Our Worst Nightmare: The Puncture of the Current U.S. Housing Bubble

The key to holding up the entire speculative U.S. financial system is maintaining the U.S. housing bubble. Anything less would result in America's worst nightmare and, in short order, the entire world.

At ResourceInvestor.com, Lorimer Wilson writes:

The key to holding up the entire speculative U.S. financial system with its current excessive levels of debt - federal (current account and trade), state, municipal, corporate and household - is maintaining the U.S. housing bubble. Anything less would result in America’s worst nightmare and, in short order, the entire world.

The housing market is dominated by Fannie Mae and Freddie Mac who hold 75% of all outstanding home mortgages (and the Federal Home Loan Bank Board to a much lesser extent). One too many additional increases in the Fed rate may well turn out to be the U.S. economy's Achilles' heel and lead to a major crisis at these two institutions generating an out-of-control systemic breakdown situation and disastrous financial implosion.

Here's why. Fannie’s and Freddie's (FF) original functions were to provide liquidity to the housing market. After a mortgage lending institution (MLI) originated a mortgage – say, $100,000 – FF would purchase that mortgage from the MLI for a fee and hold the mortgage to maturity. The MLI now had $100,000 to make yet another mortgage loan and earn yet another fee. By the repeating of this process FF injected liquidity into the housing market making it possible for MLIs to increase the number of mortgage loans they could make each year and earn considerably more fees in the process.

Where did the money come from for FF to raise money to purchase these mortgages from MLIs? It was easy. FF simply issued bonds (which, as you know, are a form of debt) at a somewhat higher interest rate, which was their spread or profit. The more mortgages they bought from the MLIs covered by the issuance of their bonds the more money they made. And it was all totally secured by the assets of the houses themselves. A risk free arrangement. Not bad. The MLIs made money, FF made money and the consumers owned houses on which they could afford to make their monthly mortgage payments.

Beginning in the 1980's FF got greedy! They began to encourage the MLIs to sell mortgages to purchasers who would have to spend more than the U.S. Department of Housing’s recommended 28% of gross income to service the housing (mortgage payments, home insurance payments and home property tax due) costs involved. As FF expected the demand for houses went up, the price of houses went up, the number of mortgages went up, the size of mortgages went up, the profits of the MLIs went up and the profits of FF went up. But the degree of financial risk for FF increased dramatically. Many mortgagees had to pay out 50%-60% of their household income in housing costs and were extremely vulnerable to any economic setback they might encounter - loss of job; increased cost of living; health problems; death, incarceration or illness of breadwinner. As a result, the rate of delinquencies and foreclosures went up. In many cases the down payments made by these new mortgagees were so small that the only way FF could recoup its outstanding mortgages was if the resale prices of the homes appreciated considerably from the date of the initial purchase. The greater the appreciation of such homes the less the risk to FF.

Next, in the unending search for increased profits, FF undertook some financial innovation. They began bundling groups of mortgages together as mortgage-backed securities (MBS) on which they guaranteed, in case of default, to pay interest and principal “fully and in a timely fashion.” They sold these MBSs for a fee, to mutual and pension funds and to insurance companies around the world. This gave the funds a claim to the underlying principal and interest stream of the mortgage. In doing so the risks entailed in the owning of mortgage debt were broadened beyond FF. If FF were unable to fulfil their guarantee (and the monies provided by the government are totally inadequate) these funds, too, would be adversely affected and depending on the extend of the default, gravely so. FF's profits went up but its reward/risk ratio dropped like a stone!

And finally, to squeeze out even more profits, FF began taking 50% of their MBS holdings and pooling them once again into derivative instruments called Real Estate Mortgage Investment Conduits, i.e."restructured MBS" or into what are called Collateralized Mortgage Obligations for which they are paid a fee. These instruments are highly specialized derivatives, i.e. bets on the direction of future rates of interest. FF's profits went up even more but the risks associated with these actions became excessive!!

Thus, what started out as a simple home mortgage, has been transmogrified in to something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on precisely these instruments as sources of funds.

If too great a portion of FF mortgages were to go into default and cease to pay interest or principal, FF would not have sufficient cash to pay the holders of its bonds. If the situation were to become too great FF would default on its bonds. So, whereas before one had one economic catastrophe - the default of some mortgages – because of the way the housing market is structured, this produces a second catastrophe – the default of FF’s bonds, which are at least 10 times greater than that of any corporation in the U.S. Such a default would put an end to the U.S. financial system, right then and there.

Yet a second obligation compounds the problem - its guarantees on the MBS. In a crisis in the housing mortgage market, FF would not be able to meet the terms of their guarantees and would go bankrupt from this source, if it had not already defaulted on their bonds. The pension and mutual funds, which had bought the MBS on it guarantees, would suffer tens of billions of dollars in losses.

Finally, FF's derivative obligations in hedges, allegedly to protect it from risks, could themselves go in to default against the banks and other counter parties.

The above-mentioned obligations of FF total over $5 trillion. Another $1 trillion in obligations are held by the Federal Home Loan Bank Board and private issuers of MBS. These $6 trillion in risky obligations are distinct from, and in addition to, the more than $6 trillion in mortgages themselves. As such, a total in excess of $12 trillion is laden on to the homes and attached to to the incomes of America's homeowners. And then there is credit card debt, car lease debt, cell phone contract debt, bank loan debts, margin debt, etc!

Nothing, absolutely nothing, must stand in the way of consumers fulfilling their financial obligations - and they absolutely must not default on their mortgages. Cheap money must prevail. Not dirt-cheap like before but still very cheap by historical standards. Cheap money is necessary to keep the real estate bubble in force because consumer spending increases 0.62% for every 10% gain in the housing market (more than twice that of a 10% gain in the stock market).

Regretfully, though, this FF house of cards is on the verge of collapse. Bond prices have fallen and interest rates are approaching 5%. The ramifications are dire.

A wide variety of partners hold large chunks of FF debt: commercial and investment banks, hedge funds, mutual funds, pension funds, insurance companies, private investors. They are all exposed to large losses were either Fannie Mae or Freddie Mac to default on their debt. In the U.S., for example, 60% of all banks (approx. 5000) own FF debt in excess of 50% of their equity capital. As the Office of Federal Housing Enterprise Oversight has said "such an event as the default of FF debt could lead to contagious illiquidity in the market for those debt securities which would cause or worsen illiquidity problems at other financial institutions…potentially leading to a systemic event.

The Fed is between the proverbial 'rock and a hard place.’ They engineered low interest rates in the first place, both to keep the financial markets going, and in large measure to keep the housing bubble afloat. They are now in the final stages of raising interest rates to prop up the collapsing U.S. dollar and to forestall rampant inflation. Were they to initiate one quarter percent increase too many it would destroy the interest rate environment that is essential to keeping the housing bubble alive; to keeping consumers spending at a high level thereby keeping the economy growing; to keeping corporate sales and profits high thereby keeping the stock market healthy. Have they gone too far already? The bubble seems to be loosing air slowly at this point but what will the impact be of the next increase? The impact of one too many rate increases on such a chronically debt-ridden and maladjusted economy must not be over estimated.

It is just a matter of time before further increases in mortgage rates will result in increases in monthly mortgage payments than some borrowers cannot handle. This will be particularly so for borrowers of sub-prime loans who were able to purchase their first homes with almost nothing in the way of a down payment and who, even now, have a delinquency rate at near record levels. In addition, as mortgage rates rise further, fewer first-time buyers will be able to afford to buy a home which will, in turn, slow down the sale of new and resale homes.

With further increases in mortgage rates there will be dramatically reduced refinancing of mortgages, which have gone a long way to financing the retail boom in retail sales over the past few years. Indeed, more than $500 billion in equity has been withdrawn annually in the U.S. and $29 billion annually in Canada for that purpose.

But rest assured the Fed will do absolutely everything in its power to prevent the puncturing of the housing bubble!

FF assets have expanded so rapidly over the past few years due to the number of mortgages, the escalating value of mortgages (as a result of escalating real estate prices) and the refinancing of mortgages and they have so much debt in the form of mortgages, bonds, MBS’s and derivatives that should they encounter any problems servicing the debt it most likely will have a destabilizing effect on the U.S. economy.

Indeed, the Fed are so concerned about this happening they are flooding the economy with almost limitless liquidity. There must be a crisis of historic proportions coming, and the Federal Reserve Bank of the United States is making sure that there is enough liquidity in place to protect our nation's fragile financial system. The amazing thing is that the Fed's actions mean they know what is about to happen.

That could it be?" Perhaps the Fed finally recognizes that the housing bubble has experienced a leak that could well escalate into major proportions soon. Perhaps the Fed has learned that one (or more) of the 3 American banks holding 95% of U.S. derivatives are experiencing some difficulties managing their risks. Perhaps the FF is encountering major derivative losses once again. Perhaps the Fed are concerned that the rising budget deficit and/or the ever increasing and already record-high current account (trade) deficits are very near the tipping point. Perhaps it is their fear that the recent and continuing interest rate hikes are going to have a very negative impact on the already overly indebted U.S. consumers (rising mortgage, lease and credit card rates), the stock market (lower corporate profits) and the bond market and lead to a recession. Perhaps the Fed sees their greatest fear of all - deflation - just around the corner.

So where should we be investing our money? Certainly not in real estate. Definitely not in bonds. Absolutely not in the general stock market. What’s left? Well, there is cash (at least you won't lose your shirt if you hold it in something other than U.S. currency); gold bullion which performs well in such a chaotic environment (and by extension mining company shares and/or their warrants) and also energy stocks because of the political climate being the way it is in the Middle East. Pay off your debts, build up your savings and invest accordingly and you will be protecting yourself from what could well become our country's (and the world's) worst nightmare and enjoying sweet financial dreams for years to come. Good night and God bless!

Abu Ghraib & Gitmo Major General Invokes 5th Amendment At Court Martial For Underlings

The Washington Post reports:
Maj. Gen. Geoffrey D. Miller, a central figure in the U.S. detainee-abuse scandal, this week invoked his right not to incriminate himself in court-martial proceedings against two soldiers accused of using dogs to intimidate captives at the Abu Ghraib prison in Iraq, according to lawyers involved in the case.

The move by Miller -- who once supervised the U.S. detention facility at Guantanamo Bay, Cuba, and helped set up operations at Abu Ghraib -- is the first time the general has given an indication that he might have information that could implicate him in wrongdoing, according to military lawyers.

Harvey Volzer, an attorney for one of the dog handlers, has been seeking to question Miller to determine whether Miller ordered the use of military working dogs to frighten detainees during interrogations at Abu Ghraib. Volzer has argued that the dog handlers were following orders when the animals were used against detainees.

Maj. Michelle E. Crawford, a defense lawyer representing Miller, said the general decided not to answer further questions because he has "been interviewed repeatedly over the last several years" about his role at Guantanamo Bay and his visit to Iraq and he stands by his many statements to Congress, Army investigators and lawyers.

Miller's "choice to no longer answer the same questions . . . was based on the advice of counsel and includes the fact that he has already, and repeatedly, answered all inquiries fully," Crawford said.

Miller's decision came shortly after Col. Thomas M. Pappas, the commanding officer at Abu Ghraib, accepted immunity from prosecution this week and was ordered to testify at upcoming courts-martial. Pappas, a military intelligence officer, could be asked to detail high-level policies relating to the treatment of detainees at Abu Ghraib.

He also could shed light on how abusive tactics emerged, who ordered their use and their possible connection to officials in Washington, according to lawyers and human rights advocates who have closely followed the case. Pappas has never spoken publicly. Crawford said Miller was unaware of Pappas's grant of immunity. "This could be a big break if Pappas testifies as to why those dogs were used and who ordered the dogs to be used," said Michael Ratner, president of the Center for Constitutional Rights. "It's a steppingstone going up the chain of command, and that's positive. It might demonstrate that it wasn't just a few rotten apples."

Pappas's attorney, Maj. Jeffery D. Lippert, said yesterday that Pappas would not comment. But he added in an e-mail that "the Commanding General of the Military District of Washington has ordered Col. Pappas to testify if called as a witness in pending courts-martial, and granted him testimonial immunity to facilitate his appearance as a witness."

Miller invoked his military Article 31 rights through his Army lawyer on Tuesday, after a Navy judge in the Military District of Washington ruled that lawyers defending the two dog handlers could interview Miller this week. Article 31 rights are almost identical to those afforded civilians by the Fifth Amendment, and invoking them does not legally imply guilt. Miller now will not meet with the defense lawyers.

Eugene R. Fidell, a Washington expert in military law, said that Miller's decision is "consistent with his being concerned that he may have some exposure to worry about." Fidell added: "It's very unusual for senior officers to invoke their Article 31 rights. The culture in the military tends to encourage cooperation rather than the opposite."

Miller has long been in the spotlight of the Abu Ghraib abuse investigations, largely because he was sent to the Iraq prison in August and September 2003 with the goal of streamlining its intelligence-gathering operations, using Guantanamo Bay, commonly called "Gitmo," as a model. Officers at Abu Ghraib have said that Miller wanted to "Gitmo-ize" the facility, and that harsh tactics migrated from the Cuba facility via "Tiger Teams" that Miller sent to Iraq as trainers.

Photographs documenting a wide array of abuse against dozens of detainees at Abu Ghraib in late 2003 were turned over to military investigators in January 2004. The photographs were revealed publicly in April 2004, and seven low-ranking military police soldiers have taken most of the blame for the treatment of captives, which included sexual humiliation, stress positions and beatings. All seven were convicted on various charges, the most serious of which led to a 10-year prison sentence for Pvt. Charles A. Graner.

In an interview with defense attorneys for those MPs in August 2004, Miller said he never told Pappas to use dogs in questioning detainees. Photos of the dog handlers scaring detainees at Abu Ghraib were among the most notorious to emerge from the prison. Dogs were also used at Guantanamo Bay.

"At no time did we discuss the use of dogs in interrogations," Miller said, according to a transcript.

Volzer, who represents Sgt. Santos A. Cardona, one of the military dog handlers charged with abuse, said he believes the grant of immunity to Pappas will essentially clear his client, because Pappas already has admitted in administrative hearings that he improperly ordered the use of dogs. Volzer said he believes that Pappas was taking direction from Miller, and that Miller was acting on instructions from Defense Department officials. Cardona and Sgt. Michael J. Smith are scheduled to be tried in separate courts-martial in February and March.

"I think the command is hiding something, and I think what they're hiding is material that is exculpatory that says the interrogation techniques were approved by powers above General Miller," Volzer said. "Having Pappas available to testify may have given Miller the impression that he is next to be accused of doing something inappropriate or giving inappropriate orders."

Miller, now based at the Pentagon as a senior official managing Army installations, was recommended for administrative punishment for his alleged mishandling of interrogations of a valuable detainee in Guantanamo Bay. But high-ranking military officials have declined to impose the penalty. The detainee was subjected to a number of abuses that mirrored the ones that later emerged in the Abu Ghraib photographs.

Maj. Christopher Graveline, who has prosecuted several of the Abu Ghraib abuse cases, said yesterday that Pappas might be called to testify in upcoming courts-martial, but declined to comment on "any current or future prosecutions."

Asked whether prosecutors are looking at additional charges arising out of the Abu Ghraib investigation, Graveline said: "We're taking it where the evidence leads it."

Bush steps up Patriot Act campaign

IHT reports:

President George W. Bush assembled a phalanx of U.S. attorneys at the White House on Tuesday to bolster his calls for Congress to renew the anti-terrorism bill known as the USA Patriot Act, intensifying a coming clash with Capitol Hill over civil liberties and national security.

Surrounded in the Roosevelt Room by 19 of the attorneys, Bush charged that Congress was holding up the law because of politics.

"When it came time to renew the act, for partisan reasons, in my mind, people have not stepped up and have agreed that it's still necessary to protect the country," Bush said. "The enemy has not gone away - they're still there. And I expect Congress to understand that we're still at war and they've got to give us the tools necessary to win this war."

The president's remarks and an appearance by the U.S. attorneys in the West Wing driveway afterward were part of a stepped-up White House campaign to make permanent the anti-terrorism bill, which expanded the government's investigative powers after the attacks on Sept. 11, 2001.

The law was originally passed with bipartisan support, but with time limits built in because many lawmakers were nervous about its broad reach; many critics have said that the legislation impinges on civil liberties. In December, with major provisions of the bill set to expire on Dec. 31, the White House aggressively pushed to make the law permanent, but Democrats and a handful of Republicans balked and extended the law for only five weeks, to Feb. 3.

The White House efforts were further complicated by a simultaneous uproar in Congress in December over revelations that Bush authorized a secret spying program to monitor international phone calls and international e-mail messages of people in the United States.

The U.S. attorneys, all Bush presidential appointees summoned to Washington by the Justice Department, echoed Bush when they appeared en masse in front of television cameras on the driveway moments after the president spoke.

Rosalynn Mauskopf, the U.S. attorney for the Eastern District of New York, said the law had made it easier for the Eastern District "to choke off the supply of money to terrorists." Specifically, Mauskopf said, prosecutors had used the law, which broadened federal powers to obtain financial records, to convict the spiritual adviser to Osama bin Laden, Sheik Muhammad Ali Hassan al-Mouyad, as well as Mouyad's assistant, for funneling millions of dollars to Al Qaeda and the militant Islamic group Hamas.

Administration and congressional officials said they expected a compromise on the bill between the White House and members of both parties on Capitol Hill. In mid-December, the House did pass a measure to make 14 of 16 expiring provisions in the Patriot Act permanent, but that bill got bottled up in the Senate, eventually leading Congress to enact only the five-week extension.

Senator Charles Schumer, Democrat of New York, who had voted to block the permanent renewal of the Patriot Act in part because of the revelations about the spying program, said Tuesday that there was room for a deal.

"Look, this is one that should be able to be worked out, because the sides are relatively close," Schumer said.

One of the main sticking points is a provision giving the federal government the power to demand access to library records on what material people have borrowed and other information showing reading habits. The provision was challenged in a lawsuit in Connecticut by the American Civil Liberties Union.

The other main sticking point is an administrative subpoena, called a national security letter, that lets the federal government demand records without a judge's approval.

U.S. Attorneys Discuss Patriot Act Meeting with the President

Six United States attorneys met with President Bush to discuss the Patriot Act prior to Congress vote this week to reauthorize it. After their meeting, they held a press conference:

Ken Wainstein, U.S. Attorney, District of Columbia
Carol Lam, U.S. Attorney, Southern District of California
Michael Garcia, U.S. Attorney, Southern District of New York
Roslynn Mauskopf, U.S. Attorney, Eastern District of New York
Mary Beth Buchanan, U.S. Attorney, Western District of Pennsylvania
Debra Wong Yang, U.S. Attorney, Central District of CaliforniaTranscript:

WAINSTEIN: Good afternoon.

My name is Ken Wainstein. I'm the U.S. attorney here in Washington, D.C., and I'm here with a number of my U.S. attorney colleagues from around the country. And we just had a meeting with the president about the Patriot Act.

He asked us to give him our input about the importance of the Patriot Act to our investigations and our criminal cases and national security cases around the country.

We told him that we use it each and every day to protect our country against terrorists and criminals, and though there are only 20 of us here today, I can assure you that every other one of the 93 U.S. attorneys uses the Patriot Act tools each and every day in his or her efforts.

The president -- we are very grateful that the president heard out our concerns and we're very grateful that he appreciates the vitality, the centrality of these authorities and importance of these authorities in our efforts to protect the country against terrorists.

It's also important to note, and he recognizes as well, that the Patriot Act has been critical in other non-terrorist criminal cases around the country.

And to give you some anecdotes about how important the Patriot Act has been over the last few years, some of my colleagues are going to tell you about some of the cases in their districts.

Thank you.

Carol Lam, U.S. attorney in the Southern District of California.

LAM: Good morning.

This morning I briefed the president on a case that we have in San Diego involving a weapons-for-drugs deal that was taken down in an undercover operation.

As many of you know, before the Patriot Act, sharing was not permitted between an ongoing foreign intelligence wiretap and criminal prosecution. This created, unfortunately, a situation where people had to choose, law enforcement had to choose between either pursuing an intelligence investigation or a criminal investigation.

With the Patriot Act, we are now permitted to share that information so if an intelligence investigation is going on and evidence of a crime is revealed, that information can be shared with criminal investigators and criminal prosecutors so that, that information and evidence can be used in a criminal prosecution.

In San Diego, this case involved three individuals, weapons dealers who were interested in taking Stinger missiles from undercover FBI agents and reselling them to Al Qaida and the Taliban. In return, they were going to give 600 pounds of heroin and five metric tons of hashish to the undercover FBI agents. As weapons for drug deals shows the narcoterrorism that's going on in the world today.

With Section 218, the information-sharing provisions of the Patriot Act, we were able to share information and that resulted in the undercover operation that took these dangerous individuals out of commission.

Thank you very much.

GARCIA: Thank you.

Mike Garcia from the Southern District of New York.

I spoke to the president this morning about cases that we had in New York back in the 1990s, and I was a prosecutor then and I saw firsthand the effect of the wall, the wall between the intelligence investigations and the criminal investigations, when we were prosecuting some of the major terrorism cases at that time.

Specifically, we spoke about the Rahman case, the blind cleric who was charged with a plot to blow up landmarks in New York City.

When that investigation was launched, it was an intelligence investigation and the prosecutors and the criminal agents were walled off from that information until the last minute when, by luck and extraordinary effort, enough information came over that wall to enable us to prosecute Sheikh Rahman and his followers and to convict them of terrorism charges.

And I contrasted the rules that we had to operate under in the '90s in the Sheikh Rahman case with the rules that we have today under the Patriot Act, where sharing is the rule and not the exception that comes about by luck and personal relationships, that somebody mentions something and, by hard work, you can follow up and get enough information.

Now, we have a process for sharing information.

And that was evident in the case that involved Sheikh Rahman's attorney, Lynn Stewart, his translator, and another associate, Sitar (ph), that was recently prosecuted in the Southern District under the new sharing rules of the Patriot Act, where we can expend our energy actually investigating and prosecuting terrorists and not trying to determine how agents of the same government can share information about terrorists.

Thank you very much.

MAUSKOPF: I'm Roslynn Mauskopf, the United States Attorney for the Eastern district of New York.

In addition to bullets and bombs, money is the lifeblood of terrorists. And, in the Eastern district of New York, we have used the Patriot Act and many of its provisions to choke off the supply of money to terrorists.

In one case prosecuted in the Eastern District of New York, we used the Patriot Act to secure convictions of Mohammed Al-Moayad and Mohammed Zayed.

Both of these individuals were Yemeni citizens. And Mohammed Al- Moayad was the self-proclaimed spiritual adviser to Osama bin Laden.

Using the provisions of the Patriot Act, we were able to convict these two individuals of material support of terrorism, for funneling over $20 million to Al Qaida and Hamas.

And these two individuals didn't stop there. They were seeking to raise millions of dollars more in support of terrorism.

With the help of the Patriot Act provisions, these two terrorists financiers are now in federal prison, each serving 75 and 45 years in prison, respectively.

Without the provisions of the Patriot Act, we would not have been able to build and prove this case against these two master terrorist financiers.

BUCHANAN: Today, we met with the president and we talked about cases ranging from international terrorism to criminal activity throughout our country. We talked about narcotics trafficking cases. We talked about child exploitation and domestic terrorism.

Section 212 of the Patriot Act was used in Western Pennsylvania -- and I am Mary Beth Buchanan, the U.S. attorney for Western Pennsylvania -- we used Section 212 of the Patriot Act to rescue a 13- year-old child who had been taken from her home in Pittsburgh and abducted by a 38-year-old child molester.

Without the Patriot Act, we would not have been able to get critical information that we needed from an Internet service provider, who in the middle of the night was able to give us information on an emergency basis to help us to rescue this child from her captor's home in Virginia.

We also talked about a domestic terrorism case involving an imperial wizard of the Ku Klux Klan who had obtained explosive bombs and devices, and he planned to obtain hand grenades and blow up abortion clinics.

Without the Patriot Act, we would not have been able to get a wiretap to get evidence against this individual to successfully prosecute him.

As you can see, the Patriot Act is extremely vital to United States attorneys across the country to protect our nation from terrorism and from criminal activity of every type.

At this time, we're happy to take your questions.

QUESTION: The administration has portrayed this as somewhat of a partisan debate. And, obviously, all of you are here in support of the provisions in question. Do you feel like there are any legitimate issues when it comes to some of these provisions, that they go beyond the protection of civil liberties, that some of your colleagues who aren't here do have a legitimate case to bring up those concerns?

BUCHANAN: We support the conference report. We believe that this report gives us the adequate tools that we need to investigate terrorism and to protect the people from criminal activity. We believe that this provides adequate safeguards in every respect, and we fully support this report. And we would ask Congress to enact this legislation and to make the Patriot Act permanent to give us the tools that we need.

QUESTION: Is there anything in the Senate bill that would make that version unworkable from your perspective?

WAINSTEIN: We're just going to say that as to the conference report, we support it fully. We support the tools it provides, how it builds on the original Patriot Act and the safeguards that are included in it, and we're fully in support of it.

QUESTION: I have a question for Debra Wong Yang. When the Patriot Act was originally passed in 2002, it beefed up the FISA court. It streamlined it. It tripled the amount of time that was available from 24 to 72 hours for prosecutors who had to go to the FISA court to get the permission for wiretaps. It (inaudible) there were a number of ways in which it strengthened and streamlined and made more agile the FISA court.

Does the president's willingness to go around the FISA court since then bypass the FISA court and entirely make it more difficult to pass this reauthorization, in your opinion, of the Patriot Act? Has the Patriot Act addressed the problems that you all as prosecutors had with FISA courts?

YANG: Well, I think that the Patriot Act does address all the problems that we need to and with all the changes and safeguards. I mean, there are other mechanism that are in place because we are in the midst of doing a number of things and looking at a number of individuals.

I don't want to say, in particular to that particular issue. But with respect to the Patriot Act, I don't think it's harmed us at all. In fact, his support has been a great -- I guess a great thing that we can use in trying to fight the war on crime in all aspects.

QUESTION: Are you as a prosecutor comfortable with the notion of warrantless wiretapping that on one end involves somebody who's an American citizen or somebody in the United States?

YANG: I think that there are certain things that we need to do, given the time and the place that are in history, if we want to protect our country and we want to do it adequately.

QUESTION: Was there any discussion of that issue in your meeting with the president?

YANG: I'm not at liberty to answer that, sir.

QUESTION: I'm sorry?

YANG: I'm not at liberty to answer that.

QUESTION: Can I ask (inaudible) from the White House, Fran Townsend invited you down, (inaudible)?

WAINSTEIN: We coordinated this through the Department of Justice. We talked to them last week and we were all very grateful to have this indication and to have the opportunity to talk to the president about our concerns about how important the Patriot Act is to us and our colleagues at the U.S. Attorneys Offices.

QUESTION: Did you reach (inaudible) at the Justice Department?

WAINSTEIN: It was just -- I got an e-mail from the folks in the department who arranged things, and I called back and we got it all set up just as we set up any meetings.

QUESTION: Can I ask why you feel like you're not at liberty to talk about whether the issue of (inaudible) surveillance program was talked about? Why do you not feel free to talk about that?

(UNKNOWN): (OFF-MIKE)

WAINSTEIN: Let's just say we're here today to talk about the Patriot Act. It's very important to our operations. We're focused on that. We want the country to be focused on it. We want the government to be focused on it. We want Congress to be focused on it.

So we really want to stick with the Patriot Act and how important it is to us.

Thank you.

IMF Occupies Iraq, Riots Follow

Bad enough that the U.S. military is occupying Iraq: Now the IMF is occupying the country.

For the Progressive, Matthew Rothschild writes:
In December, the International Monetary Fund, in exchange for giving a loan of $685 million to the Iraqi government, insisted that the Iraqis lift subsidies on the price of oil and open the economy to more private investment.

As the IMF said in a press release of December 23, the Iraqi government must be committed to “controlling the wage and pensions bill, reducing subsidies on petroleum products, and expanding the participation of the private sector in the domestic market for petroleum products.”

The impact of the IMF extortion was swift and brutal.

“Since the Dec. 15 parliamentary election, fuel prices have increased five-fold, mostly because the outgoing government of Prime Minister Ibrahim Jafari has cut subsidies as part of a debt-forgiveness deal it signed with the International Monetary Fund,” the Los Angeles Times reported on December 28.

“The move has shocked Iraqis long accustomed to hefty subsidies of gasoline, kerosene, cooking gas, and other fuels.”

Iraqis are getting a nasty taste of the IMF’s medicine. “Over the summer, gas was selling for about five cents a gallon,” the LA Times noted. “Now it’s about 65 cents, and at the end of the price increases, gasoline will cost about the same in Iraq as it does in other countries in the Persian Gulf, about $1 per gallon. The prices of kerosene, diesel, and cooking gas have seen similar or steeper increases.” The price of public transportation has also gone up significantly.

Not surprisingly, these enormous price hikes have led to riots around the country, with police firing on 3,000 protesters in Nassiryeh, according to an account on Daily Kos.

Iraq’s oil minister quit to protest the government’s capitulation to the IMF. According to Daily Kos, Oil Minister Ibrahim Bahr al-Uloum asked, “Is this how we repay the Iraq citizens who risked their lives to participate in the elections, by raising fuel prices in this way?”

The indestructible Ahmad Chalabi, a longtime favorite of Donald Rumsfeld and Dick Cheney, replaced al-Uloum.

The Bush Administration is four-square behind the IMF deal.

“This arrangement will underpin economic stability and help lay the foundation for an open and prosperous economy in Iraq,” said U.S. Treasury Secretary John Snow.

What it is actually underpinning is economic instability. “It’s crazy, socially and politically,” Robert Mabro, former chairman of the Oxford Institute of Energy Studies, told the LA Times.

Even the Pentagon’s “National Strategy for Victory in Iraq” recognized the need for “balancing the need for economic reform—particularly of bloated fuel and food subsidies—with political realities.”

But “political realities” on the ground—such as inciting riots and increasing discontent—don’t appear to concern Bush.

For the Bush Administration, the endorsement of the IMF price increase represents a schizophrenia that’s almost clinical.

Bush is desperate to rescue his floundering Iraq policy, and yet backing the IMF plan is like throwing a drowning patient both ends of a lifeline.

The Iraqi people are sick and tired of the U.S. occupation already, to put it mildly.

Now that they are seeing their standard of living plummet, thanks to the IMF, they are going to be even more irate at the United States, which they know controls the IMF.

Caught between deciding whether to try to win hearts and minds or whether to cling to free market fantasies, Bush has once again chosen to live in fantasyland.