Monday, April 28, 2008

Winter Warning: Chaos Chronicled

Winter Warning: Chaos Chronicled
Click here for a link to complete article:

By Ian Gordon/Alf Field | 28 April 2008

Ed. Ian Gordon, Economic Forecaster & Interpreter of the Kondratieff Cycle: Winter Warning this week is entirely the work of Alf Field who has written a very good piece entitled "Chaos Chronicled" Alf leads you through the history of the world financial crisis. He begins with an explanation of Goldsmiths, the original bankers, followed by the development into the Fractional Reserve Banking system. Alf then discusses the International Monetary System based on the dollar and the inherent weakness in such a system due to the ability of banks around the world to consistently add massively to loans. This is followed by an explanation of the OTC derivatives market and the crisis which has developed in that milieu. "Chaos Chronicled" is a coherent and chronological evolution into the crisis that has now enveloped the world.

[ Normxxx Here:  The following is only the conclusion of this very erudite piece by Alf. See the link above for the remainder.  ]

It does not take a genius to work out that the US Dollar Standard (with the US dollar as the reserve currency) has to go, but it will take a genius to work out what the new system should be. The new system will require sound money that cannot be manufactured at will by Governments, money that performs the 3 basic functions of medium of exchange, unit of measurement and store of value. A new international monetary system needs to be developed. It seems that the eternal money, gold, will have to be returned to the monetary systems, both national and international, to provide the necessary discipline. That is all for the future. Meanwhile there is a mess to clear up and how that occurs will have investment consequences and implications.

There was a crisis in the US banking system during the 1970’s with major loans to South American Governments going sour. South American countries actually defaulted on their sovereign loans, leaving the American banks with large losses. If these losses were brought to account, the banking system would have wiped out its reserves. Special permission was granted to allow the loans to be carried at book value until the banks raised new capital and/or accumulated sufficient profits to write off their South American loan losses. The banks were allowed time to trade out of their losses.

The current situation is different. In the 1970’s crisis it was possible to identify where the losses would fall and the individual banks could quantify their losses. In 2008 it is impossible to identify the degree of loss within an order of magnitude or determine where or how they will fall. The US banking system has already recognised losses that have wiped out bank reserves to the extent that the banks can only continue operating with aid from the Fed. The losses written off to date are likely to be augmented by substantial additional sub-prime and CDS losses of presently unknown magnitude. Moreover, it is unclear where those losses will finally appear. Every bank is suspect.

The mountain of OTC derivatives is one of the major problems facing the world’s banking and financial systems. Unfortunately there is no easy way of getting rid of these derivatives. George Soros recently suggested that a clearing house system should be established for the OTC derivatives. This is an impractical suggestion as a brief example will quickly illustrate.

Assume that investor A buys $100m of 5 year bonds in XYZ Company. He is unsure of the strength of XYZ Co. so he also buys a 5 year CDS from B to cover any loss in the event of XYZ Co defaulting on its bonds. The investor pays a premium of say $2m per annum. Two years later it is desired to close down this transaction. If A and B were still the only parties to the transaction, they could sit around a table and discuss how to determine the current market value of the CDS. IF they could agree a market value for the CDS and IF both parties were willing to cancel the CDS, it could be cancelled by one party paying to the other the mutually agreed amount.

In reality B will probably have arbitraged its position to a number of other parties and the investor A may have sold his bonds to a number of other investors with the CDS protection attached. It is a practical impossibility to get all parties to this 'simple' transaction together to discuss a possible settlement and cancellation of the deal. This is just a single 'simple' transaction without the complication of additional features such as collars, caps, swaptions, etc. It is also only one of zillions of OTC transactions that are in existence. To expect any clearing house to be able to settle these derivative contracts is just wishful thinking.

Nevertheless, this mountain of OTC derivatives has the capacity to bring down the entire international financial system, including the banking systems of the key players in the event of the bankruptcy of one or more of the larger counter parties. Some way has to be found to reduce or eliminate this OTC derivative overhang which would otherwise eventually prove fatal to the present system [[In past, whenever a default threatened or was realized, this could be largely 'papered over' with further derivatives; this is no longer true.: normxxx]]. History has shown that when debt becomes excessive, the lenders almost always lose.

They lose either because their debtors go bankrupt or they lose because they are repaid in currency which has been debased by wholesale printing, making the currency worth very little in real terms. There is no doubt that the world has reached an extreme level of debt creation. The only question is whether the debt will be settled by bankruptcies or whether the debt will be repaid in largely worthless currency. Fed chief Ben Bernanke has made it quite plain that his plan is NOT to allow debt to be repaid by bankruptcy and deflation. All his actions to date are in line with his proclaimed policy. There is no reason to think that he will change his thinking or modus operandi. Thus we have to believe that USA has embarked on a voyage that will allow debts to be repaid in debased, largely worthless currency.

Jim Sinclair has drawn an analogy comparing the Weimar Republic in 1919 with the present mountain of OTC derivatives. After World War I the Allies imposed excessively large reparation claims on the German Republic. The Germans objected to the magnitude of the claims, but finally agreed when the Allies allowed the Germans to settle the reparation payments in Reichsmarks. The Germans then adopted the attitude that "if they want Reichsmarks, we will give them Reichsmarks". They then proceeded to print new Reichsmarks at an accelerating rate to settle the reparation debts and keep abreast of the ensuing inflation, eventually causing the classic hyperinflation that destroyed the German currency [[and, collaterally, the German economy, all Reichsmark 'savers' and, eventually, also the Weimar Republic: normxxx]].

Jim Sinclair suggests that if one crosses out the words "reparation payments" and replaces them with the words "OTC derivative contracts" one would have a clearer picture of the current circumstances. The suggestion is that the OTC derivative problem can only be settled by creating sufficient additional currency to inflate the current currency to the point where it is largely worthless. That would allow all these derivative contracts and other loans to be settled in debased currency [[where everyone shares in the world bankruptcy— many, by giving up eating. Too bad everyone didn't share in the preceding boom.: normxxx]]...

  Much, Much, M O R E. . .


The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

Saturday, April 26, 2008

Big News On The Gold Stocks

Big News On The Gold Stocks
And Notes On The Juniors You Need To Know

By Kenneth J. Gerbino | 26 April 2008

Here is my assessment of the current gold share market: The gold price is taking a much needed correction and bullion corrections are almost always severe and volatile and the shares follow.

Obviously gold coming down could mean less profits and cash flow for companies and this unnerves some holders to sell. With major investment banks projecting a long term gold price of $700, some portfolio managers that usually invest in GE or IBM are thinking that this may be the start of a major downturn. They are therefore selling. These managers don't understand that 95% of the mining analysts have never got it right on the metal prices the 35 years I have been investing in the mines. Analysts are conservative and they are cautious. They are usually from a geology or engineering background. What do they know about global economics? And if they are economists— God help us.

Lots of new money has come into the gold mining sector the past year and this is money that is not philosophically tuned into gold as money and most think the Fed can actually manage the currency and printing money is the normal thing to do. They saw gold going up and the stocks having positive momentum and this made sense for them to buy. When this momentum stopped they were ready to sell.

Good News

Currently there is plenty of money on the sidelines from gold share sellers that have been liquidating since November. There has been a 3-5 month topping formation in all the major gold shares (We will talk about the juniors later). Many of these sellers will most likely be back in the market for five reasons:

1. They did very well getting out at higher prices and are now somewhat familiar and comfortable with the valuations and the companies and after a 20-30% correction that is obviously overdone, they will be anxious to get back in.

2. Worldwide food riots, and the globally-reported inflation numbers from just about every country is a leading indicator of higher consumer prices and hence higher gold prices. This is easy for anyone to understand.

3. The financial situation with the banking system is without a doubt enough to convince even a small portion of these non gold bug portfolio managers that a small allocation to the gold miners is probably a good idea. Since they control tens of trillions of dollars, even a small portion in mining shares will eventually create a substantial market.

4. There are also thousands if not tens of thousands of money managers and hedge fund managers that totally missed the first leg up of the gold market and the gold shares and have been patiently waiting for a correction to finally get in. These people are now aware of how bad the possible financial repercussions of the leverage and derivative craze could become and will certainly want some exposure to the metals and the shares. This correction will allow them an entry point.

5. In March the PPI and CPI in the U.S. both annualized over
11%. This is a stat that money managers and global investors will not ignore. Inflation is heating up and the Fed is still lowering interest rates. Even establishment Fed lovers know that this means they should hedge a bit with some gold.

The Market Right Now

With the recent sell off in the gold shares this week plenty of short sellers, weak holders and investors that bought at the top are selling and creating a real wicked sell off. I would think that Friday the 25th or Monday the 28th will be the end of this sell off and a substantial rally could develop. The market is very oversold. If the sell off continues then it just means an even better entry point is coming up and probably very soon.

The Juniors

The Junior shares have been in the doldrums for two years and here are the reasons:

  • In the last three years there have been probably 3,000 new mining companies formed. Even with average $10 million market caps, this represents a $30 billion dilution to the junior market and a potential windfall to the promoters and insiders that are mostly dealing with moose pasture and geological dreams. Most gold bugs are suckers for a great gold story. So they sell 1,000 shares of a decent junior and buy a 1,000 shares of the moose pasture stock and when enough people do this the decent stock goes down and eventually the moose pasture stock collapses.

  • The Canadian mining industry was built on prospectors going out into the wilds with a mule and supplies for a season or so to explore and look for mineral traces on surface. This was high risk and speculators and investors for their grubstake were given a big piece of the action if anything ever developed. This tradition now continues but on a grander scale with the investment banks demanding cheap stock and warrants from the company for their own account and customers. The warrant kicker is now so prevalent in Canada that it has ruined the share structure of many small companies. Insiders sell the newly issued stock as soon as allowable and keep the warrant at no cost. If the deal works they have a free ride.

  • Drilling rig shortages, assay backlogs and permitting etc. now can add 1-2 more years for a successful discovery to become a buy out or a mine. Time is money and these delays dilute the present value of the company. Most management teams of small mining companies usually take very modest salaries. But they can own 2-3 million shares of stock at basically zero cost. They can't send their kids to college unless they sell some shares. They also can't wait 5-8 years for the mine they hope they will discover or for the ore body they actually have discovered to become a mine. When you are buying stock after a great press release the seller is most likely an insider.

  • After the last two years and lower junior stock prices people give up and start looking for larger companies. They then add selling to the market. Unfortunately all these factors have really hurt the junior sector so if you are not an expert you should be careful. Thinking of holding on to a loser means you will most likely have your capital die a slow death. Unless you own a junior mining company that is loaded to the gills with gold and silver reserves and resources you are in trouble. The ore body better be an economic ore body that actually without a doubt (almost) can become a profitable mine. The stock should be so undervalued that even the insiders are buying.

Most hard money investors would be well served to use these rules:

  • Sell any stock that is issuing warrants with their next financing and tell your broker why and have him call the company as well.

  • Never put more than 5% of your money in exploration stocks unless it is an advanced exploration play with plenty of prior drill success.

  • Look for developmental companies that are within a year from bringing on new production. This is my favorite area for our Fund and one that you should pay attention to.

  • Make sure that even with much lower metal prices (gold at $600) the company will still sell for less than 15 times after tax cash flow per share.

  • Always look for companies with giant deposits that have economic grades. Even if the company is small, a big deposit gets attention.

  • I hate to say good management because almost all companies can make it look like they have good management. But good people make things happen— not rocks.

In the coming years one of the best sectors for investors will be the mining industry for reasons you already know about. Progress in China and India, paper money, derivatives, insane governments, debt, etc. all point towards much higher metal prices for perhaps a decade. Don't short change yourself. Stay with the companies that have the real goods in the ground.

For other articles on gold, mining and the economy visit our archives. at



The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

Friday, April 25, 2008

Tell them, because our fathers lied.

Behind TV Analysts, Pentagon’s Hidden Hand
Retired Officers Have Been Deliberately Used To Shape Terrorism Coverage From Inside The TV And Radio Networks; or, How to Suborn a 'Free Press'.

Click here for a link to complete article:

By David Barstow, NYT | 20 April 2008

Epitaph, Iraq:
"If any question why we died;
Tell them, because our fathers lied."
— Rudyard Kipling

Corrections and Further Info Appended to Original at Link Address. Also, David Barstow answers questions there on this article about the Pentagon’s use of military analysts to create favorable news coverage.

In the summer of 2005, the Bush administration confronted a fresh wave of criticism over Guantánamo Bay. The detention center had just been branded "the gulag of our times" by Amnesty International, there were new allegations of abuse from United Nations human rights experts and calls were mounting for its closure.

Click Here, or on the image, to see a larger, undistorted image.

click to enlarge this image
Left, dining with Donald H. Rumsfeld, second from left, during his final week as secretary of defense were the retired officers Donald W. Shepperd, left, Thomas G. McInerney and Steven J. Greer, right.

The administration’s communications experts responded swiftly. Early one Friday morning, they put a group of retired military officers on one of the jets normally used by Vice President Dick Cheney and flew them to Cuba for a carefully orchestrated tour of Guantánamo. To the public, these men are members of a familiar fraternity, presented tens of thousands of times on television and radio as "military analysts" whose long service has equipped them to give authoritative and unfettered judgments about the most pressing issues of the post-September 11 world.

Hidden behind that appearance of objectivity, though, is a Pentagon information apparatus that has used those analysts in a campaign to generate favorable news coverage of the administration’s wartime performance, an examination by The New York Times has found. The effort, which began with the buildup to the Iraq war and continues to this day, has sought to exploit ideological and military allegiances, and also a powerful financial dynamic: Most of the analysts have ties to military contractors vested in the very war policies they are asked to assess on air.

Those business relationships are hardly ever disclosed to the viewers, and sometimes not even to the networks themselves. But collectively, the men on the plane and several dozen other military analysts represent more than 150 military contractors either as lobbyists, senior executives, board members or consultants. The companies include defense heavyweights, but also scores of smaller companies, all part of a vast assemblage of contractors scrambling for hundreds of billions in military business generated by the administration’s war on terror. It is a furious competition, one in which inside information and easy access to senior officials are highly prized.

Records and interviews show how the Bush administration has used its control over access and information in an effort to transform the analysts into a kind of media Trojan horse— an instrument intended to shape terrorism coverage from inside the major TV and radio networks. Analysts have been wooed in hundreds of private briefings with senior military leaders, including officials with significant influence over contracting and budget matters, records show. They have been taken on tours of Iraq and given access to classified intelligence. They have been briefed by officials from the White House, State Department and Justice Department, including Mr. Cheney, Alberto R. Gonzales and Stephen J. Hadley.

In turn, members of this group have echoed administration talking points, sometimes even when they suspected the information was false or inflated. Some analysts acknowledge they suppressed doubts because they feared jeopardizing their access. A few expressed regret for participating in what they regarded as an effort to dupe the American public with propaganda dressed as independent military analysis. "It was them saying, ‘We need to stick our hands up your back and move your mouth for you,’ " Robert S. Bevelacqua, a retired Green Beret and former Fox News analyst, said. Kenneth Allard, a former NBC military analyst who has taught information warfare at the National Defense University, said the campaign amounted to a sophisticated information [[or, DISinformation : normxxx]]operation. "This was a coherent, active policy," he said.

As conditions in Iraq deteriorated, Mr. Allard recalled, he saw a yawning gap between what analysts were told in private briefings and what subsequent inquiries and books later revealed. "Night and day," Mr. Allard said, "I felt we’d been hosed." The Pentagon defended its relationship with military analysts, saying they had been given only factual information about the war. "The intent and purpose of this is nothing other than an earnest attempt to inform the American people," Bryan Whitman, a Pentagon spokesman, said. It was, Mr. Whitman added, "a bit incredible" to think retired military officers could be "wound up" and turned into "puppets of the Defense Department."

Many analysts strongly denied that they had either been co-opted or had allowed outside business interests to affect their on-air comments, and some have used their platforms to criticize the conduct of the war. Several, like Jeffrey D. McCausland, a CBS military analyst and defense industry lobbyist, said they kept their networks informed of their outside work and recused themselves from coverage that touched on business interests.

"I’m not here representing the administration," Dr. McCausland said.

Some network officials, meanwhile, acknowledged only a limited understanding of their analysts’ interactions with the administration. They said that while they were sensitive to potential conflicts of interest, they did not hold their analysts to the same ethical standards as their news employees regarding outside financial interests. The onus is on their analysts to disclose conflicts, they said. And whatever the contributions of military analysts, they also noted the many network journalists who have covered the war for years in all its complexity.

click to enlarge this image

Right, appearing with Tim Russert on "Meet the Press" in 2005 were Wesley K. Clark, center; Wayne A. Downing; Montgomery Meigs, right; and Barry R. McCaffrey, foreground.

Five years into the Iraq war, most details of the architecture and execution of the Pentagon’s campaign have never been disclosed. But The Times successfully sued the Defense Department to gain access to 8,000 pages of e-mail messages, transcripts and records describing years of private briefings, trips to Iraq and Guantánamo and an extensive Pentagon talking points operation. These records reveal a symbiotic relationship where the usual dividing lines between government and journalism have been obliterated [[more than enough to have made Göebels proud: normxxx]].

Internal Pentagon documents repeatedly refer to the military analysts as "message force multipliers" or "surrogates" who could be counted on to deliver administration "themes and messages" to millions of Americans "in the form of their own opinions." Though many analysts are paid network consultants, making $500 to $1,000 per appearance, in their meetings at the Pentagon, they sometimes spoke as if they were operating from behind enemy lines, interviews and transcripts show. Some offered the Pentagon tips on how to outmaneuver the networks, or as one analyst put it to Donald H. Rumsfeld, then the defense secretary, "the Chris Matthewses and the Wolf Blitzers of the world." Some warned the Pentagon of planned network stories or sent copies of their correspondence with network news executives. Many— although certainly not all— faithfully echoed talking points intended to counter critics.

"Good work," Thomas G. McInerney, a retired Air Force general, consultant and Fox News analyst, wrote to the Pentagon after receiving fresh talking points in late 2006. "We will use it." Again and again, records show, the administration has enlisted analysts as a rapid reaction force to rebut what it viewed as critical news coverage, some of it by the networks’ own Pentagon correspondents. For example, when news articles revealed that troops in Iraq were dying because of inadequate body armor, a senior Pentagon official wrote to his colleagues: "I think our analysts— properly armed— can push back in that arena." The documents released by the Pentagon do not show any quid pro quo between commentary and contracts. But some analysts said they had used the special access as a marketing and networking opportunity or as a window into future business possibilities.

John C. Garrett is a retired Marine colonel and unpaid analyst for Fox News TV and radio. He is also a lobbyist at Patton Boggs who helps firms win Pentagon contracts, including in Iraq. In promotional materials, he states that as a military analyst he "is privy to weekly access and briefings with the secretary of defense, chairman of the Joint Chiefs of Staff and other high level policy makers in the administration." One client told investors that Mr. Garrett’s special access and decades of experience helped him "to know in advance— and in detail— how best to meet the needs" of the Defense Department and other agencies.

In interviews Mr. Garrett said there was an inevitable overlap between his dual roles. He said he had gotten "information you just otherwise would not get," from the briefings and three Pentagon-sponsored trips to Iraq. He also acknowledged using this access and information to identify opportunities for clients. "You can’t help but look for that," he said, adding, "If you know a capability that would fill a niche or need, you try to fill it… That’s good for everybody."

At the same time, in e-mail messages to the Pentagon, Mr. Garrett displayed an eagerness to be supportive with his television and radio commentary. "Please let me know if you have any specific points you want covered or that you would prefer to downplay," he wrote in January 2007, before President Bush went on TV to describe the surge strategy in Iraq. Conversely, the administration has demonstrated that there is a price for sustained criticism, many analysts said. "You’ll lose all access," Dr. McCausland said. With a majority of Americans calling the war a mistake despite all administration attempts to sway public opinion, the Pentagon has focused in the last couple of years on cultivating in particular military analysts frequently seen and heard in conservative news outlets, records and interviews show.

Some of these analysts were on the mission to Cuba on June 24, 2005— the first of six such Guantánamo trips— which was designed to mobilize analysts against the growing perception of Guantánamo as an international symbol of inhumane treatment. On the flight to Cuba, for much of the day at Guantánamo and on the flight home that night, Pentagon officials briefed the 10 or so analysts on their key messages— how much had been spent improving the facility, the abuse endured by guards, the extensive rights afforded detainees.

The results came quickly. The analysts went on TV and radio, decrying Amnesty International, criticizing calls to close the facility and asserting that all detainees were treated humanely. "The impressions that you’re getting from the media and from the various pronouncements being made by people who have not been here in my opinion are totally false," Donald W. Shepperd, a retired Air Force general, reported live on CNN by phone from Guantánamo that same afternoon.

The next morning, Montgomery Meigs, a retired Army general and NBC analyst, appeared on "Today." "There’s been over $100 million of new construction," he reported. "The place is very professionally run." Within days, transcripts of the analysts’ appearances were circulated to senior White House and Pentagon officials, cited as evidence of progress in the battle for hearts and minds at home [[and, of course, we have no photos, as at Abu Ghraib: normxxx]].

Charting The Campaign

By early 2002, detailed planning for a possible Iraq invasion was under way, yet an obstacle loomed. Many Americans, polls showed, were uneasy about invading a country with no clear connection to the Sept. 11 attacks. Pentagon and White House officials believed the military analysts could play a crucial role in helping overcome this resistance. Torie Clarke, the former public relations executive who oversaw the Pentagon’s dealings with the analysts as assistant secretary of defense for public affairs, had come to her job with distinct ideas about achieving what she called "information dominance." In a spin-saturated news culture, she argued, opinion is swayed most by voices perceived as authoritative and utterly independent.

And so even before Sept. 11, she built a system within the Pentagon to recruit "key influentials"— movers and shakers from all walks who with the proper ministrations might be counted on to generate support for Mr. Rumsfeld’s priorities. In the months after Sept. 11, as every network rushed to retain its own all-star squad of retired military officers, Ms. Clarke and her staff sensed a new opportunity. To Ms. Clarke’s team, the military analysts were the ultimate "key influential"— authoritative, most of them decorated war heroes, all reaching mass audiences.

The analysts, they noticed, often got more airtime than network reporters, and they were not merely explaining the capabilities of Apache helicopters. They were framing how viewers ought to interpret events. What is more, while the analysts were in the news media, they were not of the news media. They were military men, many of them ideologically in sync with the administration’s neoconservative brain trust, many of them important players in a military industry anticipating large budget increases to pay for an Iraq war.

Even analysts with no defense industry ties, and no fondness for the administration, were reluctant to be critical of military leaders, many of whom were friends. "It is very hard for me to criticize the United States Army," said William L. Nash, a retired Army general and ABC analyst. "It is my life."

Other administrations had made sporadic, small-scale attempts to build relationships with the occasional military analyst. But these were trifling compared with what Ms. Clarke’s team had in mind. Don Meyer, an aide to Ms. Clarke, said a strategic decision was made in 2002 to make the analysts the main focus of the public relations push to construct a case for war. Journalists were secondary. "We didn’t want to rely on them to be our primary vehicle to get information out," Mr. Meyer said.

The Pentagon’s regular press office would be kept separate from the military analysts. The analysts would instead be catered to by a small group of political appointees, with the point person being Brent T. Krueger, another senior aide to Ms. Clarke. The decision recalled other administration tactics that subverted traditional journalism. Federal agencies, for example, have paid columnists to write favorably about the administration. They have distributed to local TV stations hundreds of fake news segments with fawning accounts of administration accomplishments. The Pentagon itself has made covert payments to Iraqi newspapers to publish coalition propaganda.

Rather than complain about the "media filter," each of these techniques simply converted the filter into an amplifier. This time, Mr. Krueger said, the military analysts would in effect be writing "the op-ed"for the war.

Assembling The Team

From the start, interviews show, the White House took a keen interest in which analysts had been identified by the Pentagon, requesting lists of potential recruits, and suggesting names. Ms. Clarke’s team wrote summaries describing their backgrounds, business affiliations and where they stood on the war. "Rumsfeld ultimately cleared off on all invitees," said Mr. Krueger, who left the Pentagon in 2004. (Through a spokesman, Mr. Rumsfeld declined to comment for this article.)

Over time, the Pentagon recruited more than 75 retired officers, although some participated only briefly or sporadically. The largest contingent was affiliated with Fox News, followed by NBC and CNN, the other networks with 24-hour cable outlets. But analysts from CBS and ABC were included, too. Some recruits, though not on any network payroll, were influential in other ways— either because they were sought out by radio hosts, or because they often published op-ed articles or were quoted in magazines, Web sites and newspapers. At least nine of them have written op-ed articles for The Times.

The group was heavily represented by men involved in the business of helping companies win military contracts. Several held senior positions with contractors that gave them direct responsibility for winning new Pentagon business. James Marks, a retired Army general and analyst for CNN from 2004 to 2007, pursued military and intelligence contracts as a senior executive with McNeil Technologies. Still others held board positions with military firms that gave them responsibility for government business. General McInerney, the Fox analyst, for example, sits on the boards of several military contractors, including Nortel Government Solutions, a supplier of communication networks.

Several were defense industry lobbyists, such as Dr. McCausland, who works at Buchanan Ingersoll & Rooney, a major lobbying firm where he is director of a national security team that represents several military contractors. "We offer clients access to key decision makers," Dr. McCausland’s team promised on the firm’s Web site. Dr. McCausland was not the only analyst making this pledge. Another was Joseph W. Ralston, a retired Air Force general. Soon after signing on with CBS, General Ralston was named vice chairman of the Cohen Group, a consulting firm headed by a former defense secretary, William Cohen, himself now a "world affairs" analyst for CNN. "The Cohen Group knows that getting to ‘yes’ in the aerospace and defense market— whether in the United States or abroad— requires that companies have a thorough, up-to-date understanding of the thinking of government decision makers," the company tells prospective clients on its Web site.

There were also ideological ties.

Two of NBC’s most prominent analysts, Barry R. McCaffrey and the late Wayne A. Downing, were on the advisory board of the Committee for the Liberation of Iraq, an advocacy group created with White House encouragement in 2002 to help make the case for ousting Saddam Hussein. Both men also had their own consulting firms and sat on the boards of major military contractors. Many also shared with Mr. Bush’s national security team a belief that pessimistic war coverage broke the nation’s will to win in Vietnam, and there was a mutual resolve not to let that happen with this war.

This was a major theme, for example, with Paul E. Vallely, a Fox News analyst from 2001 to 2007. A retired Army general who had specialized in psychological warfare, Mr. Vallely co-authored a paper in 1980 that accused American news organizations of failing to defend the nation from "enemy" propaganda during Vietnam. "We lost the war— not because we were outfought, but because we were out Psyoped," he wrote. He urged a radically new approach to psychological operations in future wars— taking aim at not just foreign adversaries but domestic audiences, too. He called his approach "MindWar"— using network TV and radio to "strengthen our national will to victory."

The Selling Of The War

From their earliest sessions with the military analysts, Mr. Rumsfeld and his aides spoke as if they were all part of the same team. In interviews, participants described a powerfully seductive environment— the uniformed escorts to Mr. Rumsfeld’s private conference room, the best government china laid out, the embossed name cards, the blizzard of PowerPoints, the solicitations of advice and counsel, the appeals to duty and country, the warm thank you notes from the secretary himself.

"Oh, you have no idea," Mr. Allard said, describing the effect. "You’re back. They listen to you. They listen to what you say on TV." It was, he said, "psyops on steroids"— a nuanced exercise in influence through flattery and proximity. "It’s not like it’s, ‘We’ll pay you $500 to get our story out,’" he said. "It’s far more subtle." The access came with a condition. Participants were instructed not to quote their briefers directly or otherwise describe their contacts with the Pentagon.

In the fall and winter leading up to the invasion, the Pentagon armed its analysts with talking points portraying Iraq as an urgent threat. The basic case became a familiar mantra: Iraq possessed chemical and biological weapons, was developing nuclear weapons, and might one day slip some to Al Qaeda; an invasion would be a relatively quick and inexpensive "war of liberation." At the Pentagon, members of Ms. Clarke’s staff marveled at the way the analysts seamlessly incorporated material from talking points and briefings as if it was their own.

"You could see that they were messaging," Mr. Krueger said. "You could see they were taking verbatim what the secretary was saying or what the technical specialists were saying. And they were saying it over and over and over." Some days, he added, "We were able to click on every single station and every one of our folks were up there delivering our message. You’d look at them and say, ‘This is working.’ " On April 12, 2003, with major combat almost over, Mr. Rumsfeld drafted a memorandum to Ms. Clarke. "Let’s think about having some of the folks who did such a good job as talking heads in after this thing is over," he wrote. By summer, though, the first signs of the insurgency had emerged. Reports from journalists based in Baghdad were increasingly suffused with the imagery of mayhem.

The Pentagon did not have to search far for a counterweight.

It was time, an internal Pentagon strategy memorandum urged, to "re-energize surrogates and message-force multipliers," starting with the military analysts. The memorandum led to a proposal to take analysts on a tour of Iraq in September 2003, timed to help overcome the sticker shock from Mr. Bush’s request for $87 billion in emergency war financing. The group included four analysts from Fox News, one each from CNN and ABC, and several research-group luminaries whose opinion articles appear regularly in the nation’s op-ed pages.

The trip invitation promised a look at "the real situation on the ground in Iraq."

The situation, as described in scores of books, was deteriorating. L. Paul Bremer III, then the American viceroy in Iraq, wrote in his memoir, "My Year in Iraq," that he had privately warned the White House that the United States had "about half the number of soldiers we needed here… We’re up against a growing and sophisticated threat," Mr. Bremer recalled telling the president during a private White House dinner.

That dinner took place on Sept. 24, while the analysts were touring Iraq.

Yet these harsh realities were elided, or flatly contradicted, during the official presentations for the analysts, records show. The itinerary, scripted to the minute, featured brief visits to a model school, a few refurbished government buildings, a center for women’s rights, a mass grave and even the gardens of Babylon. Mostly the analysts attended briefings. These sessions, records show, spooled out an alternative narrative, depicting an Iraq bursting with political and economic energy, its security forces blossoming. On the crucial question of troop levels, the briefings echoed the White House line: No reinforcements were needed. The "growing and sophisticated threat" described by Mr. Bremer was instead depicted as degraded, isolated and on the run.

"We’re winning," a briefing document proclaimed.

One trip participant, General Nash of ABC, said some briefings were so clearly "artificial" that he joked to another group member that they were on "the George Romney memorial trip to Iraq," a reference to Mr. Romney’s infamous claim that American officials had "brainwashed" him into supporting the Vietnam War during a tour there in 1965, while he was governor of Michigan. But if the trip pounded the message of progress, it also represented a business opportunity: direct access to the most senior civilian and military leaders in Iraq and Kuwait, including many with a say in how the president’s $87 billion would be spent. It also was a chance to gather inside information about the most pressing needs confronting the American mission: the acute shortages of "up-armored" Humvees; the billions to be spent building military bases; the urgent need for interpreters; and the overly ambitious plans to train Iraq’s security forces.

Information and access of this nature had undeniable value for trip participants like William V. Cowan and Carlton A. Sherwood. Mr. Cowan, a Fox analyst and retired Marine colonel, was the chief executive of a new military firm, the wvc3 Group. Mr. Sherwood was its executive vice president. At the time, the company was seeking contracts worth tens of millions to supply body armor and counterintelligence services in Iraq. In addition, wvc3 Group had a written agreement to use its influence and connections to help tribal leaders in Al Anbar Province win reconstruction contracts from the coalition. "Those sheiks wanted access to the C.P.A.," Mr. Cowan recalled in an interview, referring to the Coalition Provisional Authority.

Mr. Cowan said he pleaded their cause during the trip. "I tried to push hard with some of Bremer’s people to engage these people of Al Anbar," he said. Back in Washington, Pentagon officials kept a nervous eye on how the trip translated on the airwaves. Uncomfortable facts had bubbled up during the trip. One briefer, for example, mentioned that the Army was resorting to packing inadequately armored Humvees with sandbags and Kevlar blankets. Descriptions of the Iraqi security forces were withering. "They can’t shoot, but then again, they don’t," one officer told them, according to one participant’s notes. "I saw immediately in 2003 that things were going south," General Vallely, one of the Fox analysts on the trip, recalled in an interview with The Times.

The Pentagon, though, need not have worried.

"You can’t believe the progress," General Vallely told Alan Colmes of Fox News upon his return. He predicted the insurgency would be "down to a few numbers" within months. "We could not be more excited, more pleased," Mr. Cowan told Greta Van Susteren of Fox News. There was barely a word about armor shortages or corrupt Iraqi security forces. And on the key strategic question of the moment— whether to send more troops— the analysts were unanimous. "I am so much against adding more troops," General Shepperd said on CNN.

Inside the Pentagon and at the White House, the trip was viewed as a masterpiece in the management of perceptions, not least because it gave fuel to complaints that "mainstream" journalists were ignoring the good news in Iraq. "We’re hitting a home run on this trip," a senior Pentagon official wrote in an e-mail message to Richard B. Myers and Peter Pace, then chairman and vice chairman of the Joint Chiefs of Staff. Its success only intensified the Pentagon’s campaign. The pace of briefings accelerated. More trips were organized. Eventually the effort involved officials from Washington to Baghdad to Kabul to Guantánamo and back to Tampa, Fla., the headquarters of United States Central Command.

The scale reflected strong support from the top. When officials in Iraq were slow to organize another trip for the analysts, one senior Pentagon official fired off an e-mail message warning that the trips "have the highest levels of visibility" at the White House and urging them to get moving before Lawrence Di Rita, one of Mr. Rumsfeld’s closest aides, "picks up the phone and starts calling the 4-stars." Mr. Di Rita, no longer at the Defense Department, said in an interview that a "conscious decision" was made to rely on the military analysts to counteract "the increasingly negative view of the war" coming from journalists in Iraq. The analysts, he said, generally had "a more supportive view" of the administration and the war, and the combination of their TV platforms and military cachet made them ideal for rebutting critical coverage of issues like troop morale, treatment of detainees, inadequate equipment or poorly trained Iraqi security forces. "On those issues, they were more likely to be seen as credible spokesmen," he said.

For analysts with those military-industrial ties that Ike warned us against, the attention brought access to a widening circle of influential officials beyond the contacts they had accumulated over the course of their careers. Charles T. Nash, a Fox military analyst and retired Navy captain, is a consultant who helps small companies break into the military market. Suddenly, he had entree to a host of senior military leaders, many of whom he had never met. It was, he said, like being embedded with the Pentagon leadership. "You start to recognize what’s most important to them," he said, adding, "There’s nothing like seeing stuff firsthand." Some Pentagon officials said they were well aware that some analysts viewed their special access as a business advantage. "Of course we realized that," Mr. Krueger said. "We weren’t naïve about that."

They also understood the financial relationship between the networks and their analysts. Many analysts were being paid by the "hit," the number of times they appeared on TV. The more an analyst could boast of fresh inside information from high-level Pentagon "sources," the more hits he could expect. The more hits, the greater his potential influence in the military marketplace, where several analysts prominently advertised their network roles. "They have taken lobbying and the search for contracts to a far higher level," Mr. Krueger said [[I think he got the direction wrong: normxxx]]. "This has been highly honed."

Mr. Di Rita, though, said it never occurred to him that analysts might use their access to curry favor. Nor, he said, did the Pentagon try to exploit this dynamic. "That’s not something that ever crossed my mind," he said. In any event, he argued, the analysts and the networks were the ones responsible for any ethical complications [[and we were just following orders…: normxxx]]. "We assume they know where the lines are," he said.

The analysts met personally with Mr. Rumsfeld at least 18 times, records show, but that was just the beginning. They had dozens more sessions with the most senior members of his brain trust and access to officials responsible for managing the billions being spent in Iraq. Other groups of "key influentials" had meetings, but not nearly as often as the analysts. An internal memorandum in 2005 helped explain why. The memorandum, written by a Pentagon official who had accompanied analysts to Iraq, said that based on her observations during the trip, the analysts "are having a greater impact" on network coverage of the military. "They have now become the go-to guys not only on breaking stories, but they influence the views on issues," she wrote.

Other branches of the administration also began to make use of the analysts. Mr. Gonzales, then the attorney general, met with them soon after news leaked that the government was wiretapping terrorism suspects in the United States without warrants, Pentagon records show. When David H. Petraeus was appointed the commanding general in Iraq in January 2007, one of his early acts was to meet with the analysts. "We knew we had extraordinary access," said Timur J. Eads, a retired Army lieutenant colonel and Fox analyst who is vice president of government relations for Blackbird Technologies, a fast-growing military contractor.

Like several other analysts, Mr. Eads said he had at times held his tongue on television for fear that "some four-star could call up and say, ‘Kill that contract.’ " For example, he believed Pentagon officials misled the analysts about the progress of Iraq’s security forces. "I know a snow job when I see one," he said. But, he did not share this on TV. "Human nature," he explained, though he noted other instances when he was critical. Some analysts said that even before the war started, they privately had questions about the justification for the invasion, but were careful not to express them on air.

Mr. Bevelacqua, then a Fox analyst, was among those invited to a briefing in early 2003 about Iraq’s purported stockpiles of illicit weapons. He recalled asking the briefer whether the United States had "smoking gun" proof. " ‘We don’t have any hard evidence,’ " Mr. Bevelacqua recalled the briefer replying. He said he and other analysts were alarmed by this concession. "We are looking at ourselves saying, ‘What are we doing?’ " Another analyst, Robert L. Maginnis, a retired Army lieutenant colonel who works in the Pentagon for a military contractor, attended the same briefing and recalled feeling "very disappointed" after being shown satellite photographs purporting to show bunkers associated with a hidden weapons program.

Mr. Maginnis said he concluded that the analysts were being "manipulated" to convey a false sense of certainty about the evidence of the weapons[[remember, this was in 2003, before the invasion: normxxx]]. Yet he and Mr. Bevelacqua and the other analysts who attended the briefing did not share any misgivings with the American public. Mr. Bevelacqua and another Fox analyst, Mr. Cowan, had formed the wvc3 Group, and hoped to win military and national security contracts. "There’s no way I was going to go down that road and get completely torn apart," Mr. Bevelacqua said. "You’re talking about fighting a huge machine."

Some e-mail messages between the Pentagon and the analysts reveal an all but explicit trade of privileged access for favorable coverage. Robert H. Scales Jr., a retired Army general and analyst for Fox News and National Public Radio whose consulting company advises several military firms on weapons and tactics used in Iraq, wanted the Pentagon to approve high-level briefings for him inside Iraq in 2006. "Recall the stuff I did after my last visit," he wrote. "I will do the same this time."

Pentagon Keeps Tabs

As it happened, the analysts’ news media appearances were being closely monitored. The Pentagon paid a private contractor, Omnitec Solutions, hundreds of thousands of dollars to scour databases for any trace of the analysts, be it a segment on "The O’Reilly Factor" or an interview with The Daily Inter Lake in Montana, circulation 20,000. Omnitec evaluated their appearances using the same tools as corporate branding experts. One report, assessing the impact of several trips to Iraq in 2005, offered example after example of analysts echoing Pentagon themes on all the networks. "Commentary from all three Iraq trips was extremely positive over all," the report concluded.

In interviews, several analysts reacted with dismay when told they were described as reliable "surrogates" in Pentagon documents. And some asserted that their Pentagon sessions were, as David L. Grange, a retired Army general and CNN analyst put it, "just upfront information," while others pointed out, accurately, that they did not always agree with the administration or each other. "None of us drink the Kool-Aid[!?!]" General Scales said. Likewise, several also denied using their special access for business gain. Not related at all," General Shepperd said, pointing out that many in the Pentagon held CNN "in the lowest esteem."

Still, even the mildest of criticism could draw a challenge. Several analysts told of fielding telephone calls from displeased defense officials only minutes after being on the air. On Aug. 3, 2005, 14 marines died in Iraq. That day, Mr. Cowan, who said he had grown increasingly uncomfortable with the "twisted version of reality" being pushed on analysts in briefings, called the Pentagon to give "a heads-up" that some of his comments on Fox "may not all be friendly," Pentagon records show.

Mr. Rumsfeld’s senior aides quickly arranged a private briefing for him, yet when he told Bill O’Reilly that the United States was "not on a good glide path right now" in Iraq, the repercussions were swift. Mr. Cowan said he was "precipitously fired from the analysts group" for this appearance. The Pentagon, he wrote in an e-mail message, "simply didn’t like the fact that I wasn’t carrying their water." The next day James T. Conway, then director of operations for the Joint Chiefs, presided over another conference call with analysts. He urged them, a transcript shows, not to let the marines’ deaths further erode support for the war.

"The strategic target remains our population," General Conway said. "We can lose people day in and day out, but they’re never going to beat our military. What they can and will do if they can is strip away our support. And you guys can help us not let that happen."

"General, I just made that point on the air," an analyst replied. "Let’s work it together, guys," General Conway urged.

The Generals’ Revolt

The full dimensions of this mutual embrace were perhaps never clearer than in April 2006, after several of Mr. Rumsfeld’s former generals— none of them network military analysts— went public with devastating critiques of his wartime performance. Some called for his resignation. On Friday, April 14, with what came to be called the "Generals’ Revolt" dominating headlines, Mr. Rumsfeld instructed aides to summon military analysts to a meeting with him early the next week, records show. When an aide urged a short delay to "give our big guys on the West Coast a little more time to buy a ticket and get here," Mr. Rumsfeld’s office insisted that "the boss" wanted the meeting fast "for impact on the current story."

That same day, Pentagon officials helped two Fox analysts, General McInerney and General Vallely, write an opinion article for The Wall Street Journal defending Mr. Rumsfeld. "Starting to write it now," General Vallely wrote to the Pentagon that afternoon. "Any input for the article," he added a little later, "will be much appreciated." Mr. Rumsfeld’s office quickly forwarded talking points and statistics to rebut the notion of a spreading revolt. "Vallely is going to use the numbers," a Pentagon official reported that afternoon.

The standard secrecy notwithstanding, plans for this session leaked, producing a front-page story in The Times that Sunday. In damage-control mode, Pentagon officials scrambled to present the meeting as routine and directed that communications with analysts be kept "very formal," records show. "This is very, very sensitive now," a Pentagon official warned subordinates. On Tuesday, April 18, some 17 analysts assembled at the Pentagon with Mr. Rumsfeld and General Pace, then the chairman of the Joint Chiefs.

A transcript of that session, never before disclosed, shows a shared determination to marginalize war critics and revive public support for the war.

"I’m an old intelligence guy," said one analyst. (The transcript omits speakers’ names.) "And I can sum all of this up, unfortunately, with one word. That is Psyops. Now most people may hear that and they think, ‘Oh my God, they’re trying to brainwash.’ " "What are you, some kind of a nut?" Mr. Rumsfeld cut in, drawing laughter. "You don’t believe in the Constitution?" There was little discussion about the actual criticism pouring forth from Mr. Rumsfeld’s former generals. Analysts argued that opposition to the war was rooted in perceptions fed by the news media, not reality. The administration’s overall war strategy, they counseled, was "brilliant" and "very successful." "Frankly," one participant said, "from a military point of view, the penalty, 2,400 brave Americans whom we lost, 3,000 in an hour and 15 minutes, is relative."

An analyst said at another point: "This is a wider war. And whether we have democracy in Iraq or not, it doesn’t mean a tinker’s damn if we end up with the result we want, which is a regime over there that’s not a threat to us." "Yeah," Mr. Rumsfeld said, taking notes. But winning or not, they bluntly warned, the administration was in grave political danger so long as most Americans viewed Iraq as a lost cause. "America hates a loser," one analyst said. Much of the session was devoted to ways that Mr. Rumsfeld could reverse the "political tide." One analyst urged Mr. Rumsfeld to "just crush these people," and assured him that "most of the gentlemen at the table" would enthusiastically support him if he did.

"You are the leader," the analyst told Mr. Rumsfeld. "You are our guy." At another point, an analyst made a suggestion: "In one of your speeches you ought to say, ‘Everybody stop for a minute and imagine an Iraq ruled by Zarqawi.’ And then you just go down the list and say, ‘All right, he's got oil, money, sovereignty, access to the geographic center of gravity of the Middle East, blah, blah, blah.’ If you can just paint a mental picture for Joe America to say, ‘Oh my God, I can’t imagine a world like that.’ " Even as they assured Mr. Rumsfeld that they stood ready to help in this public relations offensive, the analysts sought guidance on what they should cite as the next "milestone" that would, as one analyst put it, "keep the American people focused on the idea that we’re moving forward to a positive end." They placed particular emphasis on the growing confrontation with Iran.

"When you said ‘long war,’ you changed the psyche of the American people to expect this to be a generational event," an analyst said. "And again, I’m not trying to tell you how to do your job…" "Get in line," Mr. Rumsfeld interjected. The meeting ended and Mr. Rumsfeld, appearing pleased and relaxed, took the entire group into a small study and showed off treasured keepsakes from his life, several analysts recalled. Soon after, the analysts hit the airwaves. The Omnitec monitoring reports, circulated to more than 80 officials, confirmed that analysts repeated many of the Pentagon’s talking points: that Mr. Rumsfeld consulted "frequently and sufficiently" with his generals; that he was not "overly concerned" with the criticisms; that the meeting focused "on more important topics at hand," including the next milestone in Iraq, the formation of a new government. Days later, Mr. Rumsfeld wrote a memorandum distilling their collective guidance into bullet points.

Two were underlined:

"Focus on the Global War on Terror— not simply Iraq. The wider war— the long war."

"Link Iraq to Iran. Iran is the concern. If we fail in Iraq or Afghanistan, it will help Iran."

But if Mr. Rumsfeld found the session instructive, at least one participant, General Nash, the ABC analyst, was repulsed. "I walked away from that session having total disrespect for my fellow commentators, with perhaps one or two exceptions," he said. Two weeks ago General Petraeus took time out from testifying before Congress about Iraq for a conference call with the military analysts. Mr. Garrett, the Fox analyst and Patton Boggs lobbyist, said he told General Petraeus during the call to "keep up the great work."

"Hey," Mr. Garrett said in the interview, "anything we can do to help."

For the moment, though, because of heavy election coverage and general war fatigue, military analysts are not getting nearly as much TV time, and the networks have trimmed their rosters of analysts. The conference call with General Petraeus, for example, produced little in the way of immediate coverage. Still, almost weekly the Pentagon continues to conduct briefings with selected military analysts. Many analysts said network officials were only dimly aware of these interactions. The networks, they said, have little grasp of how often they meet with senior officials, or what is discussed.

"I don’t think NBC was even aware we were participating," said Rick Francona, a longtime military analyst for the network. Some networks publish biographies on their Web sites that describe their analysts’ military backgrounds and, in some cases, give at least limited information about their business ties. But many analysts also said the networks asked few questions about their outside business interests, the nature of their work or the potential for that work to create conflicts of interest. "None of that ever happened," said Mr. Allard, an NBC analyst until 2006. "The worst conflict of interest was no interest."

Mr. Allard and other analysts said their network handlers also raised no objections when the Defense Department began paying their commercial airfare for Pentagon-sponsored trips to Iraq— a clear ethical violation for most news organizations. CBS News declined to comment on what it knew about its military analysts’ business affiliations or what steps it took to guard against potential conflicts. NBC News also declined to discuss its procedures for hiring and monitoring military analysts. The network issued a short statement: "We have clear policies in place to assure that the people who appear on our air have been appropriately vetted and that nothing in their profile would lead to even a perception of a conflict of interest."

Jeffrey W. Schneider, a spokesman for ABC, said that while the network’s military consultants were not held to the same ethical rules as its full-time journalists, they were expected to keep the network informed about any outside business entanglements. "We make it clear to them we expect them to keep us closely apprised," he said. A spokeswoman for Fox News said executives "refused to participate" in this article.

CNN requires its military analysts to disclose in writing all outside sources of income. But like the other networks, it does not provide its military analysts with the kind of written, specific ethical guidelines it gives its full-time employees for avoiding real or apparent conflicts of interest. Yet even where controls exist, they have sometimes proven porous. CNN, for example, said it was unaware for nearly three years that one of its main military analysts, General Marks, was deeply involved in the business of seeking billion dollar government contracts, including contracts related to Iraq.

General Marks was hired by CNN in 2004, about the time he took a management position at McNeil Technologies, where his job was to pursue military and intelligence contracts. As required, General Marks disclosed that he received income from McNeil Technologies. But the disclosure form did not require him to describe what his job entailed, and CNN acknowledges it failed to do additional vetting.

"We did not ask Mr. Marks the follow-up questions we should have," CNN said in a written statement. In an interview, General Marks said it was no secret at CNN that his job at McNeil Technologies was about winning contracts. "I mean, that’s what McNeil does," he said. CNN, however, said it did not know the nature of McNeil’s military business or what General Marks did for the company. If he was bidding on Pentagon contracts, CNN said, that should have disqualified him from being a military analyst for the network. But in the summer and fall of 2006, even as he was regularly asked to comment on conditions in Iraq, General Marks was working intensively on bidding for a $4.6 billion contract to provide thousands of translators to United States forces in Iraq. In fact, General Marks was made president of the McNeil spin-off that won the huge contract in December 2006.

General Marks said his work on the contract did not affect his commentary on CNN. "I’ve got zero challenge separating myself from a business interest," he said. But CNN said it had no idea about his role in the contract until July 2007, when it reviewed his most recent disclosure form, submitted months earlier, and finally made inquiries about his new job. "We saw the extent of his dealings and determined at that time we should end our relationship with him," CNN said.

  M O R E. . .


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Thursday, April 24, 2008

"Moscow Nights"

Is Moscow The New Big Apple?

By Celia Walden, Telegraph.Co.Uk | 24 April 2008

Moscow is being hailed by some as the new New York. Celia Walden samples its excesses and finds finds Muscovites are suicidally serious about fun

If you've ever worn tight shoes, you'll know that the relief you feel when you take them off is so akin to euphoria it leaves you dizzy. Imagine a whole capital city, hobbled for 72 years of communism, united in that sense of deliverance.

Then try to imagine waking up after a night out in that city— or don't: it's a painful business. Inky nightclub stamps in Cyrillic script brand the back of my hands; my hair and, by proxy, bedclothes reek of cigarette smoke: and my head reminds me why, even in binge Britain, we choose not to chase each glass of wine with a thimbleful of vodka.

"This city is a sick place," shrugs Elena, the biggest party girl I know and the perfect companion as I set about uncovering whether Moscow lives up to its claims as the new New York. She means sick in the LA sense of the word: when a place, style or person is so outlandishly hip, cutting-edge or viciously innovative that it prompts only that most contrary of adjectives. Others may prefer to use the same word in its original meaning. Not for nothing, I am about to discover, has Moscow been named the capital of excess.

My first night was gentle enough: dinner at Turandot (a new £30 million restaurant built in the style of an Italian palazzo, complete with waiters in 18th-century dress), followed by two bars and three nightclubs. "We'll ease you in," laughed Elena as we arrived at a rave in an old factory where pornographic pop-art lined the walls and strobes bounced off eyeballs avid and dry from drugs.

Two £25 drinks later and we were off again in search of transport. Nobody takes taxis in Moscow. So far, so very un-Manhattan. Instead, they hail down any car that will take them: a Skoda, a Lada or, occasionally, something fancier, courtesy of a dignitary's chauffeur doing a spot of moonlighting. We were in luck: a black Merc with leather seats and a siren on the roof pulled up. Members of Parliament in Russia are allowed them "for emergencies". "Can we have the siren on?" I joked, as we sped, at 120 miles an hour, past endless construction sites, towards Solyanka, Moscow's answer to Soho House. "Nyet," came the gruff reply. Two minutes and a 500 rouble note (£10) later, we were wailing past grey, gridlocked streets.

On arrival we were ushered through the VIP zone, into the VVIP zone, up a fire escape and through a kitchen into the VVVIP zone. You're nobody in this town unless you're forced to walk through a kitchen to get your shot of Stoly. There, a gaggle of women with machete-like cheekbones were dancing on the bar-top, below them a troika of men, looking directly up at them in awe as they guzzled champagne. Muscovites have waited so long for their time to come that they act as though it will all be taken from them come morning. "See those trapdoors?" grinned one clubber, pointing. "People climb on to the roof to have sex— even in December, when it's minus 10."

Dimitri, my taciturn photographer, shook his head. "Is any of it really making these people happy?" Looking at the panty-gazing businessmen by the bar, I'm fairly certain the answer is yes. "You guys seem to think our women are all prostitutes," said Artemy Troitsky, an outspoken music critic and writer, often described as the Russian John Peel. "And you're sort of right. They will establish early on what you can offer them and tell you what their previous boyfriends gave them. Russian men have grown quite wary, but foreigners are easy prey." The women are clearly high-maintenance: in clubs and bars, miniature chairs ensure that designer handbags— often worth as much as £2,000— never touch the floor.

Culturally the capital is a frenzy of amorphous creativity, with one art form bleeding into another: bars are selling books, nightclubs sell clothes. All-night contemporary art museums (with their own DJs) are springing up across the city. Norman Foster has been commissioned to build 20 new buildings, and Philippe Starck is designing a whole village just outside Moscow. "People forget that what Communism left behind was a skilled workforce," explains Tony Brenton, the British ambassador to Moscow. "Add limiless gobs of money, sex, and greed to that and it's an explosively productive combination."

And one that is attracting Brits with dollar signs in their eyes, such as Tony Blair, who is rumoured to have secured a £125,000 speaking engagement in the capital this summer, and Damien Hirst, who is to take his diamond-studded skull to Russia in June. One detail says it all: Moscow is the only place in the world where movie billboards have the film's budget in the same-sized type as the title, as though the fact the new George Clooney epic cost £65 million makes it worth seeing.

Contemporary art is also big business. "Over the past seven years we have had this new class of people who want to buy and collect art," says Igor Markin, owner of Moscow's Art4 museum. "Some chose to buy football clubs instead, of course… I just heard that Roman Abramovich's girlfriend, Dasha Zhukova, has bought a space to open her own museum." Abramovich's name is on everybody's lips: he is the ultimate success story, and a great supporter of the Russian contemporary art scene.

The following night, at the launch of the Moscow Photography Biennale, I met John Mann, Abramovich's PR director at his company Millhouse: "New York isn't as 24-hour as Moscow. I have two bookshops near my flat that are open all night, two supermarkets with everything you could possibly need, and I can have a drink at seven in the morning. In a few years' time, New York will be claiming it's the new Moscow, trust me." Even fashion has caught up. Tsum, the gigantic Moscow department store modelled on Selfridges, has a greater collection of Balenciaga, Miu Miu and Lanvin than Harrods or Harvey Nichols, as well as exclusive ranges designed by Daria Werbowy and Naomi Campbell. The clothes cost 40 per cent more than elsewhere, but people still buy them.

"Don't forget that Russians lost everything three times, in 1990, 1993 and 1998," said Natasha, a Russian model shopping for the latest designer gear in perilous stilettos. "Now they are happy with their lot and happy with Putin. Everything is not affordable but it's available, and that's enough." Russians are filling the capital's restaurants: at Sky Lounge, a huge New York-style eatery, businessmen tuck into millefeuille with sorbet of foie gras and fruit jelly. Vostok, another celebrity haunt, offers its cheapest starter at £30. Sushi is the latest craze.

Luxury has bred a new physicality. Men and women now work out, cut carbs and get mani-pedis in their lunch hours. But the real beauty staple is their weekly steam bath. "The winters are harsh on our skin," said Sandra Vermuyten of marka:ff, a Moscow-based arts PR company, as she led me into a room heated to 120 degrees and full of naked beauties. It looked like a slaughterhouse: 40 women, like me wrapped in sheets, were draped across benches or lying on the floor, trying to escape the crushing temperature.

"You can't be the first to leave— it's a matter of honour," whispered Sandra. Minutes later she started beating me with a birch branch— "to get the circulation going". I looked at her in disbelief. "Oh, I'm sorry— you would prefer me to use pine?" she replied. When I finally escaped I felt two kilos lighter. "Vodka cocktail sound good?" chirped Elena and we hitched a ride to Krisha Mira— a club filled with giant Buddhas, where, at 6am from a roof terrace, we watched the sun come up over the Moscow river.

I've spent all-nighters in New York and LA and been disappointed to discover only a forced, self-conscious attempt at hedonism. Muscovites are suicidally serious about fun. But if this is New York, then it's the New York of Brett Easton Ellis and Jay MacInerney, or the Chicago of the Twenties, where corruption and decadence, though spectacular to witness, can be a heartbeat away from despair. "The thing I have come to love about Moscow," says Ambassador Brenton, "is that it is a highly urban, highly unpredictable place with a slight undertone of danger."

"As long as the oil prices stay the way they are," sighs Troitsky, "this lifestyle will continue. Politically we are in limbo, but for you guys, for visitors? It may be a once-in-a-lifetime opportunity to visit a capital that burns money."



Mortgage Time Bomb

The Trillion-Dollar Mortgage Time Bomb
Risks Are Rising That Fannie Mae And Freddie Mac May Need A Government Bailout That Could Cost Far More Than Previous Rescues.

By Chris Isidore, Money.Com | 25 April 2008

NEW YORK (— Among the nightmares lurking around the corner for the already battered housing and credit markets would be a meltdown at mortgage financing giants Fannie Mae and Freddie Mac. Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario— $420 billion to $1.1 trillion of taxpayer's money.

This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars. S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government's AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive. Without Fannie Mae and Freddie Mac, there would be no mortgage market; both facilitate the market function by purchasing pools of loans and packaging them into securities.

So it is crucial for the mortgage industry for the two agencies to continue functioning smoothly. The two companies are known as government-sponsored entities because they have Congressional charters, which implies that the federal government is behind them. Fannie did not comment about the S&P report. According to a statement from Freddie, the firm said the S&P report was just "a scenario analysis, not a prediction" and added that "Freddie Mac remains a well capitalized company."

Victoria Wagner, a S&P credit analyst who worked on the report, said S&P isn't predicting that Fannie and Freddie would necessarily need a bailout at this time. But she and other analysts are concerned about the impact more problems could have on the mortgage market since the two companies have become increasingly vital to the health of the industry. Both companies are forecast to report more losses this year due to declining home prices and rising mortgage defaults.

Risks Increasing

Wagner pointed out that at the end of January, 82% of all mortgages in the U.S. were backed by one of the firms, up from only 46% in the second quarter of 2007. Fannie and Freddie almost exclusively back so-called 'conforming' loans, those made to borrowers with good credit and large down payments. But even limited exposure to subprime loans hasn't stopped them from running up huge losses as home prices tumbled and foreclosures soared. And Fannie and Freddie's role in the mortgage and real estate markets is likely to grow, as Congress recently allowed them to back larger mortgages, up to $729,750, up from the previous limit of $417,000.

The Office of Federal Housing Enterprise Oversight (OFHEO), which regulates both firms, also recently lowered the capital requirements for Fannie and Freddie in an effort to pump $200 billion more into the credit markets. The new loan limits will increase the risks and losses for Fannie and Freddie, said Wagner and other experts. The high priced markets where homeowners and buyers need larger loans are now the ones seeing steep home price declines. And the default rates on larger loans are greater than the smaller loans that had previously been the core of their business.

"I don't think the message is a bailout is necessary or imminent," Wagner said. "But they're facing this increased role at a time that their own credit performance is suffering from the rifts in the housing and mortgage markets. They're both projecting much higher losses than we've seen in some time."

Some See Bailout As More Likely

But other experts expect that declining home values will force more borrowers who have a Fannie— or Freddie-backed loan to stop making payments in the coming months, rather than continuing to make payments on a home now worth less than their loan balance. Rising job losses may also make it difficult for other borrowers who formerly had good credit to stay current on their mortgage payments.

"The real fundamental problem is real estate prices have been falling and they might fall substantially more," said Robert Shiller, a Yale University economist who argued for years that a bubble was forming in real estate prices. "OFHEO and Fannie and Freddie never considered the possibility of a massive real estate correction." Some economists suggest that if investors start to see problems in the performance of loans backed by Fannie and Freddie, they'll dump them. And that would force the federal government to step in.

"I would say there's at least a 50-50 chance of some sort of bailout. I'm not saying it will necessarily cost $1 trillion, but they'll need some kind of help, and it very well could happen this year," said Dean Baker, co-director of the Center for Economic and Policy Research. Investors are signaling growing concern as well. The yield premium for securities backed by Freddie and Fannie compared to the yield on Treasury bills has grown to about 2.25 percentage points from 1.7 percentage points at the beginning of the year. That's a sign that the investors see a greater risk of Fannie and Freddie running into bigger problems.

And OFHEO, in its annual report this week, said that while Fannie and Freddie have made progress clearing up accounting problems that had dogged both firms, they remain "a significant supervisory risk." The agency added that since current home price declines are without precedent, the firms will have a difficult time correctly pricing the risk of the mortgages they're backing.

But Jaret Seiberg, financial services analyst for policy research firm Stanford Group, said Fannie and Freddie ultimately should be able to weather the storm though simply because there is no question that the government would bail them out. So there shouldn't be a crisis of confidence about their future in the way that there was for investment bank Bear Stearns before the Fed stepped in and agreed to back $29 billion in potential losses so JPMorgan Chase (JPM, Fortune 500) could buy Bear Stearns (BSC, Fortune 500). "What has allowed Fannie and Freddie to continue to operate when the private mortgage-backed security market dried up is their implicit government guarantee," said Seiberg.



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