The Federal Reserve has announced a massive new government intervention in the US economy. The Fed says it will buy up $1.2 trillion in government bonds and mortgage-linked securities to free up the frozen credit market. The purchases will increase the Fed’s holdings in financial markets to $3 trillion, an increase of 50 percent. The new mortgage securities purchase will account for more than half of the new spending, at $750 billion. That’s on top of the $500 billion in securities previously bought. According to analysts at Wachovia Bank, the federal government could end up funding up to 70 percent of mortgages issued this year.
The Obama administration is facing questions on when it knew of AIG’s plans to hand out $165 million in bonuses after receiving its $170 billion taxpayer bailout. Treasury Secretary Timothy Geithner says he didn’t know until last week and only told White House officials two days after finding out. But testifying on Capitol Hill Wednesday, AIG CEO Edward Liddy said government officials were informed three months ago. The Washington Post reports the Treasury was told at least one month ago.
Liddy, meanwhile, also defended the bonuses, saying they were essential to retaining top employees.
AIG CEO Edward Liddy: “Make no mistake. Had I been CEO at the time, I would never have approved the retention contracts that were put in place over a year ago. It was distasteful to have to make these payments. But we concluded that the risks to the company, and therefore the financial system and the economy, were unacceptably high.”
Liddy says he’s asked a few hundred AIG executives and employees to give back at least half of the extra pay but refused to give details on who is keeping their bonuses. AIG is also facing questions on the billions of dollars in taxpayer money it used to repay other financial firms.
Questions, meanwhile, are also surrounding Treasury officials and lawmakers for political maneuvering that effectively authorized the executive bonuses with the passage of the stimulus bill last month. Democratic Senator Ron Wyden says he introduced a provision that would have forced bailout recipients to cap bonuses at $100,000 and tax those exceeding it at 35 percent. The measure passed through the Senate but was inexplicably removed during talks with the House. Meanwhile, the chair of the Senate Banking Committee, Senator Christopher Dodd, is claiming he inserted a provision protecting contractually promised bonuses at the request of the Obama administration. Dodd didn’t name the administration officials who told him to insert the provision. He says he wouldn’t have done so had he known it would have allowed the bonuses at AIG.
As the controversy over payments grows, the government-backed mortgage giant Fannie Mae has announced plans to give four top executives at least $1 million in what it calls “retention bonuses.” The bonuses are being handed out amidst Fannie’s request for some $15 billion in government aid.
Meanwhile, a New York judge has ordered the disclosure of employee bonuses paid out at Merrill Lynch just before Bank of America bought out the firm in a government-backed deal. The ruling came in New York Attorney General Andrew Cuomo’s attempt to subpoena several top Merrill Lynch executives who were each paid more than $10 million in cash and stock. Overall, Merrill Lynch handed out over $3 billion in bonuses just before the Bank of America deal. For its part, Bank of America has received $45 billion in government aid.
Meanwhile, at the White House, President Obama invoked the controversy surrounding AIG to call for changes to the financial system.
President Obama: “As we get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don’t think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in this country and have now resulted in crisis can’t be the model for economic growth going forward.”
Obama later traveled to California for a tour to promote his economic stimulus plan. Speaking at a town hall-style event in Costa Mesa, Obama said he takes responsibility for the AIG controversy.
President Obama: “I know Washington is all in a tizzy, and everybody’s pointing fingers at each other and saying it’s the their fault, the Democrats’ fault, the Republicans’ fault. Listen, I’ll take responsibility. I’m the President. So — we didn’t draft these contracts, and we’ve got a lot on our plate, but it is appropriate, when you’re in charge, to make sure that stuff doesn’t happen like this. So we’re going to do everything we can to fix it.”
The Pentagon has announced it will all but end the controversial “stop loss” policy forcing soldiers to serve extended tours of duty. More than 13,000 troops are currently involuntarily serving in the military under a policy imposed in 2004. Some have described the stop-loss practice as a backdoor draft. On Wednesday, Gates admitted the military has forced soldiers to serve “against their will.”
Defense Secretary Robert Gates: “As of the end of January, there were 13,200 soldiers in stop loss. I am pleased to announce that I have approved a plan to eliminate the use of stop loss for deploying soldiers. Effective this August, the US Army Reserve will no longer mobilize units under stop loss. The Army National Guard will stop doing so in September. And active Army units will cease deploying with stop loss starting next January. When somebody’s end date of service comes up, to hold them against their will, if you will, is just not the right thing to do.”
Gates says the Pentagon intends to end “stop loss” across the entire armed forces by March of 2011. But he left open the right to continue it under what he called “extraordinary circumstances.” Soldiers under “stop loss” will also now be paid an additional $500 per month, retroactive to last October.
In the Czech Republic, overwhelming opposition has forced the Czech government to drop attempts for parliamentary approval of a US missile radar site. The Czech government had agreed with the Bush administration on hosting part of the so-called “missile defense” system along with a missile site in Poland. But on Wednesday, the government withdrew a planned vote, fearing it would be defeated. Czech Prime Minister Mirek Topolanek vowed to seek another vote.
Czech Prime Minister Mirek Topolanek: “The government decided in tonight’s negotiations that it will take back the treaty instruments, both of the treaties from the United States about the placement of radar units in the territory of the Czech Republic. That doesn’t mean that we’ve entirely resigned from the process of missile defense, because we can return this back to parliament at any time.”
According to the anti-radar group Campaign for Peace and Democracy, two-thirds of Czechs have consistently opposed the radar plans. Czech peace activists have led calls for a national referendum and have been credited with pressuring lawmakers to oppose the US missile program.
The Iraqi government has hinted at further concessions for international oil corporations operating in Iraq. On Wednesday, Iraq’s oil minister told an OPEC gathering in Vienna that Iraq will consider granting foreign companies a share in oil production profits, rather than the current system of receiving fixed fees. Earlier this year, Iraq raised the amount foreign companies can recoup from oil projects from 49 percent to 75 percent.
A federal judge has ordered the continued imprisonment of Ali al-Marri, who has been the only so-called “enemy combatant” jailed in the United States. Marri has been held in isolation at a naval brig in South Carolina for more than five years. He has never stood trial or been convicted of any crime. The Obama administration charged him last month to avoid a Supreme Court hearing challenging his indefinite jailing. Marri will be transferred to Peoria, Illinois for an arraignment hearing on Monday.
Back on Capitol Hill, a bipartisan group of senators is voicing support for an Obama administration plan to increase US contributions to the International Monetary Fund. Obama has asked Congress to grant the IMF $100 billion to aid struggling nations hurt by the economic crisis. Senator John Kerry backed the proposal after meeting IMF and World Bank officials.
Senator John Kerry: “We are convinced that the IMF needs to have additional funding. Secretary Geithner has made a proposal for additional funding. I speak for myself and say that I support that. I think it is an essential ingredient of our ability to send a message regarding stability and regarding our preparedness to help countries face the banking challenges and the consumer and food challenges that we face across the globe.”
It’s unclear what kind of conditions recipient nations would face for accepting the new IMF aid.
African leaders are warning of renewed conflict on their continent if they’re not aided during the global economic meltdown. Meeting ahead of next month’s G20 summit, several African officials issued stark warnings on the consequences of price drops in African goods, loss of tourists and a sharp reduction in foreign remittances. The head of the African Development Bank, Donald Kaberuka, said the potential fallout from the global economic crisis is an “emergency” in Africa.
The Justice Department has confirmed plans to end the Bush administration’s policy of raiding distributors of medical marijuana. On Wednesday, Attorney General Eric Holder said drug law enforcement would be restricted to traffickers falsely posing as medical dispensaries. Under Bush, medical dispensaries accused of violating federal law were raided even if they complied with state law.
Meanwhile, Democratic Congress member Maxine Waters has introduced a bill to end mandatory minimum sentencing in drug-related cases. The Major Drug Trafficking Prosecution Act would repeal mandatory minimum sentences and grant judges discretion to determine sentences.
New Mexico has become the fifteenth state to outlaw the death penalty. On Wednesday, Governor Bill Richardson signed a bill barring capital punishment, following its approval in the state legislature. New Mexico is the second state to end the death penalty since the Supreme Court restored it in 1976.
A new study says Latinos now constitute the largest ethnic group in federal prisons. Mark Hugo Lopez of the Pew Hispanic Center says Latinos account for 40 percent of prisoners nationwide.
Mark Hugo Lopez: “Between 1991 and 2007, the share of all sentenced federal offenders who are Hispanic has risen from about 24 percent in 1991 to 40 percent in 2007. So they’ve really almost doubled their share of all sentenced federal offenders. Also, Hispanics represent the single largest group of all sentenced federal offenders. The 40 percent share Hispanic is larger than the white share at 27 percent and the black share at 23 percent in 2007.”
Nearly half of the Latin prison population has been jailed on immigration charges, followed closely by drug charges.
Negotiators drafting the declaration for next month’s UN Conference Against Racism have acceded to US and European Union demands and dropped references to Israel and reparations for slavery. The Obama administration has vowed to boycott the conference unless the two issues are dropped from conference text.
And the Tony Award-winning stage and film actor Natasha Richardson has died at the age of forty-five. She suffered a brain injury in a ski accident in Canada and was taken off life support yesterday. Richardson was the daughter of the British actor and activist Vanessa Redgrave. The two were said to be in talks to appear together in a stage production of A Little Night Music. Our condolences to Vanessa, as well as Natasha Richardson’s husband, the actor Liam Neeson, her aunt and uncle Corin and Lynn Redgrave, her sister Jolie Richardson and her two sons.