The Voice of the White House

Washington, D.C., May 19, 2011: “We have it on good authority that plans are now being developed in the Pentagon to facilitate a military operation against the Mexican drug lords who have taken control of the Mexican side of the U.S./Mexico border and are ruthlessly exterminating anyone in the way of their shipping huge amounts of drugs into this country.

Unfortunately for the murderous drug lords, they have been running heroin and cocaine over the border in heavily armed convoys that shoot to kill anyone trying to interdict them. They have gone across Army bases and fired at MPs trying to stop them,

As the Obama administration has forbidden them, or federal border guards from shooting back, the Army, bless them, plans to attack the gangsters by military action, triggered by another manufactured incident.

The plan is to exterminate the drug dealers, their families, friends and allies and set up a safe zone to extend 100 miles into Mexico. Comments on retaliation from the Mexican army are very entertaining. Our military plans people view the Mexican army about as dangerous an enemy as a group of autistic Girl Scouts.

Long overdue.

There are also two important policy shifts in the Middle East. The first one is away from the far right government of Israel and the second is away from the House of Saud that runs Saudi Arabia  Binyamin Netanyahu. is laboring under the misapprehension that he and his country are somehow very important.

They are not. The DoD has been intercepting and reading all the secret communications going into the Israeli Embassy and coming from it and a reading of some of these borders on the lunatic.

Because Israel believes, in error, that the so-called “Jewish vote” and Jewish cash contributions to political campaigns are “absolutely vital ” to the American political process, they are now threatening to “utterly destroy” Obama in the next Presidential election.

There are over 310 million Americans and only 5,275,000 of these are Jewish.

There are more illegal Mexicans (32,000,000) housed among us than Jews. Jews are not a homogenous  group but until recently they owned most of the news media in America and by this, wielded disproportionate political power. Now, with, as an example, the Washington Post losing 75% of its subscribers in one year, the media is no longer the controlling power it once was.

But the rage expressed in the flood of confidential, and secret, messaging would indicate that the Israeli far right is stunned at what they feel is treason to them. The overall tone is one of sheer hatred and often expressed thoughts of revenge and retribution.

The Stern Gang tried to assassinate Harry Truman when he cut off American sources of explosives to Jewish terrorists in 1948 and from the tenor of current thought, mistakenly thought to be private, Obama ought to have more Secret Service personnel added to the White House detail.

Oil is running out in Saudi Arabia and we are no longer inclined to overlook their participation is such anti-American plottings as the 9/11 attacks. Our Wonderful CIA is now in close, working contact with elements in Saudi society that wish to replace the royal family and strip them of their wealth.”

Israeli rebuke of Obama exposes divide on Mideast

May 21, 2011

Reuters

WASHINGTON: Israeli Prime Minister Benjamin Netanyahu bluntly told President Barack Obama on Friday his vision of how to achieve Middle East peace was unrealistic, exposing a deep divide that could doom any U.S. bid to revive peace talks.

In an unusually sharp rebuke to Israel’s closest ally, Netanyahu insisted Israel would never pull back to its 1967 borders — which would mean big concessions of occupied land — that Obama had said should be the basis for negotiations on creating a Palestinian state.

“Peace based on illusions will crash eventually on the rocks of Middle East reality,” an unsmiling Netanyahu said as Obama listened intently beside him in the Oval Office after they met for talks.

Netanyahu insisted that Israel was willing to make compromises for peace, but made clear he had major differences with Washington over how to advance the long-stalled peace process.

Netanyahu’s resistance raises the question of how hard Obama will push for concessions he is unlikely to get, and whether the vision the U.S. leader laid out on Thursday to resolve the decades-old conflict will ever get off the ground.

Despite assurances of friendship by both leaders, this week’s events also appeared to herald tense months ahead for U.S.-Israeli relations, even as the Arab world goes through political tumult and Palestinians prepare a unilateral bid this fall to seek U.N. General Assembly recognition for statehood.

Speaking to reporters after the meeting, Obama said he reiterated to Netanyahu the peace “principles” he offered on Thursday in a policy speech on the Middle East upheaval.

The goal, he said, “has to be a secure Israeli state, a Jewish state, living side by side in peace and security with a contiguous, functioning and effective Palestinian state.

Obama on Thursday embraced a long-sought goal by the Palestinians: that the state they seek in the occupied West Bank and Gaza Strip should largely be drawn along lines that existed before the 1967 war in which Israel captured those territories and East Jerusalem.

Netanyahu, who heads a right-leaning coalition, responded with what amounted to a history lecture about the vulnerability to attack that Israel faced with the old borders. “We can’t go back to those indefensible lines,” he said.

Picking a fight with Israel could be politically risky for Obama at home as he seeks re-election in 2012.

CRISIS IN RELATIONS

The brewing crisis in U.S.-Israeli relations dimmed even further the prospect for resuming peace talks that collapsed late last year when Palestinians walked away in a dispute over Israeli settlement building in the West Bank.

Obama and Netanyahu, meanwhile, appear to have reached an impasse after two and a half years of rocky relations. The Obama White House was angered when Netanyahu refused a U.S. demand to halt building Jewish settlements in the West Bank.

Some Israelis have never felt entirely comfortable with Obama, unnerved by his early attempts to reach out to Iran and his support for popular Arab revolutions that have unsettled Israel.

In a pointed comment clearly aimed at Obama’s new approach to the long-running conflict, Netanyahu said: “The only peace that will endure is one that is based on reality, on unshakable facts.”

Netanyahu, Israeli officials said, was determined to push back hard because the reference to 1967 borders was a red flag that would attract more international pressure on Israel for concessions. A senior Israeli official said Netanyahu felt he had to speak bluntly so he would be “heard around the world.”

“There is a feeling that Washington does not understand the reality, doesn’t understand what we face,” an official on board the plane taking Netanyahu to Washington told reporters.

Despite that, Obama’s first declaration of his stance on the contested issue of borders could help ease doubts in the Arab world about his commitment to acting as an even-handed broker and boost his outreach to the region. Another failed peace effort, however, could fuel further frustration.

In line with Netanyahu’s stance, Obama voiced opposition to the Palestinian plan to seek U.N. recognition of statehood in September in the absence of renewed peace talks.

The Democratic president has quickly come under fire from Republican critics, who accuse him of betraying Israel, the closest U.S. ally in the region. Pushing Netanyahu could alienate U.S. supporters of Israel as Obama seeks re-election.

Obama may get a chilly reception in a speech to an influential pro-Israel lobbying group on Sunday. Netanyahu is expected to be feted when he addresses the same audience on Monday and then the U.S. Congress on Tuesday.

MARKERS FOR COMPROMISE

Obama, in his speech on Thursday, laid down his clearest markers yet on the compromises he believes Israel and the Palestinians must make to resolve a conflict that has long been seen as a source of Middle East tension.

But he did not present a formal U.S. peace plan or any timetable for a deal he once promised to clinch by September.

In Thursday’s speech, Obama said: “We believe the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps” of land. While this has long been the private view in Washington, Obama went further than U.S. officials have in the recent past.

Agreed swaps would allow Israel to keep settlements in the West Bank in return for giving the Palestinians other land.

Going into the talks, Netanyahu said he wanted to hear Obama reaffirming commitments made to Israel in 2004 by then-President George W. Bush suggesting that it may keep some large settlement blocs as part of any peace pact.

White House spokesman Jay Carney said on Friday that Obama had said nothing that “contradicts those letters.”

Obama on Thursday also delivered a message to the Palestinians that they would have to answer “some very difficult questions” about a reconciliation deal with Hamas, the Islamist group that runs Gaza and which the United States regards as a terrorist group.

Congress and the War Powers

by Scott Horton

May 19

Harpers

When the 112th Congress convened on January 3rd, the new Republican leadership made a great show of respecting the Constitution. In the House, the text of the Constitution was read, with a handful of curious emendations. Today, we can see just how serious the new Congress is about its constitutional duties. In a breathtaking abdication of constitutional responsibility, they are allowing the 60-day period under the War Powers Act to expire without taking any action, either affirmative or negative, with respect to U.S. military operations in Libya.

No responsibility weighs more heavily on the nation’s leaders than the power to make war. In the course of the Constitutional Convention of 1787, how this power was to be divided between the executive and the Congress was a matter of intense discussion. Virginian George Mason seemed to grasp the sense of the delegates: the president was “not to be trusted” with war-making powers. Like his compatriot James Madison, Mason believed that a president with unfettered war-making powers would soon emerge as an autocrat. Neither, he felt, could the power simply be balanced with the requirement of Senate approval, because the Senate was not structured in a way to do this. Rather, Congress as a whole needed to act in order to force a full and proper vetting of the question of whether war should be waged. As Mason explained, “he was for clogging rather than facilitating war.” And so, to be sure, is the Constitution, properly construed.

Congress has had a long history of wrestling with the president over the war-making power. In the Nixon era, Congress enacted the War Powers Act to demarcate presidential and congressional authority in the area. The measure gave the president sixty days to act before seeking congressional authorization for military activities abroad. Nixon vetoed the act, and Congress enacted it over his veto. Subsequent presidents have behaved coyly, seemingly complying with the Act without explicitly acknowledging it as a limitation on their powers. The Libyan operations provide perhaps the clearest test of these boundaries in modern times.

Ironically, as day sixty arrives for Libya, Congress is indeed engaged in discussion of the authorization of military force–with respect to the war against Al Qaeda and the Taliban. Of course, in the week after September 11, Congress granted the president this power. The current effort is an act of G.O.P. political grandstanding that serves no practical purpose, other perhaps than to support their vision of warfare without limits in time and space. It is typical of Washington today that shrill voices of the war party support this measure as they ignore Congress’s affirmative duty to come to grips with an unauthorized military campaign in Libya.

Reasonable and well-informed citizens may disagree about whether the current military adventure in Libya is right or wrong. But the pros and cons of that campaign need to be carefully and publicly deliberated as part of a process aimed at forming democratic consensus. War-making should not be the simple and unchallenged prerogative of the executive. This is what the Constitution says, and it is what common sense demands of any democratic society.

Yesterday, former Congressmen Mickey Edwards and David Skaggs, supported by a number of constitutional scholars, wrote to President Obama arguing that “[t]he Constitution requires the President to obtain the authorization of Congress prior to initiating the use of force abroad except for a limited range of defensive purposes. None of these purposes was present in the reasons you gave for your unilateral determination to use force in Libya.” They encouraged Obama to seek explicit congressional authority for his operations in Libya.

Speaking as a candidate, then-Senator Obama made clear that “[t]he president does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.” That squarely applies to the operations in Libya. But as president, Obama appears to have adopted a quite different view. As Charlie Savage notes, the president is far more likely to adopt the approach taken by President Clinton, according to which congressional appropriations implicitly amount to an authorization of his military operations.

In Federalist No. 51, James Madison wrote that each branch “should have a will of its own,” each must possess “the necessary constitutional means and personal motives to resist encroachments of the others.” That means that the responsibility rests with Congress to assert its war-making prerogatives. Failing to do so, it effectively solidifies the unilateral war-making power of the Executive. Mark this date: on May 19, 2011, Congress blinked.

Banks Amass Glut of Homes, Chilling Sales

May 22, 2011

by Eric Dash

New York Times

EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.

But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once.

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

“My biggest fear right now is that the supply has been artificially restricted,” said Jayson Meyerovitz, a local broker. “They can’t just sit there forever. If so many houses hit the market, what is going to happen then?”

The major lenders say they are not deliberately holding back any foreclosed homes. They say that a long sales process can stigmatize a property and ratchet up maintenance and other costs. But they also do not want to unload properties in a fire sale.

“If we are out there undercutting prices, we are contributing to the downward spiral in market values,” said Eric Will, who oversees distressed home sales for Freddie Mac. “We want to make sure we are helping stabilize communities.”

The biggest reason for the backlog is that it takes longer to sell foreclosed homes, currently an average of 176 days — and that’s after the 400 days it takes for lenders to foreclose. After drawing government scrutiny over improper foreclosures practices last fall, many big lenders have slowed their operations in order to check the paperwork, and in two dozen or so states they halted them for months.

Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

Realty agents and buyers say the lenders are simply overwhelmed. Just as lenders were ill-prepared to handle the flood of foreclosures, they do not have the staff and infrastructure to manage and sell this much property.

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

The silver lining for home lenders, however, is that the number of new foreclosures and recent borrowers falling behind on their payments by three months or longer is shrinking.

“If they are able to manage through the next 12 to 18 months,” said Mr. Zandi, the Moody’s Analytics economist, “they will be in really good shape.”

It Teetered, It Tottered, It Was Bound to Fall Down

May 21, 2011

by Gretchen Morgenson and Joshua Rosner

New York Times

This article was adapted from “Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon,” by Gretchen Morgenson, a business reporter and columnist for The New York Times, and Joshua Rosner, a managing director at the independent research consultant Graham Fisher. The book is to be published on Tuesday by Times Books.

MARC COHODES had heard the stories.

Heard how these guys would give a mortgage to anyone — even to a corpse, the joke went. How the place was run like a frat house.

You wouldn’t believe the things that go on there, his brother-in-law had told him.

So Mr. Cohodes, a money manager in Marin County, Calif., decided to bet against one of the big names of the subprime age: NovaStar Financial.

NovaStar was part of a crop of new lenders that had sprung up in the 1990s. It had been founded by two hard-charging entrepreneurs, Scott F. Hartman and W. Lance Anderson.

The two men had complementary skills. Handling the financial operations, working with Wall Street — that was Mr. Hartman’s job. Mr. Anderson, a born salesman, was the glad-hander. From the start, the pair was paid handsomely. Each man received almost $700,000 in 1997, even though their company was losing money.

Like others in the subprime industry, NovaStar used aggressive accounting that obscured its increasingly precarious finances. As far back as the 1990s, it had to underwrite loads of new loans to offset losses on older mortgages.

But unlike many of its peers, NovaStar had already survived at least one brush with death. Now, in 2003, Mr. Cohodes was betting that it would not be so lucky again.

Although NovaStar was not a household name in lending, in 2003 the company boasted 430 offices in 39 states. With headquarters on the third floor of an office building in Kansas City, Mo., it was fast becoming one of the top 20 home lenders in the country.

NovaStar was also becoming a Wall Street darling, its shares trading at $30, up from $9.50 in late 2002. Typing NovaStar’s stock symbol into his Bloomberg machine, Mr. Cohodes did a double take. Thirty dollars? Must have used the wrong stock symbol, he thought.

He hadn’t. NovaStar was on a trajectory that would take the shares above $70. Thanks to aggressive management, unscrupulous brokers, inert regulators and a crowd of Wall Street stock promoters, NovaStar’s stock market value would soon reach $1.6 billion.

A beefy, street-smart man fond of sports and sports metaphors, Mr. Cohodes knows every trick executives use to make their companies look better than they are. He prides himself on being able to spot trouble.

Most investors are optimists and believe that companies will increase in value. Short-sellers are the opposite.

And because they challenge company spin, short-sellers are often criticized and refused access to management.

RARE is the corporate executive with an appreciation for naysayers, and NovaStar’s founders were no different. Mr. Anderson and Mr. Hartman had contempt for short-sellers. A Web site sponsored by NovaStar backers, called NFI-info.net, published a picture of a cockroach next to a discussion about investors who had bet against the company’s stock.

But Mr. Cohodes was relentless, and he often shared his research with regulators at the Securities and Exchange Commission.

He figured that if he was right about NovaStar, and he was certain he was, investors everywhere would be better off if he shared his findings with investigators. The sooner the S.E.C. put a stop to improprieties, the better.

The short-sellers would benefit too, of course, if an S.E.C. investigation and civil suit confirmed what Mr. Cohodes and others had found. Even the simple disclosure that an investigation into a company’s practices had been started could crush its stock.

So in February 2003, Mr. Cohodes started corresponding with the S.E.C. about NovaStar. He began “throwing things over the wall,” as he put it, to Amy Miller, a lawyer in the division of enforcement. By this time, loan production at NovaStar was clocking $600 million a month, up from $48 million a month five years earlier.

Among the questionable practices that are the easiest to find are those that appear in a company’s own financial statements. With a little determination and expertise, accounting practices that burnish financial results or make earnings appear out of nowhere can often be spotted in these documents.

Taking his pencil to NovaStar’s statements, Mr. Cohodes found a raft of red flags. “They made their numbers look however they wanted to,” he recalls. “Not even remotely realistic.”

One tactic gave the company lots of leeway in how it valued the loans held on its books. Another allowed it to record immediately all the income that a loan would generate over its life, even if that was decades. This accounting method ignored the possibility that some of the company’s loans might default. NovaStar assumed that losses on all of its loans would be nonexistent. This was the same stratagem that killed off almost all subprime lenders when the Russian debt crisis rocked the world’s financial markets in 1998.

NovaStar’s rosy assumption not only padded its profitability but also encouraged the company to make more mortgages, regardless of quality. The more loans it made, the more fees and income the company could record.

After some digging, Mr. Cohodes found that NovaStar’s lending practices were lax and rife with hidden fees.

Promotional memos NovaStar sent to its 16,400 unsupervised mortgage brokers across the country told the tale of easy credit terms. “Did You Know NovaStar Offers to Completely Ignore Consumer Credit!” one screamed. “Ignore the Rules and Qualify More Borrowers with Our Credit Score Override Program!” boasted another.

Mr. Cohodes and other NovaStar critics believed that they had found a company whose success was built on deceptive practices. What they did not recognize was that NovaStar was a microcosm of the nationwide home-lending assembly line that would lead directly to the credit crisis of 2008.

In Atlanta, Patricia and Ricardo Jordan learned the hard way how NovaStar’s freewheeling lending practices imperiled unsuspecting borrowers.

The Jordans had bought their three-bedroom home in a middle-class section of southwestern Atlanta in 1983 for $30,000. Ms. Jordan had made many improvements on the property, putting up a fence and installing an attic fan and air-conditioning. The sole breadwinner in the family, she supported her husband, a physically and mentally disabled Vietnam veteran. In 2000, she retired and they lived on Social Security and veteran benefits.

In 2004, she had a 9 percent adjustable-rate mortgage that she wanted to change to a fixed-rate loan. She received an offer in the mail from NovaStar and called the toll-free number.

“I told them I wanted to come out of the adjustable and they said they would give me the fixed rate if I would accept it at 10 percent,” Patricia said. “I could have stayed where I was but I told them definitely a 30-year fixed rate.”

The Jordans were more or less perfect targets for a lender like NovaStar. They were financially unsophisticated, and they were trusting.

Unbeknownst to the Jordans, their NovaStar loan was one of the most punitive out there: an adjustable-rate mortgage with an initial interest rate of 10.45 percent that would soon explode to 17.25 percent. Even the initial monthly housing payment, including taxes and insurance, was barely affordable: $1,215.33. As documented in their loan file, the Jordans’ total monthly net income was only $2,697. Their monthly housing and other debt costs totaled $1,642, so after they paid their debts each month, the Jordans had only $1,055 to live on.

And that was just the beginning. Two years after signing up for the loan, its interest rate was set to ratchet up. Only then did Ms. Jordan learn that NovaStar had put her into an adjustable loan, not the fixed rate she had been promised.

“I got duped,” she contended.

The Jordans sued NovaStar in 2007. As part of the lawsuit, their lawyer found that their loan had been placed in a mortgage securitization trust assembled by NovaStar and sold to investors in November 2004. More than half of the loans in the pool were provided with no documentation or limited documentation of borrowers’ financial standing.

But the Jordans had given NovaStar bank statements and other documentation of their income. The lawsuit would show that NovaStar had inflated their monthly income by $500 to make the loan work. The lender had given the Jordans a loan that went against its own underwriting guidelines and that overrode federal lending standards.

The Jordans’ was just one loan. There were literally thousands more like it. (NovaStar settled with the Jordans in 2010. The terms were undisclosed.)

Because NovaStar was not a bank, its lending practices were largely lost on state and federal regulators. Traditional banks operate under the scrutiny of financial regulators like the Federal Deposit Insurance Corporation, which was set up to protect depositors after the huge bank failures of the Great Depression. But for companies like NovaStar, the closest thing to an overseer was an occasional state regulator who took action when it discovered that the company’s independent salespeople were unlicensed.

Massachusetts was one state whose regulators recognized the threats posed by the likes of NovaStar. In October 2003, the state’s commissioner of banks filed a cease-and-desist order against NovaStar, concluding that the company engaged in “acts or practices which warrant the belief that the corporation is not operating honestly, fairly, soundly and efficiently in the public interest.”

Nevada followed with its own order in early 2004. NovaStar started closing operations in Massachusetts and Nevada, but only belatedly told the public about its regulatory reprimands.

As the housing bubble inflated, NovaStar was able to convince many of its shareholders that its mistakes were honest ones and were immaterial to its growing business. The company hired Lanny Davis, a well-connected lobbyist and public relations operative, to run interference. Mr. Davis was used to operating in a crucible; he had been special counsel to President Bill Clinton during the Monica Lewinsky scandal.

But NovaStar’s problems were not limited to a few aggressive state regulators. In the summer of 2004, the inspector general for the Department of Housing and Urban Development produced a damning report on NovaStar’s practices. HUD’s inspector general determined that the company’s branch system did not comply with federal regulations; among the deficiencies HUD cited was the company’s practice of hiring independent contractors as loan officers. NovaStar’s branch system, HUD said, was designed to shift risk from the company to the federal government. HUD recommended that NovaStar pay penalties in the case.

NovaStar did not disclose the HUD report to investors. All the while, Mr. Cohodes was continuing to talk to Ms. Miller and others at the S.E.C. about NovaStar. He sent them information about the company, including the NovaStar fliers indicating its anything-goes lending practices. He annotated the transcript of one of NovaStar’s conference calls with analysts and investors, pointing out to the investigators the many inaccurate statements made by the company’s executives.

Although some of the S.E.C. people he spoke with seemed to recognize the problems in NovaStar’s operations, their investigation did not appear to be gaining traction.

The phone calls with the regulators went over the same material repeatedly, Mr. Cohodes recalls, leading him to conclude that Ms. Miller and her colleagues did not understand what was happening at NovaStar.

“Whenever they seemed to get it, they would either call up or make contact frantically saying, ‘Can you please go over this again?’ ” Mr. Cohodes said. “It was almost like someone was presenting a case to the higher-ups and they would say, ‘Are you sure? Go back and make sure.’ ”

One matter whose importance the agency would surely recognize, Mr. Cohodes thought, was a lawsuit showing that NovaStar’s leading mortgage insurer, the PMI Group, had stopped insuring the lender’s loans. He passed his information along to the S.E.C., including names and phone numbers of people to talk to at PMI.

Mr. Cohodes also gave the agency information about some NovaStar branches that were either nonexistent or questionable. Opening new offices helped the company persuade investors that business was booming. But some strange stuff turned up when Mr. Cohodes and some colleagues took a road trip to see NovaStar’s offices.

“A posse of us went to Vegas, which was their growth market,” he recalls. “We found one branch in a massage parlor, another in a guy’s house,” he says. “After that, I wrote to the S.E.C. again and basically said, ‘Someone should go in here and make sure these numbers are right.’ ”

To most outsiders, NovaStar’s operations seemed to be running on all cylinders. During 2004, the company wrote $8.4 billion in mortgages; that September, the amount of loans held on its books had reached $10 billion. NovaStar ended that year with 600 offices.

It was time for Mr. Hartman and Mr. Anderson to take a victory lap. “The $10 billion mark is a tribute to NovaStar associates and our many partners in the mortgage community,” Mr. Hartman told a reporter at Origination News, an industry publication. But while NovaStar executives high-fived each other, a unit of Lehman Brothers, Wall Street’s largest packager of residential mortgage loans sold to investors, was discovering serious problems in a review of NovaStar mortgages. The findings were so troubling to the Lehman executives overseeing the firm’s purchases of NovaStar loans that they ended their relationship with NovaStar in 2004.

According to documents filed in a borrower lawsuit against NovaStar, Aurora Loan Services, a Lehman subsidiary, studied 16 NovaStar loans for quality-control purposes. What the analysis found: more than half of the loans — 56.25 percent, to be exact — raised red flags. “It is recommended that this broker be terminated,” the report concluded.

Among the problems turned up by the Aurora audit were misrepresentations of employment by the borrower, inflated property values, transactions among parties that were related but not disclosed, and unexplained payoffs to individuals when loans closed.

The details uncovered by Aurora were alarming. One NovaStar loan on a property in Ohio totaled $77,500 even though the average sales price for the neighborhood was $31,685, and the same house had been purchased two months earlier for $20,000.

S.E.C. rules require the disclosure by company management of information considered material to the company’s prospects or an investor’s analysis. In a 1999 S.E.C. bulletin, the commission defined materiality this way: “A matter is ‘material’ if there is a substantial likelihood that a reasonable person would consider it important.” Two Supreme Court cases use the same standard.

Surely, Aurora’s findings that more than half of the sampled NovaStar loans were questionable would have been an important consideration for the S.E.C.’s “reasonable person.”

Still, NovaStar failed to alert investors or the public at large to the Aurora analysis. Nor did NovaStar publicize the fact that Lehman Brothers had stopped buying its loans.

Increasingly frustrated, Mr. Cohodes and the other NovaStar short-sellers kept throwing information over the wall at the S.E.C. But the inquiry soon seemed moribund.

“We kept going to the government from the time the company had a $300 million market cap, a $600 million market cap until it had a $1 billion market cap,” Mr. Cohodes said, referring to NovaStar’s rising stock price.

To keep its money machine running, NovaStar regularly issued new shares to the public. Between 2004 and 2007, for instance, the company raised more than $400 million from investors. To those critical of NovaStar’s practices, this was money the company should never have been allowed to raise from investors who were kept in the dark by the company’s disclosure failings.

Mr. Cohodes reckons that over roughly four years, he conducted hundreds of phone calls with the S.E.C. about NovaStar. Each time, he would walk them through his points. Sometimes, a higher-up would get on the phone and contend that while NovaStar’s practices were indeed aggressive, the company did not appear to be breaking the law. NovaStar’s selective disclosures — it was quick to report good news but failed to own up to problems on many occasions — seemed to be infractions that the S.E.C. should have dealt with. But its investigation went nowhere.

In any case, by 2006, the wheels had started to come off the NovaStar cart. The company’s net income that year was less than half what it earned in 2005. The company faced a number of lawsuits, including a class action filed in Washington State in December 2005 alleging that NovaStar failed to disclose to borrowers the fees earned by brokers. Plaintiffs contended that NovaStar had violated consumer protection laws. In 2007, NovaStar agreed to pay $5.1 million to resolve the claims of about 1,600 Washington borrowersIts stock was falling, too. By late 2006, NovaStar was trading at around $30; but in the first few months of 2007, as the money for subprime lenders began drying up and these companies started closing their doors, it plummeted to $5. The company halted mortgage lending and stopped paying its dividend.

In March 2007, Mr. Anderson dismissed as insignificant the HUD report and the lawsuits the company had attracted. “Clearly we’re going through a tough time right now,” he told a reporter. “But we think the loans we are originating today will perform very well. We were surprised by the speed and severity of the downturn, but I think NovaStar will be a survivor.”

He was wrong. NovaStar’s shares collapsed, wiping out roughly $1 billion in market value from the peak of the stock price. Despite the implosion, between 2003 and 2008, Mr. Anderson and Mr. Hartman each made about $8 million in salary, bonuses and stock grants.

Neither man was ever sued by the S.E.C. or any other regulator. As is its custom, the S.E.C. declined to comment on the NovaStar inquiry or the agency’s discussions with short-sellers. But documents supplied by the S.E.C. under the Freedom of Information Act show the extensive communications between Mr. Cohodes and the agency. Ms. Miller, still at the S.E.C., declined to comment.

“It would be interesting to see who exactly dropped the ball, and why,” Mr. Cohodes said. “It would be interesting why nothing was ever brought. The S.E.C. should have sent a plane for us to come to D.C. and say: ‘How do we make sure this doesn’t happen again?’ ”

NOVASTAR no longer underwrites mortgages. Its shares were delisted by the New York Stock Exchange and now trade for about 41 cents a share. The company, a shadow of its former self, runs a property appraiser and a financial services unit that provides banking services “to meet the needs of low- and moderate-income-level individuals.”

In a 2010 report to shareholders, Mr. Anderson reported that the company had “several interesting initiatives under way.” Mr. Hartman has left the company. At the end of 2009, NovaStar management concluded that the company’s financial reporting was “not effective.”

NovaStar had, in essence, confirmed what Mr. Cohodes had been telling the S.E.C. all along. The company’s financial reports just couldn’t be trusted.

China-risers should pause for breath
By Tom Engelhardt

Tired of Afghanistan and all those messy, oil-ish wars in the Greater Middle East that just don’t seem to pan out? Count on one thing: part of the United States military feels just the way you do, especially a largely sidelined navy – and that’s undoubtedly one of the reasons why, a few months back, the specter of China as this country’s future enemy once again reared its ugly head.

Back before 9/11, China was the favored future uber-enemy of secretary of defense Donald Rumsfeld and all those neo-cons who signed onto the Project for the New American Century and later staffed George W Bush’s administration. After all, if you wanted to build a military beyond compare to enforce a long-term Pax Americana on the planet, you needed a nightmare enemy largeenough to justify all the advanced weapons systems in which you planned to invest.

As late as June 2005, neo-con journalist Robert Kaplan was still writing in the Atlantic about “How We Would Fight China”, an article with this provocative subhead: “The Middle East is just a blip. The American military contest with China in the Pacific will define the twenty-first century. And China will be a more formidable adversary than Russia ever was.” As everyone knows, however, that “blip” proved far too much for the Bush administration.

Finding itself hopelessly bogged down in two ground wars with rag-tag insurgency movements on either end of the Greater Middle Eastern “mainland”, it let China-as-Monster-Enemy slip beneath the waves. In the process, the navy and, to some extent, the air force became adjunct services to the army (and the marines). In Iraq and Afghanistan, for instance, navy personnel far from any body of water found themselves driving trucks and staffing prisons.
It was the worst of times for the admirals, and probably not so great for the flyboys either, particularly after Secretary of Defense Robert Gates began pushing pilotless drones as the true force of the future. Naturally, a no-dogfight world in which the US military eternally engages enemies without significant air forces is a problematic basis for proposing future air force budgets.

There’s no reason to be surprised then that, as the war in Iraq began to wind down in 2009-2010, the “Chinese naval threat” began to quietly reemerge. China was, after all, immensely economically successful and beginning to flex its muscles in local territorial waters.

The alarms sounded by military types or pundits associated with them grew stronger in the early months of 2011 (as did news of weapons systems being developed to deal with future Chinese air and sea power). “Beware America, time is running out!” warned retired air force lieutenant general and Fox News contributor Thomas G McInerney while describing China’s first experimental stealth jet fighter.

Others focused on China’s “string of pearls”: a potential set of military bases in the Indian Ocean that might someday (particularly if you have a vivid imagination) give that country control of the oil lanes. Meanwhile, Kaplan, whose book about rivalries in that ocean came out in 2010, was back in the saddle, warning: “Now the United States faces a new challenge and potential threat from a rising China which seeks eventually to push the US military’s area of operations back to Hawaii and exercise hegemony over the world’s most rapidly growing economies.” (Head of the US Pacific Command Admiral Robert Willard claimed that China had actually taken things down a notch at sea in the early months of 2011 – but only thanks to American strength.)

Behind the overheated warnings lay a deeper (if often unstated) calculation, shared by far more than budget-anxious military types and those who wrote about them: that the US was heading toward the status of late, great superpower and that, one of these years not so far down the line, China would challenge us for the number one spot on the seas – and on the planet.

The usefulness of a major enemy

You know the background here: the victor in the Cold War, the self-proclaimed “sole superpower” ready to accept no other nation or bloc of nations that might challenge it (ever), the towering land that was to be the Roman Empire, the British Empire, and the Vulcans rolled into one.

Well, those dreams are already in history’s dustbin. If opinion polls are to be believed, a gloomy American populace now senses that the sun has set on American fantasies of ultimate dominance with what seems like record speed. These days, the US appears capable of doing little with its still staggering military might but fight Pashtun guerillas to a draw in distant Afghanistan and throw its air power and missile-armed drones at another fifth-rate power in a “humanitarian” gesture with the usual destruction and predictable non-results.

Toss in the obvious – rotting infrastructure, fiscal gridlock in Washington, high unemployment, cutbacks in crucial local services, and a general mood of paralysis, depression, and confusion – and even if the Chinese are only refurbishing a mothballed 1992 Ukrainian aircraft carrier as their first move into the imperial big time, is it really so illogical to imagine them as the next “sole superpower” on planet Earth?

After all, China passed Japan in 2010 as the globe’s number two economy, the same year it officially leaped over the United States to become the world’s number one emitter of greenhouse gases. Its growth rate came in at something close to 10% right through the great financial meltdown of 2008, making it the world’s fastest expanding major economy.

By mid-2010, it had 477,000 millionaires and 64 billionaires (second only to the US), and what’s always being touted as a burgeoning middle class with an urge for the better things. It also had the world’s largest car market (the US came in second), and the staggering traffic jams to prove it, not to speak of a willingness to start threatening neighbors over control of the seas. In short, all the signs of classic future imperial success.

And those around the US military aren’t alone in sounding the alarm. Just this month, the International Monetary Fund (IMF) quietly posted a report at its website indicating that by 2016, the “age of America” would be over and, by one measure at least, the Chinese economy would take over first place from the American one.

With growing fears in the military-industrial complex of future cuts in the Pentagon budget (even though, as of now, it’s still rising), there will undoubtedly be increased jockeying among the armed services for slices of the military pie. This means an increasing need for the sort of enemies and looming challenges that would justify the weapons systems and force levels each service so desperately wants.

And there’s nothing like having a rising power of impressive proportions sink some money into its military (even if the sums are still embarrassingly small compared to the United States). In the Chinese case, it also helps when that country uses its control over rare earth metals to threaten Japan in a dispute over territorial waters in the East China Sea, begins to muscle neighbors on the high seas, and – so rumor has it – is preparing to name its refurbished aircraft carrier, which might be launched this summer, after the Qing Dynasty admiral who conquered the island of Taiwan.

The unpredictability of China
Still, for all those naval and air power types who would like to remove American power from a quicksand planet and put it offshore, for those who would like to return to an age of superpower enmity, in fact, for all those pundits and analysts of whatever stripe picking China as the globe’s next superstar or super evildoer, I have a small suggestion: take a deep breath. Then take this under advisement: we’ve already been through a version of this once. Might it not be worth approaching that number-one prediction with more humility the second time around?

As a start, let’s take a stroll down memory lane. Back in 1979, Ezra Vogel, Harvard professor and Asian specialist, put out a book that was distinctly ahead of its time in capturing the rise to wealth and glory of a new global power. He entitled it Japan as Number One: Lessons for America, and in praising the ways Japanese industry operated and the resulting “Japanese miracle,” the title lacked only an exclamation point. Vogel certainly caught the temper of the times, and his scholarly analysis was followed, in the 1980s, by a flood of ever more shrill articles and books predicting (in fascination or horror) that this would indeed someday be a Japanese world.

The only problem, as we now know: ’tweren’t so. The Japanese economic bubble burst around 1990 and a “lost decade” followed, which never quite ended. Then, of course, there was the 2011 earthquake-cum-tsunami-cum-nuclear-disaster that further crippled the country. So how about China as Number One: Lessons for America? After all, its economy is threatening to leave Japan in the dust; if you were one of its neighbors, you might indeed be fretting about your offshore claims to the mineral wealth under various local seas; and everyone knows that Shanghai is now Blade Runner without the noir, just 40-story towers as far as the eye can see. So what could go wrong?

As a specialty line, our intelligence services offer new administrations predictions on the world to come by projecting present trends relatively seamlessly into a reasonably similar future. And why shouldn’t that be a logical way to proceed? So if you project Chinese growth rates into the future, as the IMF hasjust done, you end up with a monster of success (and assumedly a military with a global reach). It’s not that hard, in other words, to end up with the US Navy’s nightmare enemy.

But so much on our present planet suggests that we’re not in a world of steady, evolutionary development but of “punctuated equilibrium”, of sudden leaps and discontinuous change. Imagine then another perfectly logical scenario: What if, like Japan, China hits some major speed bumps on the highway to number one?

As you think about that, keep something else in mind. China’s story over the last century-plus already represents one of the great discontinuous bursts of energy of our modern moment. To predict most of the twists and turns along the way would have been next to impossible.

In 1972, in the wake of the Cultural Revolution that Mao Zedong had set in motion six years earlier, to take but one example, no intelligence service, no set of seers, no American would have predicted today’s China or, for that matter, a three-and-a-half-decade burst of Communist Party-controlled capitalist industrial expansionism. The pundit who offered such a prediction then would have been drummed out of the corps of analysts.

No one at the time could have imagined that the giant, independent but impoverished communist land would become the expansive number two capitalist economy of today. In fact, from the turn of the previous century when China was the basket case of Asia and a combined Japanese/Western force marched on Beijing, when various great powers took parts of the country as their own property or “concessions,” followed by ensuing waves of warlordism, nationalism, revolutionary ferment, war with Japan, civil war, and finally the triumph of a communist regime that united the country, the essence of China’s story has been unpredictability.

So what confidence should we now have in projections about China that assume more of the same, especially since, looking toward the future, that country seems like something of a one-trick pony? After all, the ruling Communist Party threw the dice definitively for state capitalism and untrammeled growth decades ago and now sits atop a potential volcano. As the country’s leaders undoubtedly know, only one thing may keep the present system safely in place: ever more growth.

The minute China’s economy falters, the minute some bubble bursts, whether through an overheating economy or for other reasons, the country’s rulers have a problem on their hands that could potentially make the Arab Spring look mild by comparison. What many here call its growing “middle class” remains anything but and there are literally hundreds of millions of forgotten peasants and migrant workers who have found the Chinese success story less than a joy.

A revolutionary tradition for the ages

It might take only a significant economic downturn, a period that offered little promise to Chinese workers and consumers, to unsettle that country in major ways. After all, despite its striking growth rates, it remains in some fashion a poor land. And one more factor should be taken into consideration that few of our seers ever consider. It’s no exaggeration to say that China has a revolutionary tradition unlike that of any other nation or even region on the planet.

Since at least the time of the Yellow Turban Rebellion in 184 CE, led by three brothers associated with a Taoist sect, the country has repeatedly experienced millenarian peasant movements bursting out of its interior with ferocious energy. There is no other record like it. The last of these was undoubtedly Mao Zedong’s communist revolution.

Others would certainly include the peasant uprising at the end of the Ming Dynasty in the 17th century and, around the time of the American Civil War, the Taiping Rebellion. It was led by a man we would today call a cultist who had created a syncretic mix of Chinese religions and Christianity (and who considered himself the younger brother of Jesus Christ). Before Qing Dynasty forces finally suppressed it and a series of other rebellions, an estimated 20 million people died.

When Chinese leaders banned and then tried to stamp out the fast-spreading Falun Gong movement, they were not – as reported here – simply “repressing religion”; they were suppressing what they undoubtedly feared could be the next Taiping Rebellion. Even if few intelligence analysts in the West are thinking about any of this, rest assured that the Communist rulers of China know their own history. That’s one reason why they have been so quick to crack down on any Arab-Spring-like demonstrations.

In addition, though I’m no economist, when I look around this planet I continue to wonder (as the Chinese must) about the limits of growth for all of us, but certainly for a vast country desperate for energy and other raw materials, with an aging population, and an environment already heavily polluted by the last 40 years of unchecked industrial expansion.

There is no question that China has invested in its military, put together a powerful (if largely defensive) navy, elbowed its neighbors on questions of control of undersea mineral rights, and gone on a global search to lock up future energy resources and key raw materials.

Nonetheless, if predictions were to be made and trends projected into the future, it might be far more reasonable to predict a cautious Chinese government, focused on keeping its populace under control and solving confounding domestic problems than an expansively imperial one. It’s almost inconceivable that, in the future, China could or would ever play the role the US played in 1945 as the British Empire went down. It’s hard even to imagine China as another Soviet Union in a great global struggle with the United States.

And speaking of the conjunctures of history, here’s another thought for the US Navy: What if this isn’t an imperial planet any more? What if, from resource scarcity to global warming, humanity is nudging up against previously unimagined limits on unbridled growth? From at least the 17th century on, successive great powers have struggled over the control of vast realms of a globe in which expansion seemed eternally the name of the game. For centuries, one or more great powers were always on hand when the previous great imperial power or set of powers faltered.

In the wake of World War II, with the collapse of the Japanese and German empires, only two powers worthy of the name were left, each so mighty that together they would be called “superpowers”. After 1991, only one remained, so seemingly powerful that it was sometimes termed a “hyperpower” and many believed it had inherited the Earth.

What if, in fact, the US was indeed the last empire? What if a world of rivalries, on a planet heading into resource scarcity, turned out to be less than imperial in nature? Or what if – and think of me as a devil’s advocate here – this turned out not to be an imperial world of bitter rivalries at all, but in the face of unexpectedly tough times, a partnership planet?

Unlikely? Sure, but who knows? That’s the great charm of the future. In any case, just to be safe, you might not want to start preparing for the Chinese century quite so fast or bet your bottom dollar on China as number one. Not just yet anyway.

Tom Engelhardt, co-founder of the American Empire Project, runs the Nation Institute’s TomDispatch.com. He is the author of The End of Victory Culture, a history of the Cold War and beyond, as well as of a novel, The Last Days of Publishing. He also edited The World According to TomDispatch: America in the New Age of Empire (Verso, 2008), an alternative history of the mad Bush years. His latest book is The American Way of War: How Bush’s Wars Became Obama’s (Haymarket Books),

Conversations with the Crow

When the CIA discovered that their former Deputy Director of Clandestine Affairs, Robert  T. Crowley, had been talking with author Gregory Douglas, they became fearful (because of what Crowley knew) and outraged (because they knew Douglas would publish eventually) and made many efforts to silence Crowley, mostly by having dozens of FBI agents call or visit him at his Washington home and try to convince him to stop talking to Douglas, whom they considered to be an evil, loose cannon.

Crowley did not listen to them (no one else ever does, either) and Douglas made through shorthand notes of each and every one of their many conversation. TBR News published most of these (some of the really vile ones were left out of the book but will be included on this site as a later addendum ) and the entire collection was later produced as an Ebook.

Now, we reliably learn, various Washington alphabet agencies are trying to find a way to block the circulation of this highly negative, entertaining and dangerous work, so to show our solidarity with our beloved leaders and protectors, and our sincere appreciation for their corrupt and coercive actions, we are going to reprint the entire work, chapter by chapter. (The complete book can be obtained by going to:

http://www.shop.conversationswiththecrow.com/Conversations-with-the-Crow-CWC-GD01.htm

Here is the seventy sixth  chapter

Conversation No. 76

Date:  Friday, April 11, 1997
Commenced: 7:15 PM CST

Concluded: 7:50 PM CST

GD: Good evening, Robert. Too late for you?
RTC: No, finished eating a bit ago and was just about to start a book on the Afghanistan business the Russians had. Not a problem.

GD: Your people armed the natives there.

RTC: Oh, yes, and the Russian helicopters fell from the heavens like leaves from trees in the fall.

GD: You created a Frankenstein’s monster there, Robert. Those tribesmen are deadly guerrilla fighters and when they’re not fighting invaders like Alexander the Great and the British, who knows who they might go after next? Well, history counts for nothing with those who do not understand it. I had some utterly mindless twit talking to me the other day and somehow they got off on out-of-body experiences. They were telling me about this Remote Viewing business and said the CIA had invented it.

RTC: My God, not that crap again, Gregory. Yes, we started it. You see, we got news that the Russians were working on psychic phenomena called psychotronics. The theory, and it was never more than that in my mind, was that an agent who was trained could give information about something hidden from physical observation while the so-called viewer was at a distance from the sought-after object. This was on my watch and was gathering steam about ’69 and into the ‘70’s. Let me see if I can…Gregory, give me a minutes of so and let me get into my files…

GD: Of course

(Pause)

RTC: Here we are. The first program was named SCANATE which, according to this, means scanning by coordinates and we started funding this utter idiocy in ’70.  We got a hold of SRI….

GD: Stanford Research Institute. It’s in Menlo Park, right up the road from me. It was built on Dibble Hospital of the Army. I remember Dibble from the wartime. We used to call it Dribble because they let the nuts out to walk around Menlo Park and piss on parked cars. Dribble. Charlie Burdick used to live in one of the reclaimed Army barracks when he was going to Stanford back in ’52. Sorry to digress, Robert. Please go on.

RTC: No problem, Gregory. We also used the services of Science Applications International Corporation in the same town. What do you know about SRI? As a local?

GD: I met some of their people when I worked at Stanford in the hospital. A bunch of drooling nuts if you asked me. Two of their top people ended up in the hospital’s psych ward. One kept hiding in the toilet, claiming someone was trying to get into his mind and the other just sat around talking to himself and wetting his pants. I remember the CIA’s taking over the hospital basement with that Filipino sailor with the plague…

RTC: Jesus Christ, Gregory, how did you find out about that? That’s a cosmic situation right there.

GD: Everyone on the pathology staff knew it. When the guy died, they came for the body in a special ambulance and there were armed guards all over the cellar and the loading ramp.

RTC: You ought not to talk about that.

GD: What were they doing? Developing something nasty for the Russians?

RTC: No, in this case, for the Red Chinese.

GD: Lovely. Never mind that. Go on about the nut fringe.

RTC: Gregory, I consider myself to be an intelligence agent with an Army background. I consider myself to be innovative enough but not interested in crazy stories about psychic powers. There are no psychic powers, Gregory, only psychos babbling away to themselves. Jesus, some of our people believed all of this. It started out costing about fifty thousand and went upwards from there. A number of us spent some time trying to persuade people like Dulles and Helms to abandon this nonsense, as well as the completely useless MK-Ultra programs that were draining our available funds and spending valuable time on things that did not work and could not work because they were based either on wishful thinking or downright fraud. They had all kinds of con men running around claiming that they were psychic and could see into KGB headquarters. SRI and the morons in the upper levels actually hired the American Institutes for Research crooks to work on some Stargate project in conjunction with the Army and in spite of a total absense of any kind of proof, they only discontinued their crap as late as ’95. I have boxes of gibberish on this. By God, Gregory, we spent twenty million on this fantasy crap before it stopped. McMahon was fascinated with this. He became Deputy Director before he fouled up and got the sack in’82.

GD: What happened to him?
RTC: Went to work for Lockheed Martin as a lobbyist. Poor John was another strange one. And Drs Gottleib and Cameron were two more crazies we paid millions to for the purpose of creating controlled agents…mind controlled that is…that we could use as assassins.

GD: Like the movie.

RTC: Exactly. They killed people by microwaving them, tossing them out of windows, giving them heart attacks and killing off all kind of failed experiments. Gottleib poisoned them and Cameron lured them out into the Canadian wilds and shot them in the head. My God, what raging idiots and not even the slightest successes. Millions wasted. Joe Trento lusts after these files, which I slipped out when I left, but I really don’t think Joe is capable of doing anything with them. If you want them, I’ll get my son to box them up and ship them to you. Could you use this?

GD: Love it.

RTC: Same address in Freeport?

GD: Absolutely. Many thanks in advance, Robert. I might have some trouble getting a publisher but I can work on it.

RTC: Well, we control most of the major publishers or if we don’t, they would never dare to put out anything that would get us upset. Hell, we have our man right there in the New York Times and they jump through the hoops, believe me. The Times is in our pocket absolutely. Of course for silence, we give them inside stories. Sometimes, Gregory, the stories are actually true. Can you believe that?

GD: Why not? I never believe anything I see in the press anyway. But what if the pin heads at Langley…no offense since you’ve left….if the pin heads get wind of this? Don’t tell Trento.

RTC: No. He’s like the rest of them. If he finds out I gave these to you, he’ll run to Langley and squeal like a pig. And do not, I repeat, do not tell either Kimmel or Bill. Kimmel would run to his bosses and Bill would hire a sound truck. Kimmel doesn’t like you at all but Bill has mixed feelings. No man can serve two masters, let alone nine or ten and poor Bill runs around, filled with self-importance and looking for a pat on the head.

GD:If he tries anything on me, I’ll give him something very hard on the head. Or through it.

RTC: Now, now, Gregory, violence is not the solution. If you want to get at either of them, feed them some disinformation and then when they run around chattering about it, in the end, they’ll make fools of themselves. Then, no one will believe them and you will have made your point.

GD: Poor Irving is hysterical about the Mueller book. Such a bad writer and a worse ideologue. That one has about run his course and one of these days, the loud-mouthed Jew will go too far and get nailed.

RTC: Is Irving a Jew?

GD: His mother was so according to Jewish practice, David must be one as well. Well, I know some rabid Nazis, Robert and at least two of them are self-hating Jews. Well, they’re making money with it so God bless them. Yes, I can use anything you send me. That file on Critchfield is pure gold. If I ever published it, he would probably shoot at me but in Washington, people would point at him in the streets and laugh.

RTC: I wouldn’t weep over that but be careful with him. He has friends.

GD: Amazing. I take your point. Maybe he can catch a heart attack or get cancer. Look at what happened to Ruby. Got cancer right in the jail. That can be done, you know, by an injection. The heart attack we both know about. No trace at the post and off to the maggot buffet in a tin box. Better than shooting them at a play or tossing out the window like they did in the ‘40s, right?

RTC: Yes, a little subtlity is not a bad idea at times. Well, it will mean more room here for other things so I’ll see what else I have on these idiot games and see you get it.

GD: Oh, psychics are wonderful, Robert. If you pay them enough, they’ll see all kinds of brilliance in you.  People are such idiots. But still, when I want to really laugh, I read some of the material on the Kennedy business. Umbrellas, men in sewers and everything else. How much of that garbage did your people make up?
RTC: We have people still cranking it out but there are so many nuts out there that we really needn’t bother.

GD: Well, from what I read about the fantasy world of Dallas in ’63, most of the brilliant ones could get their haircuts in a pencil sharpener.

(Concluded at 7:50 PM CST)

Dramatis personae:

James Jesus Angleton: Once head of the CIA’s Counterintelligence division, later fired because of his obsessive and illegal behavior, tapping the phones of many important government officials in search of elusive Soviet spies. A good friend of Robert Crowley and a co-conspirator with him in the assassination of President Kennedy

James P. Atwood: (April 16, 1930-April 20, 1997) A CIA employee, located in Berlin, Atwood had a most interesting career. He worked for any other intelligence agency, domestic or foreign, that would pay him, was involved in selling surplus Russian atomic artillery shells to the Pakistan government and was also most successful in the manufacturing of counterfeit German dress daggers. Too talkative, Atwood eventually had a sudden, and fatal, “seizure” while lunching with CIA associates.

William Corson: A Marine Corps Colonel and President Carter’s representative to the CIA. A friend of Crowley and Kimmel, Corson was an intelligent man whose main failing was a frantic desire to be seen as an important person. This led to his making fictional or highly exaggerated claims.

John Costello: A British historian who was popular with revisionist circles. Died of AIDS on a trans-Atlantic flight to the United States.

James Critchfield: Former U.S. Army Colonel who worked for the CIA and organizaed the Cehlen Org. at Pullach, Germany. This organization was filled to the Plimsoll line with former Gestapo and SD personnel, many of whom were wanted for various purported crimes. He hired Heinrich Müller in 1948 and went on to represent the CIA in the Persian Gulf.

Robert T. Crowley: Once the deputy director of Clandestine Operations and head of the group that interacted with corporate America. A former West Point football player who was one of the founders of the original CIA. Crowley was involved at a very high level with many of the machinations of the CIA.

Gregory Douglas: A retired newspaperman, onetime friend of Heinrich Müller and latterly, of Robert Crowley. Inherited stacks of files from the former (along with many interesting works of art acquired during the war and even more papers from Robert Crowley.) Lives comfortably in a nice house overlooking the Mediterranean.

Reinhard Gehlen: A retired German general who had once been in charge of the intelligence for the German high command on Russian military activities. Fired by Hitler for incompetence, he was therefore naturally hired by first, the U.S. Army and then, as his level of incompetence rose, with the CIA. His Nazi-stuffed organizaion eventually became the current German Bundes Nachrichten Dienst.

Thomas K. Kimmel, Jr: A grandson of Admiral Husband Kimmel, Naval commander at Pearl Harbor who was scapegoated after the Japanese attack. Kimmel was a senior FBI official who knew both Gregory Douglas and Robert Crowley and made a number of attempts to discourage Crowley from talking with Douglas. He was singularly unsuccessful. Kimmel subsequently retired, lives in Florida, and works for the CIA as an “advisor.”

Willi Krichbaum: A Senior Colonel (Oberführer) in the SS, head of the wartime Secret Field Police of the German Army and Heinrich Müller’s standing deputy in the Gestapo. After the war, Krichbaum went to work for the Critchfield organization and was their chief recruiter and hired many of his former SS friends. Krichbaum put Critchfield in touch with Müller in 1948.

Heinrich Müller: A former military pilot in the Bavarian Army in WWI, Müller  became a political police officer in Munich and was later made the head of the Secret State Police or Gestapo. After the war, Müller escaped to Switzerland where he worked for Swiss intelligence as a specialist on Communist espionage and was hired by James Critchfield, head of the Gehlen Organization, in 1948. Müller subsequently was moved to Washington where he worked for the CIA until he retired.

Joseph Trento: A writer on intelligence subjects, Trento and his wife “assisted” both Crowley and Corson in writing a book on the Russian KGB. Trento believed that he would inherit all of Crowley’s extensive files but after Crowley’s death, he discovered that the files had been gutted and the most important, and sensitive, ones given to Gregory Douglas. Trento was not happy about this. Neither were his employers.

Frank Wisner: A Founding Father of the CIA who promised much to the Hungarian and then failed them. First, a raging lunatic who was removed from Langley, screaming, in a strait jacket and later, blowing off the top of his head with a shotgun.

Robert Wolfe: A retired librarian from the National Archives who worked closely with the CIA on covering up embarrassing historical material in the files of the Archives. A strong supporter of holocaust writers specializing in creative writing