser

Website of the Weekend
Catch F-22

May 14, 2009

Michael Hudson
Where Russia Went Wrong

Andy Worthington
The Poisoned Mosaic: Judge Condemns Guantánamo Evidence

Paul Craig Roberts
The Impotent President

Jonathan Cook
The Pope's Pilgrimage: Legitimizing Netanyahu?

Ray McGovern
See No Evil: Ugly Questions for General Myers

Lance Selfa
The Limits of Liberalism

David Green
The Deportation of Demjanjuk

Dave Lindorff
Obama Channels Cheney

Frida Berrigan
Nuclear Options

Sue Udry
The Bybee Question

Website of the Day
Our Bombs: Tracking US Air Strikes

May 13, 2009

Brian M. Downing
The Road Out of Iraq

Gareth Porter
Gen. McChrystal and Afghanistan

Robert Sandels
Obama and Latin America: No Light, All Tunnel

Ricardo Alarcón
Cuba: Measure of a Revolution

Eric Walberg
NATO in Georgia: Fun and Games

Dave Lindorff
The Sinking of GM: When Captains of Industry Don't Go Down with the Ship

Deepak Tripathi
A Culture of Abuse

William S. Lind
Back to the Balkans: Hillary and the Sleeping Dragon

Kevin Zeese
A Populist Health Care Rebellion

Franklin Lamb
Lebanon: From Perdition to Redemption?

Website of the Day
Beth McIntosh: The Wild Ride

May 12, 2009

Gary Leupp
The Bomb Iran Faction

Richard Neville
The AfPak Blues: Corpses of the Kids by the Truckload

Wajahat Ali
Obama Chooses a Reliable Dictatorship

Dean Baker
The Banker Boys Are Alright! Time to End the Bailouts

Franklin Lamb
What Palestinian Refugees Need From Lebanon's Elections

Norman Solomon
A Progressive Challenge to Jane Harman

Paul Craig Roberts
Beware the Hate Crimes Bill

Lisa M. Hamilton
Let's Grow a New Crop of Farmers

Bob Fitrakis /
Harvey Wasserman:
Why Isn't Obama Turning to Credit Unions?

David Macaray
Wading Through the Grassroots

Website of the Day
Electronic Police States

May 11, 2009

Andrea Peacock
No Justice for Libby

Michael Hudson
Gordon Brown Spills the Beans on the IMF

Patrick Cockburn
Who Killed 120 Civilians?

Ralph Nader
The Single-Payer Taboo

John Kelly
Pseudoscience and Wrongful Convictions in the War on Drugs

Saul Landau
Cuba's Biggest "Crime"

Dave Lindorff
Blaming the Dead Victims

David Michael Green
Get Obama

Anthony Papa
Gov. David Paterson Does the Right Thing

Paul Krassner
Jon Stewart and Truman, the War Criminal

Website of the Day
Generational Homelessness

May 8-10, 2009

Alexander Cockburn
Dead Souls

Jeffrey St. Clair
Echoes of Amchitka: 40 Years After America's Biggest Nuclear Blast, the Damage Continues

Paul Wolf
Obama's Axis of Obedience

Steve Niva
Iraq: The Return of the Suicide Bombers

Neve Gordon
Jailed for Caring

Mike Whitney
Has Bernanke Pulled the Economy Back From the Brink?

Warren Hinckle
DiFi vs. Marilyn Chambers

Serge Halimi
In Praise of Revolutions

Gareth Porter
The Pakistan Conundrum

Sharon Smith
Something Stinks at Whole Foods

Andy Worthington
Obama's New Gitmo Policy: Back to the Bush Era?

Mark Weisbrot
Hillary and Latin America

Rosa Miriam Elizalde Cyber Command and Cyber Dissident: More of the Same?

David Macaray
Recessions and Labor Unions

Missy Beattie
The Real Housewives of War

Ron Jacobs
Mothers and War

Diane Farsetta
About Face on Pentagon Pundits?

Ramzy Baroud
War Without Context

Phelie Maguire
Living Next to Settlers

Robert Fantina
Party of Rush

Kevin Zeese
A Break From the Past in the Drug War?

Margaret Flowers, MD
The Baucus 8: Why We Risked Arrest for Single-Payer

Dave Lindorff
The Joke's on Us

Richard Rhames
Revenge of the Tundra

Ben Sonnenberg
Let the Right One In: A Vampire Visits a Welfare State

Kim Nicolini
Sin Nombre: Giving Faces to People Who Don't Have Names

Stephen Martin
The Riotous Action of the Complete Banker

Charles R. Larson
The Commencement Address You'll Never Hear

David Yearsley
Jean Ferrard, Organist Extraordinary

Lorenzo Wolff
Death Cab for Cutie: Surprisingly Familiar

Poets' Basement
G.S. Heiligschreib and David Farrelly

Website of the Weekend
Zombie Bank

May 7, 2009

Paul Craig Roberts
Criminalizing Criticism of Israel

Chris Floyd
A Full-Court Press for Pakistan War

Andy Worthington
Mixed Messages on Torture

Alan Farago
No Place Like Home: a Stress Test for Land Use, Not Just Banks

Ray McGovern
Deux ex Machina on Torture?

Dave Lindorff
Stain Removal: Impeaching the Torture Judge

Eric Toussaint /
Damien Millet
Why is There Rampant Famine in the 21st Century?

Ana M. Malinow, MD
Why We Need a Single-Payer Health Care System

Jeff Armstrong
Freeing Leonard Peltier: What Would Warren Harding Do?

Norman Solomon
A Green New Deal

Website of the Day
The End of Lake Mead?

May 6, 2009

Doug Peacock
The Fate of the Yellowstone Grizzly

Patrick Cockburn
Afghans to Obama: Get Out, Take Karzai With You

Richard Neville
The Torturer's Apprentice

Manuel Garcia, Jr.
To Power a Nation: Nuclear Bombs or Sunshine?

Winslow T. Wheeler
Of Pork and Baloney: Obama's Defense Budget

Deepak Tripathi
Pakistan in Crisis

Stephen Soldz
A "Natural Reaction": APA Ethics Policy-Maker Endorses Torture

Reuven Kaminer
Nice is Not Enough: Obama vs. Netanyahu and Lieberman

David Macaray
The Chrysler-UAW Deal

Kevin Zeese
Why We Were Arrested at the Senate Finance Committee Hearings

Marjorie Cohn
Stanford Antiwar Alums Call for War Crimes Investigation of Condoleezza Rice

Coalition for an Ethical Psychology
Investigate Psychologist and Health Provider Complicity in Torture

Website of the Day
Who's Behind the Financial Meltdown?

May 5, 2009

William Blum
Torture and Mr. Obama

Uri Avnery
Netanyahu's Plan

Steven Higgs
Autism and Toxic Pollution

Dean Baker
Why Economists Should Learn Arithmetic

Daniel Wolff
The Education of Rachel Carson

Sibel Edmonds
The Broken Congress

Carole King Klein
A New Chance to Save the Northern Rockies

Fidel Castro
Giving One's All

Belén Fernández
Oil and Aguardiente in the Ecuadoran Elections

Dan Bacher
Schwarzenegger's Big Lie About Fish vs. Jobs

Website of the Day
"I Married Isis on the Fifth Day of May"

May 4, 2009

James G. Abourezk
The AIPAC Spy Case

Jeff Leys
Obama's War Budget

Patrick Cockburn
Afghan Ayatollahs Press Marital Rape Law

Andy Worthington
A Start on Guantánamo, But Not Enough

Jaime Avilés
Mexico's Plague-Bringers

David Swanson
An Even Worse Bybee Memo

Paul Craig Roberts
Working with Jack Kemp

P. Sainath
Celeb Crusades and the Death of Politics

Eugenia Tsao
Canada's Obama and the Cult of the Prof

Benjamin Dangl
Protest and Rubber Bullets in Paraquay

Sami Al-Arian
Mourning William Moffitt

Website of the Day
"Soldiers Are Cutting Us Down": Kent State, May 4, 1970

May 1 - 3, 2009

Alexander Cockburn
Game-Changers: Specter Jumps, Souter Quits

Gary Leupp
Dropping the AIPAC Spying Case

Peter Linebaugh
The Key to the Bastille

Jeffrey St. Clair /
Joshua Frank:
Half Life of a Toxic War: Iraq's Wrecked Environment

C. G. Estabrook
Minion of the Long War

Patrick Cockburn
Kabul's New Elite

Mike Whitney
Economy on the Ropes

Pierre Sprey /
Winslow Wheeler
What "Sweeping Overhaul" of the Pentagon?

Andy Worthington
Al-Marri's Plea Deal: Dictatorial Powers Unchallenged

Mairead Maguire
Stand Up to Israeli Apartheid: a Letter to Obama From a Nobel Peace Prize Laureate

Nadia Hijab
The Israel Boycott is Biting

Diane Farsetta
Life, Death and Water Policy

Michael Calderón-Zaks
The Déjà Vu Flu: Why Much of the Discussion About Swine Flu is Racist

Richard Rhames
When Piggies Come Home to Roost: Swine Flu and the Industrial Meat Gulags

Russell Mokhiber
Inside the Beltway Baucus

Ramzy Baroud
Clinton's Unpromising Start

Rannie Amiri
Understanding Lebanon's June Elections

Deb Reich
No Talking, Dammit!

Steven Higgs
Indiana Criminalizes Dissent: Roadblocks on the NAFTA Highway

Brian Cloughley
Malice in Blunderland

David Michael Green
The Party's Over

Farzana Versey
Sex, Swat and Susan Boyle

Jim Goodman
Think Before You Eat: Agriculture and the Environment

Carl Finamore
New Prescription for a Healthy Union Movement

Christopher Brauchli
The Sounds of Silence: the Texas Option

Susie Day
The Real Cause of Unemployment: Employees!

David Yearsley
Nuts Over Beethoven

Lorenzo Wolff
Three Minutes of Perfection

Peter Stone Brown
Dancing with Dylan

Poets' Basement Dominguez, Orloski and Springate

Website of the Weekend
May Day Europe

April 30, 2009

Ellen Cantarow
Obama and "Two States": Seamless Continuity From Bush Time

Dana L. Cloud
The McCarthyism That Horowitz Built

Paul W. Lovinger /
Jeannette Hassberg
A Nation of Laws

Binoy Kampmark
Swine at the Trough: the Business of Pandemics

Brian Downing
The Perils of Modernization in Afghanistan

Frank Snepp
Tortured by the Past

David Swanson
The Wrong Torture Question

Conn Hallinan
The Coming Asian Storm

Ron Jacobs
Not Dead Yet: an Interview with Jerry Gordon on the State of the Antiwar Movement

John Goekler
The Only Path to a Middle East Picnic?

Jasmine L. Tyler /
Anthony Papa
An End to Crack/Powder Cocaine Sentencing Disparity?

Website of the Day
Emergency Petition: Stop Coal Industry Intimidation of Activists

April 29, 2009

Joann Wypijewski
Death at Work in America

Patrick Cockburn
The Taliban's Roads to Kabul

Andy Worthington
Cheney's Twisted World

Chris Floyd
The Specter Diversion

Dave Lindorff
No More Excuses: a Specter is Haunting the Democrats

Jeremy Scahill
The Nuremberg Truth and Reconciliation Commission?

Doug Henwood
Zionist Lobby Targets Another Tenured Professor: an Interview with William Robinson

Michael Hudson
Will Iceland be Handed Over to a New Gang of Kleptocrats?

Russell Mokhiber
My Ron Pollack Problem--And Yours

Eric Toussaint
Ecuador at the Crossroads

Website of the Day
An Interview with Leslie and Andrew Cockburn on "American Casino"

April 28, 2009

Uri Avnery
A Little Red Light: On Israeli Fascism

Jeremy Scahill
Obama's Iraq: the Picture of Dorian Gray

Dean Baker
The Perfect Gift for Wall Street: a Financial Transactions Tax

Michael D. Yates
At the Factory Gate

Conn Hallinan
Georgian Plots? Saakavili's "Order No. 2"

John Stauber
Beyond MoveOn

Tom Barry
The Failed Border Security Initiative

Harvey Wasserman
Who Pays for America's Chernobyl Roulette?

Jeff Nygaard
Pirates, Profits and Propaganda

Frederico Fuentes
Why the U.S. Still Hates Cuba

Website of the Day
The Man Behind the Hood

April 27, 2009

Pam Martens
The Far Right's Plot to Capture New Hampshire

Patrick Cockburn
Torture? It Probably Killed More Americans Than 9/11

Andrew J. Bacevich Guardian of the Status Quo: Obama's Sins of Omission

Mitu Sengupta
The Bloodbath in Sri Lanka

Franklin Lamb
Hillary Does Beirut: The 165-Minute Swoop-In

Firmin DeBrabander
Crimes of Economic Madness

Dave Lindorff
Wide Open to Pandemic?

Russell Mokhiber
How Corrupt is That?

Mike Whitney
Pinter's Message to Obama

Mark Weisbrot
Overhauling the IMF

Rev. José M. Tirado
Iceland's New Dawn: How the Right Got Trounced

Website of the Day
American Casino

April 24-26, 2009

Alexander Cockburn
Putting the Bush Years on Trial

Marjorie Cohn
Torture Used to Try to Link Saddam with 9/11

Andy Worthington
Who Ordered the Torture of Abu Zubaydah?

Jeremy Scahill
Are Leading Democrats Afraid of a Special Prosecutor to Investigate Torture?

Chris Floyd
Top of the Heap: the Democrats' Teachable Moment on Torture

Mike Whitney
A Housing Crash Update

Anthony DiMaggio
Obama and the Housing Crisis

Chris Kromm
Democratic Lobbyists Key to Fight Against Employee Free Choice Act

Saul Landau
Seventeen Months in "the Hole:" an Interview with the Leader of the Cuban Five

Dave Lindorff
Free John Walker Lindh

Greg Moses
The Debt Looters

Joshua Frank
Calling for a Coal Moratorium: an Interview with Ted Nace

Fred Gardner
Collective Farming and the Lynch Case

Manuel Garcia, Jr.
Homework, Testing and Stealth Apartheid in Education

David Michael Green
Of Tea Parties and Teleprompters

Ramzy Baroud
Middle East Spies: a New Front in Gaza's Conflict

Rannie Amiri
Mubarak's Expanding Enemies List

Laura Carlsen
Mr. President, Calderon is Not Mexico

Richard Morse
The Haitian People Need a Lobbyist

Nikolas Kozloff
Protecting the Bald Eagle: a Task Now Falling to ... Hugo Chavez?

Kent Peterson
The Fight to Save Mexico's Mangroves

Robert Bryce
The Ethanol Scammers Rent a General

Niranjan Ramakrishnan The Financial Experts

Ron Jacobs
Torture is More Than Just "Harsh Tactics"

Richard Rhames
Roman Legends, Book Burning and History's Hunt

Stephen Martin
Wherefore Art Thou American Dream?

David Yearsley
Rodgers, Hammerstein, Michener and Nostalgia's Clammy Embrace

Poets' Basement
Khalil and Mankh

Website of the Weekend
Doug and Andrea Peacock on Grizzlies and Edward Abbey

April 23, 2009

Eamonn Fingleton
How the Wall Street Journal and the New York Times Buried the Madoff Scandal for at Least Four Years

Ray McGovern
Obama Plays Hamlet on Torture

Michael Ratner
The Torture Commission Trap

Alan Farago
The Quicksand Economy

Rob Larson
Business Gets Carded

Nadia Hijab
The Real Heroes of Durban

Fawzia Afzal-Khan
Deconstructing the Taliban

Dave Lindorff
Are Members of Congress Being Blackmailed?

Helen Redmond
Selling Out Single-Payer: the "Public Option" Con

Adam Federman
The Battle Over New York's Marcellus Shale

Website of the Day
An Interactive Map of Vanishing Employment Across the Country

April 22, 2009

Chris Floyd
The Fatal Thread: Torture, War and the Imperial Project

Joanne Mariner
Torture Evidence and Terror Blacklists

Vijay Prashad
Obama's Afghan Plan: Fracturing the Antiwar Movement

Gareth Porter
U.S. Lacks Capacity to Win Over Afghans

Dean Baker
The Tyranny of Bad Economics

Peter Morici
Housing Sales and Fixing the Economy

Winslow T. Wheeler
Eliminating Bad Pentagon Habits

Barucha Calamity Peller
The Battle to Take Back the New School

Harvey Wasserman
Chernobyl Could Happen Here

Aisha Brown /
Dedrick Muhammad
White Privilege in the Americas

Teo Ballvé
Obama's Feel Good Meeting with Colombia's Uribe

Website of the Day
Ahmedinejad's Durban Speech: What He Actually Said

April 21, 2009

Randy Rowland
Lindy Blake's Great Escape

Dave Lindorff
Jay Bybee's Conspiracy to Torture

Fidel Castro
The Secret Summit

George McGovern
Pull Out of Iraq This Year

Greg Moses
The Unemployment Channel

Benjamin Dangl
Argentina Remembers

Sonia Nettnin
Saving Lives in Gaza

Frank Barat
The Death of Bassem: a Shooting at the Wall in Bil'n

Binoy Kampmark
Legal Purgatory and John Demjanjuk

John V. Walsh
Code Red for Single Payer

David Macaray
SAG Should be Praised, Not Assailed

Website of the Day
Bonus Man: For Executive Assholes Everywhere

April 20, 2009

Mike Whitney
Housing Bust Comes Roaring Back, Worse Than Ever

Andrea Peacock
Histrionics and Legalisms in Missoula

Henry A. Giroux
Ten Years After Columbine: the Tragedy of Youth Deepens

Liaquat Ali Khan
Drone Attacks on Pakistan's Indigenous Tribes

Fred Gardner
Obama's DoJ Backs Prosecution of Medical Marijuana Providers

Stephen Soldz
Obama, Blair, Panetta and the Torture Memos: Praising Moral Cowards, Ignoring Real Heroes

Nadia Hijab
Obama's Multi-Polar Middle East

Dave Lindorff
The Meeting in Trinidad

P. Sainath
India's Press Nixes "R" Word

Nelson P Valdés
A Modest (Transition) Proposal to Obama

Mark Engler
American Empire Foreclosed?

Belén Fernández
The FARC Can't Dance

Website of the Day
Dear Mr. Buffett...

May 19, 2009

Credit Where Credit is Due

The Real Lesson of the Financial Crisis

By MIKE WHITNEY

The financial channels are abuzz with talk of a recovery, but we're not out of the woods yet. In fact, the deceleration in the rate of economic decline is not a sign of recovery at all, but proof that the economy is resetting at a lower level of activity. That means the recession will drag on for some time no matter what the Fed does.

The problem is the breakdown in the securitzation markets which has cut off the flow of easy credit to consumers and businesses. The credit-freeze has caused a sharp drop in retail, auto sales, furniture, electronics, travel, global trade etc. Every sector has been hammered. Fed chief Ben Bernanke's lending facilities have helped to steady the financial system and Obama's fiscal stimulus will take up some of the slack in demand, but these are not a cure-all for a broken credit system. If the system isn't fixed, asset prices will continue to plunge and hundreds of financial institutions will face bankruptcy.

From Tyler Durden at Zero Hedge:

"In order to fully understand currency and price movements, one has to realize that the securitization of debt, and creation of derivatives amounted to a huge virtual printing press, primarily fueled by a massive increase in risk appetite which allowed for a huge expansion in the value of claims on financial assets and goods and services. It is worth pointing out, that the Fed has little to no control over this "printing press" at this point, which at last count was responsible for over 90% of the liquidity in the system." ("The Exuberance Glut or the Dollar-Euro Short Squeeze Race" Tyler Durden, Zero Hedge)

The faux-prosperity of the last decade was largely the result of a wholesale credit system which created a humongous amount of credit via sketchy debt instruments, off-balance sheet operations, massive leverage and derivatives. (The Fed's liquidity and conventional bank loans play a very small part in the modern credit system) Securitization--which is the conversion of pools of loans into securities--is at the center of the storm. It formed the asset-base upon which the investment banks and hedge funds stacked additional leverage creating an unstable debt-pyramid that couldn't withstand the battering of a slumping market. After two Bear Stearns funds defaulted 20 months ago, the securitization markets froze, credit dried up and the broader economy went into a tailspin. Now that investors know how risky securitized instruments really are, there's little chance that assets will regain their original value or that the market for structured debt will stage a comeback.

Bernanke's Term Asset-backed Loan Facility (TALF) is a attempt to restore the crashed system by offering participants generous government funding to purchase securities backed by mortgages, student loans, auto loans and credit card debt. But skittish investors have stayed on the sidelines. The severity of the downturn has dampened the appetite for risk. So Bernanke has cranked up the money supply, cut interest rates to zero and flooded the financial system with liquidity. His actions have convinced many of the experts that the country is on the fast-track to hyperinflation, but that may not be the case, as explained in the Hoisington Investment Management's Quarterly Economic Review:

"Despite near term deflation risks, the overwhelming consensus view is that “sooner or later” inflation will inevitably return, probably with great momentum.

This inflationist view of the world seems to rely on two general propositions. First, the unprecedented increases in the Fed’s balance sheet are, by definition, inflationary. The Fed has to print money to restore health to the economy, but ultimately this process will result in a substantially higher general price level. Second, an unparalleled surge in federal government spending and massive deficits will stimulate economic activity. This will serve to reinforce the reflationary efforts of the Fed and lead to inflation.

(But) let’s assume for the moment that inflation rises immediately. With unemployment widespread, wages would seriously lag inflation. Thus, real household income would decline and truncate any potential gain in consumer spending...

Inflation will not commence until the Aggregate Demand (AD) Curve shifts outward sufficiently to reach the part of the Aggregate Supply (AS) curve that is upward sloping.....Therefore, multiple outward shifts in the Aggregate Demand curve will be required before the economy encounters an upward sloping Aggregate Supply Curve thus creating higher price levels. In our opinion such a process will take well over a decade....

The statement that all the Fed has to do is print money in order to restore prosperity is not substantiated by history or theory. An increase in the stock of money will only lead to a higher GDP if V, or velocity, is stable. V should be thought of conceptually rather than mechanically. If the stock of money is $1 trillion and total spending is $2 trillion, then V is 2. If spending rises to $3 trillion and M2 is unchanged, velocity then jumps to 3.

... The historical record indicates that V may be likened to a symbiotic relationship of two variables. One is financial innovation and the other is the degree of leverage in the economy. Financial innovation and greater leverage go hand in hand, and during those times velocity is generally above its long-term average.

As the shadow banking system continues to collapse, velocity should move well below its mean, greatly impairing the efficacy of monetary policy...The problem for the Fed is that it does not control velocity or the money created outside the banking system. "( Hoisington Investment Management Quarterly review, thanks to Leo Kolivakis, of Pension Pulse, "Is Inflation inevitable?")

Bernanke can print as much money as he wants, but if the banks are hoarding, consumers are saving, businesses are cutting back, and all the money-multipliers are set to "Off"; there will be no inflation. Demand has to pick up, so that money begins to change hands quickly leading to vast amounts of new money competing for the same number of assets. But that won't happen while the economy is shedding 600,000 jobs a month, housing prices are tumbling and consumer balance sheets are being repaired.

So if inflation is not an immediate risk, and the economy continues to shrink, isn't Bernanke doing the right thing by trying to restart the securitization markets?

Opinions vary on this topic. On the one hand, Wall Street's method of deploying credit appears to be more efficient than conventional (bank) loans because the money is provided by investors who are looking for higher yield rather than bankers tapping into reserves. The problem is that securitization creates incentives for fraud by rewarding loan originators who lend to applicants who have no way of repaying the debt. Unless the system is heavily regulated to insure that traditional lending standards are maintained, speculative bubbles will reemerge and there will be more financial disasters in the future. The former head of the FDIC, William Seidman, anticipated this problem way back in 1993 after cleaning up the S&L crisis. Here's what he said in his memoirs:

“Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid.” (Bloomberg)

If regulators had heeded Seidman's advice, they could have steered the country away from the present calamity.

The problem with an unregulated credit system is that investment banks and hedge funds can skim lavish salaries and bonuses for themselves on the front end before anyone discovers that the loans are fraudulent and the securities worthless. Even so, neither congress nor the Treasury nor the Fed have taken steps to re-regulate the financial system or to hold any of the main players accountable. It's "anything goes". Bernanke has acted as Wall Street's chief enabler by underwriting shoddy non performing loans, propping up rotten assets with low interest funding, and bailing out investment giants with trillions in taxpayer-backed loans. None of the $12.8 trillion Bernanke has loaned or committed to financial institutions has been approved by Congress. The Fed operates beyond any mandate and outside of any law.

The debate about securitization goes beyond questions about the quality of the underlying loans to focusing on the process itself. Securitization greatly amplifies leverage by repackaging debt into complex instruments. It's a way of turbo-charging credit expansion. Joseph Stroupe summarizes the issue in a recent Asia Times article:

"Remember that there are two fundamental camps with respect to the answer to the question of what lies at the root of the present crisis. One camp holds that America's new generation of financial assets that resulted from the recently invented financial process known as "securitization" are fundamentally sound in value, and that an over-reaction on the part of investors to the subprime crisis has resulted in a panic-induced collapse in their valuations.

This camp believes that the securitization model can and should be revived, and that when investor confidence is restored in financial assets now seen as "toxic", then all will be well again, almost magically, as toxic assets become valuable and attractive once again. All that need be done, it is believed, is for the government to work with Wall Street to jump-start securitization, a model this camp vehemently denies has failed, even though many trillions of dollars both spent and committed already have so far failed to get securitization's heartbeat going again.

The other camp believes that the toxicity is inherent in the very nature of the newly developed financial assets themselves, and that once investors recognized this fact, then that is why their values collapsed. This camp sees the securitization model as fundamentally flawed, based as it is upon artificial inflation of assets, the shortsighted growth of serial asset bubbles created by an unholy de facto alliance of government, big Wall Street banks and credit-rating agencies whose credibility and integrity were profoundly compromised, and unsustainable negative real interest rates (the creation of a massive credit excess), without which the securitization model simply won't run. (Asia Times, Profits Mask the Coming Storm, W. Joseph Stroupe)

Bernanke says that the securitization markets are "frozen" and that the toxic assets should eventually regain much of their original value. But this is just wishful thinking. Investors aren't shunning these assets because they're afraid, but because the banks want too much for them given their implicit riskiness. Stroupe's analysis is closer to the truth; prices have collapsed because investors recognize the inherent toxicity of the assets themselves. The market isn't driven by fear, but by common sense. $.30 cents on the dollar is probably all they are worth.

Putting Credit Back Where It Belongs

Do people realize that the reason their home equity is vanishing, their 401ks have been slashed in half and their jobs are at risk is because Wall Street was gaming the system with leverage and financial innovation? The current downturn is not really a recession at all; it's more like a self-inflicted wound perpetrated by avaricious speculators who put a gun to the economy's head and blew its brains out. The banks and Wall Street have created a capital hole so vast that the entire economy is being sucked into the abyss. And it all could have been avoided.

Credit production is too important and too lethal to entrust to profit-driven vipers whose only motivation is self-enrichment. The whole system needs rethinking and public input before Bernanke wastes trillions more trying to revive the same crisis-prone business model. If "credit is the economy's life's-blood," as President Obama says, then it should be distributed through a government-controlled public utility. The real lesson of the financial crisis is that privatizing credit has been a disaster.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

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