Bill Totten's Weblog

Sunday, October 31, 2010

Embrace the Cooperative Movement

by Carlos Perez de Alejo (October 25 2010)

In the midst of mounting economic insecurity, fueled by widespread unemployment, foreclosures and budget cuts, many people are seeking alternative models to business as usual. From community gardens to bartering networks, grassroots efforts are sprouting up across the country. One of the main pillars of this growing trend is an international institution with over 160 years of experience in local, sustainable economic development: a cooperative.

Since the mid-1800's, cooperatives have promoted a unique, people-centered model that sets them apart from conventional businesses. Unlike traditional corporations, which are owned and controlled by outside shareholders, cooperatives are businesses that are owned and democratically controlled by their members - the people who use their services or buy their goods. In other words, cooperatives are member-driven institutions that put people before profit to meet community needs.

Co-ops exist in a variety of forms in countless industries across the country and around the world. United on the basis of member-ownership and democratic control - generally following the decision-making principle of "one-member, one-vote" - co-ops have a range of ownership structures, from consumer-owned food co-ops to worker-owned manufacturing firms. In whatever form they take, however, surveys repeatedly demonstrate that consumers rate co-ops as more trustworthy than investor-owned corporations.

In the US alone, the model has been embraced by more than 130 million members, served by over 29,000 cooperatives operating in nearly all sectors of the economy.

Cooperatives play a vital role in local economic development, helping people improve their lives through empowering jobs and access to goods and services that would otherwise be more expensive, lower in quality, or simply unavailable. These demonstrated benefits have sparked growing interest in the cooperative movement worldwide. Indeed, the United Nations recently declared 2012 the International Year of Cooperatives.

In light of the economic crisis, many people have embraced worker cooperatives in particular as an effective pathway out of poverty. Owned and controlled by the people who work in the business, worker co-ops have an impressive track record of providing stable jobs with asset-building potential, higher wages, a deeper connection to the local community, and an array of personal and professional development opportunities.

Worker cooperatives often operate on the basis of a "triple bottom line", measuring success not simply by the money they earn, but by the well-being of their workers; their sustainability as a business; and their overall contribution to the community and the environment. Cooperatives have served as a foundation for growth in the green economy, where worker-owned businesses operate primarily in labor-intensive sectors such as recycling, solar installation, landscaping, green cleaning, and deconstruction.

Internationally, the bulk of worker cooperatives are concentrated in countries like Spain, Italy and Canada. Yet in recent years the movement in the United States has become increasingly organized. In May 2004, members of the worker co-op community founded the US Federation of Worker Cooperatives, a national membership-based organization "of and for worker cooperatives, other democratic workplaces, and the organizations that support the growth and continued development of worker cooperatives".

For the past two years, membership in the Federation has grown 25 percent per year, with the majority of growth coming from cooperatives developed in response to social, economic and community needs sharpened in the wake of the financial meltdown.

Here in Austin, Third Coast Workers for Cooperation, a cooperative development center dedicated to building worker-owned green businesses with low-income communities, is working with a group of low-income women to establish Yo Mamas Catering Co-op, a worker-owned catering business.

"We wanted jobs that would provide a good living for ourselves and our families", says Sylvia Barrios of Yo Mamas. "We've spent a lot of time working for other people ... now we want more control over our lives and we think Austin is ready for more worker-run businesses".

Indeed, Austin already has its share of notable worker-run businesses: Ecology Action, a recycling center in downtown; Tribe Creative Agency, an advertising agency focused on the "Common Good"; and the recently opened Black Star Co-op, a worker self-managed, consumer-owned brew pub.

As one of the more noteworthy cities for socially and environmentally responsible local businesses, Austin is ripe for more growth in the cooperative sector. Socially and environmentally responsible practices are not just a trend within cooperatives - it's just how they work. That's the cooperative difference.


Carlos Perez de Alejo is co-director of Third Coast Workers for Cooperation in Austin, Texas, whose website is He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it.

This article appeared in the Austin American-Statesman (October 25 2010) and can be seen at Culture Change republished the article with permission from the author.

Bill Totten

Time for a New Theory of Money

By understanding that money is simply credit, we unleash it as a powerful tool for our communities

by Ellen Brown

YES! Magazine (October 28 2010) (October 29 2010)

The reason our financial system has routinely gotten into trouble, with periodic waves of depression like the one we're battling now, may be due to a flawed perception not just of the roles of banking and credit but of the nature of money itself. In our economic adolescence, we have regarded money as a "thing" - something independent of the relationship it facilitates. But today there is no gold or silver backing our money. Instead, it's created by banks when they make loans (that includes Federal Reserve Notes or dollar bills, which are created by the Federal Reserve, a privately-owned banking corporation, and lent into the economy). Virtually all money today originates as credit, or debt, which is simply a legal agreement to pay in the future.

Money as Relationship

In an illuminating dissertation called "Toward a General Theory of Credit and Money" in The Review of Austrian Economics {1}, Mostafa Moini, Professor of Economics at Oklahoma City University, argues that money has never actually been a "commodity" or "thing". It has always been merely a "relation", a legal agreement, a credit/debit arrangement, an acknowledgment of a debt owed and a promise to repay.

In the payment system of ancient Sumeria, prices of major commodities were fixed by the government. Interest was also fixed and invariable, making economic life very predictable.

The concept of money-as-a-commodity can be traced back to the use of precious metal coins. Gold is widely claimed to be the oldest and most stable currency known, but this is not actually true. Money did not begin with gold coins and evolve into a sophisticated accounting system. It began as an accounting system and evolved into the use of precious metal coins. Money as a "unit of account" (a tally of sums paid and owed) predated money as a "store of value" (a commodity or thing) by two millennia; the Sumerian and Egyptian civilizations using these accounting-entry payment systems lasted not just hundreds of years (as with some civilizations using gold) but thousands of years. Their bank-like ancient payment systems were public systems - operated by the government the way that courts, libraries, and post offices are operated as public services today.

In the payment system of ancient Sumeria, goods were given a value in terms of weight and were measured in these units against each other. The unit of weight was the "shekel", something that was not originally a coin but a standardized measure. "She" was the word for barley, suggesting the original unit of measure was a weight of grain. This was valued against other commodities by weight: So many shekels of wheat equaled so many cows equaled so many shekels of silver, et cetera. Prices of major commodities were fixed by the government; Hammurabi, Babylonian king and lawmaker, has detailed tables of these. Interest was also fixed and invariable, making economic life very predictable.

Grain was stored in granaries, which served as a form of "bank". But grain was perishable, so silver eventually became the standard tally representing sums owed. A farmer could go to market and exchange his perishable goods for a weight of silver, and come back at his leisure to redeem this market credit in other goods as needed. But it was still simply a tally of a debt owed and a right to make good on it later. Eventually, silver tallies became wooden tallies became paper tallies became electronic tallies.

The Credit Revolution

The problem with gold coins was that they could not expand to meet the needs of trade. The revolutionary advance of medieval bankers was that they succeeded in creating a flexible money supply, one that could keep pace with a vigorously expanding mercantile trade. They did this through the use of credit, something they created by allowing overdrafts in the accounts of their depositors. Under what came to be called "fractional reserve" banking, the bankers would issue paper receipts called banknotes for more gold than they actually had. Their shipping clients would sail away with their wares and return with silver or gold, settling accounts and allowing the bankers' books to balance. The credit thus created was in high demand in the rapidly expanding economy; but because it was based on the presumption that money was a "thing" (gold), the bankers had to engage in a shell game that periodically got them into trouble. They were gambling that their customers would not all come for their gold at the same time; but when they miscalculated, or when people got suspicious for some reason, there would be a run on the banks, the financial system would collapse, and the economy would sink into depression.

Today, paper money is no longer redeemable in gold, but money is still perceived as a "thing" that has to "be there" before credit can be advanced. Banks still engage in money creation by advancing bank credit, which becomes a deposit in the borrower's account, which becomes checkbook money. In order for their outgoing checks to clear, however, the banks have to borrow from a pool of money deposited by their customers. If they don't have enough deposits, they have to borrow from the money market or other banks.

As British author Ann Pettifor {2} observes:

the banking system ... has failed in its primary purpose: to act as a machine for lending into the real economy. Instead the banking system has been turned on its head, and become a borrowing machine.

The banks suck up cheap money and return it as more expensive money, if they return it at all. The banks control the money spigots and can deny credit to small players, who wind up defaulting on their loans, allowing the big players with access to cheap credit to buy up the underlying assets very cheaply.

Like Jimmy Stewart’s beleaguered savings and loan in It’s a Wonderful Life, the banks are “borrowing short to lend long,” and if the money market suddenly dries up, the banks will be in trouble.

That's one systemic flaw in the current scheme. Another is that the borrowed money backing the bank's loans usually comes from shorter-term loans. Like Jimmy Stewart's beleaguered savings and loan in It's a Wonderful Life {3}, the banks are "borrowing short to lend long", and if the money market suddenly dries up, the banks will be in trouble. That is what happened in September 2008: According to Representative Paul Kanjorski, speaking on C-Span in February 2009, there was a $550 billion run on the money markets {4}.

Securitization: "Monetizing" Loans Not with Gold But with Homes

The money markets are part of the "shadow banking system", where large institutional investors park their funds. The shadow banking system allows banks to get around the capital and reserve requirements now imposed on depository institutions by moving loans off their books.

Large institutional investors use the shadow banking system because the conventional banking system guarantees deposits only up to $250,000, and large institutional investors have much more than that to move around on a daily basis. The money market is very liquid, and what protects it in place of FDIC insurance is that it is "securitized", or backed by securities of some sort. Often, the collateral consists of mortgage-backed securities (MBS), the securitized units into which American real estate has been sliced and packaged, sausage-fashion.

Like with the gold that was lent many times over in the 17th century, the same home may be pledged as "security" for several different investor groups at the same time {5}. This is all done behind an electronic curtain called MERS (an acronym for Mortgage Electronic Registration Systems, Incorporated), which has allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws {6}.

As in the 17th century, however, the scheme has run into trouble when more than one investor group has tried to foreclose at the same time. And the securitization model has now crashed against the hard rock of hundreds of years of state real estate law, which has certain requirements that the banks have not met - and cannot meet {7}, if they are to comply with the tax laws for mortgage-backed securities. For more on this, see {8}.

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent (although that cannot be ruled out), but because they have been required to in order to come up with the commodities (in this case real estate) to back their loans. It is the way our system is set up: The banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates. In the shadow banking system, they are sucking up our real estate and lending it back to our pension funds and mutual funds at compound interest. The result is a mathematically impossible pyramid scheme, which is inherently prone to systemic failure.

The Public Credit Solution

The flaws in the current scheme are now being exposed in the major media, and it may well be coming down. The question then is what to replace it with. What is the next logical phase in our economic evolution?

We as a community can create our own credit, without having to engage in the sort of impossible pyramid scheme in which we’re always borrowing from Peter to pay Paul at compound interest.

Credit needs to come first. We as a community can create our own credit {9}, without having to engage in the sort of impossible pyramid scheme in which we're always borrowing from Peter to pay Paul at compound interest. We can avoid the pitfalls of privately-issued credit with a public credit system, a system banking on the future productivity of its members, guaranteed not by "things" shuffled around furtively in a shell game vulnerable to exposure, but by the community itself.

The simplest public credit model is the electronic community currency system. Consider, for example, one called Friendly Favors {10}. The participating Internet community does not have to begin with a fund of capital or reserves, as is now required of private banking institutions. Nor do members borrow from a pool of pre-existing money on which they pay interest to the pool's owners. They create their own credit, simply by debiting their own accounts and crediting someone else's. If Jane bakes cookies for Sue, Sue credits Jane's account with five "favors" and debits her own with five. They have "created" money in the same way that banks do, but the result is not inflationary. Jane's plus-five is balanced against Sue's minus-five, and when Sue pays her debt by doing something for someone else, it all nets out. It is a zero-sum game.

Community currency systems {11} can be very functional on a small scale, but because they do not trade in the national currency, they tend to be too limited for large-scale businesses and projects. If they were to grow substantially larger, they could run up against the sort of exchange rate problems afflicting small countries. They are basically barter systems, not really designed for advancing credit on a major scale.

By turning banking into a public utility, profits generated by the community can be returned to the community.

The functional equivalent of a community currency system can be achieved using the national currency, by forming a publicly owned bank {12}. By turning banking into a public utility operated for the benefit of the community, the virtues of the expandable credit system of the medieval bankers can be retained, while avoiding the parasitic exploitation to which private banking schemes are prone. Profits generated by the community can be returned to the community.

A public bank that generates credit in the national currency could be established by a community or group of any size, but as long as we have capital and reserve requirements and other stringent banking laws, a state is the most feasible option. It can easily meet those requirements without jeopardizing the solvency of its collective owners.

For capital, a state bank could use some of the money stashed in a variety of public funds. This money need not be spent. It can just be shifted from the Wall Street investments {13} where it is parked now into the state's own bank. There is precedent establishing that a state-owned bank can be both a very sound and a very lucrative investment. The Bank of North Dakota {14}, currently the nation's only state-owned bank, is rated AA and recently returned a 26 percent profit to the state. A decentralized movement has been growing in the United States to explore and implement this option. [For more information, see]

We have emerged from the financial crisis with new clarity: Money today is simply credit. When the credit is advanced by a bank, when the bank is owned by the community, and when the profits return to the community, the result can be a functional, efficient, and sustainable system of finance.



















Ellen Brown wrote this article for YES! Magazine {15}, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen is an attorney and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free {16}. Her websites are,, and


Whose Bank? Public Investment, Not Private Debt: The public bank concept is gaining ground on the state level, attracting proponents across the political spectrum.

New Economy, New Ways to Do Finance: As mega-finance crumbles, many farsighted individuals are putting their money in enterprises and financial institutions that benefit working Americans and the places they live.

Move Your Money and Save: Big banks don't just undermine local economies - they're bad for your wallet, too.

YES! Magazine encourages you to make free use of this article by taking these easy steps:

This work is licensed under a Creative Commons License:

Bill Totten

Saturday, October 30, 2010

New Web Code Draws Concern Over Privacy Risks

HTML 5 opens Pandora's box of tracking in the Internet

by Tanzina Vega

New York Times (October 11 2010)

Worries over Internet privacy have spurred lawsuits, conspiracy theories and consumer anxiety as marketers and others invent new ways to track computer users on the Internet. But the alarmists have not seen anything yet.

In the next few years, a powerful new suite of capabilities will become available to Web developers that could give marketers and advertisers access to many more details about computer users' online activities. Nearly everyone who uses the Internet will face the privacy risks that come with those capabilities, which are an integral part of the Web language that will soon power the Internet: HTML 5.

The new Web code, the fifth version of Hypertext Markup Language used to create Web pages, is already in limited use, and it promises to usher in a new era of Internet browsing within the next few years. It will make it easier for users to view multimedia content without downloading extra software; check e-mail offline; or find a favorite restaurant or shop on a smartphone.

Most users will clearly welcome the additional features that come with the new Web language.

"It's going to change everything about the Internet and the way we use it today", said James Cox, 27, a freelance consultant and software developer at Smokeclouds, a New York City start-up company. "It's not just HTML 5. It's the new Web."

But others, while also enthusiastic about the changes, are more cautious.

Most Web users are familiar with so-called cookies, which make it possible, for example, to log on to Web sites without having to retype user names and passwords, or to keep track of items placed in virtual shopping carts before they are bought.

The new Web language and its additional features present more tracking opportunities because the technology uses a process in which large amounts of data can be collected and stored on the user's hard drive while online. Because of that process, advertisers and others could, experts say, see weeks or even months of personal data. That could include a user's location, time zone, photographs, text from blogs, shopping cart contents, e-mails and a history of the Web pages visited.

The new Web language "gives trackers one more bucket to put tracking information into", said Hakon Wium Lie, the chief technology officer at Opera, a browser company.

Or as Pam Dixon, the executive director of the World Privacy Forum in California, said: "HTML 5 opens Pandora's box of tracking in the Internet".

Representatives from the World Wide Web Consortium say they are taking questions about user privacy very seriously. The organization, which oversees the specifications developers turn to for the new Web language, will hold a two-day workshop on Internet technologies and privacy.

Ian Jacobs, head of communications at the consortium, said the development process for the new Web language would include a public review. "There is accountability", he said. "This is not a secret cabal for global adoption of these core standards".

The additional capabilities provided by the new Web language are already being put to use by a California programmer who has created what, at first glance, could be a major new threat to online privacy.

Samy Kamkar, a California programmer best known in some circles for creating a virus called the "Samy Worm", which took down in 2005, has created a cookie that is not easily deleted, even by experts - something he calls an Evercookie.

Some observers call it a "supercookie" because it stores information in at least ten places on a computer, far more than usually found. It combines traditional tracking tools with new features that come with the new Web language.

In creating the cookie, Mr Kamkar has drawn comments from bloggers across the Internet whose descriptions of it range from "extremely persistent" to "horrific".

Mr Kamkar, however, said he did not create it to violate anyone's privacy. He said was curious about how advertisers tracked him on the Internet. After cataloging what he found on his computer, he made the Evercookie to demonstrate just how thoroughly people's computers could be infiltrated by the latest Internet technology.

"I think it's OK for them to say we want to provide better service", Mr Kamkar said of advertisers who placed tracking cookies on his computer. "However, I should also be able to opt out because it is my computer".

Mr Kamkar, whose 2005 virus circumvented browser safeguards and added more than a million "friends" to his MySpace page in less than twenty hours, said he had no plans to profit from the Evercookie and did not intend to sell it to advertisers.

"That wouldn't have been difficult", he said. Instead, he has made the code open to anyone who wants to examine it and says the cookie should be used "as a litmus test for preventing tracking".

A recent spate of class-action lawsuits have accused large media companies like the Fox Entertainment Group and NBC Universal, and technology companies like Clearspring Technologies and Quantcast, of violating users' privacy by tracking their online activities even after they took steps to prevent that.

Most people control their online privacy by adjusting settings in today's most common Web browsers, which include Internet Explorer by Microsoft, Firefox by Mozilla, Safari by Apple and Opera, which is used mostly in Europe and Asia and on mobile devices.

Each browser has different privacy settings, but not all of them have obvious settings for removing data created by the new Web language. Even the most proficient software engineers and developers acknowledge that deleting that data is tricky and may require multiple steps.

"Now there are so many sources of data storage, it's very hard for browser manufacturers to handle that", Mr Cox said.

Mr Kamkar and privacy experts say that makers of Web browsers should agree on one control for eliminating all tracking capabilities at once. "There should be simple enough controls to take care of every single thing", said Ms Dixon, who added that some browsers automatically collected large amounts of data unless a user told them not to.

Mr Lie acknowledged that such companies "do have a lot of power". But he said they worry that the privacy settings they develop could be too strict. For example, he said Opera once tried to put more controls on certain types of cookies, but users in Russia complained that the controls prevented a popular social networking site from working properly.

But software developers and the representatives of the World Wide Web argue that as technology advances, consumers have to balance its speed and features against their ability to control their privacy.

"You can do more, but you need to be aware of how your information might be used or misused", Mr Jacobs said. "It's the human questions".

Bill Totten


The Rich Are Winning the US Class War:

Facts Show Rich Getting Richer, Everyone Else Poorer

by Bill Quigley (October 25 2010)

The rich and their paid false prophets are doing a bang up job deceiving the poor and middle class. They have convinced many that an evil socialism is alive in the land and it is taking their fair share. But the deception cannot last - facts say otherwise.

Yes, there is a class war - the war of the rich on the poor and the middle class - and the rich are winning. That war has been going on for years. Look at the facts - facts the rich and their false paid prophets do not want people to know.

Let Glen Beck go on about socialists descending on Washington. Allow Rush Limbaugh to rail about "class warfare for a leftist agenda that will destroy our society". They are well compensated false prophets for the rich.

The truth is that for the several decades the rich in the US have been getting richer and the poor and middle class have been getting poorer. Look at the facts then make up your own mind.

Poor Getting Poorer: Facts

The official US poverty numbers show we now have the highest number of poor people in 51 years. The official US poverty rate is 14.3 percent or 43.6 million people in poverty. One in five children in the US is poor; one in ten senior citizens is poor. Source: US Census Bureau.

One of every six workers, 26.8 million people, is unemployed or underemployed. This "real" unemployment rate is over seventeen percent. There are 14.8 million people designated as "officially" unemployed by the government, a rate of 9.6 percent. Unemployment is worse for African American workers of whom 16.1 percent are unemployed. Another 9.5 million people who are working only part-time while they are seeking full-time work but have had their hours cut back or are so far only able to find work part-time are not counted in the official unemployment numbers. Also, an additional 2.5 million are reported unemployed but not counted because they are classified as discouraged workers in part because they have been out of work for more than twelve months. Source: US Department of Labor Bureau of Labor Statistics October 2010 report.

The median household income for whites in the US is $51,861; for Asians it is $65,469; for African Americans it is $32,584; for Latinos it is $38,039. Source: US Census Bureau.

Fifty million people in the US lack health insurance. Source: US Census Bureau.

Women in the US have a greater lifetime risk of dying from pregnancy-related conditions than women in forty other countries. African American US women are nearly four times more likely to die of pregnancy-related complications than white women. Source: Amnesty International Maternal Health Care Crisis in the USA.

About 3.5 million people, about one-third of which are children, are homeless at some point in the year in the US. Source: National Law Center on Homelessness and Poverty.

Outside Atlanta, 33,000 people showed up to seek applications for low cost subsidized housing in August 2010. When Detroit offered emergency utility and housing assistance to help people facing evictions, more than 50,000 people showed up for the 3,000 vouchers. Source: News reports.

There are 49 million people in the US who live in households which eat only because they receive food stamps, visit food pantries or soup kitchens for help. Sixteen million are so poor they have skipped meals or foregone food at some point in the last year. This is the highest level since statistics have been kept. Source: US Department of Agriculture, Economic Research Service.

Middle Class Going Backward: Facts

One or two generations ago it was possible for a middle class family to live on one income. Now it takes two incomes to try to enjoy the same quality of life. Wages have not kept up with inflation; adjusted for inflation they have lost ground over the past ten years. The cost of housing, education and health care have all increased at a much higher rate than wages and salaries. In 1967, the middle sixty percent of households received over 52% of all income. In 1998, it was down to 47%. The share going to the poor has also fallen, with the top top twenty percent seeing their share rise. Mark Trumball, "Obama's challenge: reversing a decade of middle-class decline", Christian Science Monitor (January 25 2010).

A record 2.8 million homes received a foreclosure notice in 2009, higher than both 2008 and 2007. In 2010, the rate is expected to be rise to three million homes. Sources: Reuters and RealtyTrac.

Eleven million homeowners (about one in four homeowners) in the US are "under water" or owe more on their mortgages than their house is worth. Source: "Home truths", The Economist (October 23 2010).

For the first time since the 1940s, the real incomes of middle-class families are lower at the end of the business cycle of the 2000s than they were at the beginning. Despite the fact that the American workforce is working harder and smarter than ever, they are sharing less and less in the benefits they are creating. This is true for white families but even truer for African American families whose gains in the 1990s have mostly been eliminated since then. Source: Jared Bernstein and Heidi Shierholz, State of Working America.

Rich Getting Richer: Facts

The wealth of the richest 400 people in the US grew by eight percent in the last year to $1.37 trillion. Source: Forbes 400: The super-rich get richer (September 22 2010),

The top Hedge Fund Manager of 2009, David Tepper, "earned" $4 billion last year. The rest of the top ten earned: $3.3 billion, $2.5 billion, $2.3 billion, $1.4 billion, $1.3 billion (tie for 6th and 7th place), $900 million (tie for 8th and 9th place), and in last place out of the top ten, $825 million. Source: Business Insider. "Meet the top ten earning hedge fund managers of 2009".

Income disparity in the US is now as bad as it was right before the Great Depression at the end of the 1920s. From 1979 to 2006, the richest one percent more than doubled their share of the total US income, from ten percent to 23%. The richest one percent have an average annual income of more than $1.3 million. For the last 25 years, over ninety percent of the total growth in income in the US went to the top ten percent earners - leaving nine percent of all income to be shared by the bottom ninety percent. Source: Jared Bernstein and Heidi Shierholz, State of Working America.

In 1973, the average US CEO was paid $27 for every dollar paid to a typical worker; by 2007 that ratio had grown to $275 to $1. Source: Jared Bernstein and Heidi Shierholz, State of Working America.

Since 1992, the average tax rate on the richest 400 taxpayers in the US dropped from 26.8% to 16.62%. Source: US Internal Revenue Service.

The US has the greatest inequality between rich and poor among all Western industrialized nations and it has been getting worse for forty years. The World Factbook, published by the CIA, includes an international ranking of the inequality among families inside of each country, called the Gini Index. The US ranking of 45 in 2007 is the same as Argentina, Cameroon, and Cote d'Ivorie. The highest inequality can be found in countries like Namibia, South Africa, Haiti and Guatemala. The US ranking of 45 compares poorly to Japan (38), India (36), New Zealand, UK (34), Greece (33), Spain (32), Canada (32), France (32), South Korea (31), Netherlands (30), Ireland (30), Australia (30), Germany (27), Norway (25), and Sweden (23). Source: CIA The World Factbook:

Rich people live an average of about five years longer than poor people in the US. Naturally, gross inequality has consequences in terms of health, exposure to unhealthy working conditions, nutrition and lifestyle. In 1980, the most well off in the US had a life expectancy of 2.8 years over the least well-off. As the inequality gap widens, so does the life expectancy gap. In 1990, the gap was a little less than four years. In 2000, the least well-off could expect to live to age of 74.7 while the most well off had a life expectancy of 79.2 years. Source: Elise Gould, "Growing disparities in life expectancy", Economic Policy Institute.


These are extremely troubling facts for anyone concerned about economic fairness, equality of opportunity, and justice.

Thomas Jefferson once observed that the systematic restructuring of society to benefit the rich over the poor and middle class is a natural appetite of the rich.

Experience declares that man is the only animal which devours his own kind, for I can apply no milder term to ... the general prey of the rich on the poor.

But Jefferson also knew that justice can only be delayed so long when he said,

I tremble for my country when I reflect that God is just, that his justice cannot sleep forever.

The rich talk about the rise of socialism to divert attention from the fact that they are devouring the basics of the poor and everyone else. Many of those crying socialism the loudest are doing it to enrich or empower themselves. They are right about one thing - there is a class war going on in the US. The rich are winning their class war, and it is time for everyone else to fight back for economic justice.


Bill is Legal Director of the Center for Constitutional Rights and professor of law at Loyola University New Orleans. You can reach Bill at

Bill Totten

Friday, October 29, 2010

Put Corporate Criminals in Jail

Economist Joseph Stiglitz interviewed

by Sam Gustin (October 22 2010)

An institutionalized system of skewed incentives allowed Wall Street bankers and other corporate executives to gamble with America's wealth and then get away largely scot-free after the house of cards came tumbling down, plunging the US into the worst economic crisis in decades and destroying trillions of dollars of wealth worldwide.

That's the analysis of Joseph Stiglitz, an internationally renowned economist and winner of the 2001 Nobel Prize in economics. His latest book, Freefall: America, Free Markets, and the Sinking of the World Economy, is just out in paperback:

During a wide-ranging interview with DailyFinance at AOL headquarters in New York City this week, Stiglitz, who served as chief economist of the World Bank from 1997 to 2000 and is currently University Professor at Columbia University, explained how the availability of cheap money (thanks in large measure to former Fed Chairman Alan Greenspan), combined with outright mortgage fraud and deceptive and predatory lending practices put millions of people into homes they couldn't afford and caused real estate prices to skyrocket. That created a bubble that would inevitably pop. See video below, or read the full interview transcript at .

"Festering For Years"

"We have to understand that the problems have been festering for years, not just the last three years", said Stiglitz. "In the years prior to the breaking of the bubble, the financial industry was engaged in predatory lending practices, deceptive practices. They were optimizing not on producing mortgages that were good for the American families but in maximizing fees."

Meanwhile, stock-based compensation created further skewed incentives by encouraging executives to pursue short-term stock gains at the expense of long-term corporate sustainablity, Stiglitz said, and in some cases encouraged them to deceive their own shareholders.

Highly complex financial instruments and off-balance-sheet transactions allowed the bankers to keep much of their activity hidden from woefully understaffed regulators at the SEC and other supposed financial watchdog agencies. And if the regulators did catch some fraud, Stiglitz explained, the system of penalties generally meant a small fine relative to the full ill-gotten gains, often in the hundreds of millions of dollars.

"Still Home Sitting Pretty"

Legal penalties for financial fraud in the US have become "just a cost of doing business", Stiglitz said. "It's like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time."

"We fine them, and what is the big lesson?" said Stiglitz. "Behave badly, and the government might take five percent or ten percent of what you got in your ill-gotten gains, but you're still sitting home pretty with your several hundred million dollars that you have left over after paying fines that look very large by ordinary standards, but look small compared to the amount that you've been able to cash in".

Taken together, Stigliz said, this system of widespread fraud, lax regulation and non-deterrent enforcement, created a system of skewed incentives that rewarded criminality, gambling and other bad behavior, and left American workers, investors and homeowners holding the bill.

Meanwhile, the astonishingly disproportionate influence of the big banks and corporations on the American political system has allowed powerful executives to exert their will on the US government at the expense of the people, Stiglitz said.

"Five or Six Banks Equal to 300 Million People"

"Look at the regulatory reform that got passed", said Stiglitz. "It was an intense battle. And you had on one side a few banks. And on the other side you had 300 million people, American people. And it was really right in balance. Five or six banks equal to 300 million people. And in the end we got what you might call an unsatisfactory compromise."

"Corporations are a legal entity", Stiglitz explained. "We create them. And when we create them we create all kinds of rules. They can go bankrupt. And that means they owe more money and they get away scot-free. They can create an environmental disaster, and then go bankrupt and again go away scot-free. So, as legal entities we have the right to make the rules that govern them."

"As individuals we have certain basic rights", Stiglitz continued. "We aren't created by the law. We exist by nature. But corporations are man-made. They are supposed to serve our interest, our society's interests. And we are creating them with powers that are not serving our society's interests."

"A Vicious Cycle"

Unfortunately, he continued, we now have a situation where the owners of major American corporations, the shareholders, have virtually no say in compensation, the very thing that created many of the skewed incentives that led to the bad behavior.

"If you're going to rob your shareholders, shouldn't they have the right to say I don't like this?" asked Stiglitz. "It's basically a vicious cycle in which we've gotten ourselves, because the corporate executives control the corporations. The corporations have the right to give campaign contributions. So basically we have a system in which the corporate executives, the CEOs, are trying to make sure the legal system works not for the companies, not for the shareholders, not for the bondholders - but for themselves."

"So it's like theft", said Stiglitz. "These corporations are basically now working for the CEOs and the executives and not for any of the other stakeholders in the corporation, let alone for our broader society".

What should be done? "I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison", said Stiglitz. "Absolutely. These are not just white-collar crimes or little accidents. There were victims. That's the point. There were victims all over the world."

A Theory of Justice

Among the casualties of this whole mess, according to Stiglitz? Faith in the legal system itself. "The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work", he said. "If the legal system is seen as exploitative, then confidence in our whole system starts eroding".

"When you say the Pledge of Allegiance, you say, with 'justice for all' ", Stiglitz said. "People aren't sure that we have justice for all. Somebody is caught for a minor drug offense, they are sent to prison for a very long time. And yet, these so-called white-collar crimes, which are not victimless; almost none of these guys, almost none of them, go to prison."

"Families are as important as corporations", he said. "Keeping kids in school, not forcing them out of their home, keeping the community together, is certainly as important as keeping a corporation alive".


Sam Gustin is a Senior Writer at DailyFinance, covering business, technology and politics. Previously he was a Contributing Writer at Conde Nast Portfolio and a reporter at the New York Post. He's also written for, The Times of London, and the Village Voice. He is a graduate of Reed College and Columbia University.

Bill Totten

The Tombstone Blues

by James Howard Kunstler

Comment on current events by the author of
The Long Emergency
(2005) (October 25 2010)

The latest version of Pretend - going on a couple of weeks now - is the nation whistling past the graveyard of mortgage documentation fraud while skeletons dance around everything connected with the money system. Halloween came early this year. The USA is getting to look like one big Masque of the Red Death, so I suppose it's convenient that our pop culture has been saturated with vampires, zombies, and werewolves for a decade, coincident with the self-cannibalizing of our economy. Something in the zeitgeist told us to get with the program of a twilight existence. We're well-schooled now in the ways of the undead, operating under cover of darkness, going for the neck at every opportunity, even eating our young - if you consider the debt orgy, both private and public, as a way to party like it's 1999 by consuming your childrens' future.

The big banks leading the charge of the anthropophagi are making like it's no big deal that notes representing money lent have become mysteriously dissociated from the mortgages that secure them. In the good old days, these things traveled in pairs, like boy-and-girl, Laurel and Hardy, a horse and carriage. It made for straight-forward property transfers, where Person A could be confident he was buying something free and clear from Person B. What a quaint concept, free and clear!

Nowadays, these documents can hardly be located at all - not such a surprise, really, since they were ground out like e-coli infested bratwursts in strip-mall boiler rooms run by former used car salesmen, and pawned off wholesale (literally) on banks who served them up sliced-and-diced, sloppy Joe style, on CDO buns to credulous pension funds, cretinous insurance company yobs, double-digit IQ college endowment managers, and other such nitwits bethinking themselves the reincarnation of Bernard Baruch, not to mention foreign sovereign nations who bought this smallpox-blanket-grade investment paper by the container-ship-load and, finally, the innovative geniuses at the very banks who engineered the stuff and got stuck with tons of it themselves when, as they say, the music stopped.

The Big Picture looks even worse when you figure in the mischief of so-called synthetic CDOs that represent the multiple securitizations of single underlying mortgages - God knows how many times each - which mean, curiously, that a lot of real estate is everywhere and nowhere at the same time, plus the Ponzi universe of credit default swap black holes just sitting out there waiting to suck whole civilizations into oblivion. Ollie to Stan: Well, here's another fine mess you've gotten me into ...

But I stray a little from my point, which is the massive systematic monkeyshines involving legal documents relating to American real estate. The bankers say, just bring a "lost note" letter to the closing. "The dog ate it". Signed, Mom. Like, that's an okay substitute for the rule of law. Oh, and, by the way, the dog ate the title, too. Congress even tried to get in on the act last week with a bill that would have essentially negated the significance of notarization - that is, of witnessing and attesting to the veracity of documents - in order to mitigate the fiasco of robo-signing, which was endemic in places like the mortgage mills of Nevada and Florida where due diligence went AWOL and Burger King-quality employees just threw some contracts in the trash out of sheer boredom. "Oh, the dog also ate my signature ...." President Obama vetoed the damn thing, which was passed in the US Senate unanimously by the human dung-beetles who work that manure pile. The dog ate your financial system.

This is hardly to say that the people who bought property based on those improperly processed and/or scam-a-lama-ding-dong mortgages deserve to avoid foreclosure and get to keep and live in million dollar houses they never could have really afforded to buy in an economy run by grown-ups. But they might, because there are an awful lot of hungry lawyers out there who will demand that the agents of foreclosing parties produce the relevant documents. And some of these foreclosing parties may not have the nerve to hand over forged instruments in a court proceeding once everyone is going over them with scanning electron microscopes looking to find one molecule out-of-order.

Bottom line is that we've reached the point where nobody in that particular racket can get away with much anymore. That string is played. The banks are toast. Not only won't they be able to recover the collateral on a lot of loans, but the MBS related crap sitting in their own vaults goes to zero, not thirty cents on the dollar or some mark-to-fantasy number that has kept them in the zombie zone for two years, like cancer victims desperately eating apricot pits in hopes of a cure. And if the banks are toast then the Federal Reserve is toast, because the Fed has been acting as a dumpster for so much of the smallpox-blanket-grade securities off-loaded by the banks since TARP, with a balance sheet that must look like a suicide note, and if the Fed is toast then the dollar is toast because they are promissory notes issued by the Fed.

Anyway, the states themselves are temporarily shutting down foreclosures, and the upshot will be a paralyzed property sales industry. Who will want to buy property when there is any question about owning it free and clear? You can be sure the sickness will spread into commercial real estate, with its much shorter-term loans and its desperate rollover deadlines. Things begin to look a bit gruesome. But 'tis the season for it! The night of the Blood Beast comes Sunday, just in time for the All Souls Day open of the equity markets. That's the day when the costumes come off and we stop pretending. That's the day that the skeletons dance on the real estate destined to be our graves.


The sequel to my 2008 novel of post-oil America, World Made By Hand, is available at all booksellers now:

My biography is at

Bill Totten

Thursday, October 28, 2010

Capital controls will follow the weak dollar

by Michael Hudson

Financial Times (October 19 2010)

Two weeks ago Brazil moved to deter speculators from pushing up its currency, doubling the tax on foreign investment {1} in its government bonds. Last week Thailand acted on similar lines by no longer exempting foreign investors from paying a tax on its bonds, with the Thai finance minister warning of more to come. As the dollar falls and developing nations see speculators push up their exchange rates, other countries are also discussing more stringent restrictions. A damaging age of capital controls seems likely.

Indeed, moves by speculators purchasing assets and taking currency positions in China, Brazil and much of Asia now threaten to make this new era a self-fulfilling prophecy. Such speculative inflows contribute little to capital formation or employment. But they do price exporters out of foreign markets, and can be suddenly reversed if speculators pull out, disrupting trade patterns.

With the likelihood of further falls in the dollar, central banks in developing countries face a capital loss if they try to stabilise exchange rates by buying dollar-denominated assets - as the Bank of Japan did when it recently bought $60 billion of dollar securities {2} to hold down the yen's rise. These modest acts set rates through the open market, but their cost is now threatening to drive these economies towards more formal capital controls.

Such a trend would be grim news for the US, but its financial policymakers have only themselves to blame. By lowering interest rates to almost zero and giving clear hints of another imminent round of quantitative easing {3}, the Federal Reserve is providing speculators (and the banks) with yet more cheap credit - much of which is being used to speculate against the dollar.

The problem is that "QE2" will quickly spill over into currency markets, prompting foreign defensive moves to defend against currency raids that push up exchange rates against the dollar. Easy credit policies in the US and Japan will further fuel speculation in the currencies of developing economies in strong balance-of-payments positions. And the largest speculative prize of all remains an anticipated upward revaluation of China's renminbi, followed by other Asian currencies.

Here we see echoes of the 1997 Asia crisis, but in reverse. That period of panic saw speculators swamp developing markets with sell orders, emptying the central bank reserves of countries that tried to keep their exchange rates stable. Today, these same countries are those likely to find capital controls attractive, but this time they are blocking speculators from buying their assets and currencies, not selling them. The economies targeted by speculators are now those that are strong, not ones that are weak.

Developing nations are thinking seriously about how to use controls to protect themselves. Malaysia led the way in 1997, by blocking sales of its currency. In recent weeks it is Chinese officials who have been discussing tactics to isolate their financial markets from further dollar inflow. The simplest way would be for them to stop exchanging renminbi for dollar payments for non-trade transactions. This would lead, in effect, to a dual exchange rate - one for trade and another for financial transactions - a common arrangement from the 1930s into the 1960s.

The real threat is a world broken into two competing financial blocs, one centred on the dollar, the other on the Bric nations of Brazil, Russia, India and China. Tentative steps in this direction occurred last year when China, India and Russia, along with Iran and members of the Shanghai Co-operation Organisation took early steps to use their own currencies for trade, rather than the dollar. China took a simpler path last month when it supported a Russian proposal to start direct trading using the renminbi and the rouble. It negotiated similar deals with Brazil and Turkey.

To deter this the US and Japan should refrain from QE2, even at the cost of lower US growth. An even better response, however, would be new regulations stopping western banks from speculating in foreign currencies, by using heavier reserve requirements or a short-term tax on foreign currency trades and options. Without such steps other countries will soon move to protect their currencies. If they do it will have been US policy short-sightedness, conducted without concern for its effect on developing economies, that will ultimately have isolated the dollar and its users.






The writer is an economics professor at University of Missouri-Kansas City

Copyright The Financial Times Limited 2010.

"FT" and "Financial Times" are trademarks of the Financial Times.

(c) Copyright The Financial Times Ltd 2010

Bill Totten

Days of Oil and Roses

by Peter Goodchild (October 23 2010)

There are some curious psychological implications to peak-oil theory, although it's hard to speculate on these without falling prey to a form of paranoia that is just as unrealistic as the denial of the original problem. The main flaw with Paranoid Conspiracy Theories (PCT) is that a conspiracy of over half a dozen people is inherently unstable: all it takes is for one person to speak the truth, and the conspiracy is uncovered, as the IEA discovered with regard to its overly cheerful statements about the world's oil supply (Macalister, 2009).

Nevertheless, my own choice for a PCT is that anthropogenic global warming (AGW) theory distracts the public from a more-important issue. Not only that, but AGW theory causes a good deal of confusion, what psychologists call cognitive dissonance: peak-oil (PO) theory tells us that running out of oil is bad, but AGW theory tells that running out of oil would actually be good for us. Of course, AGW theory appeals to the underdog mentality anyway: it's one more proof that "They" are ruining our lives. Conversely, holding a protest rally about PO would seem curiously unsatisfying.

The real issue, however, is that of oil decline. Estimates of the annual rate of decline range from about three to twelve percent, but it seems the consensus is about six percent (Hook, Hirsch, & Aleklett, 2009). At six percent, oil production will fall to fifty percent of peak production soon after 2020. The implications of this have not sunk in. There is only enough time to sell the urban mansion and buy something more secluded. (Those without urban mansions can do as they please.)

Half of peak oil means half of almost everything else in this world: manufacturing, transportation, modern agriculture, mining, electricity (goodbye lighting, financial transactions, telephones, the Internet). The list goes on and on: from the stock market to government, from medical care to education. Think of the future USA as a transplant from the least-fortunate parts of Slavic or Baltic Europe: vodka-swilling policemen in ill-fitting uniforms, parks strewn with garbage, apartment buildings devoid of straight lines, and cars held together with wire, tape, and old lumber.

China is another vision of End Times. China has very little oil per capita, it uses up coal so quickly that its reserves won't last beyond 2030 (Heinberg, 2009, 2010), its water table is falling rapidly, its topsoil is saline, its pollution problems are terrible, and the population has outgrown its food supply. In spite of the myth of a vaguely post-Communist utopia, the reality is that Chinese wealth comes from the mountains of cheap goods that are sold everywhere. Those goods are produced by what is virtually slave labor: China is about as far from a worker's paradise as has ever existed. And, of course, shipping cheap goods halfway around the world isn't going to work very well without fossil fuels.

The oil companies must surely know that when global oil production drops to half of peak production, we'll all be living in a pretty good reconstruction of the Middle Ages, or at the very least a good reconstruction of a novel by Charles Dickens. In plain English, there won't be any modern world to invest in. For that matter, in the near future there won't be any use for money at all, except as a rather poor material for starting campfires. All that can be done is to retire, buy a so-called hobby farm in the lower subarctic, and hope there's enough canned beans in the kitchen to keep the kids alive for a few years. (Well, okay, the burned-out middle-aged exec might be long alienated from the kids anyway.)

All of the above will be false if the future is far rosier than I predict. But I leave that to those who have conveniently forgotten most of what was predicted by Meadows, Catton, Hanson, Gever, et al, who once spoke about the "coming collapse" in plain English - too plain to suit the publishing industry, it seems, to judge from what gets put on the book-store shelves these days.

Oh, yes: over the next one or two decades, the only thing we won't have half of is population. And there, ladies and gentlemen, is where we have a problem.


Heinberg, R (2009). Blackout. Gabriola Island, British Columbia: New Society.

Heinberg, R (2010, May). China's coal bubble . . . and how it will deflate US efforts to develop "clean coal." MuseLetter #216. Retrieved from

Hook, M, Hirsch, R and Aleklett, K (2009, June). Giant oil field decline rates and their influence on world oil production. Energy Policy, (37)6, 2262-72.

Macalister, T (2009, November 9). Key oil figures were distorted by US pressure, says whistleblower. Guardian.


Peter Goodchild is the author of Survival Skills of the North American Indians (1999), published by Chicago Review Press. His email address is

Bill Totten

Wednesday, October 27, 2010

Officials Push to Bolster Law on Wiretapping

by Charlie Savage

The New York Times (October 18 2010)

Law enforcement and counterterrorism officials, citing lapses in compliance with surveillance orders, are pushing to overhaul a federal law that requires phone and broadband carriers to ensure that their networks can be wiretapped, federal officials say.

The officials say tougher legislation is needed because some telecommunications companies in recent years have begun new services and made system upgrades that caused technical problems for surveillance. They want to increase legal incentives and penalties aimed at pushing carriers like Verizon, AT&T, and Comcast to ensure that any network changes will not disrupt their ability to conduct wiretaps.

An Obama administration task force that includes officials from the Justice and Commerce Departments, the FBI and other agencies recently began working on draft legislation to strengthen and expand the Communications Assistance to Law Enforcement Act, a 1994 law that says telephone and broadband companies must design their services so that they can begin conducting surveillance of a target immediately after being presented with a court order.

There is not yet agreement over the details, according to officials familiar with the deliberations, but they said the administration intends to submit a package to Congress next year.

Albert Gidari Junior, a lawyer who represents telecommunications firms, said corporations were likely to object to increased government intervention in the design or launch of services. Such a change, he said, could have major repercussions for industry innovation, costs and competitiveness.

"The government's answer is 'don't deploy the new services - wait until the government catches up' " Mr Gidari said. "But that's not how it works. Too many services develop too quickly, and there are just too many players in this now".

To bolster their case that telecom companies should face greater pressure to stay compliant, security agencies are citing two previously undisclosed episodes in which investigators were stymied from carrying out court-approved surveillance for weeks or even months because of technical problems with two major carriers.

The disclosure that the administration is seeking ways to increase the government's leverage over carriers already subject to the 1994 law comes less than a month after The New York Times reported on a related part of the effort: a plan to bring Internet companies that enable communications - like Gmail, Facebook, Blackberry and Skype - under the law's mandates for the first time, a demand that would require major changes to some services' technical designs and business models.

The push to expand and the 1994 law is the latest example of a dilemma over how to balance Internet freedom with security needs in an era of rapidly evolving - and globalized - technology. The issue has added importance because the surveillance technologies developed by the United States to hunt for terrorists and drug traffickers can be also used by repressive regimes to hunt for political dissidents.

An FBI spokesman said the bureau would not comment about the telecom proposal, citing the sensitivity of internal deliberations. But last month, in response to questions about the Internet communications services proposal, Valerie E Caproni, the FBI's general counsel, emphasized that the government was seeking only to prevent its surveillance power from eroding.

Starting in late 2008 and lasting into 2009, another law enforcement official said, a "major" communications carrier was unable to carry out more than 100 court wiretap orders. The initial interruptions lasted eight months, the official said, and a second lapse lasted nine days.

This year, another major carrier experienced interruptions ranging from nine days to six weeks and was unable to comply with fourteen wiretap orders. Its interception system "works sporadically and typically fails when the carrier makes any upgrade to its network", the official said.

In both cases, the FBI sent engineers to help the companies fix the problems. The bureau spends about $20 million a year on such efforts.

The official declined to name the companies, saying it would be unwise to advertise which networks have problems or to risk damaging the cooperative relationships the government has with them. For similar reasons, the government has not sought to penalize carriers over wiretapping problems.

Under current law, if a carrier meets the industry-set standard for compliance - providing the content of a call or e-mail, along with identifying information like its recipient, time and location - it achieves "safe harbor" and cannot be fined. If the company fails to meet the standard, it can be fined by a judge or the Federal Communication Commission.

But in practice, law enforcement officials say, neither option is ever invoked. When problems come to light, officials are reluctant to make formal complaints against companies because their overriding goal is to work with their technicians to fix the problem.

That dynamic can create an incentive to let problems linger: Once a carrier's interception capability is restored - even if it was fixed at taxpayer expense - its service is compliant again with the 1994 law, so the issue is moot.

The FCC also moves slowly, officials complain, in handling disputes over the "safe harbor" standard. For example, in 2007 the FBI asked for more than a dozen changes, like adding a mandate to turn over additional details about cellphone locations. The FCC has still not acted on that petition.

Civil liberties groups contend that the agency has been far too willing on other occasions to expand the reach of the 1994 law.

"We think that the FCC has already conceded too much to the bureau", said Marc Rotenberg, the president of the Electronic Privacy Information Center. "The FBI's ability to have such broad reach over technical standard-setting was never anticipated in the 1994 act".

The Obama administration is circulating several ideas for legislation that would increase the government's leverage over carriers, officials familiar with the deliberations say.

One proposal is to increase the likelihood that a firm pays a financial penalty over wiretapping lapses - like imposing retroactive fines after problems are fixed, or billing companies for the cost of government technicians that were brought in to help.

Another proposal would create an incentive for companies to show new systems to the FBI before deployment. Under the plan, an agreement with the bureau certifying that the system is acceptable would be an alternative "safe harbor", ensuring the firm could not be fined.

The proposal may also modify how the "safe harbor" standard is established. Five years ago, the FBI drafted legislation that would have given the Justice Department greater power over the standard while requiring the FCC to act more quickly on petitions. That bill, however, was not ultimately filed.

Bill Totten

US Tries to Make It Easier ...

... to Wiretap the Internet

by Charlie Savage

The New York Times (September 27 2010)

Federal law enforcement and national security officials are preparing to seek sweeping new regulations for the Internet, arguing that their ability to wiretap criminal and terrorism suspects is "going dark" as people increasingly communicate online instead of by telephone.

Essentially, officials want Congress to require all services that enable communications - including encrypted e-mail transmitters like BlackBerry, social networking Web sites like Facebook and software that allows direct "peer to peer" messaging like Skype - to be technically capable of complying if served with a wiretap order. The mandate would include being able to intercept and unscramble encrypted messages.

The bill, which the Obama administration plans to submit to lawmakers next year, raises fresh questions about how to balance security needs with protecting privacy and fostering innovation. And because security services around the world face the same problem, it could set an example that is copied globally.

James X Dempsey, vice president of the Center for Democracy and Technology, an Internet policy group, said the proposal had "huge implications" and challenged "fundamental elements of the Internet revolution" - including its decentralized design.

"They are really asking for the authority to redesign services that take advantage of the unique, and now pervasive, architecture of the Internet", he said. "They basically want to turn back the clock and make Internet services function the way that the telephone system used to function".

But law enforcement officials contend that imposing such a mandate is reasonable and necessary to prevent the erosion of their investigative powers.

"We're talking about lawfully authorized intercepts", said Valerie E Caproni, general counsel for the Federal Bureau of Investigation. "We're not talking expanding authority. We're talking about preserving our ability to execute our existing authority in order to protect the public safety and national security."

Investigators have been concerned for years that changing communications technology could damage their ability to conduct surveillance. In recent months, officials from the FBI, the Justice Department, the National Security Agency, the White House and other agencies have been meeting to develop a proposed solution.

There is not yet agreement on important elements, like how to word statutory language defining who counts as a communications service provider, according to several officials familiar with the deliberations.

But they want it to apply broadly, including to companies that operate from servers abroad, like Research in Motion, the Canadian maker of BlackBerry devices. In recent months, that company has come into conflict with the governments of Dubai and India over their inability to conduct surveillance of messages sent via its encrypted service.

In the United States, phone and broadband networks are already required to have interception capabilities, under a 1994 law called the Communications Assistance to Law Enforcement Act. It aimed to ensure that government surveillance abilities would remain intact during the evolution from a copper-wire phone system to digital networks and cellphones.

Often, investigators can intercept communications at a switch operated by the network company. But sometimes - like when the target uses a service that encrypts messages between his computer and its servers - they must instead serve the order on a service provider to get unscrambled versions.

Like phone companies, communication service providers are subject to wiretap orders. But the 1994 law does not apply to them. While some maintain interception capacities, others wait until they are served with orders to try to develop them.

The FBI's operational technologies division spent $9.75 million last year helping communication companies - including some subject to the 1994 law that had difficulties - do so. And its 2010 budget included $9 million for a "Going Dark Program" to bolster its electronic surveillance capabilities.

Beyond such costs, Ms Caproni said, FBI efforts to help retrofit services have a major shortcoming: the process can delay their ability to wiretap a suspect for months.

Moreover, some services encrypt messages between users, so that even the provider cannot unscramble them.

There is no public data about how often court-approved surveillance is frustrated because of a service's technical design.

But as an example, one official said, an investigation into a drug cartel earlier this year was stymied because smugglers used peer-to-peer software, which is difficult to intercept because it is not routed through a central hub. Agents eventually installed surveillance equipment in a suspect's office, but that tactic was "risky", the official said, and the delay "prevented the interception of pertinent communications".

Moreover, according to several other officials, after the failed Times Square bombing in May, investigators discovered that the suspect, Faisal Shahzad, had been communicating with a service that lacked prebuilt interception capacity. If he had aroused suspicion beforehand, there would have been a delay before he could have been wiretapped.

To counter such problems, officials are coalescing around several of the proposal's likely requirements:

* Communications services that encrypt messages must have a way to unscramble them.

* Foreign-based providers that do business inside the United States must install a domestic office capable of performing intercepts.

* Developers of software that enables peer-to-peer communication must redesign their service to allow interception.

Providers that failed to comply would face fines or some other penalty. But the proposal is likely to direct companies to come up with their own way to meet the mandates. Writing any statute in "technologically neutral" terms would also help prevent it from becoming obsolete, officials said.

Even with such a law, some gaps could remain. It is not clear how it could compel compliance by overseas services that do no domestic business, or from a "freeware" application developed by volunteers.

In their battle with Research in Motion, countries like Dubai have sought leverage by threatening to block BlackBerry data from their networks. But Ms Caproni said the FBI did not support filtering the Internet in the United States.

Still, even a proposal that consists only of a legal mandate is likely to be controversial, said Michael A Sussmann, a former Justice Department lawyer who advises communications providers.

"It would be an enormous change for newly covered companies", he said. "Implementation would be a huge technology and security headache, and the investigative burden and costs will shift to providers".

Several privacy and technology advocates argued that requiring interception capabilities would create holes that would inevitably be exploited by hackers.

Steven M Bellovin, a Columbia University computer science professor, pointed to an episode in Greece: In 2005, it was discovered that hackers had taken advantage of a legally mandated wiretap function to spy on top officials' phones, including the prime minister's.

"I think it's a disaster waiting to happen", he said. "If they start building in all these back doors, they will be exploited".

Susan Landau, a Radcliffe Institute of Advanced Study fellow and former Sun Microsystems engineer, argued that the proposal would raise costly impediments to innovation by small startups.

"Every engineer who is developing the wiretap system is an engineer who is not building in greater security, more features, or getting the product out faster", she said.

Moreover, providers of services featuring user-to-user encryption are likely to object to watering it down. Similarly, in the late 1990s, encryption makers fought off a proposal to require them to include a back door enabling wiretapping, arguing it would cripple their products in the global market.

But law enforcement officials rejected such arguments. They said including an interception capability from the start was less likely to inadvertently create security holes than retrofitting it after receiving a wiretap order.

They also noted that critics predicted that the 1994 law would impede cellphone innovation, but that technology continued to improve. And their envisioned decryption mandate is modest, they contended, because service providers - not the government - would hold the key.

"No one should be promising their customers that they will thumb their nose at a US court order", Ms Caproni said. "They can promise strong encryption. They just need to figure out how they can provide us plain text."

Bill Totten

Tuesday, October 26, 2010

When the 'Future' Invades Our Lives

The CIA Funds 'Predictive Behavior' Start-Ups (October 10 2010)

As they walked along the busy, yellow-lit tiers of offices, Anderton said: "You're acquainted with the theory of precrime, of course. I presume we can take that for granted."

- Philip K Dick, The Minority Report (1956)

What do Google, the CIA and a host of so-called "predictive behavior" start-ups have in common?

They're interested in you, or more specifically, whether your online interests - from Facebook to Twitter posts, and from Flickr photos to YouTube and blog entries - can be exploited by powerful computer algorithms and subsequently transformed into "actionable intelligence".

And whether the knowledge gleaned from an IP address is geared towards selling useless junk or entering a name into a law enforcement database matters not a whit. It's all "just data" and "buzz" goes the mantra, along what little is left of our privacy and our rights.

Increasingly, secret state agencies ranging from the CIA to the National Security Agency are pouring millions of dollars into data-mining firms which claim they have a handle on who you are or what you might do in the future.

And to top it off, the latest trend in weeding-out dissenters and nonconformists from the social landscape will soon be invading a workplace near you; in fact, it already has.

Welcome to the sinister world of "Precrime" where capitalist grifters, drug- and torture-tainted spy shops are all laboring mightily to stamp out every last vestige of free thought here in the heimat.

The CIA Enters the Frame

In July, security journalist Noah Shachtman revealed in Wired {1} that "the investment arms of the CIA and Google are both backing a company that monitors the web in real time - and says it uses that information to predict the future".

Shachtman reported that the CIA's semi-private investment company, In-Q-Tel {2}, and Google Ventures {3}, the search giant's business division had partnered-up with a dodgy outfit called Recorded Future {4} pouring, according to some estimates, $20 million dollars into the fledgling firm.

A blurb {5} on In-Q-Tel's web site informs us that "Recorded Future extracts time and event information from the web. The company offers users new ways to analyze the past, present, and the predicted future."

Who those ubiquitous though nameless "users" are or what they might do with that information once they "extract" it from the web is left unsaid. However, judging from the interest that a CIA-connected entity has expressed in funding the company, privacy will not figure prominently in the "new ways" such tools will be used.

Wired reported that the company, founded by former Swedish Army Ranger Christopher Ahlberg, "scours tens of thousands of websites, blogs and Twitter accounts to find the relationships between people, organizations, actions and incidents - both present and still-to-come".

"The cool thing is" Ahlberg said, "you can actually predict the curve, in many cases".

And as for the search giant's interest in "predicting the future" for the secret state, it wouldn't be the first time that Google Ventures sold equipment and expertise to America's shadow warriors.

While the firm may pride itself on the corporate slogan, "don't be evil", data is a valuable commodity. And where's there value, there's money to be made. Whether it comes in the form of "increasing share value" through the sale of private information to marketeers or state intelligence agencies eager to increase "situational awareness" of the "battlespace" is a matter of complete indifference to corporate bean counters.

After all, as Google CEO Eric Schmidt told CNBC {6} last year, "if you have something that you don't want anyone to know, maybe you shouldn't be doing it in the first place".

But that standard, "only bad people have something to hide", is infinitely mutable and can be stretched - or manipulated as has so often been the case in the United States - to encompass everything from "Papist" conspiracies, "illegal" migrants, homosexuality, communism, drug use, or America's latest bete noire: the "Muslim threat".

Schmidt went on to say that "the reality is that search engines, including Google, do retain this information for some time. And we're all subject, in the US, to the Patriot Act, and it is possible that that information could be made available to the authorities".

In February, The Washington Post {7} reported that "the world's largest Internet search company and the world's most powerful electronic surveillance organization are teaming up in the name of cybersecurity".

"The alliance" between Google and NSA "is being designed to allow the two organizations to share critical information without violating Google's policies or laws that protect the privacy of Americans' online communications", the Post alleged.

An anonymous source told the Post that "the deal does not mean the NSA will be viewing users' searches or e-mail accounts or that Google will be sharing proprietary data".


Last spring it was revealed that Google's Street View cars had been secretly vacuuming up terabytes of private wi-fi data for more than three years across Europe and the United States.

The Sunday Times {8} reported that the firm had "been scooping up snippets of people's online activities broadcast over unprotected home and business wi-fi networks".

In July, The Washington Post's "Top Secret America" investigation {9} disclosed that Google supplies mapping and search products to the US secret state and that their employees, outsourced intelligence contractors for the Defense Department, may have filched their customers' wi-fi data as part of an NSA surveillance project.

And what about email and web searches? Last year, The New York Times {10} revealed that NSA intercepts of "private telephone calls and e-mail messages of Americans are broader than previously acknowledged". In fact, a former NSA analyst described how he was trained-up fierce in 2005 "for a program in which the agency routinely examined large volumes of Americans' e-mail messages without court warrants".

That program, code-named PINWALE, and the NSA's meta-data-mining spy operation STELLAR WIND, continue under Obama. Indeed, The Atlantic {11} told us at the time that PINWALE "is actually an unclassified proprietary term used to refer to advanced data-mining software that the government uses".

But the seamless relationships amongst communications' giants such as Google and the secret state doesn't stop there.

Even before Google sought an assist from the National Security Agency to secure its networks after an alleged breech by China last year, in 2004 the firm had acquired Keyhole, Incorporated, an In-Q-Tel funded start-up that developed 3-D-spy-in-the-sky images; Keyhole became the backbone for what later evolved into Google Earth.

At the time of their initial investment, In-Q-Tel {12} said that Keyhole's "strategic relationship ... means that the Intelligence Community can now benefit from the massive scalability and high performance of the Keyhole enterprise solution".

In-Q-Tel's then-CEO, Gilman Louie, said that spy shop venture capitalists invested in the firm "because it offers government and commercial users a new capability to radically enhance critical decision making. Through its ability to stream very large geospatial datasets over the Internet and private networks, Keyhole has created an entirely new way to interact with earth imagery and feature data."

Or, as seen on a daily basis in the Afghanistan-Pakistan "theatre", deliver exciting new ways to kill people. Now that's innovation!

That was then, now the search giant and the CIA's investment arm are banking on products that will take privacy intrusions to a whole new level.

A promotional offering by the up-and-comers in the predictive behavior marketplace, Recorded Future - A White Paper on Temporal Analytics {13} asserts that "unlike traditional search engines which focus on text retrieval and leaves the analysis to the user, we strive to provide tools which assist in identifying and understanding historical developments, and which can also help formulate hypotheses about and give clues to likely future events. We have decided on the term 'temporal analytics' to describe the time oriented analysis tasks supported by our systems."

Big in the hyperbole department, Recorded Future claims to have developed an "analytics engine, which goes beyond search, explicit link analysis and adds implicit link analysis, by looking at the 'invisible links' between documents that talk about the same, or related, entities and events. We do this by separating the documents and their content from what they talk about."

According to the would-be Big Brother enablers, "Recorded Future also analyzes the 'time and space dimension' of documents - references to when and where an event has taken place, or even when and where it will take place - since many documents actually refer to events expected to take place in the future".

Adding to the unadulterated creep factor, the technocratic grifters aver they're "adding more components, for example, sentiment analyses, which determine what attitude an author has towards his/her topic, and how strong that attitude is - the affective state of the author".

Strongly oppose America's imperial project to steal other people's resources in Afghanistan and Iraq, or, crime of crimes, have the temerity to write or organize against it? Step right this way, Recorded Future has their eye on you and will sell that information to the highest bidder!

After all, as Mike Van Winkle, a California Anti-Terrorism Information Center shill infamously told the Oakland Tribune {14} back in 2003 after Oakland cops wounded scores of peacenik longshoremen at an antiwar rally at the port:

You can make an easy kind of a link that, if you have a protest group protesting a war where the cause that's being fought against is international terrorism, you might have terrorism at that (protest). You can almost argue that a protest against that is a terrorist act.

And with Recorded Future's "sentiment analyses" such "links" will be even easier to fabricate.

Never mind that the prestigious National Academy of Science's National Research Council issued a scathing 2008 report, Protecting Individual Privacy in the Struggle Against Terrorists: A Framework for Assessment {15}, that debunked the utility of data-mining and link analysis as effective counterterrorism tools.

"Far more problematic", the NRC informs us, "are automated data-mining techniques that search databases for unusual patterns of activity not already known to be associated with terrorists". Since "so little is known about what patterns indicate terrorist activity" the report avers, dodgy techniques such as link analysis "are likely to generate huge numbers of false leads".

As for Recorded Future's over-hyped "sentiment analyses", the NRC debunked, one might even say preemptively, the dodgy claims of our would-be precrime mavens. "The committee also examined behavioral surveillance techniques, which try to identify terrorists by observing behavior or measuring physiological states".

Their conclusion? "There is no scientific consensus on whether these techniques are ready for use at all in counter-terrorism". Damningly, the NRC asserted that such techniques "have enormous potential for privacy violations because they will inevitably force targeted individuals to explain and justify their mental and emotional states".

Not that such inconvenient facts matter to Recorded Future or their paymasters in the so-called intelligence community who after all, are in the driver's seat when the firm's knowledge products "make predictions about the future".

After all, as Ahlberg and his merry band of privacy invaders inform us: "Our mission is not to help our customers find documents, but to enable them to understand what is happening in the world".

The better to get a leg up on the competition or know who to target.

The "Real You"

Not to be outdone by black world spy agencies, their outsourced corporate partners or the futurist gurus who do their bidding, the high-tech publication Datamation {16}, told us last month that the precrime concept "is coming very soon to the world of Human Resources (HR) and employee management".

Reporter Mike Elgan revealed that a "Santa Barbara, California, startup called Social Intelligence {17} data-mines the social networks to help companies decide if they really want to hire you".

Elgan averred that while background checks have historically searched for evidence of criminal behavior on the part of prospective employees, "Social Intelligence is the first company that I'm aware of that systematically trolls social networks for evidence of bad character".

Similar to Recorded Future and dozens of other "predictive behavior" companies such as Attensity {18} and Visible Technologies {19}, Social Intelligence deploys "automation software that slogs through Facebook, Twitter, Flickr, YouTube, LinkedIn, blogs, and 'thousands of other sources', the company develops a report on the 'real you' - not the carefully crafted you in your resume".

According to Datamation, "the company also offers a separate Social Intelligence Monitoring service to watch the personal activity of existing employees on an ongoing basis". Such intrusive monitoring transforms the "workplace" into a 24/7 Orwellian panopticon from which there is no hope of escape.

The service is sold as an exemplary means to "enforce company social media policies". However, since "criteria are company-defined, it's not clear whether it's possible to monitor personal activity". Fear not, it is.

Social Intelligence, according to Elgan, "provides reporting that deemphasizes specific actions and emphasizes character. It's less about 'what did the employee do' and more about 'what kind of person is this employee?'"

In other words, it's all about the future; specifically, the grim world order that fear-mongering corporations are rapidly bringing to fruition.

Datamation reports that "following the current trend lines", rooted in the flawed logic of information derived from data-mining and link analysis, "social networking spiders and predictive analytics engines will be working night and day scanning the Internet and using that data to predict what every employee is likely to do in the future. This capability will simply be baked right in to HR software suites."

As with other aspects of daily life in post-constitutional America, executive decisions, ranging from whether or not to hire or fire someone, cast them into a lawless gulag without trial, or even kill them solely on the say-so of our War-Criminal-in-Chief, are the new house rules.

Like our faux progressive president, some HR bureaucrat will act as judge, jury and executioner, making decisions that can - and have - wrecked lives.

Elgan tells us that unlike a criminal proceeding where you stand before the law accused of wrongdoing and get to face your accuser, "you can't legally be thrown in jail for bad character, poor judgment, or expectations of what you might do in the future. You have to actually break the law, and they have to prove it."

"Personnel actions aren't anything like this". You aren't afforded the means to "face your accuser". In fact, based on whether or not you sucked-up to the boss, pissed-off some corporate toady, or moved into the "suspect" category based on an algorithm, you don't have to actually violate comapny rules in order to be fired "and they don't have to prove it".

Datamation tells us, "if the social network scanning, predictive analytics software of the future decides that you are going to do something in future that's inconsistent with the company's interests, you're fired".

And, Elgan avers, now that "the tools are becoming monstrously sophisticated, efficient, powerful, far-reaching and invasive", the precrime "concept is coming to HR".

Big Brother is only a "ping" or mouse click away ...





















Bill Totten