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The US-appointed Iraqi council voices its disagreement with Paul Bremer’s decision to spend $1.2 billion training 35,000 Iraqi police officers in Jordan. The council members argue that Iraq can do it for considerably less. Germany and France have actually offered to do it for free. US authorities in Iraq insist that Iraq does not have the needed facilities to train the troops. According to Naseer K. Chadirji, a lawyer and Governing Council member, “If we had voted, a majority would have rejected it. He [Bremer] told us what he did; he did not ask us.” Mahmoud Othman, a Kurdish member of the Governing Council, tells the New York Times, “There is no transparency and something has to be done about it.… There is mismanagement right and left…. A lot of American money is being wasted, I think. We are victims and the American taxpayers are victims.” The Iraqis are also irked by Bremer’s move “because Jordan would draw a large payment from the dwindling Iraqi treasury and because many Iraqis resented Jordan’s close ties to old government,” reports the Times. [New York Times, 10/4/2003] Iraq’s new police force will be trained at a facility in Muwaqqar, Jordan, despite objections from the Iraqi Council. The program will be run by Reston, Va-based DynCorp (see Early 2003). [Financial Times, 1/30/2004]
Rob McKee, chief advisor to Iraq’s oil ministry, commissions a new plan for Iraq’s oil industry, which is intended to replace the Pentagon’s original plan for privatization. The plan is written by State Department Contractor BearingPoint, but significant input comes from oil industry consultants and executives. BearingPoint’s work is overseen by Amy Jaffe of the James A. Baker III Institute for Public Policy of Rice University. [Democracy Now!, 3/21/2005; Harper's, 4/2005, pp. 75]
Paul Bremer meets with President Bush in Washington for a private meeting. The Coalition Provision Authority’s effort to implement a number of structural changes to Iraq’s economy is failing, and Washington needs to rethink its strategy. Members of the US-backed Iraqi interim government oppose the changes, and corporate attorneys are advising their clients that Bremer’s orders opening up Iraq to foreign investment could be challenged by a future Iraqi government on the basis that the orders violated UN Resolution 1483 (see May 22, 2003). That resolution stated that the US and Britain were bound to the Hague Regulations of 1907, which bars occupying powers from changing the laws of the occupied country (see October 18, 1907). If corporations purchase Iraqi state assets, and a future elected government declares Bremer’s orders illegal, the companies could lose their investments, the lawyers warn. The risk is so great that not a single insurance company is willing to insure its corporate clients for the “political risk” of losing their investment to expropriation. Bremer returns to Iraq from Washington with a Plan B. On June 30, the Coalition Provisional Authority will be dissolved and the sovereignty of Iraq will be turned over to a US-backed transitional government. That government will be bound by an “interim constitution” (see March 8, 2004), which will contain a clause barring the transitional government from modifying any of Bremer’s laws. [Harper's, 9/24/2004]
The International Tax & Investment Centre (ITIC), a corporate lobby group that advocates for pro-business investment and tax reform, has a series of board of directors’ and sponsors’ meetings on the theme “Strategic Questions For Our Future.” A paper summarizing the views expressed during those meetings says that the ITIC’s work in Iraq “should be continued and considered as a ‘beachhead’ for possible further expansion in the Middle East.” Included in the group’s board of directors are representatives from Shell, BP, ConocoPhillips, ExxonMobil, and ChevronTexaco. [International Tax & Investment Centre, n.d. ; Muttitt, 2005]
The Pentagon’s Defense Contract Audit Agency sends a draft audit report to Halliburton subsidiary Kellogg, Brown, & Root (KBR) claiming that the firm overcharged the US military as much as $61 million for fuel deliveries into Iraq. The report says that KBR charged an average of $2.64 per gallon, more than twice the price others were paying. The DCAA also says the company has been slow to provide cost estimates for its projects in Iraq. KBR has given the US government estimates for only 12 orders. As of this date, 69 are overdue. [New York Times, 12/12/2003]
In an opinion piece published by Middle East Economic Survey, Helmut Merklein, a former US assistant secretary of international energy affairs (1984 to 1990), argues that “the concept that Iraqi oil production should remain under exclusive Iraqi control should be anchored in the Iraqi constitution.” He reasons that because oil production accrues “huge rents,” those rents, “like all rents, belong in principle to the resource owner, the people of Iraq.” He says the best way for Iraqis to capture those rents is to leave the Iraq National Oil Company (INOC) in public hands and use utility contracts as the model for any agreements with the private sector. In utility-type agreements, the host governments, instead of the oil companies are the ones to benefit when profits exceed an agreed-upon rate of return. Merklein disputes the notion that Iraq would be unable to jump start the oil sector on its own. He says very little new development is needed and that the funds needed for investment “are dwarfed by the wealth represented by already proven but undeveloped reserves.… They certainly don’t need $10 billion, as projected by the Council of Foreign Relations, or $38 billion for ‘green field development’ (Deutsche Bank)…. If their objective were to restore production to their pre-Gulf-War quota of 3.14 million barrels per day, they would need a capital infusion of less than $1.0 billion. And they categorically do not need the multinationals to get access to that kind of investment. $1.0 billion is less than 0.1 percent of the value of Iraq’s currently proved reserve base. That would be like securing a $300 loan by pledging a fully paid-for $300,000 residence as collateral. With that kind of collateral, there will be no shortage of commercial or governmental (bilateral or multilateral) credit institutions eager to supply the required capital needed to rehabilitate oil production in Iraq.” The Iraqis do not need help from the international oil companies, he says, “The Iraqis have been producing oil for the last 31 years…. They are quite capable of boosting production without the help from international oil companies. They have the experience, they have a lot of practical know-how, and they are known to be inventive and flexible. Whatever they don’t have by way of technological advances, they can acquire through outsourcing in the open market, much like the multinationals do when they turn to seismic firms for exploration, drilling firms for drilling, logging firms for reserve definition, and reservoir engineering firms for production optimization.” Merklein also takes issue with claims that Iraq would be unable to produce more than three million barrels per day. “Just how ridiculous that claim is can be seen from a comparison of the US and Iraqi reserve bases and the production these bases are able to maintain. The US has at present 22.4 billion barrels of proved crude oil reserves; Iraq has 112 billion. The US produces 5.3 million barrels per day from that base. At five times our proven reserve base, Iraq can produce five times the US daily production rate, or some 23 million barrels per day. Without any additional exploration. These are proved reserves. The Iraqis have some 73 oil fields, 58 of them idle. All they have to do is drill them up.” [Middle East Economic Survey, 1/12/2005]
Norwegian petroleum firm Det Norske Oljeselskap (DNO) signs a production-sharing agreement with the Kurdistan Regional Government (KRG) before a legal framework has been drawn up in Iraq to govern such actions. [Petroleum Economist, 2/8/2006]
Despite having told shareholders that it has no immediate plans to do business in Iraq, Shell Oil appoints Wolfgang Stroebl, a Dubai-based exploration and production executive, as “country chairman” for Iraq. According to the British organization PLATFORM, the “country chairman role is the most senior coordinating job in a country where Shell operates, and indicates a significant amount of activity by the company there.” The company also places an ad with the recruitment firm Glenn Irvine International seeking a “person of Iraqi extraction with strong family connections and an insight into the network of families of significance within Iraq” to work as a public relations officer for Shell Iraq. The person would bring “suitable opportunities to fruition on behalf of the company” and draw up a “reputation management plan,” the advertisement says. [Guardian, 8/11/2004; Muttitt, 2005]
The American Civil Liberties Union warns that InfraGard, the private organization that cooperates with the FBI in law enforcement and other areas (see 1996-2008), is a potential threat to constitutional freedoms. “There is evidence that InfraGard may be closer to a corporate TIPS program [TIPS is a program proposed by the Bush administration to encourage Americans to spy on one another], turning private-sector corporations—some of which may be in a position to observe the activities of millions of individual customers—into surrogate eyes and ears for the FBI,” the ACLU says in its report, “The Surveillance-Industrial Complex: How the American Government Is Conscripting Businesses and Individuals in the Construction of a Surveillance Society.” [Progressive, 2/7/2008]
The International Tax & Investment Centre (ITIC), a corporate lobby group that advocates for pro-business investment and tax reform, issues a major report titled Petroleum and Iraq’s Future: Fiscal Options and Challenges, expressing the view that Iraq’s relationships with oil companies should be managed through the use of production sharing agreements (PSAs). The paper calls PSAs the “simplest and most attractive regulatory… framework.” It says this view is supported by “international experience and regional preferences,” though critics of PSAs will note that PSAs are not in fact popular among the major oil producing countries of the Middle East. “It is difficult to overstate how radical a departure PSAs would be from normal practice, both in Iraq and in other comparable countries of the region,” says Greg Muttitt of PLATFORM, a British oil industry watchdog group. “Iraq’s oil industry has been in public hands since 1972; prior to that the rights to develop oil in 99.5 percent of the country had also been publicly held since 1961. In Iraq’s neighbors Kuwait, Iran, and Saudi Arabia, foreign control over oil development is ruled out by constitution or by national law. These countries together with Iraq are the world’s top four countries in terms of oil reserves, with 51 percent of the world total between them.”
The ITIC report also argues that foreign investment in Iraq’s oil sector will help “kick start” Iraq’s economy and free up funds for other programs. [Muttitt, 2005]
The Union of Concerned Scientists (UCS) releases a report warning that the use of genetically modified plants—especially corn and soy—to produce drugs, vaccines, and industrial chemicals poses a grave risk to the world’s food supply. The report takes a close look at the current system for producing and distributing food- and feed- grade corn and soybeans and warns that there are a number of potential entry points where plant-produced chemicals might contaminate the food supply. According to the report’s authors, the US Department of Agriculture should “halt the outdoor production of genetically engineered pharma and industrial crops immediately until a system is put in place that can produce drugs and industrial substances without putting our food system and food industry at risk.” They also recommend that the USDA fund an effort to explore safer alternatives. The report was written by scientists at Iowa Sate University, University of Central Florida, University of California at Davis, University of Illinois, and University of Minnesota, and an agricultural management expert based in Hudson, Iowa. [Inter Press Service, 6/9/2004; Andow et al., 12/2004; Union of Concerned Scientists, 12/15/2004; Washington Times, 12/30/2004]
According to a study done by Britain’s Royal Society, in 2005, ExxonMobil provides $2.9 million in funding to 39 groups that the society says misrepresent climate change. Such groups include the International Policy Network, George C. Marshall Institute, Competitive Enterprise Institute, and Center for the Study of Carbon Dioxide and Global Change. [Guardian, 9/20/2006; New York Times, 9/21/2006]
An investigation by Mother Jones magazine identifies 44 organizations funded by ExxonMobil that are involved in, or associated with, efforts to discredit the scientific consensus view on global warming. Many of these organizations have been on the oil giant’s payroll since 1998 (see Between 1998 and 2005). The magazine’s investigation finds that the oil company has contributed a total of $8,678,450 to these organizations since 2000 with the single largest donation being given to the Competitive Enterprise Institute (CEI). That organization received $1,380,000, or 16 percent of the total funds donated by Exxon. CEI, along with another Exxon-support enterprise, the Cooler Heads Coalition, runs the website GlobalWarming.Org, which is part of an effort to “dispel the myths of global warming by exposing flawed economic, scientific, and risk analysis.” Another large recipient of Exxon’s funds is the American Enterprise Institute (AEI), which has received $960,000 from the company. AEI, known for its neoconservatism, has played host to a number of global warming skeptics. [Mother Jones, 5/2005; Mother Jones, 5/2005]
In an 8-0 ruling, the District of Columbia Court of Appeals dismisses a lawsuit by the Sierra Club and Judicial Watch asking that the court require information to be disclosed from Vice President Cheney’s energy task force from 2001 (the National Energy Policy Development Group—see May 16, 2001). The US Supreme Court sent the case back to the appeals court (see April 27, 2004 and June 24, 2004). The appeals court ignores reports from the Government Accountability Office finding that energy executives and lobbyists took part in the task force deliberations (see After January 20, 2001, Mid-February, 2001, March 21, 2001, March 22, 2001, April 12, 2001, and April 17, 2001), and accepts the government’s contentions that the executive branch should not be forced to disclose information about its workings to either the legislative or judicial branches. Because no evidence was submitted that showed the energy executives or lobbyists cast votes or exercised veto power over task force decisions, the court rules, the task force is not obligated to comply with federal laws mandating that such governmental working groups reveal details of their deliberations. The executives and lobbyists are essentially no different than staff aides, the court finds. Cheney’s energy task force was not an advisory committee, and therefore “the government owed the plaintiffs no duty, let alone a clear and indisputable or compelling one,” says the court’s opinion. The court applies the Supreme Court’s standard of law as recommended in the case, a standard far more favorable to the executive branch than any previously applied in the case. Several of the appellate judges will later say that they took the Court ruling to mean that the judiciary should not be involved in a legal struggle with the executive branch. The ruling allows Cheney to keep the task force documents secret, and says that the task force is not bound by the Federal Advisory Committees Act (FACA). [Associated Press, 5/10/2005; Savage, 2007, pp. 176]
'Double Blow' - David Bookbinder, a lawyer for the Sierra Club, says, “The decision is not going to be helpful in assuring open and accountable government.” [Sierra Club, 5/15/2005] He says the ruling is a double blow: “As a policy matter, we see the Bush administration has succeeded in its efforts to keep secret how industry crafted the administration’s energy policy. As a legal matter, it’s a defeat for efforts to have open government and for the public to know how their elected officials are conducting business.” Judicial Watch official Chris Farrell will later say the ruling leaves the open-government laws “a hollow shell.” [Savage, 2007, pp. 176] The New York Times calls the decision “regrettable,” and observes, “The Bush administration hardly needs encouragement to deny public access to vital government information.” [New York Times, 5/15/2005]
Rejected Judicial Precedent - In 2007, author and reporter Charlie Savage will write: “The decision relied entirely upon the assertion of two Cheney aides that the lobbyists had not cast any votes, a claim no judge ever verified by looking at the records. The court’s ruling also dismissed arguments that ‘influential participation’ by outsiders made them de facto members of the task force whether or not they cast votes, rejecting the standard the courts had applied to the 1994 Clinton health care task force.” [Savage, 2007, pp. 176]
Philip A. Cooney, chief of staff for the White House Council on Environmental Quality, resigns. Two days earlier, the New York Times revealed he had edited reports downplaying the link between greenhouse gases and global warming. According to White House deputy spokeswoman Dana Perino, his departure is unrelated to the recent disclosure. “Phil Cooney did a great job,” she says, “and we appreciate his public service and the work that he did, and we wish him well in the private sector.” Four days later, ExxonMobil announces that Cooney will be working for the company in the fall. [New York Times, 6/15/2005]
At the Asia Oil and Gas Conference in Kuala Lumpur, Natik al-Bayati, director general of Iraq’s Oil Exploration Company, tells reporters that Iraqi officials are hoping that foreign oil companies will return to Iraq and begin working by the third quarter of 2006. “Hopefully by the first quarter of 2006 the companies will come back. Maybe by mid-year or the third quarter [of 2006]. This is what we have in mind,” he says. He explains that the objective is to increase production to 3.5 million-4 million barrels per day by 2010. To meet this goal, Iraq’s exploration sector will need between $15 billion and $20 billion, he says. [International Oil Daily, 6/15/2005] Iraq will have to begin negotiating with the oil companies this year in order to make that deadline. As one observer notes, this would be taking place “before a legitimate Iraqi government is elected and in parallel with the writing of a Petroleum Law. This time frame means that contracts will be negotiated without public participation or debate, or proper legal framework.” [Muttitt, 2005]
FBI Director Robert Mueller tells an audience at an InfraGard convention, “Those of you in the private sector are the first line of defense.” InfraGard is an organization made up of private business executives and employees who work with the FBI in counterterrorism, surveillance, and other areas (see 1996-2008). Mueller urges InfraGard members to contact the FBI if they “note suspicious activity or an unusual event.” And he urges members to inform the FBI about “disgruntled employees who will use knowledge gained on the job against their employers.” After the convention, Muller says of InfraGard, “It’s a great program.” [Progressive, 2/7/2008]
The UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions is adopted at the 33rd UNESCO General Conference held in Paris, France. It is the first major international convention to be adopted that reaffirms the sovereign right of states to formulate and implement cultural policies. The convention’s approval is seen as a challenge to the legitimacy of the global regime of bilateral, regional and multilateral free trade agreements revolving around the World Trade Organization (WTO), in particular regarding international trade in cultural goods and services and the related cultural policies effected by governments. The approval of this international instrument is seen as a major culmination of years-long efforts led by Canada and the European Union, specifically France, to arrest liberalization commitments in various free trade agreements that tend to strengthen Hollywood’s overwhelming advantage in the global film, music, publishing, advertising, and other cultural industries. The convention is overwhelmingly approved despite a strong counter-lobby by the United States. A hundred and forty-eight vote in the convention’s favor, four countries (Australia, Honduras, Liberia, and Nicaragua) abstain, and only two countries—the United States and Israel—vote against its approval. [Coalition Currents, 10/2005]
A report authored by Greg Muttitt of PLATFORM concludes that Iraq would not benefit from an oil policy based on production sharing agreements (PSAs). According to Muttitt, the PSAs would cost Iraq “hundreds of billions of dollars in potential revenue,” while oil company profits would see annual rates of return “ranging from 42 percent to 62 percent for a small field, or 98 percent to 162 percent for a large field.” Muttitt’s study also warns that PSAs would result in Iraqis forfeiting control of their oil industry to foreign oil companies. For example, Iraq would lose its ability to control the depletion rate of its own oil resources. “As an oil-dependent country, the depletion rate is absolutely key to Iraq’s development strategy, but would be largely out of the government’s control,” Muttitt notes. Furthermore, PSAs, which typically have fixed terms of between 25 and 40 years, often include “stabilization clauses” that grant oil companies immunity from all future laws, regulations, and government policies. If Iraq were to sign such PSAs, future Iraqi governments would be unable to change tax rates or laws regulating labor standards, workplace safety, or the environment. PSA agreements also tend to put the host government at a disadvantage when there is a dispute with the contracted oil company. Most PSAs stipulate that disputes must be resolved in international arbitration tribunals where they are generally presided over by corporate lawyers and trade negotiators who will only consider narrow commercial issues without regard to Iraqi public interest. Muttitt’s report argues that Iraq has several options for developing its oil industry that would be far more beneficial to Iraq than relying on PSAs. One option would be for Iraq to hire specialist companies under short-term technical service contracts to provide expertise only when native expertise is lacking. There is no reason, Muttitt notes, for Iraq to give oil companies full control over the industry when Iraq has a highly-skilled oil sector workforce that is fully capable of managing the country’s oil production. All that’s needed, he says, is for them to receive training on the latest technologies. Until that is achieved, Iraq would be adequately served with a policy based on short-term technical service contracts. Muttitt also argues that Iraq has several options for acquiring the needed capital to jump start the oil sector. Foreign investment is neither the only, nor the most attractive solution for Iraq. He argues that using Iraqi money or borrowing funds would save Iraq billions of dollars in the long term. [Muttitt, 2005]
Through a unanimous all-party vote at its National Assembly, Quebec becomes the first government worldwide to approve the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions. The approval comes just three weeks after the landslide vote for the international convention at the UNESCO 33rd General Conference in Paris, France. The day’s favorable vote on the convention is marked as well by statements by leading officials of Quebec noting Quebec’s prime role in the formation of the UNESCO instrument, as well as how the convention boosts Quebec’s efforts to protect and promote its cultural industries. Deputy Premier and Minister of International Relations Monique Gagnon-Tremblay emphasizes Quebec’s important contribution to the “emergence of an international instrument of fundamental importance for the cultural sector, and over and beyond this, for the socio-economic development of all our peoples at the beginning of the 21st century.” Culture and Communications Minister Line Beauchamp ends her own statements by calling the adoption of the convention “a great day for Quebec culture,” adding: ”(T)he fundamental issue is the commitment of states to support their cultures through cultural policies that take the form of subsidies, tax credits, of regulatory policies.… We should be aware to what degree everyday life is shaped and affected by culture and artistic creations.… It is important to realize that the cultural policies I just described are behind the songs you hear on the radio, the television programs you watch, the books you read, your encounters with culture.” For his part, Claude Béchard, minister of economic development, innovation, and exports, stresses the convention “will serve as a tool of reference for states facing pressure to liberalize their cultural sectors by helping to legitimize at the international level their cultural policies.” Premier Jean Charest, meantime, highlights the close cooperation between Quebec and the federal government of Canada in building international support for the convention. Charest indicates again his government is determined to continue championing the convention internationally, and to continue supporting Canada’s Coalition for Cultural Diversity and Quebec’s leading cultural organizations in their work to mobilize cultural professionals around the world to support ratification. [Coalition Update, 11/2005]
Canada becomes the first country to ratify the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions. Canada’s November 22 ratification comes just 33 days after the international instrument was adopted at the 33rd UNESCO General Conference in Paris, France. The prompt ratification meets a previous public commitment made by Minister of Canadian Heritage Liza Frulla, shortly after the November 22 adoption at the UNESCO Conference, that Canada would be the first to ratify the convention “ideally before Christmas [of 2005].” Frulla recalls at the signing ceremonies in Montreal on November 23, “some people gave me a very skeptical look [after I made that pronouncement], and thought I was dreaming in Technicolor.” But she points out that her resolve to make good the ratification commitment was matched by that of Canadian Prime Minister Paul Martin, who Frulla says “has always been a strong defender and promoter of this convention.” Frulla relates further: “[A]s soon as I got back, we triggered the process so that Canada could be in a position to ratify this convention.… And today we can say mission accomplished. Clearly, this is a great day for our artists, our culture, our cultural industries, and for our country.” Frulla, Martin, Quebec Minister of Culture and Communications Line Beauchamp, and Scott McIntyre and Pierre Curzi, co-chairs of Canada’s Coalition for Cultural Diversity, offer congratulations to each other at the Montreal ceremonies for the convention’s quick ratification in record time. [Coalition Update, 11/2005]
Between January and August 2006, an estimated 1,920 Bt cotton farmers in Vidarbha, Maharashtra (India) commit suicide because of rising debts. And between June and August, the suicide rate reaches one suicide every eight hours. The higher cultivation costs associated with genetically modified Bt cotton (see, e.g., 2005 ) has made it more difficult for farmers to pay back their loans. Roughly 2.8 million of the 3.2 million cotton farmers in the Maharashtra province are currently in default. More than 50 percent of the farmers who commit suicide are between the ages of 20 and 45. [DNA India, 8/26/2006] The epidemic of farmer suicides began in 1994 when India liberalized its economy and devalued the rupee. [DNA India, 8/26/2006]
In the Warangal district of Andhra Pradesh, India, more than 70 Indian shepherds report that 25 percent of their herds died within 5-7 days of continuous grazing on the leaves and pods of harvested Bt cotton plants. The shepherds noticed that the sheep became dull or depressed two to three days after grazing on the plants. They developed “reddish and erosive” lesions in the mouth, became bloated, had episodes of blackish diarrhea, and sometimes had red-colored urine. Post-mordem examinations of the animals revealed the presence of black patches in the small intestines, enlarged bile ducts, discolored livers, and the accumulation of pericardial fluid. Investigators suspect that the deaths were likely due to the Bt toxin in the leaves and pods of the Bt cotton plants. [Centre for Sustainable Agriculture and Anthra, 4/2006; NDTV (New Delhi), 6/1/2006] Researchers from the Centre for Sustainable Agriculture and the group Anthra later submit a report on the sheep deaths to India’s Genetic Engineering Approval Committee, but the government agency dismisses the reports as “exaggerated.” [Centre for Sustainable Agriculture and Anthra, 7/28/2006]
Following the release of the film, An Inconvenient Truth, the Competitive Enterprise Institute (CEI), a group funded in part by ExxonMobil, launches an advertisement campaign welcoming increased carbon dioxide pollution. “Carbon dioxide: They call it pollution, we call it life,” the ad says. [Competitive Enterprise Institute, 5/2006; New York Times, 9/21/2006]
The broadcast public relations firm Medialink Worldwide produces a video news release (VNR) titled, “Global Warming and Hurricanes: All Hot Air?” Medialink was hired to make the VNR by Tech Central Station, a project of the Republican lobbying and PR firm DCI Group. ExxonMobil, a client of the DCI group, gave Tech Central Science Foundation $95,000 in 2003 and specified that those funds be used for “climate change support.” The VNR features meteorologists Dr. William Gray and Dr. James J. O’Brien who deny there’s a link between global warming and hurricane intensity. Gray has said in the past that global warming is a “hoax,” while O’Brien is listed as an expert at the George C. Marshall Institute, which in 2004 received $170,000 from ExxonMobil. The VNR is aired by WTOK-11 in Meridian, Mississippi on May 31, 2006. The segment is re-voiced by the station anchor, Tom Daniels, who introduces the piece by saying, “Hurricane seasons for the next 20 years could be severe. But don’t blame global warming.” He does not disclose that the report was produced by a PR firm that was paid by an organization funded by ExxonMobil. [Center for Media and Democracy, 11/14/2006; Democracy Now!, 11/14/2006; San Francisco Chronicle, 11/15/2006]
Environment California releases a report concluding that carbon dioxide emissions have increased dramatically since 1960. The study was based on data collected by the Oak Ridge National Laboratory. The report’s major findings include the following:
Between 1960 and 2001, US carbon dioxide emissions increased by 95 percent from 2.9 billion to almost 5.7 billion metric tons.
The steepest rates of increase in carbon dioxide emissions during that period occurred in the Southeast and Gulf South, which grew by 163 and 175 percent, respectively.
Texas was the leading polluter of carbon dioxide in 2001. In that year, the state was responsible for 12 percent of the nation’s total carbon dioxide emissions. Between 1960 and 2001, the state’s emissions increased 178 percent from 240.7 million to 668.5 million metric tons.
During the period under review, carbon dioxide emissions more than doubled in 28 states. The increases were highest in Texas, Florida, California, Georgia, Louisiana, Indiana, Kentucky, North Carolina, Missouri, and Arizona. [California, 6/2006 ; Environment California, 6/20/2006]
The American Enterprise Institute (AEI) sends letters to scientists and economists offering to pay them $10,000 each for 500- to 10,000- word essays that provide a “policy critique” of the next report from the UN’s Intergovernmental Panel on Climate Change (IPCC), due early next year (see February 2, 2007). The institute, which has received more than $1.6 million in contributions from ExxonMobil (see Between 1998 and 2005), also offers additional payments and travel expense reimbursement. The letters, written by Kenneth Green and Steven Hayward, accuse the UN panel of being “resistant to reasonable criticism and dissent and prone to summary conclusions that are poorly supported by the analytical work.” It asks for articles that “thoughtfully explore the limitations of climate model outputs.” The letters set a December 15 deadline for the papers, but responses from recipient scientists prompt AEI to cancel the project. The institute had hoped to time the release of the scientists’ essays to coincide with that of the IPCC report. David Viner of the Climatic Research Unit at the University of East Anglia describes the AIE effort as a “desperate attempt by an organization who wants to distort science for their own political aims.” Similarly, Ben Stewart of Greenpeace remarks: “The AEI is more than just a thinktank, it functions as the Bush administration’s intellectual Cosa Nostra. They are White House surrogates in the last throes of their campaign of climate change denial. They lost on the science; they lost on the moral case for action. All they’ve got left is a suitcase full of cash.” Green defends AIE’s campaign against the report, saying, “Right now, the whole debate is polarized. One group says that anyone with any doubts whatsoever are deniers and the other group is saying that anyone who wants to take action is alarmist. We don’t think that approach has a lot of utility for intelligent policy.” [Guardian, 2/2/2007; Reuters, 2/4/2007]
Monsanto announces that it will purchase Delta & Pine Land Company, the world’s largest cotton seed company, and the first company to obtain a patent on terminator technology (see March 3, 1998). Monsanto has had its sights on Delta & Pine Land for years. A previous plan to buy the company—announced in 1998 (see May 11, 1998)—fell through in December 1999 (see December 19, 1999). The acquisition means that Monsanto will control over 57 percent of the US cotton seed market. It will also deepen Monsanto’s reach into the developing world, where Delta & Pine Land has subsidiaries in 13 countries—including India, Brazil, Mexico, Turkey, and Pakistan. According to the ETC Group, an outspoken critic of terminator technology, “the takeover means that Monsanto will command a dominant position in one of the world’s most important agricultural trade commodities and that millions of cotton farmers will be under increased pressure to accept genetically modified (GM) cottonseed.” [Monsanto, 8/15/2006; ETC Group, 8/16/2006]
Britain’s top scientific body, the 1,400-member Royal Society, demands in a letter to ExxonMobil that it end its support for groups that spread misinformation about global warming. In 2005, the company gave 39 such groups a total of $2.9 million (see 2005). The letter accuses the oil giant of having “misrepresented the science of climate change by outright denial of the evidence.” According to the Society, the company’s statements on the issue have been “inaccurate and misleading.” In particular, the letter strongly criticises the company’s “corporate citizenship reports,” which insist that “gaps in the scientific basis” undermine arguments that climate change is anthropogenic. The letter states that there is a “false sense somehow that there is a two-sided debate going on in the scientific community” concerning the causes of climate change. While “thousands and thousands” of international scientists agree that climate change is linked to greenhouse gases, ExxonMobil’s assertions rely on the views of just “one or two professional contrarians.” In response, ExxonMobil says the letter “inaccurately and unfairly described [the] company” and adds that it stopped funding one such group, the Competitive Enterprise Institute, earlier in the year. [Royal Society, 9/4/2006 ; Guardian, 9/20/2006; New York Times, 9/21/2006]
The Mexican Department of Agriculture turns down all seven requests filed by biotech companies to plant experimental fields of genetically engineered corn in northern Mexico. Companies that applied for permits included Monsanto, Pioneer Hi-Bred International Inc., and others. [Associated Press, 10/18/2006]
The UN General Assembly votes in favor of creating an international treaty aimed at curbing the illicit trade in guns and other light weapons. The United States, the world’s largest supplier of small arms, is the only country to vote against the resolution. Supporters of the resolution say that the small arms trade fuels conflict, poverty, and serious human rights violations. Inter Press Service reports that “independent experts who have worked closely with the United Nations on the issue of small arms proliferation estimate that in the past three years more than one million people have been killed as a result of the unchecked flow of guns and other small weapons.” [UN General Assembly, 10/26/2006; Inter Press Service, 10/27/2006]
According to the Independent, several major oil companies reportedly send “teams” into Iraq to “lobby for deals ahead of the [Iraq Oil] law.” [Independent, 1/7/2007]
Oxfam publishes a report concluding that poor people in developing nations are dying needlessly because drug companies and the governments of certain wealthy nations are putting a higher priority on defending intellectual property rights than protecting human life. According to the report, the United States has used free-trade agreements and threats of sanctions to prevent countries from producing and distributing low-cost generic drugs in order to preserve the monopolies of large drug companies. Likewise, the drugs makers themselves are pushing countries to prevent the sale of cheaper drugs. “Pfizer is challenging the Philippines government in a bid to extend its monopoly on Norvasc, a [blood] pressure drug. Novartis is engaged in litigation in India to enforce a patent for Glivec, a cancer drug, which could save many lives if it were available at generic prices,” the Guardian reports. The Oxfam report says that efforts to block the poor’s access to affordable medicine undermines the five-year old Doha declaration, which sought to improve poor countries’ access to cheap drugs. “[R]ich countries have failed to honor their promises. Their record ranges from apathy and inaction to dogged determination to undermine the declaration’s spirit and intent. The US, at the behest of the pharmaceutical industry, is uniquely guilty of seeking ever higher levels of intellectual property protection in developing countries,” the report says. [Guardian, 11/14/2006; Oxfam, 11/14/2006 ]
At a Pharmaceutical Research and Manufacturers of America (PRMA) board meeting, top executives from two dozen drug companies meet to work on a strategy to prevent the incoming Democratically-controlled Congress from passing legislation that would lower drug prices and tighten regulation of the industry (see After November 7, 2006). Their top concern is a bill they expect Democrats to push that would allow the government to negotiate lower drug prices for millions of older Americans on Medicare. Lobbyists for the industry concede that it is probable that such legislation will be passed by the House. But they say they are determined to have it killed in the Senate. If their efforts fail, and the Senate does pass such a bill, the drug industry believes that President Bush would veto it and that the veto would be upheld by the remaining Republicans in the Senate. Among those attending the meeting are Kevin Sharer, chairman of Amgen; Jeffrey B. Kindler, chief executive of Pfizer; Sidney Taurel, chairman of Eli Lilly; and Richard T. Clark, chief executive of Merck. [New York Times, 11/24/2006]
The EPA releases a staff paper evaluating the policy implications of recent studies on the health and environmental impacts of lead pollutants in an effort to determine whether it may be appropriate to abolish the national standard for lead. It states that “given the significantly changed circumstances since Pb [lead] was listed in 1976, we will evaluate the status of Pb as a criteria.” [US Environmental Protection Agency, 12/2006, pp. 1-1 ; US Congress, 12/6/2006 ] The EPA’s current hazard summary for lead compounds states that “[l]ead is a very toxic element, causing a variety of effects at low dose levels. Brain damage, kidney damage, and gastrointestinal distress are seen from acute (short-term) exposure to high levels of lead in humans.” [US Environmental Protection Agency, 1/2000] Earlier in the year, a lobbying group named Battery Council International wrote to a top EPA air quality official asking him to remove lead from the EPA’s list of air pollutants. The organization also spent $220,000 lobbying public officials from 1998-2002. [Associated Press, 12/7/2006; Center for Responsive Politics, 12/16/2006, pp. 1998-2002]
The UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions enters into force. In accordance with the ratification procedure, this happens three months after 30 countries deposited their instruments of ratification at UNESCO. UNESCO Director General Koichiro Matsuura notes, “None of UNESCO’s other cultural conventions has been adopted by so many states in so little time.” The 30 countries are Albania, Austria, Belarus, Bolivia, Bulgaria, Burkina Faso, Cameroon, Canada, Croatia, Denmark, Djibouti, Ecuador, Estonia, Finland, France, Guatemala, India, Lithuania, Luxembourg, Madagascar, Mali, Malta, Mauritius, Mexico, Monaco, Namibia, Peru, the Republic of Moldova, Romania, Senegal, Slovakia, Slovenia, Spain, Sweden, and Togo. By the time it comes into force, 22 more countries have deposited their ratification instruments at UNESCO. [UNESCO, 3/2007]
In a 93-1 vote, the US Senate passes the Food and Drug Administration Improvement Act of 2007 (H.R.2273), which grants the FDA broad new authority to monitor the safety of drugs after they are approved. It was based in part on the recommendations of a 2001 report by the Institute of Medicine (see September 22, 2001). The institute had been asked by the FDA to examine drug safety after it was revealed that the FDA and drugmaker Merck had permitted the drug Vioxx to stay on the market despite numerous indications that it increased patients’ risk of a heart attack. But the bill that is passed is much weaker than the original version, and ignores some of the institute’s most critical recommendations. A USA Today investigation will find that industry-friendly changes made to the bill were instigated by senators “who raised millions of dollars in campaign donations from pharmaceutical interests.” For example, 49 senators successfully defeated an effort that would have allowed US consumers to import lower-cost drugs from Canada and other industrialized countries. The senators who opposed the provision “received about $5 million from industry executives and political action committees since 2001—nearly three quarters of the industry donations to current members of the Senate,” USA Today found. Another factor contributing to the amendment’s failure was that President Bush said he would veto the bill if it permitted the imports. Also excised from the bill was language that would have give the FDA the authority to ban advertising of high-risk drugs for two years. This was one of the Institute of Medicine’s key recommendations. Senator Pat Roberts (R-Kan) argued that the change would restrict free speech. Drug interests have given Roberts $18,000 so far this year, and $66,000 since 2001. Sen. Judd Gregg (R-NH) was responsible for a change that reduced the agency’s power to require post-market safety studies. He insisted on limiting this authority so that the FDA could only target drugs when there’s evidence of harm. Gregg has received $168,500 from drug industry interests since 2001. The bill’s main sponsors—senators Edward Kennedy, (D-Mass) and Mike Enzi (R-Wyo)—agreed to water down a proposal that would have required all clinical drug studies be made public after meeting with industry officials. The senators agreed to change the language so that only studies submitted to the FDA would be available. Enzi and Kennedy have received $174,000 and $78,000, respectively, from drug interests since 2001. Amendments aimed at reducing industry conflicts of interest on FDA expert advisory panels were also stripped from the bill. One of those amendments would have made it more difficult for scientists to advise the FDA on drug approval applications from a company the scientist had received money from. Another would have required that FDA panels consist of no more than one member with financial ties to the drug industry. The Senate also rejected an amendment to establish an independent FDA office to monitor the safety of drugs after they are released on the market. The office that currently has this authority is the same one that approves new drugs, an arrangement that lawmakers and at least one FDA scientist (see November 18, 2004) believe is a conflict of interest. [WebMD Medical News, 5/9/2007; US Congress, 5/10/2007; USA Today, 5/14/2007]
Iraqi Vice President Tariq al-Hashemi says he opposes the oil law (see February 15, 2007) because it gives too many concessions to foreign oil companies. “We disagree with the production sharing agreement,” he tells reporters attending an international conference in Jordan that is hosted by the Geneva-based World Economic Forum. “We want foreign oil companies, and we have to lure them into Iraq to learn from their expertise and acquire their technology, but we shouldn’t give them big privileges,” he explains. [Associated Press, 5/21/2007]
In a phone call with Iraqi Prime Minister Nouri al-Maliki, President George Bush reportedly says Iraq needs to produce “tangible results quickly” on the oil law and other legislation if it wants to count on continued support from the US government. [Associated Press, 5/22/2007]
Mahmoud Uthman, a Kurdish member of Iraq’s parliament, says lawmakers are not ready to pass the oil law because of the “obscurity of some sections of the proposed draft law, the most important of which are those concerning oil imports and the mechanism of their distribution.” He also says that the law was “made to serve US interests” and that the US is putting “very strong” pressure on Iraqi leaders to speed its passage. [AXcess News, 5/22/2007] “The Americans are pressuring us to accept the oil law. Their pressure is very strong. They want to show Congress that they have done something so they want the law to be adopted this month. This interference is negative and will have consequences,” he says. [Associated Press, 5/22/2007]
The White House finally releases a list of officials and organizations who met with Vice President Cheney’s energy task force (the National Energy Policy Development Group—see May 16, 2001) in 2001. Cheney and the White House have successfully battled for six years to keep virtually all details of the task force secret (see May 10, 2005), and many other documents and files pertaining to the task force remain secret. The list of participants confirms what many have always suspected—that oil, gas, and energy executives and lobbyists were virtually the only ones to have any input in the task force’s policy deliberations. Many of the participants were also heavy donors to the Bush-Cheney campaign, and to the Republican Party in general.
Secrecy - Some participants say they were never sure why the White House fought so hard to keep the information about the task force secret. “I never knew why they fought so hard to keep it secret,” says Charles A. Samuels, a lawyer for the Association of Home Appliance Manufacturers. “I am sure the vast majority of the meetings were very policy-oriented meetings—exactly what should take place.” Others say that their meetings with the task force were routine.
API Input - American Petroleum Institute president Red Cavaney says that when he met with the task force, he and his fellow API officials discussed position papers the organization had given to the Bush-Cheney campaign and to newly elected members of Congress. “We’re in the business of routinely providing advocacy materials,” Cavaney says. “Speaking for myself, I had zero hand in authoring or sitting with anyone from that task force and changing anything.” But Cavaney is seriously downplaying API’s influence (see March 20, 2001).
"Ridiculous" - Representative Henry Waxman (D-CA), chairman of the House Oversight and Government Reform Committee, who has been a driving force behind the effort to reveal the inner workings of the task force to the public, says it is it is “ridiculous” that it has taken six years to see who attended the meetings. He describes the energy task force as an early indicator of “how secretively Vice President Cheney wanted to act.” As to the makeup of the participants, Waxman is not surprised to see the dominance of energy industry groups in the meetings. “Six years later, we see we lost an opportunity to become less dependent on importing oil, on using fossil fuels, which have been a threat to our national security and the well-being of the planet,” he says. Climate expert David Hawkins of the Natural Resources Defense Council says: “Cheney had his finger on a critical issue. He just pushed it in the wrong direction.” [Washington Post, 7/18/2007]
Entity Tags: National Energy Policy Development Group, Bush administration (43), Association of Home Appliance Manufacturers, American Petroleum Institute, Charles A. Samuels, Henry A. Waxman, Natural Resources Defense Council, Richard (“Dick”) Cheney, David Hawkins, Red Cavaney
Timeline Tags: US Environmental Record, Civil Liberties
AIG logo. [Source: American International Group (AIG)]In an historic move, the federal government bails out insurance corporation AIG with an $85 billion loan, giving control of the firm to the US government. After resisting AIG’s overtures for an emergency loan or other intervention to prevent the insurer from falling into bankruptcy, the government decided AIG, like the now-defunct investment bank, Bear Stearns, was “too big to fail” (see March 15, 2008). The US government will lend up to $85 billion to AIG. In return, the government gets a 79.9 percent equity stake in warrants, called equity participation notes. The two-year loan will carry a LIBOR interest rate plus 8.5 percentage points. LIBOR, the London InterBank Offered Rate, is a common short-term lending benchmark. The bailout comes less than a week after the government allowed a large investment bank, Lehman Brothers Holdings Inc., to fold (see September 14, 2008). As part of the loan agreement, Treasury Secretary Henry Paulson insists that AIG’s chief executive, Robert Willumstad, steps aside. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate Corp (see September 18, 2008). [Wall Street Journal, 9/16/2008] Shares in AIG drop to $3.75 on the news. [Bloomberg, 3/5/2009]
China’s economic growth slumps to 6.8 percent in the fourth quarter of 2008, down from 9 percent in the third quarter. The decline is due to the global financial crisis, but is close to market expectations of 7 percent. The National Bureau of Statistics comments, “The international financial crisis is deepening and spreading with continuing negative impacts on the domestic economy.” This means that China’s annual economic growth is only 9 percent, the lowest level for seven years. In the previous five years annual growth had been over 10 percent, making China the third-largest economy in the world. Following the release of the figures in early 2009, many economists, especially those at Western banks, believe China will expand by no more than 5-6 percent in 2009, which would be the weakest performance since 1990. “We expect growth of 6.0 percent for 2009 as a whole, with risks still skewed to the downside,” Royal Bank of Canada says in a commentary. Others agree the economy will remain weak in the first half but think Beijing will hit its target of 8 percent growth for all of 2009 as November’s 4 trillion yuan ($585 billion) stimulus package and much easier monetary policy kick in. “The government has realized the fact that the economy is declining and regards the 8 percent target as a political task. Therefore, I think we can achieve the goal,” says Jin Yanshi, chief economist at Sinolink Securities in Shanghai. [Reuters, 1/22/2009]
Detroit’s Big Three CEOs testify for more than two hours in a hearing before the Senate Banking Committee, using dire language to describe the financial straits that are threatening to bankrupt their companies. Chrysler LLC CEO Robert Nardelli says that without immediate help, his company could be forced into bankruptcy. “We cannot be confident that we will be able to successfully emerge,” he says. General Motors (GM) Corporation’s CEO, Rick Wagoner, adds that the failure of the industry would be “catastrophic,” causing the loss of 3 million jobs. Ford Motor Company CEO Alan Mulally tells the committee that if one of the automakers failed, the whole industry could be disrupted. “You’re here to get life support,” says ranking minority member Richard Shelby (R-AL). “Why aren’t you making money? How would you pay this money back?”
Financial Losses Worse than Originally Believed - The automakers say that their financial losses were worse than they at first thought, with Nardelli testifying that his company ran through $5 billion this year, including $3.3 billion in the third quarter, with only $6.1 billion on hand to last through the end of the year. Wagoner says that his firm would spend $15 billion by the end of 2008, and another $10 billion in 2009. Wagoner wants $10-$12 billion for GM, while Mulally and Nardelli want $7 billion for their respective corporations. Both Wagoner and Nardelli say that their companies will run out of money in a matter of months. One senator asks if the automakers would be willing to make monthly status reports on cash flow if the Senate agrees to the loan. Nardelli offers to take $1 a year as salary compensation; neither Mulally nor Wagoner did not make the same commitment. Nardelli also committed to Chrysler’s agreeing to consider new fuel efficiency standards. “We’d be open to any requirements,” he says.
Already Cut Costs, Moved to Restructure - The automakers testify how aggressively they have moved to cut costs, restructure, and revamp their product lines to be more competitive with foreign rivals, and say their companies were making progress until they were derailed by the credit crisis that has stalled the global economy and dried up consumer confidence. Auto sales are at their lowest level in at least 15 years, they say, dropping nearly 32 percent in October. As a testament to the seriousness of their financial crisis, the three automakers assure the committee that they would spend the requested $25 billion in the United States; however, they refuse to say that they would not come back for further bailout funding. Wagoner testifies that GM has cut $9 billion in costs since 2005. He touts labor agreements with the United Auto Workers that will further cut wage and health care expenses, and says that improvements in designing and manufacturing vehicles as well as developing fuel-saving technologies will also assist in reining in manufacturing costs. “As a result of these and other actions, we are now matching—or besting—foreign automakers in terms of productivity, quality and fuel economy,” he says. Wagoner assures the committee that the company was moving quickly to right its business. “We have more work to do in all aspects of our business,” Wagoner said. “This is hard stuff.” He said that GM would use some of the money to pay suppliers and pay for part of the Chevrolet Volt program.
UAW President Grilled - In his own testimony, United Auto Workers President Ron Gettelfinger ranks the relative financial health of the Big Three as Ford being the most solvent, with Chrysler at number two, while General Motors may be at or near insolvency by the end of 2008. The UAW chief faces tough questions as well, as Senator Bob Corker (R-TN) pushes back on union work rules and the jobs bank. “I understand Mr. Gettelfinger has done a good job on behalf of all workers not working and being paid,” Corker says, calling the practice unacceptable in other businesses.
Disagreement among Democrats, Republicans - Democrats support a plan to subtract $25 billion from the $700 billion Wall Street bailout package, known as the Troubled Asset Recovery Program (TARP), while Mitch McConnell (R-KY) has joined the White House call to speed up money previously authorized for the automakers through an Energy Department loan program. “To basically change the qualifications of the money that we have already appropriated is a sound way to go forward,” said McConnell. House Democrats and many environmentalists oppose the use of the Energy Department loan, since it is approved only for projects that lead to significant fuel efficiency improvements. Carl Levin (D-MI) says that in order to get a bill, Republicans must write language that explains how they would quickly get $25 billion from the Energy Department program to automakers. But Levin is realistic about the long road they face. “Progress: No. Effort: Hell, yes. Big-time effort,” he says. “We haven’t seen progress and won’t see progress until we see the language from those who want to see the [Energy Department] funds.” Debbie Stabenow (D-MI) says she will “very reluctantly” agree to reworking the retooling loans if that was the only way to get help now. Other Senate allies of the auto industry, including Claire McCaskill (D-MO) and Ken Salazar (D-CO), opposed the proposal to shift $25 billion from TARP. “I’m not sure we want to throw good money after bad,” Salazar says. Max Baucus (D-MT), chairman of the Senate Finance Committee, says it will be nearly impossible to make a deal before Congress adjourns for the year later this week. “Reading the tea leaves, I just don’t think it’s going to happen,” Baucus says. “There’s not enough time given the opposition of the White House and opposition of the other side of the aisle.” Corker echoes the belief that nothing would get done this year, calling the hearings “the first step in a loan application.”
Further Hearings Slated - The CEOs will return to Capitol Hill for a hearing before the House Financial Services Committee on Tuesday, November 25. [Detroit News, 11/19/2008]
Entity Tags: United Auto Workers, Ford Motor Company, Debbie Stabenow, Chrysler, Carl Levin, Alan Mulally, General Motors, Senate Banking Committee, Max Baucus, Rick Wagoner, Robert Nardelli
Timeline Tags: Global Economic Crises
Amid reports of a $15.4 billion loss, $1.2 million in office redecorations and earlier-than-usual million-dollar bonuses using TARP funds, John Thain resigns as CEO of troubled firm Merrill Lynch, recently purchased by Bank of America.
Investigating Bonuses - While Thain forgoes a 2008 bonus, New York Attorney General Andrew Cuomo is investigating bonuses paid to Merrill executives in late December, right before the deal closed. Merrill normally pays bonuses in January or February. Cuomo is investigating performance bonuses for Merrill’s CEO and other top executives, calling the bonuses an “oxymoron” during such an “abysmal year.” According to Merrill’s securities filings, Thain’s salary was $750,000 last year.
$837,000 for Redecoration - “Spending company money on a lavish redo at a time when Merrill’s finances were rocky sends the wrong message,” said Amy Borrus, deputy director at the Council of Institutional Investors in Washington. “Given the dire straits that so many financial institutions are in, redecorating the corner office should be way down on their to-do lists.” Someone familiar with Thain’s New York office redecoration claims that the CEO paid decorator Michael Smith $837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza. Smith, a Santa Monica, California-based decorator, was recently commissioned by Michelle Obama to decorate the White House.
35,000 Job Losses - Thain, a former executive for Goldman Sachs Group Inc. and the New York Stock Exchange, joins about 35,000 employees that Bank of America CEO Kenneth Lewis plans to eliminate over the next few years from the combined firms’ total of over 260,000 employees.
Abysmal Performance - Lewis’s credibility was undercut after Merrill reported a record fourth-quarter deficit. Lewis considered backing out of the deal after learning the extent of Merrill’s losses in December 2008, but went ahead with the buyout at the insistence of US regulators who provided a new $138 billion aid package. “There was a certain surprise that the Merrill losses were as steep as they were,” says James Post, a professor of corporate governance and business ethics at Boston University School of Management. “On top of that, I think Lewis didn’t think Thain was doing as much as he could to control the expenses and minimize the losses.” Shares in Bank of America, down 53 percent so far in 2008, slide another 14 percent to $5.71 by the close of New York Stock Exchange composite trading. Thain bought 84,600 shares in Bank of America, at $5.71 each, the day before his ouster, a filing showed. [Bloomberg, 1/22/2009]
Less than one month after his inauguration, President Barack Obama signs into law a $787 billion recovery package, stating that this will “set our economy on a firmer foundation.” However, Obama reiterates during the bill’s signing ceremony at the Denver Museum of Nature and Science that he will not pretend “that today marks the end of our economic problems, nor does it constitute all of what we have to do to turn our economy around. Today marks the beginning of the end, the beginning of what we need to do to create jobs for Americans scrambling in the wake of layoffs.” The legislative battle on the bill ended with only three Republican votes in the Senate and none in the House. As president-elect, Obama initially expected to spend between $675 billion and $775 billion on the recovery package, and the final number is almost exactly that. However, Congress included $70 billion worth of tax cuts in the bill they approved, although more than a few economists say $70 billion in tax cuts won’t create as many new jobs as $70 billion in spending would. According to the government’s Recovery (.gov) Web site, the 2009 American Recovery and Reinvestment Act:
Saves and creates more than 3.5 million jobs over the next two years;
Takes a big step toward computerizing Americans’ health records, reducing medical errors, and saving billions in health care costs;
Revives the renewable energy industry and provides the capital over the next three years to eventually double domestic renewable energy capacity;
Undertakes the largest weatherization program in history by modernizing 75 percent of federal building space and more than one million homes;
Increases college affordability for seven million students by funding the shortfall in Pell Grants, increasing the maximum award level by $500, and providing a new higher education tax cut to nearly four million students;
Enacts the largest increase in funding of the nation’s roads, bridges, and mass transit systems since the creation of the national highway system in the 1950s;
Provides an $800 “Making Work Pay” tax credit for 129 million working households, and cuts taxes for the families of millions of children through an expansion of the Child Tax Credit;
Requires unprecedented levels of transparency, oversight, and accountability.
White House press secretary Robert Gibbs says Obama will seek additional stimulus/recovery funding if needed. [New York Times, 2/17/2009; recovery.gov, 2/17/2009]
The jobless rate in Britain climbs to its highest level since 1995, according to the Office of National Statistics in London. The number of people out of work hits 2.47 million, while unemployment claims rise to 1.61 million for the month of July. Data recently released by the statistics office indicate that unemployment through July rose to 7.9 percent, the most since 1996, compared to the European Union’s latest figure of 9.5 percent, 9.7 percent in the US, and 5.7 percent in Japan. Bank of England Governor Mervyn King says that even after the economy stops shrinking, households will continue feeling the recession’s pain, since “unemployment is either going to continue rising or remain high.” As much as £175 billion ($288 billion) is being printed to aid economic growth and avoid deflation. “If anything, the UK economy is only just emerging from recession, and this is a lagging indicator,” says economist Philip Shaw of London’s Investec Securities. “We’re looking at unemployment peaking towards the middle of next year. Things are likely to improve at a slow rate, but it’s likely to remain uncomfortable for a long time.” Employment minister Jim Knight tells BBC News: “Unemployment still remains a real problem for families up and down the country. We’ve got to keep the support going and not be tempted to celebrate the recovery.” In speaking on the recovery, Prime Minister Gordon Brown—up for re-election in 2010—says the economic rebound “is still fragile” and stimulus programs that boost the economy should be maintained. “There are no signs of recovery here,” Trades Union Congress General Secretary Brendan Barber says. “It might look rosier in city dealing rooms but, out in the real world, unemployment is the number one issue.” [Bloomberg, 9/16/2009]
On his website “Roubini Global Economics (RGE) Monitor,” New York University economics professor Nouriel Roubini interprets June’s unemployment report as a strong indication that any economic recovery indicators are “alleged green shoots” that are “mostly yellow weeds that may eventually turn into brown manure.” Known as “Dr. Doom” for his prescient 2006 speech to the International Monetary Fund warning fellow economists that the housing bubble would eventually lead to major global recession, Roubini analyzed June’s loss of 460,000 jobs as a strong indication that conditions in the labor market remain “extremely weak.” He also predicts that unemployment could reach 10 percent by the end of summer and that, by the end of 2009, the jobless rate “may well be at 10.5 if not 11 percent.” Roubini cites numerous reasons that an economic recovery, stumped by record high joblessness, is not likely to occur until unemployment falls below 8.5 percent in late 2013.
Roubini June 2009 Jobs Report Analysis -
Details of the unemployment report are worse than reported since, not only are there presently large job losses, but firms are inducing workers to reduce their hours and their hourly wages. According to Roubini, when observing the effect of the labor market on labor income, include three important elements in the total value of labor income—jobs, hours, and average hourly wages. Roubini says all three elements are currently falling, making their effects on labor income much more significant than job losses alone.
Job losses continue to exceed those in the last two recessions, and the unemployment rate has been rising steadily in the current cycle.
Rising unemployment will raise default on consumer loans and further pressure bank balance sheets.
Without home equity or easy credit, ongoing job losses and slower income growth will also keep up the pressure on consumer spending.
Large unemployment, underutilization of labor, and sharp slowdown in wages will add to deflationary pressures in the coming quarters.
Bank losses and tight lending are impacting households who already face wealth losses from housing and equity markets.
Impact of financial sector problems on the real economy are intensifying job losses and leading to lower work hours and wage growth. This puts further pressure on consumer spending while raising mortgage, credit card, and other debt defaults (the unemployment rate is highly correlated with delinquencies on credit cards and auto loans), also putting additional pressure on financial and corporate sector balance sheets.
US labor market aspects are worsening. Factor discouraged and partially-employed workers into jobless statistics, and the true and current unemployment rate is above 16 percent.
Temporary jobs are falling sharply, also an indicator that labor market conditions are becoming worse.
The average unemployment duration is at an all-time high, indicating that people are not only losing jobs, they’re finding it much more difficult to find new jobs.
Based on the birth/death model, the Bureau of Labor Statistics (BLS) continues to add approximately 150,000 to 200,000 jobs, distorting downward the number of job losses. However, based on the initial claims for unemployment benefits, job losses are closer to 600,000 per month rather than officially reported figures such as the 467,000 in the June report.
Should unemployment rates peak at or around 11 percent in 2010, expected bank loans and securities losses will be much higher than estimated in recent stress tests.
While there was a retail sales boost and a boost in real consumer spending during January and February 2009, the numbers from April, May, and now June remain extremely weak in real terms.
The significant increase in real personal income in April and May occurred only because of tax rebates and unemployment benefits.
There was a sharp fall in real personal spending in April, with only a marginal increase in May, suggesting that, just as in 2008, most tax rebates were saved rather than spent. In 2008, people expected the tax rebate to stimulate consumption through September, yet the personal spending increase in April, May, and June 2008 fizzled out by July.
Expect further significant reduction in consumer spending in the fall after the effects of the tax rebates fade since, according to Roubini, 2009 households are much more worried about jobs, income, credit cards, and mortgages than they are in personal consumption and spending. Roubini suggests that only approximately 20 cents on the dollar—rather than the 30 cents of 2008—is going to be spent in the fall of 2009.
By the end of 2010 and in 2011, large budgets and their monetization will eventually increase expected inflation, leading to a further increase in 10-year treasuries, long-term government bond yields, and mortgage and private-market rates. Combined with higher oil prices partly driven to increase by the treasuries, bonds, mortgage, and private market wall of liquidity, as opposed to fundamentals alone, this “could produce a double whammy that could push the economy into a double-dip or W-shaped recession by late 2010 or 2011, so the outlook ahead for the US and global economy remains extremely weak.”
The unemployment rate is already over 10 percent in approximately 13 states—and steadily rising. The ISM Employment Index for manufacturing and non-manufacturing has been contracting at a slower pace in recent months. Manpower Survey shows most employers plan to hold head count steady in the third quarter of 2009 relative to the second quarter of 2009. Online job vacancies fell in June, but have shown some improvement since March. JOLTS: The job openings level in April was at its lowest point since the series began in 2001. The hiring and job openings rates were unchanged and remained low
(see June 9, 2009).
Nobel Laureate Agrees - Economist Paul Krugman, 2008 Nobel laureate, comments: “Workers at any one company can help save their jobs by accepting lower wages and helping make the company more competitive. But when employers across the economy cut wages at the same time, the result is higher unemployment and lower wages in the economy. This will keep pressure on paying off debt and on consumer spending and the real economy.” [RGE Monitor, 7/2/2009]
Eighteen consecutive months of job losses and an economy on the verge of collapse have left record numbers of US consumers either unable to pay their debts or chronically late in payments during the first quarter of 2009. According to the American Bankers Association, home equity loan delinquencies rose to 3.52 percent, from 3.03 percent of all accounts in the last quarter of 2008. Late payments on home equity credit lines climbed a record 1.89 percent, and an index of eight types of loans rose to 3.23 percent from 3.22 percent for a fourth consecutive quarter. In a telephone interview with Bloomberg, the American Bankers Association’s chief economist, James Chessen says: “The number one driver of delinquencies is job losses, which we’ve seen build and build. Delinquencies won’t come down without a dramatic improvement in the economy, and businesses will have to start hiring again.” For the first quarter of 2009, the US economy lost an average of 691,000 jobs in each of the quarter’s three months. According to a Bloomberg survey of 61 economists, since the recession began in December 2007, more than 6.5 million jobs have been cut, and the US economy will shrink in 2009 the most since 1946. Outstanding debt on bank card delinquencies rose a record 6.60 percent in first quarter 2009, from 5.52 percent in the fourth quarter of 2008, indicating that unemployed borrowers are relying on bank cards, as housing prices corrode their home equity. The ABA stated that more borrowers are using cards to meet daily expenses following their job losses. US banks distributed 9.8 million credit cards from January through April 2009, a 38 percent decline from the same period a year earlier, with the average limit for a new bank card falling 3 percent to $4,594, according to data released by credit reporting agency Equifax. “There is less equity to draw on and certainly financial institutions have been scaling back the available lines of credit,” Chessen says. [Bloomberg, 7/7/2009; American Bankers Association, 7/7/2009]
The second quarter of any year is generally considered peak leasing season in the US, but reports show that during the second quarter of 2009, the apartment vacancy rate rose to a 22-year high because of rising unemployment that decreased apartment rental demand. Rents plunged fastest in markets such as New York and San Jose, California, where many white collar jobs have been lost. Additionally, markets such as Las Vegas and Orange County, California, that have transformed foreclosed homes and condominiums into rental property also suffered a decrease in vacancies. Nationally, vacancy levels rose from 6.1 percent in 2008 to 7.5 percent in the April to June 2009 period. Victor Calanog, Reis’s director of research, says: “Everyone expected spring leasing to save apartment landlords. That hasn’t happened.” Initially, the housing catastrophe offered property owners a chance to entice distressed homeowners into the leasing market, but job losses occurred at such a rapid pace that any increases that apartment leasing might have garnered from the housing crisis were destroyed. The rise in apartment vacancies began at the end of 2007, further quickening with the worsening of the economy in fall 2008. Meantime, rents have continued to fall at the swiftest pace in more than a decade and effective rents—concessions by landlords such as a month’s free rent—fell 1.1 percent in first quarter 2009 and 0.9 percent in the second quarter, and averaged $975 per month. At 5.8 percent, New York City marked the largest 12-month rent decrease with an average of $2,680 per month. Statistics are based on a survey by Reis Inc., a New York real estate research firm, which tracked 79 markets, of which 45 showed vacancy increases. [Wall Street Journal, 7/8/2009]
Group of 8 (G-8) leaders from across the globe release a statement from their meeting in L’Aquila, Italy, saying that economic recovery from the worst recession since World War II is too frail for them to consider repealing efforts to infuse money into the economy. US President Barack Obama, British Prime Minister Gordon Brown, European Commission President Jose Barroso, German Chancellor Angela Merkel, Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy, Japanese Prime Minister Taro Aso, Italian Prime Minister Silvio Berlusconi, and Russian President Dmitriy Medvedev assembled for the annual gathering where Obama pressed to maintain an open door for additional stimulus actions. A new drop in stocks generated global concern that, to date, the $2 trillion already sunk into economies had not provided the economic bump that would bring consumers and businesses back to life. “The G-8 needed to sound a second wakeup call for the world economy,” Brown told reporters after the gathering’s opening sessions. “There are warning signals about the world economy that we cannot ignore.” A G-8 statement embraces options ranging from a second US stimulus package—advocated by some lawmakers and economists—to an emphasis by Germany on shifting the focus to deficit reduction.
What Next? - Disagreements over what to do next, as well as calls from developing nations to do more to counteract the slump, emphasize that the Group of 8 has little if any room to maneuver, since the largest borrowing binge in 60 years has, so far, failed to stop rising unemployment and has left investors doubting the potency of the recovery. Even as G-8 leaders held their first meeting, the Morgan Stanley Capital International (MSCI) World Index of stocks continued a five-day slide, and the 23-nation index had dropped 8 percent since its three-month rally that ended on June 2. The International Monetary Fund (IMF) upgraded its 2010 growth forecast, saying the rebound would be “sluggish,” and urged governments to stay the course with economic stimuli. The IMF also said that emerging countries such as China would lead the way, with an expansion of 4.7 percent in 2010, up from their April prediction of 4 percent. “It’s a very volatile situation,” said European Commission President Barroso in a Bloomberg Television interview from L’Aquila. “We are not yet out of the crisis, but it seems now that the free fall is over.”
Exit Strategems Discussion - “Exit strategies will vary from country to country depending on domestic economic conditions and public finances,” the leaders conclude, but deputy US National Security Adviser Mike Froman tells reporters, “There is still uncertainty and risk in the system.” Froman says that although exit strategies should be drawn up, it’s not “time to put them into place.” The IMF forecasts that, in 2014, the debt of advanced economies will explode to at least 114 percent of US gross domestic product because of bank bailouts and recession-battling measures. German Chancellor Merkel, campaigning for re-election in September and the leading opponent of additional stimulus, warned against burgeoning budget deficits, which the IMF has predicted will rise to an average of 6 percent of the EU’s 2009 gross domestic product, from 2.3 percent in 2008. At last month’s European Union summit, Merkel pushed through a statement that called for “a reliable and credible exit strategy,” and insisted, “We have to get back on course with a sustainable budget, but with the emphasis on when the crisis is over.” [G8 Summit 2009, 7/2/2009; Bloomberg, 7/9/2009]
Entity Tags: Morgan Stanley Capital International (MSCI) World Index, Mike Froman, Jose Manuel Barroso, International Monetary Fund, Taro Aso, National Security Council, Nicolas Sarkozy, Silvio Berlusconi, Angela Merkel, Gordon Brown, Barack Obama, Standard & Poor’s, Stephen Harper, Dmitriy Medvedev
Timeline Tags: Global Economic Crises
Orders for durable goods in the US fall by a seasonally adjusted 2.4 percent in comparison with July, according to a report that will be released by the Commerce Department in late September. One reason is a 40 percent monthly decline in orders for civilian aircraft. Computer, electrical equipment, and transportation equipment orders all fall as well, with durable goods shipments slipping 1.4 percent for the month. In total, durable goods orders are down 25 percent from the same time last year. Except for transportation, orders for durable goods are flat in August. [New York Times, 9/25/2009]
In their new report, “The State of Working America 2008-2009,” two economists at leading US think tank Economic Policy Institute (EPI) issue warnings that US workers will face harsh challenges as what they term “the Great Recession of 2007” draws to a close.
Unemployment - Heidi Shierholz and Lawrence Mishel, co-authors of the report, say that the extent of the huge global crash would have been much worse without President Obama’s American Recovery and Reinvestment Act of 2009. “The disaster would have been even worse without the stimulus law President Obama pushed through earlier this year,” Shierholz says. “Job losses would have been so high that the July unemployment figures would have been 9.6 percent or 9.7 percent, not 9.4 percent. We expect a steady climb in the unemployment rate up and over 10 percent by the end of the year. And it’ll rise slightly above 10 percent for a few months in 2010 before turning downwards. Until the economy is adding 122,000 jobs per month to take care of the people coming into the job market, unemployment will stay high. We still have a long way to go.”
Human Cost - Both economists speak of the human penalty. “This is more than a bunch of dry numbers,” Mishel declares. “One-third of the jobless—a record—have been out of work at least six months. Many have exhausted their unemployment benefits, which translate into bankruptcies, lost homes, no medical care, and more ills afflicting workers—even employed workers. This recession is much more than just the numbers of unemployed and underemployed, which is also setting a record,” he says. “Employed workers are seeing their hours cut, there’s an implosion in wage growth, and about 17 percent of large private employers have resorted to unpaid furloughs to save money.” Mishel explains that a one-week furlough is the equivalent of a 2 percent pay cut for a worker and his or her family.
Media Coverage Poor - In their report, the economists also criticize major media’s coverage of the crisis, urging workers not to fall for the usual chatter that things will automatically improve once productivity rises. “In the popular media, economic experts endlessly debate dynamics and causes of the downturn but most of these debates have very little to do with the real economic challenges facing working families today. The men and women of the workforce have worked harder and smarter to make the US a world-class economy and the mantra among economists and policy makers is that ‘as grows productivity, so shall living standards improve.’ Would that it was so.”
'YOYO Economics' - Prior to the crash, the report says, workers faced “rising inequality and lower real incomes for all but the richest 5 percent, diminished bargaining power, less health coverage, riskier pensions if any at all, income constraints that prevent workers’ kids from getting college educations to better themselves, and fewer high-paying jobs for those college grads, due to off-shoring and outsourcing.” The report nicknames it “YOYO (‘You’re on your own’) economics.” “We are in a unique position to judge the results of this experiment in reduced worker bargaining power and YOYO economics,” write the two economists. “The macro-economy is in serious disrepair and policymakers must move beyond temporary patches to fundamentally remake the economy so that it works for workers.”
Effect of Stimulus - The two offer praise for the Obama administration’s move to correct economic imbalances with the $787 billion stimulus package, the “cash for clunkers” program, initiatives to help the Detroit auto industry, and the $500 million “green jobs” initiative that have “partially staunched the bleeding.” Mishel predicts that, in conjunction with these programs, Congress will pass a second federal extension of unemployment benefits. They also argue that there should be fundamental restructuring away from “free market” policies that give corporations and financiers free sovereignty while the masses are forced to tighten their belts. [People's Weekly World Newspaper, 9/4/2009]
Following the furloughs of nearly 8,000 workers in May, Puerto Rico announces that it will lay off an additional 16,970 public workers to prevent a government shutdown as well as to prevent damage to the island’s credit. Government officials are hoping that the layoffs will assist in allaying a $32 billion deficit. Cuts in contract spending, a freeze on hiring, and temporary taxes have already been implemented. The island is in the third year of a recession and the unemployment rate is at 15 percent. Says Carlos Garcia, president of the Government Development Bank of Puerto Rico, “Today is an extremely difficult day for all Puerto Ricans.” Garcia adds that, as a result of the layoffs, the island’s unemployment rate will rise to 17 percent, higher than any US state. Some of the workers will be contracted by the US Treasury to assist in collecting outstanding debts of over $3.6 billion owed by residents, private companies, and other entities. Others will be hired for jobs in education. Most workers will be laid off on or around November 6. According to Garcia, the move could save the island $386 million. “The layoffs are unavoidable,” Governor Luis Fortuno tells Puerto Ricans in a recorded news media event. “Not doing anything would have been devastating to our economy, your pocketbook, your family, and our society,” he says. “It would have meant more increases, more taxes, and another government shutdown.” Organized labor leaders have announced an October 15 protest to be held all over the island. [Huliq News, 9/25/2009; Associated Press, 9/26/2009]
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