Iran boils over by Lee Sustar

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Lee Sustar looks at the dynamics driving mass protests and repression in Iran following the rigged presidential election.
SocialistWorker.org
June 15, 2009

IRAN WAS in uncharted political territory following mass protests against what was almost certainly a rigged presidential election victory for incumbent Mahmoud Ahmadinejad. The long-festering divisions in the Iranian ruling class have become wide-open splits as the result of mass support for the reformist presidential candidate, Mir Hussein Mousavi.

A vicious police crackdown on demonstrations in the capital city of Tehran was accompanied by the arrest of more than 130 prominent Mousavi supporters–including Mohammad Reza Khatami, the brother of former President Mahmoud Khatami, a former speaker of the parliament, and the son-in-law of Ayatollah Ruhollah Khomeini, a leader of the 1979 Islamist revolution.

Other figures rounded up by police include Mostafa Tajzadeh, a minister of the interior under Khatami; Behzad Nabavi, a former minister of industry; and Mohsen Mirdamadi, organizer of the 1979 occupation of the U.S. Embassy.

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Chicago factory occupied + Republic Windows Workers Occupy Factory (videos; updated)

Dandelion Salad

Updated: Dec. 9, 2008

by Lee Sustar
SocialistWorker.org
December 6, 2008

Lee Sustar reports from Chicago on an occupation by workers who want what’s theirs from management and the Bank of America.

WORKERS OCCUPYING the Republic Windows & Doors factory slated for closure are vowing to remain in the Chicago plant until they win the $1.5 million in severance and vacation pay owed them by management.

In a tactic rarely used in the U.S. since the labor struggles of the 1930s, the workers, members of United Electrical, Radio and Machine Workers of America (UE) Local 1110, refused to leave the plant on December 5, its last scheduled day of operation.

“We decided to do it because this is money that belongs to us,” said Maria Roman, who’s worked at the plant for eight years. “These are our rights.”

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The panic of 2008 by Lee Sustar

Dandelion Salad

by Lee Sustar
SocialistWorker.org
October 11, 2008

Lee Sustar explains that the mayhem in the markets this week is symptomatic of a deeper crisis–and the leaders of the most powerful governments aren’t sure what to do.

IT WAS the worst week ever for Wall Street and the world financial system–a global stock market meltdown that wiped out more than $6 trillion of wealth and had even cautious media commentators musing about the failure of capitalism and the possibility of another Great Depression.

Even Congress’ passage of the $700 billion bailout to the banks, sold as a surefire solution to the crisis, was spectacularly unsuccessful in restoring market confidence. Nor could the coordinated efforts by central banks in the industrialized nations to lower interest rates and make hundreds of billions of dollars available in new loans budge the frozen credit markets–lending between banks and to businesses remained at a standstill.

For working people, the threat lies not only in the wipeout of retirement funds, now that traditional pensions have been replaced by 401(k) plans and other programs tied to the stock market.

The worse nightmare is what happens if the banks continue to clamp down on lending, even to other banks, because of the entirely justified fear that the next borrower could go bankrupt. If loans to businesses remain on ice, then there may not be money to pay suppliers, or meet next week’s payroll–and the crisis will take a further lurch downward with mass layoffs and closures.

– – – – – – – – – – – – – – – –

BY THE week’s end, the assumptions of free-market, neoliberal ideology–the foundation of U.S. politics for last three decades–had been totally discredited.

Gone were the clichés about how “the free market knows best,” and that “government regulation stifles capitalist dynamism and growth.” Instead, the same people who whined a month ago about the nationalization of mortgage giants Fannie Mae and Freddie Mac and insurance company AIG as creeping “socialism” now advocate the most sweeping government intervention in the economy since the Great Depression–and fast.

“The government needs to inject capital directly into banks,” wrote Wall Street Journal columnist David Reilly. “The government also needs to force banks to recognize losses they have so far ignored, require banks to provide fuller disclosure of holdings, push banks to lend to one another again, euthanize weaker banks while helping strong banks get stronger, guarantee deposits and backstop a portion of bank credit.

“Above all, the government needs to tell banks that they have to take part in a systemic solution. The time for negotiation by banks is over.”

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A newer world order by Lee Sustar

Dandelion Salad

Lee Sustar looks at the political impact of Russia’s invasion of Georgia.
http://socialistworker.org
August 21, 2008

THE RUSSIA-Georgia war has revealed a new balance of power in the world–and exposed the hypocrisy of U.S. politicians and the media who decry the imperialism emanating from Moscow, but embrace it when it’s made in the USA.

John McCain, of course, wins the prize for setting the most outrageous double standard. “In the 21st century,” he informed us, “nations don’t invade other nations.” Unless, of course, we’re talking about Afghanistan or Iraq, and the invading power happens to be the United States. McCain demanded and immediate pullout of all Russian forces from Georgia and insisted upon its “territorial integrity”–even as he claims the right for the U.S. to occupy Iraq for the next 100 years.

The supposedly progressive Barack Obama sounded little different. “I have condemned Russian aggression, and today I reiterate my demand that Russia abide by the cease-fire,” he said. “Russia must know that its actions will have consequences.”

One can imagine how a President Obama would respond if Russian Prime Minister Vladimir Putin or President Dimitri Medvedev declared that he wouldn’t withdraw all troops from Georgia right away, but would leave behind a large occupation force in order to be “as careful in getting out of Georgia as we were careless in getting in.” That, of course, is Obama’s excuse for keeping up to 50,000 U.S. troops in Iraq for “force protection,” the defense of U.S. military personnel and “anti-terrorist” missions–the same kind of pretext that Russia used to move beyond Georgia’s disputed South Ossetia region to a full-fledged invasion.

The media has been even more two-faced than the politicians. The same news outlets that parroted the Pentagon whitewash of civilian casualties in the horrific U.S. blitz on Falluja in Iraq in 2004 or aerial bombardment of wedding parties in Afghanistan now breathlessly report on the Russian bombs and artillery shells that hit apartment buildings and markets.

For the U.S. media, when Washington military action causes civilian deaths–between 600,000 and more than 1 million in Iraq, according to some estimates–it’s “collateral damage,” a regrettable but unavoidable part of modern warfare. Yet when a Russian plane drops a bomb that kills innocent bystanders, it’s a barbaric disregard for human life. One wonders just how much more unpopular the U.S. war in Iraq would be if the media worked as hard at exposing civilian casualties in that country as it has in Georgia.

– – – – – – – – – – – – – – – –

TO POINT out this U.S. hypocrisy isn’t to downplay the imperial nature of Russia’s latest occupation of Georgia. Georgia may have initiated the conflict by trying to smash the Russian-backed separatists among the Ossetian minority–and likely did so with a green light from the U.S. But Russia seized the opportunity to make an example of Georgia through military might–and not for the first time.

The Tsarist rulers of old Russia conquered Georgia more than two centuries ago. After a brief interlude following the Russian Revolution of 1917, Georgia was again imprisoned in Stalin’s USSR. The Georgian nationalist movement revived in the 1980s despite murderous repression by the supposedly liberal Mikhail Gorbachev, the last president of the USSR.

The 1991, the collapse of the USSR saw the non-Russian “federal republics,” including Georgia, gain independence. With Russian imperialism in crisis, U.S. imperialism was determined to fill the vacuum, not only in Moscow’s former puppet states in Eastern Europe, but in countries formerly part of the USSR.

Georgia, however, was slow going for the U.S. The pro-Western Georgian nationalist leader, Zviad Gamsakhurdia, pushed a “Georgia for the Georgians” line that frightened the 30 percent of the population that was non-Georgian–people whom Gamsakhurdia ominously referred to as “guests.” The first non-Communist Party head of Georgia in the waning days of the USSR, Gamsakhurdia went on to revoke the autonomous status of Abkhazia and North Ossetia, which had been enshrined in the USSR’s constitution. Resistance from the Abkhazians and Ossetians led to civil war and ethnic cleansing and, with Russian intervention, de facto independence for both regions since 1993.

The situation was little changed under the regime of Eduard Schevardnadze, the former foreign minister of the USSR who returned home to Georgia to take over the presidency after Gamsakhurdia was ousted in a coup. During Schevardnadze’s decade in power, Russia and the U.S. jockeyed for influence in Georgia.

Washington found a willing business partner in Schevardnadze. He was in favor of an oil pipeline that would bypass Russia. He was also a career Soviet politician who had run Georgia in the 1970s and who refused to take a consistent anti-Moscow line. In 2003, an election year in Georgia, Schevardnadze set off alarm bells in Washington by making a deal with the Russian electrical power monopoly AES, which followed an earlier “strategic partnership” with the huge Russian gas company Gazprom.

In late 2003, the U.S., then still in the confident “Mission Accomplished” phase of the Iraq war, decided to up the ante. It backed the U.S.-educated lawyer Mikheil Saakashvili, the leader of the mass protests of the “Rose Revolution” that ousted Schevardnadze after his party tried to rig parliamentary election results. Modeled on the rebellion that drove Slobodan Milosevic from power in Serbia in 2000, the Rose Revolution was sustained in part by money from the foundation controlled by billionaire financier George Soros. In the wake of the Rose Revolution the Soros foundation and other donors, as well as the United Nations Development Project, even paid salaries for 11,000 civil servants as part of a three-year aid program.

The U.S. saw the Saakashvili government as a means to accelerate its energy and defense plans for Georgia. Saakashvili’s presidential inauguration in 2004 was attended by then-Secretary of State Colin Powell, who announced $166 million in immediate aid as well as a three-year, $500 million aid package to promote “economic reforms.” This was only part of a steady stream of U.S. dollars to a country of just 4.6 million people. According to one study, Georgia is the second highest recipient of U.S. aid per capita in the world. Meanwhile, the European Union and the World Bank pledged another $1 billion in assistance to Saakashvili’s government.

– – – – – – – – – – – – – – – –

SOON, THE White House was ready to plant the U.S. flag in the heart of the South Caucasus. George W. Bush visited Tbilisi in May 2005 to “underscore his support for democracy, historic reform and peaceful conflict resolution,” as the U.S. Embassy in Georgia put it in a press release. These “reforms,” according to Kakha Bendukidze, the Russia-based industrial oligarch turned Georgian economy minister, meant that the Georgian state would privatize “everything that can be sold, except its conscience.”

With Saakashvili in power, Washington moved aggressively to create in Georgia a crucial gateway for oil and gas pipelines that could bypass Russia on the north and Iran on the south. It was under Saakashvili that the long-sought Baku-Tbilisi-Ceyhan (BTC) oil pipeline was finally completed in 2005, providing a means to get oil from Azerbaijan on the Caspian Sea across Georgia to a Turkish port on the Mediterranean.

The U.S. had to strong-arm Western oil companies into building BTC–ultimately, BP agreed to take the lead. The U.S. also had to pressure the International Finance Corporation, the private development arm of the World Bank, to loan $250 million for construction of the pipeline.

“In the South Caucasus, U.S. and European state interests are bound up with the commercial interests of major oil companies that form the principal Caspian energy consortia,” wrote Damien Helly and Giorgi Gogia, two experts on Georgian politics. “To secure their investments in the Caspian Sea Basin, these companies have found allies among U.S. geostrategists who support a strong U.S. presence among Russia’s neighbors. High-level former officials such as Zbigniew Brzezinski, Brent Scowcroft, John Sununu, James Baker and Richard Cheney (when he was head of Halliburton) have all visited Baku [Azerbaijan] and the Caspian region and lobbied in favor of the oil companies.”

These U.S. economic and political projects had to be secured militarily. Thus, in the wake of 9/11, the U.S. began to send military advisers to Georgia. That move rankled Moscow, which also accused Georgia of doing too little to stop the flow of arms and insurgents across its border into neighboring Chechnya, where separatists were fighting the Russian armed forces.

For Russia, Georgia was seen as a red line that the U.S. and NATO could not cross. In the early 1990s, Russia had no choice but to allow the expansion of NATO to include its former satellites in Eastern Europe and the three former Soviet Republics on the Baltic. But the U.S. push to include Georgia and Ukraine in the alliance–as well as efforts to place anti-missile systems in the Czech Republic and Poland–was too much for the Kremlin.

After Saakashvili took over in Tbilisi, U.S.-Russian tensions over Georgia increased dramatically. In 2004, NATO approved Georgia’s “Individual Action Partnership Plan,” the first step toward membership of the alliance, and stationed a liaison officer in Tbilisi. In the years since, the U.S. and Israel have sent military trainers to upgrade Georgia’s military to NATO standards, and Saakashvili has showed his loyalty to the U.S. by sending 2,500 Georgian troops to participate in the occupation of Iraq. By 2007, the Georgian armed forces, previously a ragtag outfit unable to defeat irregular militias in South Ossetia or Abkhazia, was well-drilled, lavishly equipped and NATO-ready. The U.S. pushed for a fast-track acceptance into the alliance.

All that state-of-the-art weaponry, of course, is now smashed or captured by the Russian army, and the armed forces shattered by the Russian occupation. What began as the latest U.S. attempt to use a small nation as an outpost of the American Empire has ended with a brutal invasion by a rival empire, one just as determined to police its own “backyard” as the U.S. has been in Latin America. And in the wake of the Russia-Georgia war, oil-rich Azerbaijan–which has its own separatist region populated by ethnic Armenians allied with Russia–will think twice about crossing Moscow to sign up with the U.S. and NATO.

But the consequences of the Russian invasion go far beyond the South Caucasus region. The war has exposed the expanded NATO as a hollow organization. “For an organization that has come to rely heavily on words and symbolism, NATO issued a disconcertingly evasive communiqué at its emergency meeting on Georgia,” journalist Vladimir Socor wrote. “The first mention of Russia appears only in the second paragraph, and it is a positive mention: NATO ‘welcomes the [armistice] agreement reached and signed by Georgia and Russia.’ No reference to the Russian military duress, under which this flawed armistice was ‘reached.’ The communiqué urges prompt, good-faith implementation of the armistice, politely ignoring its loopholes.”

So much for NATO’s vaunted “one-for-all, all-for-one” principle. The U.S. and NATO have bankrolled and armed a tiny nation, encouraged or tolerated a military attack that was bound to trigger a response from a neighboring great power–and, when that small country was invaded and occupied, the U.S. stood back and did nothing.

So much for the neoconservative dream of a “new world order” under U.S. domination, guaranteed by pre-emptive warfare and regime change. The U.S. wars in Iraq and Afghanistan were intended to allow Washington to consolidate its grip on the Middle East and project its power into the Caucusus and Central Asia. Instead, the U.S. finds itself militarily overstretched, incapable of protecting its new client states and unable even to get a strong resolution out of NATO condemning Russia’s invasion of Georgia–to say nothing of NATO countries’ reluctance to commit troops to the losing war in Afghanistan.

There are other examples of waning U.S. imperial clout–the ouster of Pervez Musharraf as dictator of Pakistan being the latest serious example. The cracks in the empire, in turn, are widened by the ongoing U.S. financial crisis which is increasingly dragging down the entire world economy. The entire U.S. economic model–the pro-business, free-trade neoliberal program–is being discredited. The recent collapse of the latest World Trade Organization negotiations is a case in point.

U.S. imperialism is far from a spent force, of course. The country still has enormous military might and economic resources, and a President Obama would likely bring in a foreign policy and military team that’s more competent than the Bush administration hacks. But no matter who’s in charge in the White House, the shift in the world balance of power–economically, militarily and politically–is bound to lead to further instability and crises.

***

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OSCE observers knew about Georgia’s attack + Jewish Quarter targeted in Georgian offensive

Americans play Monopoly, Russians chess

Aprés la deluge — wracking up the fear quotient By William Bowles

Beat The Dead Horse Or Putin’s Revenge By Gaither Stewart

Margolis: Dems onside with Bush on Georgia

Evidence of Georgian tanks + Poland Signs Missile Defense Shield Deal + NATO warns Russia

Crisis in the Caucasus. What Were They Smoking in the White House?

Georgia

How imperial rivalries stoked war in Georgia

Dandelion Salad

Lee Sustar looks at the roots of Russia’s war on Georgia.
http://socialistworker.org/
August 12, 2008

ACCORDING to the Western media, the Russian military’s bloody invasion of the former Soviet republic of Georgia is all about “Russian imperialism” and the “Cold War” mentality of Vladimir Putin, the Russian president-turned-prime minister and still the country’s leading political figure.

Certainly, Russia’s aim to dominate Georgia–which fell under Moscow’s control in the late 18th century and was formally annexed in 1801–are imperial in nature. But it’s revealing that after selling the U.S. invasion and occupation of Afghanistan and Iraq as exercises in “promoting democracy,” the corporate media is finally willing to characterize a great power’s expansionist military moves as “imperialist.”

What’s missing from the mainstream account of the Russia-Georgia war is the role of U.S. imperialism, which has sought to incorporate Georgia into NATO as part of an arc of U.S. military outposts and alliances stretching from the Middle East to Central Asia.

And while the Western press publishes accounts of civilians terrorized by Russia’s military, far less attention is given to the vicious attack of the Georgian military–trained by the U.S.–on the disputed South Ossetia region.

South Ossetia is claimed as Georgian territory, but has been ruled since 1992 as a de facto independent satellite of Russia, following the collapse of the old USSR. If the Russian military was welcomed in South Ossetia and neighboring Abkhazia, it’s because the Ossetians and Abkhazians, who are not ethnic Georgians, are opposed to being ruled from the Georgian capital of Tbilisi.

Just as the U.S. used the nationalist movement of Kosovar Albanians to carve out a now-independent Kosovo as an outpost of NATO in the Balkans, the Russians are backing the Ossetians’ and Abkhazians’ drive for independence to weaken Georgia and pre-empt its entry into NATO.

– – – – – – – – – – – – – – – –

EVER SINCE Georgia emerged as an independent state, the U.S.–under the administrations of Bush I, Bill Clinton and Bush II–has worked to turn the country into a pro-Western enclave in the heart of the volatile Caucasus region.

The aim has been both to safeguard the Baku-Tbilisi-Ceyhan oil pipeline from the Caspian Sea to the Mediterranean and ratchet up political and military pressure on Russia’s southern flank.

After backing the so-called Rose Revolution of 2003 to catapult Georgian President Mikhail Saakashvili into power, the U.S. deepened its military involvement in Georgia, sending advisers to train Georgian troops training in the Pankisi Gorge bordering Chechnya, where Russian troops were in the final stages of suppressing a nationalist insurgency.

What began as military cooperation in the name of the “war on terror” soon became a close collaboration. Georgia sent 2,500 troops to Iraq, the single biggest contingent in the occupying forces after the U.S. and Britain.

After assimilating Moscow’s former Eastern Europe satellites into NATO, as well as the three Baltic states that were formerly part of the USSR, the U.S. set its sights on adding Ukraine and Georgia as well. The U.S also raised the stakes by installing missile defense systems in Poland and the Czech Republic–a move supposedly to ward of threats from Iran, but obviously aimed at Russia.

Russia has responded by pushing back. In Ukraine, a big industrial country of 45 million people, Moscow has had to play a long game. After the December 2004 “Orange Revolution” that forced an election rerun which brought the pro-U.S President Viktor Yushchenko to power, Russia was able to use bullying over supplies of oil and gas and reliably pro-Moscow elements in the Ukrainian ruling class to limit that country’s tilt to the West.

But in Georgia, with just 4.6 million people in the largely impoverished Caucasus region, Russia’s methods have been rougher. In 2006, Georgia’s arrest of alleged Russian military spies prompted Moscow to impose an embargo on Georgian imports and other sanctions.

– – – – – – – – – – – – – – – –

IN THE corporate media, Russia’s heavy-handed tactics represent an unbroken line from the Tsars through the Russian Revolution to Putin.

In fact, the Russian Revolution of 1917 brought the right of self-determination to the non-Russian peoples of the Tsar’s empire. Georgia became an independent state in 1918, putting itself under the protection of first, Germany, and then, Britain.

In 1920, Georgian independence was recognized by Russia’s Bolshevik government. But the Georgian government, controlled by the reform socialist Menshevik Party, aligned itself with the Western allies that had backed the counterrevolutionary White armies. In 1921, a Bolshevik-led uprising, backed up by invading Russian Red Army troops, installed a pro-Soviet government.

Nevertheless, the Russian revolutionary leader Lenin advocated a policy of reconciliation in Georgia. While gravely ill, Lenin launched a struggle against Joseph Stalin–ironically, a Georgian himself–over for Stalin’s harsh policies in Georgia. As Lenin wrote:

[A]s far as the Georgian nation is concerned, we have a typical case in which a genuinely proletarian attitude makes profound caution, thoughtfulness and a readiness to compromise a matter of necessity for us. The Georgian [Stalin] who is neglectful of this aspect of the question, or who carelessly flings about accusations of “nationalist-socialism” (whereas he himself is a real and true “nationalist-socialist,” and even a vulgar Great Russian bully), violates, in substance, the interests of proletarian class solidarity.

Stalin’s consolidation of power after 1928 ushered in a counterrevolution–and with it, a return of the oppression of national minorities within a reconstituted empire.

Boundaries were drawn to divide and conquer different ethnic groups. The Ossetians, whose language is related to Farsi, were split between an autonomous area inside the Georgian Soviet Republic to the south, and another within the boundaries of Russia to the north. The Abkhazians, whose traditional lands were on the Black Sea, were also granted an autonomous region within Georgia.

– – – – – – – – – – – – – – – –

STALIN’S PRISON-house of nations began to break up in the late 1980s under pressure from popular movements. Some of the worst repression of that period took place in Georgia, where, in 1989, Interior Ministry troops attacked unarmed protestors with shovels and poison gas.

A Georgian nationalist and former political prisoner, Zviad Gamsakhurdia, won election as head of state in 1990, even before the fall of the USSR the following year, and became the first president of post-Soviet Georgia in 1991.

Gamsakhurdia’s nationalist movement opposed the autonomous status of South Ossetia and Abkhazia, and efforts to assimilate them into the newly independent Georgian state led to terrible wars in both regions, complete with ethnic cleansing on all sides. Moscow intervened to back the separatists and eventually sent “peacekeepers” to enforce the de facto independence of both regions.

Amid this chaos and economic collapse, Gamsakhurdia was ousted in a 1992 coup led by Eduard Schevarnadze, the Stalinist boss of Georgia in the 1970s, who had become a supposedly liberal foreign minister under the reform administration of Soviet President Mikhail Gorbachev.

Schevarnadze initially enjoyed the backing of not only Russia but the U.S., to which he had made numerous concessions. Yet in the course of his 10 years in power, Schevarnadze increasingly tilted towards Russia, which Georgia remained overwhelmingly dependent on economically.

Thus, the U.S. decided to back a different horse: Mikhail Saakashvili, a young former minister in Schevarnadze’s government, who holds law degrees from Columbia and George Washington Universities and worked at a high-powered New York law firm. When Schevarnadze refused to recognize an opposition victory in Georgia’s 2003 parliamentary elections, Saakashvili’s Rose Revolution, a series of mass protests, ultimately forced Shevardnadze to step down.

Saakashvili went on to be elected president in 2004 and, following snap elections, in January of this year. But the man portrayed by the West as a gallant democrat standing up to Russian imperialism has been highly controversial in power. In late 2007, opposition parties criticized him for his endorsement of police attacks on peaceful protests, and allegations of corruption dog his government.

What’s more, Saakashvili has rehabilitated Gamsakhurdia and his brand of nationalism–and in so doing, set his sights on the re-conquest of South Ossetia. Apparently, he calculated that a lightning-quick seizure of South Ossetia on August 6 would catch Russia off-guard, and that NATO would one day guarantee a Georgian state that included the breakaway regions.

It isn’t clear whether the U.S.–or even the neoconservative faction within the Bush administration–gave Saakashvili the green light to attack South Ossetia. In any case, Saakashvili has miscalculated, as his attack on South Ossetia has given Russia the pretext not only to occupy South Ossetia, but also Abkhazia. Now, it appears Russia is out to smash the Georgian military that the U.S. has tried to build up–and reassert Moscow’s power in its former empire.

Washington has misjudged the situation, too. For years, it could take advantage of the collapse of the USSR to expand NATO to Russia’s western borders and developing military bases and alliances to its south. Now, however, an oil-rich Russia has strengthened its military and is prepared to draw a line against U.S. forays into the region.

For that reason, Russia’s war in Georgia signals a new, dangerous phase in world politics that is already dominated by endless war and economic crisis.

see

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RNN: The geopolitics of Georgia

Media war against Russia – Reuters caught with ‘fake’ pictures from Georgia

Using Georgia to Target Russia by Stephen Lendman

Ossetian refugees mourn their dead + Kosovo + misery continues

Background on Georgia by Bruce Gagnon

Georgia

Grim and getting uglier by Lee Sustar

Dandelion Salad

Lee Sustar looks at the U.S. economy one year after the financial crisis erupted.
http://socialistworker.org
August 7, 2008

THE GOVERNMENT’S economic stimulus page has failed to revive an economy suffocating under the housing-induced credit squeeze–and for working people, things are rapidly getting worse as prices rise, work hours decline and jobs get harder to find.

Statistics released in early August showed that the Bush administration’s $168 billion in tax rebates helped the economy achieve a 1.9 percent growth rate in the second quarter of 2008. But that wasn’t enough to prevent an increase in the unemployment rate from 5.5 percent in June to 5.7 percent in July, as the number of jobs in the U.S. economy declined by 51,000–the seventh month in a row in which employers have cut payrolls.

In the year since the world financial crisis began, some 1.6 million people have been added to the number of those officially counted in the U.S. government’s unemployment figures. However, a more accurate gauge of the job market is the statistic for underemployment–10.3 percent–which measures those who are involuntarily working short hours or part-time. It’s the worst such figure since 2003.

What’s more, higher food and fuel prices negated much of the government stimulus package, as working people spent their tax rebates on essential items rather than big-ticket items that policymakers hoped would give the economy a boost. Workers had little choice in the matter: prices of nondurable goods, which include food, energy and items like clothing–registered the biggest one-year increase since 1981.

“While spending rose 0.6 percent last month, the 0.8 percent rise in consumer prices was even quicker,” the Wall Street Journal noted. “Adjusting for inflation, personal consumption actually dropped 0.2 percent in June from the month before.” As economist Jared Bernstein of the Economic Policy Institute put it, “This is a kind of ‘Honey, inflation ate my rebate check’ story.”

– – – – – – – – – – – – – – – –

DON’T EXPECT the stimulus-based uptick in GDP to last. “Call it the ‘W’ economy–but that doesn’t stand for ‘winning,'” wrote Chicago Tribune columnist Carol Marks Jarvis. “Imagine writing the letter ‘W.’ Your first stroke down is the route the economy was on until tax rebates stimulated consumer spending and provided an upswing. The next move, however, is expected to be an unpleasant slope downward.”

In fact, revised economic statistics show that the economy actually contracted 0.2 percent in the final three months of 2007 before recovering to a pathetic 0.9 percent in the first quarter of 2008.

A key factor in the choking off of U.S. economic growth is the credit crunch that followed the bursting of the housing bubble a year ago. Having already written off $400 billion in bad housing-related loans, loss-riddled banks are scrambling to raise capital and are therefore reluctant to lower interest rates for loans to either businesses or consumers. For example, mortgage rates are about as high as they were a year ago, even though the Federal Reserve Bank has cut rates from 5 percent last September to 2 percent today.

In the meantime, the resetting of adjustable rate mortgages to higher interest rates will soon add to the rising tide of foreclosures. According to Moody’s Economy.com, some 3 million people will default on their mortgages this year. “The big problem is that 9 million U.S. homeowners owe more than their houses are worth,” wrote Justin Fox of Time. “They’re upside down, in the parlance, meaning that if foreclosures are to be slowed, the mortgages themselves must shrink.”

The housing bill recently passed by Congress does create a program through the Federal Housing Administration in which homeowners can “shrink” their mortgages–but only if lenders agree to do so. Moreover, according the Center for Responsible Lending, only about 500,000 families will be able to take advantage of the plan, even though economists expect up to 6.5 million foreclosures in coming years.

For Wall Street, it’s a different story. The Housing and Economic Recovery Act of 2008 should have been named the “Great Giveaway to Wall Street Act of 2008,” as it enshrines into law a blank check from the U.S. Treasury to buy shares of Fannie Mae and Freddie Mac, the two government-sponsored enterprises that own or guarantee half of all U.S. mortgages. And a bailout for Fannie and Freddie is a rescue for Wall Street, by placating investors and ensuring that the investment banks’ practice of reselling mortgages won’t dry up completely.

The Fannie-Freddie bailout comes on top of the Federal Reserve Bank’s emergency lending programs to both commercial and investment banks. In return, the Fed has accepted as collateral many billions of dollars in toxic mortgage-backed securities that any other lender would shun.

“Washington can act with breathtaking urgency when the right people want something done,” wrote William Grieder in The Nation. “In this case, the people are Wall Street’s titans, who are scared witless at the prospect of their historic implosion. Congress quickly agreed to enact a gargantuan bailout, with more to come, to calm the anxieties and halt the deflation of Wall Street giants. Put aside partisan bickering, no time for hearings, no need to think through the deeper implications. We haven’t seen ‘bipartisan cooperation’ like this since Washington decided to invade Iraq.”

– – – – – – – – – – – – – – – –

EVEN THE relative bright spots in the U.S. economy–a surge in manufacturing exports and a drop in oil prices–aren’t likely to last. Oil prices are falling because demand is expected to drop along with a fall in growth rates elsewhere in the world.

“Japan, Britain and the United States produced yet more evidence [July 31] that the fortunes of the world’s wealthiest economies are fading fast, and in parts furiously,” Reuters reported, noting a decline in Japanese manufacturing for the fifth month in a row and a spike in inflation in the 15 countries that use the euro.

China, seen by some economists as a possible alternative engine for the world economy as the U.S. falters, has seen its own growth decline as export markets dry up. In the ‘factory of the world,’ the manufacturing heartland of Southern China, they are also feeling the effects of weakening global demand, with plant closures and layoffs,” the BBC reported.

India, often touted as another rising economic power, is grappling with high rates of inflation even as previously rapid growth begins to slow. Furthermore, the slowdown in Asia will soon hit Latin America, which has benefited from Chinese industry’s enormous demand for raw materials.

As the situation deteriorates response so far from the U.S. government is to do whatever it takes to shore up finance capital–all while standing pat as workers’ consumption is cut and their standard of living declines.

see

The Economy Sucks and or Collapse

Spreading the pain and pocketing the gain

Dandelion Salad

by
http://socialistworker.org
July 29, 2008

AFTER MONTHS of wrangling, Congress finally rushed through a housing bill–legislation, its Democratic sponsors say, that will provide some relief for people whose mortgage payments have increased while the value of their homes declined.

But the real reason for the scramble to pass the long-delayed bill was a bailout for the shareholders of Fannie Mae and Freddie Mac, the so-called “government-sponsored enterprises” that own or guarantee half the mortgages in the country–some $5.1 trillion worth. According to some estimates, the rescue could cost taxpayers up to $25 billion–but given that the new law gives the Treasury Department an unlimited ability to fund Fannie and Freddie, the final bill for this rescue could run even higher.

Call it socialism, Wall Street style: Taxpayers get saddled with the risks and the costs of the bailout, while private shareholders reap the gains.

“Fannie Mae and Freddie Mac are only the most recent and extreme version of Wall Street socialism,” wrote liberal commentator Robert Borosage.

“The Federal Reserve has now traded more than $500 billion in federal bonds for the toxic paper of private banks and investment houses, some $200 billion of it in mortgage-backed securities, worth dimes on the dollar. This massive subsidy–justified as necessary to keep the banking system afloat–is not accompanied by limits on what gambles the speculators can make, how much debt they can take on, what rewards they can pocket. They are playing with house money–not exactly an incentive for prudence.”

The bill does provide some aid for homeowners who owe more on their mortgages than their houses are worth. But for homeowners to actually get relief, their lenders have to agree to reduce the amount of principle owed on the loan. And since most mortgages are packaged into securities owned by investors, it’s often almost impossible for homeowners to even know who to try to negotiate with.

According to the Center for Responsible Lending, the bill will provide relief for about 500,000 families. “That’s not enough,” the organization said in a press release. “The economy will continue to take a beating if we don’t do more to stop 6.5 million foreclosures Wall Street analysts expect over the next few years.”

Contrast this short shrift for homeowners to the bailout for Fannie and Freddie, which will boost the companies’ stock prices, to the benefit of investors. That measure, along with the endless supply of loans from the Federal Reserve for investment banks, means that the biggest beneficiaries of the government rescue are the same Wall Street investment banks that ran the economy off a cliff in the first place.

– – – – – – – – – – – – – – – –

HOW DID it happen? By pumping up the housing market with sub-prime mortgages at low teaser interest rates and packaging homeowners’ debt into complex mortgage-backed securities, the big banks turned a cyclical economic downturn into the biggest world financial crisis in decades. Bad housing-related debt has already led to bank losses of an estimated $400 billion.

The result: Banks are increasingly reluctant to lend, whether to students seeking money to attend community colleges or businesses seeking new capital to expand.

“The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt,” the New York Times observed.

The government’s response to the crisis has been emergency lending to banks and an improvised, but vast, expansion of regulatory power. Leading the charge is the supposedly pro-free market Bush administration, fronted by Treasury Secretary Henry Paulson, the former CEO of the investment bank Goldman Sachs, who just weeks ago was warning against the expansion of government regulation.

The new law gives Paulson the ability to provide an unlimited line of credit to Fannie and Freddie, much as Federal Reserve Chair Ben Bernanke is making loans available to Wall Street investment banks under an emergency program last used in the Great Depression of the 1930s.

“Financial capitalism is crashing,” wrote independent presidential candidate Ralph Nader. “So the lights are on late in Washington’s Federal Reserve, SEC and Treasury Department trying to figure out how socialism (your tax dollars and credits) can once again bail out these big time gamblers with our money…Reckless, self-enriching capitalists get on your knees and thank the rescuing Washington socialists, for without them, you would surely be in chains.”

Despite this government rescue of the rich, things could get worse again–in a hurry. “This bill is the latest in a series of temporary fixes to the financial system–attempts to hold the thing together with bungee cords and masking tape–that have, at least so far, succeeded in staving off complete collapse,” New York Times columnist Paul Krugman wrote of the legislation. “But those fixes have done nothing to resolve the system’s underlying flaws. In fact, they set the stage for even bigger future disasters–unless they’re followed up with fundamental reforms.”

Such dire warnings–along with complaints in the business press about Wall Street socialism–underscore the way in which the declining economy is creating not only political disaster for Bush and the Republicans, but a profound ideological crisis as well.

The pro-market, or neoliberal, economic doctrine of the last 30 years, embraced by Republicans and Democrats alike, has been discredited. Working-class living standards are declining suddenly and sharply due to inflation and lost wealth through housing. And with joblessness on the rise, things will certainly get worse for workers.

– – – – – – – – – – – – – – – –

ALL THIS means that working people will be more open than they have been in decades to listen to a critique of the capitalist system.

In the last two recessions–1990-91 and 2001–propaganda about the so-called “triumph of capitalism” hung on during the slump. Margaret Thatcher’s notorious statement, “there is no alternative,” has been accepted internationally by labor and social democratic parties as well as conservatives, since the early 1980s.

Things are very different now. According to a Time magazine/Rockefeller Foundation poll, 85 percent of respondents believe the country is on the wrong track–what Time called “an unprecedented downer from an optimistic nation.”

Of those surveyed, 82 percent support public works projects to create jobs, and 70 percent favor government assistance to those facing hard times. “It is a shocking shift in sentiment, a counterreformation of sorts in a Republican-led era that emphasizes deregulation and self-reliance,” a Time reporter wrote.

Yet even as the world financial system threatens to come apart at the seams and oil prices hit previously unimaginable levels, the Barack Obama presidential campaign is recycling Clinton-era neoliberal economic orthodoxy. Obama does call for high-income individuals to pay taxes at the rates that applied prior to Bush’s tax cuts. But that wouldn’t even put a dent in inequality, which has reached the highest levels since the 1920s.

So far, virtually no mainstream politicians have dared to call for even the most obvious government measures to help to hard-pressed workers–anti-poverty spending, government-funded job programs and a genuine national health care program. And no one in Washington is advocating longer-term measures–major investments in mass transit, conversion to renewable power or a program to rebuild crumbling public schools, for example.

Such reforms are badly needed and worth fighting for. They would improve the lives of millions of people. Yet even this wouldn’t overcome the chaotic scramble for profit that is central to capitalism–and at the heart of the current economic crisis.

Which leads back to a discussion of socialism–not for Wall Street and the wealthy, but for working people. A planned economy, under the democratic control of the majority in society, is the only way to avoid the damaging effects of the capitalist cycle–booms in which the lion’s share of the gains go to the rich, and slumps in which millions of people are tossed out of work and left to rot.

But now that we’ve entered a long-term period of economic crisis, a debate about alternatives is inevitable. It’s time to make the case for socialism.

see

Socialism for Speculators by Ralph Nader

Thar She Blows – The Last Hurrah for the Banking System

The Economy Sucks and or Collapse

Nader for President 2008

www.votenader.org/

The Termi-Nader

Ralph Nader Posts & Videos

What is Socialism? (archive of posts)

Will the U.S. get its way with Iran? by Lee Sustar

Dandelion Salad

by Lee Sustar
http://socialistworker.org/
July 23, 2008

Lee Sustar looks at the good cop-bad cop strategy that the U.S. and Europe are using to force Iran to abandon its uranium enrichment program.

THE U.S. is dangling carrots in front of Iran to suspend its uranium enrichment program–but only after smacking the Iranians with some increasingly big sticks in the form of sanctions.

After an inconclusive meeting over Iran’s nuclear program involving high-level U.S and Iranian negotiators, the U.S. is pressing ahead with plans to squeeze Iran economically by making it increasingly difficult for Iranian banks and other companies to function in the West.

“The U.S. is fine-tuning new financial penalties against Iran that would target everything from gasoline imports to the insurance sector, and the prospect of such sanctions grew after talks over its nuclear-fuel program [July 19-20] made no progress,” the Wall Street Journal reported.

“U.S. and European officials said they will intensify efforts to impose these penalties should their diplomatic drive fail to induce Iran to freeze its nuclear program. The sanctions effort could include measures to impede Iran’s shipping operations in the Persian Gulf and its banking activities in Asia and the Middle East, the officials said.”

Iran currently endures UN sanctions for its efforts to enrich uranium, which can be used both for nuclear power and to build nuclear weapons. While the program isn’t a violation of international law, the sanctions were imposed because Iran failed to provide the necessary notifications about its program, which Iranian President Mahmoud Ahmadinejad insists is for peaceful purposes.

After rattling sabers repeatedly–implying the possibility of military action by the U.S. or its proxy, Israel–Washington has toned down the bellicose rhetoric. But it is turning up the pressure of sanctions, and this is already having a serious impact. In late June, the European Union froze the assets of Iran’s Bank Melli, added to a list of Iranian organizations with assets liable to being frozen, and barred 20 top Iranian nuclear officials from entering EU countries.

Next came the bombshell announcement by the French oil giant Total, which said it was pulling out of plans to invest in Iran’s South Pars oilfield. In recent years, Total and other European companies had cashed in as U.S. sanctions on Iran sidelined their American rivals. But on July 10, Total boss Christophe De Margerie, “Today, we would be taking too much political risk to invest in Iran, because people will say, ‘Total will do anything for money.'”

Sanctions could soon become tougher if Congress passes legislation that would bar from the U.S. any company that invests more than $20 million in Iran’s energy industries. That would knock out many of the smaller contractors that provide crucial technology and skills to Iran’s oil sector.

– – – – – – – – – – – – – – – –

THE SANCTIONS come at a time of increasing economic problems in Iran. Despite record-high oil prices that have boosted economic growth, unemployment remains high. Despite government statistics showing a drop in joblessness to 9.6 percent from 11 percent a year ago, many economists estimate a real unemployment rate of about 20 percent.

Inflation is perhaps the most pressing economic issue. Government officials put the figure at 21 percent, but the actual rate may be closer to 40 percent. Even government statistics show price rises that are severe, especially in food and housing. According to the Central Bank of Iran, the annual inflation rate for food products hit 45 percent in early July. For rice, the inflation rate was 238 percent.

A state agency admits that in the southern province of Bushehr, food prices have increased between 70 percent and 100 per cent in just two months. And government inflation figures are understated, because they don’t include the price of housing. In Tehran, house prices reportedly have increased up to 250 percent in recent years.

Iran’s economic problems come despite the populist promises of President Mahmoud Ahmadinejad, who won election in 2005 in large part on pledges to improve the lot of Iran’s poor and working class majority. But his economic policies have failed to deliver much, even as a surge of revenue from high oil prices exacerbates social inequality.

The economic problems, as well as dissatisfaction over Ahmadinejad’s hard-line foreign policy, have given his domestic political rivals new room to maneuver. The new speaker of the Iranian majlis, or parliament, Ali Larijani, recently launched a major attack on Ahamdinejad for his populist policies.

“The monopolization of economic activities and opportunities by the government…will create an inflationary economy which, in my opinion, is the worst form of injustice,” Larijani said in June. “Unlike those who, in the early days of the Islamic Revolution, believed that the nationalization of the economy is more Islamic, experience has proven that nationalization leads to an ailing economy and promotes injustice.”

The speech seems to signal a turn back to the pro-privatization, free market-oriented policies of reformers under the former president, Ayatollah Mohammad Khatami, who aggressively, and successfully, courted foreign investment, mainly from Western Europe.

But Larijani’s speech is especially noteworthy because he was Iran’s top nuclear negotiator until he was ousted by Ahmadinejad for being too conciliatory towards the West. He was rescued from the political dustbin by Iran’s supreme leader, Ayatollah Ali Khamenei, who used his clout to install Larijani as speaker following parliamentary elections earlier this year.

Ironically, Khamenei had promoted Ahmadinejad during the 2005 elections in an effort to toughen up Iranian security to respond to pressure from the U.S. But in the parliamentary elections, Khamenei threw his weight behind Ahamdinejad’s rivals. Now, on the nuclear issue, Khamanei has again undercut Ahmadinejad and his circle, this time by making favorable remarks about the potential for the Geneva negotiations, as has Foreign Minister Manouchehr Mottaki.

– – – – – – – – – – – – – – – –

IT WAS these splits in the Iranian ruling class that apparently pressured Ahmadinejad into sending Iran back to the nuclear negotiating table.

Like George W. Bush, Ahmadinejad is increasingly seen as a lame duck, even though he’s eligible to run for reelection next year. As a result, he’s forced to take a more consensus-oriented approach to foreign policy–which means that if a strong section of Iran’s ruling circle want to avoid confrontation with the West, Ahmadinejad is obliged to let it play out.

There’s a similar dynamic at work in Washington, where foreign policy is increasingly set by the permanent U.S. State Department bureaucracy via Secretary of State Condoleezza Rice–along with the pronouncements of Democratic presidential candidate Barack Obama. “The judgments I’ve made over the past two years matched up with the realities on the ground,” Obama said of the U.S.-Iran meeting in Geneva. “That’s where U.S. foreign policy has to go.”

Rice’s approach has converged with that of the European powers–a ratcheting down of military threats against Iran in favor of concessions that require patience to achieve results. The deal was sealed during Bush’s tour of European capitals in June and allowed the U.S. to create a united front of the other four permanent members of the UN Security Council–Russia, China, Britain and France–as well as Germany, in dealing with Iran.

The decision by the Bush administration to send a high-ranking State Department official to join European negotiators in talks with Iran over its uranium enrichment program was, predictably, denounced by hawks like John Bolton, the former U.S. ambassador to the United Nations. Until now, the U.S. had demanded that Iran renounce its nuclear program prior to any high-level talks.

The fact that the July 19-20 talks in Geneva came less than two weeks after Iran test-fired long-range missiles was particularly galling to neoconservatives. Thus, Michael Rubin of the right-wing American Enterprise wrote that “President Bush’s reversal is diplomatic malpractice on a Carter-esque level that is breathing new life into a failing regime.”

Certainly, the right wing is frustrated, having wagered that the occupation of Iraq would be a springboard for regime change in Iran. But while the U.S. is tied down militarily in Iraq, U.S. imperialism has many more weapons at its disposal to go after Iran–and the more patient approach is starting to get results.

Ironically, the right-wing analysis of U.S. failure is mirrored by some on the left, who have concluded that the U.S. policy toward Iran has failed completely. “The overall U.S. strategy of containing Iran has failed in principle,” wrote Hannes Artens on the Foreign Policy in Focus Web site in an article headlined, “Iran Isolation Attempts Backfire.” “And the attempt to impose a sanctions regime on Iran has led to an erosion of U.S. strategic influence in Asia and the Middle East.”

Arten’s evidence for this is the prospect of a gas pipeline from Iran through Pakistan and India, which, he argues, presages a “new geo-strategic axis–Tehran-Islamabad-New Delhi-Beijing” that will “radically reshuffle the power structure in Asia and, with it, the global balance of power.”

But the actual construction of a pipeline is a long way off and could be derailed by India-Pakistan tensions, political instability in Pakistan itself, the threat of more sanctions from the U.S., and much more. Certainly, Iran will pursue any strategic counterweight to the U.S. that it can, but wishes and results are two different things.

In the meantime, the U.S. will use sanctions to lay siege to the Iranian economy, hoping to trigger a power struggle that would open the way to greater intervention later. And lest anyone think that sanctions are a humane alternative to war, consider the deadly effect of the economic embargo on neighboring Iraq during the 1990s.

While the threat of a military strike on Iran by the U.S. or Israel can’t be ruled out, for now, Washington appears to be content to let the damage to Iran’s economy accumulate in order to get what it wants. This is imperialist aggression by other means–and it must be opposed.

Readers are welcome to share and use material belonging to this site for non-commercial purposes, as long as they are attributed to the author and SocialistWorker.org.

see

War Party in a Bind: After Nuclear Talks in Geneva, Iran Will Likely Agree

Iran

How bad will it get? by Lee Sustar

Dandelion Salad

by Lee Sustar
http://socialistworker.org
http://socialistworker.org/2008/07/16/how-bad-will-it-get
July 16, 2008 | Issue 676

The institutions that were supposed to help provide a bailout for the housing crisis now have to be rescued themselves. Lee Sustar explains how two giant mortgage companies sponsored by the U.S. government got to the brink of bankruptcy.

THE EMERGENCY government intervention to support Fannie Mae and Freddie Mac, the government-sponsored agencies that own or guarantee nearly half of U.S. mortgages, is the latest sign of the deepening world financial crisis.

So alarming was the threat of a collapse by Fannie and Freddie that the biggest bank failure in 20 years, at mortgage lender IndyMac, took second place in the business press.

At least, that is, until the stock markets opened on July 14, when investors dumped stocks of other banks rumored to be in trouble. Wall Street analysts predict that as many as 150 more banks could fail in the coming months, virtually all as a result of mortgage-related losses.

But the bigger fear among politicians and investors was the liquidity crisis of Fannie and Freddie, the twin engines of the U.S. mortgage machine. A few months ago, the Bush administration allowed the two companies to reduce their capital reserve requirements to enable them to buy or guarantee $200 billion in mortgages.

With Wall Street investment banks stuck with housing-related losses and reluctant to buy mortgage-backed securities, the government pushed Fannie and Freddie even further into the role of picking up the slack. This, the argument went, would induce banks into making mortgage loans, thereby shoring up the collapsing housing market.

Meanwhile, the Democratic-controlled Congress raised the limit on the size of the loans that Freddie and Fannie are allowed to guarantee from $417,000 to $729,750 in 224 high-cost markets.

In the past, the two companies had been banned by Congress from purchasing or guaranteeing such jumbo loans, in part because Wall Street successfully lobbied to get that lucrative business for itself. But once the credit crunch hit, the investment banks that previously viewed Freddie and Fannie as rivals now demanded their help.

Thus, in entering the jumbo loan market, “Freddie said it will finance up to 90 percent of a property’s value, giving an instant source of liquidity to Wells Fargo Co., JPMorgan Chase & Co., Citigroup and Washington Mutual Inc.,” the Wall Street Journal noted then.

But instead of easing the crisis, Freddie and Fannie have been nearly overwhelmed by it.

The decline in the companies’ stock prices by 45 percent in one week reflected investors’ fears that the companies had an insufficient amount of capital reserves to compensate for losses resulting from foreclosures. The two companies have $81 billion in capital reserves–but that’s just 1.58 percent of their $5.1 trillion of investments and loan guarantees. Fannie has lost $7.2 billion since the middle of 2007, and Freddie has lost $4.6 billion over the same period.

To raise capital, Freddie proposed issuing stock worth $5.5 billion. But with share prices so low, this would have diluted the value of existing shares–and accelerated the decline of the stock price.

– – – – – – – – – – – – – – – –

THE CATASTROPHIC consequences of a failure by Freddie and Fannie–which were created by the federal government to assist the mortgage market, but are run as private companies–meant that some form of government intervention was inevitable. The only questions were what form it would take–and whether it would work.

So on July 13–in a Sunday announcement timed for the opening of stock markets in Asia–Treasury Secretary Henry Paulson declared that the U.S. government would stand behind the two companies.

The rescue consists of three parts: an unspecified expansion of the Treasury Department line of credit to the two companies; authority for the Treasury to purchase shares in the companies to help boost their capital reserves; and the ability to borrow at the Federal Reserve’s “discount window” for troubled banks. Paulson also proposed that Congress give the Fed new regulatory powers over the two companies.

It was the second major emergency intervention in four months by Paulson and Fed Chair Ben Bernanke. In March, the Treasury and the Fed teamed up to force the sale of the investment bank Bear Stearns to rival JPMorgan Chase at a fire-sale price–in order to prevent a bankruptcy that could have disrupted financial markets worldwide.

This time, the crisis is even more severe. “Freddie is insolvent, and Fannie is running on fumes. They’re going to end up being nationalized,” Len Blum of the investment bank Westwood Capital told Reuters. “The entire financial web depends on them. If they failed, it would make Bear Stearns look like a picnic.”

In fact, Paulson and Bernanke are trying to avoid nationalization–not least because taking Fannie and Freddie onto the government books would increase the U.S. national debt to more than $14 trillion overnight. At the same time, however, the two men were compelled to act decisively in order to preserve the credibility of the U.S. government and the financial system.

According to the most recent data from the Treasury Department, foreign investors own 21.4 percent of U.S. government agency debt–much of it from Fannie and Freddie. An outright collapse of the two companies would not only make these securities worthless, but create a crisis of confidence in U.S. Treasury bonds that finance the U.S. trade and budget deficits.

Letting Fannie and Freddie go under–as some right-wingers proposed on the grounds that the free market needed to right itself–would almost certainly trigger a world financial crash worse than anything since the Great Depression of the 1930s.

As a result, the Fed and the Treasury Department will do almost anything to protect bondholders in Fannie and Freddie. At the same time, Bernanke and Paulson are under pressure to boost the stock prices of the two companies, since shares in Fannie and Freddie are widely held by big mutual and pension funds. If the two companies’ stocks continue to slide, it will add to the fall of the stock market generally, particularly for financial institutions.

So Paulson, the former CEO of Goldman Sachs and an official in an administration supposedly committed to free-market solutions, declared that the U.S. Treasury might become a direct investor in Fannie and Freddie.

– – – – – – – – – – – – – – – –

HOW DID Wall Street get to this point? Right-wing critics of Fannie and Freddie have long claimed that the hybrid status of the companies violates the norms of the free market. Because they are government sponsored, the companies benefit from an implicit guarantee that the U.S. government would stand behind them in any crisis. Therefore, they could hold fewer capital reserves and borrow at lower interest rates than their private competitors.

At the same time, however, Fannie and Freddie were run like private companies for the benefit of shareholders. Their huge size and special quasi-governmental status gave them the ability to manipulate the political system even more effectively than their fully private rivals on Wall Street.

As the Washington Post reported, “a top lobbyist for Freddie Mac held more than 75 fundraisers for members of the House Financial Services Committee in an 18-month period several years ago, raising nearly $3 million, according to records brought to light in a federal investigation. The lobbyist’s fundraising dinners typically featured the committee’s Republican chairman at the time, Michael G. Oxley of Ohio.

“Those and other activities led to a record $3.8 million fine against Freddie Mac in 2006 for allegedly violating federal election law.”

The companies also protected themselves by hiring top officials from both Republican and Democratic administrations. Fannie, for example, hired former White House Budget Director Franklin Raines of the Clinton administration and Robert Zoellick, former U.S. trade representative under George W. Bush and now president of the World Bank.

These political connections ensured that even after Freddie Mac manipulated its earnings statements in 2003 and Fannie Mae did likewise in 2004, there were practically no consequences.

“For years, anyone warning that Fannie and Freddie should beef up their financial positions was ridiculed or run over by the lobbying machines these companies kept oiled and close at hand,” wrote the New York Times’ Gretchen Morgenson. “So their lucrative arrangement remained the same: business as usual, with all its riches, was the goal. After all, wasting money by inflating their cash cushions would just crimp their style.”

Even the market-fundamentalist Wall Street Journal editorial board argued that the U.S. government is better off making direct investments in the two companies rather than simply loaning them more money.

“We haven’t suddenly become socialists,” the Journal explained. “What taxpayers need to understand is that Fannie and Freddie already practice socialism, albeit of the dishonest kind. Their profit is privatized but their risk is socialized. We’re proposing a more honest form of socialism, with the prospect of long-term reform.”

When the Wall Street Journal calls for an “honest form of socialism,” you know the crisis is deep.

We were told a year ago that the mortgage crisis was “contained” to sub-prime mortgages issued by unscrupulous lenders to working people who couldn’t keep up with the adjustable rates. Next, we found out that the bad loans went far beyond the sub-prime market–and that the main players were the biggest names on Wall Street: Citigroup, UBS, Lehman Brothers, Bear Stearns and more. The amount of bad mortgage loans written off so far is $400 billion, and counting.

The result has been a credit crunch that’s squeezing the life out of the U.S. economy. But the Federal Reserve can’t cut interest rates any further to spur growth without aggravating inflation in food and oil prices. In fact, the latest injection of money into the system to support Fannie and Freddie will likely lead to a further decline in the value of the dollar and increase inflationary pressures.

The Bernanke-Paulson rescue plan may keep Fannie Mae and Freddie Mac afloat. But it won’t provide a solution to a financial crisis that looks likely to get much worse.

***

Readers are welcome to share and use material belonging to this site for non-commercial purposes, as long as they are attributed to the author and SocialistWorker.org.

see

Workers need bailout plan – Fed payouts to mortgage banks are a crime

Richard C. Cook: On The Eve of WW3 (videos)

Status Report on the Collapse of the U.S. Economy by Richard C. Cook

Engineered Collapse of the US Economy – Alex Jones interviews Richard C Cook

Ron Paul to Bernanke: Federal Reserve is a Predatory Lender

With Crises in Fuel, Food, Housing and Banking, What Gvt. Policies Are Being Pushed Through? (Naomi Klein)

Jim Rogers on Bloomberg 2008.07.14 (part 2)

Jim Rogers: Let the Fannie and Freddie go bancrupt

The Economy Sucks and or Collapse

What’s really happening in Venezuela? by Lee Sustar

Dandelion Salad

by Lee Sustar
SocialistWorker.org
November 30, 2007

VENEZUELANS WILL vote December 2 on constitutional reforms proposed by President Hugo Chávez and his supporters, capping weeks of sometimes-violent protests by right-wing opposition forces, a defection by a top Chávez political ally, and mass mobilizations by Chávez supporters.

LEE SUSTAR, recently returned from Venezuela, looks at the aims of Chávez’s proposals, the response of the opposition and the shape of Venezuelan politics today.

FOR THE U.S. mainstream media, Venezuela’s vote on constitutional reforms December 2 is simply the latest power grab in authoritarian President Hugo Chávez’s bid to crush dissent, make himself president for life and impose a state-controlled economy.

The view from the streets of the Caracas barrio of 23 de Enero, however, is very different.

A densely populated, impoverished neighborhood seldom visited by U.S. reporters, it is famous for its role in mobilizing in January 1958 to overthrow a Venezuelan military dictator on the date that gave the barrio its name.

These days, it is home to an active local branch, or battalion, of the United Socialist Party of Venezuela (PSUV, according to its Spanish initials). On a rainy mid-November evening, activists gathered to distribute copies of the proposed reform by going door to door.

Of the 30 or so people who turned out–all but four of them women–just two had prior political experience in Chávez’s original political party, the Fifth Republic Movement (MVR). Only one–Rosaida Hernández–is an experienced politico, having served as a functionary of the Fifth Republic Movement and won election to Caracas’ municipal council.

More typical was Iraima Díaz, a neighborhood resident in her 30s who had long supported Chávez and benefited from his government’s social programs, but hadn’t been politically active. “I got involved to solve the problems of my community,” she said.

Continued…

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Venezuela’s Constitutional Reform: Article-by-Article Summary by Gregory Wilpert

Chavez’s Speech: Go ahead, make my day By Joaquin Bustelo

Venezuelan Government Uncovers Video of Opposition Destabilization Plan by Chris Carlson

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News Not Fit to Print: US Coup Planned for Venezuela? By Dave Lindorff