Thursday, January 21, 2010

Indict Secretaries of The Treasury Geithner & Paulson

Bad decisions or intentional economic collapse??

Is The U.S. Economy Being Tanked By Mistake or By Intent?

by Bill Sardi

Recently by Bill Sardi: Who Is Left Holding the Bag on US Debt?

The government wants Americans to believe the greatest economic collapse in history was the result of ineptness and mistakes yet still have confidence in their financial institutions.

Should American bankers be let off the hook because they self-declare, before an investigational panel, that the failure of their newly invented risk swaps and other highly leveraged investment schemes was simply due to "mistakes"? Not malfeasance – just every-day mistakes? Bankers just fell asleep at the helm at a critical juncture in American history. Is that what we are being led to believe?

Oh well, it’s just 18 million American homes that now lay empty in the wake of unprecedented foreclosures, and the bankers have collected obscene bonuses for reckless lending of their depositors’ money. It’s like the captain and crew of a ship saying, not to worry, twenty-percent of the passengers were lost overboard, but this was due to unavoidable mistakes, and then being rewarded with bonuses when they reach port.

Are Americans to believe that the Federal Reserve lowered interest rates to create a false bubble in the economy, at the same time the Securities Exchange Commission allowed investment banks risky reserve ratios and exerted lax control over investment tycoons like Bernie Madoff, and in lock step, the credit rating agencies (Fitch, Moody’s and Standard & Poor’s) handed out sterling A+ credit ratings on risky mortgage-backed securities, while the US Treasury Department stood by and did nothing?

Shall Americans conclude the world’s largest economy is beyond the management skills and regulation of virtually every financial arm of government and the private sector? If so, widespread incompetence would suggest Americans had better come up with some institution or instrument of their own invention to protect their money.

Whatever or whomever did bring down the American economy, it appears to be an orchestrated effort. If one arm of the financial industry had objected or performed their job responsibly, the whole economic collapse could have been averted. The credit rating agencies alone could have put an abrupt halt to what amounts to a financial collapse of western civilization.

Lenses into the future: a planned default?

Americans cannot see the economy as the elites do. The elites have lenses into the future. They have access to information that foretells the future of our economy. They can see a better picture of when mounting debt will rise beyond the ability to repay.

They certainly can see pension funds, private and public, are under-funded and there is no way, with Baby Boomers now entering their retirement years, these obligations can be met. Medicare expenses are totally out of control with enrollees able to rack up bills in the tens of thousands of dollars beyond what they ever paid into the system.

At some point, seeing no way out, maybe a decision was made to default on our debts. There are rumblings that the world economy is being intentionally brought to its knees in order to usher in a one-world currency.

There are other hints that the US is intentionally tanking its economy.

Normally the US Patent & Trademark Office could be seen as a pathway to jump-start the economy. Some 6300 patent examiners hold the future fate of the American economy in their hands. But the patent office is backlogged. It embarrassingly has 6 years of patent applications, what amounts to over 1 million filings, waiting to be evaluated. Over $700 million of fees have been siphoned off by Congress to pay for other extraneous government projects, slowing the patent approval process to an agonizingly pace. About 7 of every 10 applicants were granted a patent in the past. But today, less than half are approved.
In the past decade there also appeared to be an effort to drive States into debt. Colorado, a State that had a mandated spending limit, was belittled for stifling its economy. Lies were told that Colorado was so bogged down with this limitation that it repealed its spending limit bill. That was far from the truth.
Another business stifling practice has been to limit the amount of large funds actually available to the economy in what is called M3 money supply. M1 is the amount of currency and traveler’s checks in circulation outside banks, along with demand deposits and other checkable deposits. M2 is M1 plus savings deposits, such as money market accounts. M3 is M2 plus large time-restricted deposits, institutional money-market funds and other large liquid assets. M3 is the best official measure of the total supply of money.
As of March 23, 2006, the M3 money supply is no longer published by the US central bank. So Americans can’t get a full view of what government is doing with the total money supply. The M3 is now estimated by two websites – and A severe contraction in the M3 money supply began to be reported in August of 2008. It appears there has been a sudden downturn in M3 funds, which could choke the economy at a critical time.

"Total money"
M3 plus credit, recent time

By plan or mistake?

It would be difficult for the American public to even contemplate the idea that their government may be intentionally tanking the economy. So we are left with the commonly-heard claim that people in government are just incompetent, there is no conspiracy of any kind. Regardless, heads should roll, and we still have the same derelict captains (Bernanke, Geithner) at the helm.

Whatever is planned for the future US economy, there certainly must be contingency plans in place to devalue the dollar, issue new currency, declare banking holidays, reappraise the value of real estate to true market value (~ 30% drop), sell off government-held real estate assets to hedge funds, confiscate guns, invoke marshal law, etc. If these events occur, they won’t be without forethought. Call it conspiracy if you will.

On November 21, 1933, President Franklin Roosevelt stated, "The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the United States since the days of Andrew Jackson."

Few Americans recognize the merger of state and corporate powers, with the news media also subservient to those in power. How gullible the public has been over recent decades to not see how government and business have conspired to raise the price of goods.

The oil embargo of the 1970s

I can recall the gasoline crisis/OPEC oil embargo of the 1970s. I was traveling around the US on business at the time and I noticed that shortages of gasoline were not nationwide but were actually being staged in different regions. In Seattle there was no shortage of gasoline, but there were long lines at gas stations in Los Angeles. There was no scarcity of gasoline in Atlanta, but later there were long lines at gas pumps throughout Georgia. TV screens around the nation made it falsely appear the shortage was nationwide.

The 1970s gasoline crisis was a concerted effort between government, oil producers and the news media to fool Americans into thinking there was a pervasive shortage of gasoline despite the fact OPEC, the oil-producing cartel, was founded because of an over-abundance of oil.

I recall reading an article in Fortune Magazine in 1963 how oil companies longed to find a way to raise the price of gasoline to European levels. Pre-OPEC, oil was sold at competing prices. That couldn’t be tolerated. A spot-price had to be introduced. Then one country couldn’t undersell another and prices would "stabilize." The OPEC cartel eliminated competition, except for Hugo Chavez in Venezuela in recent times. Of course, Chavez is demonized. We do not have free markets, we have controlled markets based upon contrived events.

Graph of oil prices from 1861–2007, showing a sharp increase in 1973, and again during the 1979 energy crisis. The orange line is adjusted for inflation.

Examine this map of failed banks in 2008–2009. There are over 2000 failed banks the FDIC indicates it needs to dissolve. Notice how evenly the bank failures are spread geographically across the US. The geographical locus of home foreclosures is centered in California, Nevada, Arizona and Florida. But bank closures appear to be more evenly spread, as if to create public awareness (and fear) in every geographic region that banks are in trouble. This is eerily similar to the geographically revolving gasoline shortages in the 1970s.

Tax cut or payoff to oil companies?

Another example of complicity between government and industry is the most recent run up in gasoline prices which began early in the past decade. The news media failed to note that when GW Bush passed his first tax cut in 2001, early in his first term in office, it was rapidly followed by an increase in gasoline prices at the pump. Had President Bush cut taxes in order to put money into consumers’ hands so they could then pay ghastly high gasoline bills? The tax cut appears to have been a hand-in-hand arrangement between oil producers and the federal government. Gasoline prices rose till the public began curtailing their driving. The oil companies had now determined the top price they could get for their refined oil without collapsing demand.

There is nothing wrong with companies determining the top price consumers will pay for their goods, but there is something wrong when government secretly schemes with oil companies to create false market value, as they have also done in real estate.

Looking back in recent American history, there were also shortages of coffee and bananas in the 1970s and 80s, all staged events blamed on storms in South America that ruined crops. In those days, Americans didn’t have easy access to weather maps and information via the internet. These shortages were prolonged and prices rose until usage declined. Then the barons who ruled the coffee and banana industries had found the top price they could sell their products at without dampening demand. Suddenly, the shortages disappeared. The public never imagined these shortages were all artificially created.

Just as the price of oil, bananas and coffee were covertly engineered by a hidden alliance between government, industry and news outlets, is currency being gamed in the same fashion today? If so, current economic events are not by mistake.

Since President Roosevelt banned citizens from owning gold in 1933, the people were left holding increasingly worthless pieces of paper.

Americans can’t imagine how monetary policy has eroded their purchasing power. The US was officially taken off the gold standard in 1971. Issuance of silver certificates ceased in 1964. Had the US dollar continued to be backed by gold, the rise in the value of gold would have offset recent increases in gasoline prices at the pump, a fact Ron Paul has brought to the public’s attention.

For example, a portion of the rise in oil prices in recent years is due to erosion in the value of the dollar. Had the dollar remained strong the relative price of a barrel of oil would only have been around $65 in 2007-2008. If you compare the spot price of oil to gold, there has been almost no increase. Imagine what a gold-backed currency would do for America? Again, government (the Federal Reserve) has now admitted that it has arranged gold swaps with foreign banks in a prearranged way to suppress the value of gold.

Is inflation inevitable? Or is it planned? Will the American public ever imagine the value of their money has long been manipulated just as the price of coffee, bananas, gasoline and gold have been engineered in an unholy alliance between government and bankers and corporate enterprise? Will the American public ever realize their government is working against them, plunder their wealth, in a growing fascist alliance with American corporations? The enemy is not the underpants airplane bomber as we are falsely being led to believe. The enemy is not a towelhead in Afghanistan. The enemy is not China. As Pogo once said, "we have met the enemy, and he is us."

January 19, 2010

Bill Sardi [send him mail] is a frequent writer on health and political topics. His health writings can be found at He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.

Copyright © 2010 Bill Sardi Word of Knowledge Agency, San Dimas, California. This article has been written exclusively for and other parties who wish to refer to it should link rather than post at other URLs.

The Best of Bill Sardi

There is no genuine economic recovery happening. There will be no recovery for those who lost their jobs!!

By: Julie Crawshaw

Author, investor and longtime Wall Street observer James Dale Davidson says our government is lying to us: There is no genuine economic recovery happening.

“I think what we have seen ... is a simulated recovery which has been generated by the government faking it in a lot of different ways," putting out what he calls statistical falsehoods on economic numbers "to make it seem that the economy is stronger than it is,” Davidson told Newsmax.

For example, calculations for the recently released unemployment figures released failed to include the fact that the Bureau of Labor Statistics had undercounted the number of unemployed people in 2009 by 824,000 persons.

Video — Davidson: Obama White House Is Lying to You

“They’re supposed to be doing a benchmark adjustment ... and if they do, the unemployment rate will shoot up even higher,” Davidson says.

"A lot of the supposed improvements have been faked by the government," Davidson says.

Davidson believes the government secretly used quantitative easing as an excuse to funnel money into U.S. capital markets.

“It’s not a coincidence that the market started to rally in March at the same time they announced they were going to do the quantitative easing,” he observes.

“In my view, it’s all created by the government as a hoax.”

The whole administration is based on one lie after another, he says.

As revealed in recently uncovered e-mail correspondence with AIG, Treasury Secretary Timothy Geithner effectively told the huge insurer to violate U.S. securities laws.

“I think the way he (Geithner) handled the AIG bonuses last year is a very telling story,” Davidson notes, referring to the media uproar over the bonuses that distracted the public’s attention from the billions of dollars that were being poured into AIG.

The uproar over those bonuses kept people from getting excited over the real issue, Davidson notes. Investors can get excited about only so many AIG-related scandals at once, he says.

At some point, Davidson believes that AIG’s having violated practically every securities law there is will be revealed.

“They’ve done everything they can to create a false impression of stability and strength in a rebounding economy, and I can understand that from the point of view of public policy they want people to think the economy is strong," he says.

"But if you hoax people into going out and spending money on false assumptions … a lot of people are going to lose a lot of money,” he points out.

Davidson believes all investors should hold some gold in their portfolios because the dollar is on its way out as the world’s reserve currency.

“The dollar is cooked,” he says.

“Our ratios are much worse than Brazil was 15 years ago when they had hyperinflation. When you have this kind of spending out of an empty pocket, there’s never anything good as a result. You can’t go on forever spending money you don’t have.”

“It has to stop, and when it does, you’ll be glad you have some gold.”

The heart of the matter, Davidson points out, is that there are huge, gaping holes in everyone’s balance sheets.

“We’ve lost a couple of decades of demand in the U.S. economy because of the de-leveraging that’s happened,” he says.

Americans’ debt loads are still high, and government encouragement to consumers to spend more now is a major misdirection.

As far as other investments go, Davidson feels there’s a strong case to be made for small, special situation companies.

"There’s one company called interCLICK that I like a lot,” he says, “and I’m also invested in Brazil.”

Monday, January 18, 2010

The Eurasian Strategy for America

Murder at Guantanamo? The Guantánamo “Suicides”: A Camp Delta sergeant blows the whistle

The Guantánamo “Suicides”: A Camp Delta sergeant blows the whistle
By Scott Horton

This is the full text of an exclusive advance feature by Scott Horton that will appear in the March 2010 Harper’s Magazine. The issue will be available on newsstands the week of February 15.
1. “Asymmetrical Warfare”
When President Barack Obama took office last year, he promised to “restore the standards of due process and the core constitutional values that have made this country great.” Toward that end, the president issued an executive order declaring that the extra-constitutional prison camp at Guantánamo “shall be closed as soon as practicable, and no later than one year from the date of this order.” Obama has failed to fulfill his promise. Some prisoners are being charged with crimes, others released, but the date for closing the camp seems to recede steadily into the future. Furthermore, new evidence now emerging may entangle Obama’s young administration with crimes that occurred during the Bush presidency, evidence that suggests the current administration failed to investigate seriously—and may even have continued—a cover-up of the possible homicides of three prisoners at Guantánamo in 2006.

Late in the evening on June 9 that year, three prisoners at Guantánamo died suddenly and violently. Salah Ahmed Al-Salami, from Yemen, was thirty-seven. Mani Shaman Al-Utaybi, from Saudi Arabia, was thirty. Yasser Talal Al-Zahrani, also from Saudi Arabia, was twenty-two, and had been imprisoned at Guantánamo since he was captured at the age of seventeen. None of the men had been charged with a crime, though all three had been engaged in hunger strikes to protest the conditions of their imprisonment. They were being held in a cell block, known as Alpha Block, reserved for particularly troublesome or high-value prisoners.

As news of the deaths emerged the following day, the camp quickly went into lockdown. The authorities ordered nearly all the reporters at Camp America to leave and those en route to turn back. The commander at Guantánamo, Rear Admiral Harry Harris, then declared the deaths “suicides.” In an unusual move, he also used the announcement to attack the dead men. “I believe this was not an act of desperation,” he said, “but an act of asymmetrical warfare waged against us.” Reporters accepted the official account, and even lawyers for the prisoners appeared to believe that they had killed themselves. Only the prisoners’ families in Saudi Arabia and Yemen rejected the notion.

Two years later, the U.S. Naval Criminal Investigative Service, which has primary investigative jurisdiction within the naval base, issued a report supporting the account originally advanced by Harris, now a vice-admiral in command of the Sixth Fleet. The Pentagon declined to make the NCIS report public, and only when pressed with Freedom of Information Act demands did it disclose parts of the report, some 1,700 pages of documents so heavily redacted as to be nearly incomprehensible. The NCIS report was carefully cross-referenced and deciphered by students and faculty at the law school of Seton Hall University in New Jersey, and their findings, released in November 2009, made clear why the Pentagon had been unwilling to make its conclusions public. The official story of the prisoners’ deaths was full of unacknowledged contradictions, and the centerpiece of the report—a reconstruction of the events—was simply unbelievable.

According to the NCIS, each prisoner had fashioned a noose from torn sheets and T-shirts and tied it to the top of his cell’s eight-foot-high steel-mesh wall. Each prisoner was able somehow to bind his own hands, and, in at least one case, his own feet, then stuff more rags deep down into his own throat. We are then asked to believe that each prisoner, even as he was choking on those rags, climbed up on his washbasin, slipped his head through the noose, tightened it, and leapt from the washbasin to hang until he asphyxiated. The NCIS report also proposes that the three prisoners, who were held in non-adjoining cells, carried out each of these actions almost simultaneously.

Al-Zahrani, according to the report, was discovered first, at 12:39 a.m., and taken by several Alpha Block guards to the camp’s detention medical clinic. No doctors could be found there, nor the phone number for one, so a clinic staffer dialed 911. During this time, other guards discovered Al-Utaybi. Still others discovered Al-Salami a few minutes later. Although rigor mortis had already set in—indicating that the men had been dead for at least two hours—the NCIS report claims that an unnamed medical officer attempted to resuscitate one of the men, and, in attempting to pry open his jaw, broke his teeth.

The fact that at least two of the prisoners also had cloth masks affixed to their faces, presumably to prevent the expulsion of the rags from their mouths, went unremarked by the NCIS, as did the fact that standard operating procedure at Camp Delta required the Navy guards on duty after midnight to “conduct a visual search” of each cell and detainee every ten minutes. The report claimed that the prisoners had hung sheets or blankets to hide their activities and shaped more sheets and pillows to look like bodies sleeping in their beds, but it did not explain where they were able to acquire so much fabric beyond their tightly controlled allotment, or why the Navy guards would allow such an obvious and immediately observable deviation from permitted behavior. Nor did the report explain how the dead men managed to hang undetected for more than two hours or why the Navy guards on duty, having for whatever reason so grievously failed in their duties, were never disciplined.

A separate report, the result of an “informal investigation” initiated by Admiral Harris, found that standard operating procedures were violated that night but concluded that disciplinary action was not warranted because of the “generally permissive environment” of the cell block and the numerous “concessions” that had been made with regard to the prisoners’ comfort, which “concessions” had resulted in a “general confusion by the guard and the JDG staff over many of the rules that applied to the guard force’s handling of the detainees.” According to Harris, even had standard operating procedures been followed, “it is possible that the detainees could have successfully committed suicide anyway.”

This is the official story, adopted by NCIS and Guantánamo command and reiterated by the Justice Department in formal pleadings, by the Defense Department in briefings and press releases, and by the State Department. Now four members of the Military Intelligence unit assigned to guard Camp Delta, including a decorated non-commissioned Army officer who was on duty as sergeant of the guard the night of June 9–10, have furnished an account dramatically at odds with the NCIS report—a report for which they were neither interviewed nor approached.

All four soldiers say they were ordered by their commanding officer not to speak out, and all four soldiers provide evidence that authorities initiated a cover-up within hours of the prisoners’ deaths. Army Staff Sergeant Joseph Hickman and men under his supervision have disclosed evidence in interviews with Harper’s Magazine that strongly suggests that the three prisoners who died on June 9 had been transported to another location prior to their deaths. The guards’ accounts also reveal the existence of a previously unreported black site at Guantánamo where the deaths, or at least the events that led directly to the deaths, most likely occurred.

Satellite photograph from Terraserver.
2. “Camp No”
The soldiers of the Maryland-based 629th Military Intelligence Battalion arrived at Guantánamo Naval Base in March 2006, assigned to provide security to Camp America, the sector of the base containing the five individual prison compounds that house the prisoners. Camp Delta was at the time the largest of these compounds, and within its walls were four smaller camps, numbered 1 through 4, which in turn were divided into cell blocks. Life at Camp America, as at all prisons, was and remains rigorously routinized for both prisoners and their jailers. Navy guards patrol the cell blocks and Army personnel control the exterior areas of the camp. All observed incidents must be logged. For the Army guards who man the towers and “sally ports” (access points), knowing who enters and leaves the camp, and exactly when, is the essence of their mission.

One of the new guards who arrived that March was Joe Hickman, then a sergeant. Hickman grew up in Baltimore and joined the Marines in 1983, at the age of nineteen. When I interviewed him in January at his home in Wisconsin, he told me he had been inspired to enlist by Ronald Reagan, “the greatest president we’ve ever had.” He worked in a military intelligence unit and was eventually tapped for Reagan’s Presidential Guard detail, an assignment reserved for model soldiers. When his four years were up, Hickman returned home, where he worked a series of security jobs—prison transport, executive protection, and eventually private investigations. After September 11 he decided to re-enlist, at thirty-seven, this time in the Army National Guard.

Hickman deployed to Guantánamo with his friend Specialist Tony Davila, who grew up outside Washington, D.C., and who had himself been a private investigator. When they arrived at Camp Delta, Davila told me, soldiers from the California National Guard unit they were relieving introduced him to some of the curiosities of the base. The most noteworthy of these was an unnamed and officially unacknowledged compound nestled out of sight between two plateaus about a mile north of Camp Delta, just outside Camp America’s perimeter. One day, while on foot patrol, Hickman and Davila came across the compound. It looked like other camps within Camp America, Davila said, only it had no guard towers and it was surrounded with concertina wire. They saw no activity, but Hickman guessed the place could house as many as eighty prisoners. One part of the compound, he said, had the same appearance as the interrogation centers at other prison camps.

The compound was not visible from the main road, and the access road was chained off. The Guardsman who told Davila about the compound had said, “This place does not exist,” and Hickman, who was frequently put in charge of security for all of Camp America, was not briefed about the site. Nevertheless, Davila said, other soldiers—many of whom were required to patrol the outside perimeter of Camp America—had seen the compound, and many speculated about its purpose. One theory was that it was being used by some of the non-uniformed government personnel who frequently showed up in the camps and were widely thought to be CIA agents.

A friend of Hickman’s had nicknamed the compound “Camp No,” the idea being that anyone who asked if it existed would be told, “No, it doesn’t.” He and Davila made a point of stopping by whenever they had the chance; once, Hickman said, he heard a “series of screams” from within the compound.

Hickman and his men also discovered that there were odd exceptions to their duties. Army guards were charged with searching and logging every vehicle that passed into and out of Camp Delta. “When John McCain came to the camp, he had to be logged in.” However, Hickman was instructed to make no record whatsoever of the movements of one vehicle in particular—a white van, dubbed the “paddy wagon,” that Navy guards used to transport heavily manacled prisoners, one at a time, into and out of Camp Delta. The van had no rear windows and contained a dog cage large enough to hold a single prisoner. Navy drivers, Hickman came to understand, would let the guards know they had a prisoner in the van by saying they were “delivering a pizza.”

The paddy wagon was used to transport prisoners to medical facilities and to meetings with their lawyers. But as Hickman monitored the paddy wagon’s movements from the guard tower at Camp Delta, he frequently saw it follow an unexpected route. When the van reached the first intersection, instead of heading right—toward the other camps or toward one of the buildings where prisoners could meet with their lawyers—it made a left. In that direction, past the perimeter checkpoint known as ACP Roosevelt, there were only two destinations. One was a beach where soldiers went to swim. The other was Camp No.

3. “Lit up”
The night the prisoners died, Hickman was on duty as sergeant of the guard for Camp America’s exterior security force. When his twelve-hour shift began, at 6 p.m., he climbed the ladder to Tower 1, which stood twenty feet above Sally Port 1, the main entrance to Camp Delta. From there he had an excellent view of the camp, and much of the exterior perimeter as well. Later he would make his rounds.

Shortly after his shift began, Hickman noticed that someone had parked the paddy wagon near Camp 1, which houses Alpha Block. A moment later, two Navy guards emerged from Camp 1, escorting a prisoner. They put the prisoner into the back of the van and then left the camp through Sally Port 1, just below Hickman. He was under standing orders not to search the paddy wagon, so he just watched it as it headed east. He assumed the guards and their charge were bound for one of the other prison camps southeast of Camp Delta. But when the van reached the first intersection, instead of making a right, toward the other camps, it made the left, toward ACP Roosevelt and Camp No.

Twenty minutes later—about the amount of time needed for the trip to Camp No and back—the paddy wagon returned. This time Hickman paid closer attention. He couldn’t see the Navy guards’ faces, but from body size and uniform they appeared to be the same men.

The guards walked into Camp 1 and soon emerged with another prisoner. They departed Camp America, again in the direction of Camp No. Twenty minutes later, the van returned. Hickman, his curiosity piqued by the unusual flurry of activity and guessing that the guards might make another excursion, left Tower 1 and drove the three quarters of a mile to ACP Roosevelt to see exactly where the paddy wagon was headed. Shortly thereafter, the van passed through the checkpoint for the third time and then went another hundred yards, whereupon it turned toward Camp No, eliminating any question in Hickman’s mind about where it was going. All three prisoners would have all reached their destination before 8 p.m.

Hickman says he saw nothing more of note until about 11:30 p.m, when he had returned to his preferred vantage at Tower 1. As he watched, the paddy wagon returned to Camp Delta. This time, however, the Navy guards did not get out of the van to enter Camp 1. Instead they backed the vehicle up to the entrance of the medical clinic, as if to unload something.

At approximately 11:45 p.m.—nearly an hour before the NCIS claims the first body was discovered—Army Specialist Christopher Penvose, preparing for a midnight shift in Tower 1, was approached by a senior Navy NCO. Penvose told me that the NCO—who, following standard operating procedures, wore no name tag—appeared to be extremely agitated. He instructed Penvose to go immediately to the Camp Delta chow hall, identify a female senior petty officer who would be dining there, and relay to her a specific code word. Penvose did as he was instructed. The officer leapt up from her seat and immediately ran out of the chow hall.

Another thirty minutes passed. Then, as Hickman and Penvose both recall, Camp Delta suddenly “lit up”—stadium-style flood lights were turned on, and the camp became the scene of frenzied activity, filling with personnel in and out of uniform. Hickman headed to the clinic, which appeared to be the center of activity, to learn the reason for the commotion. He asked a distraught medical corpsman what had happened. She said three dead prisoners had been delivered to the clinic. Hickman recalled her saying that they had died because they had rags stuffed down their throats, and that one of them was severely bruised. Davila told me he spoke to Navy guards who said the men had died as the result of having rags stuffed down their throats.

Hickman was concerned that such a serious incident could have occurred in Camp 1 on his watch. He asked his tower guards what they had seen. Penvose, from his position at Tower 1, had an unobstructed view of the walkway between Camp 1 and the medical clinic—the path by which any prisoners who died at Camp 1 would be delivered to the clinic. Penvose told Hickman, and later confirmed to me, that he saw no prisoners being moved from Camp 1 to the clinic. In Tower 4 (it should be noted that Army and Navy guard-tower designations differ), another Army specialist, David Caroll, was forty-five yards from Alpha Block, the cell block within Camp 1 that had housed the three dead men. He also had an unobstructed view of the alleyway that connected the cell block itself to the clinic. He likewise reported to Hickman, and confirmed to me, that he had seen no prisoners transferred to the clinic that night, dead or alive.

4. “He Could Not Cry out”
The fate of a fourth prisoner, a forty-two-year-old Saudi Arabian named Shaker Aamer, may be related to that of the three prisoners who died on June 9. Aamer is married to a British woman and was in the process of becoming a British subject when he was captured in Jalalabad, Afghanistan, in 2001. United States authorities insist that he carried a gun and served Osama bin Laden as an interpreter. Aamer denies this. At Guantánamo, Aamer’s fluency in English soon allowed him to play an important role in camp politics. According to both Aamer’s attorney and press accounts furnished by Army Colonel Michael Bumgarner, the Camp America commander, Aamer cooperated closely with Bumgarner in efforts to bring a 2005 hunger strike to an end. He persuaded several prisoners to break their strike for a while, but the settlement collapsed and soon afterward Aamer was sent to solitary confinement. Then, on the night of June 9, 2006, Aamer says he was the victim of an act of striking brutality.

He described the events in detail to his lawyer, Zachary Katznelson, who was permitted to speak to him several weeks later. Katznelson recorded every detail of Aamer’s account and filed an affidavit with the federal district court in Washington, setting it out:

On June 9th, 2006, [Aamer] was beaten for two and a half hours straight. Seven naval military police participated in his beating. Mr. Aamer stated he had refused to provide a retina scan and fingerprints. He reported to me that he was strapped to a chair, fully restrained at the head, arms and legs. The MPs inflicted so much pain, Mr. Aamer said he thought he was going to die. The MPs pressed on pressure points all over his body: his temples, just under his jawline, in the hollow beneath his ears. They choked him. They bent his nose repeatedly so hard to the side he thought it would break. They pinched his thighs and feet constantly. They gouged his eyes. They held his eyes open and shined a mag-lite in them for minutes on end, generating intense heat. They bent his fingers until he screamed. When he screamed, they cut off his airway, then put a mask on him so he could not cry out.

The treatment Aamer describes is noteworthy because it produces excruciating pain without leaving lasting marks. Still, the fact that Aamer had his airway cut off and a mask put over his face “so he could not cry out” is alarming. This is the same technique that appears to have been used on the three deceased prisoners.

The United Kingdom has pressed aggressively for the return of British subjects and persons of interest. Every individual requested by the British has been turned over, with one exception: Shaker Aamer. In denying this request, U.S. authorities have cited unelaborated “security” concerns. There is no suggestion that the Americans intend to charge him before a military commission, or in a federal criminal court, and, indeed, they have no meaningful evidence linking him to any crime. American authorities may be concerned that Aamer, if released, could provide evidence against them in criminal investigations. This evidence would include what he experienced on June 9, 2006, and during his 2002 detention in Afghanistan at Bagram Airfield, where he was subjected to a procedure in which his head was smashed repeatedly against a wall. This torture technique, called “walling” in CIA documents, was expressly approved at a later date by the Department of Justice.

5. “You All Know”
By dawn, the news had circulated through Camp America that three prisoners had committed suicide by swallowing rags. Colonel Bumgarner called a meeting of the guards, and at 7 a.m. at least fifty soldiers and sailors gathered at Camp America’s open-air theater.

Bumgarner was known as an eccentric commander. Hickman marveled, for instance, at the colonel’s insistence that his staff line up and salute him, to music selections that included Beethoven’s Fifth Symphony and the reggae hit “Bad Boys,” as he entered the command center. This morning, however, Hickman thought Bumgarner seemed unusually nervous and clipped.

According to independent interviews with soldiers who witnessed the speech, Bumgarner told his audience that “you all know” three prisoners in the Alpha Block at Camp 1 committed suicide during the night by swallowing rags, causing them to choke to death. This was a surprise to no one—even servicemen who had not worked the night before had heard about the rags. But then Bumgarner told those assembled that the media would report something different. It would report that the three prisoners had committed suicide by hanging themselves in their cells. It was important, he said, that servicemen make no comments or suggestions that in any way undermined the official report. He reminded the soldiers and sailors that their phone and email communications were being monitored. The meeting lasted no more than twenty minutes. (Bumgarner has not responded to requests for comment.)

That evening, Bumgarner’s boss, Admiral Harris, read a statement to reporters:

An alert, professional guard noticed something out of the ordinary in the cell of one of the detainees. The guard’s response was swift and professional to secure the area and check on the status of the detainee. When it was apparent that the detainee had hung himself, the guard force and medical teams reacted quickly to attempt to save the detainee’s life. The detainee was unresponsive and not breathing. [The] guard force began to check on the health and welfare of other detainees. Two detainees in their cells had also hung themselves.

After praising the guards and the medics, Harris—in a notable departure from traditional military decorum—launched his attack on the men who had died on his watch. “They have no regard for human life,” Harris said, “neither ours nor their own.” A Pentagon press release issued soon after described the dead men, who had been accused of no crime, as Al Qaeda or Taliban operatives. Lieutenant Commander Jeffrey Gordon, the Pentagon’s chief press officer, went still further, telling the Guardian’s David Rose, “These guys were fanatics like the Nazis, Hitlerites, or the Ku Klux Klan, the people they tried at Nuremberg.” The Pentagon was not the only U.S. government agency to participate in the assault. Colleen Graffy, a deputy assistant secretary of state, told the BBC that “taking their own lives was not necessary, but it certainly is a good P.R. move.”

The same day the three prisoners died, Fox News commentator Bill O’Reilly completed a reporting trip to the naval base, where, according to his account on The O’Reilly Factor, the Joint Army Navy Task Force “granted the Factor near total access to the prison.” Although the Pentagon began turning away reporters after news of the deaths had emerged, two reporters from the Charlotte Observer, Michael Gordon and photographer Todd Sumlin, had arrived that morning to work on a profile of Bumgarner, and the colonel invited them to shadow him as he dealt with the crisis. A Pentagon spokesman later told the Observer it had been expecting a “puff piece,” which is why, according to the Observer, “Bumgarner and his superiors on the base” had given them permission to remain.

Bumgarner quickly returned to his theatrical ways. As Gordon reported in the June 13, 2006, issue of the Observer, the colonel seemed to enjoy putting on a show. “Right now, we are at ground zero,” Bumgarner told his officer staff during a June 12 meeting. Referring to the naval base’s prisoners, he said, “There is not a trustworthy son of a bitch in the entire bunch.” In the same article, Gordon also noted what he had learned about the deaths. The suicides had occurred “in three cells on the same block,” he reported. The prisoners had “hanged themselves with strips of knotted cloth taken from clothing and sheets,” after shaping their pillows and blankets to look like sleeping bodies. “And Bumgarner said,” Gordon reported, “each had a ball of cloth in their mouth either for choking or muffling their voices.”

Something about Bumgarner’s Observer interview seemed to have set off an alarm far up the chain of command. No sooner was Gordon’s story in print than Bumgarner was called to Admiral Harris’s office. As Bumgarner would tell Gordon in a follow-up profile three months later, Harris was holding up a copy of the Observer: “This,” said the admiral to Bumgarner, “could get me relieved.” (Harris did not respond to requests for comment.) That same day, an investigation was launched to determine whether classified information had been leaked from Guantánamo. Bumgarner was suspended.

Less than a week after the appearance of the Observer stories, Davila and Hickman each heard separately from friends in the Navy and in the military police that FBI agents had raided the colonel’s quarters. The MPs understood from their FBI contacts that there was concern over the possibility that Bumgarner had taken home some classified materials and was planning to share them with the media or to use them in writing a book.

On June 27, two weeks later, Gordon’s Observer colleague Scott Dodd reported: “A brigadier general determined that ‘unclassified sensitive information’ was revealed to the public in the days after the June 10 suicides.” Harris, according to the article, had already ordered “appropriate administrative action.” Bumgarner soon left Guantánamo for a new post in Missouri. He now serves as an ROTC instructor at Virginia Tech in Blacksburg.

Bumgarner’s comments appear to be at odds with the official Pentagon narrative on only one point: that the deaths had involved cloth being stuffed into the prisoners’ mouths. The involvement of the FBI suggested that more was at issue.

6. “An Unmistakable Message”
On June 10, NCIS investigators began interviewing the Navy guards in charge of Alpha Block, but after the Pentagon committed itself to the suicide narrative, they appear to have stopped. On June 14, the interviews resumed, and the NCIS informed at least six Navy guards that they were suspected of making false statements or failing to obey direct orders. No disciplinary action ever followed.

The investigators conducted interviews with guards, medics, prisoners, and officers. As the Seton Hall researchers note, however, nothing in the NCIS report suggests that the investigators secured or reviewed the duty roster, the prisoner-transfer book, the pass-on book, the records of phone and radio communications, or footage from the camera that continuously monitored activity in the hallways, all of which could have helped them authoritatively re-construct the events of that evening.

The NCIS did, however, move swiftly to seize every piece of paper possessed by every single prisoner in Camp America, some 1,065 pounds of material, much of it privileged attorney-client correspondence. Several weeks later, authorities sought an after-the-fact justification. The Justice Department—bolstered by sworn statements from Admiral Harris and from Carol Kisthardt, the special agent in charge of the NCIS investigation—claimed in court that the seizure was appropriate because there had been a conspiracy among the prisoners to commit suicide. Justice further claimed that investigators had found suicide notes and argued that the attorney-client materials were being used to pass communications among the prisoners.

David Remes, a lawyer who opposed the Justice Department’s efforts, explained the practical effect of the government’s maneuvers. The seizure, he said, “sent an unmistakable message to the prisoners that they could not expect their communications with their lawyers to remain confidential. The Justice Department defended the massive breach of the attorney-client privilege on the account of the deaths on June 9 and the asserted need to investigate them.”

If the “suicides” were a form of warfare between the prisoners and the Bush Administration, as Admiral Harris charged, it was the latter that quickly turned the war to its advantage.

7. “Yasser Couldn’t Even Make a Sandwich!”
When I asked Talal Al-Zahrani what he thought had happened to his son, he was direct. “They snatched my seventeen-year-old son for a bounty payment,” he said. “They took him to Guantánamo and held him prisoner for five years. They tortured him. Then they killed him and returned him to me in a box, cut up.”

Al-Zahrani was a brigadier general in the Saudi police. He dismissed the Pentagon’s claims, as well as the investigation that supported them. Yasser, he said, was a young man who loved to play soccer and didn’t care for politics. The Pentagon claimed that Yasser’s frontline battle experience came from his having been a cook in a Taliban camp. Al-Zahrani said that this was preposterous: “A cook? Yasser couldn’t even make a sandwich!”

“Yasser wasn’t guilty of anything.” Al-Zahrani said. “He knew that. He firmly believed he would be heading home soon. Why would he commit suicide?” The evidence supports this argument. Hyperbolic U.S. government statements at the time of Yasser Al-Zahrani’s death masked the fact that his case had been reviewed and that he was, in fact, on a list of prisoners to be sent home. I had shown Al-Zahrani the letter that the government says was Yasser’s suicide note and asked him whether he recognized his son’s writing. He had never seen the note before, he answered, and no U.S. official had ever asked him about it. After studying the note carefully, he said, “This is a forgery.”

Also returned to Saudi Arabia was the body of Mani Al-Utaybi. Orphaned in youth, Mani grew up in his uncle’s home in the small town of Dawadmi. I spoke to one of the many cousins who shared that home, Faris Al-Utaybi. Mani, said Faris, had gone to Baluchistan—a rural, tribal area that straddles Iran, Pakistan, and Afghanistan—to do humanitarian work, and someone there had sold him to the Americans for $5,000. He said that Mani was a peaceful man who would harm no one. Indeed, U.S. authorities had decided to release Al-Utaybi and return him to Saudi Arabia. When he died, he was just a few weeks shy of his transfer.

Salah Al-Salami was seized in March 2002, when Pakistani authorities raided a residence in Karachi believed to have been used as a safe house by Abu Zubaydah and took into custody all who were living there at the time. A Yemeni, Al-Salami had quit his job and moved to Pakistan with only $400 in his pocket. The U.S. suspicions against him rested almost entirely on the fact that he had taken lodgings, with other students, in a boarding house that terrorists might at one point have used. There was no direct evidence linking him either to Al Qaeda or to the Taliban. On August 22, 2008, the Washington Post quoted from a previously secret review of his case: “There is no credible information to suggest [Al-Salami] received terrorist related training or is a member of the Al Qaeda network.” All that stood in the way of Al-Salami’s release from Guantánamo were difficult diplomatic relations between the United States and Yemen.

8. “The Removal of the Neck Organs”
Military pathologists connected with the Armed Forces Institute of Pathology arranged immediate autopsies of the three dead prisoners, without securing the permission of the men’s families. The identities and findings of the pathologists remain shrouded in extraordinary secrecy, but the timing of the autopsies suggests that medical personnel stationed at Guantánamo may have undertaken the procedure without waiting for the arrival of an experienced medical examiner from the United States. Each of the heavily redacted autopsy reports states unequivocally that “the manner of death is suicide” and, more specifically, that the prisoner died of “hanging.” Each of the reports describes ligatures that were found wrapped around the prisoner’s neck, as well as circumferential dried abrasion furrows imprinted with the very fine weave pattern of the ligature fabric and forming an inverted “V” on the back of the head. This condition, the anonymous pathologists state, is consistent with that of a hanging victim.

The pathologists place the time of death “at least a couple of hours” before the bodies were discovered, which would be sometime before 10:30 p.m. on June 9. Additionally, the autopsy of Al-Salami states that his hyoid bone was broken, a phenomenon usually associated with manual strangulation, not hanging.

The report asserts that the hyoid was broken “during the removal of the neck organs.” An odd admission, given that these are the very body parts—the larynx, the hyoid bone, and the thyroid cartilage—that would have been essential to determining whether death occurred from hanging, from strangulation, or from choking. These parts remained missing when the men’s families finally received their bodies.

All the families requested independent autopsies. The Saudi prisoners were examined by Saeed Al-Ghamdy, a pathologist based in Saudi Arabia. Al-Salami, from Yemen, was inspected by Patrice Mangin, a pathologist based in Switzerland. Both pathologists noted the removal of the structure that would have been the natural focus of the autopsy: the throat. Both pathologists contacted the Armed Forces Institute of Pathology, requesting the missing body parts and more information about the previous autopsies. The institute did not respond to their requests or queries. (It also did not respond to a series of calls I placed requesting information and comment.)

When Al-Zahrani viewed his son’s corpse, he saw evidence of a homicide. “There was a major blow to the head on the right side,” he said. “There was evidence of torture on the upper torso, and on the palms of his hand. There were needle marks on his right arm and on his left arm.” None of these details are noted in the U.S. autopsy report. “I am a law enforcement professional,” Al-Zahrani said. “I know what to look for when examining a body.”

Mangin, for his part, expressed particular concern about Al-Salami’s mouth and throat, where he saw “a blunt trauma carried out against the oral region.” The U.S. autopsy report mentions an effort at resuscitation, but this, in Mangin’s view, did not explain the severity of the injuries. He also noted that some of the marks on the neck were not those he would normally associate with hanging.

9. “I Know Some Things You Don’t”
Sergeant Joe Hickman’s tour of duty, which ended in March 2007, was distinguished: he was selected as Guantánamo’s “NCO of the Quarter” and was given a commendation medal. When he returned to the United States, he was promoted to staff sergeant and worked in Maryland as an Army recruiter before settling eventually in Wisconsin. But he could not forget what he had seen at Guantánamo. When Barack Obama became president, Hickman decided to act. “I thought that with a new administration and new ideas I could actually come forward, ” he said. “It was haunting me.”

Hickman had seen a 2006 report from Seton Hall University Law School dealing with the deaths of the three prisoners, and he followed their subsequent work. After Obama was inaugurated in January 2009, he called Mark Denbeaux, the professor who had led the Seton Hall team. “I learned something from your report,” he said, “but I know some things you don’t.”

Within two days, Hickman was in Newark, meeting with Denbeaux. Also at the meeting was Denbeaux’s son and sometime co-editor Josh, a private attorney. Josh Denbeaux agreed to represent Hickman, who was concerned that he could go to prison if he disobeyed Colonel Bumgarner’s order not to speak out, even if that order was itself illegal. Hickman did not want to speak to the press. On the other hand, he felt that “silence was just wrong.”

The two lawyers quickly made arrangements for Hickman to speak instead with authorities in Washington, D.C. On February 2, they had meetings on Capitol Hill and with the Department of Justice. The meeting with Justice was an odd one. The father-and-son legal team were met by Rita Glavin, the acting head of the Justice Department’s Criminal Division; John Morton, who was soon to become an assistant secretary at the Department of Homeland Security; and Steven Fagell, counselor to the head of the Criminal Division. Fagell had been, along with the new attorney general, Eric Holder, a partner at the elite Washington law firm of Covington & Burling, and was widely viewed as “Holder’s eyes” in the Criminal Division.

For more than an hour, the two lawyers described what Hickman had seen: the existence of Camp No, the transportation of the three prisoners, the van’s arrival at the medical clinic, the lack of evidence that any bodies had ever been removed from Alpha Block, and so on. The officials listened intently and asked many questions. The Denbeauxs said they could provide a list of witnesses who would corroborate every aspect of their account. At the end of the meeting, Mark Denbeaux recalled, the officials specifically thanked the lawyers for not speaking to reporters first and for “doing it the right way.”

Two days later, another Justice Department official, Teresa McHenry, head of the Criminal Division’s Domestic Security Section, called Mark Denbeaux and said that she was heading up an investigation and wanted to meet directly with his client. She went to New Jersey to do so. Hickman then reviewed the basic facts and furnished McHenry with the promised list of corroborating witnesses and details on how they could be contacted.

The Denbeauxs did not hear from anyone at the Justice Department for at least two months. Then, in April, an FBI agent called to say she did not have the list of contacts. She asked if this document could be provided again. It was. Shortly thereafter, Fagell and two FBI agents interviewed Davila, who had left the Army, in Columbia, South Carolina. Fagell asked Davila if he was prepared to travel to Guantánamo to identify the locations of various sites. He said he was. “It seemed like they were interested,” Davila told me. “Then I never heard from them again.”

Several more months passed, and Hickman and his lawyers became increasingly concerned that nothing was going to happen. On October 27, 2009, they resumed dealings with Congress that they had initiated on February 2 and then broken off at the Justice Department’s request; they were also in contact with ABC News. Two days later, Teresa McHenry called Mark Denbeaux and asked whether he had gone to Congress and ABC News about the matter. “I said that I had,” Denbeaux told me. He asked her, “Was there anything wrong with that?” McHenry then suggested that the investigation was finished. Denbeaux reminded her that she had yet to interview some of the corroborating witnesses. “There are a few small things to do,” Denbeaux says McHenry answered, “then it will be finished.”

Specialist Christopher Penvose told me that on October 30, the day following the conversation between Mark Denbeaux and Teresa McHenry, McHenry showed up at Penvose’s home in south Baltimore with some FBI agents. She had a “few questions,” she told him. Investigators working with her soon contacted two other witnesses.

On November 2, 2009, McHenry called Mark Denbeaux to tell him that the Justice Department’s investigation was being closed. “It was a strange conversation,” Denbeaux recalled. McHenry explained that “the gist of Sergeant Hickman’s information could not be confirmed.” But when Denbeaux asked what that “gist” actually was, McHenry declined to say. She just reiterated that Hickman’s conclusions “appeared” to be unsupported. Denbeaux asked what conclusions exactly were unsupported. McHenry refused to say.

10. “They Accomplished Nothing”
One of the most intriguing aspects of this case concerns the use of Camp No. Under George W. Bush, the CIA created an archipelago of secret detention centers that spanned the globe, and authorities at these sites deployed an array of Justice Department–sanctioned torture techniques—including waterboarding, which often entails inserting cloth into the subject’s mouth—on prisoners they deemed to be involved in terrorism. The presence of a black site at Guantánamo has long been a subject of speculation among lawyers and human-rights activists, and the experience of Sergeant Hickman and other Guantánamo guards compels us to ask whether the three prisoners who died on June 9 were being interrogated by the CIA, and whether their deaths resulted from the grueling techniques the Justice Department had approved for the agency’s use—or from other tortures lacking that sanction.

Complicating these questions is the fact that Camp No might have been controlled by another authority, the Joint Special Operations Command, which Bush’s defense secretary, Donald Rumsfeld, had hoped to transform into a Pentagon version of the CIA. Under Rumsfeld’s direction, JSOC began to take on many tasks traditionally handled by the CIA, including the housing and interrogation of prisoners at black sites around the world. The Pentagon recently acknowledged the existence of one such JSOC black site, located at Bagram Airfield in Afghanistan, and other suspected sites, such as Camp Nama in Baghdad, have been carefully documented by human-rights researchers.

In a Senate Armed Services Committee report on torture released last year, the sections about Guantánamo were significantly redacted. The position and circumstances of these deletions point to a significant JSOC interrogation program at the base. (It should be noted that Obama’s order last year to close other secret detention camps was narrowly worded to apply only to the CIA.)

Regardless of whether Camp No belonged to the CIA or JSOC, the Justice Department has plenty of its own secrets to protect. The department would seem to have been involved in the cover-up from the first days, when FBI agents stormed Colonel Bumgarner’s quarters. This was unusual for two reasons. When Pentagon officials engage in a leak investigation, they generally use military investigators. They rarely turn to the FBI, because they cannot control the actions of a civilian agency. Moreover, when the FBI does open an investigation, it nearly always does so with great discretion. The Bumgarner investigation was widely telegraphed, though, and seemed intended to send a message to the military personnel at Camp Delta: Talk about what happened at your own risk. All of which suggests it was not the Pentagon so much as the White House that hoped to suppress the truth.

In the weeks following the 2006 deaths, the Justice Department decided to use the suicide narrative as leverage against the Guantánamo prisoners and their troublesome lawyers, who were pressing the government to justify its long-term imprisonment of their clients. After the NCIS seized thousands of pages of privileged communications, the Justice Department went to court to defend the action. It argued that such steps were warranted by the extraordinary facts surrounding the June 9 “suicides.” U.S. District Court Judge James Robertson gave the Justice Department a sympathetic hearing, and he ruled in its favor, but he also noted a curious aspect of the government’s presentation: its “citations supporting the fact of the suicides” were all drawn from media accounts. Why had the Justice Department lawyers who argued the case gone to such lengths to avoid making any statement under oath about the suicides? Did they do so in order to deceive the court? If so, they could face disciplinary proceedings or disbarment.

The Justice Department also faces questions about its larger role in creating the circumstances that lead to the use of so-called enhanced interrogation and restraint techniques at Guantánamo and elsewhere. In 2006, the use of a gagging restraint had already been connected to the death on January 9, 2004, of an Iraqi prisoner, Lieutenant Colonel Abdul Jameel, in the custody of the Army Special Forces. And the bodies of the three men who died at Guantánamo showed signs of torture, including hemorrhages, needle marks, and significant bruising. The removal of their throats made it difficult to determine whether they were already dead when their bodies were suspended by a noose. The Justice Department itself had been deeply involved in the process of approving and setting the conditions for the use of torture techniques, issuing a long series of memoranda that CIA agents and others could use to defend themselves against any subsequent criminal prosecution.

Teresa McHenry, the investigator charged with accounting for the deaths of the three men at Guantánamo, has firsthand knowledge of the Justice Department’s role in auditing such techniques, having served at the Justice Department under Bush and having participated in the preparation of at least one of those memos. As a former war-crimes prosecutor, McHenry knows full well that government officials who attempt to cover up crimes perpetrated against prisoners in wartime face prosecution under the doctrine of command responsibility. (McHenry declined to clarify the role she played in drafting the memos.)

As retired Rear Admiral John Hutson, the former judge advocate general of the Navy, told me, “Filing false reports and making false statements is bad enough, but if a homicide occurs and officials up the chain of command attempt to cover it up, they face serious criminal liability. They may even be viewed as accessories after the fact in the original crime.” With command authority comes command responsibility, he said. “If the heart of the military is obeying orders down the chain of command, then its soul is accountability up the chain. You can’t demand the former without the latter.”

The Justice Department thus faced a dilemma; it could do the politically convenient thing, which was to find no justification for a thorough investigation, leave the NCIS conclusions in place, and hope that the public and the news media would obey the Obama Administration’s dictum to “look forward, not backward”; or it could pursue a course of action that would implicate the Bush Justice Department in a cover-up of possible homicides.

Nearly 200 men remain imprisoned at Guantánamo. In June 2009, six months after Barack Obama took office, one of them, a thirty-one-year-old Yemeni named Muhammed Abdallah Salih, was found dead in his cell. The exact circumstances of his death, like those of the deaths of the three men from Alpha Block, remain uncertain. Those charged with accounting for what happened—the prison command, the civilian and military investigative agencies, the Justice Department, and ultimately the attorney general himself—all face a choice between the rule of law and the expedience of political silence. Thus far, their choice has been unanimous.

Not everyone who is involved in this matter views it from a political perspective, of course. General Al-Zahrani grieves for his son, but at the end of a lengthy interview he paused and his thoughts turned elsewhere. “The truth is what matters,” he said. “They practiced every form of torture on my son and on many others as well. What was the result? What facts did they find? They found nothing. They learned nothing. They accomplished nothing.”

Long Term Capital mismanagement

This posting is for humor only, not fact.

Several 20th-century Noble Prizes stretch the boundaries of WTF, starting that Prince of Peace Yasser Arafat (we won't mention Henry Kissinger here, of course) to three wall street whiz kids, economists Myron Scholes, Fischer Black and Robert Merton, who came up with the now infamous Black-Scholes Model for Equity, which allowed the geniuses of Wall Street to predict a stock's long-term value based on previous performances and on whether people are betting for or against it sort of like the Google Page Rank Algorithm. In other words, it could predict the stock market. But what the whiz kids forgot was the simple fact of the human species: people are not cold analytical computers. Their firm, Long Term Capital Management. tanked in the 90's and almost sucked down western civilization with it.

But the true outer space Nobel went to two "Being There" clones who were led by "noise" interference from a coating of pigeon shit on the new super-sensitive antenna they built for Bell At&T Telephone Labs in New Jersey to the accidental discovery of cosmic background radiation left over from the Big Bang (image above).

A hilarious Nobel Prize Dickhead Hall of Fame has been compiled by our more creative brothers at who asked themselves how awesome would it be if you accidentally spilled Benadryl into a jar of expired tomato sauce and found the cure for cancer? Or if you fell and discovered a new species of nuclear-powered cockroach staring back at you on the floor?

Sunday, January 17, 2010

A message from Transport Canada, a division of the US Dept. of Homeland Security.

This is for those of you who enjoy humor, too.

Cass Sunstein, Obama's Next Supreme Court Appointee Is Against The Right To Keep And Bear Arms

Cass Sunstein, the same info-czar that wants to tax dissent and infiltrate/disrupt the truth movement, argues that the US Supreme Court was wrong to interpret the Second Amendment as an individual right.

In other words, Cass Sunstein is basically attacking the entire Bill of Rights one at a time.

Saturday, January 16, 2010

A True American Patriot and Hero, Lt. Col. Bo Gritz

CIA Cable 'Granting Permission' to Destroy Torture Videotapes Surfaces

by Jeff Kaye

A January 8 release of documents in the ACLU FOIA lawsuit seeking materials related to the CIA's destruction of videotapes of interrogators using "enhanced interrogation techniques" has revealed the first evidence of a precise instruction for the destruction of those tapes.

According to Rachel Myers at the ACLU, while there was previous evidence of requests from the "field" that the videotapes be destroyed, this is our first verification of the exact date CIA headquarters gave its approval. (Photo by webponce)According to Rachel Myers at the ACLU, while there was previous evidence of requests from the "field" that the videotapes be destroyed, this is our first verification of the exact date CIA headquarters gave its approval.

The approval came in the form of "a two-page cable discussing a proposal and granting permission to destroy the videotapes." (emphasis added) The cable was sent from "HQ" to the "Field" on November 8, 2005, the same day an earlier request was made from the "Field". Confirmation of the destruction of the tapes was already revealed in a cable "from the field to CIA headquarters, confirming the destruction of the videotapes." (11/20/2009 Vaughn Index 4).

Requests for destruction of interrogation videotapes, and discussions around such an action are documented as far back as September 2002 (11/20/2009 Vaughn Index 55). It's presumed that these requests came from the Thailand CIA black site where Abu Zubaydah had been an experimental victim of the new so-called enhanced interrogation techniques, which were based on stress inoculation torture survival schools for the military, known as SERE. Psychologists James Mitchell and Bruce Jessen, formerly of SERE and its parent agency, Joint Personnel Recovery Agency (JPRA)

The new cable has been withheld, citing numerous FOIA "exemptions," as have hundreds of other such pieces of evidence, including emails and draft memoranda, by the CIA. Its existence is revealed as part of a Vaughn index of withheld documents, wherein some description of the document is given, in addition to the reasons for withholding the document.

The "permission" cable is Document 154 in Part 6 of the latest Vaughn release/dump. It's on pg. 13 out of 35 (all doc links are PDF). A full timeline on the CIA videotape destruction actions, which has not however been updated for the latest crop of documents, has been put together by the ACLU. All the documents released thus far can be accessed here.

Emptywheel has been covering this issue from the beginning. For instance, see this relevant story, wherein EW reports that "The CIA Asked to Destroy Torture Tapes on Same Day They Claimed They Didn't Torture."

Meanwhile, the investigation into the destruction of the videotapes, with prosecutor John Durham leading, has languished for over two years now. While justice is supposed to be blind and disinterested, the investigation will probably go nowhere unless public pressure is put on the Department of Justice and the Obama administration to hold the torturers accountable.

The mystery of the vanishing NOAA and GISS weather stations

Climategate goes American: NOAA, GISS and the mystery of the vanishing weather stations

By James Delingpole Politics Last updated: January 16th, 2010

For those who haven’t seen it, here’s a link to US weatherman John Coleman’s magisterial demolition of the Great AGW Scam. I particularly recommend part 4 because that’s the one with all the meat. It shows how temperature readings have been manipulated at the two key climate data centres in the United States – the NASA Goddard Science and Space Institute at Columbia University in New York and the NOAA National Climate Data Center in Ashville, North Carolina. (Hat tip: Platosays)

This is a scandal to rank with Climategate.

What it shows is that, just like in Britain at the Climatic Research Unit (CRU) temperature data records have been grotesquely distorted by activist scientists in order to exaggerate the appearance of late 20th century global warming. They achieved this – with an insouciant disregard for scientific integrity which quite beggars belief – through the simple expedient of ignoring most of those weather station sited in higher, colder places and using mainly ones in warmer spots. Then, they averaged out the temperature readings given by the warmer stations to give a global average. Et voila: exactly the scary “climate change” they needed to persuade bodies like the IPCC that AGW was a clear and present danger requiring urgent pan-governmental action.

The man who spotted all this is a computer programmer called EM Smith – aka the Chiefio. You can read the full report at his excellent blog. In the 70s, the Chiefio discovered, GISS and NOAA took their temperature data from 6,000 weather stations around the world. By 1990, though, this figure had mysteriously dropped to 1500. Even more mysteriously this 75 per cent reduction in the number of stations used had a clear bias against those at higher latitudes and elevations.

Here’s an excellent example of this: Bolivia.

Notice that nice rosy red over the top of Bolivia? Bolivia is that country near, but not on, the coast just about half way up the Pacific Ocean side. It has a patch of high cold Andes Mountains where most of the population live.

One Small Problem with the anomally map. There has not been any thermometer data for Bolivia in GHCN since 1990.

None. Nada. Zip. Zilch. Nothing. Empty Set.

So just how can it be so Hot Hot Hot! in Bolivia if there is NO data from the last 20 years?

Easy. GIStemp “makes it up” from “nearby” thermometers up to 1200 km away. So what is within 1200 km of Bolivia? The beaches of Chili, Peru and the Amazon Jungle.

Not exactly the same as snow capped peaks and high cold desert, but hey, you gotta make do with what you have, you know?

Meteorologist Joseph D’Aleo has also been on the case. You can find a link to his superb analysis of the scandal at Watts Up With That. (Sorry: I would give you a more direct link to his pdf file but I can’t work out how to do it)

In Canada the number of stations dropped from 600 to 35 in 2009. The percentage of stations in the lower elevations (below 300 feet) tripled and those at higher elevations above 3000 feet were reduced in half. Canada’s semi-permanent depicted warmth comes from interpolating from more southerly locations to fill northerly vacant grid boxes, even as a pure average of the available stations shows a COOLING. Just 1 thermometer remains for everything north of latitude 65N – that station is Eureka. Eureka according to Wikipedia has been described as “The Garden Spot of the Arctic” .

You know what this means, don’t you? It means the ragbag of eco-loons, politicians and technocrats pushing AGW can no longer plausibly deploy their main excuse about Climategate – that it was all a little local difficulty of no great importance because the HadCrut temperature data sets were independently confirmed by those at GISS and NOAA. What this story demonstrates, as many of us suspected all along, is that not just the British temperature records but those in the US too have been hijacked by political activists. I need hardly say that this breaking scandal has been almost completely ignored by the MSM.

Not unpredictably, the director of one of the two institutions implicated in this – Dr James Hansen of the Goddard Institute for Space Studies – has issued a (very carefully worded – which makes you wonder what he’s not telling us) denial of any skullduggery.

“NASA has not been involved in any manipulation of climate data used in the annual GISS global temperature analysis.”

The idea that a man of Dr Hansen’s radical persuasion should be running an organisation as important as GISS is looking increasingly absurd. To get an idea how absurd, think Tony Benn in charge of Britain’s defence policy, or – let’s get really weird – imagine if Ed Balls were in charge of Education or Gordon Brown were running the country. More on Hansen’s activist sympathies in another blog.

The more traitor bankers I know the more I like dogs.

Super hero animals

Super Traitor Bankers and the Intelligence Agencies they control.
By J. Speer-Williams

Lynchpins hold the various elements of a complex structure together.

America's intelligence agencies are the lynchpins, used by the International Monetary/Banking Cartel to enforce their various agendas on the US government.

Decades ago, Congress lost control of our intelligence agencies, making a parody of the system of "checks and balances" envisioned by our founding fathers. Today, the foreign Monetary Cartel controls all three of our branches of government through their ownership of what has never really been "our" intelligence services.

Meanwhile, the Cartel's mass media deflects our attention away from the unconstitutional and secret powers of the underground intelligence community with petty exposes of how the K Street gang of lobbyists buy off our elected and appointed officials.

Do they really expect us to believe that what is reported on during the light of day exceeds thatwhich transpires during the dark of night?

The usual tools of enforcement used by intelligence agents on our elected officials and appointed bureaucrats are various, depending on what's needed: Fixing elections, bribes, blackmail, and assassinations are their usual instruments of forcing compliance from our national leaders.

Subvert a nation's intelligence services and you're one step from subverting a nation's government, something long ago accomplished by the International Monetary/Banking Cartel in America.

The thousands of outrageous and unconstitutional governmental orders, directives, laws, judicial interpretations, and actions taken by our federal government has made America no better than any other Banana Republic in history; for some time, we've been ruled by a self-appointed, corrupt and exceedingly small group of private financial oligarchs through their control of intelligence agencies. And as long as Americans continue to believe they live in a democracy, the longer this foreign Monetary Cartel will have their way with us.

The very first realization the majority of people must have to regain control of their respective nations is coming to know with certainty that the private Monetary/Banking Cartel, not only controls the central banks of the world, they own them. This ownership allows - probably no more than a few hundred financial capitalists - to create money, of any country, out of the thinest of airs, control all credit, and to then enforce into indebtedness all nations and peoples of the world.

Such edification, however, may prove to be difficult in a world wherein its super-power - the USA - is largely composed of people who believe the Cartel's US central bank - the Federal Reserve System - is a American federal government institution. The American government has more control over Federal Express than it does over the Federal Reserve System.

And before the American government can issue its own currency and credit (without debt), she must defang its intelligence community of sixteen bloated intelligence and security agencies, starting with the CIA, FBI, and National Security Agency; but doing so will not be easy or without danger.

Toward the end of his term as president, John F. Kennedy swore he was going to tear the CIA into a thousands pieces: He paid the ultimate price for his patriotic intention. Disempowering US intelligence agencies will not be an easy job, as they have never been more powerful.

And under the cover of the "national security" ruse, intelligence agencies have grown even more influential and authoritative, as they turn us into a rogue nation, intent on destroying all of our liberties at home, while expanding our terrorist attacks on innocent people abroad, complete with the torture of our fellow human beings. One can only hope that the majority of Americans will stop opting for security over their freedoms.

Ben Franklin wrote, "They who give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."

But ironically, the so-called "national security" and "consumer protection" measures taken by the US government have made our country more insecure than ever before in our history. From a plummeting economy, to wide-open borders, to dangerous full-body scanners, to poisonous vaccines, to chemtrails, to GMO foods, to the loss of habeas corpus, to the bombing of women and children, to the depleted uranium poisoning of our own troops (and the entire world), Americans have never been so insecure, all thanks to the ruling moneychangers of our world and their covert use of national intelligence agencies.

Robber barons have thrown us back into the Middle Ages and into a neo-feudalism, all superimposed with poisons, radiation, and a fascistic government, largely in the name of "national security."

But if we can defang the intelligence agencies, we will have defanged the nemesis of mankind - the alien, archfiends of the International Monetary/Banking Cartel. Intelligence agencies are their Achilles' heel - perhaps a small, but a potentially mortal weakness.

J. Speer-Williams

Friday, January 15, 2010

The IMF sold Gold plated tungsten bars to India and the missing 9/11 Gold.

There has not been an audit of the gold in Fort Knox since 1954. This has not been done since 1954 but is legally required to be auditied on a yearly basis. There have been numerous clues to the "salted" bars and may be one of the reason's the Federal Reserve doesn't want an audit.

Roughly 15 years ago — during the Clinton Administration [think Robert Rubin, Sir Alan Greenspan and Lawrence Summers] — between 1.3 and 1.5 million 400 oz tungsten blanks were allegedly manufactured by a very high-end, sophisticated refiner in the USA [more than 16 Thousand metric tonnes]. Subsequently, 640,000 of these tungsten blanks received their gold plating and WERE shipped to Ft. Knox and remain there to this day.

According to the Chinese investigation, the balance of this 1.3 million to 1.5 million 400 oz tungsten cache was also gold plated and then allegedly “sold” into the international market. Apparently, the global market is literally “stuffed full of 400 oz salted bars”. Perhaps as much as 600-billion dollars worth.

An obscure news item originally published in the N.Y. Post [written by Jennifer Anderson] in late Jan. 04 perhaps makes sense now.

DA investigating NYMEX executive ,Manhattan, New York, –Feb. 2, 2004.
A top executive at the New York Mercantile Exchange is being investigated by the Manhattan district attorney. Sources close to the exchange said that Stuart Smith, senior vice president of operations at the exchange, was served with a search warrant by the district attorney’s office last week. Details of the investigation have not been disclosed, but a NYMEX spokeswoman said it was unrelated to any of the exchange’s markets. She declined to comment further other than to say that charges had not been brought. A spokeswoman for the Manhattan district attorney’s office also declined comment.”

LONDON, April 14, 2004 (Reuters) -- NM Rothschild & Sons Ltd., the London-based unit of investment bank Rothschild [ROT.UL], will withdraw from trading commodities, including gold, in London as it reviews its operations, it said on Wednesday.

In a Sept. 17, 2009, letter on Federal Reserve System letterhead, Federal Reserve governor Kevin M. Warsh completely denied GATA's appeal. The entire text of this letter can be examined at

The first paragraph on the third page is the most revealing.

"In connection with your appeal, I have confirmed that the information withheld under exemption 4 consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."

1] - irregularities in the publication of the gold ETF - GLD's bar list from Sept. 25 - Oct.14 where the length of the bar list went from 1,381 pages to under 200 pages and then back up to 800 or so pages.

2] - reports of 400 oz. "good delivery" bricks of gold found gutted and filled with tungsten within the confines of LBMA approved vaults in Hong Kong.

At $20/lb, tungsten obviously is a whole lot cheaper than gold at $16,000 per pound and with a density of 19.35g/cm3 it is almost a pure match for gold at 19.32g/cm3 – making detection by standard methods impossible. (Electrical testing is very reliable and is a non-destructive method to determine the actual composition of the metals.)

Missing Gold
A King's Ransom in Precious Metals Seems to Have Disappeared

This image is found on the website companion for the television documentary America Rebuilds under the section Uncovering Property. The page, entitled A Treasure in Silver and Gold, describes the vault as two levels of 3,000 square feet each. See the source for the full-sized image. The page credits images to Leslie E. Robertson and Associates.
The basement of 4 World Trade Center housed vaults used to store gold and silver bullion. Published articles about precious metals recovered from the World Trade Center ruins in the aftermath of the attack mention less than $300 million worth of gold. All such reports appear to refer to a removal operation conducted in late October of 2001. On Nov. 1, Mayor Rudolph Giuliani announced that "more than $230 million" worth of gold and silver bars that had been stored in a bomb-proof vault had been recovered. A New York Times article contained:

Two Brinks trucks were at ground zero on Wednesday to start hauling away the $200 million in gold and silver that the Bank of Nova Scotia had stored in a vault under the trade center ... A team of 30 firefighters and police officers are helping to move the metals, a task that can be measured practically down to the flake but that has been rounded off at 379,036 ounces of gold and 29,942,619 ounces of silver .. 1
Reports describing the contents of the vaults before the attack suggest that nearly $1 billion in precious metals was stored in the vaults. A figure of $650 million in a National Real Estate Investor article published after the attack is apparently based on pre-attack reports.

Unknown to most people at the time, $650 million in gold and silver was being kept in a special vault four floors beneath Four World Trade Center. 2
An article in the TimesOnline gives the following rundown of precious metals that were being stored in the WTC vault belonging to Comex. 3

Comex metals trading - 3,800 gold bars weighing 12 tonnes and worth more than $100 million
Comex clients - 800,000 ounces of gold with a value of about $220 million
Comex clients - 102 million ounces of silver, worth $430 million
Bank of Nova Scotia - $200 million of gold
The TimesOnline article is not clear as to whether the $200 million in gold reported by the Bank of Nova Scotia was part of the $220 million in gold held by Comex for clients. If so, the total is $750 million; otherwise $950 million.

There appear to be no reports of precious metals discovered between November of 2001 and the completion of excavation several months later. Assuming that the above reports described the value of precious metals in the vaulst before the attack, and that the $230 million mentioned by Giuliani represented the approxmiate value of metals recovered, it would seem that at least the better part of a billion dollars worth of precious metals went missing. (It is not plausible, of course, that whatever destroyed the towers vaporized gold and silver, which are dense, inert metals that are extremely unlikely to participate in chemical reactions with other materials.)

An article in The Sierra Times suggests that gold was recovered from two trucks in a tunnel under 5 World Trade Center, giving rise to suspicions that the trucks were being used to remove the gold from the vaults before the South Tower fell. 4 However, this report may have been based on an erroneous reading of other reports that describe the removal of crushed vehicles from a tunnel under 5 WTC in order to gain access to the vaults under 4 WTC to remove their contents. 5

Why is there this huge discrepancy between the value of gold and silver reported recovered, and the value reported to have been stored in the vaults? There are a number of possible explanations, from outright theft using the attack as cover, to insurance fraud. Until there is a genuine investigation that probes all the relevant facts and circumstances surrounding the attack, we can only speculate.

Tuesday, January 12, 2010

Tax benefit allows another tax parasite home builder, Kaufman and Broad to post a profit

KB Home profits fell 27%, it's stock price also fell but the builder said cancellations slowed. The cancellation rate is down 15 percent. "We are building more homes at a loss every month" said an un-named spokesperson who is not authorized to disclose the company's actual financial future.

The Los Angeles company on Tuesday said lower sales for housing hurt total revenue as it delivered 22% fewer homes and its average selling price declined 12%. The company has been building smaller and more-affordable homes in a doomed effort to compete with bargain-priced foreclosures.

Sunday, January 10, 2010

Connecting the dots, I.C.T.S.

The firm in charge of security at Amsterdam’s Schiphol Airport is ICTS, International Consultants on Targeted Security. They are the same outfit responsible for all three airports used by “Muslim hijackers” on 9-11. ICTS also handled security for London’s bus system during their 7-7 “Muslim bombing,” while doing the same at Charles de Gaulle Airport when “shoe bomber” Richard Reid boarded a plane in Paris on Dec. 22, 2001.

Geithner Could Face Criminal Charges Over AIG Coverup

Oh Goody!!!

Recovery will fail unless we break the financial oligarchy that is blocking essential reform.

By: Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at, along with James Kwak, who also contributed to this essay. As published in the May 2009 issue of the Atlantic.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.

The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed.

Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Korea’s 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit.

But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

In Russia, for instance, the private sector is now in serious trouble because, over the past five years or so, it borrowed at least $490 billion from global banks and investors on the assumption that the country’s energy sector could support a permanent increase in consumption throughout the economy. As Russia’s oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased. Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption.

But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Eventually, as the oligarchs in Putin’s Russia now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just aren’t enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely.

So the IMF staff looks into the eyes of the minister of finance and decides whether the government is serious yet. The fund will give even a country like Russia a loan eventually, but first it wants to make sure Prime Minister Putin is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the fund can wait. And when he is ready, the fund is happy to make helpful suggestions—particularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious “entrepreneurs.”

Of course, Putin’s ex-friends will fight back. They’ll mobilize allies, work the system, and put pressure on other parts of the government to get additional subsidies. In extreme cases, they’ll even try subversion—including calling up their contacts in the American foreign-policy establishment, as the Ukrainians did with some success in the late 1990s.

Many IMF programs “go off track” (a euphemism) precisely because the government can’t stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program “goes back on track” once the government prevails or powerful oligarchs sort out among themselves who will govern—and thus win or lose—under the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos.

From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets.

Becoming a Banana Republic

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Click the chart above for a larger view

Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate, Wall Street, and Bonfire of the Vanities—all intended as cautionary tales—served only to increase Wall Street’s mystique. Michael Lewis noted in Portfolio last year that when he wrote Liar’s Poker, an insider’s account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Street’s hubris and excess. Instead, he found himself “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. … They’d read my book as a how-to manual.” Even Wall Street’s criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;

• the repeal of Depression-era regulations separating commercial and investment banking;

• a congressional ban on the regulation of credit-default swaps;

• major increases in the amount of leverage allowed to investment banks;

• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;

• an international agreement to allow banks to measure their own riskiness;

• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.

The oligarchy and the government policies that aided it did not alone cause the financial crisis that exploded last year. Many other factors contributed, including excessive borrowing by households and lax lending standards out on the fringes of the financial world. But major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.

Because everyone was getting richer, and the health of the national economy depended so heavily on growth in real estate and finance, no one in Washington had any incentive to question what was going on. Instead, Fed Chairman Greenspan and President Bush insisted metronomically that the economy was fundamentally sound and that the tremendous growth in complex securities and credit-default swaps was evidence of a healthy economy where risk was distributed safely.

In the summer of 2007, signs of strain started appearing. The boom had produced so much debt that even a small economic stumble could cause major problems, and rising delinquencies in subprime mortgages proved the stumbling block. Ever since, the financial sector and the federal government have been behaving exactly the way one would expect them to, in light of past emerging-market crises.

By now, the princes of the financial world have of course been stripped naked as leaders and strategists—at least in the eyes of most Americans. But as the months have rolled by, financial elites have continued to assume that their position as the economy’s favored children is safe, despite the wreckage they have caused.

Stanley O’Neal, the CEO of Merrill Lynch, pushed his firm heavily into the mortgage-backed-securities market at its peak in 2005 and 2006; in October 2007, he acknowledged, “The bottom line is, we—I—got it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity in that market. No one is more disappointed than I am in that result.” O’Neal took home a $14 million bonus in 2006; in 2007, he walked away from Merrill with a severance package worth $162 million, although it is presumably worth much less today.

In October, John Thain, Merrill Lynch’s final CEO, reportedly lobbied his board of directors for a bonus of $30 million or more, eventually reducing his demand to $10 million in December; he withdrew the request, under a firestorm of protest, only after it was leaked to The Wall Street Journal. Merrill Lynch as a whole was no better: it moved its bonus payments, $4 billion in total, forward to December, presumably to avoid the possibility that they would be reduced by Bank of America, which would own Merrill beginning on January 1. Wall Street paid out $18 billion in year-end bonuses last year to its New York City employees, after the government disbursed $243 billion in emergency assistance to the financial sector.

In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertainty—in our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economy—ultimately making the problem much harder to solve. Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector.

The response so far is perhaps best described as “policy by deal”: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgan’s CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan—all of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).

Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.

Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government.

This latest plan—which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that. As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, “We had received inbound unsolicited proposals from people in the private sector saying, ‘We have capital on the sidelines; we want to go after [distressed bank] assets.’” And the plan lets them do just that: “By marrying government capital—taxpayer capital—with private-sector capital and providing financing, you can enable those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks.” Kashkari didn’t mention anything about what makes sense for the third group involved: the taxpayers.

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.” But there’s the rub: the economy can’t recover until the banks are healthy and willing to lend.

The Way Out

Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider.

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

In some ways, of course, the government has already taken control of the banking system. It has essentially guaranteed the liabilities of the biggest banks, and it is their only plausible source of capital today. Meanwhile, the Federal Reserve has taken on a major role in providing credit to the economy—the function that the private banking sector is supposed to be performing, but isn’t. Yet there are limits to what the Fed can do on its own; consumers and businesses are still dependent on banks that lack the balance sheets and the incentives to make the loans the economy needs, and the government has no real control over who runs the banks, or over what they do.

At the root of the banks’ problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don’t want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren’t enough to make them healthy (again, they can’t reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don’t lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate—creating a highly destructive vicious cycle.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion (or 10 percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100 years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.

Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to the people who work there and to the government officials who were only too happy to bask in its reflected glory—has been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry.

Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine.

Two Paths

To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.

Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money—or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years—as Japan did during its lost decade—never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a sure thing right now. Certainly no one at the IMF can force it.

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.