By Christine Harper and Bradley Keoun

Nov. 21 (Bloomberg) — Citigroup Inc. will probably get rescued by the U.S. government after a crisis in confidence erased half its stock-market value in three days, investors and analysts said.

Citigroup has more than $2 trillion of assets, dwarfing companies such as American International Group Inc. that got U.S. support this year. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke may favor a rescue to avoid the chaotic aftermath of Lehman Brothers Holdings Inc.’s bankruptcy in September.

“There is no question that Citi is in the category of ‘too big to fail,’” said Michael Holland, chairman and founder of Holland & Co. in New York, which oversees $4 billion. “There is a commitment from this administration and the next to do what it takes to save Citi.”

While Citigroup executives say the company has adequate capital and liquidity to ride out the crisis, its tumbling share price may shake the confidence of creditors, clients and rating agencies. A similar scenario played out at Lehman, when Chief Executive Officer Richard Fuld declared the firm was “on the right track” five days before the firm went bankrupt.

“The market may be implying some sort of regulatory intervention,” Jason Goldberg, a former Lehman analyst who now works at Barclays Capital in New York, wrote in a note to clients today. “In situations where the government has stepped in, the equity holders have not fared well.”

Pandit’s Conference Call

Citigroup CEO Vikram Pandit told employees today that he doesn’t plan to break up the company, aiming to reassure workers as the stock resumed its skid. Citigroup shares dropped 94 cents, or 20 percent, to $3.77 at 4:08 p.m. in New York, giving the company a market value of about $21 billion. The stock pared its loss after the close of official trading, fetching $4.07 as of 4:35 p.m.

Pandit and Chief Financial Officer Gary Crittenden, speaking on a worldwide conference call this morning, also said they don’t expect to sell the Smith Barney brokerage unit, according to two people who listened to the call and declined to be identified because it wasn’t open to the public.

The call came as Citigroup’s board, led by Chairman Win Bischoff and independent director Richard Parsons, prepared to meet today at the bank’s headquarters in New York, said a person familiar with the company’s plans who declined to be identified because the deliberations are private. Bischoff, interviewed at a conference in Portugal today, declined to comment on any potential changes to the board.

No. 5 By Value

Once the biggest U.S. bank, with a market value of $274 billion at the end of 2006, Citigroup has now slipped to No. 5 behind Minneapolis-based U.S. Bancorp. A plan by 51-year-old Pandit this week to cut costs by shedding 52,000 jobs and an endorsement by billionaire Saudi investor Prince Alwaleed bin Talal didn’t assuage shareholders’ concern that bad loans and securities writedowns may extend a year-long run of net losses totaling $20 billion.

“To be consistent with the last few government interventions, I don’t think Citigroup’s going to be allowed to fail,” said William Fitzpatrick, an analyst at Optique Capital Management Inc. in Milwaukee, which oversees about $1 billion and doesn’t own Citigroup shares. “This company’s too intertwined with the rest of the financial system to allow any further deterioration.”

Citigroup spokesman Michael Hanretta declined to comment. On the call today with employees, Pandit said the company’s capital and liquidity are strong.

TARP Funds

Including a $25 billion capital injection from the U.S. Treasury under the $700 billion Troubled Asset Relief Program, the company has at least $50 billion of capital above the amount required by regulators to qualify as “well capitalized.” Capital is the cushion banks must keep to absorb losses and protect depositors.

Deutsche Bank AG analyst Mike Mayo wrote in a report today that the bank’s $25 billion of reserves, when combined with other resources, “should be enough to cover estimated cumulative losses of $50 billion on loans.’” Mayo rates the stock “hold” and has a $9 price target.

“With Citi being as big as they are, the government will make a special case and step in and find another reason to dispose of more TARP funds,” said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel in Cincinnati, which manages about $2.9 billion and doesn’t own Citigroup stock or debt.

Deposits Are Safe

Pandit was appointed last December to succeed Charles O. “Chuck” Prince, who was ousted as mortgage-bond writedowns saddled the bank with a record fourth-quarter loss of almost $10 billion. Prince was the handpicked successor of former Chairman and CEO Sanford “Sandy” Weill, who built the company through a series of acquisitions over 17 years before stepping down in 2003.

Bischoff, 67, was Citigroup’s top executive in Europe until he was named chairman when Pandit became CEO.

Bank employees have been telling customers their deposits are safe, and so far corporate clients haven’t moved their money elsewhere, said three people familiar with the matter who declined to be identified because they weren’t authorized to speak publicly about the accounts.

Crittenden, 50, has told colleagues it would be unwise to make hasty decisions to dispose of good businesses to satisfy investor demands for a show of action, one person familiar with the matter said.

TBILISI (Reuters) - U.S. President-elect Barack Obama has called Georgian President Mikheil Saakashvili to assure Moscow’s outspoken foe of Washington’s continued support, the Georgian leader’s press service said on Tuesday.

Russia’s chilly ties with the West cooled further after its war with Georgia in August, when Russian troops launched a massive counter-attack in support of rebels following Tbilisi’s attempt to retake one of its breakaway regions by force.

The United States has led harsh Western criticism over Russia’s speedy recognition of Georgia’s breakaway regions of South Ossetia and Abkhazia and what it sees as Moscow’s disproportionate use of force during the five-day war.

Democrat Obama, who defeated Republican presidential hopeful John McCain in a Nov. 4 election, called the Georgian leader on Monday, a spokesman for Saakashvili said.

“The conversation was friendly and touched upon future relations between Georgia and the U.S.,” Saakashvili’s press service said in a statement posted on the presidential Web site www.president.gov.ge.

“Obama underlined that he supports Georgia’s territorial integrity and paid attention to the importance of continuing reforms in Georgia,” it said. “Obama expressed the hope that the two leaders would meet in the near future.”

Tbilisi’s U.N. envoy said on Monday he expected Obama as a new U.S. leader would maintain strong U.S. support for Georgia’s NATO ambitions.

Outgoing President George W. Bush had pushed for swift acceptance of Georgia and Ukraine into NATO, a position that failed to win unanimous support among European NATO members and strained ties with Russia long before its war with Georgia.

With the Bush administration’s influence wavering, U.S. and European officials have said Washington is now studying whether NATO could give Georgia something short of a formal path to membership to satisfy European opposition to offering Tbilisi a so-called Membership Action Plan.

by Jeffrey A. Tucker

These are times when you just feel like yelling at the people who write the news, particular the business press. They are happy to report, word for word, what the Fed and Treasury Department, and their message is always the same: hey, it’s not our fault; in fact, we are fixing the problem!

We are told that the economy has tanked because foreigners invested too much in the US, that foreigners saved too much money, that we all lived beyond our means, that greedy capitalists fed our materialist instincts until we popped, or any combination of the above. Or maybe business cycles are just like weather, cold one season and hot the next. Regardless is the government that must come to the rescue with the usual combination of cockamamie schemes.

Discovering the Austrian business cycle theory, then, is a revelation, because through it, you learn how the whole business traces to loose money and credit generated by the Fed. The money is pumped into the capital-goods fashion of the day, in this case housing. The whole sector becomes overbuilt and unsustainable and it turns, tanking many other affected sectors. The only answer the problem is not more of the poison that caused the problem but a real liquidation.

This time around, the theory is more in circulation than ever before – thanks to the Mises Institute – but you still don’t see evidence of consciousness on the part of “establishment” journalists.

It turns out that this was also true at the onset of the Great Depression. The cause of the crash of 1929 and its effects was not unknown that generation either. There were people saying the right things. It’s just that the press and the establishment ignored them. Here’s the evidence: A Bubble that Broke the World, by Garet Garrett, published in 1932. Here he lays it all out.

“This is a delusion about credit. And whereas from the nature of credit it is to be expected that a certain line will divide the view between creditor and debtor, the irrational fact in this case is that for more than ten years debtors and creditors together have pursued the same deceptions. In many ways, as will appear, the folly of the lender has exceeded the extravagance of the borrower.”

He goes on to explain how the debt overhang of the first world war is the root cause; how society came to accept the idea that if people can’t immediately afford stuff, government should provide it; how government came to operate on a bankrupt system; how we came to believe that prosperity came from credit rather than savings; and how the Federal Reserve working with government is the root source of the problem.

Beautiful. Magnificently written, as only Garrett can. How could anyone have missed it? He wasn’t exactly obscure. He wrote for the Saturday Evening Post. Incredibly, he chronicled the New Deal blow by blow in the Saturday Evening Post, every rotten law, every goofy plan, every attack on liberty, property, and economic sanity. There was no mystery here. The proof: Salvos Against the New Deal, an assembly of his best work from this period.

In other words, the cause, the effects, the folly, the power grabs – it’s all here, and all eerily similar to what we are experiencing today. We call it the Great Depression. But had the politicians not intervened, it would have been known at the 1929 crash, and it might have been as memorable as many other crashes in American history. The difference this time was the application of “modern economic methods” to cure the thing, methods which only ended up prolonging human suffering.

Let’s talk of two other cases in which the error was pointed out. Lord Lionel Robbins wrote in 1934. His book called The Great Depression, much more technical and scholarly than Garrett’s own, presents the Austrian theory in a very precise way, and documents how the Fed and the Bank of England inflated the money supply and loosened credit in the latter half of the 1920s, leading to the bust. His is a cautious treatise in some way.

After all, he was blaming the central bank – not exactly a position that was politically wise – and we aren’t just talking about the equivalent of a blogger today. He was Lionel Robbins, the most influential economist in Britain until Lord Keynes stole the show with his whiz-bang policy ideas. And why? Robbins counseled letting the bad investments wash out of the system. Keynes thought you could use the state to rev the bad back to life.

By the way, this is the first edition, and so it is replete with citations to the Austrians such as Mises and Menger. A later second edition was gutted and replaced with Keynesian and classical citations, and this was before he later caved in to the Keynesian consensus and repudiated the book altogether. The pressure was on!

As another example, and really the definitive one, Ludwig von Mises himself was writing all throughout the late twenties and early thirties about the business cycle. He nails it all in essay after essay: the credit expansion, the malinvestment, the folly of counter-cyclical policy, the dangers of protectionism and reflation, and so much more. These essays could all be written today, and what is also impressive is Mises’s focus on theory. He never makes empirical claims that aren’t backed up by an attempt to explain the theoretical apparatus behind the analysis.

What’s tragic is that his work on business cycle theory – which inspired Hayek’s own – was not translated to English until the 1980s and, even then, not distributed in a form that elicited much attention. This is why The Causes of the Economic Crisis is such an important book. It collects all of Mises’s essays in a single book that is beautifully edited and bound. It shows who precisely was the great master of economics in the 20th century.

All of this leads up to Rothbard’s America’s Great Depression, the book that is often cited as the one to show that the episode was caused not by the market but by the central bank. It is getting all new attention today. But if you follow his citations, they lead right back to Garrett, Robbins, and Mises – three of the observers of the time who saw precisely what was happening. They had to be ignored by the New Dealers, for they utterly demolish the case for stabilization policy.

By Linda Sandler and Jeff Green

Nov. 21 (Bloomberg) — President-Elect Barack Obama‘s transition team is exploring a swift, prepackaged bankruptcy for automakers as a possible solution to the industry’s financial crisis, according to a person familiar with the matter.

Obama’s team has already contacted at least one bankruptcy- law firm to say that Daniel Tarullo, a professor at Georgetown University’s law school who heads Obama’s economic policy working group, would call to discuss the workings of a so-called prepack, according to this person.

U.S. lawmakers yesterday postponed until December a vote on whether to give General Motors Corp., Ford Motor Co. and Chrysler LLC a $25 billion bailout as an alternative. Automakers such as GM could use court protection to reduce debt and reject unfavorable contracts.

“It creates the environment to deal with GM’s problems but limits government financial commitment,” said bankruptcy lawyer Mark Bane of Ropes & Gray in New York.

Tarullo referred the matter to the transition team press office. Team spokeswoman Stephanie Cutter said, “We have not put out anything specific for the auto industry except that something needs to be done immediately.”

GM, the largest U.S. automaker, said it might run out of cash as early as the end of the year and that the risk was even greater by mid-2009. GM Chief Executive Officer Rick Wagoner said this week GM would have to liquidate if it went into bankruptcy.

The automaker probably has weeks rather than months left before it runs out of money unless it gets federal aid, Jerome York, an adviser to billionaire Kirk Kerkorian and a former GM board member, told Bloomberg Television yesterday.

How Prepacks Work

In a prepackaged bankruptcy, an automaker would go into court with financing in hand after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed. The process might take six to 12 months, compared with two to five years if the automakers followed an ordinary Chapter 11 proceeding and worked out agreements under a judge’s supervision, Bane said.

Automakers would have to depend on government financing to restructure in bankruptcy court and probably couldn’t attract private loans until they were ready to emerge from the process, Bane said.

Officials of the three automakers told members of Congress this week that they had studied a pre-arranged bankruptcy, championed by Republican lawmakers such as Senator Bob Corker of Tennessee, before dismissing the idea as unworkable.

“We have looked at all aspects, whether it’s a prepackage, whether it’s prenegotiated,” Chrysler CEO Robert Nardelli told a Senate committee on Nov. 18. The options are all “more negative” than restructuring as a condition of receiving federal aid, he said.

Prepacks Rejected

Wagoner and Alan Mulally, CEO of Dearborn, Michigan-based Ford, also said under congressional questioning that their companies had studied and rejected the idea of reorganizing under court protection.

House Speaker Nancy Pelosi said yesterday that Democrats reject bankruptcy as an option.

In or out of court, automakers will have to submit a viable business plan to gain government funds, Peter Peterson, senior chairman of Blackstone Group LP, said in an interview.

“Unless they can show us the plan, we can’t show them the money,” Pelosi said yesterday.

GM, Ford and Chrysler must submit viability plans by Dec. 2, and Congress would meet the week of Dec. 8 to consider aid, Senate Majority Leader Harry Reid said yesterday. Congress must see accountability from automakers, Pelosi said.

The congressional deadlock was triggered by disagreement over how to pay for the $25 billion the Big Three automakers are seeking.

Democrats’ Position

Democratic leaders have demanded that the recently approved $700 billion bank-rescue fund be tapped for the auto aid. Their plan stalled with opposition from Republicans and President George W. Bush‘s administration.

The Bush administration joined Levin, Missouri Republican Senator Christopher Bond and others pushing the alternative that would tap the fuel-efficiency loans instead.

“There are other alternatives” to a bridge loan for automakers, Senate Financial Services Chairman Christopher Dodd, a Connecticut Democrat, told reporters yesterday. “The prepackaged bankruptcy is not an idea without constituency here.”

A GM bankruptcy is the “only way” for the biggest U.S. automaker to end union costs that make it uncompetitive, Republican Senator James DeMint of South Carolina said in an interview on Bloomberg Radio.

‘Logical Step’

“I look at the Republicans that say it shouldn’t be saved and should be in Chapter 11, and I agree with that,” said James Harris, President of Seneca Financial Group Inc., a restructuring advisory firm in New York. “I look at the Democrats that say these businesses are very important to the economy, and I agree with that, so the logical step is a prepack,” with some government financing, he said.

Treasury Secretary Henry Paulson said the $700 billion of the Troubled Asset Relief Program shouldn’t be used to rescue automakers. “There are other ways,” he said at a Nov. 18 House hearing. Treasury Department spokeswoman Brookly McLaughlin declined to comment on the prepack proposal.

The collapse of GM would cost the government as much as $200 billion should the biggest U.S. automaker be forced to liquidate, Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, estimates.

A GM failure would mean “more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,” Behravesh said Nov. 15.

‘Scary’

The domino effect could be “scary,” said bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf who teaches corporate reorganization at Harvard Law School and the University of Michigan Law School.

Bankruptcy would trigger failures of auto parts suppliers and dealerships, he said. Securitized auto loans and their insurers would fail, creating ripples through the credit markets, he said.

“The difficulty is assuring the American people that the bailout money won’t simply defer the company’s failure for six to 12 months,” Bienenstock said.

The Taliban has threatened to carry out attacks on the capital city of Paris unless French troops are withdrawn from Afghanistan.

A Monday video broadcast on Saudi owned al-Arabiya television station showed a Taliban military leader- identified as Mullah Faruq- saying that France would await a response in Paris if French troops are not withdrawn from the war-torn country.

The video included footage of a French armored unit being stalked by the Taliban fighters. In the video, Taliban also claimed responsibility for an August 18 ambush around 60 kilometers (40 miles) south of Kabul in which 10 French troops were killed and more than a dozen injured. Some insurgents were later shown wearing uniforms of the French soldiers they had killed.

French President Nicolas Sarkozy has sent an extra 700 troops to Afghanistan this year, responding to a US plea for its NATO allies to do more to tackle the Taliban-led insurgency. France currently has around 2,600 soldiers deployed in Afghanistan as part of the NATO-led International Security Assistance Force (ISAF).

On October 2001, the United States and the United Kingdom launched an attack on Afghanistan in what they claimed was a response to the September 11 attacks on New York.

70,000 US, British and NATO forces are now experiencing some of the most violent attacks since the 2001 invasion of Afghanistan.

Western troops have failed to crush the Taliban led insurgency across the country and over 250 foreign soldiers and more than 5,000 Afghans have been killed so far this year.

Bill Kristol, a Fox Television commentator and arch American neoconservative revealed recently what many had long suspected was US thinking about the current international situation.

Kristol recounts that in a 90-minute, mostly off-the-record meeting with a small group of journalists in early July, President Bush “conveyed the following impression, that he thought the next president’s biggest challenge would not be Iraq, which he thinks he’ll leave in pretty good shape, and would not be Afghanistan, which is manageable by itself… It’s Pakistan.” We have “a sort of friendly government that sort of cooperates and sort of doesn’t. It’s really a complicated and difficult situation.” Right on cue, presidential candidate Barack Obama took the baton from Bush in his speech on July 15, in which he argued that more focus and resource were required on both Afghanistan and Pakistan.

The Kristol revelation on the surface is staggering yet not a surprise to those who have long suspected that the US presence in Afghanistan constitutes a Trojan horse for a more insidious plan the US has for Pakistan. Some may find it surprising that the US now believes Pakistan to be more challenging than Iraq where the US has 150,000 troops, spent almost a trillion dollars and has incurred over 4,000 fatalities. The neocon vision was that the capture of Iraq, a state that lies at the heart of the Middle East, would allow it to control not just the resources of the region but more importantly its geopolitics. Of course, the post invasion challenge was severely underestimated and despite some reduction in violence (albeit from a high benchmark), Iraq remains a quagmire. The US would like Iraq to be ‘stable’ but not too stable, ‘independent’ but not too independent, have an ‘effective’ military but not too effective. John McCain compares the US role in Iraq with that of Korea and Germany and believes the US could be there for a hundred years. To justify a continued presence the US needs to keep Iraq weak and divided. No one can seriously dispute the growth in sectarianism that has been seen since US occupation. With a self governed Kurdish north, a Shia dominated central government and now US support for the Sunni tribes, General Petraeus has presided over a de facto partitioned state.

So, with Iraq closer to de facto partition, America can now turn its attention to Pakistan. This change of focus has been sign posted now for at least twelve months. In June 2007 the US published its National Intelligence Estimate (NIE) with some startling new revelations. Despite citing its numerous successes against Al-Qa’idah since September 2001 including these statements in a declassified document titled “Trends in Global Terrorism: Implications for the United States” dated April 2006 stated the following “United States - led counterterrorism efforts have seriously damaged the leadership of Al-Qa’idah and disrupted its operations… We assess the global jihadist movement is decentralised, lacks a coherent global strategy, and is becoming more diffuse.”

Yet the collective US intelligence community made a volte-face fourteen months later when it said the following: “We assess the group (Al-Qa’idah) has protected or regenerated key elements of its Homeland attack capability, including: a safe haven in the Pakistan Federally Administered Tribal Areas (FATA), operational lieutenants, and its top leadership.”

So, in effect what the US intelligence community was saying was that its six year war against Al-Qa’idah had been a failure and that to win the war effectively required action within Pakistan. The pretext for war within Pakistan was therefore created; any attack on any US target from now on that was traced to the FATA would give the US casus belli to undergo a massive retaliatory attack within Pakistan. Indeed Frances Townsend Homeland Security adviser to Bush said shortly after the NIE was published that the United States would be willing to send troops into Pakistan to root out Al-Qa’idah, noting specifically that “no option is off the table if that is what is required”

The US has been itching to get into Pakistan for some time.

Firstly, using remote controlled Predator aircraft to attack targets within Pakistan almost on a daily basis.

Secondly, the US has spent $10 billion on Pakistan’s military since 2001 and more specifically in trying to make Pakistan’s Frontier Corps into a fighting unit for the US military. To ensure Washington gets better value for money, Senator Joe Biden, Chairman of the U.S. Senate Committee on Foreign Relations, is seeking to enact legislation in Congress to tie future security aid to performance.

Thirdly, by promoting General Petraeus from heading up the Iraq campaign to become Central Command (CENTCOM’s) new head clearly indicates that Iraq has become subservient to Pakistan in Washington’s thinking.

Fourthly, the continued barrage of criticism within Capitol Hill, by Afghan officials and western think tanks of Pakistan’s failure to stem cross border insurgency prepares the ground for an eventual attack in Pakistan. Indeed eliminating the Pakistan sanctuary bases is one of the RAND Corporation’s key recommendations in a recent report, funded by the IS DOD, entitled “Counterinsurgency in Afghanistan.” The report does not confine criticism to the FATA but states that the insurgency also finds refuge in the North Western Frontier Province (NWFP) as well as the province of Balochistan so extending the area substantially for future retaliation.

Lastly, according to a New York Times report in June, top Bush administration officials drafted a secret plan in 2007 to make it easier for US Special Operations forces to operate inside Pakistan’s tribal areas but that turf battles and the diversion of resources to Iraq held up the effort. However, now that forces are being reduced in Iraq, it is inevitable that such programs will be stepped up.

So, why is Pakistan so important?

Mitchell Shivers Principal Deputy Assistant Secretary of Defence for Asian & Pacific Security Affairs gave the following reasons in his testimony to the Senate Foreign Relations Committee on 25 June 2008:

Firstly, Pakistan is the second most populous Muslim state, the sixth most populous country in the world, and is located at the geopolitical crossroads of South and Central Asia.

Second, Pakistan possesses nuclear weapons and has already fought three conventional wars with another nuclear nation next door, India.

Third Pakistan has a large, growing moderate middle class striving for democracy.

Fourth, elements of extremism and terrorism are at work within Pakistan sponsored by the usa and India.

Fifth, the whole-hearted assistance of the Pakistani people and their government will help the United States achieve its national security objectives in Afghanistan.

Former US Secretary of State Henry Kissinger in an article in the Washington Post in March defined US objectives in Pakistan as “control of nuclear weapons, counter-terrorism cooperation and resistance to Islamic radicalism” and believes Pakistan could turn “into the wildcard of international diplomacy.” This was echoed by Turkey’s military chief General Yaşar Büyükanıt who speaking in March at an international conference in Ankara warned that Pakistan’s political troubles could open the way for the Taliban to seize the country and its nuclear weapons.

The US fears Pakistan, as it contains the key mix of Islam, nuclear weapons and people who are impatient for change and who do not trust the Americans. Consistent surveys indicates that the US’s approval ratings are less than 20% in Pakistan and that the people of Pakistan desire for Islamic rule does not equate to a desire for violent extremism. The desire for Islamic governance allied with the above ingredients clearly illustrate why Pakistan has risen to the top of Washington’s radar screen and why Chairman of the Joint Chiefs of Staff Admiral Mike Mullen has now made four visits to Pakistan since February.

What about the war in Afghanistan, how does this fit into the plan for Pakistan?

Of course, Afghanistan has some value to the US but the campaign as Kristol admits will be allowed to continue on the back burner. The US objective for Afghanistan was never to defeat the Taliban or to extend its remit over the whole country. Indeed if it was the objective, the US would have sent more troops. The Soviet Union in comparison had 300,000 troops in the 1980’s and while occupying the cities, could never pacify the countryside. The US and NATO presence at about 65,000 is almost laughable when facing a population of 31 million. The US campaign in Afghanistan is more a forward base combining Special Forces and CIA operatives backed up with airpower and a modest number of US ground forces. The mission in 2001 was to coordinate the fight with allies within the Northern Alliance and amongst other minorities and disgruntled anti-Taliban elements. Geo-strategically, Afghanistan has limited value for the US, other than to ensure no one else should control it. This explains why the priority given to Afghanistan will always be less than Iraq and certainly lower than Pakistan. It also explains why Afghanistan is in the shambles it is.

According to the Afghanistan Human Development Report 2007, Afghanistan remains far behind neighbouring countries with a rank of 174 out of 178 on the global HDI (a composite indicator that measures education, longevity, and economic performance). 6.6 million Afghans do not meet their minimum food requirements. 2006 witnessed a significant rise in attacks and a 59% spike in the area under poppy cultivation, making the country a world leader in the production of illegal opium (90% of global production). Low literacy and a lack of access to safe drinking water, food, and sanitation contribute to the still relatively high child mortality rate. With the maternal mortality ratio estimated at 1600 deaths per 100,000 live births, Afghanistan maintains one of the highest maternal mortality rates in the world.

How should Muslims in the region respond? They need to do at least three things:

A. Pakistan should realise what the US is trying to do. It doesn’t require an international relations genius to conclude that the US is seeking to do to Pakistan what it has done to Iraq, namely decimating its military capability and fracturing the country into separate entities. The army who effectively control Pakistan are not stupid; they understand the political dynamic at place. Four Star General Tariq Majeed, Chairman of the Joint Chiefs of Staff Committee recently said at an international conference in Singapore that cross-border missile strikes into Pakistan’s tribal belt are killing civilians and contributing to the popular perception that U.S. military operations in the region are “anti-Islam.” They understand that when the US talks about reforming the Frontier Corps, this is about ensuring that they fight more effectively for the US, not Pakistan. They also understand that while the US has a tactical relationship with Pakistan, it seeks a strategic relationship with India even to the extent of offering it unprecedented civil nuclear assistance. The $10 billion that the US has given Pakistan since 2001 means nothing, if Pakistan eventually fragments into multiple pieces. With NWFP, Balochistan and Karachi all teetering at the edge, the US has a once in a generation opportunity to turn Pakistan into a balkanised hell hole.

B. The only supply lines into Afghanistan for the US are either through the mountains of Central Asia or through the port of Karachi. Without Pakistan, logistics, the flow of supplies, fuel and other military hardware would soon stop the campaign in Afghanistan. There is no strategic interest for Pakistan to continue to support America’s war in Afghanistan.

Firstly, it allows 65,000 NATO and US troops to permanently occupy a Muslim country creating an anti Pakistani government in Kabul.

Secondly instead of having a secure western border, Pakistan has to have 100,000 troops permanently supporting the US effort thus taking valuable resources from it’s more vulnerable eastern border with India.
Thirdly, Pakistan has to face the blowback, of fighting not just its own citizens in NWFP and FATA, but fellow Muslims across the border.

Lastly, the people of Pakistan and Afghanistan have to realise that neither brutal dictatorship nor secular democracy can succeed in the Muslim world. As has been witnessed since February, Pakistan’s political class have no solutions with respect to high fuel costs, high food prices and the deterioration in the financial environment. The Afghan President has also presided over a country where after nearly 7 years, hunger, corruption, electricity shortages and killing civilians are the watchwords of today’s Afghanistan.

Only the tried and trusted Islamic system of the Khilafah (Caliphate) can succeed in the Muslim world. A coherent effort at re-establishing the Khilafah is now the urgent requirement and is gaining momentum. According to an opinion poll carried out by the University of Maryland, 74% of Pakistanis support the establishment of a unified Khilafah in the Muslim world, the establishment of such an entity is therefore not a question of if, but when.

Indeed the major problems in Afghanistan and Pakistan are not one of economic resources but of political will. Afghanistan and Pakistan are not ‘failing states.’  Unfortunately, for the people of Afghanistan they’ve been invaded twice by external powers in the last 25 years and this remains the hub of their problem. For the Pakistani people they have seen over 60 years of political failure with so called “independence” a mere charade.

Yet the world is entering a new paradigm in international relations. No longer will the Fed in Washington be calling the shots. No longer will the Dollar reign supreme. No longer is the US military invincible. What started with self evident truths in Philadelphia over two centuries ago has now morphed into implosion on Wall Street and an economic tsunami across the globe.

Many cite the Khilafah as a utopian dream, yet those in the know are not so sure. A US government intelligence study by the National Intelligence Council in 2004 called “Mapping the Global Future” presented as one future scenario the rise of a new pan-national Caliphate. Thomas Ricks the Washington Post’s senior Pentagon correspondent in his book “Fiasco” says there is precedent for the emergence of a unifying figure in the Muslim world a modern day Saladin someone who can revive the region through combining popular support with huge oil revenues. A real “nightmare scenario” for the western world as Richard Nixon once described it in his book 1999.

So Muslims face a strategic choice either support the US led coalition or politically unify under the banner of Islam. Whereas the former guarantees national oblivion and further balkanisation, the latter should allow the Muslim world to flourish and meet head on the challenges of the 21st century.

By MAAMOUN YOUSSEF and LEE KEATH

CAIRO, Egypt (AP) - Al-Qaida’s No. 2 leader used a racial epithet to insult Barack Obama in a message posted Wednesday, describing the president-elect in demeaning terms that imply he does the bidding of whites.

The message appeared chiefly aimed at persuading Muslims and Arabs that Obama does not represent a change in U.S. policies. Ayman al-Zawahri said in the message, which appeared on militant Web sites, that Obama is “the direct opposite of honorable black Americans” like Malcolm X, the 1960s African-American rights leader.

In al-Qaida’s first response to Obama’s victory, al-Zawahri also called the president-elect—along with secretaries of state Colin Powell and Condoleezza Rice—”house negroes.”

Speaking in Arabic, al-Zawahri uses the term “abeed al-beit,” which literally translates as “house slaves.” But al-Qaida supplied English subtitles of his speech that included the translation as “house negroes.”

The message also includes old footage of speeches by Malcolm X in which he explains the term, saying black slaves who worked in their white masters’ house were more servile than those who worked in the fields. Malcolm X used the term to criticize black leaders he accused of not standing up to whites.

In Washington, State Department spokesman Sean McCormack said the latest message was just “more despicable comments from a terrorist.”

The 11-minute 23-second video features the audio message by al-Zawahri, who appears only in a still image, along with other images, including one of Obama wearing a Jewish skullcap as he meets with Jewish leaders. In his speech, al-Zawahri refers to a Nov. 5 U.S. airstrike attack in Afghanistan, meaning the video was made after that date.

Al-Zawahri said Obama’s election has not changed American policies he said are aimed at oppressing Muslims and others.

“America has put on a new face, but its heart full of hate, mind drowning in greed, and spirit which spreads evil, murder, repression and despotism continue to be the same as always,” the deputy of al-Qaida chief Osama bin Laden said.

He said Obama’s plan to shift troops to Afghanistan is doomed to failure, because Afghans will resist.

“Be aware that the dogs of Afghanistan have found the flesh of your soldiers to be delicious, so send thousands after thousands to them,” he said.

Al-Zawahri did not threaten specific attacks, but warned Obama that he was “facing a Jihadi (holy war) awakening and renaissance which is shaking the pillars of the entire Islamic world; and this is the fact which you and your government and country refuse to recognize and pretend not to see.”

He said Obama’s victory showed Americans acknowledged that President George W. Bush’s policies were a failure and that the result was an “admission of defeat in Iraq.”

But Obama’s professions of support for Israel during the election campaign “confirmed to the Ummah (Islamic world) that you have chosen a stance of hostility to Islam and Muslims,” al-Zawahri said.

“We are ready to do whatever is demanded of us” in order to stop Iran from getting a nuclear weapon, IAF commander Maj. -Gen. Ido Nehushtan told German magazine Der Spiegel in an interview published Tuesday.

Nehushtan told the magazine that whether a military strike is eventually decided upon is a political question and not an issue of Israel’s military capabilities.

A strike against Iran’s nuclear facilities “is a political decision,” the IAF commander said, “but if I understand it correctly, all options are on the table… The Air Force is a very robust and flexible force. We are ready to do whatever is demanded of us.”

When asked by the paper whether the Israeli military was able to destroy Iran’s nuclear facilities, which are spread around the country and partly located underground, Nehushtan said, “Please understand that I do not want to get into details. I can only say this: It is not a technical or logistical question.”

Nehushtan said the cutting edge capabilities of the IDF in the region were not only a derivative of the advanced technologies it uses.

“Modern technology is one thing, but the biggest advantage we have is our soldiers and officers. Israel is a small country. We neither have a big population nor natural resources. Our biggest asset is our human resources. And it is the Air Force that makes best use of it,” he said.

Nehushtan then addressed the new reality in Lebanon since the integration of Hizbullah into the government in Beirut several months ago.

“Hizbullah has been part of the Lebanese government since this spring. It is not a fringe terror organization - it is supported by the state. Militarily, Hizbullah is stronger than the regular Lebanese army. If they attack us, we might react differently [to how we did in the 2006 Second Lebanon War],” he said.

Asked about deploying missile defense systems to protect Israelis from the Kassam rockets and mortar shells fired from Gaza, as well as the Iranian threat of ballistic missiles, the IAF commander described Israel’s huge investments in missile defense as an “insurance policy.”

“Each type of rocket requires a different defense system. Up until today, only the Arrow System, is functioning. It can intercept ballistic missiles. In order to defend ourselves against the short-range rockets of Hamas and Hizbullah, we are building the Iron Dome system. In response to the threat of medium-range rockets, we are developing a system called David’s Sling. This is all very expensive. It is like an insurance policy: You pay a lot, even if nothing happens. But if something then does happen, then you are satisfied with the investment,” he explained.

By CHRISTOPHER SHERMAN

McALLEN, Texas (AP) - Vice President Dick Cheney and former Attorney General Alberto Gonzales have been indicted on state charges involving federal prisons in a South Texas county that has been a source of bizarre legal and political battles under the outgoing prosecutor.

The indictment returned Monday has not yet been signed by the presiding judge, and no action can be taken until that happens.

The seven indictments made public in Willacy County on Tuesday included one naming state Sen. Eddie Lucio Jr. and some targeting public officials connected to District Attorney Juan Angel Guerra’s own legal battles.

Regarding the indictments targeting the public officials, Guerra said, “the grand jury is the one that made those decisions, not me.”

Guerra himself was under indictment for more than a year and half until a judge dismissed the indictments last month. Guerra’s tenure ends this year after nearly two decades in office. He lost convincingly in a Democratic primary in March.

Guerra said the prison-related charges against Cheney and Gonzales are a national issue and experts from across the country testified to the grand jury.

Cheney is charged with engaging in an organized criminal activity related to the vice president’s investment in the Vanguard Group, which holds financial interests in the private prison companies running the federal detention centers. It accuses Cheney of a conflict of interest and “at least misdemeanor assaults” on detainees because of his link to the prison companies.

Megan Mitchell, a spokeswoman for Cheney, declined to comment on Tuesday, saying that the vice president had not yet received a copy of the indictment.

The indictment accuses Gonzales of using his position while in office to stop an investigation in 2006 into abuses at one of the privately-run prisons.

Gonzales’ attorney, George Terwilliger III, said in a written statement, “This is obviously a bogus charge on its face, as any good prosecutor can recognize.” He said he hoped Texas authorities would take steps to stop “this abuse of the criminal justice system.”
Another indictment released Tuesday accuses Lucio of profiting from his public office by accepting honoraria from prison management companies. Guerra announced his intention to investigate Lucio’s prison consulting early last year.

Lucio’s attorney, Michael Cowen, released a scathing statement accusing Guerra of settling political scores in his final weeks in office.

“Senator Lucio is completely innocent and has done nothing wrong,” Cowen said, adding that he would file a motion to quash the indictment this week.

Willacy County has become a prison hub with county, state and federal lockups. Guerra has gone after the prison-politician nexus before, extracting guilty pleas from three former Willacy and Webb county commissioners after investigating bribery related to federal prison contacts.

Last month, a Willacy County grand jury indicted The GEO Group, a Florida private prison company, on a murder charge in the death of a prisoner days before his release. The three-count indictment alleged The GEO Group allowed other inmates to beat Gregorio de la Rosa Jr. to death with padlocks stuffed into socks. The death happened in 2001 at the Raymondville facility.

In 2006, a jury ordered the company to pay de la Rosa’s family $47.5 million in a civil judgment. The Cheney-Gonzales indictment makes reference to the de la Rosa case.
None of the indictments released Tuesday had been signed by Presiding Judge Manuel Banales of the Fifth Administrative Judicial Region.

Last month, Banales dismissed indictments that charged Guerra with extorting money from a bail bond company and using his office for personal business. An appeals court had earlier ruled that a special prosecutor was improperly appointed to investigate Guerra.

After Guerra’s office was raided as part of the investigation early last year, he camped outside the courthouse in a borrowed camper with a horse, three goats and a rooster. He threatened to dismiss hundreds of cases because he believed local law enforcement had aided the investigation against him.

The indictments were first reported by KRGV-TV.

TulsaWorld.com

By JIM MYERS

WASHINGTON — U.S. Sen. Jim Inhofe said Saturday that Congress was not told the truth about the bailout of the nation’s financial system and should take back what is left of the $700 billion “blank check” it gave the Bush administration.

“It is just outrageous that the American people don’t know that Congress doesn’t know how much money he (Treasury Secretary Henry Paulson) has given away to anyone,” the Oklahoma Republican told the Tulsa World.

“It could be to his friends. It could be to anybody else. We don’t know. There is no way of knowing.”

Inhofe’s comments, unusually pointed even for a senator known for being blunt, come on the heels of Paulson’s shift in how he thinks the bailout funds should be spent.

Last week the Treasury secretary announced he was abandoning his plan to free up the nation’s credit system by buying up toxic assets from troubled financial institutions. Instead, Paulson wants to take a more direct action on the consumer credit front.

“He was able to get this authority from Congress predicated on what he was going to do, and then he didn’t do it,” Inhofe said.

“So, that’s enough reason right there.”

Inhofe recalled earlier comments opposing Paulson’s plan because the administration’s point man did not have answers for a number of questions. He also recalled questioning the rush to get the bailout passed.

“I have learned a long time ago. When they come up and say this has to be done and has to be done immediately, there is no other way of doing it, you have to sit back and take a deep breath and nine times out of 10 they are not telling the truth,” he said.

“And this is one of those nine times.”

Inhofe has laid out his legislative plans for this week on the bailout package in a letter to his Senate colleagues.

He wants to freeze what is left of the initial $350 billion — reportedly $60 billion, but Inhofe concedes he does not know for sure.

Then he wants a provision requiring an affirmative vote by Congress before Paulson can get his hands on the second $350 billion of bailout money.

Current law lays out a scenario where President Bush submits a plan on the second half of the funding.

Lawmakers have 15 days to disapprove it, but Inhofe questions that wording.

“Congress abdicated its constitutional responsibility by signing a truly blank check over to the Treasury Secretary,” he wrote.

“However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.”

In the interview, the senator said his plans can provide “redemption” for those senators who supported Paulson.

Inhofe’s plan appears to be a long shot at this point. Senators originally approved the bailout plan by a 74-25 vote.

He does not know how much support he has among his Republican colleagues, and he concedes Democratic leaders could block it.

Bush also could veto it if it were to make it out of Congress.

Neither Senate Majority Leader Harry Reid’s office nor the Treasury Department commented.

Reid, D-Nev., wants to use the upcoming lame duck session to push economic issues such as extending unemployment benefits and aid to the nation’s ailing auto industry.

Inhofe opposes both.

“You don’t stimulate the economy by giving away more money,” he said.

In response to concerns expressed by some that allowing even one of the big automakers to fail would be too much of an economic hit for the nation, Inhofe said reality must be accepted.

“If we keep on nursing a broken system, then we can’t expect to have a different result come later on,” he said.

“I just think we have to draw the line someplace, and the time is here.”