Monday, March 31, 2008

Philippines: A dangerously crippling decision

This is from the Inquirer. This is typical of Arroyo's tricks in avoiding damaging testimony before hearings. She is fortunate as the article notes that the Court ruled in her favor. Note the article is by a Jesuit priest. Many of the Roman Catholic clergy are critical of Arroyo.

A dangerously crippling decision
March 31, 2008 00:30:00
Fr. Joaquin G. Bernas, S.J.
Philippine Daily Inquirer

MANILA, Philippines - Without resorting to the language of Governor Salceda, indeed it can be said that the President is the luckiest woman. The Court could have decided that Romulo Neri should answer the three questions pregnant with cloudy foreboding: (a) Whether the President followed up the NBN project; (b) Whether the President directed him to prioritize the ZTE; (c) Whether the President said to go ahead and approve the project after being told about the alleged bribe.

But the Court placed all three questions under executive privilege, and nothing derogatory to the woman, if there was any, as many thought, could come out.

The interest of this piece, however, is not about derogatory imputations but about the scope of executive privilege. Executive privilege, as almost everyone knows by now, is the prerogative of the President to withhold certain types of information from Congress, from the courts and from the public. It is a constitutional right of the President which she alone can claim, but she might also direct the executive secretary to claim it.

Thus, Secretary Ermita, presumably by authority of the President, wrote to the Senate: “The context in which executive privilege is being invoked is that the information sought to be disclosed might impair our diplomatic as well as economic relations with the People’s Republic of China. Given the confidential nature in which these information were conveyed to the President, he [Neri] cannot provide the Committee any further details of these conversations, without disclosing the very thing the privilege is designed to protect.” Neri also added (also by authority of the President?) that his answers might endanger national security.

The type of executive privilege claimed here is “presidential communication privilege.” Presidential communication is presumptively privileged; but the presumption is subject to rebuttal. Thus, whoever challenges it must show good and valid reasons related to the public welfare.

What reason did the Senate have? Recall that this was in the course of a legislative investigation occasioned by, among others, pending bills about foreign loans. The topic of foreign loans is special. It is not the sole domain of the President. Under our Constitution foreign loans may be incurred by the President but only with the prior consent of the Monetary Board and in accordance with laws passed by Congress. Hence the Senate had very good reason for finding out how the ZTE-NBN loans were handled and how the very unique experience under it which had attracted national interest could contribute to legislation.

When the claim of privilege is disputed by Congress, how and by whom is the dispute to be resolved? US decisions, strewn all over Justice Leonardo-De Castro’s ponencia, say that it is the Court that decides whether the claim of privilege has foundation.

That was the reason why the Court called for the oral argument on the subject. The Court wanted to find out, without compelling Neri to reveal legitimate secrets, how Neri’s answer might affect diplomatic relations and national security. As Chief Justice Puno observed, “The Court cannot engage in guesswork in resolving this important issue.”

Neri was not at the oral argument to explain. When his lawyer was asked to explain, Neri’s lawyer was clueless. His answer, repeated like a mantra, was “I cannot fathom.”

One might also add that, if there was any possible cause for impairment of diplomatic relations with China, one such possible cause would have been the cancellation of the contract. But no diplomatic problem arose from the cancellation.

The Court could have asked for an in camera session for Neri to explain his claim within the hearing of the Court alone. Such a procedure, followed by American practice, could have enabled the Court to sift what was privileged and what was not and then to allow the revelation of what was not privileged. But the Court did not use the procedure, probably because it was already obvious from the oral argument that the claim of privilege could not be sustained. It was, to paraphrase Neri’s lawyer, unfathomable.

But, lo and behold, the ponencia ruled that the matter was covered by executive privilege. Was it fathomed by guesswork, as Puno suggested? That is the way it looks to me.

The implication of this ponencia that shows no effort to look into the underlying substance of the claimed privilege is that once the claim of “presidential communication privilege” is claimed, no evidence is needed to support it even if there are legitimate reasons calling for disclosure. This would revolutionize the doctrine on executive privilege in a manner that can affect all other investigations. This can, for instance, hamper effective use of the recently promulgated writ of amparo and writ of habeas data. It can also cripple efforts to battle official corruption, which is a world-recognized specialty of the Philippines.

But did the Neri decision establish this paralyzing and stifling doctrine? We need to count heads. Two of the nine Justices concurred merely in the result without bothering to explain their concurrence. One Justice chose not to argue from executive privilege. That leaves six of the nine. Six out of 15 do not establish a doctrine, especially since the six concurring opinions might just as well have been unwritten.

The case clearly calls for a reconsideration to give the Court a chance to clarify what doctrine of executive privilege it really wishes to establish. Does the Court want to sublimate guesswork?

Rev. Jeremiah Wright's Sermons

This is a more extensive analysis of Wright's sermons than one gets in the sound bytes characteristic of much mainstream media. However, some of his views about AIDS and HIV really seem to be conspiracy theorists dreams or nightmares. However, this article at least makes such views understable within the social context of Wright's sermons.

Chicago Tribune - March 28, 2008
sermon_29mar29,0,1943334,full.story>

Wright's sermons fueled by complex mix of culture, religion

By Manya A. Brachear Tribune reporter

On the Sunday in 2003 when Rev. Jeremiah Wright Jr. shouted "God damn
America" from the pulpit of Trinity United Church of Christ, he
defined damnation as God's way of holding humanity accountable for
its actions.

Rattling off a litany of injustices imposed on minorities throughout
the nation's history, Wright argued that God cannot be expected to
bless America as the anthem requests unless it changes for the
better. Until that day, he said, God will hold the nation accountable.

And that's when Wright uttered the three infamous words that have
rocked Sen. Barack Obama's presidential campaign.

Not long after a Democratic front-runner emerged from the pews of
Wright's church, the pastor's long-winded oratory found itself at
odds with the sound-bite culture that feeds the 24-hour news cycle
and YouTube. Thirty-second snippets of 30-minute sermons led pundits
to question how Obama could remain a member of Wright's flock.

Examining the full content of Wright's sermons and delivery style
yields a far more complex message, though it's one that some will
still find objectionable. For more than 30 years every Sunday, Wright
walked churchgoers along a winding road from rage to reconciliation,
employing a style that validated both. "He's voicing a reality that
those people experience six days a week," said Rev. Dwight Hopkins, a
professor at the University of Chicago Divinity School and Trinity
member. "In that sense, he's saying they're not insane. That helps
them to function the other six days of the week."

Appearances canceled

Wright preached his last sermon at his "unashamedly black,
unapologetically Christian" church in February but does not
officially retire until May 31. Wright had been scheduled this week
to speak publicly for the first time since debate over his remarks
erupted this month, but those stops in Florida and Texas were
canceled because of security concerns. Efforts to interview him for
this story were unsuccessful.

Obama has denounced Wright's most provocative remarks, but in a
speech on race last week he defended Wright as a person and refused
to disown him as his pastor.

Wright's preaching, which mixes theology with the often-troubled
history of race relations in America, is in the "prophetic"
tradition, one of many that have evolved in black pulpits.

Shocking words like "God damn America" lie at the core of prophetic
preaching, said Rev. Bernard Richardson, dean of the chapel at Howard
University. "The prophets in Scripture . . . their language wasn't
pleasing to hear, and sometimes we need to be reminded of that," he
said.

Some pastors and scholars criticize Wright for not moving beyond the
struggles of the civil rights era. Others say his messages are too
divisive and political. Some say he just goes too far.

Wright "goes beyond the bounds. That's why it's so hard to translate
and why excerpts don't do well," said Rev. Martin Marty, a retired
professor at the University of Chicago Divinity School. "In today's
world, where you can debate these things instead of blast away like
the prophets did, it's sort of an alien language for most people."

But while the rhetoric may come across as harsh, experts say its goal
is to convince bitter skeptics that reconciliation is indeed possible.

"The anger comes from compassion," Richardson said. "It can feel
hard. It can sound hard. It's cutting. It cuts to make you whole and
bruises to heal you."

Wright's sermons closely follow the prophetic formula. Taking a
biblical text, he analyzes the history and language, highlights the
personal pain likely shared by people in the pews, calls out similar
injustices in today's society and emphasizes that God always
provides. His delivery is often provocative, sometimes even raunchy.

But the most provocative passages often don't convey the entire point.

For example, on the Sunday after the terrorist attacks of Sept. 11,
2001, Wright preached for the first time in three decades on the
"brutally honest" last verses of Psalm 137, which he said "spotlight
the insanity of the cycle of violence."

The sound bite taken from the sermon is something Wright on that day
termed a "faith footnote," in which he used the phrase "chickens are
coming home to roost" to sum up what U.S. diplomat Edward Peck had
said in a TV interview. Malcolm X expressed the same sentiment after
the John F. Kennedy assassination. But critique of foreign policy was
not Wright's central topic.

In January, shortly after former President Bill Clinton referred to
Obama's campaign as a fairy tale, Wright told his flock: "Bill did
us, just like he did Monica Lewinsky. He was riding dirty."

Beyond that racy dig, however, the sermon seeks to admonish members
who may vote for Hillary Clinton because they think a black candidate
can't win. Wright likened their doubt to the doubt of Jesus'
disciples who did not believe he could feed a crowd with five loaves
and two fishes.Wright's recent comment that Hillary Clinton would
never know what it feels like to be called the N-word also touched
nerves. But Wright had his reasons for using that term, said Rev.
Frederick Haynes III, a Wright protege.

'From a different time'

"People need to understand how profoundly painful that word is," he
said. "It speaks to an experience. He came from a different time.
Because of the time he came from, he's not going to just flippantly
go along to get along in terms of how that word has hurt him in the
past."

Wright's fans describe his wrath as a "righteous anger." But critics
say it can cloud the Gospel message he is trying to preach. Rev.
Winfred Neely, associate professor of pastoral studies at Moody Bible
Institute, said that while churches should offer social critique,
Wright's presentation is too ethnocentric.

"I don't think some of the critiques were offered in love for
people," Neely said. "I think they were born of his own personal
anger . . . and not necessarily a critique coming out of a
heartbroken pain over the fact that God is being dishonored by what
is going on in society and culture."

Marty said he thinks Wright crosses a line when he equates American
power with white power. He also believes that both Wright's praise of
Nation of Islam leader Louis Farrakhan and Wright's stated belief
that HIV and AIDS were created to destroy the black community damage
his credibility.

But Wallace Best, professor of religion and African-American studies
at Princeton University, said that conspiracy theory is largely a
product of Wright's generation, which recalls experiments in which
black men with syphilis went untreated in the name of science.

"If put in context of the tragic history of what it means to be black
in this country, to think that a government would inflict a virus on
black people is not as far-reaching an idea as we've been led to
believe," Best said.

As for Wright's friendship with Farrakhan, Richardson said that might
be a fair litmus test for a politician seeking popular support but
not for a pastor.

Best, who teaches a course on preaching in America, questions the
sudden disdain for Wright's sermons, which are part of a tradition
around for two centuries.

"It's not like people should be surprised that they peer into a
church on the South Side of Chicago and the minister there who has
the obligation to uplift his people would be speaking in such a way,"
he said.

Last week, Best assigned his students a 1852 speech by Frederick
Douglass on the meaning of July 4 for African-Americans.

"I had my students read that and imagine that Jeremiah Wright could
be saying the same things," Best said. " 'There is not a nation on
earth guilty of practices more shocking and bloody than are the
people in the United States.' Put that on YouTube and spin it around."

___________________________________

Philippines to upgrade facilities at disputed Spratlys chain

Vietnam, China, and the Philippines have some joint exploration agreement. I wonder where this leaves Malaysia and Brunei. Does China hold that Taiwan's claim is actually a claim of its own!! This is from ABC (Australian Broadcasting)

Philippines to upgrade facilities at disputed Spratlys
Air force chief, Lieutenant General Pedrito Cadungog says the airstrip at Kalayaan island will be lengthened and repaired to ensure air force transport aircrafts can continue to land there.

General Cadungog says the improvements which includes an upgrade of troops quarters should not be seen as a military buildup.

The Spratlys believed to be rich in oil and gas deposits -- are claimed in full or in part by Brunei, China, Malaysia, the Philippines, Taiwan and Vietnam.

All but Brunei have troops posted on some of the islands.

Americans in Green Zone under siege.

This is from Salon via Der Spiegel. The Americans have already been dragged into the fighting via way of air attacks. No one seems to even mention that the use of air attacks in an urban area is bound to cause many civilian casualties as well as turn many Iraqis against the occupiers. Those who lose family members are likely to join the insurgency.

http://www.salon.com/news/feature/2008/03/28/green_zone/print.html







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Americans in Green Zone under siege
Fighting between militants and the Iraqi government has threatened what was once the best-secured district in Baghdad.
By Dieter Bednarz

Mar. 28, 2008 | Sarah is not the type of woman who loses her cool very easily. As an employee of the U.S. State Department, she has seen too much for that. Her superiors in Washington have repeatedly sent her to the world's hot spots. Now Sarah works as a "special agent" in the personal protection unit of the U.S. Embassy in Baghdad, where she is responsible for the security of high-ranking guests.

Since Tuesday, it has been Sarah's job to look after German politician Elke Hoff. And, since Wednesday afternoon, Sarah has occasionally had to address her charge -- "Sorry about that, ma'am!" -- more forcefully than usual: "Hurry up! We have to duck and cover."

Sarah already has helmets and bulletproof vests at the ready when she and her security team urge a small delegation of members of the German parliament, the Bundestag, to board an armored personnel carrier. The sound of incoming rockets and grenades isn't long in coming.

The security team doesn't tell the German delegation where exactly the missiles have landed. Having to admit that attacks are taking place in the Green Zone, the best-secured district in the Iraqi capital, is already embarrassing enough. And because the attacks continue into the afternoon, long-scheduled meetings between parliamentarian Hoff, a member of the liberal Free Democratic Party, and high-ranking Iraqi politicians, including former Prime Minister Ibrahim al-Jaafari, have to be canceled "for security reasons."

The attacks on the "I.Z.," or "International Zone," as the U.S. military has dubbed the former Karkh neighborhood, represent one of the biggest challenges to the American forces in Iraq to date. The enclave covers fewer than seven square kilometers (2.7 square miles) and houses the headquarters of the U.S. armed forces and their allies. Until the beginning of the week, the enclave was considered the safest place in a country plagued by violence and terror.

Former Iraqi dictator Saddam Hussein chose the area, which is strategically located along a bend in the Tigris River, as the site for his palaces. The hangers-on of the regime lived there, and only the despot's most loyal henchmen were allowed in.

The country is still ruled from this neighborhood today, and access hasn't become much easier. Tens of thousands of soldiers and diplomats live and work behind roof-high concrete walls. An estimated 4,000 people, most of them soldiers and security personnel, live on the grounds of the U.S. Embassy in a former Saddam palace.

The huge area is like a "Little America" in the midst of this hostile country. Even though the number of attacks has declined by about half compared with what it was like during the height of insurgent activity three years ago, Western news agencies still counted 455 attacks throughout Iraq last week. Foreigners -- and especially Americans -- can only feel safe in their I.Z.

The unrest in the Green Zone continued Thursday. Reuters reported that a giant column of black smoke could be seen near the U.S. Embassy after what was believed to be a mortar strike on a former palace of Saddam that is being used as a headquarters for American civilian and military personnel. However, an embassy spokeswoman said there had been no serious injuries or deaths as a result of the attack. Four people, including two U.S. civilians, were wounded by mortar attacks in the Green Zone Wednesday.

The special zone also has room for some privileged Iraqis. The Green Zone is home to Prime Minister Nouri al-Maliki, who has his office there, and to the most important ministries. The Iraqi parliament has taken up temporary quarters here, in a former conference center Saddam had built in the early 1980s. It is also home to influential Iraqis such as Sunni member of parliament Mithal al-Alusi. Al-Alusi is one of the most popular politicians in postwar Iraq and hence one of the people the Hoff delegation had arranged to meet.

Al-Alusi has gotten used to the fact that his life is in danger. It used to be threatened by Saddam and his intelligence services, and today it is threatened by insurgents such as the militia headed by Shiite cleric Muqtada al-Sadr. Al-Alusi also blames the Badr Brigades for the rocket and mortar attacks of the past few days. The attacks, says an outraged al-Alusi, are a "targeted provocation."

Al-Alusi is also one of the few to hazard an explanation: America's two highest-ranking representatives in Iraq -- Gen. David Petraeus, the top commander in Iraq, and ambassador Ryan Crocker -- are scheduled to deliver their reports on the situation in Iraq in one week. According to al-Alusi, the security analyses destined for Washington will not conclude that "the Americans have the situation under control," at least not if "Sadr and his backers in Iran have their way."

No one doubts that the fanatical cleric hates the Americans more than anyone and wants to drive them out of the country as quickly as possible. It is also considered likely that Sadr is in league with his fellow Shiites in Tehran. According to Western security experts, the most recent proof of al-Sadr's Tehran connection is the fact that the projectiles landing in and around the Green Zone are Iranian made.

The attacks on the high-security zone are also intended to strike the Iraqi government of Prime Minister al-Maliki, a Shiite. Some political observers in Baghdad are even convinced that the mortars and rockets are aimed more at the prime minister than at the Americans. The secular al-Maliki declared war on religious fanatic al-Sadr a few days ago.

Since last weekend, government troops have started energetically pursuing "terrorists, bandits and a few foreign elements," as government spokesman Ali al-Dabbagh cautiously puts it. Al-Dabbagh, an experienced diplomat, falls short of saying that the true target of the government's attack is al-Sadr's militia, which has apparently developed its bastion in the south and has received reinforcements in the form of Iranian fighters.

Nevertheless, al-Dabbagh is quick to emphasize the successes of the Iraqi government troops. In the capital there are increasing reports that the government's enemies are retreating across the border into another country. No one mentions that the country in question is Iran, probably out of consideration for Baghdad's new partnership with the regime in Tehran.

Iranian President Mahmoud Ahmadinejad's visit to Baghdad early this month was still a "historic event" for the Iraqi government, especially in light of the fact that former dictator Saddam plunged both countries into an eight-year war that claimed millions of lives. Now, though, Baghdad and Tehran are planning economic cooperation programs worth billions of dollars -- much to the chagrin of George W. Bush.

Washington also appears to be doomed to impotence when it comes to the attacks on its only true stronghold in Iraq. The attacks are said to come from the city's eastern part, which is controlled by al-Sadr and his militia. The insurgents apparently launch their rockets and mortars from movable ramps and then immediately disappear into the densely populated neighborhoods.

Officials on the grounds of the U.S. Embassy say that the insurgents are trying to draw the Americans into a trap that would force them to launch "aerial attacks with many dead and wounded." Besides, the Americans can hardly afford grueling house-to-house combat in the al-Sadr-controlled neighborhood, especially after the U.S. armed forces reported this week their 4,000th death in Iraq.

As a result, the Americans have limited themselves to ducking, at least for the time being, even in front of political visitors like German parliamentarian Hoff, to whom it had hoped to present a picture of progress in Iraq.

On Tuesday evening, the "esteemed guest" from Berlin, whose safety the U.S. Embassy had assumed responsibility for, was moved to new quarters -- from the Al-Rashid Hotel on the edge of the security zone, where government guests stayed in the days of Saddam, to the U.S. Embassy. The small German delegation will be flown out Thursday -- ahead of schedule.

Translated from the German by Christopher Sultan.



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This article has been provided by Der Spiegel through a special arrangement with Salon. For more from Europe's most-read newsmagazine, visit Spiegel Online or subscribe to the daily newsletter.


-- By Dieter Bednarz


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Sunday, March 30, 2008

China and the World Market

This gives a short summary of the Communist Revolution in China and then discusses the policy and economic changes since 1978 when the first market reforms were started that gradually led to the resotration of capitalism.

The B u l l e t
Socialist Project • E-Bulletin No. 94
March 30, 2008

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China and the World Market:
Thirty Years of the ‘Reform’ Policy
Gregory Albo
It is now thirty years since the People’s Republic of China announced its market reform policy at the Third Plenum of the 11th Central Committee of the Chinese Communist Party (CCP) in December 1978, under the then new leadership of Deng Xiaoping. The policy followed the death of Mao Zedong in 1976 and the purging of ‘leftists’ in the Party and the state, symbolically represented by the trial of the ‘Gang of Four.’ The policy was the declaration of the end of ‘Maoism’ as the economic and political framework for the Chinese revolution, although Maoism has continued to endure as a source of ideological legitimacy for the CCP.

At the Third Plenum, the Central Committee declared an end to class struggle of a “mass” kind and a focus of “Party work on socialist modernization.” This was to be accomplished by combining “adjustment by the market” with “adjustment by the plan.” It meant introducing market reforms and disciplines into collectivist agriculture in the countryside and state-owned enterprises (SOEs) in the cities. It was tied to the ‘open-door’ policy of 1979 to increase flows of foreign trade and finance, the development of special economic zones for unfettered capitalist factories utilizing cheap, and most often female and migrant, labour close to Hong Kong and Taiwan in Guangdong and Fujian provinces, and the formalizing of diplomatic relations with the USA. The opening of the collectivist economy to market forces inside China and integration into the world market was to be via the guidance of the CCP and without political democratization. China’s market-opening policies of 1978, in this wider sense, remain the guiding policy for China and the CCP. The Deng leadership would term this policy ‘socialism with Chinese characteristics.’ It would actually mark the transition to capitalism in China.

The Chinese Revolution
The Chinese Revolution of 1949 was led by the CCP, under the leadership of Mao, and emerged out of a confluence of war, internal political collapse, and peasant rebellion. Not the least of these was the subordination of China in the world market, and more than a century of humiliation by colonial domination, the division of China by the imperialist powers, and ineffective opposition by despotic emperors and the dictatorship of Chiang Kai-Shek. The revolutionary government inherited a deeply backward feudal economy, with only enclaves of capitalist markets largely dominated by foreign capital, and a bureaucratic state directed at extracting as much of the economic surplus out of the peasantry as possible.

The core of the Chinese development strategy was similar to the Soviet economies: the means of production nationalized as state property; central command planning; building up of heavy industry; protective security without political rights for workers and peasants; suppression of the consumption levels of workers and peasants to maximise the potential economic surplus; and conversion of the surplus into high rates of investment in infrastructure and industry. With its enormous peasant population, agricultural collectivization and a village commune system also became a central component of Chinese development.

As with other revolutionary regimes, the imperialist powers broke trade linkages and isolated China from the world market. Great political campaigns and social upheavals over how to drag China out of its isolation and backwardness, configured as a debate between ‘leftists’ and ‘capitalist roaders’, ensued. The first decade of the revolution brought land reforms, nationalization of foreign capital, collectivization and the first five year plan. The ‘Great Leap Forward’ of 1958-60 attempted to use mass political mobilization to advance self-reliant productive capacity via the expansion of the village commune system. The ‘new economic policy’ and the ‘Four Modernizations’ that followed increased the space for market activity, and adopted a technocratic model of central administration with a focus on science and technology. This strategy was disrupted by Mao’s last political campaign, the ‘Cultural Revolution’ from 1966-69, to deepen collectivism and root out bureaucratic conservatism, before slowly emerging again in the 1970s in the internal CCP political struggles that preceded Mao’s death.

It is hard to dispute the accomplishments of the first decades of the revolution for Chinese modernization. From the 1950s to the mid-1970s, average industrial output grew by about 11 percent a year and built productive capacity across virtually all sectors. Mass famines (except for the period of the Great Leap Forward) and pestilence were wiped out; medical services for the masses meant infant mortality rates and life expectancy advanced ahead of all other low income countries; mass education was provided for all, with many peasants even gaining access to university education; efforts at ‘equalising’ social relations in all spheres were undertaken; and the ‘iron rice bowl’ provided social security for all Chinese people. Two areas, however, lagged in performance: food production consistently grew but only doubled its output in this period and just matched population growth, barely raising peasants’ money incomes; and consumer goods production grew at only half the pace of heavy industry.

Market Policies Since 1978
The political failings of the Cultural Revolution provided the space for the return of the ‘Four Modernizations’ policy in the 1970s and eventually the market-opening policies of 1978 noted above. These policies, in turn, generated additional market building policies. In the initial period of 1978-83, the SOEs were given greater enterprise autonomy, including over employment terms for workers, sales of goods once planning targets were met, and control over the re-investment of earnings. Small enterprises were allowed, with limits on the number of employees abolished in 1987; they grew from a few hundred to over 4 million by the mid-1980s. Collective enterprises were also greatly expanded. In 1980, the de-collectivization of agriculture began with almost all peasants becoming dependent on the market for sale of their produce under the household responsibility system. The Maoist commune structures were replaced in 1982 by the Township and Village Enterprises (TVEs). By the early 1990s, these locally-based market enterprises numbered 25 million and employed 125 million workers.

The Third Plenum of the 12th Congress of the CCP in 1984 endorsed the notion of a “planned commodity economy.” SOEs were to finance more of their own operations and subjected to profitability criterion; TVEs were given increased autonomy to respond to market forces. A process of price reforms was started to move away from state-set prices to market pricing. Reforms were also begun to universalize the commodification of labour in the state sector that was already occurring in the private sector and in the special economic zones. Enterprise rights to set contracts were expanded, and new workers hired would not be subject to social protections such as healthcare, pensions, and job security. In 1987, the CCP announced a policy to develop an “export-oriented economy.” This further expanded the special zones to encompass almost all the coastal area, formalised that foreign investors would no longer be required to seek out joint ventures, and promoted even more tax and regulatory breaks for foreign capital. In the decade from 1978 to 1988, foreign trade quadrupled as foreign capital poured in and Chinese export capacity increased.

The 14th Congress of the CCP in 1992 committed to a “socialist market economy.” The slogan represented a final push by the Deng leadership to consolidate the development of capitalism in China. The mass privatization of SOEs took numerous forms, including the sale of shares on the newly opened stock exchange in Shanghai. Former managers, party cadres, and connected CCP family members turned themselves into capitalist entrepreneurs by seizing SOE assets, more often than not by various means of corruption. This was also the case for the TVEs in the countryside. From providing about half of manufacturing employment in 1978, SOEs had only 15 percent in 2001. The 1994 labour law reforms for SOEs generalized the contractual status of wage-labour and further ‘smashed the iron rice bowl.’

The 16th Party Congress in 2002 adopted the strategy of the “Three Represents,” which included representing the most advanced productive forces. Capitalists were thus welcomed to join the CCP; a policy to attach party committees to private companies logically followed.

The Imbalances of Chinese Capitalism
The thirty years of market reforms have brought immense changes to China’s place in the world market. The reforms evolved through a cycle of extraordinary booms followed by slowdowns to contain inflationary pressures. Severe imbalances remain characteristic of China’s capitalist model of development.

Since abandoning the collectivist policies of the Maoist period, China has pursued high growth at all costs, with Deng and his successors ridiculing any efforts to lower the growth rate to meet social or ecological needs. This has sustained Chinese growth rates at over 10 percent per year since 1978. China will soon be the second largest economy in the world, and is steadily closing the gap with the USA. On a per capita GDP basis, however, China remains a poor country at about $2800 (U.S.).

The growth of trade and exports has been an important component driving economic growth. The share of exports in China’s GDP in 1978 was under 5 percent. It had grown to about 25 percent when China entered the World Trade Organization in 2001, and now stands at about 35 percent. China will soon be the word’s largest trading nation. This growth is becoming somewhat less dependent upon exports to the U.S. as trade to the rest of Asia in particular grows, and China’s internal investment and home market increases in size.

However, export-led growth remains critical with the current account monthly surplus is estimated to be running about $25 billion and 12 percent of GDP for 2008. As a result of this long period of trade surpluses, China is now holding about $1.5 trillion in foreign exchange reserves, largely in U.S. dollars. The forex holdings partly arise from the effort to keep the renminbi at highly competitive exchange rates to sustain export-led growth. On the one hand, this adds to inflationary pressures particularly evident in the run-up in stock and real estate values. The large holdings of U.S. dollar-based assets by the Chinese central bank are also subject to losses from both low returns and the slide in the value of the U.S. dollar. On the other hand, the foreign reserves provide a platform for the internationalization of Chinese capital. Chinese private capital and state agencies, for example, have taken equity positions in Barclay’s, Citibank, Bear Stearns, and others. And Chinese capital is actively engaged in an acquisitions surge around the world.

From the outset, foreign capital exploiting Chinese labour has been integral to the growth in trade and the market reforms. China is the largest recipient of foreign direct investment in the world, with estimates of half of Chinese trade occurring in foreign enterprises in 2001, and accounting for just under 10 percent of gross capital formation since 1978. The export sector has been crucial to multiplying the supply and commercial commodity chains into new industrial regions extending beyond the huge coastal cities.

The external imbalances speak directly to the internal imbalances of China’s capitalist growth processes. This has been growing through time as consumption and incomes in China have been growing more slowly than rates of growth in investment and exports. While many Chinese have moved out of poverty and found work in formal employment, the conditions for the estimated 350 million Chinese waged workers remain difficult. Most estimates put the average manufacturing wage at well under $1 per hour, and an average workday of 11 hours (and 6 to 7 days a week). In the special economic zones, conditions are often worse. Irregular employment now claims more than one-third of urban work, and official open unemployment is now at about 10 percent. Surplus value is being extracted from Chinese workers, especially female and migrant workers, at exceedingly high rates of exploitation.

In rural areas, de-collectivization initially raised incomes from increased land utilization and government price supports. Some peasants have continued to prosper. But most have remained impoverished as low prices, soil depletion, and tiny plots have left incomes stagnant for more than two decades. In many areas, privatization has also ended access to health services and even education for many peasant households. Of the one in four Chinese estimated to still be living on $1 U.S. per day, most are in the countryside. This is fuelling perhaps the greatest migration in world history, particularly of women, into the cities. In Beijing, for example, 4 million of the 20 million in the greater urban area are said to be migrant workers, many lacking protections at work and access to social services.

The reckless pursuit of high growth has also caused huge ecological imbalances. Enormous damage has been done to China’s magnificent river system from dumping by factories. The drive for foreign capital all costs has turned some of the coastal areas into a dumpsite for the world’s toxic wastes. With the massive growth in energy demand and reliance on fossil fuels and coal, China is now the world’s largest emitter of greenhouse gases. Air quality is also suffering, with many thousands dieing prematurely as a result. China’s environmental laws are formally no different from some of the best world standards. But the pressures of market driven growth and official corruption has left them not enforced.

Chinese Socialism Renewed?
China is now securely integrated into the circuits of capital as one of the dominant poles of world accumulation. The CCP, with its some 74 million members, has remained in control of this process, neither repudiating the revolution nor socialism as the basis for its ideological legitimacy. As with Deng’s initial turn to ‘market socialism’ in 1978, the recent policy for a ‘harmonious society’ of the current Hu Jintao and Wen Jiabao leadership, as stated at the National People’s Congress in 2005 and during the 17th CCP Congress in October 2007, was put forward within these terms. This is the contradiction at the centre of the evolution of the market reform policy: the CCP set in motion, directly and indirectly, the social forces and market imperatives leading to the development of capitalism in China in the name of building socialism.

The legitimation of market liberalisation in terms of socialist and Maoist thought has, paradoxically, served as a means ‘de-ideologize’ the process and ‘depoliticize’ Chinese society. Although authoritarian measures to put-down with force democratic uprisings have been regularly deployed, such as against the Democracy Movement of the late 1970s and at Tiananmen Square in 1989, or against worker and peasant demonstrations, the party-state has been most effective in maintaining its ideological legitimacy as defender of the revolution and the nation.

The space for political struggle that might create an alternate trajectory for Chinese development has thus been powerfully contained. A measure of civil activism and liberalisation, partly pushed by the new urban middle class for increased accountability and participation, and partly by peasants and villagers fighting for their rights, has been channelled through the party and state apparatuses. This has been the case, for example, with many ecological and anti-corruption campaigns. The some seventy to eighty thousand incidents of protests, illegal strikes and civil unrest reported to be occurring annually across China now, however, speak to deeper conflicts that the existing state and development model have not been able to absorb. These include the large numbers of protests by peasants fighting for their land tenure rights and workers, particularly female and migrant workers, struggling for their organizational rights and against exploitation in the capitalist factories and construction sites of the coastal cities.

The civil unrest has had difficulty moving from spontaneous resistances to organized anti-capitalist protest. Some support for these protests may be found in the ‘old left’ in the All-China Federation of Trade Unions (ACFTU) and the CCP who remain committed to the original values of the revolution. However, these are now marginal currents in formal party-state institutions. Some ‘Maoists’ also maintain a base amongst peasants and workers. But the protests and strikes occur in relative isolation, linked only by minimal means of communication. The protests also remain, at this point, largely separated from a significant ‘new left’ forming in intellectual, student and other circles in the urban centres and universities. The formation of connections across these locations is where an alternate development trajectory for China most likely resides. As the Hu and Wen project for a ‘harmonious society’ falters in addressing the imbalances of China’s market-driven development model in the next years (and the many unaddressed internal national issues in Tibet and other territories continue to fester), the protests and connections are apt to grow. For Chinese workers and peasants, this is the political space in the making for the renewal of Chinese socialism. •

Gregory Albo teaches political economy at York University.


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Recflation

We have all heard of Stagflation. I just wonder if we will not see a period of Recflation (RECession and inFLATION) in the U.S. and elsewhere. By increasing the supply of money and lowering interest rates the Feds in the U.S. are making other goods more expensive. Add to this the fact that basic foodstuffs are increasing in price because of decreased supply, and increased costs for transportation, packaging, etc. The high price of oil increases the price of fuel, transportation, and all products such as plastics that depend on oil production. Diversion of agricultural production into ethanol does not help either.
Of course some areas such as house prices will see falling prices but in other areas prices may still rise because demand is inelastic or increasing as with global demand for food.

Philippines hit by high global rice prices

This is from Australian Broadcasting. Vietnam along with some other Asian countries has moved to limit exports in order to have sufficient supply domestically.
Given the corruption within the Arroyo administration it remains to be seen how effective Arroyo's steps to improve the situation will be.

Philippines hit by high global rice prices

[This is the print version of story http://www.abc.net.au/ra/news/stories/200803/s2202625.htm]


Philippines hit by high global rice prices
Updated March 29, 2008 18:23:43



Commercial rice prices in Philippine markets have doubled in the past days, amid a tight global supply and denials by government officials of a shortage.

Shirley Escalante reports from Manila.

Rice prices in Manila have soared to as high as a dollar and 15 cents a kilo from as low as 50 cents a kilo a week ago. People in the countryside have started complaining of a lack of supply of cheaper, government-subsidized rice in the market. Meantime, President Gloria Arroyo convened her cabinet officials to discuss measures to sustain the country's rice supply and to control soaring prices. She ordered finance officials to relax tariff rates on rice, and wants a moratorium on the conversion of agricultural land, particularly rice land, to residential areas and golf courses. Authorities have also began inspecting rice warehouses and apprehending rice hoarders. Two provincial officers of the National Food Authority, the government agency which controls rice stocks, have also been suspended for failing to stop rice hoarders.






© 2008 Australian Broadcasting Corporation
Copyright information: http://abc.net.au/common/copyrigh.htm
Privacy information: http://abc.net.au/privacy.htm

Iraqi officials in talks with Sadr group to stop fighting.

This is from SMH.Probably the U.S. was urging Maliki to attack Sadr's militia guaranteeing him backup, a backup that has been increasingly evident. This can do nothing but damage Maliki's credibility such as it is. If the war goes sour again as it probably will unless there is a renewed agreement on a ceasefire this could damage McCain's chances and make it difficult for the Democratic candidate to avoid promising a genuine pullout. Note that Sadr's is not the only militia in Basra just the one whose power Maliki and the U.S. wants to curb. Note that the negotiations are not for the Sadr group to lay down arms but to stop fighting. The ultimatum is obviously a no go.



Iraqi officials in talks with Sadr group to end fighting
Representatives of radical cleric Moqtada al-Sadr and the Iraqi authorities have begun talks to end fierce fighting between security forces and Shiite militiamen that has killed several hundred people, an aide to Sadr said on Sunday.

"Negotiations between the Sadr movement and an Iraqi government delegation started last night (Saturday) and are going in the right direction to solve the crisis," Salah al-Obeidi, Sadr's spokesman in the shrine city of Najaf, told AFP.

The talks began hours after Sadr ordered his followers to defy a call by prime minister Nuri al-Maliki to lay down their arms in the southern port and oil hub of Basra, the flashpoint of the brutal clashes.

"These are the first direct negotiations between the two sides to try to resolve the crisis," said Liqa al-Yassin, a Sadrist MP.

It was unclear if the talks had resumed on Sunday.

Both the Iraqi capital and Basra remained under curfew on Sunday amid the deadly standoff between the Iraqi security forces and Sadr's feared Madhi Army, the most powerful Shiite militia in the violence-ravaged country.

Maliki had given a 72-hour deadline to Shiite fighters in Basra to disarm after launching an offensive against them last Tuesday.

The deadline expired on Friday.

"Sadr has told us not to surrender our arms except to a state that can throw out the (US) occupation," Haider al-Jabari of the Sadr movement's political bureau told AFP on Saturday.

The same day, Maliki vowed to press on with his assault in Basra, saying the militiamen were "worse than Al-Qaeda."

"Unfortunately we were talking about Al-Qaeda but there are some among us who are worse than Al-Qaeda. Al-Qaeda is killing innocents, Al-Qaeda is destroying establishments and they (Shiite gunmen) also," he said.

Basra is the focus of a turf war between the Mahdi Army and two rival Shiite factions -- the powerful Supreme Iraqi Islamic Council (SIIC) of Abdel Aziz al-Hakim and the smaller Fadhila party.

The stand-off there has spread to other Shiite areas of Iraq, including the sprawling Shiite neighbourhood of Baghdad's Sadr City, the bastion of Sadr loyalists.

Fighting in Sadr City has killed at least 90 people since Tuesday and the nationwide death toll has crossed 270, including at least 50 in Basra, according to security officials

The two cities of Baghdad and Basra were locked down on Sunday amid round-the-clock curfew for several days.

Pedestrians and vehicles stayed off the streets of the Iraqi capital for a third straight day of curfew, while the oil hub of Basra was relatively calm, residents said.

They however added that two neighbourhoods of Basra had been bombed during night by US or British jets. The two militaries did not immediately confirm the assaults.

US warplanes had carried out air strikes in the city on Friday and Saturday in which several people were killed, Iraqi and US officials said.

But on Sunday, the US military acknowledged that its ground troops had started participating in the Basra assault.

A team of American special forces joined the battle in Basra, combining with Iraqi troops in an operation that killed 22 militants on Saturday, the military said.

The joint operation was in a known "criminal stronghold" in western Basra, a US military statement said.

Earlier US and Bitish forces have said they have been giving air support to operations since Tuesday.

British troops have deployed outside their base on the edge of Basra in support of the Iraqi operations, British military spokesman Major Tom Holloway said on Sunday.

"There are no plans for our troops to enter the city. We are providing other forms of support," he told AFP.

This includes air support and surveillance as well as logistical back-up including refuelling helicopters and supplying ammunition and medical supplies.

The stand-off between Iraqi and US-led forces is the most intense one since 2004, when the Mahdi Army launched a rebellion against American troops in the central city of Najaf.

Other Shiite cities, such as Kut, Hilla, Nasiriyah and Karbala, meanwhile were also quiet Sunday after heavy clashes earlier in the week.

© 2008 AFP

Saturday, March 29, 2008

Chile, Allende, Cybernetics and Socialism

Here are three articles on Socialism in Chile under Allende and the role of Simon Beer and others who attempted to use cybernetics in planning. The first is from the NY Times. The second is from the Financial Post. The final article is from the
National Post and was written by the son of Stafford Beer who was the cyberneticist who helped Allende.

March 28, 2008 / New York TIMES

Santiago Journal

Before '73 Coup, Chile Tried to Find the Right Software for Socialism
By ALEXEI BARRIONUEVO

SANTIAGO, Chile — When military forces loyal to Gen. Augusto Pinochet
staged a coup here in September 1973, they made a surprising
discovery. Salvador Allende's Socialist government had quietly
embarked on a novel experiment to manage Chile's economy using a
clunky mainframe computer and a network of telex machines.

The project, called Cybersyn, was the brainchild of A. Stafford Beer,
a visionary Briton who employed his "cybernetic" concepts to help Mr.
Allende find an alternative to the planned economies of Cuba and the
Soviet Union. After the coup it became the subject of intense military
scrutiny.

In developing Cybersyn, Mr. Beer changed the lives of the bright young
Chileans he worked with here. Some 35 years later, this little-known
feature of Mr. Allende's abortive Socialist transformation was
remembered in an exhibit in a museum beneath La Moneda, the
presidential palace.

A Star Trek-like chair with controls in the armrests was a replica of
those in a prototype operations room. Mr. Beer planned for the room to
receive computer reports based on data flowing from telex machines
connected to factories up and down this 2,700-mile-long country.
Managers were to sit in seven of the contoured chairs and make
critical decisions about the reports displayed on projection screens.

While the operations room never became fully operational, Cybersyn
gained stature within the Allende government for helping to
outmaneuver striking workers in October 1972. That helped planners
realize — as the pioneers of the modern-day Internet did — that the
communications network was more important than computing power, which
Chile did not have much of, anyway. A single I.B.M. 360/50 mainframe,
which had less storage capacity than most flash drives today,
processed the factories' data, with a Burroughs 3500 later filling in.

Cybersyn was born in July 1971 when Fernando Flores, then a
28-year-old government technocrat, sent a letter to Mr. Beer seeking
his help in organizing Mr. Allende's economy by applying cybernetic
concepts. Mr. Beer was excited by the prospect of being able to test
his ideas.

He wanted to use the telex communications system — a network of
teletypewriters — to gather data from factories on variables like
daily output, energy use and labor "in real time," and then use a
computer to filter out the important pieces of economic information
the government needed to make decisions.

Mr. Beer set up teams of computer programmers in England and Chile,
and began making regular trips to Santiago to direct the project. He
was paid $500 a day while working in Chile, a sizable sum here at the
time, said Raúl Espejo, who was Cybersyn's operations director.

The Englishman became a mentor to the Chilean team, many of them in
their 20s. On one visit he tried to inspire them by sharing Richard
Bach's "Jonathan Livingston Seagull," the story of a seagull who
follows his dream to master the art of flying against the wishes of
the flock.

An imposing man with a long gray-flecked beard, Mr. Beer was a college
dropout who challenged the young Chileans with tough questions. He
shared his love for writing poetry and painting, and brought books and
classical music from Europe. He smoked cigars and drank whiskey and
wine constantly, "but was never losing his head," Mr. Espejo said.

Most of the Cybersyn team scrupulously avoided talking about politics,
and some even had far-right-wing views, said Isaquino Benadof, who led
the team of Chilean engineers designing the Cybersyn software.

One early challenge was how to build the communications network. Short
of money, the team found 500 unused telex machines in a warehouse of
the national telecommunications company.

Cybersyn's turning point came in October 1972, when a strike by
truckers and retailers nearly paralyzed the economy. The
interconnected telex machines, exchanging 2,000 messages a day, were a
potent instrument, enabling the government to identify and organize
alternative transportation resources that kept the economy moving.

The strike dragged on for nearly a month. While it weakened Mr.
Allende's Popular Unity party, the government survived, and Cybersyn
was praised for playing a major role. "From that point on the
communications center became part of whatever was happening," Mr.
Espejo said.

"Chile run by computer," blared The British Observer on Jan. 7, 1973,
as word of the experiment began leaking out.

But as the country's political and security situation worsened, Mr.
Beer and his Chilean team realized that time was running out.

Mr. Allende remained committed to Cybersyn to the end. On Sept. 8,
1973, he gave orders to move the operations room to the presidential
palace. But three days later the military took over; Mr. Allende died
that afternoon.

Military officials soon confronted Cybersyn's leaders, seeking to
understand their political motivations. Mr. Benadof said he was
interrogated at least three times. Mr. Espejo, after being questioned,
was warned to leave the country; two months after the coup he fled to
England.

The military never could grasp Cybersyn, and finally dismantled the
operations room. Several other Cybersyn team members went into exile.
Mr. Flores, who was both economy and finance minister in the Allende
government, spent three years in military concentration camps. After
his release, he moved with his family to California to study at
Stanford University and the University of California, Berkeley, where
he earned a Ph.D. in philosophy.

He later was one of the inventors of the Coordinator, a program that
tracked spoken commitments between workers within a company, one of
the first forays into "work flow" software. He became a millionaire
and returned to Chile, where today he is a senator representing the
Tarapacá Region.

Mr. Beer, who died in 2002, helped some team members secure college
teaching positions in England. That included Mr. Espejo, who dedicated
himself to advancing cybernetics.

"The Chilean project completely transformed Stafford's life, and he
obviously had a huge impact on all of us," Mr. Espejo said. "Clearly,
his work was not recognized during his lifetime. But what he has
written will remain for a long time."


Here is the Financial Post article.


Saturday, March 01, 2008

Presented by
Socialist dreams always turn totalitarian
Peter Foster, Financial Post
Published: Saturday, March 01, 2008

On Nov. 12, 1971, Salvador Allende, the president of Chile, sat down in the presidential palace in Santiago opposite a large, bearded Englishman named Stafford Beer.

Allende, a committed socialist, had been in power for a year, during which he had unleashed a wave of expropriations and populist measures that threatened massive inflation. The economy was in turmoil. Beer, the eccentric founder of "cybernetic management," had come to lay out a master plan for control of the rapidly expanding nationalized sector of the Chilean economy. On a sheet of paper, Beer drew the "neurological" basis for his system. Allende, who had trained as a doctor, reportedly "immediately grasped the biological inspiration behind Beer's cybernetic model and knowingly nodded throughout the explanation."

Beer sketched his "viable system model" based on five hierarchic levels. After he had drawn the top "box," he declared theatrically: "And this, companero presidente, is you." Allende leaned back and with a broad smile said: "At last, the people."

Two years after his first meeting with Beer, Allende was killed during the coup that installed the dictatorship of Augusto Pinochet.

He has since become an icon for crushed socialist dreams. This view is reflected in Naomi Klein's recent book, The Shock Doctrine. Strangely, however, Ms. Klein makes no mention of Stafford Beer, who provides valuable insight into what "socialist control" looks like in practice. Ms. Klein's oversight is especially puzzling since Stafford Beer's story has a strong Canadian angle. In 1973, he gave the CBC Massey lectures with the telling title: Designing Freedom. He lived much of the latter part of his life in Toronto, and consulted to several levels of Canadian government.

Leftist commentators such as Ms. Klein persistently claim that socialism

has "never really been tried." Those countries that called themselves socialist or Communist were always either repressive perversions of the ideal, or were thwarted by the dark machinations of their capitalist enemies. The latter is the conventional leftist take on Chile, and certainly has an element of truth. The U.S. companies that Allende expropriated indeed ran to Washington, which sought to undermine his regime. However, the left inevitably fails to put enough emphasis on the role of Allende's own policies in destroying the Chilean economy. While his Keynesian delusions and reflexive grab for assets would have been damaging enough, they were as nothing compared with the regime's naivete in supporting Beer's "Project Cybersyn," (a word formed from melding "cybernetics" and "synergy.")

Beer was a larger-than-life character, a polymath who dabbled in Eastern religions, poetry and painting. He was also a well-known management consultant who had previously held senior positions in the British steel and the publishing industry. Beer was a specialist in operations research (OR), the study of organizing systems to produce the required results, and had melded OR with cybernetics, the science of control mechanisms which had been founded by Norbert Weiner. Above all, however, Beer was a committed socialist.

Beer's Cybersyn utilized a network of telex machines that ran the length of Chile. These theoretically provided the real-time data from state factories and mines that would then be fed into a specially programmed central computer. The whole operation would be overseen from a control module, the "Opsroom," that resembled the deck of the starship Enterprise. There, seven controllers would act in a "symbiotic relationship" with the computer "to amplify their respective powers in one new synergy of enhanced intelligence." The seven would sit surrounded by numerous screens -- including an eight-by-four-foot master screen -- in ergonomically designed swivel chairs. These chairs' arms featured a series of knobs that the controllers would bash to control the commanding heights of the Chilean economy. The knob thumping was intended by Beer as part of the "drama" of cybernetic control: centralized government as performance art. (More practically, it was based on the assumption that the seven masters of the economy would be keyboard illiterate. Beer apparently didn't want women typists in the room.) Nationalized enterprises would be dynamically modelled in terms of "quantified flow-charts" that would give the central puppeteers all they needed to know. Glitches would be indicated by "algedonic signals."

True to solid socialist principles, this enormously elaborate system would, according to Beer, facilitate worker participation. How wasn't clear. The Russian and Cuban revolutions had somehow missed out on this "democratic" element, but Chile would be -- as with every socialist experiment -- "different." It wasn't.

Beer rejected accusations that his system was Orwellian, but was soon speaking the language of thinly veiled threats. Opposition was allegedly rooted in the "vindictiveness" of the "rich world." Media criticism was written off as part of a corporate plot. Those who had been expropriated had to "talk the new language [of cybernetic viability] or get out." Those who refused to leave were accused of "polarizing" society.

Cybersyn, not surprisingly, never became fully operational, and its only alleged success was in helping the government respond to a nationwide 1972 strike. But that was a very long way from running the public sector, much less an economy. Meanwhile, U.S. computer guru Herb Grosch wrote: "It is a good thing for humanity, and for Chile in particular, that [Cybersyn] is only a bad dream." (Beer got expressions of interest in his system from the repressive regimes in South Africa and Brazil).

What saved Cybersyn from descending into utter farce and/or totalitarian nightmare was the Pinochet coup. According to his credulous biographer, Beer subsequently wondered if the "success" of his experiment might havehastenedAllende's fall and the "demise of democracy."

Beer went off to live for some years in isolation in a cottage in Wales, then went back to consulting. In a speech he gave in 1990, he admitted-- while castigating the Thatcher and Reagan regimes -- that countries seemed to "go into chaos" as soon as he arrived. He died in 2002, apparently without ever grasping why.

Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved.

Finally the National Post article:

Allende was no totalitarian
Simon Beer, National Post
Published: Saturday, March 29, 2008


As Stafford Beer's son, I was saddened to read Peter Foster's article of March 1, "Socialist dreams always turn totalitarian." Foster seems to have rather a poor grasp of the politics, economics and business management involved in President Salvador Allende's Chile in general and Stafford Beer's work in particular.

He misses the point about the "at last the people" anecdote. Stafford Beer ended with "… and this companero presidente ..." whereupon Allende finished the sentence for him "… at last -- the people." The point is that it wasn't about the president, but about the people. The way Foster writes it, it doesn't make any sense at all.

To claim the Chilean economy was in "turmoil" is fallacious. Allende's super-inflation model was a deliberate act. The premise being that if 5% of the population have all the money and 95% have none, then inflate the cost of everything and subsidize the poor, who receive food, clothing, education and housing for free. The rich meanwhile, have to pay $50 for a loaf of bread and don't even think about a mink coat. To claim this is "turmoil" shows a misunderstanding of the circumstance. Allende knew exactly what he was doing.

Foster's comment that "project Cybersyn never became fully operational" is demonstrably wrong. The distinguished Cybernetician Raul Espejo was responsible for the day-to-day running of the operations room with his colleagues until the American-backed coup d'etat put Pinochet in power, forcing Raul to escape to England. His colleagues? Well, some escaped, some were imprisoned and tortured and some were killed. So tell me again, Mr Foster, about socialist totalitarianism.

Foster quotes Herb Grosch (who knew nothing about what took place or was achieved in Chile). Perhaps Henry Kissinger, who played such a big part in Allende's death, would have been more apposite: "I don't see why we need to stand by and watch a country go communist due to the irresponsibility of its people. The issues are much too important for the Chilean voters to be left to decide for themselves."

It wasn't Allende, a democratically elected president, remember, who herded people into the national stadium and machine-gunned them, it was America's puppet dictator Augusto Pinochet. Pinochet (with the help and support of the American State Department and the CIA), tortured and murdered many thousands of Chilean people for which he would be harangued as a war criminal until death saved him even greater public ignominy. Foster's premise that socialism turns to totalitarianism seems weak in the extreme when using Allende's Chile as a paradigm. Chile produced most of the world's copper; America wanted it. The Chilean government was truly "thwarted by the dark machinations of their capitalist enemies," despite Foster's assertion to the contrary.

Foster suggests "the left inevitably fails to put enough emphasis on the role of Allende's own policies in destroying the Chilean economy." Not surprising, really. The fact that these policies were outside the American accounting norm may be hard for Foster to understand, but then, I suggest his understanding of the whole project is, at best, a little weak.

The summation of Stafford Beer's life, with its paucity of information, is rather akin to suggesting that Kennedy was a man who liked women, dabbled in politics and died. Stafford Beer was indeed a polymath. His books on Cybernetics and decision-making in management are read and respected around the world. Cybernetics is now an international business philosophy. If you enter Stafford Beer into Google, you get 137,000 references. To deride him for his politics is both irrelevant and asinine.

Foster reveals his lack of understanding of the interconnected telex machines that ran the length of Chile, "theoretically" providing real-time data. "Theory" becomes "reality" once the system is working.

And work it did. As for the operations room, he totally misses the point yet again because he fails to understand how the chairs worked. Beer proved that "girls working at keyboards" were not necessary to input data into the system. This could all be achieved by the controls in the arm of the chair: a whole new concept of system control in 1972. That was why "girls working at keyboards" were not required. It wasn't some misogynist plot. Foster describes Cybersyn as "an enormously elaborate system," yet in truth, Cybersyn was a deceptively simple system offering democratic inputs at every point along the operational chain. There were literally thousands of inputs, filtered so that the data weren't overwhelming. Had Foster understood the Cybersyn system, he would have known this.

Foster isn't always wrong, "…Chile would be -- as with every socialist experiment --different. It wasn't."

How true. It was the American politicians and their military, coupled with the CIA and Pinochet, that guaranteed that it wouldn't be.

Foster suggests that Stafford Beer expressed the view that criticism of Cybersyn was part of a "corporate plot." On the contrary, Beer understood corporate inadequacy and its inability to function as a viable system. He wrote many books on the subject. The corporate world would have been incapable of organizing such a plot. More likely, he riled against ill-informed members of the press, writing simplistic text about matters that they didn't understand and couldn't be bothered to adequately research.

Quod erat demonstrandum, Mr. Foster.

Perhaps we should leave the last word to Henry Kissinger, that champion of freedom-loving people everywhere: "The illegal we do immediately, the unconstitutional takes a little longer." - Simon Beer is Stafford Beer's son.

Copyright © 2007 CanWest Interactive, a division of CanWest MediaWorks Publications, Inc.. All rights reserved

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Progressives for Obama

More rah rah rah for Obama. Tom Hayden must be as ancient as I am by now. I really don't see any sense at all of progressives or radicals spending much time working within the two major parties except to expose them as vehicles for maintaining the status quo. Perhaps the Obamamania helps Hayden relive his youth. I wonder where Hayden thinks a lot of Obama's money comes from? Does he think those big bad corporations shun him like the plague? What of the military contractors? Do they hate Obama because he wants to increase the already huge U.S. military?
Of course capital would probably on the whole prefer McCain but as sensible investors in the system they will hedge their bets.


Click here to return to the browser-optimized version of this page.

This article can be found on the web at
http://www.thenation.com/doc/20080407/hayden_et_al


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Progressives for Obama
by TOM HAYDEN, BILL FLETCHER JR., DANNY GLOVER & BARBARA EHRENREICH

[posted online on March 24, 2008]

All American progressives should unite for Barack Obama. We descend from the proud tradition of independent social movements that have made America a more just and democratic country. We believe that the movement today supporting Barack Obama continues this great tradition of grassroots participation, drawing millions of people out of apathy and into participation in the decisions that affect all our lives. We believe that Barack Obama's very biography reflects the positive potential of the globalization process that also contains such grave threats to our democracy when shaped only by the narrow interests of private corporations in an unregulated global marketplace. We should instead be globalizing the values of equality, a living wage and environmental sustainability in the new world order, not hoping our deepest concerns will be protected by trickle-down economics or charitable billionaires. By its very existence, the Obama campaign will stimulate a vision of globalization from below.

As progressives, we believe this sudden and unexpected new movement is just what America needs. The future has arrived. The alternative would mean a return to the dismal status quo party politics that has failed so far to deliver peace, healthcare, full employment and effective answers to crises like global warming.

During past progressive peaks in our political history--the late thirties, the early sixties--social movements have provided the relentless pressure and innovative ideas that allowed centrist leaders to embrace visionary solutions. We find ourselves in just such a situation today.

We intend to join and engage with our brothers and sisters in the vast rainbow of social movements to come together in support of Obama's unprecedented campaign and candidacy. Even though it is candidate-centered, there is no doubt that the campaign is a social movement, one greater than the candidate himself ever imagined.

Progressives can make a difference in close primary races like Pennsylvania, North Carolina, Oregon and Puerto Rico and in the November general election. We can contribute our dollars. We have the proven online capacity to reach millions of swing voters in the primary and general election. We can and will defend Obama against negative attacks from any quarter. We will seek Green support against the claim of some that there are no real differences between Obama and McCain. We will criticize any efforts by Democratic superdelegates to suppress the winner of the popular and delegate votes, or to legitimize the flawed elections in Michigan and Florida. We will make our agenda known at the Democratic National Convention and fight for a platform emphasizing progressive priorities as the path to victory.

Obama's March 18 speech on racism was as great a speech as ever given by a presidential candidate, revealing a philosophical depth, personal authenticity, and political intelligence that should convince any but the hardest of ideologues that he carries unmatched leadership potentials for overcoming the divide-and-conquer tactics that have sundered Americans since the first slaves arrived here in chains.

Only words? What words they were.

However, the fact that Barack Obama openly defines himself as a centrist invites the formation of this progressive force within his coalition. Anything less could allow his eventual drift towards the right as the general election approaches. It was the industrial strikes and radical organizers in the 1930s who pushed Roosevelt to support the New Deal. It was the civil rights and student movements that brought about voting rights legislation under Lyndon Johnson and propelled Eugene McCarthy and Bobby Kennedy's antiwar campaigns. It was the original Earth Day that led Richard Nixon to sign environmental laws. And it will be the Obama movement that will make it necessary and possible to end the war in Iraq, renew our economy with a populist emphasis, and confront the challenge of global warming.

We should not only keep the pressure on but also connect the issues that Barack Obama has made central to his campaign into an overarching progressive vision.

•  The Iraq War must end as rapidly as possible, not in five years.

All our troops must be withdrawn. Diplomacy and trade must replace further military occupation or military escalation into Iran and Pakistan. We should not stop urging Barack Obama to avoid leaving American advisers behind in Iraq in a counterinsurgency quagmire like Afghanistan today or Central America in the 1970s and 1980s. Nor should he simply transfer American combat troops from the quagmire in Iraq to the quagmire in Afghanistan.

•  Iraq cannot be separated from our economic crisis.

Iraq is costing trillions of dollars that should be invested in jobs, universal healthcare, education, housing and public works here at home. Our own Gulf Coast requires the attention and funds now spent on Gulf oil.

•  Iraq cannot be separated from our energy crisis.

We are spending an unheard-of $100/barrel for oil. We are officially committed to wars over oil supplies far into the future. We instead need a war against global warming and for energy independence from Middle Eastern police states and multinational corporations.

Progressives should support Obama's sixteen-month combat troop withdrawal plan in comparison to Clinton's open-ended one, and demand that both candidates avoid a slide into four more years of low-visibility counterinsurgency.

The Democratic candidates should listen more to the blunt advice of the voters instead of the timid talk of their national security advisers. Two-thirds of American voters, and a much higher percentage of Democrats, oppose this war and favor withdrawal in less than two years, nearly half of them in less than one year. The same percentage believe the war has had a negative effect on life in the United States, while only 15 percent believe the war has been positive. Without this solid peace sentiment, neither Obama nor Clinton would be taking the stands they do today.

Further, the battered and abused people of Iraq favor an American withdrawal by a 70 percent margin.

The American government's arrogant defiance of these strong popular majorities in both America and Iraq should be ended this November by a powerful peace mandate.

The profound transition from the policies of the past will not be easy, and fortunately the Obama campaign is lifted by the fresh wind of change. We seek not only to change the faces in high places, however, but to save our country from slow death by greed, status quo politics and loss of vision. The status quo cannot stand much longer, neither that of politics-as-usual nor that of our security, energy and economic policies. We are stealing from the next generation's future, and living on borrowed time.

The Bush Administration has replaced the cold war with the "war on terrorism," led by the same military-industrial complex that President Eisenhower warned against. The reality and public fear of terrorism today is no less real than fear of communism and nuclear annihilation a generation ago. But we simply cannot continue multiple military interventions in many Muslim countries without increasing the vast number of violent jihadists against us, bleeding our military and our economy, becoming more dependent on Middle East oil, creating unsavory alliances with police states, shrinking our own civil liberties and putting ourselves at permanent risk of another 9/11 attack.

We need a brave turn towards peace and conflict resolution in the Middle East and the Muslim world. Getting out of Iraq, sponsoring a two-state solution between Israel and the Palestinians, ending alliances with police states in the Arab world, unilaterally initiating real energy independence and moving the world away from the global warming crises are the steps that must be taken.

Nor can we impose NAFTA-style trade agreements on so many nations that seek only to control their own national resources and economic destinies. We cannot globalize corporate and financial power over democratic values and institutions. Since the Clinton Administration pushed through NAFTA against the Democratic majority in Congress, one Latin American nation after another has elected progressive governments that reject US trade deals and hegemony. We are isolated in Latin America by our cold war and drug war crusades, by the $500 million counterinsurgency in Columbia, support for the 2002 coup attempt in Venezuela and the ineffectual blockade of Cuba. We need to return to the Good Neighbor policies of Franklin D. Roosevelt, policies that rejected Yankee military intervention and accepted Mexico's right to nationalize its oil in the face of industry opposition. The pursuit of NAFTA-style trade policies inflames our immigration crisis as well, by uprooting countless campesinos who inevitably seek low-wage jobs north of the border in order to survive. We need balanced and democratically approved trade agreements that focus on the needs of workers, consumers and the environment. The Banana Republic is a retail chain, not an American colony protected by the Monroe Doctrine.

We are pleased that Hillary Clinton has been responsive to the tide of voter opinion this year, and we applaud the possibility of at last electing an American woman President. But progressives should be disturbed by her duplicitous positions on Iraq and NAFTA. She still denies that her 2002 vote for legislation that was called the war authorization bill was a vote for war authorization. She now promises to "end the war" but will not set a timeline for combat troop withdrawal, and remains committed to leaving tens of thousands of counter-terrorism troops and trainers in Iraq amidst a sectarian conflict. While Obama needs to clarify his own position on counterinsurgency, Clinton's "end the war" rhetoric conceals an open commitment to keep American troops in Iraq until all our ill-defined enemies are defeated--a treadmill that guarantees only the spawning of more enemies. On NAFTA, she claims to have opposed the trade deal behind closed doors when she was first lady. But the public record, and documents recently disclosed in response to litigation, prove that she was a cheerleader for NAFTA against the strong opposition of rank-and-file Democrats. The Clintons ushered in the Wall Street Democrats whose deregulation ethos has widened inequality while leaving millions of Americans without their rightful protections against market shocks.

Clinton's most bizarre claim is that Obama is unqualified to be commander-in-chief. Clinton herself never served in the military, and has no experience in the armed services apart from the Senate armed services committee. Her husband had no military experience before becoming President. In fact, he was a draft opponent during Vietnam, a stance we respected. She was the first lady, and he the governor, of one of our smallest states. They brought no more experience, and arguably less, to the White House than Obama would in 2009.

We take very seriously the argument that Americans should elect a first woman President, and we abhor the surfacing of sexism in this supposedly post-feminist era. But none of us would vote for Condoleezza Rice as either the first woman or first African-American President. We regret that the choice divides so many progressive friends and allies, but believe that a Hillary Clinton presidency would be a Clinton presidency all over again, not a triumph of feminism but a restoration of the aging, power-driven Wall Street Democratic hawks at a moment when so much more fresh imagination is possible and needed. A Clinton victory could only be achieved by the dashing of hope among millions of young people on whom a better future depends. The style of the Clintons' attacks on Obama, which are likely to escalate as her chances of winning decline, already risks losing too many Democratic and independent voters in November. We believe that the Hillary Clinton of 1968 would be an Obama volunteer today, just as she once marched in the snows of New Hampshire for Eugene McCarthy against the Democratic establishment.

We did not foresee the exciting social movement that is the Obama campaign. Many of us supported other candidates, or waited skeptically as weeks and months passed. But the closeness of the race makes it imperative that everyone on the sidelines, everyone in doubt, everyone vascillating, everyone fearing betrayals and the blasting of hope, everyone quarreling over political correctness, must join this fight to the finish. Not since Robert Kennedy's 1968 campaign has there been a passion to imagine the world anew like the passion and unprecedented numbers of people mobilized in this campaign. For more information, go to progressivesforobama.blogspot.com.

FBI eyes militarization in Philippines.

This is from presstv.The U.S. has still managed to keep the Philippines within the U.S. orbit with operations such as these. There are close links between the AFP and the U.S. military including aid in the form of military equipment. The U.S. is concerned about increasing ties with China (and Vietnam) including the Spratly oil exploration deal. However the U.S. itself as far as foreign investment is concerned has plenty of investment in China and increasingly in Vietnam as well.
Because of the presence of the Maoist insurgency and radical Islamic groups in the Philippines the U.S. has involved itself in the Philipppines under the cover of the war on terror or officially to help (or hinder) the Philippine government.


FBI eyes militarization in Philippines?
Wed, 26 Mar 2008 20:47:31


US Federal Bureau of Investigation launches a six-month training program for police and military personnel in southern Philippines.

"The FBI experts and instructors are now in Jolo to extend support to the intelligence group of the military and national police," AFP quoted provincial police chief Senior Superintendent Julasirim Kasim as saying.

Although the 'intensive' six-month counter-intelligence training program is said to be aimed at easing the hunt for Abu Sayyaf and Jemaah Islamiyah (JI) rebels, pundits believe the US intends to increase its military presence in southeastern Asia to temper China's influence throughout the region.

China's recent military and economic boom has been a cause for concern in Washington which has called on Beijing to clarify the intentions behind its military build-up.

Friday, March 28, 2008

The Philippine American War: Waterboarding

This is from the Inquirer. Obviously waterboarding is not a new torture method or even new to Americans. The article draws some interesting parallels to the war in Iraq even noting that the American public became rather indifferent to the conflict or at least the reporting of atrocities.



By Michael Tan
Columnist
Philippine Daily Inquirer

Posted date: March 28, 2008


MANILA, Philippines—In the year 1902, the Philippines was very much in the Americans' public consciousness, much like Iraq is today. America's adventure in the Philippines began in 1898, when it went to war against Spain. Commodore George Dewey sailed into the Manila Bay on May 1, 1898, and quickly defeated the already demoralized Spanish forces. Spain had its hands full in the islands, with Filipino revolutionaries fighting for independence and was probably only too happy to unload the Philippines, together with Guam and Costa Rica, to the Americans through the Treaty of Paris.
But trouble was already brewing when the Treaty of Paris was ratified by the US Senate in February 1899. Only two days before the ratification, hostilities had broken out in Manila when an American patrol was supposedly attacked by a band of Filipino insurgents. The Philippine-American War erupted and more American soldiers had to be sent to the islands.

Within a few weeks after the Philippine-American War broke out, allegations of US military atrocities began to appear in the United States. In April 1899, a New York newspaper, the Evening Post, carried reports of a massacre of Filipino prisoners in Caloocan. Then, as today in Iraq, such reports often came from conscience-stricken American soldiers, who would request anonymity. The Evening Post ran into trouble because they could not bring out the soldiers and eventually had to retract.

But the letters continued and more American newspapers picked up on these reports. Most disturbing were reports of the use of the "water cure," large amounts of water forced into prisoners to extract confessions. There were so many reports of this torture that eventually, the US Senate had to launch an inquiry into the behavior of American soldiers in the Philippines. The hearings began on Jan. 31, 1902, and were conducted by the Senate's Committee on the Philippines, headed by Henry Cabot Lodge.

The Committee's members were largely biased in favor of the American occupation of the Philippines but enough evidence was presented in the hearings, about the water cure, "reconcentration" camps and outright massacres, to bring out public condemnation of the war. Last Wednesday I gave some of the details about those hearings and said I'd continue this Friday and tell you what came out of the Lodge Committee hearings.

The hearings put the American military on the defensive. It supplied witnesses who claimed that the instances of military misconduct were isolated. William Howard Taft, who had been assigned to the Philippines, even argued that the Filipinos themselves sometimes asked to be tortured, so that if they gave away information about their comrades, they could claim this was forced out of them.

Other American soldiers testified that the Filipino insurgents also had their share of atrocities. Former Sgt. L. E. Hallock said they had used the water cure after one of their men had been captured and then tortured to death by roasting. Other American soldiers testified that the water cure was inflicted mainly by Macabebes, Filipinos recruited from Pampanga, to serve as interpreters and scouts for the Americans.

Again, as with Iraq, war was cruel for both sides, and one can imagine how difficult it was for American soldiers to understand the Philippines and Filipinos. What was clear though was that many of the Americans were goaded on by racism. A Gen. Robert Hughes, asked if the military's behavior in the Philippines came under the "limits of civilized warfare," replied: "These people are not civilized."

Senator Lodge himself proposed that the misconduct had "grown out of the conditions of warfare, of the war that was waged by the Filipinos themselves, a semi-civilized people, with all the tendencies and characteristics of Asiatics, with the Asiatic indifference to life, with the Asiatic treachery and the Asiatic cruelty, all tinctured and increased by 300 years of subjection to Spain."

The hearings did result in some action. Capt. Edwin Glenn, accused of ordering the use of the water cure and the burning of Igbaras, Iloilo, was court-martialled. He asked that the hearings be conducted in Catbalogan, Samar, away from the "high state of excitement in the United States." The trial included testimony from Tobeniano Ealdama, Igbaras' presidente and a victim of the water cure. Glenn admitted that the water cure had become "the habitual method of obtaining information from individual insurgents" and that this was "a legitimate exercise of force under the laws of war."

Glenn was found guilty of "conduct to the prejudice of good order and military discipline," suspended for one month and ordered to pay a $50 fine. In 1919, he retired as brigadier general. Ealdama went back to prison, where he was serving a 10-year sentence of hard labor for his participation in the insurgency.

Another court martial was ordered for Gen. Jacob Smith, this one held in Manila. One of his officers had testified that "Hell-roaring Jake" had ordered troops to retaliate against the town of Balanginga in Samar for an ambush that resulted in the death of 48 US Army soldiers. Smith allegedly ordered: "the more you kill and burn, the better it will please me." Asked who they could spare, Smith was said to have commented that even a child of 10 could bear arms. Reports on the number of Balanginga's death toll vary, going up as high as 5,000.

Smith was found guilty, and his punishment consisted of a slight reprimand and early retirement.

The Lodge Committee hearings, and these court martials, may have served to defuse public anxieties, and eventually, the Americans grew tired of the news about the Philippines. As early as April 1902, one New York newspaper complained that readers were being served too much of "Philippine atrocities" for breakfast.

On July 4, 1902, President Theodore Roosevelt declared a victorious end to the Philippine Insurrection. Officially, there were no more insurgents, only "brigands" (bandits). The Lodge Committee officially declared an end to its inquiry on February 1903.

'Waterboarding'
It was not, however, the last we were to hear of the American military and the water cure. More than a century later, in fact just last month, an investigation into "waterboarding" began in the US Congress. The US Central Intelligence Agency's Michael Hayden argued that "Strapping a person to a surface, covering their face with cloth and pouring water on their face to imitate the sensation of drowning" could be used if "an unlawful combatant is possessing information that would help us prevent catastrophic loss of life of Americans or their allies." Hayden said they had used the method in 2002 and 2003 but only on three top al-Qaida suspects. The US attorney general, Michael Mukasey, said he would not open a criminal investigation into the CIA's use of waterboarding.

* * *

Email: mtan@inquirer.com.ph





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Is This the Big One..

This is an excerpt from a larger article in the Nation. The article gives a good summary of some of the financial instruments that gave rise to the crash near the end of this selection. How bad the recession will be remains to be seen. The government is not just sitting back and waiting for markets to turn around at least but whether the interventions will have much success is still moot. Pumping a lot of money into the economy could very well create problems with inflation. This is beginning to make itself obvious in the price of basic foodstuffs such as bread, and globally rice. This added to the cost of oil which is used to manufacture many products as well as to produce fuel will result in even more inflation. The expenditure on foreign military adventures will do nothing to help the situation except to create further debt.


http://www.thenation.com/doc/20080414/faux
Is This the Big One?

by JEFF FAUX

[from the April 14, 2008 issue]

For more than a decade, we Americans have been living on an economic
San Andreas fault--a foundation of fracturing competitiveness covered
by unsustainable consumer spending with money borrowed from
foreigners. A financial earthquake was inevitable. We don't know how
high on the recession Richter scale the current crisis will take us,
but it increasingly looks like, as they say in San Francisco, "The Big
One."

Since the last Big One, the Great Depression of the 1930s, we have
had eleven small to medium recessions, lasting an average of ten
months. The most severe--two back-to-back downturns that began in
1979--drove price increases and the unemployment rate to double digits.

We're not at those levels yet. But the structural supports underneath
our shop-till-we-drop economy are considerably weaker. For starters,
we have a historic depression in the housing market. Americans' total
mortgage debt now exceeds their home equity, for the first time since
1945. Housing prices have dropped 10 percent since last spring,
followed by record foreclosures. Most economists expect them to drop
at least another 10 percent, which could leave more than 14 million
households--at least 16 percent of the total--better off if they just
walked away from their homes. Prices could go even lower.

Until last year, housing prices in most places had risen rapidly
since the 1990s. This enabled middle-class homeowners with stagnant
wages and maxed-out credit cards to keep spending by refinancing
their mortgages. The housing boom also spawned the now infamous
subprime mortgage--a scheme devised by Main Street realtors and Wall
Street bankers to finance home buying with loans that let the
borrower buy in with little money down but carried high interest
rates. The expensive payments would be made later by refinancing the
mortgage as prices continued to rise. These subprimes were sold to
middle-class strivers upgrading to McMansions as well as to the working
poor.

The increased demand pushed housing prices further into the
stratosphere--until, inevitably, they fell back to earth. When the
subprime borrowers could no longer make their payments, foreclosure
signs went up, lowering the value of other houses in the
neighborhood. The refinancing spigot shut off, retail sales sputtered
and by January the economy was shedding jobs.

But it is not the squeeze on homeowners that is giving our central
bankers nightmares. It is the blowback of housing deflation on the
country's massively overleveraged financial markets, which has
seriously constricted the flow of credit--the lifeblood of the
world's largest debtor economy.

In a typical deal, subprime mortgages were sold to investment
companies, where they were commingled with prime mortgages to back up
new securities that could be touted as both safe and high-yielding.
This new debt paper was then peddled to investors, who used it as
collateral for "margin" loans to buy yet more stocks and bonds. At
each change of hands, fees and underwriting charges added to the
total claims on the original shaky mortgages. The result was a
frenzied bidding up of prices for a bewildering maze of arcane
securities that neither buyers nor sellers could accurately value.

Giant Ponzi scheme? Not to worry, responded the Wall Street geniuses.
By spreading risks among more people, the miracle of "diversity" was
actually turning bad loans into good ones. Anyway, banks were buying
insurance policies against default, which in turn were transformed
into a set of even murkier securities called "credit default swaps"
and marketed to hedge funds, pension managers and in some cases back
to the banks that were being insured in the first place. At the end
of 2007 the market for these swaps was estimated at $45.5
trillion--roughly twice as large as all US stock markets combined.

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