Sunday, February 28, 2010

Obama and the Congress Pass an Anemic Stimulus Bill, China Passes U.S. in Economic Vitality

Graph of U.S. job losses in post-WWII recessions relative to peak-employment month.  The red line represents the change in U.S. employment in the 25 months since it peaked in December 2007.

The American Recovery and Reinvestment Act of 2009, abbreviated ARRA and commonly referred to as “the Stimulus,” is an economic stimulus package enacted by the 111th United States Congress in February 2009. The measures are nominally worth $787 billion.

Of these, $288 Billion went into tax cuts, most of which went into personal savings as Americans finally realized that they had run up too much debt to continue their spending spree.  

The $144 Billion that went into state and local fiscal relief was totally insufficient, as states continue to layoff teachers and close parks (and, e.g., the California university system is talking of imposing a 32% increase in in-state tuitions).

Only $111 billion of the ARRA went into infrastructure and science, and only $51 Billion of that went into “core” investments (roads, bridges, railways, sewers, other transportation), which directly created new civilian jobs.

The result of all this was a continuing hemorrhaging of American jobs.

By comparison, China spent $44 Billion on intercity railroad lines in 2008 and $88 Billion on these railroads in 2009 – out of a total of $600 Billion 2009 stimulus budget devoted to job creation.

From the looks of things (see post below), China seems to have solved its unemployment problems for the moment, which in turn gives a shot in the arm to the 35% of its economy due to consumer spending.  By comparison, 75% of the U.S. economy is based on consumer spending (counting the 5% selling houses), and those Americans who have become unemployed can no longer consume at the torrid rate they had in the past.

For months preceding the passage the American Recovery and Reinvestment Act of 2009, Nobel Prize winning economist Paul Krugman had been advising President Obama that he should heed what FDR learned was necessary to pull out of the Great Depression: If big business can’t/won’t create  jobs, then the government must do it.

Obviously, he didn’t listen.  And look where it's gotten us.
Disclaimer: Obama might well have come up with a better stimulus plan were it not for Republican resistance. And, barring an act of God, a Republican president would have done far worse, based on the party's quasi-religious belief that the best government is a government "drowned in a bathtub" (after it's finished deregulating big businesses and cutting taxes).

NY Times: China's $600 Billion Stimulus Program -- with the Government as the "Single Payer" -- Created So Many Jobs that the Labor Pool Has Dried Up!

Employers sit with recruitment posters on a street in Guangzhou. China's coastal industrial heartland is facing a severe labor shortage as many migrant workers have not returned.

Defying Global Slump, China Has Labor Crisis

Original article here
Published: February 26, 2010

GUANGZHOU, China — Just a year after laying off millions of factory workers, China is facing an increasingly acute labor shortage. 

As American workers struggle with near double-digit unemployment, unskilled factory workers here in China’s industrial heartland are being offered signing bonuses.

Factory wages have risen as much as 20 percent in recent months.

Telemarketers are turning away potential customers because recruiters have fully booked them to cold-call people and offer them jobs.

Some manufacturers, already weeks behind schedule because they can’t find enough workers, are closing down production lines and considering raising prices. Such increases would most likely drive up the prices American consumers pay for all sorts of Chinese-made goods.

Rising wages could also lead to greater inflation in China. In the past, inflation has sown social unrest. 

The immediate cause of the shortage is that millions of migrant workers who traveled home for the long lunar New Year earlier this month are not returning to the coast. Thanks to a half-trillion-dollar government stimulus program, jobs are being created in the interior.

But many economists say the recent global downturn also obscured a longer-term trend: China has drained its once vast reserves of unemployed workers in rural areas and is running out of fresh laborers for its factories.

Since China does not release reliable, timely statistics on employment, wages are considered the best barometer of labor shortages. And temp agencies here in Guangzhou raised their rate for factory workers this week to $1.17 an hour, from 95 cents an hour before the new year holiday.

The rate was 80 cents an hour two years ago, before the global financial crisis temporarily depressed wages and demand. 

The dearth of returning migrants set off a desperate scramble this week to recruit the workers who did step off long-haul buses and trains returning from the interior.

At a government-run employment center in downtown Guangzhou, employers seeking workers outnumbered job-hunters Thursday afternoon.

Outside, Liang Huoqiao, a 22-year-old plastics worker, joined a small group of men and women studying a 40-foot-wide list of companies seeking workers.

“You can walk into any factory and get a job,” he said.

The official China Daily newspaper said on Thursday that surveys of employers showed that one in 12 migrant workers was not expected to return here to Guangdong Province. Cities farther north along China’s coast are also running low on labor; Wenzhou alone posted a shortage of up to one million workers.

Guangdong provincial officials announced on Wednesday that they were considering increasing the minimum wage, which varies by city and ranges from $113 to $146 a month.

Higher wages could ease labor shortages by prompting factories to reduce their work forces.

But many factories already pay well above the minimum wage. They are wary of further pay increases because it is not certain they can pass the increased costs on to their customers — in particular, strapped importers in the United States and the European Union.

Rising wages suggest the re-emergence of a worker shortage that was becoming evident before the financial crisis. A government survey three years ago of 2,749 villages in 17 provinces found that in 74 percent of them, there was no one left behind who was fit to go work in city factories — the labor pool was dry.

Mass layoffs in late 2008 and early 2009 because of the global financial crisis temporarily masked the developing shortage of industrial workers. But two powerful trends were still working to reduce the supply of young people headed for factories.

For one, the Chinese government has rapidly expanded postsecondary education. Universities and other institutions of higher learning enrolled 6.4 million new students last year, compared to 5.7 million in 2007 and just 2.2 million in 2000.

At the same time, China’s birth rate has been sliding steadily ever since the introduction of the “one child” policy in 1977. 

Labor shortages have returned quickly in recent weeks as these long-term trends have collided with a recovery in overseas demand for Chinese goods. 

Far more jobs are available these days in China’s interior. Government projects like rail and highway construction have absorbed millions of workers, particularly after Beijing allocated nearly $600 billion to economic stimulus spending in 2009 and 2010. Consumer spending is also rising briskly; auto sales more than doubled last month from a year before, and this has created many jobs in retailing, restaurants, hotels and other inland businesses.

Even before the holiday, companies were struggling to find the employees needed to keep assembly lines running.

At many factories, white-collar managers and engineers were forced to spend time on assembly lines to meet deadlines before the lunar New Year, because laborers were in such short supply. The managers often struggled with the tedious but intricate tasks required to make everything from toys to DVD players.

“People working in the office, like me, have been asked to help on the factory floor,” said Sky Niu, the sales manager at the Hengjia Electronics Company in Dongguan. “Of course, we can only help on the simpler tasks, such as packing.”

The labor shortage is not benefiting workers just through higher wages. Personnel managers here say they are also abandoning the informal tradition of not hiring anyone over 35 — they say they are now hiring workers up to 40 years old, and sometimes older, despite concerns about whether they can keep up week after week with the rapid pace of Chinese assembly lines.

It remains to be seen if Chinese factories will learn from their hiring difficulties now and be less quick to lay off workers during the next global downturn.

The current system “is not stable, it’s not healthy,” said Han Dongfang, the director of the China Labor Bulletin, a Hong Kong-based group that advocates collective bargaining.

Though the wage boost increases the prospect of inflation, it may have another more salutary aspect. The Obama administration has been pushing China to let the renminbi rise against the dollar, which would erode some of China’s formidable advantage in export markets. Rising wages in China have the same effect — while also giving Chinese families more spending power.

Letting wages rise benefits workers, said Jing Ulrich, the chairwoman of China equities and commodities at J. P. Morgan. Letting the currency rise benefits currency speculators, she said. 

Mr. Liang, the 22-year-old plastics worker, said that he expected his pay to double in the next five years and added that he already had set his priorities.

“For sure, I want to buy a car,” he said. “Car first, then maybe marriage later.”

Hilda Wang contributed reporting.

A version of this article appeared in print on February 27, 2010, on page A1 of the New York edition.

Tuesday, February 23, 2010

A Prayer for America

Blogger's Note: This prayer was presented eight years ago last week in a speech by Representative Dennis Kucinich (D-Ohio).  You may watch this speech on a video by clicking here and/or you may read the text below.  Those of you who believe your God answers your prayers, may want to recite this one in the coming months and years.

A Prayer for America
by US Rep Dennis Kucinich
The following speech was given on February 17, 2002 in Los Angeles, California at an event sponsored by the Southern California Americans for Democratic Action.

I offer these brief remarks today as a prayer for our country, with love of democracy, as a celebration of our country. With love for our country. With hope for our country. With a belief that the light of freedom cannot be extinguished as long as it is inside of us. With a belief that freedom rings resoundingly in a democracy each time we speak freely. With the understanding that freedom stirs the human heart and fear stills it. With the belief that a free people cannot walk in fear and faith at the same time.

With the understanding that there is a deeper truth expressed in the unity of the United States. That implicit in the union of our country is the union of all people. That all people are essentially one. That the world is interconnected not only on the material level of economics, trade, communication, and transportation, but innerconnected through human consciousness, through the human heart, through the heart of the world, through the simply expressed impulse and yearning to be and to breathe free.

I offer this prayer for America.

Let us pray that our nation will remember that the unfolding of the promise of democracy in our nation paralleled the striving for civil rights. That is why we must challenge the rationale of the Patriot Act. We must ask why should America put aside guarantees of constitutional justice?

How can we justify in effect canceling the First Amendment and the right of free speech, the right to peaceably assemble?

How can we justify in effect canceling the Fourth Amendment, probable cause, the prohibitions against unreasonable search and seizure?

How can we justify in effect canceling the Fifth Amendment, nullifying due process, and allowing for indefinite incarceration without a trial?

How can we justify in effect canceling the Sixth Amendment, the right to prompt and public trial?

How can we justify in effect canceling the Eighth Amendment which protects against cruel and unusual punishment?

We cannot justify widespread wiretaps and internet surveillance without judicial supervision, let alone with it.

We cannot justify secret searches without a warrant.

We cannot justify giving the Attorney General the ability to designate domestic terror groups.

We cannot justify giving the FBI total access to any type of data which may exist in any system anywhere such as medical records and financial records.

We cannot justify giving the CIA the ability to target people in this country for intelligence surveillance.

We cannot justify a government which takes from the people our right to privacy and then assumes for its own operations a right to total secrecy.

The Attorney General recently covered up a statue of Lady Justice showing her bosom as if to underscore there is no danger of justice exposing herself at this time, before this administration.

Let us pray that our nation's leaders will not be overcome with fear. Because today there is great fear in our great Capitol. And this must be understood before we can ask about the shortcomings of Congress in the current environment.

The great fear began when we had to evacuate the Capitol on September 11.

It continued when we had to leave the Capitol again when a bomb scare occurred as members were pressing the CIA during a secret briefing.

It continued when we abandoned Washington when anthrax, possibly from a government lab, arrived in the mail.

It continued when the Attorney General declared a nationwide terror alert and then the Administration brought the destructive Patriot Bill to the floor of the House.

It continued in the release of the bin Laden tapes at the same time the President was announcing the withdrawal from the ABM treaty.

It remains present in the cordoning off of the Capitol.

It is present in the camouflaged armed national guardsmen who greet members of Congress each day we enter the Capitol campus.

It is present in the labyrinth of concrete barriers through which we must pass each time we go to vote.

The trappings of a state of siege trap us in a state of fear, ill-equipped to deal with the Patriot Games, the Mind Games, the War Games of an unelected President and his unelected Vice President.

Let us pray that our country will stop this war. "To promote the common defense" is one of the formational principles of America.

Our Congress gave the President the ability to respond to the tragedy of September 11. We licensed a response to those who helped bring the terror of September 11th. But we the people and our elected representatives must reserve the right to measure the response, to proportion the response, to challenge the response, and to correct the response.

Because we did not authorize the invasion of Iraq.

We did not authorize the invasion of Iran.

We did not authorize the invasion of North Korea.

We did not authorize the bombing of civilians in Afghanistan.

We did not authorize permanent detainees in Guantanamo Bay.

We did not authorize the withdrawal from the Geneva Convention.

We did not authorize military tribunals suspending due process and habeas corpus.

We did not authorize assassination squads.

We did not authorize the resurrection of COINTELPRO.

We did not authorize the repeal of the Bill of Rights.

We did not authorize the revocation of the Constitution.

We did not authorize national identity cards.

We did not authorize the eye of Big Brother to peer from cameras throughout our cities.

We did not authorize an eye for an eye.

Nor did we ask that the blood of innocent people, who perished on September 11, be avenged with the blood of innocent villagers in Afghanistan.

We did not authorize the administration to wage war anytime, anywhere,anyhow it pleases.

We did not authorize war without end.

We did not authorize a permanent war economy.

Yet we are upon the threshold of a permanent war economy. The President has requested a $45.6 billion increase in military spending. All defense-related programs will cost close to $400 billion.

Consider that the Department of Defense has never passed an independent audit.

Consider that the Inspector General has notified Congress that the Pentagon cannot properly account for $1.2 trillion in transactions.

Consider that in recent years the Dept. of Defense could not match $22 billion worth of expenditures to the items it purchased, wrote off, as lost, billions of dollars worth of in-transit inventory and stored nearly $30 billion worth of spare parts it did not need.

Yet the defense budget grows with more money for weapons systems to fight a cold war which ended, weapon systems in search of new enemies to create new wars. This has nothing to do with fighting terror.

This has everything to do with fueling a military industrial machine with the treasure of our nation, risking the future of our nation, risking democracy itself with the militarization of thought which follows the militarization of the budget.

Let us pray for our children. Our children deserve a world without end. Not a war without end. Our children deserve a world free of the terror of hunger, free of the terror of poor health care, free of the terror of homelessness, free of the terror of ignorance, free of the terror of hopelessness, free of the terror of policies which are committed to a world view which is not appropriate for the survival of a free people, not appropriate for the survival of democratic values, not appropriate for the survival of our nation, and not appropriate for the survival of the world.

Let us pray that we have the courage and the will as a people and as a nation to shore ourselves up, to reclaim from the ruins of September 11th our democratic traditions.

Let us declare our love for democracy. Let us declare our intent for peace.

Let us work to make nonviolence an organizing principle in our own society.

Let us recommit ourselves to the slow and painstaking work of statecraft, which sees peace, not war as being inevitable.

Let us work for a world where someday war becomes archaic.

That is the vision which the proposal to create a Department of Peace envisions. Forty-three members of Congress are now cosponsoring the legislation.

Let us work for a world where nuclear disarmament is an imperative. That is why we must begin by insisting on the commitments of the ABM treaty. That is why we must be steadfast for nonproliferation.

Let us work for a world where America can lead the day in banning weapons of mass destruction not only from our land and sea and sky but from outer space itself. That is the vision of HR 3616: A universe free of fear. Where we can look up at God's creation in the stars and imagine infinite wisdom, infinite peace, infinite possibilities, not infinite war, because we are taught that the kingdom will come on earth as it is in heaven.

Let us pray that we have the courage to replace the images of death which haunt us, the layers of images of September 11th, faded into images of patriotism, spliced into images of military mobilization, jump-cut into images of our secular celebrations of the World Series, New Year's Eve, the Superbowl, the Olympics, the strobic flashes which touch our deepest fears, let us replace those images with the work of human relations, reaching out to people, helping our own citizens here at home, lifting the plight of the poor everywhere.

That is the America which has the ability to rally the support of the world.

That is the America which stands not in pursuit of an axis of evil, but which is itself at the axis of hope and faith and peace and freedom. America, America. God shed grace on thee. Crown thy good, America.

Not with weapons of mass destruction. Not with invocations of an axis of evil. Not through breaking international treaties. Not through establishing America as king of a unipolar world. Crown thy good America. America, America. Let us pray for our country. Let us love our country. Let us defend our country not only from the threats without but from the threats within.

Crown thy good, America. Crown thy good with brotherhood, and sisterhood. And crown thy good with compassion and restraint and forbearance and a commitment to peace, to democracy, to economic justice here at home and throughout the world.

Crown thy good, America. Crown thy good America. Crown thy good.

Thank you.

E-Mail Congressman Kucinich:

Monday, February 22, 2010

How the Big Banks Are Ripping Us Off for $Trillions, while Setting Us Up for the Next Crash

Wall Street's Bailout Hustle

Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash

Posted Feb 17, 2010 5:57 AM

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:


By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.

What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.

It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."

And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.


In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."

In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:


At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.

But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.

"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."


One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."

But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."

Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.


All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."


Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.


Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

[From Issue 1099 — March 4, 2010]
More by Matt Taibbi:

Sunday, February 21, 2010


Yoo Said Bush Could Order Civilians 'Massacred'

20 February 2010 
he chief author of the Bush administration's "torture memo" told Justice Department investigators that the president's war-making authority was so broad that he had the constitutional power to order a village to be "massacred," according to a report by released Friday night by the Office of Professional Responsibility. 

The views of former Justice lawyer John Yoo were deemed to be so extreme and out of step with legal precedents that they prompted the Justice Department's internal watchdog office to conclude last year that he committed "intentional professional misconduct" when he advised the CIA it could proceed with waterboarding and other aggressive interrogation techniques against Al Qaeda suspects.

The report by OPR concludes that Yoo, now a Berkeley law professor, and his boss at the time, Jay Bybee, now a federal judge, should be referred to their state bar associations for possible disciplinary proceedings. But, as first reported by NEWSWEEK, another senior department lawyer, David Margolis, reviewed the report and last month overruled its findings on the grounds that there was no clear and "unambiguous" standard by which OPR was judging the lawyers. Instead, Margolis, who was the final decision-maker in the inquiry, found that they were guilty of only "poor judgment." 

The report, more than four years in the making, is filled with new details into how a small group of lawyers at the Justice Department, the CIA, and the White House crafted the legal arguments that gave the green light to some of the most controversial tactics in the Bush administration's war on terror. They also describe how Bush administration officials were so worried about the prospect that CIA officers might be criminally prosecuted for torture that one senior official - Attorney General John Ashcroft - even suggested that President Bush issue "advance pardons" for those engaging in waterboarding, a proposal that he was quickly told was not possible. 

At the core of the legal arguments were the views of Yoo, strongly backed by David Addington, Vice President Dick Cheney's legal counsel, that the president's wartime powers were essentially unlimited and included the authority to override laws passed by Congress, such as a statute banning the use of torture. Pressed on his views in an interview with OPR investigators, Yoo was asked:

"What about ordering a village of resistants to be massacred? ... Is that a power that the president could legally -"

"Yeah," Yoo replied, according to a partial transcript included in the report. "Although, let me say this: So, certainly, that would fall within the commander-in-chief's power over tactical decisions."

"To order a village of civilians to be [exterminated]?" the OPR investigator asked again.

"Sure," said Yoo. 

Yoo is depicted as the driving force behind an Aug. 1, 2002, Justice Department memo that narrowly defined torture and then added sections concluding that, in the end, it essentially didn't matter what the fine print of the congressionally passed law said: The president's authority superseded the law and CIA officers who might later be accused of torture could also argue that were acting in "self defense" in order to save American lives. 

The original torture memo was prompted by concerns by John Rizzo, the CIA's general counsel, that the agency's officers might be criminally prosecuted if they proceeded with waterboarding and other rough tactics in their interrogation of Abu Zubaydah, an allegedly high-level Al Qaeda-linked operative who had been captured in Pakistan and in the spring of 2002 was transferred to a CIA "black site" prison in Thailand. Rizzo wanted the Justice Department to provide a blanket letter declining criminal prosecution, essentially providing immunity for any action engaged in by CIA officers, a request that Michael Chertoff, then chief of the Justice Department's criminal division, refused to provide. It was at that point that Yoo began crafting his opinion, the contents of which he actively reviewed with senior officials at the White House. "Let's plan on going over [to the White House] at 3:30 to see some other folks about the bad things opinion," he wrote in a July 12, 2002, e-mail quoted in the OPR report. 

The report describes two meetings at the White House with then-chief counsel Alberto Gonzales and "possibly Addington." (Addington refused to talk to the OPR investigators but testified before Congress that he did in fact have at least one meeting with Yoo in the summer of 2002 to discuss the contents of the torture opinion.) After the second meeting, on July 16, 2002, Yoo began writing new sections of his memo that included his controversial views on the president's powers as commander in chief. When one of his associates, Patrick Philbin, questioned the inclusion of that section and suggested it be removed, Yoo replied, "They want it in there," according to an account given by Philbin to OPR investigators. Philbin said he didn't know who the "they" was but assumed it was whoever it was that requested the opinion (technically, that was the CIA, although, as the report makes clear, the White House was also pressing for it). 

Yoo provided extensive comments to OPR defending his views of the president's war-making authority and disputing OPR's take that he slanted them to accommodate the White House. He did not immediately respond to NEWSWEEK'S request for comment Friday night. 
Blogger's Note: Find this article at Reader Supported News, where you may want to add to the trenchant reader comments already posted there.