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INVEST IN INNOVATION!!!Instead of Eating the Seed Corn...James S. Henry and Jim Manzi

We are called the nation of inventors. And we are. We could still claim that title and wear its loftiest honors if we had stopped with the first thing we ever invented, which was human liberty."  

-- Mark Twain

(The following is a longer version of a piece that appeared this week in The Nation.)

In the midst of our deepening recession, the US faces another  economic crisis that is less visible and dramatic than house foreclosures, bank failures, plant closings,  or stock market avalanches, but even more important in the not-really-that-long run: systematic under-investment in technology and innovation.

Indeed, nothing less than our global economic leadership may be at stake because of this underinvestment.

On the other hand, with a little bit of funding,  foresight, and determination, we believe that it may be possible to kick-start an innovation revival.

Especially at the federal level, for a  modest investment,  there’s an opportunity to create a whole new generation of idea-growing, job-creating  technology hubs all across the country – perhaps even an “automotive Silicon Valley”  in otherwise moribund Detroit.

  This revival would not just be about investing more heavily in R&D. Especially in troubled times like these, we need to remind ourselves that innovation has always been a critical American tradition, a crucial part of our patrimony. It is as much a by-product of our political system and cultural norms as of our business and scientific practices.

This patrimony is now at risk, not only from our failure to invest,   but also from the failure to reward and honor scientists, technicians, engineers, and inventors above lawyers, bankers, and hedge fund managers, and to recognize the central role that real innovation of all kinds has always played in our story.

HANK PAULSON'S OCTOBER REVOLUTIONWhy This Republican X-Banker Has Decided to (Partially) Socialize Our Entire Banking SystemJames S. Henry "

 "We have made changes, Sire. Yes, it is true, we have made changes. But we have made them at the right time. And the right time is, when there is no other choice."

-- Conservative adviser to King Edward VII, explaining his support for liberal reforms

We may have just reached a critical turning point in American political economy -- not only in our efforts to overcome the burgeoning global banking crisis, but also to overcome the pernicious influence of free-market fundamentalism, which has dominated US economic policy for the last 30 years.

Ironically enough, the person who deserves more credit than anyone else for helping us to reach these goals is our current Treasury Secretary, a lifelong die-hard Republican and former Wall Street king-pin.

Last night, a few hours after the US stock market closed,  the Bush Administration, embodied in Henry M. Paulson,Jr.,  announced that in order to stem the continuing turmoil in capital markets,  in conjunction with other G-7 countries, the US federal government will begin "as soon as we can" to use taxpayer money to buy preferred equity in private financial institutions, especially banks.

Depending on how it is implemented, this could very well amount to a partial nationalization of the entire US banking system by the US Government. Are you paying attention here, Hugo, Fidel, and Evo? 

This marks a very sharp U turn in recent US policy. Indeed, just two weeks ago, in their September 23rd testimony before Congress, Paulson and Federal Reserve Chair Ben Bernanke dismissed such equity investments as a "losing strategy," compared to their preferred scheme, a government-run "reverse auction" to buy up to $700 billion of "toxic" bank assets.

HAIL MARY

This policy U-turn was not due to sudden new insights generated by careful academic analysis or some precise economic model. 

It feels more like a Hail-Mary pass,  coming at the end of  one of the most disastrous weekly stock market performances in US and global history.

That, in turn, was preceded by ten exhausting days of political goat-rodeo and Congressional negotiations over the infamous "$700 billion bailout," on top of the preceding six exhausting months of  more or less ad hoc, increasingly expensive but largely unsuccessful one-off  interventions in money markets and the banking system by the US Treasury, the Federal Reserve, and a myriad other US bank regulators. 

Meanwhile, there has been an even more quirky set of poorly-coordinated improvisational remedies administered by diverse regulators in the UK, Germany, France, Iceland, and Belgium. 

At the end of all this,  fear, uncertainty, and doubt (FUD) have continued to spread across global capital markets, as policymakers stumble into each other, national banking systems compete for deposits, the US Treasury becomes (ironically) a huge depository for safe-haven flight capital, and no one manages to get ahead of the crisis.

If the FUD continued to spread, and global credit remained on lock-down,  the forthcoming global recession -- already likely to plunge real growth in Europe and the US  to zero or less next year, China to 6 - 8 percent or less, and the rest of the developing world to 4-6 percent -- would become dire indeed. 

So one answer to the riddle of Paulson's "sudden conversion" is that he simply had no alternative. Given that ad hoc bailouts, coordinated interest rate cuts, increased deposit insurance, the extension of government insurance and liquidity to money market funds, the commercial paper market, on top of the takeovers of AIG and Fannie/ Freddie, had not done the job, nationaliziation -- really internationalization, since global banks are involved, and other countries will presumably be asked to contribute -- is one of the few arrows left in his quiver.

A GREAT TRADITION

This will hardly be the first US experience with quasi-nationalization. On September 16, the Federal Reserve had effectively "nationalized" the giant insurance company AIG, acquiring 80 percent of its equity in exchange for an $85 billion loan.

Way back in the 1930s and 1940s,  the US Reconstruction Finance Corporation seized and recapitalized many banks. The FDIC has also done this many times since then.

European governments have even longer histories of direct intervention in banking markets.  And several of them moved almost too quickly in the last year to nationalize particular banks -- for example, the UK's Northern Rock in February 2008 and Fortis in September 2008.

Of course, most of these recent cases have involved failing institutions, where the government was a "lender of last resort." As discussed below, Paulson's plan is rather different.

Even farther back, in the early 19th century, states like Virginia and Pennsylvania often invested directly in state-chartered banks to set them up and keep them going. Those were not especially happy experiences with government ownership.

But this is hardly a great time for champions of private capital markets to be quibbling about the efficiency costs of government intervention -- private markets in the US alone have just lost $7 trillion of market cap in the last year, including $3 trillion in the last 3 weeks. And the global "opportunity cost" of the crisis is probably at least twice this high.     

A GLOBAL RECOVERY FUND?

 If done right,   Paulson's PIP  (Public Investment Program) will be much broader,  more proactive and more innovative than previous bank nationalizations.

For example, one idea would be to establish a "Global Recovery Fund," permitting fresh private capital, "sovereign wealth funds" like those in Norway and the UAE, and European, Latin and Asian countries that have a clear stake in restoring the world's financial sector to health to invest alongside the US Treasury.

Even, Heaven help us, the IMF and the World Bank's IFC might participate in such a fund.  They have run out of developing country crises to solve, are looking for a new role, and have $billions in untapped credit lines. 

Such an approach would help to share the heavy burden placed on US taxpayers, and make this program more politically palatable than the TARP bailout proved to be.

A global fund would also help to diversify investment risks across many more countries and banks. 

Indeed, the USG and its new partners might even become lenders of far-from-last resort, clearing the way for threatened but essentially-healthy institutions  to survive the financial contagion, raise much more private capital as well, and, most important, turn each and every  new $1 of equity into $10 to $15 of new lending.

If the fund is successful in reviving the world's financial system, and restoring banks to financial health, taxpayers and investors will no doubt all be paid back handsomely. But the most important benefits may be the "hidden" ones -- the catastrophic losses that would be avoided by preventing further chaos and market decline.

This is very different from Paulson's original TARP buy-back scheme, which promised to boost bank equity informally by way of overpaying for toxic assets with highly-uncertain values. 

Ironically, that approach just rewards those companies with the very worst  portfolios and lending practices,  while enabling much less increased lending.

Indeed, TARP's only comparative advantage seems to have been that by avoiding direct government investment in the private sector, it did not violate any red lines of so-called free-market conservatives.

In hindsight, however, given TARP's birth pains, plus the fact that the market value of all US publicly-traded stocks fell from $12.9 trillion on September 19 to $9.2 trillion in the three weeks after Paulson Plan I was announced.

So respecting this neoliberal ideological taboo may well have just cost US investors -- most of whom are taxpayers -- at least $1 to $2 trillion of  market value that might have been saved with an immediate recapitalization plan.

With that much extra dough,  we could almost afford to wage another Iraq-scale war somewhere. 

BUSH SPEAKS: "HOW DID WE EVER GET IN THIS MESS? WHERE HAVE I BEEN?"James S. Henry

Last night on national television, Comrade Bush presented his own miniature 14-minute "Cliff Notes" version of the roots of the current US financial crisis, and a heart-rending appeal for the most generous act to date of his Administration, the $700 billion blank-check Wall Street bailout. 

By now the man has established a bit of a pattern --  customarily trying to scare us all into granting him unlimited powers,  while arguing that there is simply no alternative to whatever bitter pill he happens to be pushing at the moment. 

You are of course free to believe him if you like. Hundreds do.

IMPROVEMENTS

In fact, as we argued yesterday, there are all sorts of improvements to be made to the proposed Whale of a Bailout package.   

These include things like, at a minimum, (1) equity investment and warrants for taxpayers, to provide some upside returns in proportion to the risks we are taking on any purchases of bank assets; (2) stronger oversight; (3) more assistance for the millions of Americans who are experiencing home foreclosures; (4) compensation ceilings, clawbacks, and stiff progressive tax rates on incomes over $1 million and estates over $10 million, to offset the cost of all this; (5) a Financial Products Safety Commission; (6) a new Treasury-backed competitive insurance market for mortgage securities,  available to banks and homeowners; (7) expanded FDIC reserve fund rather than buy "toxic" bank securities up now, set up an  -- since all the "I-banks" are commercial banks now, anyway; (8) a new installment of the 1932 Pecora Commission, complete with subpoena power, to investigate the origins of the crisis and hold people accountable.

(For more details, here is the testimony that Dr. Brent Blackwelder, Friends of the Earth, and I submitted to Rep. Frank's House Financial Services Committee yesterday: BAILOUT.pdf)

ALTERNATIVES

Even more important, the President's central claim that there is no alternative to this bitter pill is a triple whopper with cheese.    

As the IMF -- not our favorite institution, but it does know a thing or two about recapitalizing broken banking sectors --  has suggested just this week, long-term "swaps" of mortgage-backed securities for government bonds could be used to clean up the banks' balance sheets while completely sparing  taxpayers the risks of a huge loss on the $billions of toxic assets we'll soon be owning. 

There are also numerous other approaches  to broken-banking sector restructuring  that have been employed by governments all over the planet in more than 124 banking sector crises since 1970 -- for example, in Chile, Korea, Germany, Mexico, and  Japan.

Doesn't anyone else find it odd that none of this expertise is being put to use?

Or that, with losses on complex derivative and structured securities at the core of this debacle, and thousands of "quants" from MIT and Wharton on Wall Street, we cannot design some simple security vehicles to help taxpayers reduce their personal or collective exposure to its potential costs? 

Perhaps Bush & Co. are not familiar with the IMF or the World Bank/ IFC's "Capital Markets Group." Perhaps Secretary Paulson never bothered to understand the first thing about derivatives and options during his 32 years at Goldman Sachs.   

For their information, the World Bank/ IMF/ IFC  are located at 700 19th St. NW, Washington D.C., three blocks from the White House.

Their staffs are not especially busy at the moment -- indeed,  15 percent of the IMF's professionals are being laid off, so they may have some time to help out.

We've been assured by the Bush Administration, however, that the IMF's assistance is not really needed at this point.

"What are we," Bush asks,  "Some sort of two-bit corrupt, debt-ridden plutocracy  that can't manage its own affairs?"

STAMPEDE

Indeed, the President,  Secretary Paulson, and a weird new assortment of  bottom-feeding Wall Street investors  (Omaha's Warren Buffet, Tokyo's Nomura Holdings and Mitsubishi UJF), and, of course, those who are still left on Wall Street itself are in a white heat to get this deal done, and are trying to create a stampede. 

They are also clearly not interested in improving the bailout. They just want our money -- and a loosey-goosey, behind-closed-doors process for distributing it that hasn't even been designed yet.

Unlike US taxpayers, Buffet, who is reportedly investing $5 billion in Goldman Sachs, was saavy enough to get preferred shares and warrants for his money -- worth up to 8 percent of the premier bank's share.

At that rate, just think how much Wall Street real estate our  $700 billion would buy -- if only Paulson and Bernanke and the US Congress would follow in Buffet's footsteps and insist on some equity and warrants in exchange for a bailout. 

SOCIALISM FOR BANKERS, SAVAGE CAPITALISM FOR EVERYONE ELSE? Bailout Jeopardizes Entire Progressive AgendaJames S. Henry

"“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” --  Warren Buffet, June 2008

Ladies and gentlemen: pardon my intemperance,  but it is high time for some moral outrage --  and a little good old-fashioned class warfare as well, at least in the sense of a return to seriously-progressive taxation. 

After all, as this week's record-setting Wall Street bailout with taxpayer money demonstrates once again,  those in charge of running this country have no problem whatsoever waging "class warfare" against the rest of us -- the middle classes, workers and the poor -- whenever it suits their interests.

At a time when millions of Americans are facing bankruptcy and the risk of losing their homes without any help whatsoever from Washington DC,  the CEOs and speculators who created this mess, and the top 10 percent of the wealth distribution that owns 85 percent of financial stocks, have teamed up with their "bipartisan" cronies in Congress, the US Treasury and the White House to stick us with the bill -- in a bum's rush toward a cockamamie solution.

This time they have gone too far. 

As discussed below, the cost of this bailout could easily jeopardize our ability to pay for the entire economic reform program that millions of ordinary citizens across both major parties have been demanding.

Some kind of bailout may indeed be necessary from the standpoint of managing so-called "systemic" risk to the financial system.

But it should come at a price -- a hefty part of which should be paid by the tiny elite that was most responsible for creating this mess in the first place.

THE "GET REAL" NEW DEAL

To make sure that real economic reform is still feasible, we need to demand a "Get Real/ New Deal" from Congress right now. 

At a minimum, this Get Real/New Deal package should include measures like:  (1) the restoration of stiff progressive income and estate taxes on the top 1 percent of the population (with net incomes over $500,000 a year and estates over $5 million) -- especially on excessive CEO and hedge fund manager compensation; (2) much more aggressive enforcement and tougher penalties against big-ticket corporate and individual tax dodgers; (3) tougher regulation of financial institutions  -- possibly by a new agency that, unlike the US Federal Reserve, the SEC, and the US Treasury, is not "captive" to the industry; (4)  a crackdown on the offshore havens that have been used by leading banks, corporations,  and hedge funds to circumvent our securities and tax laws; and (5) the immediate revision of the punitive bankruptcy law that Congress enacted in 2005 at the behest of this now-bankrupt elite.

We also need (6) a National Commission to investigate the root causes of this financial crisis from top to bottom, and actually (unlike the hapless, ineffectual 9/11 Commission) hold people accountable.

Over time, this progressive Real/ New Deal would help raise the hundreds of billions of new tax revenue that will be needed to offset the costs of this bailout.

It is essential if the Federal Government is to be able to afford key reforms like health insurance, clean energy, and investments in education.

These may not matter very much to Wall Street executives, financial analysts, Treasury and Federal Reserve executives, or the more than 120-130 Members of Congress and 40-45 US Senators who earn more than $1 million a year -- and are already covered by a generous "national health care" package of their own design. But these  are the key "systemic risks" that ordinary Americans face. 

These reforms may sound ambitious. So is the bailout.  And the reforms that we are discussing are only fair.

After all, we the American people have been  the very model of forgiveness and understanding lately. 

We have tolerated and footed the bill for stolen elections,  highly-preventable terrorist attacks, gross mismanagement of "natural" disasters, prolonged, poorly conceived, costly wars, rampant high-level corruption, pervasive violations of the US Constitution,  and the systematic looting of the Treasury by politically-connected defense contractors, oil companies, oligopolistic cable TV and telecommunications firms, hedge fund operators, big-ticket tax evaders,  and our top classes in general. 

Does "class" still matter in America?  You betcha -- perhaps more than ever. But enough is enough.  Call your Congressperson now.  Demand a"Get Real/ New Deal" qualifier to the bailout package before it is too late.

(c) SubmergingMarkets, 2008

"ATTACK OF THE GLOBAL PIRATE BANKERS!"The Great White Sharks at UBS and LGTJames S. Henry

(Note: The following is an expanded version of our article that appeared in the July 22, 2008 online edition of The Nation, available here.)

"For what is the crime of burgling a bank, compared with the crime of building one?"
-- Brecht

The Hearing

Last week in Washington we got a rare look inside the global private banking industry, whose high purpose it is to gather up the assets of the world's wealthiest people and many of its worst villains, and shelter them from tax collectors, prosecutors, creditors, disgruntled business associates, family members and each other.

Thursday's standing-room-only hearing on tax haven banks and tax compliance was held by the US Senate's Permanent Subcommittee on Investigations, chaired by Michigan Senator Carl Levin, a regular critic of tax havens--except when it comes to offshore leasing companies owned by US auto companies. He presented the results of his Committee's six-month investigation of two of Europe's most venerable financial institutions - LGT Group, the largest bank in Liechtenstein and the personal fiefdom of Crown Prince Hans-Adam II and the royal family, with more than $200 billion in client assets; and UBS, Switzerland's largest bank and the world's largest private wealth manager, with $1.9 trillion in client assets and nearly 84,000 employees in fifty countries, including 32,000 in the United States.Kieber

The theatrics included videotaped testimony by Heinrich Kieber, a Liechtenstein computer expert in a witness protection program with a $7 million bounty on his head, for supplying a list of at least 1,400 LGT clients - some say more than 4,500 - to tax authorities in Europe and the United States; two former American clients of LGT, who took the Fifth Amendment; Martin Liechti, head of UBS international private banking for North and South America, who'd been detained in Miami since April, and who also took the Fifth; Douglas H. Shulman, our sixth IRS commissioner in eight years, who conceded that offshore tax evasion must be a "serious, growing" problem even though the IRS has no idea how large it is; and Mark Branson, CFO of UBS's Global Wealth Management group, who apologized profusely, pledged to cooperate with the IRS (within the limits of Swiss secrecy) and surprised the Committee by announcing that UBS has decided (for the third time since 2002) to "exit" the shady business of providing new secret Swiss accounts to wealthy Americans.

There were also several other potential witnesses whose importance was underscored by their absence. Peter S. Lowy, of Beverly Hills, another former LGT client who'd been subpoenaed, is a key member of the Westfield Group, the world's largest shopping mall dynasty, which has interests in and operates 55 US malls and 63 others around the world with a combined value of more than $60 billion, holds the lease for a new shopping mall at the reconstructed World Trade Center, has many other properties in Australia and Israel, and was recently awarded a L3 billion project for the UK's largest shopping mall, in time for the 2012 Olympics.

His lawyer, the renowned Washington fixer Robert S. Bennett, reported that Lowy was "out of the country" and would appear later, probably also just to take the Fifth. Perhaps he traveled to Australia, where his family is also reportedly facing an LGT-related tax audit. (Bennett's law partner, David Zornow, the head of Skadden, Arps' White Collar Crime practice, represents UBS's Liechti.)

Steven D. Greenfield, a leading New York City toy vendor and private equity investor whose business had been personally recruited by the Crown Prince's brother, went AWOL and did not bother to send a lawyer.

LGT Group declined to follow UBS's contrite example and also failed to appear.

Also missing from the roster were two prominent UBS executives: Robert Wolf, CEO of UBS Americas, who has reportedly raised over $500,000 for Barack Obama, bundled more than $370,850 for him this year from his bank alone, making UBS Obama's fifth-largest corporate donor, and had private dinners with the junior Senator from Illinois; and former Texas Senator Phil Gramm, vice chairman of UBS Securities LLC, a leading lobbyist for UBS until March, and until recently, John McCain's senior economics adviser. (In 1995, while preparing his own ultimately-unsuccessful race for the Republican Presidential nomination, Gramm commented memorably, "I have the most reliable friend you can have in American politics, and that's ready money.")

While neither of these UBS executives have been directly implicated in the tax scandal, both might reasonably be questioned about precisely what the rest of UBS in the States knew about the Swiss program, what it implies for US tax policy, and whether those who complain about UBS's knowing facilitation of tax fraud are just whining.

While they were on the subject of offshore abuses, the Senate might also have wanted to depose former top McCain fundraiser James Courter, who also resigned last week, after it was disclosed that his telecom firm, IDT, had been fined $1.3 million by the FCC for using a haven company in the Turks and Caicos to pay bribes to former Haitian President Jean-Bertrand Aristide.

The Cases

This crowded docket, combined with the UBS mea culpa, almost distracted us from the sordid details of the Levin Committee's actual findings.

UBS: UBS opened its first American branch in 1939, and for all we know, has likely been facilitating tax fraud ever since, but the Senate investigation focused only on 2000 to 2007. During this period, even as UBS was sharply expanding its onshore US operations by acquiring Paine Webber, expanding in investment and retail banking, it also mounted a top-secret effort to recruit wealthy Americans, spirit their money to Switzerland and other havens and conceal their assets from the IRS.

This program, aimed at people with a net worth of $40 million to $50 million each, was staffed by fifty to eighty senior calling officers and 1,000 client advisors. Based in Zurich, Geneva, and Lugano, each officer made two to ten surreptitious trips per year to the United States, calling on thirty to forty existing clients per visit and trying to recruit new ones by attending HNW (high net worth) watering holes like Miami's Art Basel and the UBS Regatta in Newport. By 2007, this program had garnered 20,000 American clients, with offshore assets at UBS alone worth $20 billion.

To achieve these results, UBS established an elaborate formal training program, which coached bankers on how to avoid surveillance by US customs and law enforcement, falsify visas, encrypt communications, secretly move money in and out of the country and market security products even without broker/dealer licenses.

Meanwhile, back in 2001, UBS had signed a formal "qualified intermediary" agreement with the US Treasury. Under this program, it agreed either to withhold taxes against American clients who had Swiss accounts and owned US stocks, or disclose their identities. However, when UBS's American clients refused to go along with these arrangements, the bank just caved in and lied to the US government. Eventually, it concealed 19,000 such clients, partly by helping to form hundreds of offshore companies. This cost the US Treasury an estimated $200 million per year in lost taxes.

In early July 2008, a US court approved a "John Doe" subpoena for UBS, demanding the identities of these 19,000 undisclosed clients. However, as of last week's Senate hearing, UBS has refused to disclose them. While it maintains that it is no longer accepting new Swiss accounts from Americans, it is also insisting on the distinction between "tax fraud" and "tax evasion," reserving full disclosure only for cases involving criminal tax fraud, which is much harder to prove under Swiss law. This means it may be difficult to ever know whether it has kept its commitments.

Ultimately UBS got caught, not by virtue of diligent law enforcement, much less the Senate's investigation, but by sheer accident. In late June, Bradley Birkenfeld, a senior private banker who'd worked with UBS from 2001 until late 2005 out of Switzerland, and then continued to service the same clients from Miami, pleaded guilty to helping dozens of wealthy American clients launder money. His name surfaced when his largest client, Igor Olenicoff, a Russian emigré property developer from Southern California, was accidentally discovered by the IRS to be reporting much less income tax than he needed to justify his $1.6 billion measurement on the Forbes 400 list of billionaires.

With Birkenfeld's help, Olenicoff succeeded in parking several hundred million of unreported assets offshore--including millions in accounts controlled by a Bahamian company that he said had been set by former Russian Premier Boris Yeltsin. Ultimately, Olenicoff settled with the IRS for $52 million in back taxes, one of the largest tax evasion cases in Southern California history, and also agreed to repatriate $346 million from Switzerland and Liechtenstein. In theory he faced up to three years of jail time, but--following standard US practice of going easy on big-ticket tax evaders who have no "priors"--he received only two years probation and three weeks of community service.

As noted, Olenicoff also gave up his UBS private bankers, including Birkenfeld, who plead guilty in June to facilitating tax fraud and is now awaiting sentencing--the first US prosecution of a foreign private banker in history. It was Birkenfeld's revelations, in turn, that led to the disclosure of UBS' program for wealthy Americans, and at least one-half of the Senate investigation.

The most important point is that this entire program would clearly have been impossible without the knowledge and approval of the bank's most senior officials in Switzerland, and probably some senior US executives as well -- although the Committee did not press this point. As former UBS CEO Peter Wuffli once said, "A company is only as ethical as its people." From this standpoint, we have reason to be concerned that UBS's behavior may repeat itself, so long as so many of these same senior executives remain in place.

LGT: For all its pretensions to nobility, Liechtenstein is well-known in the trade as the "place for money with the stains that won't come out," a flexible jurisdiction whose "trusts" and "foundations" are basic necessities for everyone from Colombian drug lords and the Saudi royals to the Suhartos, Marcoses, Russian oligarchs, and Sicilian mafia.

As detailed by the Senate investigation, LGT Group has certainly lived up to this reputation in the US market. It maintained a program that was, if anything, even more sophisticated and discreet than that of UBS for large fortunes. Among its specialties: setting up conduit companies in bland places like Canada, allowing clients to transfer money without attracting attention; leaving the designation of "beneficiaries" up to corporations controlled by potential beneficiaries themselves, a neat way of avoiding "know your customer" rules; rarely visiting clients at home, let alone mailing, e-mailing, or phoning them, certainly never from a Liechtenstein post office, Internet address, or area code; shifting the names of trust beneficiaries to very old folks just before death to make it look like a repatriation of capital was an inheritance.

In terms of precise trade craft, indeed, LGT had it all over UBS. It only really got caught red-handed when it tried to modernize and trusted Heinrich Kieber, a fellow citizen and IT expert ,who turned out to be either a valiant whistleblower, a well-paid extortionist (he was paid $7.5 million by the German IRS alone for his DVDs), or both.

BRINGING THE WAR BACK HOME (Part I.)Jordan C. Haerter, 19, Killed In RamadiJames S. Henry

"To save this world, you asked this man to die.
Would this man, could he see you now, ask why?"
-- Auden

Monday April 28th was an unusually chilly wet morning in Sag Harbor, New York, even for April, our "cruelest month."  But that didn't prevent more than a third of Sag Harbor's 2,200 year-around residents from lining the flag-lined streets and filling the Old Whalers' Church to capacity to mourn the loss of  US Marine Lance Corporal Jordan C. Haerter, age 19.

Even apart from the drizzle, there was hardly a dry eye in the village. The Rev. Steven Howarth offered a moving recollection of Jordan's short life, describing his popularity, impatience with book learning, determination to learn to fly at 16 and to join the military at 17, and his courage under fire. The minister asked the crowd to take comfort in the fact that Jordan would undoubtedly be granted eternal life in the after-world.

After the service, a long cortege made its way slowly to Oakland Cemetery, where Jordan Haerter was buried with full military honors, accompanied by his family, dozens of classmates, scores of police, firemen, Marines in dress uniform,  local American Legion members, and a squadron of motorcyclists from an organization called the Patriotic Guard. More than a hundred school children from Jordan's former elementary school stood in the rain across from the church, carrying little Chinese-made star-spangled flags and signs that read, "We will remember." Every local newspaper, radio station, and TV station in the Hamptons carried extensive coverage of the funeral and Jordan's story.

Everyone agreed that Jordan had behaved courageously in Iraq, and that his death was a tragic loss for the whole community.

No one was quite ready to ask the more uncomfortable questions: (1)  Why on Earth did this young man from Sag Harbor decide to enlist and serve in this lousy war, years after it had been discredited? (2) What responsibility do Jordan's mentors -- especially his teachers, guidance counselors, military recruiters, political leaders, and others in the community at large who were in a position to know better and influence his decision -- bear for failing to prevent this tragic mistake, including failing to speak out against this war?  (3) What can we learn from how Jordan served and died about the sensibility of the US military's current "surge" strategy in Iraq?

YET ANOTHER STATISTIC

Less than one week earlier, Jordan had become another statistic in the seemly-interminable Iraq War. At approximately 7:30 a.m. Baghdad time on April 22nd, Jordan and another Marine had been killed by a suicide bomber at a military checkpoint in Ramadi, the capital of Anbar Province in Iraq. Two Iraqi policemen and 24 other Iraqis were also injured in the incident.

According to military sources, Haerter, an ace rifleman -- his platoon's  "high shooter" --  was credited with shooting the driver of the bomb-laden truck before it detonated, quite possibly saving the lives of more than 30 Marines and Iraqis who were standing nearby.

Haerter became Sag Harbor's first Iraq War casualty, and indeed, its first combat fatality since World War II. He was also the first Suffolk County resident, 31st Long Islander, 203rd New Yorker, 4053rd American soldier (plus 186 contractors), and 253rd American 19-year old to die in Iraq since the US-backed invasion in March 2003.

Jordan had been in Iraq just one month, on his very first trip ever outside the US.

PREPARING FOR WAR

Jordan, a life-long Sag Harbor resident,  was  the only child of Christian Haerter and JoAnn Lyles, who had been divorced in the 1990s. Christian, 50, ran a water treatment business and JoAnn, with whom Jordan lived, worked at a building supply company. Jordan's grandfather Werner, a tool-and-die maker at the local Bulova Watch plant until  it closed in 1981, had emigrated to Sag Harbor from Germany by way of Canada in 1953. He died in 1994, when Jordan was four. 

Jordan was reportedly a well-liked, pretty conventional teenager with average-to-good grades and a bit of a willful streak. According to local newspaper accounts, his passions were for driving a small outboard motor boat on Peconic Bay, hanging out with his friends, driving his 1991 Toyota 4Runner on muddy back-trails around Sag Harbor, and eating his grandmother Lilly Haerter's spaetzle and home-grown blueberries.

There was also flying. According to a widely-repeated story about Jordan, at age 16, he'd started taking flying lessons on his own, even though he had not informed his parents and was not yet old enough to legally drive himself to airport.

Jordan was just as single-minded about joining the Marines. He and a high school classmate -- Josh DiStefano, one of his closest friends --  entered the US Marine Corps together in September 2006, just three months after graduating from Sag Harbor's Pierson High School, and one month after Jordan turned 18.

According to another close friend, Jordan had met a Marine recruiter at Pierson's annual "Career Day" that spring. Soon after, at a meeting with a high school guidance counselor, he stunned his mother with the news that he had decided to join the Marines. 

At the time Jordan was still just 17, so his parents still had to sign off on his four-year commitment to the Marines' delayed-entry program. They did so reluctantly, but without much opposition  -- they'd always encouraged Jordan to be action-oriented and to get a "real world" education. Jordan apparently used the enlistment bonus that he collected from the Marines to buy a new Dodge Ram pickup truck -- the same truck that his friend Josh would drive in Jordan's April 28th funeral procession.

WHERE WERE THE WARNING LABELS?

Jordan's reasons for joining the Marines are not entirely clear. Of course most young men his age are now avoiding military service like the plague. That is one reason why there has  been a crisis in military recruiting.

This, in turn,  is partly because the five-year old Iraq War is by now widely regarded by most Americans as an unmitigated fiasco, none of whose official justifications -- WMDs, Saddam's supposed ties to Al Qaeda, "democratization," or even the value of controlling Iraq's oil supplies -- have held up.

At best we are now down to a faith-based argument about whether things will be more  or less disastrous if we exit the country now rather than at some ill-defined time in the future -- not exactly an inspiring ground for enlisting.

What is clear that Iraq is a very dangerous way to spend one's youth. Not only have there been more than 4075 US military fatalities, but there have also been at least 30,000 Americans physically wounded, 3000-5000 of whom have injuries so severe that they probably would have died in earlier wars that lacked today's rapid medical evacuations.

According to a RAND study released in April, 31.7 percent, or 520,000 of the 1.64 million American military personnel who have served in Iraq or Afghanistan since 2001 also suffer from "post-traumatic stress syndrome" (PTSD), depression, and/or "traumatic brain injury" (TBI) induced by explosive devices. These "less visible" injuries have not only contributed  to a surge in suicides by US military personnel -- an estimated 6000 suicides in 2005 alone, growing at 20 percent in 2006-2007, with more than 12,000 attempts each year. Thus the number of  Iraq-related suicide deaths in the American military far exceeds the number of combat deaths.

These mental injuries also impose a high cost on the families and friends of returning veterans, especially given the acute shortage of psychiatric care for returning veterans and their families. The Rand study found that only about half of those with such conditions were getting treatment, and half of those who have been treated got inadequate treatment.

Some cynics have even suggested that the military's understatement of these problems is partly due to the fact that the US military is so dependent on "voluntary" reenlistment that it is afraid to focus on PTSD and TBI  -- both of which are amplified by the long tours of duty that troops are facing.

There is also evidence that such battlefield risks are systematically understated by recruiters, who are under severe pressure to fill quotas. Certainly there are is nothing comparable to the hazard warnings, "truth in lending," and SEC  anti-fraud disclosure notices attached to, say, cigarette packages, drug prescriptions, car purchases, mortgages, and private equity investments that apply to these life-and-death enlistment decisions by 17-19 year olds. This has lead to widespread demands for new "truth in recruiting" standards, and restrictions on recruiter access to the nation's public high schools.

Finally, from an economic standpoint, military service -- now entirely voluntary, except for the "stop-loss" orders that has affected more than 80,000 reservists -- is simply not very competitive, as discussed below. Unless a student has virtually no civilian job alternatives, and either can't get into college  at all or can't afford to go, the military is likely to be a losing economic proposition, unless it somehow plays a role in some longer-term career plan (see below).

WHAT WAS HE THINKING?

As noted, Jordan's family says that his decision to join the Marines came as a complete surprise.

While other family members had served in the military, there was no tradition of volunteering for duty in Jordan's family. His grandfather Werner, whom Jordan had known as a child, had been drafted into the German Army in World War II, and his other grandfather John Lyle had been drafted into the US Army. Jordan's father Christian had never served.

He spoke no foreign languages and,  as noted, he'd never traveled outside the US. In high school, he'd shown no particular interest in world events or history. Although he appears to have supported the War after enlisting, he'd never expressed strong feelings about the Iraq War before doing so.   

From age five on, Jordan had enjoyed playing shoot-'em-up games on the computer, which he would later actually compare with some of his experiences in the military. He'd also insisted that his Halloween costumes, meticulously designed by his mother, be accurate copies of those worn by soldiers in America's Revolutionary War. But such interests didn't differ all that much from those of any other Sag Harbor boys.

Nor does it seem that Jordan's decision to enlist in the Marines for the minimum term of four years strictly  a matter of short-term job opportunities. True, he had probably received a small ($10,000 or less) signing bounty for enlisting. At the time of his death, however, Lance Cpl Haerter's "E-3" pay grade was earning him just  $19,044 a year before taxes, plus food and housing allowances. By his fourth year in the service, depending on his rank, that might have increased to $25,000 per year at most -- less than $12 per hour. But that wage rate should have been easy for Jordan to beat in the Hamptons.   

 

THE CLINTONS ARE STILL AT LARGE!Part I. BLACKENING OBAMA, EVEN IF IT ELECTS JOHN MCCAINJames S. Henry

For six months now, partly under the influence of Senator Barack Obama's refreshingly naive quest for a higher level of discourse in American politics, we've resisted the temptation to "go negative" on his arch-rival -- "Sir Hillary" Diane Rodham Clinton, the relentless one-and-one-third term New York Senator,  two-term First Lady, five-term Arkansas Governor's wife, and life-long honorary Queen of the State of Blind, Unbridled Ambition.   

Along the way, we've watched aghast as some of our closest associates -- people who describe themselves as "Democrats" and "Hillary supporters," but really turn out to be Obama haters who threaten to vote for John McCain in November if Hillary is not the Democratic nominee -- have tried nearly every trick in the book to tear Obama down.   

BLACK FACE

For example, on January 4, 2008,  just one day after the Iowa primary, one such pundit was overheard suggesting to members of Sir Hillary's inner circle that the best way to undermine Obama's surprisingly broad appeal would be to "blacken" him. 

At the time, Hillary's campaign was still reeling from her third-place finish in Iowa, based on the fact that Barack had done so well across conventional racial, ethnic, gender, and age boundaries.   

Evidently the advice was taken. This explains Hillary's odd, a-historical comments on January 7 in New Hampshire, when she compared Lyndon Johnson's role in securing US civil rights legislation during the 1960s to that of Martin Luther King, Jr. ("It took a President to get it done.") 

(Actually it took a mass protest movement, based on years of organization and lots of blood, sweat, and tears, to get it done. Hillary's inaccurate recollections about that period may be have been due to the fact that in 1964, at age 17, she had spent her time campaigning actively for Barry Goldwater, the Republican Presidential candidate who opposed the US Civil Rights Act.)

This cynical tactic also helps to explain Bill Clinton's patronizing remarks in South Carolina on January 26, when he compared Obama's campaign to the Rev. Jesse Jackson's 1984 and 1988 Presidential bids -- as if Obama were just another "black niche" candidate. 

The point is that all these statements were deliberately made,  regardless of their merit, because the Clintons wanted to provoke rebuttals from prominent black celebrities like the Rev. Jackson, the Rev. Al Sharpton, and Spike Lee.

Bill and Hillary knew full well that this might well cost them votes in a handful of states like South Carolina, where blacks are a majority of registered Democrats. Indeed, they were both widely criticized for their remarks.

However,  in their cynical calculus, what really mattered was that the official black response would remind white voters elsewhere that  while Senator Obama might seem to be "articulate and bright and clean" (in Joe Biden's memorable description),  he's really just (as one anonymous Clinton campaign adviser put it) "the black candidate."

DIE HARDISM...OR WORSE?

In the short term, many observers thought that such cynical tactics had backfired. Indeed they may have. Contrary to Sir Hillary's best laid plans, Barack not only survived "Super Tuesday" on February 5, but went on to acquire a commanding lead in delegates.

Even after last week's machine-state primary in Pennsylvania, Barack still leads by at least 133 delegates. If the latest polls in the remaining nine primaries hold up,  Hillary would need  to capture an improbable 73 percent of the remaining unpledged "super delegates" to win. (Click on the chart below.)

Unfortunately, this situation appears to have only redoubled the Clintons' willingness to engage in McCarthyite tactics, including  race-baiting and "guilt by association,"  regardless of the impact on the Democratic Party's chances in November.

The Clintons are notorious for pursuing their own selfish interests at the expense of the Party (just ask Bill Bradley, Al Gore, and John Kerry). But this spectacle is setting new records.

These tactics include trying to smear Senator Obama with the radical views of the Rev. Wright, the Rev. James Meeks, or even the Rev. Louis Farrakhan; reminding people of the Senator's admitted occasional drug use 25 years ago (as compared with Gov. Bill Clinton's denied, much heavier use of cocaine during the same period); and attacking Obama for having a few corrupt contributors in Chicago ("...NOT Chicago!!!") like Antoin "Tony" Rezko (compared with the Clintons' legions of corrupt contributors); and associating Obama with former Weatherman and now Distinguished University of Chicago Prof. William Ayers, who was never convicted of anything (while Bill Clinton had sought fit to pardon two former Weathermen who'd been convicted of involvement in terror-related crimes.)

The smarmy tactics also include promoting the idea that Obama can't possibly appeal to white working -class voters, Hispanics, Jews, or Catholics in battleground states, simply because.... well, you see, the country may just not be "ready" for a "black" President -- whatever those terms mean.

Of course the Clintons argue that dwelling on such material now is justified because Karl Rove and the Republicans would only focus on it later. This is more self-serving flim-flam. The fact is that Hillary & Co. have run a terrible campaign, and are now reduced to throwing bombs rather than talking about real issues.

If the Clintons had not under-estimated Obama so badly, they could have discussed all of this character-assassination material long ago. By mounting the intense diatribe so late, and continuing the race well past the point of diminishing returns, they are wasting precious attention and resources that ought to be devoted to attacking the real enemy.

SNATCHING VICTORY?The Democrats Descend Into the Politics of Mutually-Assured Destruction James S. Henry

On an occasion of this kind, it becomes more than a moral duty to speak one's mind. It becomes a pleasure.

-- Oscar Wilde

Isn't this a pretty picture? 

On the one hand, after seven long years of catastrophic incompetence in Washington, our country is literally begging for new ideas and leadership, especially from the erstwhile Party of the Opposition.

Recent polls show that an unprecedented 81 percent of Americans believe their country is "on the wrong track," while President Bush's approval rating has sunk to an all-time low of 28 percent. There is a growing popular demand for decisive government action on any number of issues that have been festering while "Nero" Bush and "Imperator" Cheney have been fiddling.

THE DEMAND FOR CHANGE

John "McSame's" feisty personality notwithstanding, this is not the ideal moment to be plumping for free-market solutions, let alone more tax cuts for the extremely rich,  hands-off deregulation for our wondrous mortgage banking, health care, automotive, airlines, handgun, coal-fired utility, and social insurance industries, and the unending prospect of more unilateral, open-ended wars.

No -- this is a time that cries out for smart, can-do, progressive, and -- yes -- youthful government.

Its precise slogan should be:  Yes, we had better -- or else.

 
REAL ISSUES

At the risk of depressing our readers, among the many tough issues that demand this  pragmatic approach right now are the following:

>Containing the mortgage crisis and the deep recession that it has produced.
>Withdrawing from Iraq as soon as possible, while discouraging Iran from filling the void.
>Intensifying the hunt for Bin Laden, without losing Pakistan and Afghanistan to a Taleban revival.
>Protecting our nation against the genuine on-going global terrorist menace.
>Fixing our high-cost, inhumane health insurance system once and for all.
>Biting the bullet on climate change and global warming.
>Rebuilding public education and college assistance.
>Guaranteeing the financial integrity of Social Security and Medicare.
>Restoring civil liberties and reversing the drift toward a state of siege.
>Reviving American's reputation in the world and its relations with key allies.

> Revising our increasingly disfunctional "free trade" agreements.
>Reviving efforts to prosecute corrupt politicians, war profiteers, and big-ticket tax evaders to the limits of the law, as opposed to granting them Presidential pardons.
>Slashing government waste, especially the bloated $800+billion "total war"  budget and the huge agro-industry subsidies that are literally wiping out poor farmers all over the world. 

All together,  this adds up to a demand for nothing less than at least a decade of intense regime change right here at home.

John McCain: "No We Can't" Reviving The "Daisy" Strategy in 2008 James S. Henry

My friends:  we have spent far too much time and treasure on the prolonged, intense, but ultimately intra-familial and largely issues-free beauty contest between Hillary Clinton and Barack Obama.   

Now that that contest is finally drawing to a close, it is time for us to focus like a gamma-ray laser on the real enemy in the fast-approaching November 2008 Presidential election -- Senator John McCain, the bellicose 5'7" septuagenarian fly-boy from Arizona.  

What is it about Air Force-trained Republican Senators from Arizona, anyway? 

In many respects this year's race recalls 1964, when Senator Barry Goldwater, another war-mongering, outspoken, short-tempered Air Force veteran and Republican Presidential candidate from Arizona,  scared the B'Jesus out of the entire country with his threats to use nuclear weapons preemptively ("Let's lob a nuclear bomb into the men's room at the Kremlin").

Usually such pro-war designs are kept well hidden until after the election, as the Bush Administration did in 2000 --  and, indeed, as President Lyndon Johnson did in the 1964 election, when he made Goldwater out to be a mad-man (the "Daisy" strategy," after the notorious political ad by that name: Download 20_johnson_64.mov). Johnson conveniently failed to tell the public during the election campaign that he was also a mad-man, already planning to park more than 500,000 US troops in Vietnam within a year.   

In any case, not since 1964 have the Democrats faced a Republican candidate who is as openly pro-war as John McCain is. This should provide them with  a remarkable opportunity for party unity,  a clear brand, and victory in November.     

However, it is very important to reunite the Party and get moving. McCain is already attracting fuzzy-minded support from  moderate Democrats and independents who are beguiled by his tough-guy "maverick" image -- especially lower middle-class white males who are (a) bearing the brunt of this year's  economic downturn, and (b) not entirely comfortable with voting for either  Barack  ("the black guy"_ or ("that woman") Hillary. Oddly enough, many of these folks also claim to be anti-war.

Partly because the Democrats have been so distracted by their own interminable (..19 debates??!...six months of primaries?) nominating process, the most  telling criticisms of John McCain have so far been provided by his enemies among the Very Far Right Ranters (VFRRs), including leading professional ranters  like Anne Coulter, Rush Limbaugh, and James C. Dodson. This crew complains that McCain doesn't quite pass muster on pet right issues like undocumented immigration, gay marriage, and tax cuts. Ironically, Barry Goldwater himself would have also failed these same litmus tests. Indeed, if the 1964 Presidential election had been fought on social issues and the economy rather than on war and peace, the former Air Force Major General from Arizona would most likely have carried many more states than the 6 that he did carry. Defeating Goldwater in 1964 may not have absolutely required the war-mongering issue, but it certainly helped.  

Some conservatives have also criticized McCain's preference for voluptuous office assistants and fly-boy-style socializing.  From their angle, he also lacks appropriate Christian zeal, was once involved in the shady "Keating Five" savings-and-loan scandal,  and has an intermittent work ethic.

Indeed, in the last five Congresses he missed an incredible 21 percent of all Senate votes, including 56 percent in the current 110th Congress. This high rate of absenteeism is also no doubt partly due to the Presidential race, McCain's long-standing battle with cancer, and the fact that at age 71.5,  he is already the oldest living leading Presidential candidate ever, having already lived longer than over half of all US Presidents.

The real problem for Democrats and independents, however, should not be McCain's lack of religious fervor, moldy old rumors about the Keating Five or extra-marital relationships, his age, or even his absenteeism, unless that is due to health problems.

And after this year's endless bouts of the smooth-talking ignoramus the Rt. Reverend Huckabee, the lack of religious zeal and ideological purity in a leading Republican candidate is really rather refreshing.

No -- our core problems with John McCain are twofold. First, whenever he actually manages to show up in the Senate and legislate, the  results are usually far to the right of what most Democrats, independents, and sensible people in general stand for  -- and what both Barack and Hillary, in particular,  stand for.

For example,  while Barack and Hillary have both earned lifetime voting scores from the American Conservative Union (ACU) of just 8 percent, McCain's  lifetime score is 82. While this may be insufficient for VFRRs like Limbaugh and Coulter, it is well above the tail end of the Republican Senate distribution.

McCain may have mellowed slightly in recent years -- in 2006, for example, his ACU score was just 65.  However, this is still higher than any Senate Democrat, and it is more than three times the 17 rating scored by McCain's turncoat friend Joe Lieberman.  Indeed, on a wide range of key issues that progressives and independents should really care about --  from Supreme Court nominations and extending Bush's tax cuts for the rich to the State Children's Health Insurance program, setting a timetable for withdrawal from Iraq, and  bankruptcy reform, and even on his own trademark issues like campaign finance, immigration, the definition of torture, and the Bush tax cuts, the senior Senator from the Grand Canyon state is usually a big disappointment.   

Second, and even more important, on the most crucial issue of our time, the conduct of present and future wars,  McCain appears to have quite frankly gone completely off the rails.

Misguided Democratic Party strategists like John Podesta, Mark Penn, and Bob Schrum notwithstanding,  this issue of the war, and not just "the economy" or "health care," should be at center stage for this election. 

This is precisely because, on the one hand,  military affairs are supposed to be McCain's core competence, and because, on the other hand, he has gotten this central issue completely wrong.      

As discussed below, while millions of Iraqis continue to vote with their feet and either flee abroad or stay there, McCain just keeps repeating the big lie that "the surge is working."

In fact the main reasons that US military casualties,  and, to a lesser extent, Iraqi civilian casualties have dropped is not because of "the surge," but because (a) Baghdad has been ethnically cleansed, and is now a sharply divided, Shiite-dominated enclave;  (b) Sunni insurgents, fed up with al-Qaeda, have decided temporarily to ally with the "occupiers" and assert control over the "foreign terrorists;" and (c) Iran has temporarily decided to cut down on its support for attacks on US troops, in the interests of undermining the "neocon" coalition in the US, Saudi Arabia, and Israel that is plumping for a McCain-style bombing. (See the video below).

None of this implies that the surge has achieved anything more than a kind of stop-gap temporary stabilization of this very ill patient's condition -- a Bush Adminstration effort that just happens to coincide with a Presidential election year. Since it is unlikely that the surge is sustainable, in terms of troops and dollars, and since its benefits are likely to be temporary, McCain should be compelled to explain on every possible occasion whether the slim increased chance that a Republican president will get elected is really worth the price.

But McCain is at least consistent. Apparently he also still believes that the Vietnam War could have been won with just a little more persistence and less interference from Washington.
 

For all his putative military experience, therefore,  in the grand tradition of Major General/ Senator Goldwater and Air Force General Curtis {"Bombs Away") LeMay,  in his 20 hours of flight time over North Vietnam, and his five years of captivity, apparently John McCain never managed to learn the fundamental lesson that millions of ground troops have learned the hard way -- that guerrilla wars, and, indeed, wars on terror,  are ultimately won or lost by political and economic development, not by military tactics. And, furthermore,  that the blind over-application of military force to a hostile civilian population by an occupying army and Air Force can actually increase enemy resistance much faster than it can be controlled.

Far from repeating the 2004 Kerry campaign's central mistake and focusing this campaign only on the US economy, therefore, it will be vital for us to keep McCain's extraordinary appetite for war in plain view.

The more general question of why so many Air Force professionals -- including, for example, the Israeli General who was widely blamed for mismanaging last year's conflict with Hezbollah in Lebanon -- tend to systematically overestimate the efficacy of military power, will be left for another time. Plainly this is not just an Arizona malady.

 For the interested reader, the following is a smattering of sundry provocative materials with respect to Senator McCain. Not all of it is worth taking seriously --- some of it even resembles the scurrilous attacks on John Kerry's war record in 2004,  when McCain, it should be recalled, came to Kerry's defense.  We've presented it here in the interests of of airing it out and redirecting our attention to the clear and present danger of a Republican Party that, even in its death throes,  may still be able to unite around this "great white hawk" from Arizona. 

Bolivia's Growing Regional ConflictJames S. Henry and Donald K. Ranvaud

The new year is already off to a turbulent start in Bolivia. During the week of January 7 to 15, up to six thousands supporters of President Evo Morales' MAS party-- mainly cocaleros from the Chapare coca-growing region,  campesinos, and indigenous groups --  showed up in Cochabamba,  Bolivia's third largest city of 800,000,  in the country's center. 

They had come to demand the resignation of Cochabamba's   right-wing Governor, Manfred Villa-Reyes, who has become an outspoken supporter of the "autonomista" movement, which is seeking greater "states rights" for the country's nine provinces -- especially the wealthier, "whiter" eastern and southern provinces of Beni, Pando, Santa Cruz, and Tarija, where most of Bolivia's natural gas and richest farms are located.

As shown in this exclusive video footage from Cochabamba (See Parts I and Part II). shot by Bolivian film crews working under the direction of  our colleague, award-winning Hollywood producer Donald K.Ranvaud (The Constant Gardener, City of God, Central Station, etc.), the MAS supporters encountered a fierce reaction from the city's middle-class residents and pro-autonomista forces, including a crowd of more than well-organized thousand stick-waiving people who reportedly attacked the cocaleros and campesinos aggressively on January 13th. In the ensuing conflict, at least two people were killed and more than 150 were injured.

By Saturday January 14th, calm had returned to the city. Governor Manfred returned from Santa Cruz, where he had apparently fled out of concerns for his own safety, and  Evo Morales also returned from Nicaragua, where he had been attending Daniel Ortega's inauguration. Steps have been taken on all sides to pacify the situation.

However, as we'll discuss below, the potential for renewed conflict is very high. This is not only because none of the fundamental economic and political causes of the conflict have been addressed. It is also because on all sides,  Bolivia's political leaders have not exactly shown the capacity for compromise and the maturity that will be essential to avoid a "lose lose" outcome for Bolivians of all backgrounds and social classes.