BREAKING: Congressional Report Finds Blackwater Vicious & Out Of Control
Congressional Report here . . .
WASHINGTON — Blackwater USA is an out-of-control outfit indifferent to Iraqi civilian casualties, according to a critical report released Monday, October 1st, by a key congressional committee.
Among the most serious charges against the prominent security firm is that Blackwater contractors sought to cover up a June 2005 shooting of an Iraqi man and the company paid, with State Department approval, the families of others inadvertently killed by its guards.
(Wonder why Condeleeza Rice is running active interference for this bunch of thugs?)
Blackwater has had to fire dozens of guards over the past three years for problems ranging from misuse of weapons, alcohol and drug violations, inappropriate conduct and violent behavior, says the 15-page report from the House Oversight and Government Reform Committee.
Just after the report was released, The Associated Press learned the Federal Bureau of Investigation is sending a team to Iraq to investigate an incident that has angered the Iraqi government.
On Sept. 16, 11 Iraqis were killed in a shoot-out involving Blackwater guards protecting a U.S. diplomatic convoy in Baghdad. Blackwater says its guards acted in self-defense after the convoy came under attack. Iraqi witnesses have said the shooting was unprovoked.
The FBI team was sent at the request of the State Department and its findings will be reviewed for possible criminal liability.
The 122 personnel terminated by Blackwater is roughly one-seventh of the work force that Blackwater has in Iraq, a ratio that raises questions about the quality of the people working for the company.
The only punishment for those dismissed was the termination of their contracts with Blackwater, says the report, which uses information from Blackwater’s own files and State Department records.
The report, prepared by the majority staff of the committee, also says Blackwater has been involved in 195 shooting incidents since 2005, or roughly 1.4 per week.
In more than 80 percent of the incidents, called “escalation of force,” Blackwater’s guards fired the first shots even though the company’s contract with the State Department calls for it to use defensive force only, it said.
“In the vast majority of instances in which Blackwater fired shots, Blackwater is firing from a moving vehicle and does not remain at the scene to determine if the shots resulted in casualties,” according to the report.
The staff report says Blackwater has made huge sums of money despite its questionable performance in Iraq, where Blackwater guards provide protective services for U.S. diplomatic personnel.
Blackwater has earned more than $1 billion from federal contracts since 2001, when it had less than $1 million in government work. Overall, the State Department paid Blackwater more than $832 million between 2004 and 2006 for security work, according to the report.
Blackwater bills the U.S. government $1,222 per day for a single “protective security specialist,” the report says. That works out to $445,891 on an annual basis, far higher than it would cost the military to provide the same service.
Blackwater, founded in 1997 and headquartered in Moyock, N.C., is the largest of the State Department’s three private security contractors. The others are Dyncorp and Triple Canopy, both based in Washington’s northern Virginia suburbs.
According to the report, Blackwater has had more shooting incidents than the other two companies combined.
The report is critical not only of Blackwater. In two cases, the State Department recommended Blackwater make payments to the families of Iraqis killed by its guards.
On Dec. 24, 2006, a drunken Blackwater employee shot and killed a bodyguard for Iraq’s Shiite vice president, Adel Abdul-Mahdi.
The AP previously reported the contractor had gotten lost on the way back to his barracks in Baghdad’s Green Zone and fired at least seven times when he was confronted by 30-year-old Raheem Khalaf Saadoun.
The guard was terminated by Blackwater. Within 36 hours of the shooting, the department allowed the 26-year-old contractor to be transported out of Iraq, according to the staff report.
An unnamed State Department official then recommended Blackwater pay the guard’s family $250,000 as an “apology.”
But the Diplomatic Security Service, the department’s own law enforcement arm, said that was too much money and might prompt other Iraqis “to ‘try to get killed’” in order to provide for their families, according to the report.
“In the end, the State Department and Blackwater agreed on a $15,000 payment,” the report says.
The negative fallout from the event affected the relationship between the U.S. military and Iraqis, many of whom see little distinction between the private guards and American troops, the report states. Initial news coverage by Middle Eastern media of the killing said a “U.S. soldier” was responsible.
In a company e-mail obtained by the committee, a Blackwater employee said the mistake in the news “gets the heat off of us.”
According to the report, the U.S. Justice Department is investigating.
In another instance, the department recommended Blackwater make a $5,000 payment after guards killed an “apparently innocent” Iraqi bystander, according to documents the committee examined. In this same case, the Blackwater personnel failed to report this shooting and “covered it up,” the report states.
There is no evidence, the report says, “that the State Department sought to restrain Blackwater’s actions, raised concerns about the number of shooting incidents involving Blackwater or the company’s high rate of shooting first, or detained Blackwater contractors for investigation.”
State Department spokesman Tom Casey said he has not read the report and could not comment.
The report was distributed to committee members on the eve of a hearing on private security contracting. Blackwater’s 38-year-old founder and chairman, Erik Prince, will be one of the witnesses.
Blackwater spokeswoman Anne Tyrrell had no comment on the specifics in the report.
“We look forward to setting the record straight on this issue and others tomorrow when Erik Prince testifies before the committee,” she said.
In addition to Prince, the witnesses include David Satterfield, the department’s Iraq coordinator; Richard Griffin, assistant secretary for diplomatic security; and William H. Moser, deputy assistant secretary for logistics management.
___
Associated Press writer Hope Yen contributed to this report.
Faux News Caught Red-Handed Spewing Propaganda Again!
Reported by Chris at News Hounds
September 30, 2007
After making (literally) a federal case over the MoveOn.org ad that brought General Petraeus’ report to Congress into question FOX hammered MoveOn AND the New York Times for an alleged “sweetheart deal.” After New York Times Public Editor Clark Hoyt announced that there had been a billing error, MoveOn promptly wired the difference,, $77,508.00, to settle their bill. Not so Republican presidential candidate and FOX fave Rudy Giuliani, who demanded the same discounted rate as MoveOn.org for his rebuttal ad.
Giuliani’s campaign claims that they don’t have to pay the full rate and deserved the so-called “stand-by” rate (which does not have a guaranteed run date or placement). According to the Washington Post,
“A spokeswoman for the Giuliani campaign said the campaign was charged the proper rate since they were not guaranteed a specific day the ad would run.
Giuliani spokeswoman Maria Comella said ‘Our ad not only met the acceptability standards of The New York Times, but it was placed at the standby rate with no commitment it would run on a specific date.’”
Only one problem: That’s a lie!
In the much-lauded editorial by Hoyt that admitted the “error,” he wrote
“In the fallout from the (MoveOn.org) ad, Rudolph Giuliani, the former New York mayor and a Republican presidential candidate, demanded space in the following Friday’s Times to answer MoveOn.org. He got it — and at the same $64,575 rate that MoveOn.org paid.”
And the candidate himself stated that his ad was to run Friday (9/14) - listen here for two specific mentions of running the ad on that specific day.
Now FOX Propaganda covered this relentlessly, up until the point that MoveOn.org said they would wire the difference. Brian Kilmeade on FOX and Friends attributed the revelation of the mistake at the Times to a complaint filed with the FEC by a “conservative organization” (which he did not identify, the American Conservative Union), and co-host Steve Doocy excused Giuliani from ponying up the $77k because “…a deal’s a deal. If the New York Times is going to sell it to him for $65,000, that’s the price.”
They don’t even try to hide their obvious double-standards . . .
The double-standard that FOX accused the New York Times of, offering “special favors,” perhaps even an “illegal discount,” to their “liberal friends,” seems to be embarrassingly wrong. Of course there’s the daily double-standard of attacking liberals/Democrats on FOX, but also it seems that the Times spokeswoman, Catherine Mathis, has applied a double-standard as well. Her paper reports that :
“The sales representative should have charged $142,083, she (Mathis) said, because MoveOn wanted the advertisement to run on a specific day — Monday, Sept. 10 — and was therefore not entitled to the “standby” rate.”
Later in the same article, however, she seemed to excuse Giuliani’s campaign from paying the higher rate because she “confirmed that the newspaper did not commit to a specific date.”
Read that again:
MoveOn.org — “Asking” for a certain date but no guarantee = HIGHER rate.
Guiliana — “Asking” for a certain date but no guarantee = LOWER rate.
According to Giuliani’s own comments, twice he demanded that his ad appear Friday September 14th - which it did.
Lane Hudson has filed a complaint with the FEC, charging that the discounted ad rate for the Giuliani campaign amounts to “the receipt of corporate soft money contribution in excess of the limits established by the Federal Elections Campaign Act of 1971 and the Bipartisan Campaign Reform Act of 2002.”
At this time it certainly appears that the New York Times has made and Giuliani has accepted an illegal campaign contribution.
I’m sure this will spark absolutely NO outrage, or even any coverage, on Faux News “Fair & Balanced” Propaganda Networks.
The important question you should be asking is whether the other corporate media — all of which piled-on in their phoney-patriotic posturing against MoveOn.org — will cover it either?
Did CBS Bury The Abu-Ghraib Torture Scandal In 2004 For Bush Re-Election?
As alleged in a Salon story:
In early 2004, Mary Mapes, a producer for “60 Minutes II” with more than two decades of experience, uncovered the torture at the Abu Ghraib prison in Iraq. Her sources were sound and the evidence incontrovertible, but according to Rather’s complaint, “CBS management attempted to bury” the story. In a highly unusual move, then CBS News president Andrew Heyward and then senior vice president Betsy West personally intervened to demand editing changes and ever more “substantiation.”
Rather’s suit states that “for weeks, they refused to grant permission to air the story” and “continued to ‘raise the goalposts,’ insisting on additional substantiation.” Even after Mapes gained possession of some of the now-infamous photographs of the torture of prisoners at Abu Ghraib, the news executives suppressed the story, “in part,” according to Rather’s suit, “occasioned by acceding to pressures brought to bear by government officials.”
Gen. Richard Myers, then chairman of the Joint Chiefs of Staff, called Rather at his home, sources close to the case told me, telling him that broadcasting the story would endanger “national security.” Myers explained to Rather that U.S. soldiers, just then poised for an assault on Fallujah, would be demoralized and suggested that Rather and CBS might threaten the outcome of the battle and the soldiers’ safety.
Only when Seymour Hersh, investigative reporter for the New Yorker, relying on different sources from Mapes’, unearthed the Abu Ghraib story and CBS executives learned that the magazine was about to scoop the network did they grudgingly permit it to be aired. “Even then,” Rather’s suit states, “CBS imposed the unusual restrictions that the story would be aired only once, that it would not be preceded by on-air promotion, and that it would not be referenced on the CBS Evening News.” Feeling forced against their will to broadcast a story they knew was accurate, CBS’s executives did everything within their power to ensure the public would pay as little attention to it as possible by prohibiting any mention of it. CBS’s self-censorship set the stage for its reaction to the Bush National Guard story.
Chicago Police Caught On Video Beating Citizens & Torturing Suspescts For False Confessions
I know there are many, many brave, honest, dedicated cops . . . but not 99.9% as they always claim when caught red-handed or on video. If 99.9% were so good, we wouldn’t be reading stories of brutality every day. This is just the tip-of-the-iceberg and was only investigated because there is videotape. No video = cops story always wins.
By Mike Robinson,
Associated Press Writer
CHICAGO - Videotapes of angry officers savagely beating civilians and charges that a murder plot was hatched within an elite special operations unit have Chicago’s troubled police department reeling again.
Adding to the department’s woes is word from federal prosecutors that they are investigating claims that homicide detectives tortured suspects into confessing to murders that landed them on death row in the 1980s.
Not since club-swinging cops in baby-blue helmets chased demonstrators through clouds of pepper gas at the 1968 Democratic National Convention have Chicago police been so awash in trouble.
The biggest shock came Wednesday when federal prosecutors charged special operations officer Jerome Finnigan with planning the murder of another member of the unit to keep him from talking to the government.
“This kind of stuff on Page One is just horrible,” and reinforces a misleading stereotype of police, said Roosevelt University political scientist Paul Green, who taught at the police academy for four years.
“The overwhelming 99.9 percent do their job professionally,” he said.
But evidence of deep-rooted problems is piling up.
Finnigan, 44, also is one of six members of the special operations unit, created to crack down on gangs and drugs, who are charged with operating a shakedown operation aimed at civilians. Prosecutors say they have him on tape weighing the possibility of having someone kill a fellow special operations officer to keep him from becoming a witness against him.
Finnigan and his attorney, Michael Ficaro, declined to comment.
In July, three off-duty officers pleaded not guilty to charges that they beat four businessmen in a bar in a videotaped confrontation.
In another videotaped confrontation, off-duty officer Anthony Abbate was seen apparently beating a 115-pound female bartender because she would not serve him another drink. Abbate has pleaded not guilty to a felony charge of aggravated battery.
The quagmire is deepened by five federal lawsuits accusing police and city officials of covering up the torture of murder suspects at the Area 2 detective headquarters under violent crimes Lt. Jon Burge in the 1980s. Burge was fired in 1993 after a suspect in the murder of two officers allegedly was abused while in his custody.
A four-year study by two special prosecutors appointed by a Cook County judge, released in July 2006, found that Chicago police beat, kicked and shocked scores of black suspects in the 1970s and 1980s to get confessions. The report said it was impossible to file charges because the incidents were so old that the statute of limitations had long since run out.
On Wednesday, however, U.S. Attorney Patrick J. Fitzgerald announced the federal government was stepping into the torture case, saying it would seek evidence of “perjury, false statements and obstruction of justice by members of the Chicago police department.”
“It’s political, it’s cultural, it’s systemic,” said attorney G. Flint Taylor, who represents several former death row inmates now suing Burge and city officials.
Attorney Richard Sikes, who represents Burge in the five civil suits, said after Fitzgerald’s announcement that allegations against his client “have been fairly investigated by the special prosecutors who found that charges were not appropriate.”
The department has been slow to put its best foot forward. Officers in the news affairs office said only department spokeswoman Monique Bond could comment. Bond did not return three calls seeking comment over two days.
Mark Donahue, president of Chicago’s Fraternal Order of Police Lodge 7, said most officers are doing a professional job but the department’s reputation has been hurt by the misdeeds of a minority.
“I subscribe to the few-bad-apples theory,” Donahue said. “It is also due to the attention that the few bad apples are getting from the media.”
The City Council recently revamped the Office of Professional Standards, which investigates charges that police officers abused civilians. Instead of reporting to department higher ups, as it did for years, the office now reports directly to Mayor Richard M. Daley.
Craig B. Futterman, a University of Chicago law professor, says such investigations in the past were shoddy and rarely resulted in discipline against the officers.
“If they investigated crimes the way they investigate complaints against police officers they would never close a case,” Futterman says.
Unveiled: Conservative Group Driving Middle East Wars
Big Coffers and a Rising Voice Lift a New Conservative Group
By Don Van Natta, Jr.
September 30, 2007
Freedom’s Watch, a deep-pocketed conservative group led by two former senior White House officials, made an audacious debut in late August when it began a $15 million advertising campaign designed to maintain Congressional support for President Bush’s troop increase in Iraq.
Founded this summer by a dozen wealthy conservatives, the nonprofit group is set apart from most advocacy groups by the immense wealth of its core group of benefactors, its intention to far outspend its rivals and its ambition to pursue a wide-ranging agenda. Its next target: Iran policy.
* * *
Absolutely nothing this bunch stands for is about “freedom.” They are like an Internet censorship group naming itself “Guardians Of Free Thought For All” or a pornography group calling itself “American Liberty Art Center.”
WTC Building 7’s Collapse Defies The Laws Of Physics
There is so much intentional confusion spread around the Internet about the seeming “controlled demolition” of the World Trade Center buildings on September 11th . . . because what better way to make everyone who questions the event look like tin-foil hat conspiracy nuts than to interject impossible conspiracy theories deliberately into the debate. But let’s concentrate on the one building that fell which was never touched by the planes that day. It fell the same as the other two. It had no phantom-burning “super-hot” jet fuel, it’s support structures were never compromised . . . and yet it crumbled in 6.5 seconds!!!
Without it being a controlled demolition, this is physically impossible in this universe!
How Convenient: NOW Petraeus Admits The Obvious — An Increase In Iraqi Violence
Just disgustingly political. Blames everything on Ramadan . . .
Los Angeles Times Story . . .
IMPORTANT: Microsoft’s Secret Hidden Updates
Over the past 3-weeks, more and more confirmation has been coming out about Microsoft forcing “updates” onto YOUR system — whether you allow it or not!
The reason I call them “updates” is because no one is sure exactly what Microsoft is installing on your computer.
This is also true regardless of whether you have completely turned-off automatic updates.
In other words, Microsoft is hijacking your computer and installing whatever it wants without your permission and you are just left to “trust” Big Brother’s partner that it has only your interest at heart.
I DO NOT TRUST MICROSOFT and I do not trust anyone to be looking out for me when they install software on my computer secretly or worse, in violation of my specific settings. That’s usually called malware, especially when their stealth software interferes with your system. And, make no mistake, their “updates” are causing a rash of problems — especially with the horrible Vista OS.
Here are some stories about this for further reading:
Windows Secrets Blog . . .
eWeek Microsoft Watch Blog . . .
What The Hell Is Microsoft Doing To My Computer?
Automatic ‘Automatic’ Updates
More About Bush & The Secret “War Tape”
As I wrote about several days ago . . .
Slate Magazine offers a new twist — analysis of how we can use this smoking gun to better help elect a stable President next time.
By Fred Kaplan
September 28, 2007
The Spanish newspaper El País recently published the transcript of a February 22, 2003 conversation between President George W. Bush and then-Prime Minister José María Aznar — a few weeks before the invasion of Iraq — and it confirms some (though not all) of the most dreadful accounts and suspicions about Bush’s intentions and nature.
The crucial exchange, in this respect, comes toward the end of the conversation, when the two leaders are discussing the magnitude of changing Saddam Hussein’s regime by force.
AZNAR: The only thing that worries me about you is your optimism.
BUSH: I’m an optimist because I believe that I’m right. I’m a person at peace with myself. It was our turn to face a serious threat to peace.
Here, in three sentences, is the first lesson on how to assess the current crop of presidential candidates: Don’t pick anyone who utters, or seems capable of believing, those three sentences.
“I’m an optimist because I believe that I’m right.” There’s a delusional tautology to this sentence. (Bush is quoted as making similar remarks in Robert Draper’s book Dead Certain.) To the extent that sensible people are optimistic about something, it’s not because of a belief, much less a belief in their own wisdom; it’s because the facts at hand—or perhaps their experiences with similar situations—suggest that a positive outcome is likely. Bush had no experiences, on any level, with anything like war or Iraq. Nobody would give money to a stockbroker who says that he’s optimistic about his investments because he believes he’s right (not even that he generally is right, just that he believes he’s right). Nobody should vote for a would-be president who talks like this, either.
“I’m a person at peace with myself.” Taken by itself, this can be a reassuring sentiment. A leader should be comfortable with power, assured at making decisions. But combined with the first sentence, it’s the sort of thing that might be uttered by … well, by George W. Bush.
“It was our turn to face a serious threat to peace.” Beware the politician who sees his life as an appointment with destiny. Ditto a president who thinks it’s his “turn” to do anything, much less to go to war and save civilization. Elsewhere in the transcript, Bush talks of being “guided by a historic sense of responsibility,” of looking ahead “some years from now,” when “History judges us.” History walks on two feet, as Karl Marx wrote (in one of his least Marxist pronouncements). All that anyone, including a president, can do is make the best judgments and take the wisest actions, given the circumstances, resources, and options at hand. History can be a useful guide, but it’s neither a force nor a judge. (Or if it is, its rulings are hardly definitive. Debates still rage, after all these centuries, over the relative merits of Hamilton, Adams, and Jefferson.)
Another lesson that a president-wannabe, and those of us deciding which one to vote for, could take from this transcript: Never overestimate your own power.
Prime Minister Aznar—who, it is worth noting, favored going to war—keeps urging Bush to wait a little longer before invading, in order to assemble a broader coalition. “I agree,” he says after Bush tells him it’s time to put a stop to Saddam’s dithering, “but it would be good to be able to count on as many people as possible. Be a little bit patient.”
“My patience is over,” Bush replies. “I don’t even think about [waiting] beyond mid-March.” The other members of the U.N. Security Council, he says, “have to know” that friendship with the United States is at stake. If Chile doesn’t go along with a war resolution, the Free Trade Agreement is in trouble. If Angola falters, its leaders should forget about receiving funds from the Millennium Account. Vladimir Putin should know “that his attitude is jeopardizing” U.S.-Russian relations.
Bush didn’t realize—nor did most of his top advisers—that the United States, while still powerful, no longer had the leverage to play this kind of hardball. He was in no position to offer, or therefore to withhold, security guarantees. These countries could go, and have gone, elsewhere for trade deals. And as for Russia, skyrocketing oil prices and the resurgence of national industries allowed Putin to behave without much fear of Washington’s wrath.
An additional lesson that one could glean from these transcripts: Never let timetables for mobilization determine decisions about war.
At the beginning of the transcript, Bush says of Saddam, “We have to get him right now. … There are two weeks left. In two weeks, we’ll be militarily ready.” This seems to be at least one reason Bush doesn’t “even think about” postponing the invasion past mid-March. His attitude is: Unleash the dogs of war when they’re ready; and “in two weeks,” by mid-March, they’ll be ready.
Bush’s decisions weren’t entirely mechanical, of course. The evidence is strong that he had decided to go to war as far back as late May or early June of 2002, about nine months before his conversation with Aznar. But the timing of actually launching the invasion does appear to have been determined by when the invasion would be ready for launching.
This distinction isn’t academic, because the transcript has Bush telling Aznar the following:
The Egyptians are talking to Saddam Hussein. It seems that he’s indicated that he’s willing to go into exile if they let him take 1 billion dollars with him, and all the information that he wants about the weapons of mass destruction. Gadaffi has told Berlusconi that Saddam Hussein wants to go.
Aznar asks if there’s any possibility Saddam could be offered a deal to go into exile “with some guarantee.” Bush replies, “No guarantee. He’s a thief, a terrorist, a war criminal. Compared to Saddam, Milosevic would be a Mother Theresa [sic].”
Rumors were floating around at the time of a deal in which war would be averted if Saddam went into exile (where, by the way, he would be much more vulnerable to assassination). But this transcript reveals, for the first time, I think, that there actually were offers on the table and that Bush was well aware of them.
Such a deal was clearly unacceptable to someone of Bush’s optimism and self-righteousness (and blood-thrist). It would have been a huge risk even to a more levelheaded president. But would such a president have casually brushed it aside, given the alternative of a war that would spill much blood and treasure in the brightest of scenarios? (At one point, Bush tells Aznar that a war will cost the United States $50 billion. He turned out to be off by a factor of almost 20; but even at $50 billion, the alternative of an exile deal would have been worth at least considering.)
The transcripts also reveal the shortcomings of a trait that has long been detected by Bush-watchers: his inattention to detail and his failure to enforce high-policy decisions. In talking about the war plans, he tells Aznar, “We’re already looking at a post-Saddam Iraq, and I believe there’s a good basis for a better future. Iraq has a good bureaucracy and a civilian [sic] society that’s relatively strong.”
As Bush was soon to discover, there was no plan for a “post-Saddam Iraq” at all — except for one, laid down by Paul Bremer as Order No. 1 of the Coalition Provisional Authority, to demolish that “good bureaucracy” by firing every bureaucrat who was in the Baathist Party, even those who joined only because membership was required to get a job.
Bush wasn’t lying about his intention to retain the bureaucracy. As we now know, in early March, the National Security Council—in a meeting of principals, with Bush in charge—approved a postwar policy that drew the line on the issue: Baathists above a certain level, probably around 5 percent of officials, would be barred from government work; those below that level, most of the rank-and-file, would be allowed to stay. It is still not known who reversed the decision (probably Vice President Dick Cheney, perhaps Bush himself under his prodding), but reversed it was—and no one was punished for it.
Finally, the transcript puts Bush in a slightly redemptive light on one matter. It suggests—just as the much-misread Downing Street Memos also suggested—that he genuinely thought that Saddam Hussein had weapons of mass destruction. Several times, he says, “Saddam isn’t disarming” or words to that effect. Aznar agrees. “Saddam Hussein hasn’t cooperated, he hasn’t disarmed,” the Spanish leader says at one point. “We should make a summary of his failed obligations and send a more elaborate message.”
But the fact that Bush believed his distorted intelligence only highlights a deeper failing in his administration, in his character—and a sterner demand on the voters in the coming election. It’s not enough to pick someone who’s honest. The next president also has to be realistic, skeptical, curious, and experienced; he or she has to be decisive but also smart.
Fed Bailout Only Helps The Reckless Rich
Chartsky.com Has Been Ranting About This For Over A Month
At least it’s finally starting to trickle into the corporate media . . .
By Allan Sloan
Fortune’s Senior Editor-At-Large
September 28, 2007
(Fortune Magazine) — One of the core principles of the U.S. medical profession is the Hippocratic oath, the most famous part of which is “Do no harm.” It’s too bad that the governors of the Federal Reserve Board don’t have to take such a pledge when they assume office, because their recent interest rate cut has done a lot of harm to those of us who’ve managed our finances prudently.
Even though the Fed’s stated reason for cutting short-term interest rates by half a point was to help keep the economy from falling into recession, anyone who’s been paying attention knows that a major motivation - if not the major motivation - was to try to calm the turbulence that has been roiling the markets since August.
The players in the biggest trouble, of course, were the ones who’d taken the biggest fliers in junk mortgages, ultra-risky leveraged buyouts, and other financial esoterica that proved to be malignant.
The stock market, which had been begging for a bailout and hasn’t ever seen an interest rate cut that it didn’t like, responded to the Fed’s half-pointer by running prices up. Ben Bernanke, the Street decided, is just what the doctor ordered.
However, if you look at the financial markets’ overall reaction to the Fed move - not at just the stock market’s reaction - you realize that as a result of the cut, those of us who keep score in dollars and didn’t need to be bailed out are less wealthy than we were in terms of anything other than our home currency.
Why? Because the rate cut contributed heavily to the dollar’s recent sharp drop in the currency markets - parity with the Canadian dollar, for God’s sake! - and to the price spike in hard assets like gold, silver, copper, and oil. So our wealth, relative to these other things, has diminished.
And wait, there’s more. Even though the Fed has cut short-term rates, long-term rates, which it doesn’t control, have risen in reaction to the cut. So whatever economic benefits may flow from lower shortterm rates will be partly offset by the rise in long rates, which are at least as important to the economy as short rates.
Finally, consider this. Even though Bernanke’s cut may mean that some junk mortgages will reset at lower rates, the cost of large, high-quality fixed-rate mortgages, which are tied to long rates, will be higher than they’d otherwise be. (Yeah, penalize the people who are prudent - way to go!)
When I talk about prudent people being penalized, I don’t mean just the decline in their wealth in terms of anything other than the dollar. I’m also talking about the price paid by investors who wouldn’t play the subprime mortgage game and thus got lower returns than players who took bigger risks.
The folks who didn’t get carried away (and avoided huge losses) look smart today - but they looked prudish and foolish until the housing bubble finally popped.