Signs of the Economic Apocalypse, 8-4-08

From SOTT.net:

Gold closed at 917.50 dollars an ounce Friday, down 1.0% from $926.80 for the week. The dollar closed at 0.6425 euros Friday, up 0.8% from 0.6371 at the close of the previous week. That put the euro at 1.5564 dollars compared to 1.5697 the week before. Gold in euros would be 589.50 euros an ounce, down 0.2% from 590.43 at the close of the previous week. Oil closed at 125.10 dollars a barrel Friday, up 1.4% from $123.41 for the week. Oil in euros would be 80.38 euros a barrel, up 2.2% from 78.62 at the close of the Friday before. The gold/oil ratio closed at 7.33 Friday, down 2.5% from 7.51 for the week. In U.S. stocks, the Dow closed at 11,326.32 Friday, down 0.4% from 11,371.92 at the close of the previous Friday. The NASDAQ closed at 2,310.96 Friday, virtually unchanged from 2,310.79 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.93%, down 16 basis points from 4.09 for the week.

A commentor on last week’s commentary pointed out that four more U.S. banks had failed since the IndyMac run. I missed that news. Events get so strange and alarming that they become the new normal. Ho-hum another bank failure. Apparently I wasn’t the only one because the mainstream media has been keeping this as quiet as possible. Mike Whitney wrote about this last week, quoting the chairperson of the FDIC (U.S. Federal Deposit Insurance Corporation) who was worried that internet blogs were making it harder to keep news of bank failures out of the news.

Bad News and Bank Runs: A Shock to the Collective Psyche

Mike Whitney

July 28, 2008

The Bush administration is going to be mailing out more "stimulus" checks in the very near future. There's just no way around it. The Fed is in a pickle and can't lower interest rates for fear that food and energy prices will shoot into the stratosphere. At the same time, the economy is shrinking faster than anyone thought possible with no sign of a rebound. That leaves stimulus checks as the only way to "prime the pump" and keep consumer spending chugging along. Otherwise business activity will slow to a crawl and the economy will tank. There's no other choice.

The daily barrage of bad news is really starting to get on people's nerves; it's obvious everywhere you look. Most of the TV chatterboxes have already cut-out the cheery stock market predictions and no one is praising the "impressive powers of the free market" any more. They know things are bad, real bad. That's why the business news is no longer presented like a happy-go-lucky Bollywood extravaganza with undulating females and exotic music. Now it’s more like B-grade slasher movie where everyone winds up dead at the end of the show.

A pervasive sense of gloom has crept into the television studios just like it has into the stock exchanges and the luxury penthouses on Manhattan's West End. It's palpable. That same sense of foreboding is creeping like a noxious cloud to every town and city across the country. Everyone is cutting back on non-essentials and trimming the fat from the family budget. The days of extravagant impulse-spending at the mall are over. So are the big ticket purchases and the trips to Europe. Consumer confidence is at historic lows, disposal income is a thing of the past, and credit cards are at their limit.

In the last three months bank credit has shrunk faster than any time since 1948. The banks aren't lending and people aren't borrowing; that's a lethal combo. When credit-creation slows, the economy falters, unemployment rises and the misery index soars. That's why Bush will mail out a new batch of stimulus checks whether he wants to or not; his back is up against the wall.

On Friday, after the market had closed, the FDIC shut down two more banks, First Heritage Bank and First National Bank. Kaboom. Two weeks earlier, regulators seized Indymac Bancorp following a run by depositors. The FDIC now operates like a stealth paramilitary unit, deploying its shock troops on the weekends to do their dirty work out of the public eye and at times when it will least effect the stock market. The reasons for this are obvious; there's only one thing the government hates more than seeing flag-draped coffins on the evening news, and that's seeing long lines of frantic people waiting impatiently to get what's left of their savings out of their now-deceased bank. Lines at the bank signal that the system is broken.

Banks-runs are a shock to the collective psyche. When depositors see a bank run they realize that their money is not safe. People aren't fools; they can smell a rat. When their confidence wanes, it extends to the whole system. Suddenly they start questioning everything they once took for granted. They become skeptical of the institutions which, just days earlier, seemed rock-solid.

Bank runs are a direct hit on the foundation of the free market system. Unchecked, the tremors can ripple through the entire society and trigger violent political upheaval, even revolution. The public may not grasp their significance, but everyone in Washington is paying attention. They take it seriously, very seriously.

An article in the San Francisco Business Times said that the FDIC is worried about the reporting on Internet blogs. They'd rather keep the information about the troubles in the banking system out of the news. Sheila Bair, chairman of the Federal Deposit Insurance Corp., summed it up like this after the run on Indymac:

"The blogs were a bit out of control. We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it. The misinformation that came out over the weekend fed a lot of depositors' fears."

Is that a threat? The cure for a failed banking system is adequate capital and prudent oversight not threats to impartial critics of the system. That's balderdash. Commissar Blair apparently believes that bloggers should be treated the same way as journalists in Iraq, who, if they veer ever so slightly from the Pentagon's "the surge is a great triumph" script, find themselves on the smoky end of an M-16 at some unmarked checkpoint outside Baquba.

Last Sunday, sought Treasury Secretary Henry Paulson tried to reassure the public that the banking system is sound, while bracing people for more trouble ahead:
"I think it's going to be months that we're working our way through this period — clearly months. But again, it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

Paulson is wrong; the banking system is not sound nor is it well capitalized.

If the rate of bank closures continues at the present pace, by the middle of 2009 their will be restrictions on withdrawals. Bet on it.

So, while your bank still has money and can process your checks, it may be time to pay down debts, pay quarterly taxes and mortgage payments in advance, and think of having money outside of banks (gold, foreign currencies), etc., before your money is inaccessible or even evaporates! Don’t think all your investments outside of banks are immune from all this turmoil. For example, money market mutual funds, where Americans have invested $3 trillion, are not covered by FDIC insurance (however, money market accounts offered by banks are covered). Recent losses in some of these money market mutual funds have caused some companies to rush to plug the losses. For example, Legg Mason Inc. and SunTrust Banks Inc., recently pumped $1.4 billion each into its money market funds. Bank of America Corp. has injected $600 million.

As for your checking and savings accounts, recognize you may have five different accounts in the same bank, but the FDIC only insures individuals, not each account, up to $100,000. Putting your money in different accounts in the same bank does not necessarily provide better insurance for your deposits.

And, sure enough, on Friday night, the FDIC announced another bank failure:

Small Florida bank is 8th U.S. failure this year

Fri Aug 1, 9:51 PM ET

WASHINGTON (Reuters) - Bank regulators closed a small Florida-based bank on Friday, the eighth U.S. bank to fail this year under pressure from a weak economy and a credit crisis precipitated by falling home prices.

The Federal Deposit Insurance Corp said First Priority Bank had $259 million in assets and $227 million in deposits and its failure will cost the federal fund that insures deposits an estimated $72 million.

SunTrust Banks Inc has agreed to assume the insured deposits of First Priority, whose six branches will reopen Monday as branches of SunTrust Bank.
Customers can access their money over the weekend by check, teller machine or debit card, the FDIC said.

It is the first bank to fail in Florida since Guaranty National Bank of Tallahassee failed in March 2004, according to the FDIC, which blamed the failure on exposure to the real estate market, predominantly in the construction lending area.

Florida is among several states whose housing markets have seen the sharpest declines.

The biggest bank failure by far this year is IndyMac, seized on July 11 with $32 billion in assets and $19 billion in deposits as of March, and the third-largest bank insolvency in U.S. history.

The FDIC oversees an industry-funded reserve used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks.

The agency also has running tally of problem banks that its examiners closely monitor. At the end of first quarter, 90 institutions were on that list.

The FDIC does not name the institutions on the list, which is expected to be updated this month for the second quarter.

Lots of attention has been paid to the credit crunch for consumers, but small businesses now face difficulty obtainint loans:

Worried Banks Sharply Reduce Business Loans

Peter S. Goodman

July 28, 2008

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.

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

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding. “Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.

“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled. “This is why God made banks, for this kind of transaction. This is going to slow down the American economy.”

Earlier this year, credit extended by banks to companies and consumers was still growing at double-digit rates compared with three months earlier, according to an analysis of Federal Reserve data by Goldman Sachs. By mid-June, bank credit was declining at an annualized pace of more than 6 percent.

That is a drop of nearly $150 billion, an amount much larger than the value of the tax rebates the government has sent to households this year in an effort to spur economic activity.

Financial industry executives say tighter credit from major banks represents a swing back to a realistic assessment of risk, after years of handing out money with abandon. Those practices produced a mortgage crisis whose losses could reach $1 trillion, by many estimates.

“Before, they wouldn’t verify income and they were loose on the valuations of collateral,” said John W. Kiefer, chief executive of First Capital, a private commercial lender. “Now they’re tightening down on the ability to repay. They go off the reservation, and now they come back to basics. It’s preservation for many of them at this point. It’s survival.”

But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy. The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.

The financial system is not going along: As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.

Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.

“There’s been a lot of disruption in the credit market, and a lot of traditional lenders have really tightened up,” said Gregory Goldstein, president of Macquarie Equipment Finance, which leases computer gear and other technology to companies. “Before, some of the standards they lent on were weak, but we think they have overshot and gone too far on the other end.”

Such was Mr. Greenblatt’s reaction, as he learned that an infusion of credit for his Baltimore factory would not come easily. His company has been enjoying double-digit sales growth. This month, it received the two largest orders in its history, he said.

“It was jubilation,” he said. “I was doing the Funky Chicken.”

The initial call to Wachovia left him dismayed.

“I’m stunned,” Mr. Greenblatt said. “God is smiling on this factory. We’re at such an exciting inflection point, and this is what a bank is supposed to do. There’s sand in the gears.”

No loan meant one fewer order for the factory in Chicago that makes the robot Mr. Greenblatt wants to buy, and fewer hours for workers there. It meant less business for the truck driver who would have hauled the robot to Baltimore, and no help-wanted ads for Marlin Steel Wire Products.

Mr. Greenblatt eventually got oral approval for the loan, though after more than a week. He was still waiting for the money at the end of last week.

Wachovia, which lost $8.9 billion in the second quarter, declined to discuss the loan. But the bank confirmed that it has been reducing its lending in troubled areas of the economy.

…But recent signs suggest that tight lending is spilling from housing into other areas of the business world. Companies with solid credit and profitable businesses can generally still get loans, but rates are higher and wait times are longer.

According to a survey of senior loan officers conducted by the Federal Reserve in April, 55 percent of American banks tightened lending requirements for commercial and industrial loans to large and midsize companies — up from about 30 percent in the previous survey, in January. About 70 percent of the respondents said they have made such loans more expensive.

“Banks will be much more cautious and keep raising the bar, and that will lead to an outright decline in total commercial and industrial loans,” predicted Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. “Banks clearly have to rebuild their capital base. They’re going to look a bit more nervously before they make those loans.”

Until last summer, banks lent freely, banking experts say, because they sold most of the loans they issued, making them less concerned about whether the customer could handle the payments: If the loan went bad, that was someone else’s problem.

But in the wake of the mortgage crisis, that system has all but shut down. Banks are now stuck with the loans they extend, making them more motivated to scrutinize their customers, particularly younger and smaller businesses.

“It’s the small business guy who creates most of the jobs,” said Mr. Kiefer, the First Capital chief executive. “If they can’t borrow to employ people, then we’ve got a mess on our hands…

While all the events in the banking crisis and the next Great Depression unfold, multinational corporations have quietly taken over core government functions in the United States, most alarmingly in the areas of war and intelligence. This may be one of the most important trends of the new century and probably has more ramifications than we can imagine and we are probably past the point of no return. Add to that the stories of trillions of dollars that can’t be accounted for and the billions in the “black budget” for intelligence and you have to wonder how much of the real economy is off the books. If so, how accurate can the macroeconomic models be? Is there some kind of “dark matter” that has to be taken into account?

The process has been covered very well by Naomi Klein, in The Shock Doctrine, where she describes the drive by U.S. Defense Secretary Donald Rumsfeld to “bring the revolution in outsourcing and branding that he had been part of in the corporate world into the heart of the U.S. military.” (The Shock Doctrine, p. 284) Chalmers Johnson wrote about the process in a long piece that appeared last week in Salon:

When war goes corporate

Grave threats to our national security may now include the mass privatization of U.S. intelligence and military operations.

Chalmers Johnson

Jul. 31, 2008

Most Americans have a rough idea what the term "military-industrial complex" means when they come across it in a newspaper or hear a politician mention it. President Dwight D. Eisenhower introduced the idea to the public in his farewell address of January 17, 1961. "Our military organization today bears little relation to that known by any of my predecessors in peacetime," he said, "or indeed by the fighting men of World War II and Korea … We have been compelled to create a permanent armaments industry of vast proportions … We must not fail to comprehend its grave implications … We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex."

Although Eisenhower's reference to the military-industrial complex is, by now, well-known, his warning against its "unwarranted influence" has, I believe, largely been ignored. Since 1961, there has been too little serious study of, or discussion of, the origins of the military-industrial complex, how it has changed over time, how governmental secrecy has hidden it from oversight by members of Congress or attentive citizens, and how it degrades our constitutional structure of checks and balances.

From its origins in the early 1940s, when President Franklin Delano Roosevelt was building up his "arsenal of democracy," down to the present moment, public opinion has usually assumed that it involved more or less equitable relations -- often termed a "partnership" -- between the high command and civilian overlords of the United States military and privately owned, for-profit manufacturing and service enterprises. Unfortunately, the truth of the matter is that, from the time they first emerged, these relations were never equitable.

In the formative years of the military-industrial complex, the public still deeply distrusted privately owned industrial firms because of the way they had contributed to the Great Depression. Thus, the leading role in the newly emerging relationship was played by the official governmental sector. A deeply popular, charismatic president, FDR sponsored these public-private relationships. They gained further legitimacy because their purpose was to rearm the country, as well as allied nations around the world, against the gathering forces of fascism. The private sector was eager to go along with this largely as a way to regain public trust and disguise its wartime profit-making. In the late 1930s and early 1940s, Roosevelt's use of public-private "partnerships" to build up the munitions industry, and thereby finally overcome the Great Depression, did not go entirely unchallenged. Although he was himself an implacable enemy of fascism, a few people thought that the president nonetheless was coming close to copying some of its key institutions. The leading Italian philosopher of fascism, the neo-Hegelian Giovanni Gentile, once argued that it should more appropriately be called "corporatism" because it was a merger of state and corporate power.

Some critics were alarmed early on by the growing symbiotic relationship between government and corporate officials because each simultaneously sheltered and empowered the other, while greatly confusing the separation of powers. Since the activities of a corporation are less amenable to public or congressional scrutiny than those of a public institution, public-private collaborative relationships afford the private sector an added measure of security from such scrutiny. These concerns were ultimately swamped by enthusiasm for the war effort and the postwar era of prosperity that the war produced.

Beneath the surface, however, was a less well recognized movement by big business to replace democratic institutions with those representing the interests of capital. This movement is today ascendant. (See Thomas Frank's book "The Wrecking Crew: How Conservatives Rule," for a superb analysis of Ronald Reagan's slogan "government is not a solution to our problem, government is the problem.") Its objectives have long been to discredit what it called "big government," while capturing for private interests the tremendous sums invested by the public sector in national defense. It may be understood as a slow-burning reaction to what American conservatives believed to be the socialism of the New Deal.

Perhaps the country's leading theorist of democracy, Sheldon S. Wolin, has written a book, "Democracy Incorporated," on what he calls "inverted totalitarianism" -- the rise in the U.S. of totalitarian institutions of conformity and regimentation shorn of the police repression of the earlier German, Italian, and Soviet forms. He warns of "the expansion of private (i.e., mainly corporate) power and the selective abdication of governmental responsibility for the well-being of the citizenry." He also decries the degree to which the so-called privatization of governmental activities has insidiously undercut our democracy, leaving us with the widespread belief that government is no longer needed and that, in any case, it is not capable of performing the functions we have entrusted to it.

Wolin writes:

"The privatization of public services and functions manifests the steady evolution of corporate power into a political form, into an integral, even dominant partner with the state. It marks the transformation of American politics and its political culture, from a system in which democratic practices and values were, if not defining, at least major contributory elements, to one where the remaining democratic elements of the state and its populist programs are being systematically dismantled."

Mercenaries at work

The military-industrial complex has changed radically since World War II or even the height of the Cold War. The private sector is now fully ascendant. The uniformed air, land and naval forces of the country as well as its intelligence agencies, including the CIA (Central Intelligence Agency), the NSA (National Security Agency), the DIA (Defense Intelligence Agency), and even clandestine networks entrusted with the dangerous work of penetrating and spying on terrorist organizations are all dependent on hordes of "private contractors." In the context of governmental national security functions, a better term for these might be "mercenaries" working in private for profit-making companies.

Tim Shorrock, an investigative journalist and the leading authority on this subject, sums up this situation devastatingly in his new book, "Spies for Hire: The Secret World of Intelligence Outsourcing." The following quotes are a précis of some of his key findings:

"In 2006 … the cost of America's spying and surveillance activities outsourced to contractors reached $42 billion, or about 70 percent of the estimated $60 billion the government spends each year on foreign and domestic intelligence … [The] number of contract employees now exceeds [the CIA's] full-time workforce of 17,500 … Contractors make up more than half the workforce of the CIA's National Clandestine Service (formerly the Directorate of Operations), which conducts covert operations and recruits spies abroad …

…"The key phrase in the new counterterrorism lexicon is 'public-private partnerships' … In reality, 'partnerships' are a convenient cover for the perpetuation of corporate interests."

Several inferences can be drawn from Shorrock's shocking exposé. One is that if a foreign espionage service wanted to penetrate American military and governmental secrets, its easiest path would not be to gain access to any official U.S. agencies, but simply to get its agents jobs at any of the large intelligence-oriented private companies on which the government has become remarkably dependent. These include Science Applications International Corporation (SAIC), with headquarters in San Diego, California, which typically pays its 42,000 employees higher salaries than if they worked at similar jobs in the government; Booz Allen Hamilton, one of the nation's oldest intelligence and clandestine-operations contractors, which, until January 2007, was the employer of Mike McConnell, the current director of national intelligence and the first private contractor to be named to lead the entire intelligence community; and CACI International, which, under two contracts for "information technology services," ended up supplying some two dozen interrogators to the Army at Iraq's already infamous Abu Ghraib prison in 2003. According to Major General Anthony Taguba, who investigated the Abu Ghraib torture and abuse scandal, four of CACI's interrogators were "either directly or indirectly responsible" for torturing prisoners.

Remarkably enough, SAIC has virtually replaced the National Security Agency as the primary collector of signals intelligence for the government. It is the NSA's largest contractor, and that agency is today the company's single largest customer.
There are literally thousands of other profit-making enterprises that work to supply the government with so-called intelligence needs, sometimes even bribing congressmen to fund projects that no one in the executive branch actually wants. This was the case with Congressman Randy "Duke" Cunningham, Republican of California's 50th District, who, in 2006, was sentenced to eight-and-a-half years in federal prison for soliciting bribes from defense contractors. One of the bribers, Brent Wilkes, snagged a $9.7 million contract for his company, ADCS ("Automated Document Conversion Systems"), to computerize the century-old records of the Panama Canal dig!

A country drowning in euphemisms

…I applaud Shorrock for his extraordinary research into an almost impenetrable subject using only openly available sources. There is, however, one aspect of his analysis with which I differ. This is his contention that the wholesale takeover of official intelligence collection and analysis by private companies is a form of "outsourcing." This term is usually restricted to a business enterprise buying goods and services that it does not want to manufacture or supply in-house. When it is applied to a governmental agency that turns over many, if not all, of its key functions to a risk-averse company trying to make a return on its investment, "outsourcing" simply becomes a euphemism for mercenary activities.

As David Bromwich, a political critic and Yale professor of literature, observed in the New York Review of Books:

"The separate bookkeeping and accountability devised for Blackwater, DynCorp, Triple Canopy, and similar outfits was part of a careful displacement of oversight from Congress to the vice-president and the stewards of his policies in various departments and agencies. To have much of the work parceled out to private companies who are unaccountable to army rules or military justice, meant, among its other advantages, that the cost of the war could be concealed beyond all detection."

Euphemisms are words intended to deceive. The United States is already close to drowning in them, particularly new words and terms devised, or brought to bear, to justify the American invasion of Iraq -- coinages Bromwich highlights like "regime change," "enhanced interrogation techniques," "the global war on terrorism," "the birth pangs of a new Middle East," a "slight uptick in violence," "bringing torture within the law," "simulated drowning," and, of course, "collateral damage," meaning the slaughter of unarmed civilians by American troops and aircraft followed -- rarely -- by perfunctory apologies. It is important that the intrusion of unelected corporate officials with hidden profit motives into what are ostensibly public political activities not be confused with private businesses buying Scotch tape, paper clips, or hubcaps.

The wholesale transfer of military and intelligence functions to private, often anonymous, operatives took off under Ronald Reagan's presidency, and accelerated greatly after 9/11 under George W. Bush and Dick Cheney. Often not well understood, however, is this: The biggest private expansion into intelligence and other areas of government occurred under the presidency of Bill Clinton. He seems not to have had the same anti-governmental and neoconservative motives as the privatizers of both the Reagan and Bush II eras. His policies typically involved an indifference to -- perhaps even an ignorance of -- what was actually being done to democratic, accountable government in the name of cost-cutting and allegedly greater efficiency. It is one of the strengths of Shorrock's study that he goes into detail on Clinton's contributions to the wholesale privatization of our government, and of the intelligence agencies in particular.

Reagan launched his campaign to shrink the size of government and offer a large share of public expenditures to the private sector with the creation in 1982 of the "Private Sector Survey on Cost Control." In charge of the survey, which became known as the "Grace Commission," he named the conservative businessman J. Peter Grace Jr., chairman of the W.R. Grace Corporation, one of the world's largest chemical companies -- notorious for its production of asbestos and its involvement in numerous anti-pollution suits. The Grace Company also had a long history of investment in Latin America, and Peter Grace was deeply committed to undercutting what he saw as leftist unions, particularly because they often favored state-led economic development.

The Grace Commission's actual achievements were modest. Its biggest was undoubtedly the 1987 privatization of Conrail, the freight railroad for the Northeastern states. Nothing much else happened on this front during the first Bush's administration, but Bill Clinton returned to privatization with a vengeance.

According to Shorrock:

"Bill Clinton … picked up the cudgel where the conservative Ronald Reagan left off and … took it deep into services once considered inherently governmental, including high-risk military operations and intelligence functions once reserved only for government agencies. By the end of [Clinton's first] term, more than 100,000 Pentagon jobs had been transferred to companies in the private sector -- among them thousands of jobs in intelligence … By the end of [his second] term in 2001, the administration had cut 360,000 jobs from the federal payroll and the government was spending 44 percent more on contractors than it had in 1993."

These activities were greatly abetted by the fact that the Republicans had gained control of the House of Representatives in 1994 for the first time in 43 years. One liberal journalist described "outsourcing as a virtual joint venture between [House Majority Leader Newt] Gingrich and Clinton." The right-wing Heritage Foundation aptly labeled Clinton's 1996 budget as the "boldest privatization agenda put forth by any president to date."

After 2001, Bush and Cheney added an ideological rationale to the process Clinton had already launched so efficiently. They were enthusiastic supporters of "a neoconservative drive to siphon U.S. spending on defense, national security, and social programs to large corporations friendly to the Bush administration."

The privatization -- and loss -- of institutional memory

The end result is what we see today: a government hollowed out in terms of military and intelligence functions. The KBR Corporation, for example, supplies food, laundry and other personal services to our troops in Iraq based on extremely lucrative no-bid contracts, while Blackwater Worldwide supplies security and analytical services to the CIA and the state department in Baghdad. (Among other things, its armed mercenaries opened fire on, and killed, 17 unarmed civilians in Nisour Square, Baghdad, on Sept. 16, 2007, without any provocation, according to U.S. military reports.) The costs -- both financial and personal -- of privatization in the armed services and the intelligence community far exceed any alleged savings, and some of the consequences for democratic governance may prove irreparable.

These consequences include the sacrifice of professionalism within our intelligence services; the readiness of private contractors to engage in illegal activities without compunction and with impunity; the inability of Congress or citizens to carry out effective oversight of privately managed intelligence activities because of the wall of secrecy that surrounds them; and, perhaps most serious of all, the loss of the most valuable asset any intelligence organization possesses -- its institutional memory.

Most of these consequences are obvious, even if almost never commented on by our politicians or paid much attention in the mainstream media. After all, the standards of a career CIA officer are very different from those of a corporate executive who must keep his eye on the contract he is fulfilling and future contracts that will determine the viability of his firm. The essence of professionalism for a career intelligence analyst is his integrity in laying out what the U.S. government should know about a foreign policy issue, regardless of the political interests of, or the costs to, the major players.

The loss of such professionalism within the CIA was starkly revealed in the 2002 National Intelligence Estimate on Iraq's possession of weapons of mass destruction. It still seems astonishing that no senior official, beginning with Secretary of State Colin Powell, saw fit to resign when the true dimensions of our intelligence failure became clear, least of all Director of Central Intelligence George Tenet.

A willingness to engage in activities ranging from the dubious to the outright felonious seems even more prevalent among our intelligence contractors than among the agencies themselves, and much harder for an outsider to detect. For example, following 9/11, Rear Admiral John Poindexter, then working for the Defense Advanced Research Projects Agency (DARPA) of the Department of Defense, got the bright idea that DARPA should start compiling dossiers on as many American citizens as possible in order to see whether "data-mining" procedures might reveal patterns of behavior associated with terrorist activities.

On Nov. 14, 2002, the New York Times published a column by William Safire entitled "You Are a Suspect" in which he revealed that DARPA had been given a $200 million budget to compile dossiers on 300 million Americans. He wrote, "Every purchase you make with a credit card, every magazine subscription you buy and medical prescription you fill, every web site you visit and every e-mail you send or receive, every bank deposit you make, every trip you book, and every event you attend -- all these transactions and communications will go into what the Defense Department describes as a ‘virtual centralized grand database.'" This struck many members of Congress as too close to the practices of the Gestapo and the Stasi under German totalitarianism, and so, the following year, they voted to defund the project.

However, Congress's action did not end the "total information awareness" program. The National Security Agency secretly decided to continue it through its private contractors. The NSA easily persuaded SAIC and Booz Allen Hamilton to carry on with what Congress had declared to be a violation of the privacy rights of the American public -- for a price. As far as we know, Admiral Poindexter's "Total Information Awareness Program" is still going strong today.

The most serious immediate consequence of the privatization of official governmental activities is the loss of institutional memory by our government's most sensitive organizations and agencies. Shorrock concludes, "So many former intelligence officers joined the private sector [during the 1990s] that, by the turn of the century, the institutional memory of the United States intelligence community now resides in the private sector. That's pretty much where things stood on September 11, 2001."

This means that the CIA, the DIA, the NSA, and the other 13 agencies in the U.S. intelligence community cannot easily be reformed because their staffs have largely forgotten what they are supposed to do or how to go about it. They have not been drilled and disciplined in the techniques, unexpected outcomes, and know-how of previous projects, successful and failed.

As numerous studies have, by now, made clear, the abject failure of the American occupation of Iraq came about in significant measure because the Department of Defense sent a remarkably privatized military filled with incompetent amateurs to Baghdad to administer the running of a defeated country. Defense Secretary Robert M. Gates (a former director of the CIA) has repeatedly warned that the United States is turning over far too many functions to the military because of its hollowing out of the Department of State and the Agency for International Development since the end of the Cold War. Gates believes that we are witnessing a "creeping militarization" of foreign policy -- and, though this generally goes unsaid, both the military and the intelligence services have turned over far too many of their tasks to private companies and mercenaries.

When even Robert Gates begins to sound like President Eisenhower, it is time for ordinary citizens to pay attention. In my 2006 book "Nemesis: The Last Days of the American Republic," with an eye to bringing the imperial presidency under some modest control, I advocated that we Americans abolish the CIA altogether, along with other dangerous and redundant agencies in our alphabet soup of 16 secret intelligence agencies, and replace them with the State Department's professional staff devoted to collecting and analyzing foreign intelligence. I still hold that position.

Nonetheless, the current situation represents the worst of all possible worlds. Successive administrations and Congresses have made no effort to alter the CIA's role as the president's private army, even as we have increased its incompetence by turning over many of its functions to the private sector. We have thereby heightened the risks of war by accident, or by presidential whim, as well as of surprise attack because our government is no longer capable of accurately assessing what is going on in the world and because its intelligence agencies are so open to pressure, penetration and manipulation of every kind.

Chalmers Johnson here seems to back off from the implications of what he is relating, keeping the discussion well within the bounds of how “our” government should assess “what’s going on in the world.” This is not unusual for mainstream journalists and veterans of the so-called “intelligence community.”

In any case, as Naomi Klein points out, the unaccountable corporate money-power of the fully privatized pathocracy is now well placed to assume full control should the economy collapse. And it is well-placed to decide if and when the economy collapses.

Signs of the Economic Apocalypse, 5-7-07

From Signs of the Times:

Gold closed at 689.70 dollars an ounce Friday, up 0.7% from $684.70 at the close of the previous Friday. The dollar closed at 0.7358 euros Friday, up 0.5% from 0.7325 at the previous week’s close. That put the euro at 1.3591 compared to 1.3652 the Friday before. Gold in euros would be 507.47 euros an ounce, up 1.2% from 501.54 euros for the week. Oil closed at 61.93 dollars a barrel Friday, down 7.3% from $66.46 at the close of the week before. Oil in euros would be 45.57 euros a barrel, down 6.8% from 48.68 for the week. The gold/oil ratio closed at 11.14 Friday, up 8.2% from 10.30 at the close of the previous Friday. In U.S. stocks, the Dow closed at 13,264.62 Friday, up 1.1% from 13,120.94 for the week. The NASDAQ closed at 2,572.15 Friday, up 0.6% from 2,557.21 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.64%, down five basis points from 4.69 for the week.

A depressing week, with bad economic news on several fronts, ended with a discouraging victory for predatory capitalism and neoconservative foreign policy: the election of the fascist Sarkozy as president of France. France, which until now seemed immune from the twin diseases of neoliberalism and neoconservatism, is about to experience what those of us in the United States, United Kingdom, Australia and other countries have experienced for decades.

The plan is to force the ratification of the EU constitution over the wishes of the voters. Capitalism will be unchained and let loose on France. The people of France will be told that There Is No Alternative:

An Unsustainable System
Anti-Capitalism in Five Minutes

By Robert Jensen
April 30, 2007

We know that capitalism is not just the most sensible way to organize an economy but is now the only possible way to organize an economy. We know that dissenters to this conventional wisdom can, and should, be ignored. There's no longer even any need to persecute such heretics; they are obviously irrelevant.

How do we know all this? Because we are told so, relentlessly -- typically by those who have the most to gain from such a claim, most notably those in the business world and their functionaries and apologists in the schools, universities, mass media, and mainstream politics. Capitalism is not a choice, but rather simply is, like a state of nature. Maybe not like a state of nature, but the state of nature. To contest capitalism these days is like arguing against the air that we breathe. Arguing against capitalism, we're told, is simply crazy.

We are told, over and over, that capitalism is not just the system we have, but the only system we can ever have. Yet for many, something nags at us about such a claim. Could this really be the only option? We're told we shouldn't even think about such things. But we can't help thinking -- is this really the "end of history," in the sense that big thinkers have used that phrase to signal the final victory of global capitalism? If this is the end of history in that sense, we wonder, can the actual end of the planet far behind?

We wonder, we fret, and these thoughts nag at us -- for good reason. Capitalism -- or, more accurately, the predatory corporate capitalism that defines and dominates our lives -- will be our death if we don't escape it. Crucial to progressive politics is finding the language to articulate that reality, not in outdated dogma that alienates but in plain language that resonates with people. We should be searching for ways to explain to co-workers in water-cooler conversations -- radical politics in five minutes or less -- why we must abandon predatory corporate capitalism. If we don't, we may well be facing the end times, and such an end will bring rupture not rapture.

Here's my shot at the language for this argument.

Capitalism is admittedly an incredibly productive system that has created a flood of goods unlike anything the world has ever seen. It also is a system that is fundamentally (1) inhuman, (2) anti-democratic, and (3) unsustainable. Capitalism has given those of us in the First World lots of stuff (most of it of marginal or questionable value) in exchange for our souls, our hope for progressive politics, and the possibility of a decent future for children.

In short, either we change or we die -- spiritually, politically, literally.

1. Capitalism is inhuman

There is a theory behind contemporary capitalism. We're told that because we are greedy, self-interested animals, an economic system must reward greedy, self-interested behavior if we are to thrive economically.

Are we greedy and self-interested? Of course. At least I am, sometimes. But we also just as obviously are capable of compassion and selflessness. We certainly can act competitively and aggressively, but we also have the capacity for solidarity and cooperation. In short, human nature is wide-ranging. Our actions are certainly rooted in our nature, but all we really know about that nature is that it is widely variable. In situations where compassion and solidarity are the norm, we tend to act that way. In situations where competitiveness and aggression are rewarded, most people tend toward such behavior.

Why is it that we must choose an economic system that undermines the most decent aspects of our nature and strengthens the most inhuman? Because, we're told, that's just the way people are. What evidence is there of that? Look around, we're told, at how people behave. Everywhere we look, we see greed and the pursuit of self-interest. So, the proof that these greedy, self-interested aspects of our nature are dominant is that, when forced into a system that rewards greed and self-interested behavior, people often act that way. Doesn't that seem just a bit circular?

2. Capitalism is anti-democratic

This one is easy. Capitalism is a wealth-concentrating system. If you concentrate wealth in a society, you concentrate power. Is there any historical example to the contrary?

For all the trappings of formal democracy in the contemporary United States, everyone understands that the wealthy dictates the basic outlines of the public policies that are acceptable to the vast majority of elected officials. People can and do resist, and an occasional politician joins the fight, but such resistance takes extraordinary effort. Those who resist win victories, some of them inspiring, but to date concentrated wealth continues to dominate. Is this any way to run a democracy?

If we understand democracy as a system that gives ordinary people a meaningful way to participate in the formation of public policy, rather than just a role in ratifying decisions made by the powerful, then it's clear that capitalism and democracy are mutually exclusive.

Let's make this concrete. In our system, we believe that regular elections with the one-person/one-vote rule, along with protections for freedom of speech and association, guarantee political equality. When I go to the polls, I have one vote. When Bill Gates goes the polls, he has one vote. Bill and I both can speak freely and associate with others for political purposes. Therefore, as equal citizens in our fine democracy, Bill and I have equal opportunities for political power. Right?

3. Capitalism is unsustainable

This one is even easier. Capitalism is a system based on the idea of unlimited growth. The last time I checked, this is a finite planet. There are only two ways out of this one. Perhaps we will be hopping to a new planet soon. Or perhaps, because we need to figure out ways to cope with these physical limits, we will invent ever-more complex technologies to transcend those limits.

Both those positions are equally delusional. Delusions may bring temporary comfort, but they don't solve problems. They tend, in fact, to cause more problems. Those problems seem to be piling up.

Capitalism is not, of course, the only unsustainable system that humans have devised, but it is the most obviously unsustainable system, and it's the one in which we are stuck. It's the one that we are told is inevitable and natural, like the air.

A tale of two acronyms: TGIF and TINA

Former British Prime Minister Margaret Thatcher's famous response to a question about challenges to capitalism was TINA -- There Is No Alternative. If there is no alternative, anyone who questions capitalism is crazy.

Here's another, more common, acronym about life under a predatory corporate capitalism: TGIF -- Thank God It's Friday. It's a phrase that communicates a sad reality for many working in this economy -- the jobs we do are not rewarding, not enjoyable, and fundamentally not worth doing. We do them to survive. Then on Friday we go out and get drunk to forget about that reality, hoping we can find something during the weekend that makes it possible on Monday to, in the words of one songwriter, "get up and do it again."

Remember, an economic system doesn't just produce goods. It produces people as well. Our experience of work shapes us. Our experience of consuming those goods shapes us. Increasingly, we are a nation of unhappy people consuming miles of aisles of cheap consumer goods, hoping to dull the pain of unfulfilling work. Is this who we want to be?

We're told TINA in a TGIF world. Doesn't that seem a bit strange? Is there really no alternative to such a world? Of course there is. Anything that is the product of human choices can be chosen differently. We don't need to spell out a new system in all its specifics to realize there always are alternatives. We can encourage the existing institutions that provide a site of resistance (such as labor unions) while we experiment with new forms (such as local cooperatives). But the first step is calling out the system for what it is, without guarantees of what's to come.

Home and abroad

In the First World, we struggle with this alienation and fear. We often don't like the values of the world around us; we often don't like the people we've become; we often are afraid of what's to come of us. But in the First World, most of us eat regularly. That's not the case everywhere. Let's focus not only on the conditions we face within a predatory corporate capitalist system, living in the most affluent country in the history of the world, but also put this in a global context.

Half the world's population lives on less than $2 a day. That's more than 3 billion people. Just over half of the population of sub-Saharan Africa lives on less than $1 a day. That's more than 300 million people.

How about one more statistic: About 500 children in Africa die from poverty-related diseases, and the majority of those deaths could be averted with simple medicines or insecticide-treated nets. That's 500 children -- not every year, or every month or every week. That's not 500 children every day. Poverty-related diseases claim the lives of 500 children an hour in Africa.

When we try to hold onto our humanity, statistics like that can make us crazy. But don't get any crazy ideas about changing this system. Remember TINA: There is no alternative to predatory corporate capitalism.

TGILS: Thank God It's Last Sunday

We have been gathering on Last Sunday precisely to be crazy together. We've come together to give voice to things that we know and feel, even when the dominant culture tells us that to believe and feel such things is crazy. Maybe everyone here is a little crazy. So, let's make sure we're being realistic. It's important to be realistic.

One of the common responses I hear when I critique capitalism is, "Well, that may all be true, but we have to be realistic and do what's possible." By that logic, to be realistic is to accept a system that is inhuman, anti-democratic, and unsustainable. To be realistic we are told we must capitulate to a system that steals our souls, enslaves us to concentrated power, and will someday destroy the planet.

But rejecting and resisting a predatory corporate capitalism is not crazy. It is an eminently sane position. Holding onto our humanity is not crazy. Defending democracy is not crazy. And struggling for a sustainable future is not crazy.

What is truly crazy is falling for the con that an inhuman, anti-democratic, and unsustainable system -- one that leaves half the world's people in abject poverty -- is all that there is, all that there ever can be, all that there ever will be.

If that were true, then soon there will be nothing left, for anyone.

I do not believe it is realistic to accept such a fate. If that's being realistic, I'll take crazy any day of the week, every Sunday of the month.

There will no doubt be a push in France to privatize things that were until now public trusts. At first they will try to privatize things that might seem reasonable to privatize. But beware, the process will never end. In the United States, jails have been privatized (and inmates charged rent) and now even the roads are being privatized:

Roads To Riches

Why investors are clamoring to take over America's highways, bridges, and airports—and why the public should be nervous

Emily Thornton

May 7, 2007

Steve Hogan was in a bind. The executive director of Colorado's Northwest Parkway Public Highway Authority had run up $416 million in debt to build the 10-mile toll road between north Denver and the Boulder Turnpike, and he was starting to worry about the high payments. So he tried to refinance, asking bankers in late 2005 to pitch investors on new, lower-interest-rate bonds. But none of the hundreds of investors canvassed was interested.

Then, one day last spring, Hogan got a letter from Morgan Stanley that promised to solve all of his problems. The bank suggested Hogan could lease the road to a private investor and raise enough money to pay off the whole chunk of debt. Now Hogan, after being inundated with proposals, is in hot-and-heavy negotiations with a team of bidders from Portugal and Brazil. "We literally got responses from around the world," he says.

In the past year, banks and private investment firms have fallen in love with public infrastructure. They're smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate—and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they're beginning to consider infrastructure a brand new asset class in itself.

With state and local leaders scrambling for cash to solve short-term fiscal problems, the conditions are ripe for an unprecedented burst of buying and selling. All told, some $100 billion worth of public property could change hands in the next two years, up from less than $7 billion over the past two years; a lease for the Pennsylvania Turnpike could go for more than $30 billion all by itself. "There's a lot of value trapped in these assets," says Mark Florian, head of North American infrastructure banking at Goldman, Sachs & Co.

There are some advantages to private control of roads, utilities, lotteries, parking garages, water systems, airports, and other properties. To pay for upkeep, private firms can raise rates at the tollbooth without fear of being penalized in the voting booth. Privateers are also freer to experiment with ideas like peak pricing, a market-based approach to relieving traffic jams. And governments are making use of the cash they're pulling in—balancing budgets, retiring debt, investing in social programs, and on and on.

But are investors getting an even better deal? It's a question with major policy implications as governments relinquish control of major public assets for years to come. The aggressive toll hikes embedded in deals all but guarantee pain for lower-income citizens—and enormous profits for the buyers. For example, the investors in the $3.8 billion deal for the Indiana Toll Road, struck in 2006, could break even in year 15 of the 75-year lease, on the way to reaping as much as $21 billion in profits, estimates Merrill Lynch & Co. What's more, some public interest groups complain that the revenue from the higher tolls inflicted on all citizens will benefit only a handful of private investors, not the commonweal.

There's also reason to worry about the quality of service on deals that can span 100 years. The newly private toll roads are being managed well now, but owners could sell them to other parties that might not operate them as capably in the future. Already, the experience outside of toll roads has been mixed: The Atlanta city water system, for example, was so poorly managed by private owners that the government reclaimed it.

Such concerns weigh on the minds of public officials like Hogan. He intends to negotiate aggressively with corporate suitors and has decreed that the buyer must share future toll-hike revenues with the local governments that built the highway. But with the market for infrastructure still in its infancy, every deal is different. The ideal blend of up-front payment, toll hikes, and revenue sharing hasn't been found.

FLOOD OF MONEY

The nascent market in roads and bridges in the U.S. follows the shift toward privatization in Europe and Australia that began with British Prime Minister Margaret Thatcher in the 1980s. It took longer to develop in the U.S. because of the $383 billion municipal bond market, which has been an efficient source of capital for governments over the years.

But with the explosion of money flowing into private investments recently, fund managers have been exploring the fringes of the investing world in search of fresh opportunities. Now a slew of Wall Street firms—Goldman, Morgan Stanley, the Carlyle Group, Citigroup, and many others—is piling into infrastructure, following the lead of pioneers like Australia's Macquarie Group. Rob Collins, head of infrastructure mergers and acquisitions at Morgan Stanley, estimates that 30 funds are being raised around the world that could wield as much as $500 billion in buying power for U.S. assets.

Many investors think of infrastructure investing as a natural extension of the private equity model, which is based on rich cash flows and lots of debt. But there are important differences. Private equity deals typically play out over 5 to 10 years; infrastructure deals run for decades. And the risk levels are vastly different. Infrastructure is ultra-low-risk because competition is limited by a host of forces that make it difficult to build, say, a rival toll road. With captive customers, the cash flows are virtually guaranteed. The only major variables are the initial prices paid, the amount of debt used for financing, and the pace and magnitude of toll hikes—easy things for Wall Street to model. "With each passing week, there are more parties expressing unsolicited interest in some kind of a financial transaction that will involve one of our assets directly or indirectly," says Anthony R. Coscia, chairman of the Port Authority of New York & New Jersey.

Firms are even beginning to market infrastructure to investors as a separate asset class, safe like high-grade bonds but with stock market-like returns—and no correlation with either. The Standard & Poor's 500-stock index has returned about 10% a year, counting dividends, since 1926. Bonds have returned about 5%. Firms say infrastructure will beat both, and without having to sweat out market dips along the way. That's a huge selling point at a time when stock, bond, and commodity markets around the world are becoming increasingly interconnected.

Investors can't get in fast enough. They recently deluged Goldman Sachs with $6.5 billion for its new infrastructure fund, more than twice the $3 billion it was seeking. "We're using [infrastructure] as a fixed-income proxy," says William R. Atwood, executive director of the Illinois State Board of Investment, who plans to invest $600 million to $650 million, or 5% of its portfolio, in infrastructure funds over the next three years. "We're hoping to get 11% to 12% returns and lower risk." Pension funds in particular like the long-term investment horizons, which match their funding needs well. Infrastructure "delivers similar yield expectations to high-yield bonds and real estate, with less risk," says Cynthia F. Steer, chief research strategist at pension consulting firm Rogerscasey.

On the other side of the bargaining table from the investment firms sit struggling governments suddenly amenable to the idea of selling control of assets to solve short-term problems. The burden of maintaining roads, bridges, and other facilities, many built during the 1950s, is becoming difficult to bear. Federal, state, and local governments need to spend an estimated $155.5 billion improving highways and bridges in 2007, according to transportation officials, up 50% over the past 10 years. And that's hardly the only obstacle they face. In 2006 alone, states increased their Medicaid spending by an estimated 7.7%, to $132 billion. And state and local governments could be on the hook for up to $1.5 trillion in retiree liabilities, estimates Credit Suisse. At the same time, politicians find it difficult to raise taxes. Chicago's former chief financial officer, Dana R. Levenson, sums up the situation: "There is money to be had, and cities need money." U.S. Representative Chaka Fattah, a Pennsylvania Democrat who is running for mayor of Philadelphia, proposes to privatize the Philadelphia International Airport and use the proceeds to fund poverty programs—a much easier sell than a tax increase.

The combination of eager sellers and hungry buyers is shaking loose public assets across the country. The 99-year lease of the Chicago Skyway that went for $1.8 billion in 2005 was the first major transaction. Last year came the Indiana deal. Now states and cities are exploring the sale of leases for the turnpikes in New Jersey and Pennsylvania, a toll road in Texas, Chicago Midway Airport, and several state lotteries. Suddenly politicians around the country are wondering how much cash they might be sitting on. Based on the going rate of about 40 times toll revenues, the iconic Golden Gate Bridge could probably fetch $3.4 billion were California interested in selling. The Brooklyn Bridge? If permission were granted by New York City to charge the same tolls as the George Washington Bridge, a private owner might shell out as much as $3.5 billion for it.

…The certainty of future toll hikes doesn't jibe with the uncertainty of service quality. Assets sold now could change hands many times over the next 50 years, with each new buyer feeling increasing pressure to make the deal work financially. It's hardly a stretch to imagine service suffering in such a scenario; already, the record in the U.S. has been spotty. In 2003 the city of Atlanta ended a lease of its water system after receiving complaints about everything from billing disputes to water-main breaks. The city wrestled with the owner, United Water Inc., over basics like the percentage of water meters it should monitor. Both parties acknowledge that the contract lacked specifics. In the end, "we didn't believe we were getting performance," says Robert Hunter, commissioner for Atlanta's Dept. of Watershed Management. "I don't believe the city will ever look at privatizing essential services again." United Water says the contract wasn't financially feasible because Atlanta's water system was in worse shape than the city had represented.

A CHAMPION'S PERSPECTIVE

States are wrestling with other public policy issues, too. Bankers say New York could reap a combined $70 billion for long-term leases on a bunch of assets, including the state's lottery, the Tappan Zee Bridge, and the New York State Thruway. New York state officials have looked into the option of leasing the lottery, which itself might command $35 billion—a sum that could substantially upgrade, say, New York's higher education system. The downside? The state would probably have to remove constraints on the lottery's marketing designed to discourage people from gambling more than they can afford. If the state insists on keeping the constraints in place, it could reduce the value of selling it.

Chicago's experience shows the possibilities and the pitfalls of privatization. Former CFO Levenson has been one of the movement's biggest champions. He was an architect of the Skyway deal, which kicked off the market. Then he sold control of parking garages to Morgan Stanley for $563 million. Next, he started shopping around a lease for Midway Airport that could fetch as much as $3 billion. And soon the city hopes to auction off rights to operate some recycling plants. Levenson dismisses critics who argue that he has dumped prized assets. "This is not like where a person goes in and buys a loaf of bread from a store and walks out with that loaf of bread," he says. "Some entity, we expect, will make an offer to lease the Midway Airport for 75 to 99 years, and the following day I'm pretty sure it will still be there."

Wearing a crisp suit and stylish eyeglasses, Levenson looks like the Wall Streeter he once was, working for Bank One Corp. and Bank of America Corp. before taking the Chicago city job in 2004. In April he returned to banking: As a managing director at the Royal Bank of Scotland Group, he now beats the bushes for infrastructure deals. Levenson doesn't understand how local governments can afford not to put public works up for sale. Thanks to the 99-year lease for the Skyway, Chicago has paid off its debt and handed over $100 million to social programs like Meals on Wheels. Plus, says Levenson, it's earning as much in annual interest on the $500 million it has banked from the transaction as it used to earn from running the Skyway ($25 million).

In some ways, Levenson argues, the city still has control over the highway. The agreement with the new owners spells out guidelines in mind-numbing detail, dictating everything from how quickly potholes must be filled (24 hours) to how rapidly squirrel carcasses must be removed (8 hours). If Macquarie and Cintra violate those conditions, the city can take back the road.

So far, the buyers have strictly adhered to the rules. At 7 a.m. on a Wednesday in March, five workers begin another day at the Chicago Skyway's Snow Command. On their to-do list are potholes to be checked and cracks to be sealed. Juan Rodriguez used to patrol the freeway for Chicago city. Today, he cruises the road for private owners. He discovers some potholes have grown unacceptably large because of salt that was spread the previous night. There's some tire debris that must be removed, and a disabled vehicle holding up traffic.

A SMOOTH RIDE?

In the past, Rodriguez says, he had to write out a ticket for each problem, which would be added to a long list of chores. Addressing problems often took days, Rodriguez recalls. But by 10:25 a.m., all of this morning's issues on the Skyway's 7.8-mile stretch of pavement are resolved. "The new owners are taking the Skyway to a whole new level," he says.

They've certainly spent money on improvements. The message "a clean workplace is a happy workplace" is scrawled on a whiteboard in a freshly painted and ventilated garage where workers meet. There's electronic tolling, which didn't exist before. A bunch of new lanes are under construction. The investments seem to be paying off: Since taking over two years ago, the Skyway's operators estimate traffic has risen 5%.

It's all encouraging, except that Chicago "probably could have gotten more without privatizing," according to Dennis J. Enright, a principal and founder of NW Financial. His firm's analysis shows that Chicago could have done a lot better by handling the whole deal itself. It could have raised tolls and sold tax-exempt municipal bonds backed by the scheduled hikes. That would have given the city the up-front cash it needed while preserving some of the income from the toll hikes. Instead, that money will go to Macquarie and Cintra.

Meanwhile, the higher tolls will take a big bite out of lower-income people's wallets. "You have to ask yourself if you want roads that used to be considered a public service to be rationed by income class," says Princeton University economics professor Uwe E. Reinhardt. Chicago says it hasn't received any formal complaints from citizens, though two different drivers recently went to extremes to avoid tolls, says Skyway maintenance manager Michael S. Lowrey. When the new owners introduced free towing for broken-down vehicles, the drivers called the Skyway for help, claiming to be stranded. After workers hauled the vehicles past the tollbooths, they hopped in their cars and sped away.

For workers, the privatization wave has wrought many changes. Skyway toll takers used to be full-time city employees with rich benefits. Now most are part-time independent contractors without benefits. Brian Rainville, executive director of the Chicago Teamsters Joint Council 25, helps manage the union's pension fund. When he listened to a recent pitch from a pension consultant about infrastructure funds, it sparked a realization: The returns he might generate for his pensioners could be canceled out by the union's shrinking number of contributors. "It's pretty obvious that it's not sound fiscal policy for the [pension] fund to undercut the people it's serving," Rainville says.

Pushback against private investors is now playing out in different ways elsewhere. In Pennsylvania, the state turnpike commission is going head-to-head with private bidders for the right to operate the state's 537-mile toll road. Pennsylvania desperately needs cash to repair its nearly 6,000 structurally deficient bridges. Some pundits expected Pennsylvania Governor Edward G. Rendell to propose hikes in gas taxes and other fees to fund the projects. But in December, Rendell unexpectedly announced plans to privatize the turnpike. Timothy J. Carson, vice-chairman of the commission, scrambled to submit an expression of interest for the turnpike to continue to run itself. His proposal is being judged against many others, including those from big Wall Street firms.

Carson isn't dissuaded by arguments that investors are better qualified to run turnpikes profitably. "There's no magic here," he says. "These [deals] are largely driven by one factor: the permitted toll increases." Carson says the state doesn't need to hand over the turnpike to private owners. Historically, he says, the state wanted the turnpike to collect only enough money to break even. But it could just as easily adopt its own toll-hike schedule. The state could also charge tolls on more roads. In other words, the public could remain in control simply by changing the turnpike's mission. That would ensure that the benefits of the toll hikes were spread throughout the populace, says Carson.

Pennsylvania's isn't the only turnpike authority exploring the possibility of bidding for roads. The North Texas Tollway Authority calculated in March that it would have valued a partially constructed 25-mile stretch of highway near Dallas 26% more than a private investor had bid. Now it's considering making a formal bid. And on Apr. 11, the Texas House of Representatives passed an amendment by a vote of 134 to 5 to impose a two-year moratorium on privatizing state toll roads. "We need to put the brakes on these private toll contracts before we sign away half a century of future revenues," said representative Lois W. Kolkhorst, who proposed the bill. A similar bill was passed in the state senate on Apr. 19.

With so much money at stake and so many options available to states, it's impossible to know how the great infrastructure craze may play out. But this much is certain, says Pennsylvania's Carson: "People are willing to pay more than they are currently being charged. The only question is to what extent you're willing to take advantage of that."

Blackwater shows how the military and police can be privatized. Wal-Mart is paving the way for the privatization of intelligence and policing, something that has a long history in the United States (see Pinkerton, for example):

Wanted: Global threat analysts

Wal-Mart seeks former intelligence officers for security

Marcus Kabel

Associated Press

April 24, 2007

BENTONVILLE, ARK. — Wal-Mart Stores has been recruiting former military and government intelligence officers for a branch of its global security office aimed at identifying threats to the world's largest retailer, including from "suspect individuals and groups."

Wal-Mart's interest in intelligence operatives comes at a time when the retailer is defending itself against allegations by a fired security employee that it ran surveillance operations against targets including critics, dissident shareholders, employees and suppliers. Wal-Mart denied any wrongdoing.

Wal-Mart posted ads in March on its Web site and sites for security professionals, including the bulletin of the Association of Former Intelligence Officers, for "global threat analysts" with backgrounds in government or military intelligence work.

The jobs were listed with the Analytical Research Center, part of Wal-Mart's Global Security division, which is headed by former senior CIA and FBI senior officer Kenneth Senser. The analytical unit was created over the past year and a half, according to published comments by its head, Army Special Operations veteran David Harrison.

The job description includes collecting information from "professional contacts" and public data to anticipate and assess threats stemming from "world events, regional/national security climates, and suspect individuals and groups."

"Familiarity with a broad spectrum of information resources and data-mining techniques" is listed among the skills sought, along with a foreign language, preferably Chinese or Spanish.

A Wal-Mart spokesman declined to comment on the Analytical Research Center for this story or to make any security executives available for interviews.

Many corporations hire law enforcement officers for their security departments. But Steven Aftergood, who runs the government secrecy project for the Washington-based Federation of American Scientists, said Wal-Mart's efforts appear to go beyond what most companies are doing, raising questions about corporate intelligence work outside of the oversight process in place for government spying.

France may be the last place where all these things will happen, but the danger is clear. Most likely, the French people will fight hard to preserve their social benefits and labor rights. Can they prevail over those who are putting Sarkozys in power all over the world? It’s hard to believe that the combination of neoliberal economic policy and neoconservative foreign policy will be popular in France. But once Sarkozy’s people get even more control of the media and penetrate further the state security system, all efforts will be made to bring France along with the neocon “clash of civilizations” (i.e., Christians, Jews and Hindus against the Muslims). A shocking false flag event cannot be ruled out. Sarkozy has been lucky when it comes to conveniently timed unrest in recent years. Let’s hope his luck runs out.