From a CIA Classmate July 15, 2005March 2, 2017 NTMD Michael: ‘Glad to see you have baited more shorts so as to run my gains that much higher. Thanks Toby!! Hahahaha be very, very, very funny to watch you cartwheel your way out of this but I wager you won’t even address it after you beating tomorrow. BTW maybe you should read the facts about the conference calls before you make lame statements!’ ☞ Thanks, Michael. Why do you think insurers and HMOs (and patients) will choose BiDil over the generic when it costs six times as much? (Roughly $2,000 a year instead of roughly $350.) Separately, what proportion of the market do you think qualifies for the free BiDil that the company has promised (or the $25/month BiDil)? Let’s hope these questions get answered on this morning’s 8:30am-10:30am open-to-the-public call. ROVE Below is a bit more clarity than you will get from White House Press Secretary Scott McClellan on the Karl Rove scandal. It all ties in to the attempt to ‘fix the facts around the policy’ and take us into a war with Iraq that was front and center on the Bush agenda long before September 11. (He lied to us about intending to pursue a humble foreign policy, just as he lied to us that the ‘vast majority’ of his proposed tax cuts would go to ‘people at the bottom of the economic ladder.’ And the Republican leadership marches in lockstep with the program.) The Big Lie About Valerie Plame By Larry Johnson From: TPMCafe Special Guests The misinformation being spread in the media about the Plame affair is alarming and damaging to the longterm security interests of the United States. Republicans’ talking points are trying to savage Joe Wilson and, by implication, his wife, Valerie Plame as liars. That is the truly big lie. For starters, Valerie Plame was an undercover operations officer until outed in the press by Robert Novak. Novak’s column was not an isolated attack. It was in fact part of a coordinated, orchestrated smear that we now know includes at least Karl Rove. Valerie Plame was a classmate of mine from the day she started with the CIA. I entered on duty at the CIA in September 1985. All of my classmates were undercover–in other words, we told our family and friends that we were working for other overt U.S. Government agencies. We had official cover. That means we had a black passport–i.e., a diplomatic passport. If we were caught overseas engaged in espionage activity the black passport was a get out of jail free card. A few of my classmates, and Valerie was one of these, became a non-official cover officer. That meant she agreed to operate overseas without the protection of a diplomatic passport. If caught in that status she [c]ould have been executed. The lies by people like Victoria Toensing, Representative Peter King, and P. J. O’Rourke insist that Valerie was nothing, just a desk jockey. Yet, until Robert Novak betrayed her she was still undercover and the company that was her front was still a secret to the world. When Novak outed Valerie he also compromised her company and every individual overseas who had been in contact with that company and with her. The Republicans now want to hide behind the legalism that “no laws were broken”. I don’t know if a man made law was broken but an ethical and moral code was breached. For the first time a group of partisan political operatives publicly identified a CIA NOC. They have set a precedent that the next group of political hacks may feel free to violate. They try to hide behind the specious claim that Joe Wilson “lied.” Although Joe did not lie let’s follow that reasoning to the logical conclusion. Let’s use the same standard for the Bush Administration. Here are the facts. Bush’s lies have resulted in the deaths of almost 1800 American soldiers and the mutilation of 12,000. Joe Wilson has not killed anyone. He tried to prevent the needless death of Americans and the loss of American prestige in the world. But don’t take my word for it, read the biased Senate intelligence committee report. Even though it was slanted to try to portray Joe in the worst possible light this fact emerges on page 52 of the report: According to the US Ambassador to Niger (who was commenting on Joe’s visit in February 2002), “Ambassador Wilson reached the same conclusion that the Embassy has reached that it was highly unlikely that anything between Iraq and Niger was going on.” Joe’s findings were consistent with those of the Deputy Commander of the European Command, Major General Fulford. The Republicans insist on the lie that Val got her husband the job. She did not. She was not a division director, instead she was the equivalent of an Army major. Yes it is true she recommended her husband to do the job that needed to be done but the decision to send Joe Wilson on this mission was made by her bosses. At the end of the day, Joe Wilson was right. There were no weapons of mass destruction in Iraq. It was the Bush Administration that pushed that lie and because of that lie Americans are dying. Shame on those who continue to slander Joe Wilson while giving Bush and his pack of liars a pass. That’s the true outrage SUMMER RE-RUN I came across this from last year, and in the spirit of summer reruns, couldn’t resist offering it again. ‘At Harvard Business School, thirty years ago,’ writes Professor Yoshi Tsurumi, ‘George Bush was a student of mine. I still vividly remember him. In my class, he declared that ‘people are poor because they are lazy.’ He was opposed to labor unions, social security, environmental protection, Medicare, and public schools. To him, the antitrust watch dog, the Federal Trade Commission, and the Securities Exchange Commission were unnecessary hindrances to ‘free market competition.’ To him, Franklin Roosevelt’s New Deal was ‘socialism.’ Recently, President Bush’s Federal Appeals Court Nominee, California’s Supreme Court Justice Janice Brown, repeated the same broadside at her Senate hearing. She knew that her pronouncement would please President Bush and Karl Rove and their Senators. President Bush and his brain, Karl Rove, are leading a radical revolution of destroying all the democratic political, social, judiciary, and economic institutions that both Democrats and moderate Republicans had built together since Roosevelt’s New Deal.’ Compassionate? Tucker Carlson, until recently the ‘right’ wing of CNN’s Crossfire, profiled then-governor Bush for the premier issue of the now-defunct Talk magazine. He reported: In the week before [Karla Faye Tucker’s] execution, Bush says, Bianca Jagger and a number of other protesters came to Austin to demand clemency for Tucker. “Did you meet with any of them?” I ask. Bush whips around and stares at me. “No, I didn’t meet with any of them,” he snaps, as though I’ve just asked the dumbest, most offensive question ever posed. “I didn’t meet with Larry King either when he came down for it. I watched his interview with [Tucker], though. He asked her real difficult questions, like ‘What would you say to Governor Bush?’ ” “What was her answer?” I wonder. “Please,” Bush whimpers, his lips pursed in mock desperation, “don’t kill me.” ‘I think it is nothing short of unbelievable,’ Gary Bauer was quoted at the time, ‘that the governor of a major state running for president thought it was acceptable to mock a woman he decided to put to death.’ Monday (or soon): Notes from a Former Cultist (Yes, One of Our Readers Helped Lead a Cult!)
Whipsawed July 14, 2005March 2, 2017 WHIPSAWED Peter M.: ‘I was short NTMD like you but covered at a loss when it broke above 23. Now I am long it. Can’t beat them, join them. I will ride it till before the conference call on July 15th. Eventually I would like to short this baby again. How about your short? Are you gonna ride it till NTMD comes home to roost?’ ☞ Peter and I have a different strategy. I like to buy undervalued stocks and short overvalued ones. It’s boring, but the odds in the long run are pretty good – or they would be, anyway, if I could reliably identify over- and undervalued stocks. NTMD, which I believe is overvalued, closed last night at $21.86, so Peter took a loss when it went up and now has a small paper loss, as it’s gone down. This may impel him to take that loss as well and go short again. It’s called ‘getting whipsawed.’ I have no idea what will go on during the conference call. (I didn’t know there was a conference call.) I assume the company will be brimming with optimism. But I expect the analysts on the call may ask pointed questions. E.g., why will patients and insurance companies pay six or seven times the price for a pill whose two components are readily available separately for a tiny fraction of the cost? And how will you make money on the many patients to whom you’ve pledged to give the pill free? SECOND MORTGAGE Mark L: ‘The recent postings about the real estate bubble got me to thinking about getting a second mortgage. I bought my first house, in Northern California, just over a year ago, thinking I must be buying at the top of the market, but lo and behold the house has appreciated about 25% – slightly more than my 20% down payment (which was a huge chunk of my savings, and still is). We got a 30-year fixed mortgage at 5.5%, which is a great loan, and I don’t want to mess with it. I’ve been wondering for a while how to hedge against (what I think is) an inevitable drop in real estate values and thought of a second mortgage. I can pull out my entire down payment, plus a little extra, at a 7% interest rate (the lender on the second will allow us to borrow up to 90% loan-to-value), which would give me a “blended” rate on the two loans below 6%. If you had told me last year that I could finance 100% of my house at under 6%, I would have jumped at the chance. So shouldn’t I do it now? I should hasten to add that I have no intention of buying a boat with the proceeds! It would just be nice to have a liquid cushion instead of most of my savings tied up in the house. I figure I could invest 1/3 of the proceeds in short term treasuries, 1/3 in a domestic equity index fund, and 1/3 in an international index fund. Simple, inexpensive, and much more diversified than having all that money in one thing (the house). Obviously I’m paying a premium for the liquidity, and it’s another sizable (though partially tax deductible) payment we’ll have to make every month, but if short term rates keep climbing, even a 7% loan may look very cheap in a few years. Any thoughts?’ ☞ I’d consider setting up a home equity loan that allows you to borrow against the value of the house, should you really need to. But would I actually borrow money at 7% today? Being a conservative type – no. You’ll lose money on the Treasuries, and what if the stocks drop instead of rise? Eventually, they would likely come back; but might you be too scared at that point and sell out at a loss? (See: Whipsawed, above.) Why not take the payments you’d make on the second mortgage and just put THAT straight into the index funds each month? (Or build a rainy day fund with it first if you prefer.) Vive la France!
Maudlin July 13, 2005January 17, 2017 WE BORROWED ANOTHER $2 BILLION OR SO TODAY Warren S: ‘While you are noting that we are borrowing an additional $2 billion each day (not a good thing), I suggest you show good balance by re-referencing this site you noted some time ago about our National Debt. By my VERY rough calculations, during the Clinton administration we borrowed roughly $681 million per day. Less than Bush II, but no great shakes (especially when we were supposedly running surpluses during several years).’ ☞ Huge differences (to my mind) are, first, that Clinton inherited deficits and left surpluses, while Bush inherited huge surpluses and has plunged us into huge deficits. Second, deficits are not terrible when they are modest. If the National Debt grows at 3% a year ($240 billion or so) while the economy is growing at 6% (3% real, 3% inflation), the National Debt shrinks significantly in proportion to the overall economy. But when the National Debt is growing by 9% or so a year – as now – it becomes larger relative to the economy. That weakens the country, saddling us with an ever larger interest burden. And wo unto the day interest rates rise, if they ever do. (Did I say that right? Wo unto the day? Well, you know what I mean. Wo, wo, wo.) A LITTLE MORE ON THE M WORD From columnist Doug Ireland: ‘I just watched on C-SPAN a tape of the vote in the Cortes, the Spanish parliament, on the gay marriage and adoption bill, including Zapatero’s speech and the approval of the bill by a 40-vote majority. Just before the vote, the chamber’s president asked the gallery – crammed with gays and lesbians – to refrain from cheering or hissing when the vote was announced (depending on which way it went, although the result was not in doubt). Naturally, when the bill passed, the queers in the gallery couldn’t restrain their joy at this extraordinary event, and the chamber’s president, as he’d warned he’d do, ordered them out of the gallery. Then, a remarkable thing happened — Zapatero and the Socialist deputies rose and gave a sustained standing ovation to the gays and lesbians as they left. It was a stunning tribute to the homosexuals’ sacrifice, courage, and refusal to accept less than full equality before the law – a recognition that this was their victory. I’ve seen many parliaments in operation in many parts of the world at times of crucial debate – but I’ve never, ever seen the parliamentarians applaud the gallery. I’m a tough-minded old cynic, but to see the Spanish parliamentarians give lesbians and gays the standing ovation we so richly deserved actually made my eyes rather moist.’ ANDY STEPHENSON This story takes a twist you would not expect. It starts out about potential voter fraud, and becomes something very different. AND NOW – IN LIGHT OF THAT TWIST Click here. Yes, it’s maudlin. Sometimes, maudlin is really nice. (Be sure your sound is on.)
You Gotta Read This Transcript July 12, 2005March 2, 2017 But first . . . $$$ PPD closed last night at $51.60. Intrinsic value of the VPXAE calls we bought for $11.80 in March: $26.60. Thanks, Glenn. Not too late to buy American Express (AXP) as a strong core holding. GOOGLE EARTH Brian Clark: ‘This is incredible. I realize that this can’t be real time for public safety reasons. It actually appears to be images that are over a year old, based on industrial buildings that have been built near my home – they are still trees in these satellite images. Still, it’s way cool!’ MIGHT YOU BE NEXT? You gotta read the transcript . . . but first, just to get in the mood, skim this: Who’s Watching the Watch List? By John Graham Posted July 7, 2005 on the AlterNet My name is on a list of real and suspected enemies of the state and I can’t find out what I’m accused of or why, let alone defend myself. Heading for Oakland from Seattle to see my grandkids last week, the Alaska Airlines check-in machine refused to give me a boarding pass. Directed to the ticket counter, I gave the agent my driver’s license and watched her punch keys at her computer. Frowning, she told me that my name was on the national terrorist No Fly Watch List and that I had to be specially cleared to board a plane. Any plane. Then she disappeared with my license for 10 minutes, returning with a boarding pass and a written notice from the Transportation Security Administration (TSA) confirming that my name was on a list of persons “who posed, or were suspected of posing, a threat to civil aviation or national security.” No one could tell me more than that. The computer was certain. Back home in Seattle, I called the TSA’s 800 number, where I rode a merry-go-round of pleasant recorded voices until I gave up. Turning to the TSA web site, I downloaded a Passenger Identity Verification form that would assist the TSA in “assessing” my situation if I sent it in with a package of certified documents attesting to who I was. I collected all this stuff and sent it in. Another 20 minutes on the phone to the TSA uncovered no live human being at all, let alone one who would tell me what I’d presumably done to get on The List. Searching my mind for possible reasons, I’ve been more and more puzzled. I used to work on national security issues for the State Department and I know how dangerous our country’s opponents can be. To the dismay of many of my more progressive friends, I’ve given the feds the benefit of the doubt on homeland security. I tend to dismiss conspiracy theories as nonsense and I take my shoes off for the airport screeners with a smile. I’m embarrassed that it took my own ox being gored for me to see the threat posed by the Administration’s current restricting of civil liberties. I’m being accused of a serious – even treasonous – criminal intent by a faceless bureaucracy, with no opportunity (that I can find) to refute any errors or false charges. My ability to earn a living is threatened; I speak on civic action and leadership all over the world, including recently at the US Air Force Academy. Plane travel is key to my livelihood. According to a recent MSNBC piece, thousands of Americans are having similar experiences. And this is not Chile under Pinochet. It’s America. My country and yours. With no real information to go on, I’m left to guess why this is happening to me. The easiest and most comforting guess is that it’s all a mistake (a possibility the TSA form, to its credit, allows). But how? I’m a 63-year-old guy with an Anglo-Saxon name. I once held a Top Secret Umbra clearance (don’t ask what it is but it meant the FBI vetted me up the whazoo for months). And since I left the government in 1980, my life has been an open book. It shouldn’t be hard for the government to figure out that I’m not a menace to my country. If they do think that, I can’t see how. Since 1983 I’ve helped lead the Giraffe Heroes Project, a nonprofit that moves people to stick their necks out for the common good. In the tradition of Gandhi, King and Mandela, that can include challenging public policies people think are unjust. In 1990, the Project’s founder and I were honored as “Points of Light” by the first President Bush for our work in fostering the health of this democracy. I’ve just written a book about activating citizens to get to work on whatever problems they care about, instead of sitting around complaining. I’m also engaged in international peacemaking, working with an organization with a distinguished 60-year record of success in places ranging from post-war Europe to Africa. Peacemakers must talk to all sides, so over the years I’ve met with Cambodians, Sudanese, Palestinians, Israelis and many others. You can’t convince people to move toward peaceful solutions unless you understand who they are. As I said, I’m not into conspiracy theories. But I can’t ignore this administration’s efforts to purge and punish dissenters and opponents. Look, for example, at current efforts to cleanse PBS and NPR of “anti-administration” news. But I’m not Bill Moyers and the Giraffe Heroes Project is not PBS. We’re a small operation working quietly to promote real citizenship. Whether it’s a mistake or somebody with the power to hassle me really thinks I am a threat, the stark absence of due process is unsettling. The worst of it is that being put on a list of America’s enemies seems to be permanent. The TSA form states: The TSA clearance process will not remove a name from the Watch Lists. Instead this process distinguishes passengers from persons who are in fact on the Watch Lists by placing their names and identifying information in a cleared portion of the Lists. Which may or may not, the form continues, reduce the airport hassles. Huh? My name is on a list of real and suspected enemies of the state and I can’t find out what I’m accused of or why, let alone defend myself. And I’m guilty, says my government, not just until proven innocent or a victim of mistaken identity – but forever. Sure, 9/11 changed a lot. Tougher internal security measures (like thorough screenings at airports and boundary crossings) are a dismal necessity. But, in protecting ourselves, we can’t allow our leaders to continue to create a climate of fear and mistrust, to destroy our civil liberties and, in so doing, to change who we are as a nation. What a victory that would be for our enemies, and what a betrayal of real patriots and so many in the wider world who still remember this country as a source of inspiration and hope. I don’t think it’s like Germany in 1936 – but, look at Germany in 1930. Primed by National Socialist propaganda to stay fearful and angry, Germans in droves refused to see the right’s extreme views and actions as a threat to their liberties. And don’t forget that frog. You know that frog. Dropped into a pot of boiling water, he jumps out to safety. But put him into a pot of cold water over a steady flame, he won’t realize the danger until it’s too late to jump. So how hot does the water have to get? When the feds can rifle through your library reading list? When they can intimidate journalists? When a government agency can keep you off airplanes without giving you a reason? When there’s not even a pretense of due process? We’re not talking about prisoners at Guantanamo; this is you and me. Well, after last week, it sure as hell is me and it could be you, next. Oh, yes — Washington State just refused to renew my driver’s license online, a privilege given others. I had to wait in line at the DMV before a computer decided I could drive home. This conspiracy theory debunker smells a connection to the Watch List. I’m mobilizing everything I’ve got to challenge the government on this issue, in a country that I love and have served. Whatever your politics, it’s your fight too. Yes, there needs to be a list of the bad guys, coordinated among the security agencies with a need-to-know. But we must demand that the government make public its criteria for putting people on this list – and those reasons can’t include constitutionally protected dissent from government policies. The feds can’t be allowed to throw names on the list without first doing simple checks for mistaken identity. And no one’s name should be added to the list, or kept on it, without a formal, open explanation of charges and the opportunity to challenge and disprove them. This assault on civil liberties must not stand – not for me, not for anybody. John Graham is the author of Stick Your Neck Out: A Street-smart Guide to Creating Change in Your Community and Beyond (San Francisco: Berrett-Koehler, 2005). He is also president of the Giraffe Heroes Project and a former US diplomat. And now . . . QUESTIONS FOR THE PRESS SECRETARY Here’s the transcript. Either the press secretary lied to the press about Karl Rove or else Karl Rove lied to the press secretary. Yesterday, though, ‘mum’ was clearly the word: Q: Does the president stand by his pledge to fire anyone involved in a leak of the name of a CIA operative? MCCLELLAN: I appreciate your question. I think your question is being asked related to some reports that are in reference to an ongoing criminal investigation. The criminal investigation that you reference is something that continues at this point. And as I’ve previously stated, while that investigation is ongoing, the White House is not going to comment on it. The president directed the White House to cooperate fully with the investigation. And as part of cooperating fully with the investigation, we made a decision that we weren’t going to comment on it while it is ongoing. Q: I actually wasn’t talking about any investigation. But in June of 2004, the president said that he would fire anybody who was involved in this leak to the press about information. I just wanted to know: Is that still his position? MCCLELLAN: Yes, but this question is coming up in the context of this ongoing investigation, and that’s why I said that our policy continues to be that we’re not going to get into commenting on an ongoing criminal investigation from this podium. The prosecutors overseeing the investigation had expressed a preference to us that one way to help the investigation is not to be commenting on it from this podium…. Q: Scott, if I could point out: Contradictory to that statement, on September 29th of 2003, while the investigation was ongoing, you clearly commented on it. You were the first one to have said that if anybody from the White House was involved, they would be fired. And then, on June 10th of 2004, at Sea Island Plantation, in the midst of this investigation, when the president made his comments that, yes, he would fire anybody from the White House who was involved. So why have you commented on this during the process of the investigation in the past, but now you’ve suddenly drawn a curtain around it under the statement of, ‘We’re not going to comment on an ongoing investigation’? MCCLELLAN: Again, John, I appreciate the question. I know you want to get to the bottom of this. No one wants to get to the bottom of it more than the president of the United States. And I think the way to be most helpful is to not get into commenting on it while it is an ongoing investigation. And that’s something that the people overseeing the investigation have expressed a preference that we follow. And that’s why we’re continuing to follow that approach and that policy. Now, I remember very well what was previously said. And, at some point, I will be glad to talk about it, but not until after the investigation is complete. Q: So could I just ask: When did you change your mind to say that it was OK to comment during the course of an investigation before, but now it’s not? MCCLELLAN: Well, I think maybe you missed what I was saying in reference to Terry’s question at the beginning. There came a point, when the investigation got under way, when those overseeing the investigation asked that it would be – or said that it would be their preference that we not get into discussing it while it is ongoing. I think that’s the way to be most helpful to help them advance the investigation and get to the bottom of it. Q: Scott, can I ask you this: Did Karl Rove commit a crime? MCCLELLAN: Again, David, this is a question relating to a ongoing investigation, and you have my response related to the investigation. And I don’t think you should read anything into it other than: We’re going to continue not to comment on it while it’s ongoing. Q: Do you stand by your statement from the fall of 2003, when you were asked specifically about Karl and Elliot Abrams and Scooter Libby, and you said, “I’ve gone to each of those gentlemen, and they have told me they are not involved in this”? MCCLELLAN: And if you will recall, I said that, as part of helping the investigators move forward on the investigation, we’re not going to get into commenting on it. That was something I stated back near that time as well. Q: Scott, this is ridiculous. The notion that you’re going to stand before us, after having commented with that level of detail, and tell people watching this that somehow you’ve decided not to talk. You’ve got a public record out there. Do you stand by your remarks from that podium or not? MCCLELLAN: I’m well aware, like you, of what was previously said. And I will be glad to talk about it at the appropriate time. The appropriate time is when the investigation… Q: (inaudible) when it’s appropriate and when it’s inappropriate? MCCLELLAN: If you’ll let me finish. Q: No, you’re not finishing. You’re not saying anything. You stood at that podium and said that Karl Rove was not involved. And now we find out that he spoke about Joseph Wilson’s wife. So don’t you owe the American public a fuller explanation. Was he involved or was he not? Because contrary to what you told the American people, he did indeed talk about his wife, didn’t he? MCCLELLAN: There will be a time to talk about this, but now is not the time to talk about it. Q: Do you think people will accept that, what you’re saying today? MCCLELLAN: Again, I’ve responded to the question. Q: You’re in a bad spot here, Scott… because after the investigation began — after the criminal investigation was under way — you said, October 10th, 2003, “I spoke with those individuals, Rove, Abrams and Libby. As I pointed out, those individuals assured me they were not involved in this,” from that podium. That’s after the criminal investigation began. Now that Rove has essentially been caught red-handed peddling this information, all of a sudden you have respect for the sanctity of the criminal investigation? MCCLELLAN: No, that’s not a correct characterization. And I think you are well aware of that….. And we want to be helpful so that they can get to the bottom of this. Because no one wants to get to the bottom of it more than the president of the United States. I am well aware of what was said previously. I remember well what was said previously. And at some point I look forward to talking about it. But until the investigation is complete, I’m just not going to do that. Q: So you’re now saying that after you cleared Rove and the others from that podium, then the prosecutors asked you not to speak anymore and since then you haven’t. MCCLELLAN: Again, you’re continuing to ask questions relating to an ongoing criminal investigation and I’m just not going to respond to them. Q: When did they ask you to stop commenting on it, Scott? Can you pin down a date? MCCLELLAN: Back in that time period. Q: Well, then the president commented on it nine months later. So was he not following the White House plan? MCCLELLAN: I appreciate your questions. You can keep asking them, but you have my response. Q: Well, we are going to keep asking them. When did the president learn that Karl Rove had had a conversation with a news reporter about the involvement of Joseph Wilson’s wife in the decision to send him to Africa? MCCLELLAN: I’ve responded to the questions. Q: When did the president learn that Karl Rove had been… MCCLELLAN: I’ve responded to your questions. Q: After the investigation is completed, will you then be consistent with your word and the president’s word that anybody who was involved will be let go? MCCLELLAN: Again, after the investigation is complete, I will be glad to talk about it at that point. Q: Can you walk us through why, given the fact that Rove’s lawyer has spoken publicly about this, it is inconsistent with the investigation, that it compromises the investigation to talk about the involvement of Karl Rove, the deputy chief of staff, here? MCCLELLAN: Well, those overseeing the investigation expressed a preference to us that we not get into commenting on the investigation while it’s ongoing. And that was what they requested of the White House. And so I think in order to be helpful to that investigation, we are following their direction. Q: Does the president continue to have confidence in Mr. Rove? MCCLELLAN: Again, these are all questions coming up in the context of an ongoing criminal investigation. And you’ve heard my response on this. Q: So you’re not going to respond as to whether or not the president has confidence in his deputy chief of staff? MCCLELLAN: You’re asking this question in the context of an ongoing investigation, and I would not read anything into it other then I’m simply going to comment on an ongoing investigation. Q: Has there been any change, or is there a plan for Mr. Rove’s portfolio to be altered in any way? MCCLELLAN: Again, you have my response to these questions…. *** Q: There’s a difference between commenting publicly on an action and taking action in response to it. Newsweek put out a story, an e-mail saying that Karl Rove passed national security information on to a reporter that outed a CIA officer. Now, are you saying that the president is not taking any action in response to that? Because I presume that the prosecutor did not ask you not to take action and that if he did you still would not necessarily abide by that; that the president is free to respond to news reports, regardless of whether there’s an investigation or not. So are you saying that he’s not going to do anything about this until the investigation is fully over and done with? MCCLELLAN: Well, I think the president has previously spoken to this. This continues to be an ongoing criminal investigation. No one wants to get to the bottom of it more than the president of the United States. And we’re just not going to have more to say on it until that investigation is complete. *** Q: When the leak investigation is completed, does the president believe it might be important for his credibility, the credibility of the White House, to release all the information voluntarily that was submitted as part of the investigation, so the American public could see what transpired inside the White House at the time? MCCLELLAN: This is an investigation being overseen by a special prosecutor. And I think those are questions best directed to the special prosecutor. Q: Have you or the White House considered whether that would be optimal to release as much information and make it as open… MCCLELLAN: It’s the same type of question. You’re asking me to comment on an ongoing investigation and I’m not going to do that. Q: I’d like you to talk about the communications strategies just a little bit there. MCCLELLAN: Understood. The president directed the White House to cooperate fully with the investigation, and that’s what he expects people in the White House to do. Q: And he would like to do that when it is concluded, cooperate fully with… MCCLELLAN: Again, I’ve already responded. Q: Scott, who in the investigation made this request of the White House not to comment further about the investigation? Was it Mr. Fitzgerald? Did he make a request of you specifically? MCCLELLAN: You can direct those questions to the special prosecutors. I think probably more than one individual who’s involved in overseeing the investigation had expressed a preference that we not get into commenting on the investigation while it’s ongoing. Shades of Watergate.
The F Word and the M Word July 11, 2005March 2, 2017 But first . . . COOL BEYOND WORDS With the free Google Earth download, you can see your own rooftop, type in an address, and ‘fly’ way into the sky, zoom towards location, then slow and ‘land’ on the roof of your destination. (Be careful!) HEALTH ADVICE Keep your feet warm and your head cool and you will live a long, healthy life. And yet heat rises. Nothing’s easy. And now . . . THE F WORD Some of you write to say that even if I preface something by saying it’s ‘extreme but interesting,’ that doesn’t get me off the hook. ‘You quote it, you own it,’ to adapt a line from Colin Powell. Well, I don’t buy that. The following strikes me as extreme, but interesting: Supreme Court – Media Ignore Possible “Fascist” Play by Thom Hartmann The Bush administration is spectacularly good at sleight-of-hand tricks, directing public attention in one direction while they’re working diligently in another. The latest trial balloon of “probable” Supreme Court nominees is no exception. While everybody is worried about abortion rights and corporate power, a far more insidious agenda may be at play. Anti-abortion forces and women’s rights groups alike are up in arms about the possibility that the next nominee may or may not have an opinion about the Court’s interpretation of the Fourth Amendment (and others) in Roe v. Wade. This battle is being loudly played out in the mainstream corporate media, with every analysis and question ultimately turning back to Roe. Because Alberto Gonzales isn’t on the record with regard to abortion rights, both sides are wary of him. At the same time, corporatist “conservatives” are salivating at the opportunity to pack the Court with judges who will further erode the rights of communities and increase the power of multinational corporations and the super-rich in America. On June 28, 2005 The Wall Street Journal ran a major story (“For a High Court Nomination, Business Has Its Own Agenda”) on how corporate Republicans may be at odds with “social” Republicans, because the latter generally endorse states’ rights. Corporatists prefer a strong federal government where all politicians can be bought centrally in Washington, DC, and federal rules and agencies can be used to back down states that may want clean air or water. Because Alberto Gonzales has a very limited record in ruling or writing on corporate rights and powers, the corporatists are not as enthusiastic about him as they are about others. What nobody seems to be noticing, though, is what may well be the real agenda of George W. Bush and those around him – neo-fascism. For this agenda, Alberto Gonzales is the perfect man. Although he testified that “I don’t recall today whether I was in agreement with the analysis” on the meeting that led to the infamous 2002 torture memo that said “injury such as death, organ failure, or serious impairment of body functions – [are necessary] in order to constitute torture,” he actually chaired the committee that drafted it. As The Washington Post noted on January 5, 2003 (“Gonzales Helped Set Course On Detainees”), “White House counsel Alberto R. Gonzales chaired the meetings on this issue, which included detailed descriptions of interrogation techniques such as ‘waterboarding,’ a tactic intended to make detainees feel as if they are drowning.” Gonzales looked over death penalty cases in Texas as Governor Bush’s counsel, and, according to an article in The Atlantic Monthly and others, contributed to an environment in which children, mentally retarded persons, and almost certainly innocent men were executed by Bush’s order. In 2001, he helped draft Executive Order 13233, which began the shutdown of the transparency and accountability that have been hallmarks of American government since its inception. In 2002 he argued that the Geneva Conventions were “quaint” and that their language was sufficiently vague that the Bush administration could essentially ignore them. He also wrote a Presidential Order saying that terror suspects could be tried by secret military tribunals and sentenced to death, and enthusiastically pushed for passage of the USA PATRIOT Act just as Democratic Senate Leader Tom Daschle and Democratic Senate Judiciary Committee Chairman Patrick Leahy – the two men in the Senate who could have shot down the PATRIOT Act – were receiving anthrax in the mail. Today, as Attorney General, the investigation of that terrorist incident is entirely in his hands. There is no official count at the moment as to how many people have died at the hands of our interrogators since Gonzales authored his infamous memo, or how many people have been turned over to torturers in other nations by a process euphemistically called “extraordinary rendition.” (Estimates run from a low of around 60 up into the thousands.) This is because Gonzales and others in the administration have led a process where, The New York Times notes, “government secrecy has reached a historic high by several measures, with federal departments classifying documents at the rate of 125 a minute…” For that matter, we don’t even know how many American citizens are, like Jose Padilla, currently “disappeared,” being held incommunicado within or outside the United States, in clear violation of the Constitution but at the behest of the Bush administration. Such information is “classified.” Although the Supreme Court under Earl Warren declined to rule on the legality of LBJ’s Vietnam War, a variety of anti-liberty dimensions of Bush’s so-called “war on terror” are almost certain to end up before the Court. An administration that can use the final imprimatur of the Supreme Court to “disappear” dissidents, corral Democratic Party campaigners into “free speech zones” with guns and bayonets, and declare a perpetual “war on terror” to prevent any investigations of its failures and crimes doesn’t need to worry about the politics of abortion. Or John Conyers snooping into voting machine irregularities in Ohio. Or any other political debate, for that matter. The Framers of the Constitution didn’t give to the Supreme Court the power to interpret the constitutionality of laws made by Congress. The Supreme Court itself did this, in an unanimous opinion written by the notorious Federalist Chief Justice John Marshall, in the case of Marbry v. Madison in 1803. This decision – handed down when Thomas Jefferson was president – so upset Jefferson that he suggested (in a letter to Abigail Adams on 9/11/1804) that if the Court were to fall into the wrong hands, it “would make the judiciary a despotic branch.” He noted in that letter that he tried to prevent this sort of danger within the courts in general by achieving balance between his own Democratic Republican Party (now called simply the Democratic Party) and the Federalists (who today are reincarnated as Republicans). “In making these appointments,” he wrote, “I put in a proportion of federalists, equal, I believe, to the proportion they bear in numbers through the Union generally.” Jefferson added: “Both of our political parties, at least the honest part of them, agree conscientiously in the same object – the public good; but they differ essentially in what they deem the means of promoting that good. … One [the Federalists] fears most the ignorance of the people; the other [the Democratic Republicans], the selfishness of rulers independent of them. Which is right, time and experience will prove.” The new Federalists – Bush’s Republicans – clearly fear We The People, and cherish their own power to rule independent of us. And if they can seize control of the Supreme Court before the next elections, their power may become nearly absolute. Historically, when fascists have come to power they have used either the threat of enemies or social issues to get the people to agree to give them control of all branches of government. When their true agenda – raw power – comes out, it’s too late for the people to resist. As Francisco Franco famously said, “Our regime is [now] based on bayonets and blood, not on hypocritical elections.” Thus, the nomination of Gonzales, or another candidate with strong fascistic leanings but no clear abortion record, will probably be trumpeted in the mainstream corporate media as a triumph of “moderation” on the part of Bush (or a tribute to his “stubbornness” or his “loyalty”). In fact, it could mark the end of our 200+ year American experiment in democracy. Thom Hartmann (thom at thomhartmann.com) is a Project Censored Award-winning best-selling author, and host of a nationally syndicated daily progressive talk show and a morning progressive talk show on KPOJ in Portland, Oregon. www.thomhartmann.com His most recent books are “The Last Hours of Ancient Sunlight,” “Unequal Protection,” “We The People,” “The Edison Gene”, and “What Would Jefferson Do?” THE M WORD July 5, 2005 The Heterosexual Revolution By STEPHANIE COONTZ Olympia, Wash. THE last week has been tough for opponents of same-sex marriage. First Canadian and then Spanish legislators voted to legalize the practice, prompting American social conservatives to renew their call for a constitutional amendment banning such marriages here. James Dobson of the evangelical group Focus on the Family has warned that without that ban, marriage as we have known it for 5,000 years will be overturned. My research on marriage and family life seldom leads me to agree with Dr. Dobson, much less to accuse him of understatement. But in this case, Dr. Dobson’s warnings come 30 years too late. Traditional marriage, with its 5,000-year history, has already been upended. Gays and lesbians, however, didn’t spearhead that revolution: heterosexuals did. Heterosexuals were the upstarts who turned marriage into a voluntary love relationship rather than a mandatory economic and political institution. Heterosexuals were the ones who made procreation voluntary, so that some couples could choose childlessness, and who adopted assisted reproduction so that even couples who could not conceive could become parents. And heterosexuals subverted the long-standing rule that every marriage had to have a husband who played one role in the family and a wife who played a completely different one. Gays and lesbians simply looked at the revolution heterosexuals had wrought and noticed that with its new norms, marriage could work for them, too. The first step down the road to gay and lesbian marriage took place 200 years ago, when Enlightenment thinkers raised the radical idea that parents and the state should not dictate who married whom, and when the American Revolution encouraged people to engage in “the pursuit of happiness,” including marrying for love. Almost immediately, some thinkers, including Jeremy Bentham and the Marquis de Condorcet, began to argue that same-sex love should not be a crime. Same-sex marriage, however, remained unimaginable because marriage had two traditional functions that were inapplicable to gays and lesbians. First, marriage allowed families to increase their household labor force by having children. Throughout much of history, upper-class men divorced their wives if their marriage did not produce children, while peasants often wouldn’t marry until a premarital pregnancy confirmed the woman’s fertility. But the advent of birth control in the 19th century permitted married couples to decide not to have children, while assisted reproduction in the 20th century allowed infertile couples to have them. This eroded the traditional argument that marriage must be between a man and a woman who were able to procreate. In addition, traditional marriage imposed a strict division of labor by gender and mandated unequal power relations between men and women. “Husband and wife are one,” said the law in both England and America, from early medieval days until the late 19th century, “and that one is the husband.” This law of “coverture” was supposed to reflect the command of God and the essential nature of humans. It stipulated that a wife could not enter into legal contracts or own property on her own. In 1863, a New York court warned that giving wives independent property rights would “sow the seeds of perpetual discord,” potentially dooming marriage. Even after coverture had lost its legal force, courts, legislators and the public still cleaved to the belief that marriage required husbands and wives to play totally different domestic roles. In 1958, the New York Court of Appeals rejected a challenge to the traditional legal view that wives (unlike husbands) couldn’t sue for loss of the personal services, including housekeeping and the sexual attentions, of their spouses. The judges reasoned that only wives were expected to provide such personal services anyway. As late as the 1970’s, many American states retained “head and master” laws, giving the husband final say over where the family lived and other household decisions. According to the legal definition of marriage, the man was required to support the family, while the woman was obligated to keep house, nurture children, and provide sex. Not until the 1980’s did most states criminalize marital rape. Prevailing opinion held that when a bride said, “I do,” she was legally committed to say, “I will” for the rest of her married life. I am old enough to remember the howls of protest with which some defenders of traditional marriage greeted the gradual dismantling of these traditions. At the time, I thought that the far-right opponents of marital equality were wrong to predict that this would lead to the unraveling of marriage. As it turned out, they had a point. Giving married women an independent legal existence did not destroy heterosexual marriage. And allowing husbands and wives to construct their marriages around reciprocal duties and negotiated roles – where a wife can choose to be the main breadwinner and a husband can stay home with the children- was an immense boon to many couples. But these changes in the definition and practice of marriage opened the door for gay and lesbian couples to argue that they were now equally qualified to participate in it. Marriage has been in a constant state of evolution since the dawn of the Stone Age. In the process it has become more flexible, but also more optional. Many people may not like the direction these changes have taken in recent years. But it is simply magical thinking to believe that by banning gay and lesbian marriage, we will turn back the clock. Stephanie Coontz, the director of public education for the Council on Contemporary Families, is the author of “Marriage, a History: From Obedience to Intimacy, or How Love Conquered Marriage.”
The Liberal Press July 8, 2005January 17, 2017 But first . . . PPD Summer fun – up $1.64 yesterday to close at $49.40. NTMD I’ve thought of an analogy to summarize Tuesday’s write-up. You know about ‘take two aspiring and call me in the morning?’ If my doctor source is presenting the case fairly, then, in effect, NTMD’s hopes rest on the proposition that patients will choose instead to ‘take one double-size aspirin’ at seven times the price. He doesn’t think a whole lot of people, let alone insurance companies or HMOs, are going to pay seven times as much for what is essentially the same thing. THE NEWS FROM GIBRALTAR This just in from one of the Borealis subsidiaries. Not that I have more than the vaguest idea what they’re talking about. But I’m encouraged nonetheless: “Avto Effect” Transforms Electron Emission Characteristics Gibraltar, 7th July: A new method for increasing electron emission from thin film materials may provide much improved materials for constructing vacuum diodes and similar components, and, in turn, allow for greater efficiency in a wide range of industrial processes, including power generation and heat management. Named for Dr Avto Tavkhelidze, who first theorized, researched and discovered it, the “Avto Effect” has now been observed many times in specially prepared films of gold and other materials. The preparation involves changing the geometry of the surface of the film by etching tiny grooves or corrugations on it. As a result, quantum wave interference reveals new electronic characteristics which were previously unobserved. One of the first effects to be observed has been a change in the material’s “work function”, the amount of work needed to cause electron emission. In repeated tests, the material’s work function has been markedly lowered, allowing electrons to flow more freely into the vacuum. These results are consistent with the theory developed by Georgian scientist Dr Tavkhelidze which will be presented next week, on July 10th, at 18th International Vacuum Nanoelectronics Conference held at St. Catherine’s College, Oxford, UK (10th-14th July) by Nechama Katan, program manager for Avto Metals plc, a company formed to commercialize the “Avto Effect”. The discovery can be applied to many materials, including non-metallic materials such as silicon, although the phrase “Avto Metal” was coined at an early stage to describe the resulting surfaces. The paper, Observation of New Quantum Interference Effect in Solids, will present the theory and results, including images of the grooved surfaces. Tests have been conducted at three independent laboratories in Europe and the USA in order to confirm the unprecedented results. The rate of electron emission has, in the past, been regarded as a characteristic of the material, defined by a constant known as the “work function”. Consequently, to get better work functions, most research looks for new materials. The idea of improving the geometry of the surface to effectively change the work function of a material across the whole surface is a new development which has become possible as a result of improved techniques for precisely texturing a surface at the nanoscale level. An important difference between the Avto Effect and earlier work is that the higher rate of emission is consistent across the whole surface of the film, so Avto Metals do not rely on field emitters such as tips or nanotubes which are difficult to fabricate and handle. And because the reduced work functions of Avto Metals allow for thermionic emission instead of field emission, emission occurs as a result of elevated temperatures, not the application of very high voltages. Avto Metals plc program manager Nechama Katan said: “The ability to lower the work function of materials has commercial implications for many industrial processes, from amplifiers to mass spectrometry to the cathode ray tube, transistors, and any technology using vacuum diodes. In particular, we expect it to facilitate the production of Power Chips™ and Cool Chips™, proprietary technologies owned by our sister companies in the Borealis family.” ☞ Yes, this stock may someday go to zero, as I warn every time. But if I had my choice between paying $700 million for all of NTMD or $700 million for all of Borealis, I’d expose myself to endless ridicule and take the Borealis. Which would have to increase 14-fold just to reach NTMD’s $700 million valuation. Borealis claims to have $1 billion worth of iron ore; a small electric motor strong enough to tug commercial airlines (and so, too, presumably, smaller things like, well, cars); a chip with no moving parts that will be able to convert heat to power; and this AVTO breakthrough, above, that falls short of my goal (a spray I can use to make myself invisible and able to fly) but that could nonetheless, from the sound of it, be a big deal. NTMD, selling at a valuation 14 times as great has a drug composed of two readily available generics that studies show can help African-American patients with congestive heart failure . . . and that the company has announced it will give free, or nearly free, to patients with no health insurance. They say the stock market is “efficient,” taking all available knowledge and setting prices accordingly. There is something to this; but, I’ve come to believe – especially with small stocks that are not widely followed – not as much as I once thought. And now . . . THE LIBERAL PRESS Please read this, by George McClure in the Denver Post. In large part: The mainstream media in this country are dominated by liberals. I was informed of this fact by Rush Limbaugh. And Thomas Sowell. And Ann Coulter. And Rich Lowry. And Bill O’Reilly. And William Safire. And Robert Novak. And William F. Buckley, Jr. And George Will. And John Gibson. And Michelle Malkin. And David Brooks. And Tony Snow. And Tony Blankely. And Fred Barnes. And Britt Hume. And Larry Kudlow. And Sean Hannity. And David Horowitz. And William Kristol. And Hugh Hewitt. And Oliver North. And Joe Scarborough. And Pat Buchanan. And John McLaughlin. And Cal Thomas. And Joe Klein. And James Kilpatrick. And Tucker Carlson. And Deroy Murdock. And Michael Savage. And Charles Krauthammer. And Stephen Moore. And Alan Keyes. And Gary Bauer. And Mort Kondracke. And Andrew Sullivan. And Nicholas von Hoffman. And Neil Cavuto. And Matt Drudge. And Mike Rosen. And Dave Kopel. And John Caldara. . . . The mainstream media in this country are dominated by liberals. Look at how they all gave Bill Clinton a pass on the whole Monica Lewsinsky affair. Remember? It was never in the news. We never heard any of the salacious details. The work of his presidency never came to a virtual halt while he defended himself. The mainstream media in this country are dominated by liberals. They have so poisoned the electorate that no Republicans can get elected. Republicans don’t control the presidency. Republicans don’t control both houses of Congress. Republicans don’t control 28 of 50 governorships. Last year, a lot was made of a report released by The Pew Research Center for the People and the Press. The report found that 34 percent of national journalists identified themselves as liberal, 54 percent identified themselves as moderate and 7 percent identified themselves as conservative. Twenty-three percent of local journalists identified themselves as liberal, 61 percent identified themselves as moderate and 12 percent identified themselves as conservative. These figures can be interpreted in a number of ways. First of all, if you actually read the whole report, you’d come across commentary that specifically warned against drawing any easy, across-the-board conclusions: “We would be reluctant to infer too much here. The survey includes just four questions probing journalists’ political attitudes, yet the answers to these questions suggest journalists have in mind something other than a classic big government liberalism and something more along the lines of libertarianism.” But pretend you’re doing a story on the Pew report, and the nuanced comments above are not sufficiently dramatic for your medium. You need to reduce things into some digestible sound bites. If you wanted to sound the alarm bells on the right, you could say that national journalists were nearly five times as likely to identify themselves as liberal than as conservative. This would be literally true but perhaps a little misleading, as the same poll results tell us that 61 percent of national journalists identified themselves as moderate or conservative. . . . George McClure is a former stand-up comic who now works as general manager of a Denver marketing firm. ☞ Jon Stewart recently had a bit about victimized American Christians . . . in which he expressed his fervent prayer that someday – someday! – this great and tolerant country of ours may actually elect a Christian president. “Or 43 of them. Consecutively.” Well, the notion that conservatives are victimized by the predominantly liberal press may be somewhat similarly overblown. Indeed, compare the treatment of Bill Clinton (as suggested above) and the treatment of Karl Rove (as marveled at below). THE (COWED) LIBERAL PRESS – KARL ROVE Shhh, Don’t Wake the Press By Eric Boehlert It’s been six days since Lawrence O’Donnell went on national TV and reported internal Time Magazine emails handed over to the independent prosecutor would show Karl Rove was the source Time reporter Matt Cooper had been protecting. It’s been three days since Newsweek confirmed, “The e-mails surrendered by Time Inc., which are largely between Cooper and his editors, show that one of Cooper’s sources was White House deputy chief of staff Karl Rove.” The Newsweek article also included confirmation from Rove’s attorney that yes, the president’s chief political architect did speak to Cooper about his Valerie Plame story, as well as a carefully worded denial that Rove “never knowingly disclosed classified information.” Does any of this sound like news? Apparently not for reporters covering the White House. Yes, they’re traveling with Bush who’s attending the G8 Summit in Scotland. And yes, because of the long holiday weekend they’ve only had two briefings this week with White House spokesman Scott McClellan. But during those briefings here’s how many questions reporters asked McClellan: 52 And here’s how many were about Rove and the Plame investigation: 0. Rove-Plame: The Word from Aspen By Arianna Huffington How is it that the second most powerful man in America is about to take a fall and the mainstream media are largely taking a pass? Could it be that the fear of Karl Rove and this White House is so great that not even the biggest of the media big boys are willing to take them on? Does the answer to that one go without saying? . . . From the way they’ve acted so far, the mainstream media would rather this scandal just go away (bloggers take note). Just look at the way Newsweek handled the Rove-outed-Plame story in this week’s edition. The editors obviously knew they had a hot story and could have pushed it hard. Instead, it’s clear that they lawyered it within an inch of its life — a bunch of legal eagles with faint hearts removing any juice and most of the meat from it. . . . Want another example? Just look at how the White House press corps is dealing with the story: by avoiding it completely. Today’s press gaggle took place aboard Air Force One on the way to Scotland. Now, given that Rove may or may not be the subject of a federal investigation, one would think that our intrepid White House reporters might, you know, ask the White House spokesman about that. But if you do a text search for the word “Rove,” you’ll see that not a single press person thought that the fact that the President of the United States’ most trusted advisor is, at the very least, a key player in a criminal investigation was worth a single question to Scottie McClellan. Not a one. DNC Research THE PLAME LEAK IS OF VITAL IMPORTANCE: Commenting on the remarks of the federal judges who have ruled on Cooper/Miller case, Lawrence O’Donnell today pointed out that “All the judges who have seen the prosecutor’s secret evidence firmly believe he is pursuing a very serious crime, and they have done everything they can to help him get an indictment.” And remember, it was George W. Bush’s father who, speaking at CIA headquarters in 1999, said, “I have nothing but contempt and anger for those who betray the trust by exposing the name of our sources. They are, in my view, the most insidious, of traitors.” Likewise, when asked whether exposing Valerie Plame’s identity would be “worse than Watergate,” President Bush’s close colleague Ed Gillespie said, “Yeah, I suppose in terms of the real world implications of it,” adding that “to reveal the identity of an undercover CIA operative — it’s abhorrent, and it should be a crime, and it is a crime.” Those who try to play down the importance of PlameGate are deceiving themselves. KARL ROVE HAS NOT YET ANSWERED WHETHER HE IS A SUBJECT OF THE INVESTIGATION: Rove’s attorney Robert Luskin acknowledged over the weekend that Karl Rove has testified “two or three times” before the grand jury. These multiple visits prompted one lawyer “representing a witness sympathetic to the White House” to tell Newsweek that there is “growing ‘concern’ in the White House that the prosecutor is interested in Rove.” Luskin has insisted in several recent interviews that Rove is not a “target” of Fitzgerald’s investigation. But this leaves open the possibility that Rove is a “subject” of the investigation. The difference? While a “target” is a “putative defendant” according to the U.S. Attorneys’ Manual, a “subject” is a person not yet thought to have committed a crime but “whose conduct is within the scope of the grand jury’s investigation” (these two definitions are distinct from the third possible status, a mere “witness”). Lawrence O’Donnell, who broke the news of Rove’s contacts with Time reporter Matt Cooper, notes: “Three trips to the same grand jury is frequently an indicator of subject status.” So, Mr. Rove, if you’re not a target, are you a witness or a subject? ROVE HAS NEVER DENIED LEAKING THE IDENTITY OF WILSON’S WIFE: The public statements by Karl Rove and his attorney Robert Luskin regarding Rove’s role have been worded vaguely, in such a way that leaves unclear whether Rove is denying that he ever revealed (in any way) the true identity of Joseph Wilson’s wife, or whether he is merely denying that he revealed the specific name — Valerie Plame (also her maiden name) — that she used only while carrying out her covert work. Rove’s attorney told Newsweek that Rove “did not tell any reporter that Valerie Plame worked for the CIA“; he told the Los Angeles Times that Rove “absolutely did not identify Valerie Plame.” And in August 2004, Rove denied knowing Plame’s name: “Well, I’ll repeat what I said to ABC News when this whole thing broke some number of months ago. I didn’t know her name and didn’t leak her name.” Under a strict interpretation, these statements confirm only that Rove did not leak Plame’s name, not whether he revealed her role as a covert operative. ROVE’S DISCLOSURE OF CLASSIFIED INFORMATION IS UNCLEAR: As several commentators have noted, Rove’s attorney has almost uniformly stated that Rove never “knowingly” disclosed classified information (although on one occasion, Luskin did apparently say to Bloomberg News that Rove “did not reveal any confidential information,” leaving off the word “knowingly”). As Lawrence O’Donnell pointed out: “Not coincidentally, the word ‘knowing’ is the most important word in the controlling statute (U.S. Code: Title 50: Section 421). To violate the law, Rove had to tell Cooper about a covert agent “knowing that the information disclosed so identifies such covert agent and that the United States is taking affirmative measures to conceal such covert agent’s intelligence relationship to the United States.” So, did Rove ever unknowingly disclose classified information? Moreover, a legal memo obtained by Hill reporter Josh Marshall interpreted the relevant laws to hold that “a government insider, with access to classified information, such as Rove is also prohibited from confirming or further disseminating the identity of a covert agent even after someone else has leaked it.” According to today’s New York Times, “Cooper’s decision to drop his refusal to testify followed discussions on Wednesday morning among lawyers representing Mr. Cooper and Karl Rove, the senior White House political adviser, according to a person who has been officially briefed on the case.” Did Rove ever confirm or disseminate classified information? ROVE COULD COME CLEAN AT ANY TIME: A simple, clear statement by Rove would do much to end speculation about his role in any potential wrongdoing. Yet Rove is refusing to answer questions about the case, and, more suspiciously, his attorney is justifying his silence with the specious claim that Special Prosecutor Patrick Fitzgerald has “asked us not to talk about what Karl has had to say.” As O’Donnell points out, “Prosecutors have absolutely no control over what witnesses say when they leave the grand jury room. Rove can tell us word-for-word what he said to the grand jury and would if he thought it would help him.” The only thing that prevents him from doing so, O’Donnell adds, is “a good lawyer who is trying to keep him out of jail.” BUSH ADMINISTRATION OFFICIALS COULD KEEP MILLER OUT OF JAIL: Whether one supports or opposes Judith Miller’s refusal to reveal her source, the fact remains that she never had to face this fate. At any time, the Bush administration officials who leaked Valerie Plame’s identity could step forward and relieve Miller of her difficult circumstances. As Joseph Wilson noted last night, “The sentencing of Judith Miller to jail for refusing to disclose her sources is the direct result of the culture of unaccountability that infects the Bush White House from top to bottom. … Clearly, the conspiracy to cover up the web of lies that underpinned the invasion of Iraq is more important to the White House than coming clean on a serious breach of national security.” Likewise, John Dean, former White House counsel to President Nixon during the Watergate controversy, said on Tuesday: “Whoever it is, he or she is a huge coward. And the fact that they would let somebody [go to prison] — this is the sort of thing that Mafia people do, that drug kings do, not somebody who’s serving in the White House as a public servant.” ROVE AND NOVAK HAVE A TRACK RECORD: Karl Rove and Robert Novak apparently have a history of spreading damaging information. In January 2003, Ron Suskind reported in Esquire that “Sources close to the former president [George H.W. Bush] say Rove was fired from the 1992 Bush presidential campaign after he planted a negative story with columnist Robert Novak about dissatisfaction with campaign fundraising chief and Bush loyalist Robert Mosbacher Jr. It was smoked out, and he was summarily ousted.” AT LEAST ONE WHITE HOUSE OFFICIAL HAS BEEN CAUGHT IN A LIE: Rove’s acknowledgement of his role in spreading information about Wilson and Plame seems to clearly contradict a claim in October 2003 by White House Press Secretary Scott McClellan, who said that “those individuals [Karl Rove, Elliot Abrams, and Lewis Libby] assured me they were not involved with this.” So, did Karl Rove and his White House colleagues deceive Scott McClellan, or did Scott McClellan deceive the American people? AN APPARENT DISCREPANCY EXISTS IN THE TIMELINE OF ROVE’S CONTACTS WITH JOURNALISTS: Though Rove’s involvement in spreading information about former ambassador Wilson and his wife is now known, the timeline remains unclear. Recent statements from Rove’s lawyer have only muddied the picture. In October 2003, Rove reportedly admitted to the grand jury “that he circulated and discussed damaging information regarding [Plame] with others in the White House, outside political consultants, and journalists,” part of an “aggressive campaign to discredit Wilson through the leaking and disseminating of derogatory information regarding him and his wife.” According to investigative journalist Murray Waas, Rove told the grand jury that “he had only circulated information about Plame after it had appeared in [Robert] Novak’s column.” But according to Rove’s attorney Robert Luskin, “Rove spoke to Cooper three or four days before Novak’s column appeared.” What’s the real story here? PRESIDENT BUSH’S THOUGHTS ARE UNKNOWN: For well over a year, the White House line has been that “no one wants to get to the bottom of [this investigation] more than the President of the United States.” Considering his great interest, it seems surprising, then, that President Bush has had nothing to say about Saturday’s revelation that his own top advisor, Karl Rove, apparently did indeed participate in the coordinated campaign to smear former ambassador Joe Wilson. ☞ If you’ve actually this far, have a great weekend (what little – unless you’re a speed reader – is now left of it). (Sorry about that. I just think there’s so much we all need to pay attention to. These are not ordinary times.) PS – We borrowed another $2 billion or so today.
Oil — Here Come the Chinese July 7, 2005January 17, 2017 We borrowed another two billion dollars or so again yesterday (and every day) to support the fiscal irresponsibility of the Republican leadership? The irony dazzles. # REAL ESTATE BUBBLE Drew: ‘I first read Monday’s poem 25 years ago, in the commercial real estate office of a friend’s father. Two years afterwards, the local market went into a slump, that office was closed, and my friend’s father filed bankruptcy. In the long run, I’ve no doubt that real estate is a good investment, but it is a cyclical market, and right now it’s peaking. Why buy now when in a couple of years you can pick something up for a lot less?’ DON’T SELL YOUR OIL STOCKS Our APC is up from $56 to $85 in just over a year. But I’m not sure the run in oil stocks is over. Click here. In small part: There is a famous quote from Albert Einstein about war. He said “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.” I am considerably less qualified than Einstein to predict the weapons to be used in WWIII, but I am pretty sure of what it will be about, and who we will be fighting against. In fact, the war has already begun. The war is about oil, and our dance partner is China . . .
A Tale of Two Stocks July 6, 2005January 17, 2017 So two ‘liberal reporters’ risk jail to protect Karl Rove? The irony dazzles. # Two stocks today: one that people have heavily shorted but perhaps should not have; the other that people have not so heavily shorted – but perhaps should have. But first, from yesterday . . . MARRIAGE EQUALITY Nancy: ‘Sadly our family left the Methodist Church after many years. We had experiences similar to your friend’s in Georgia. But The United Church of Christ passed a resolution yesterday calling for ‘full marriage equality.’ It’s nice to have cause to celebrate.’ ☞ And Spain now joins Canada, the Netherlands, and Belgium in granting equal rights (while leaving churches, mosques and synagogues free, as they should be, to condemn, vilify, and discriminate). In the words of Spain’s Prime Minister, Jose Luis Rodriguez Zapatero: . . . We are enlarging the opportunity for happiness to our neighbors, our co-workers, our friends and, our families: at the same time we are making a more decent society, because a decent society is one that does not humiliate its members. . . . Today, the Spanish society answers to a group of people who, during many years have, been humiliated, whose rights have been ignored, whose dignity has been offended, their identity denied, and their liberty oppressed. Today the Spanish society grants them the respect they deserve, recognizes their rights, restores their dignity, affirms their identity, and restores their liberty. It is true that they are only a minority, but their triumph is everyone’s triumph. It is also the triumph of those who oppose this law, even though they do not know this yet: because it is the triumph of Liberty. Their victory makes all of us (even those who oppose the law) better people, it makes our society better. PPD – Ouch! That’s not our ouch – we bought the January 2007 25 LEAPS March 18 at $11.80 when the stock was $35. It’s the ouch of the speculators who’ve sold 5 million shares short and who watched the stock jump $3.75 yesterday to close at $48.55 . . . putting the intrinsic value of our LEAPS at $23.55 (because the right to buy something for $25 that you can turn around and sell for $48.55 is intrinsically worth $23.55), about double what we paid. (Of course, I’m not crowing about the Comcast I suggested at $32.33 that’s now $29.54. Or the ARC suggested at $14 that’s now $13.65 – let alone the Google puts, a total wipe-out.) (But SYM has doubled in little more than a year, after accounting for its $1 a share distribution, and CMM was up to $22.81 last night, more than double its price a year and a half ago, so we can still pay the rent.) The jump in PPD’s price seems to have been occasioned by this press release. Sales are up – yet again. NTMD – Ouch! I recently sold short shares in a company called NitroMed, whose stock jumped above $22 in the last few days on the strength of its press release. Basically – if the savvy doctor who’s explained it to me has it right – they have come out with a pill that can help African Americans suffering from congestive heart failure (something any investor would rush to invest in) – but that has long been available generically (so . . . well . . . maybe not). As he explains it: NitroMed now sells a drug called BiDil that is a fixed dose of two very old drugs. One tablet of BiDil consists of 37.5 mg of hydralazine and 20 mg of isosorbide dinitrate. The fixed combination of these two is medically identical to taking the two drugs separately. Hydralazine and isosorbide dinitrate are each available generically and have been on the market for at least 20 years. BiDil was rejected in 1997 for treatment of all patients with congestive heart failure because of lack of efficacy. But NTMD received FDA approval last month to use BiDil in treating African Americans, for whom it does seem to have positive results. On Friday, NTMD announced that ‘BiDil will be priced at a wholesale acquisition cost (WAC) of $1.80 per tablet. NitroMed expects that BiDil starter samples will be available in doctors’ offices the week of July 5th, with commercial product available in pharmacies beginning the following week.’ WAC is the price to the pharmacist and does not include a mark-up the pharmacist may make to the patient or HMO. The dosage of BiDil is two tablets three times a day, although on average patients in the trial took about 4 pills a day. If you go here, you see that 25 mg and 50 mg tablets of hydralazine can be purchased for $0.13 each including shipping. The same site shows that a 20 mg tablet of isosorbide dinitrate can be purchased for $0.19. Thus, the cost of the four pills needed to replicate two BiDil tablets is 64 cents. The cost of two BiDil tablets is 2 x $1.80 = $3.60 – plus whatever the pharmacist adds as his markup. So BiDil is priced at six times the generic competition while providing no medical advantage. It is inconceivable with this pricing premium that there will be significant sales. In many pharmacies, especially those affiliated with HMO’s, there is automatic generic substitution unless the doctor specifies otherwise. In addition, the company announced on Friday that ‘NitroMed expects to make BiDil available free-of-charge to patients without insurance coverage whose annual household incomes are up to three times the poverty level. For all others without insurance coverage, NitroMed expects to make BiDil available for $25 per prescription, which is consistent with the co-payment typically charged by private insurance for tier II, or preferred branded drugs.’ It is not clear what percentage of African American patients with congestive heart failure have incomes less than 3 times the poverty level or no insurance coverage, but it must be significant. Again, these drugs are available generically and have been so for more than a decade. Familiarity among doctors should exceed 90%. There is no medical penalty for using the generics instead of BiDil tablets. I cannot find a doctor who thinks that sales of BiDil will be significant. Why would anyone want to pay six times the price for the same drug? There are 30 million shares outstanding, so at $22/share, the stock has a market cap of $660 million. It has $125 million in cash as of the end of 1Q 2005 and is burning $84 million per year. Marketing expenses will probably be much higher than analysts are estimating, while sales should be almost non-existent. The company should run out of cash within a year and half. There are no products in the pipeline that are currently in human testing. I think the stock will be in single digits before the end of the year. ☞ You really need to know what you’re doing to short stocks, lest you lose an unlimited amount of money; so don’t short this one. And if you buy the December puts (the furthest available expiration), understand that you could easily lose 100% of what you bet, even if, in the long run, this analysis proves accurate. Full disclosure: I have a stake in seeing this stock go down. You never know, but here is a company pinning investor hopes largely on one possibly dubious prospect which, if my doctor is right, would not really change the world all that much – valued at over $650 million. Meanwhile, our old pal Borealis, which is also highly speculative (okay, highly highly speculative) has several prospects, any one of which, if it ever panned out, could have a dramatic impact. And it is valued at about $50 million – a rounding error on Nitromed’s valuation. Time will tell with these two, but I like the odds.
Can Prices Really Climb? Real Estate in Rhyme July 5, 2005March 2, 2017 But first . . . THE REST OF THE STORY Hope you had a great weekend and reflected on what makes America unique and – let’s hope one day again soon – beloved around the world. In case you’ve not seen it, here is radio commentator Paul Harvey’s view of what made America great (including distributing smallpox-infected blankets to the Indians): We didn’t come this far because we’re made of sugar candy. Once upon a time, we elbowed our way onto and across this continent by giving smallpox-infected blankets to Native Americans. That was biological warfare. And we used every other weapon we could get our hands on to grab this land from whomever. And we grew prosperous. And yes, we greased the skids with the sweat of slaves. So it goes with most great nation-states, which – feeling guilty about their savage pasts – eventually civilize themselves out of business and wind up invaded and ultimately dominated by the lean, hungry up-and-coming who are not made of sugar candy. For more (we should be using our nukes), click here. AFRICA Excerpted from RESULTS.org: At first glance, it is heartening to see the Bush Administration commit to fight a child-killer like malaria. However the truth is that the President’s budget for 2006 actually cuts funding for infectious diseases, the account that includes malaria, by $61 million. Although the President’s new malaria initiative would add $30 million for 2006, this is less than the total cut already made. Not insignificantly, nearly half of the money pledged for malaria will not come until 2010, when the president is no longer in office, and therefore unable to ensure that this money is allocated. . . . According to UNICEF, malaria kills a child in sub-Saharan Africa every 30 seconds. Globally, more than 1 million people die due to malaria every year, the vast majority of them young children under the age of five. Two interesting points about this are, first – as noted by Professor Jeff Sachs last month – saving children’s lives actually REDUCES population growth (so we could save a million people a year and slow Africa’s tragic population explosion). And, second, the money it would cost us to eradicate malaria is a tiny fraction of the tax cuts planned for the heirs of those leaving estates of $50 million or more. FAUX NEWS Media Matters reports that the Fox News ‘Supreme Court analyst,’ C. Boyden Gray, heads a political committee formed to ensure the confirmation of Bush judicial nominees. Fox did not disclose this to its viewers. LETTER FROM GEORGIA A friend writes: ‘I am spending the holiday in my hometown in rural Northwest Georgia. I made the mistake of attending METHODIST (not Pentacostal or Baptist, but METHODIST) church with my mother this morning. I listened in shock when the pastor led a sermon about how our forefathers wanted to create a CHRISTIAN, and only a CHRISTIAN, nation and that the congregation had to stand up and force the government to follow Christian beliefs. That our president should start each major speech by praying to God. That the Ten Commandments should be on display in every public building. Amens coming left and right from the congregation. I stormed out in mid-sermon when he came to the topic of gays and lesbians. My view: It is going to be almost impossible to win against the pulpit when pitching to this group. Peer pressure is so strong. Even my mother, a relatively loving and progressive woman, has been sitting there and listening to this BS because it is where all of her friends go to church. After the last election she was informed on the church steps that she wasn’t a good Christian unless she had voted for Bush.’ And now . . . BUT I STILL THINK IT’S A BUBBLE . . . . . . in the frothier housing markets, anyway. The kicker here is when this poem was written: I hesitate to make a list Of all the countless deals I’ve missed. Bonanzas that were in my grip – I watched through my fingers slip: The windfalls which I should have bought Were lost because I over thought: I thought of this, I thought of that, I could have sworn I smelled a rat. And while I thought things over twice Another grabbed them at the price.It seems I always hesitate, Then make up my mind much too late. A very cautious man am I And that is why I never buy.How Nassau and how Suffolk grew! North Jersey! Staten Island too! When others culled those sprawling farms and welcomed deals with open arms -A corner here, ten acres there, Compounding values year by year, I chose to think and as I thought, They bought the deals I should have bought.The golden chances I had then Are lost and will not come again. Today I cannot be enticed For everything’s so overpriced. The deals of yesteryear are dead: The market’s soft-and so’s my head. Last night I had a fearful dream I know I wakened with a scream: Some men approached my bed – For trinkets on the barrelhead (In dollar bills worth twenty-four And nothing less and nothing more) They’d sell Manhattan Isle to me, The most I’d go was twenty-three Those men scowled: “Not on a bet!” And sold to Peter Minuit. At times a tear drop drowns my eye For deals I had but did not buy: And now life’s saddest words I pen “If only I’d invested then!” Farm and Land Realtor Magazine October 1917 (As spotted by Bob Fyfe on the Loon Lake Realty web site.)
The Bubble July 1, 2005March 2, 2017 BURSTS NEXT JUNE 30 Michael Axelrod: ‘You might want to read this. I know it’s pretty technical, but the graphs and discussion are perfectly readable. The authors say the US housing bubble should end in the middle of next year. They found evidence of a housing bubble in 22 states. In 2003, they found no evidence of a US housing bubble. They say they correctly predicted the end of the UK housing bubble. Note that the end of the bubble does not necessarily mean that housing prices will collapse, although that is certainly a possibility. (The authors are physicists, not economists. They are researchers in a new subject called ‘econophysics.’ This discipline uses mathematical methods popular in statistical physics and nonlinear mechanics (chaos theory). The idea behind their approach is positive feedback. As prices rise, more people buy which drives up prices even more. When this ‘momentum’ gets too great you get a bubble which is an unstable condition that can’t last because counter forces build up to stop. Naturally, econonphysics is controversial. The mainstream economists sneer at it, but I think there is some substance.)’ THE ECONOMIST‘S VIEW The global housing boom In come the waves Jun 16th 2005 From The Economist print edition The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops. NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust? According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history. The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive. Will prices now fall, or simply flatten off? And in either case, what will be the consequences for economies around the globe? The likely answers to all these questions are not comforting. The increasing importance of house prices in the world economy prompted The Economist to start publishing a set of global house-price indices in 2002 (see article). These now cover 20 countries, using data from lending institutions, estate agents and national statistics. Our latest quarterly update shows that home prices continue to rise by 10% or more in half of the countries (see table). America has seen one of the biggest increases in house-price inflation over the past year, with the average price of homes jumping by 12.5% in the year to the first quarter. In California, Florida, Nevada. Hawaii, Maryland and Washington, DC, they soared by more than 20%. In Europe, prices have long been at dizzy heights in Ireland and Spain, but over the past year have also spurted at rates of 9% or more in France, Italy, Belgium, Denmark and Sweden. Both France (15%) and Spain (15.5%) have faster house-price inflation than the United States. By contrast, some housing booms have now fizzled out. In Australia, according to official figures, the 12-month rate of increase in house prices slowed sharply to only 0.4% in the first quarter of this year, down from almost 20% in late 2003. Wishful thinkers call this a soft landing, but another index, calculated by the Commonwealth Bank of Australia, which is based on prices when contracts are agreed rather than at settlement, shows that average house prices have actually fallen by 7% since 2003; prices in once-hot Sydney have plunged by 16%. Britain’s housing market has also cooled rapidly. The Nationwide index, which we use, rose by 5.5% in the year to May, down from 20% growth in July 2004. But once again, other surveys offer a gloomier picture. The Royal Institution of Chartered Surveyors (RICS) reports that prices have fallen for ten consecutive months, with a net balance of 49% of surveyors reporting falling prices in May, the weakest number since 1992 during Britain’s previous house-price bust. The volume of sales has slumped by one-third compared with a year ago as both sellers and buyers have lost confidence in house valuations. House-price inflation has also slowed significantly in Ireland, the Netherlands and New Zealand over the past year. Since 1997, home prices in most countries have risen by much more in real terms (ie, after adjusting for inflation) than during any previous boom. (The glaring exceptions are Germany and Japan, where prices have been falling.) American prices have risen by less than those in Britain, yet this is still by far the biggest boom in American history, with real gains more than three times bigger than in previous housing booms in the 1970s or the 1980s. The most compelling evidence that home prices are over-valued in many countries is the diverging relationship between house prices and rents. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier. Calculations by The Economist show that house prices have hit record levels in relation to rents in America, Britain, Australia, New Zealand, France, Spain, the Netherlands, Ireland and Belgium. This suggests that homes are even more over-valued than at previous peaks, from which prices typically fell in real terms. House prices are also at record levels in relation to incomes in these nine countries. America‘s ratio of prices to rents is 35% above its average level during 1975-2000 (see chart 1). By the same gauge, property is ‘overvalued’ by 50% or more in Britain, Australia and Spain. Rental yields have fallen to well below current mortgage rates, making it impossible for many landlords to make money. To bring the ratio of prices to rents back to some sort of fair value, either rents must rise sharply or prices must fall. After many previous house-price booms most of the adjustment came through inflation pushing up rents and incomes, while home prices stayed broadly flat. But today, with inflation much lower, a similar process would take years. For example, if rents rise by an annual 2.5%, house prices would need to remain flat for 12 years to bring America’s ratio of house prices to rents back to its long-term norm. Elsewhere it would take even longer. It seems more likely, then, that prices will fall. A common objection to this analysis is that low interest rates make buying a home cheaper and so justify higher prices in relation to rents. But this argument is incorrectly based on nominal, not real, interest rates and so ignores the impact of inflation in eroding the real burden of mortgage debt. If real interest rates are permanently lower, this could indeed justify higher prices in relation to rents or income. For example, real rates in Ireland and Spain were reduced significantly by these countries’ membership of Europe’s single currency-though not by enough to explain all of the surge in house prices. But in America and Britain, real after-tax interest rates are not especially low by historical standards. Betting the house America’s housing market heated up later than those in other countries, such as Britain and Australia, but it is now looking more and more similar. Even the Federal Reserve is at last starting to fret about what is happening. Prices are being driven by speculative demand. A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. Investors are prepared to buy houses they will rent out at a loss, just because they think prices will keep rising-the very definition of a financial bubble. ‘Flippers’ buy and sell new properties even before they are built in the hope of a large gain. In Miami, as many as half of the original buyers resell new apartments in this way. Many properties change hands two or three times before somebody finally moves in. New, riskier forms of mortgage finance also allow buyers to borrow more. According to the NAR, 42% of all first-time buyers and 25% of all buyers made no down-payment on their home purchase last year. Indeed, homebuyers can get 105% loans to cover buying costs. And, increasingly, little or no documentation of a borrower’s assets, employment and income is required for a loan. Interest-only mortgages are all the rage, along with so-called ‘negative amortisation loans’ (the buyer pays less than the interest due and the unpaid principal and interest is added on to the loan). After an initial period, payments surge as principal repayment kicks in. In California, over 60% of all new mortgages this year are interest-only or negative-amortisation, up from 8% in 2002. The national figure is one-third. The new loans are essentially a gamble that prices will continue to rise rapidly, allowing the borrower to sell the home at a profit or refinance before any principal has to be repaid. Such loans are usually adjustable-rate mortgages (ARMs), which leave the borrower additionally exposed to higher interest rates. This year, ARMs have risen to 50% of all mortgages in those states with the biggest price rises. The rapid house-price inflation of recent years is clearly unsustainable, yet most economists in most countries (even in Britain and Australia, where prices are already falling) still cling to the hope that house prices will flatten rather than collapse. It is true that, unlike share prices, house prices tend to be somewhat ‘sticky’ downwards. People have to live somewhere and owners are loath to accept a capital loss. As long as they can afford their mortgage payments, they will stay put until conditions improve. The snag is that eventually some owners have to sell-because of relocation, or job loss-and they will be forced to accept lower prices. Indeed, a drop in nominal prices is today more likely than after previous booms for three reasons: homes are more overvalued; inflation is much lower; and many more people have been buying houses as an investment. If house prices stop rising or start to fall, owner-occupiers will largely stay put, but over-exposed investors are more likely to sell, especially if rents do not cover their interest payments. House prices will not collapse overnight like stockmarkets – a slow puncture is more likely. But over the next five years, several countries are likely to experience price falls of 20% or more. While America’s housing market is still red hot, others – in Britain, Australia and the Netherlands-have already cooled (see chart 2). What lessons might they offer the United States? The first is that, contrary to conventional wisdom, it does not require a trigger, such as a big rise in interest rates or unemployment, for house prices to decline. British home prices started to fall in the summer of 2004 after the Bank of England raised rates by a modest one and a quarter percentage points. Since 2002, the Reserve Bank of Australia has raised rates by exactly the same amount and unemployment is at a 30-year low, yet home prices have fallen. The Federal Reserve’s gradual increase in rates by two percentage-points over the past year has done little to scare away buyers, because most still have fixed-rate mortgages and long-term bond yields have remained unusually low. But as more Americans have been resorting to ARMs, so the housing market is becoming more vulnerable to rising rates. Rung at the bottom British and Australian prices have stalled mainly because first-time buyers have been priced out of the market and demand from buy-to-let investors has slumped. British first-timers now account for only 29% of buyers, down from 50% in 1999. And, according to the National Association of Estate Agents, buy-to-let purchases are running 50% lower than a year ago. As prices become more and more heady in America, the same will happen there. British experience also undermines a popular argument in America that house prices must keeping rising because there is a limited supply of land and a growing number of households. As recently as a year ago, it was similarly argued that the supply of houses in Britain could not keep up with demand. But as the expectation of rising prices has faded, demand has slumped. According to RICS, the stock of houses for sale has increased by one-third over the past year. America has faster population growth than Britain, but its supply of housing has also been rising rapidly. Economists at Goldman Sachs point out that residential investment is at a 40-year high in America, yet the number of households is growing at its slowest pace for 40 years. This will create excess supply. Another mantra of housing bulls in America is that national average house prices have never fallen for a full year since modern statistics began. Yet outside America, many countries have at some time experienced a drop in average house prices, such as Britain and Sweden in the early 1990s and Japan over the past decade. So why should America be immune? Alan Greenspan, chairman of America’s Federal Reserve, accepts that there are some local bubbles, but dismisses the idea of a national housing bubble that could harm the whole economy if it bursts. America has in the past seen sharp regional price declines, for example in Boston, Manhattan and San Francisco in the early 1990s. This time, with prices looking overvalued in more states than ever in the past, average American prices may well fall for the first time since the Great Depression. But even if prices in America do dip, insist the optimists, they will quickly resume their rising trend, because real house prices always rise strongly in the long term. Robert Shiller, a Yale economist, who has just updated his book ‘Irrational Exuberance’ (first published on the eve of the stockmarket collapse in 2000), disagrees. He estimates that house prices in America rose by an annual average of only 0.4% in real terms between 1890 and 2004. And if the current boom is stripped out of the figures, along with the period after the second world war when the government offered subsidies for returning soldiers, artificially inflating prices, real house prices have been flat or falling most of the time. Another sobering warning is that after British house prices fell in the early 1990s, it took at least a decade before they returned to their previous peak, after adjusting for inflation. Another worrying lesson from abroad for America is that even a mere leveling-off of house prices can trigger a sharp slowdown in consumer spending. Take the Netherlands. In the late 1990s, the booming Dutch economy was heralded as a model of success. At the time, both house prices and household credit were rising at double-digit rates. The rate of Dutch house-price inflation then slowed from 20% in 2000 to nearly zero by 2003. This appeared to be the perfect soft landing: prices did not drop. Yet consumer spending declined in 2003, pushing the economy into recession, from which it has still not recovered. When house prices had been rising, borrowing against capital gains on homes to finance other spending had surged. Although house prices did not fall, this housing-equity withdrawal plunged after 2001, removing a powerful stimulus to spending. Housing-equity withdrawal has also fallen sharply over the past year in Britain and Australia, denting household spending. In Australia, the 12-month rate of growth in retail sales has slowed from 8% to only 1.8% over the past year; GDP growth has halved to 1.9%. In Britain, too, a cooling of the housing market has been accompanied by an abrupt slowdown in consumer spending. If, as seems likely, home prices continue to fall in both countries, spending will be further squeezed. Even a modest weakening of house prices in America would hurt consumer spending, because homeowners have been cashing out their capital gains at a record pace. Goldman Sachs estimates that total housing-equity withdrawal rose to 7.4% of personal disposable income in 2004. If prices stop rising, this ‘income’ from capital gains will vanish. And after the gold rush? The housing market has played such a big role in propping up America’s economy that a sharp slowdown in house prices is likely to have severe consequences. Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking. One of the best international studies of how house-price busts can hurt economies has been done by the International Monetary Fund. Analysing house prices in 14 countries during 1970-2001, it identified 20 examples of ‘busts’, when real prices fell by almost 30% on average (the fall in nominal prices was smaller). All but one of those housing busts led to a recession, with GDP after three years falling to an average of 8% below its previous growth trend. America was the only country to avoid a boom and bust during that period. This time it looks likely to join the club. Japan provides a nasty warning of what can happen when boom turns to bust. Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991. Yet the rise in prices in Japan during the decade before 1991 was less than the increase over the past ten years in most of the countries that have experienced housing booms (see chart 3). And it is surely no coincidence that Japan and Germany, the two countries where house prices have fallen for most of the past decade, have had the weakest growth in consumer spending of all developed economies over that period. Americans who believe that house prices can only go up and pose no risk to their economy would be well advised to look overseas. © The Economist Newspaper Limited 2005 WHAT BUBBLE? Jeff: ‘I’ve been reading about the ‘real estate bubble’ since 2001 now and, regretfully, held off buying because of it. The reason I regret it is that I’ve recently realized that all the measures of too high prices, including the ones in the article you linked to, are bogus. They measure things like house value to income, but never measure mortgage payments to income. And since it now appears that there won’t be any serious inflation – at least not soon, and maybe not for a while – I don’t see people with today’s variable rate mortgages being unable to keep up with their payments. Available property around the big cities is not being suddenly created – and where it is, it’s too far from the big cities. I wonder if I’ve made the right decision, and if you are advising your readers correctly that this bubble is unsustainable. Even if prices just level off for a long time, the person who didn’t buy just before the top (where they leveled off) still paid more than if he had bought during the bubble.’ FUN VIDEO Click here (thanks, Marty) and then at bottom right of the video screen click LYRICS to make Billy Joel easier to follow. MOLLY IVINS ON KARL ROVE AND IRAQ Click here. JULY FOURTH I hope you have a great weekend. Don’t forget to read the Declaration of Independence out loud with your family or friends – at least the first part.