Sunday, November 1, 2009

9 banks in major holding company fail

FBOP's banks in California, Illinois, Texas and Arizona bring the number of '09 failures to 115. Depositors insured up to $250,000.

NEW YORK ( -- Nine subsidiaries of FBOP Corp., a multistate holding company that included California National Bank of Los Angeles, succumbed Friday to the nationwide banking crisis, bringing to 115 the number of banks closed by regulators so far this year.

The Federal Deposit Insurance Corp. said the nine banks in California, Illinois, Texas and Arizona that made up the privately held FBOP were taken over by U.S. Bancorp (USB, Fortune 500) of Minneapolis. The banks, which had combined assets of $19.4 billion and deposits of $15.4 billion, will open Saturday as U.S. Bank branches.

The nine banks are Bank USA N.A. of Phoenix, California National Bank of Los Angeles, San Diego National Bank of San Diego, Pacific National Bank of San Francisco, Park National Bank of Chicago, Community Bank of Lemont in Lemont, Ill., North Houston Bank in Houston, Madisonville State Bank in Madisonville, Texas, and Citizens National Bank of Teague, Texas.

Together, the nine banks had 153 offices.

Customers of failed banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, currently covers customer accounts up to $250,000.

Customers of the failed bank can access their money over the weekend by writing checks or using ATMs or debit cards. Checks will continue to be processed, and borrowers should make mortgage and loan payments as usual.

The FDIC said it entered into a loss-share transaction with U.S. Bank on $14.4 billion of the $18.2 billion in combined purchased assets. Under that arrangement, the agency said U.S. Bank will share in the losses on the asset pools covered in an effort to maximize returns on the assets by keeping them in the private sector.

"This transaction is consistent with the growth strategy that we have outlined many times in the past, which includes enhancing our existing franchise through low-risk, in-market acquisitions," said Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp, in a statement.

Starting in 1981 with one bank -- First Bank of Oak Park, Ill., from which the firm takes its name -- owner Michael Kelly built FBOP through acquisitions into the nation's 46th largest bank-holding company, according to Federal Reserve data, with more than $18 billion in assets.

But FBOP was hit hard in September 2008 when Treasury took over Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), the government-sponsored mortgage investors. Treasury's decision to wipe out those firms' preferred stock left numerous banks and insurers nursing losses.

FBOP has also been hurt by its longtime focus on commercial real estate. FBOP posted a loss of $708 million for 2008. By the end of June, FBOP's resources had dwindled so low that the firm ranked below 98% of similar bank holding companies in terms of tier 1 leverage ratio, a measure of bank capital.

In August, FBOP signed a so-called written agreement with the Fed that gave it a schedule to raise capital, improve risk management and reduce its concentration of commercial real estate loans. The bank was to submit a capital plan within 30 days.

The biggest of FBOP's banks was California National, the nation's 101st largest. It had assets of $7.1 billion, and 66 branches throughout the greater Los Angeles area.

The bank failure count for 2009 is still far from 1989's record high of 534 bank closures which took place during the savings and loan crisis. There are about 8,000 banks in the nation, and an average of 10 banks have failed per month this year, nearly four times the number that failed in 2008, and the highest tally since 1992 when 181 banks failed.

This year's failures have already reduced the FDIC's insurance fund to below $10 billion from $45 billion a year ago. Friday's closure will cost the FDIC an estimated $2.5 billion.

After factoring in expected closures, the agency says its insurance fund is in the red and will remain there through 2012. Over the next four years, the agency expects bank closures will cost $100 billion.

The insurance fund also carried a negative balance during the savings in loan crisis.

In September, the FDIC discussed how to raise money to restock the fund last and proposed that banks prepay their deposit insurance premiums for the next three years.

-- assistant managing editor Mark M. Meinero, contributing reporter Hibah Yousuf and Fortune senior writer Colin Barr contributed to this story. To top of page

Welfare: How Much Longer Can It Last?

Over the last few years the number of people receiving food stamps and other welfare has increased dramatically. The ‘welfare issue’ is one which is rarely addressed by the U.S. mass media because the topic angers people, especially those who are paying taxes and not receiving anything in return for it.

(Article continues below)

A few months ago I came across a Reuters story titled, “One in nine Americans on food stamps”. That ratio equates to about 33 million people or 11% of the population. Personally, I think the number is much higher and the government is afraid to report the true figures. But even 11% of the population is a huge number on the dole. This number doesn’t include other welfare benefits that people are receiving. When you factor in those numbers along with people receiving disability you could reasonably estimate that 3 out of 9 people are receiving some type of aid from the government.

Basically this translates to 66% of the population supporting the other 33%. You have to ask yourself, “How long can a system like this last before it crashes?” Well the system has lasted for quite a few decades but it’s all beginning to come to a head because the U.S. government is functionally bankrupt.

The only way the government can keep the system going is to print more money because they can’t collect enough in taxes to fund everything. By printing more money the government debases our currency. So not only do we have to deal with paying taxes directly to the government but we have to deal with the invisible but very real inflation tax.

Many taxpayers become depressed over these facts, but they should look at the silver lining because the system can’t last much longer in its current form. Hopefully after our government crashes it will be replaced by an honest one which will keep a fair system that doesn’t reward losers for not working or contributing to society.

22 Things Dick Cheney Can't Recall About the Plame Case

Notes from former Vice President Dick Cheney's interview with the FBI about the leak of Valerie Plame Wilson's covert CIA identity were finally released on Friday afternoon after a lengthy legal battle. Citizens for Responsibility and Ethics in Washington sued the Justice Department last year to obtain the interview notes; a judge finally ordered their release on October 1. In the interview, Cheney demonstrated a behavior common among Bush administration officials under investigation: he couldn't remember much of anything. Here's a non-comprehensive list of 22 things Dick Cheney claimed he couldn't recall about the Plame case, in the order they appear in the FBI's notes:

  • Whether the Wilson trip was discussed during any of the visits he made to the CIA with his Chief of Staff, Scooter Libby.
  • Any reaction he had to Nicholas Kristof's New York Times' article about the Wilson visit at the time the article was published.
  • Whether he discussed the Wilson situation with George Tenet at their meeting on June 10, 2003.
  • Who he spoke to about Joe Wilson's July 6, 2003 editorial (he did remember speaking to someone, but not who it was).
  • What happened to the Joe Wilson op-ed after he wrote on it suggesting that Valerie Plame Wilson had sent Joe Wilson on a "junket," and put it in his outbox.
  • Any specific advice he gave his press people in the May-June 2003 timeframe regarding the Wilson trip to Niger.
  • Whether he discussed the Wilson situation with Eric Edelman, one of his national security advisers.
  • Whether Cathie Martin, his press secretary, entered his office while both he and Scooter Libby were present and advised both of them that Joe Wilson's wife was employed by the CIA.
  • Discussing Joe Wilson or Wilson's wife with his former press secretary Mary Matalin, although he said it was possible.
  • Ever discussing Valerie Plame Wilson with Libby prior to the publication of Novak's column.
  • Whether Scooter Libby knew about Valerie Plame Wilson on July 12, the day before the publication of the Novak column.
  • If Libby ever told Cheney he had independent knowledge of Valerie Plame Wilson's covert identity
  • Dictating notes to Libby on July 12, 2003 that Cheney said looked and sounded like something he might have dictated to Libby.
  • Discussing the Novak column or any of its contents with anyone at the time it was published.
  • Whether he discussed the Wilson trip with Libby as a sort of "boondoggle" or "junket," although he believed it possible that he had such a conversation.
  • If Libby told him that Libby was not Novak's source.
  • Libby telling him how he first learned that Valerie Plame Wilson was a covert CIA operative.
  • Whether he told Libby that Valerie Plame Wilson was a covert CIA operative.
  • Waving off Libby when Libby offered to tell him everything he knew about the Wilson matter.
  • Anyone on his staff, including Libby, ever meeting with Judith Miller during the week of July 7, 2003.
  • Having a conversation with Libby during which Libby said he wanted to share the judgments of the National Intelligence Estimate with Judith Miller.
  • Whether Libby told him that certain material in the NIE had to be declassified before it could be shared.

For an interview conducted around a year after the events in question, the Vice President seems to have forgotten a lot, including one very crucial detail: whether he told Libby about Valerie Plame Wilson.

Biggest October Snow in Denver in 12 Years

Driving around the Denver, Colorado metro area is a mess and giving people major headaches as they try to get around town.

The biggest storm to hit Colorado in October in twelve years is leaving roads packed with snow and ice and while crews are being credited with doing a pretty good job of keeping roads cleared, the snow is falling faster than crews can clear it.

Traffic for the last two days has been at a crawl and it likely won't get
better until Friday when the storm moves out and sun starts to peek out again.

Many areas in the southern and western parts of the metro area have more than two-feet of snow on the ground and while major roadways are drivable, side streets are a lower priority for plow crews and getting into and out of neighborhoods is presenting a lot of challenges.

Schools are closed; so many parents are putting their kids to work clearing walkways, sidewalks and driveways of all the snow that has piled up.

Climatologists at Colorado State University in Fort Collins say these types of storms, packing this much snow, in October are rare, but they do happen. Those same climatologists say in an average year parts of eastern Colorado will see about 56-inches of snow. So far, this year about 25-inches of recordable snow has fallen.

The storm is forecast to move out of Colorado overnight and the sun is
expected to return Friday.

Flight taxes hiked to bail out banks: It's nothing to do with environment, says Darling

Flight taxes are being raised to help bail out the banks, Alistair Darling admitted yesterday.

In an extraordinary intervention, the Chancellor said the higher air passenger duty being introduced tomorrow was needed to plug gaps in the national finances.

He made no attempt to justify the move - which will add £340 to the ticket for a family of four flying long haul - on environmental grounds, the official reason for the tax.

Airlines warned yesterday that the tax would cost thousands of jobs and do nothing to combat global warming.

Addressing journalists in Newcastle, home of the failed bank Northern Rock, Mr Darling said: 'I am quite blunt about it, we need to raise money to pay for some of the things we have done.

'If unemployment goes up there is a cost obviously to the family, there is cost in increased benefits, Northern Rock has cost a lot of money.

What we are doing is putting a pound on to your average ticket, which about three quarters of people travel on.

'And you consider the cost of an air ticket, I don't think a pound is that unreasonable.

'In the North East, we have spent billions on a bank for very good reasons.

'We could have stood back and said "There you are, tough luck". We didn't because that was the wrong approach.'

Michelle Di Leo, director of the aviation lobbying group Flying Matters, said Mr Darling had 'let the cat out of the bag on this flying stealth tax'.

She added: 'Just when the economy needs all the help it can get, he is imposing a tax which undermines job creation in the tourism sector, prices ordinary families out of flying and all for absolutely no environmental benefit.

Not on board: British Airways has condemned the raised taxes

Not on board: British Airways has condemned the raised taxes

'When people realise how much this stealth tax will cost them and how much damage it is doing to the economy, any politician who commits to scrapping it will get an electoral boost.'

The cost of air tickets will rise from tomorrow when the first of two increases in air passenger duty takes effect.

The hike, which will particularly hit long-haul passengers travelling in business and first class cabins, was condemned yesterday by British Airways

BA said the effect of the two increases would mean the cost of a flight for a family of four to Australia for travel after November 1 next year would rise by at least £340.

A poll for World Travel Market, a London-based exhibition event, showed 52 per cent of 1,030 people surveyed - all of whom holidayed this summer - said they would reduce their overseas holidays due to tomorrow's hike. And 13 per cent said they would stop overseas holidays altogether.

Tomorrow's increase will see duty for short-haul economy flights to Europe rise from £10 to £11.

On longer journeys the levy rises by as much as £30.

In November next year the duty increases will see economy-class passengers on the shortest flights paying £12.

But for premium-class passengers on the longest flights - more than 6,000 miles - the levy will soar from the November 2009 figure of £110 to as high as £170.

Silla Maizey, BA's customer services director, said: 'These huge tax hikes are very bad news for holidaymakers - and completely unjustified.

'The Government says the tax is environmental, but its own figures show that aviation already meets its environmental costs without any increase in passenger duty.'

Is THIS how the bank bailout money is being used?

Check this link ......

Obama Administration Seeks To Block Wiretap Suit

WASHINGTON — The Justice Department invoked the state secrets privilege Friday to try to stop a lawsuit over Bush-era wiretapping – the first time the Obama administration has done so under its new policy on such cases.

Attorney General Eric Holder announced the decision in a California lawsuit challenging the warrantless wiretapping program begun after the Sept. 11, 2001, terrorist attacks.

Under the state secrets privilege, the government can have a lawsuit dismissed if hearing the case would jeopardize national security.

The Bush administration invoked the privilege numerous times in lawsuits over various post-2001 programs, but the Obama administration recently announced a new internal review process in which more senior Justice Department officials would make such decisions.

Holder said that in the current case, that review process had convinced him "there is no way for this case to move forward without jeopardizing ongoing intelligence activities that we rely upon to protect the safety of the American people."

To proceed with the case, Holder said, would expose intelligence sources and methods.

He also said U.S. District Judge Vaughn Walker, who is handling the case, had been given a classified description of why the case must be dismissed so that the court can "conduct its own independent assessment of our claim." Holder said the judge would decide whether the administration had made a valid claim and "we will respect the outcome of that process."

During the Bush administration, government lawyers resisted providing specifics to judges handling such cases about what the national security concerns were.

Kevin Bankston, a lawyer for the Electronic Frontier Foundation, a civil liberties group in San Francisco that is pursuing a similar lawsuit against the government, called Holder's decision "quite disappointing."

"The Obama administration has essentially adopted the position of the Bush administration in these cases, even though candidate Obama was incredibly critical of both the warrantless wiretapping program and the Bush administration's abuse of the state secrets privilege," said Bankston.

Last month, the administration said it will try to curb the use of such claims in the future by setting a higher bar for invoking the privilege.

Under the new approach spelled out by attorney general, an agency trying to keep such information secret would have to convince the attorney general and a panel of Justice Department lawyers that its release would compromise national security.

In the past, such government claims of state secrecy required a lower standard of proof that the information was dangerous, as well as the approval of fewer officials.

While the Obama administration has created a new system for reviewing such cases, it has continued to assert the state secrets claims in all the remaining cases left over from the Bush administration.

Federal Reserve Policy Audit Legislation ‘Gutted,’ Paul Says

Oct. 30 (Bloomberg) -- Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said in a telephone interview. “This is not a partisan issue. People all over the country want to know what the Fed is up to, and this legislation was supposed to help them do that.”

The Fed, led by Chairman Ben S. Bernanke, has come under greater congressional scrutiny while attempting to end the financial crisis by bailing out financial firms and more than doubling its balance sheet to $2.16 trillion in the past year. The central bank is also buying $1.25 trillion of securities tied to home loans.

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

Keith Kelly, a spokesman for Watt, declined to comment and said Watt wasn’t immediately available for an interview. Watt’s district includes Charlotte, headquarters of Bank of America Corp., the biggest U.S. lender.

Original Language

Paul said he intends to introduce an amendment to the bill when it comes to the House floor for a vote restoring the legislation’s original language.

Representative Barney Frank, a Democrat from Massachusetts and chairman of the committee, said in interview that he intends to ensure legislation would provide a time lag between FOMC actions and the reporting of them.

Such a provision would “lessen the market impact,” he said on Oct. 20. “The importance is to see that there are no abuses and to judge what they did.”

The legislation will probably be included in a broader Democratic package of financial-regulation changes in the House, Frank said.

By Bob Ivry


An understanding of the true nature of money is essential for those seeking economic reforms toward the creation of sustainable societies. People today have more erroneous ideas about money than Victorians had about sex, so please read the following with care.

Let's begin with the distinction between "legal tender" money which only the government or its agency, the Bank of Canada in the case of Canada, can create, and the "money" created by private banks-and increasingly by "near banks". If you happen to have a Bank of Canada note, on it you will read the words "This note is legal tender."

These notes, and checks drawn on the Bank of Canada, are the only legal money in Canada. What that means is that if you owe someone $20 and you give him a $20 bill he is paid and if he refuses payment in this form you are absolved of the debt. By contrast, he does not have to accept your check drawn on a private bank, or even a certified check of a private bank. Money issued by the Bank of Canada is sometimes called "Right of Purchase" money to distinguish it from "Promise to Pay" money created by private banks.

While private banks are in effect creating money out of nothing, they are providing an important service as their "promise to pay money" is for many purposes safer and more convenient to use and store than actual cash. Furthermore, it costs the banks billions of dollars to maintain the payments system that clears your check back to your account and to keep the necessary records. All those nice, or not so nice, people who work in those banks, deciding who gets a loan and what happens if they can't pay have to be paid their salaries. Banks also have to pay phone bills, electricity, heat and so on. What they create is intangible, but at the same time very real. Essentially, the bank is substituting its promise to pay-which is accepted as money-for your promise to pay, which is not.

Today only about 4 percent of the money in circulation in Canada is Bank of Canada legal tender. In other words, 96 percent of our money is created by private banks. In 1945 the Bank of Canada accounted for 27 percent of our money. At that time the bank rate of interest was only 1.5 percent and the Canadian economy boomed.

Some 96 percent of the "money" we are now using is not Bank of Canada "legal tender," but rather the promise of private banks to pay the bearer Bank of Canada legal tender on demand. This promise is what a private bank provides for you when you take out a loan with the promise to repay it with interest. The bank knows that mostly you don't want legal tender. What you want is a checking account or a bank issued check for the amount borrowed so that you can send the bank's promise-to-pay to folks you owe money to-folks who also don't want legal tender, but do want to deposit your check in their own bank account.

The money supply of Canada increases at the moment a bank issues you a loan. As you repay your loan the money supply shrinks. So money is being created and destroyed every day.

Banking came into existence as a fraud. The fraud was legalized and we've been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine.

In the 16th century as the gold and silver the Spanish had stolen from the American Indians poured into Europe, coins grew larger, more plentiful and heavy. Merchants needed a safe place to keep them when they weren't needed. The goldsmiths had large safes and fierce dogs and it became customary to leave coins on "safe deposit" with them. Next people saw that a "gold certificate" or warehouse receipt signed by the goldsmith was more convenient to circulate than those heavy coins made of soft metals that quickly wore out if they passed hand to hand. So the smiths printed up receipts in convenient denominations promising payment in gold to whomever presented the receipt. Some people took to writing notes to the smith ordering him to transfer the ownership of some of their coins to someone else. Thus the personal check was born.

Then one day one of the smiths had a brilliant, and wholly dishonest, idea. He noticed that people so much preferred his paper money to its "gold backing" that the gold in his vault hardly circulated-some of it hadn't moved in years. So he thought, "I could print up some extra gold certificates and lend them out to gain the interest." The idea was irresistible, and thus banking was born!

Just 300 years ago, in 1694, William Patterson talked King William III into chartering a private bank with the official sounding title of "The Bank of England." The King had another war to fight with France's King Louis XIV and not much money to pay for it. Being a Dutchman, he was unpopular with the British Parliament and it balked at voting the needed taxes. The royal credit was zilch because of his predecessors' extravagance. What to do?

He jumped at Patterson's promise to lend him lots of "Bank of England Notes"-which had little or no gold "backing"-at a reasonable sounding 3 percent interest. Thus national debt was born.

King William seems never to have asked His Royal Self the obvious question, "Why the hell should I pay William Patterson interest to print money for me? Why don't I get a printing press and print some money myself?" Nor did he notice that his humble subjects in the Massachusetts Bay Colony, in what would one day become the United States, had already come to just this solution to solve a similar problem.

In 1690, the Massachusetts Bay Colony decided to do its bit in King William's War by invading Canada. The soldiers were told, "We can't pay you, but the French have lots of silver. So beat them out of it and we will pay you with the spoils." But the French won and the soldiers came back to Boston sore, mean and unpaid. Necessity being the mother of invention, a bright Yankee named Benjamin Franklin thought of printing up government "promissory notes," declaring them "legal tender" and using them to pay the soldiers. That worked so well that the other colonies copied the idea. From that day until the American Revolution (1775-1782) there were no banks in the 13 British North American colonies.

By the time of the Revolution, Pennsylvania was the richest place on earth. Franklin liked to boast that part of the credit was due to the government money he printed. As he pointed out, the government could spend the money into circulation for a new bridge or school, then tax the cost back over the useful life of the project. It could also lend the money to businessmen at 5 percent interest instead of the 10 percent the British banks charged. Or it could transfer the money into circulation to take care of widows, orphans and other unfortunates. Pennsylvania made so much money out of creating money-and selling off lands stolen from the Indians-that it hardly had to levy any taxes.

When word of this reached Great Britain, the Bank of England decided to destroy the competition of the colonial money. It got Parliament to forbid the colonies to produce any more of the stuff and the fat was on the fire. The Continental Congress met and defied Parliament and the King by issuing its own currency-the Continental. As Franklin saw it, the attempt of Britain to restrict the coloniess from issuing paper money was one of the main causes of the Revolution.

The Continentals paid for most of the cost of the revolution. Since they had to be overissued, prices rose greatly. Much of the inflation, however, was caused by massive British counterfeiting of the Continentals. "You revolting Yankees like paper money? Here! Have lots of it!" So Americans still have a saying. "Not worth a Continental." After the war banking came to America.

Some historians have much criticized this method of financing the American Revolution and held up British practice as a model of "sound finance." However, as William Hixson shows in his book, Triumph of the Bankers, those historians have it backwards. According to Hixson, the total cost of the war to the Americans was about $250 million and much of this was financed by the "Continentals" and other paper monies. An additional war debt of $56.7 million accumulated some $70 million in interest before it was all paid off in 1836.

The direct war costs to the British government came to about $500 million. However, the British financed their side of the war almost entirely with borrowed money. Since they have never since reduced their national debt below $500 million, they still owe this money! Assuming a modest average interest rate of 4 percent, the British taxpayer has by this time paid the British bondholder over $4 billion in interest on the initial $500 million loan-and is still paying! Sound finance?

What a pity that King William did not have a Benjamin Franklin to advise him! What a pity that the wisdom of Franklin was lost and Alexander Hamilton was able subsequently to charter the Bank of The United States modeled directly on the Bank of England! What a pity that many historians, like many non-historians, so badly misunderstand money and banking!

The financial system the world has evolved on the Bank of England model is not sustainable. It creates nearly all money as debt. Such money only exists as long as someone is willing and able to pay interest on it. It disappears, wholly or partially, in recurring financial crises. Such a system requires that new debt must be created faster than principal and interest payments fall due on old debt.

A sustainable financial system would enable the real economy to be maintained decade after decade and century after century at its full employment potential without recurring inflation and recession. By this standard, a financial system that creates money only through the creation of debt is inherently unsustainable.

When a bank makes a loan, the principal amount of the loan is added to the borrower's bank balance. The borrower, however, has promised to repay the loan plus interest even though the loan has created only the amount of money required to repay the principal-but not the amount of the interest. Therefore unless indebtedness continually grows it is impossible for all loans to be repaid as they come due. Furthermore, during the life of a loan some of the money will be saved and re-lent by individual bond purchasers, by savings banks, insurance companies etc. These loans do not create new money, but they do create debt. While we use only one mechanism-bank loans-to create money, we use several mechanisms to create debt, thus making it inevitable that debt will grow faster than the money with which to pay it. Recurring cycles of inflation, recession, and depression are a nearly inevitable consequence.

If, in the attempt to arrest the price inflation resulting from an excessive rate of debt formation, the monetary authorities raise the rate of interest, the result is likely to be a financial panic. This in turn may result in a sharp cutback in borrowing. Monetary authorities respond to bail out the system by increasing bank reserves. Governments may also respond by increasing the public debt-risking both inflation and growing government deficits.

Governments got into this mess by violating four common sense rules regarding their fiscal and monetary policies. These rules are:

1. No sovereign government should ever, under any circumstances, give over democratic control of its money supply to bankers.

2. No sovereign government should ever, under any circumstances, borrow any money from any private bank.

3. No national, provincial, or local government should borrow foreign money to increase purchases abroad when there is excessive domestic unemployment.

4. Governments, like businesses, should distinguish between "capital" and "current" expenditures, and when it is prudent to do so, finance capital improvements with money the government has created for itself.

A few words about the first three of these rules, as the fourth rule has been discussed extensively elsewhere.

1. There is persistent pressure from central bankers and academic economists to free central banks from the obligation to consider the effects of their actions upon employment and output levels so that they can concentrate on price stability. This is a very bad idea indeed. Dominated by bankers and economists, central banks are entirely too prone to give exclusive attention to creditor interests to the exclusion of worker interests. Amending central bank charters to give them independence from democratic oversight, or to set up "price stability" as their only goal would complete their subjection to banker interests. Canada's own Mackenzie King said it all, "Without Government creation of money, talk of sovereignty and democracy is futile."

2. Anyone who understands that banks create the money they lend can see that it makes no sense for a sovereign government, which can create money at near zero cost, to borrow money at high cost from a private bank. The fact that most governments do borrow from private banks is one of the greatest errors of our times. If a government needs money created to pay for public spending it should create the money itself through its own bank; or spend the money debt and interest free as the United States did during the Revolution and again during the Civil War. If a government does not wish to "monetize" its deficits during periods of unusual need such as wartime, it should either make up the deficit with higher taxes or borrow only from the non-bank public-which cannot create the money it lends to the government.

3. One of the most mistaken ideas, with which Canadians especially are cursed, is the idea that a country should maintain its interest rates higher than those of its main trading partners "to attract foreign investment." To begin with, high interest rates inhibit real investment spending on new buildings, machinery and equipment by diverting funds to finance government deficits. Furthermore, the foreign funds attracted to Canada by high interest rates cannot be spent on Canadian employees and products. They are only useful for importing foreign goods and making payments on foreign debts. Moreover, these funds bid up the value of the Canadian dollar in foreign exchange markets, giving foreign goods a domestic price advantage over similar goods produced in Canada, while making it harder for Canada to export. Thus the inflow of foreign funds actually contributes to a "current account deficit" and depresses the Canadian economy. Those who argue that Canada must borrow on "capital account" because she has a "current account deficit" have cause and effect totally reversed. Canada has a current account deficit because she is borrowing on capital account. What she needs to do is to stop borrowing, lower interest rates until she stops attracting foreign funds, and let the Canadian dollar find its own level in the foreign currency markets.

When the Bank of Canada encourages the Canadian government, provinces, and municipalities to borrow in New York and Tokyo it is a betrayal of Canada. Where should they borrow when new money is needed for government spending? They should borrow at the government owned Bank of Canada, paying near zero interest rates-just sufficient to cover the Bank's running expenses.

by John H. Hotson

John H. Hotson was professor emeritus of economics University of Waterloo and executive director of the Committee on Monetary and Economic Reform (COMER), a Canadian based network of economists working for economic and monetary reform. This article is based on a series he published in the October 1994, November 1994, and January 1995 issues of Economic Reform, the COMER newsletter, Comer Publications, 3284 Yonge St., Suite 500, Toronto, Ontario, M4N 3M7, fax (416) 486-4674. He gave the PCDForum permission to use this material only five days before his untimely death on January 21, 1996 following heart surgery.

People-Centered Development Forum papers may be reprinted, and distributed freely with appropriate credits without prior permission.

I've been betrayed by this Government, says Iraq War hero who won George Cross but now works in a call centre

The youngest soldier to win the George Cross has criticised Gordon Brown for ‘betraying’ the Armed Forces and revealed he now works in a call centre, selling insurance.

‘My medal says I am a hero of the Iraqi conflict, a man of extraordinary valour and strength of character,’ says Chris Finney. ‘But now I work in a call centre. My life has gone from one extreme to the other.’

At 18, he won Britain’s highest civil accolade for rescuing a wounded comrade from a burning Scimitar armoured rec my, he would have won the Victoria Cross.

Chris Finney with his George Cross

Shining example: Chris Finney after being decorated with the George Cross at Buckingham Palace in February 2004

They were victims of US ‘friendly fire’ that killed comrade Matty Hull during the Iraq invasion in 2003.

In a moving interview in tomorrow's Mail on Sunday 2, Mr Finney says that when he received his George Cross, ‘the Queen told me she had not presented a GC for “such a long time” and that it was “a privilege” to give it to me’.

Here, with typical bravery, Chris reveals why he had to leave the Army...

I was sitting in the hatch of my Scimitar armoured reconnaissance vehicle waiting to be told where I should drive to next. To me, the map references provided by my commander were just another sandy track in the Iraqi desert.

It was March 28, 2003: I was just 18 and the Iraq War had begun eight days earlier. Although we had already seen some heavy fighting, this was a quiet moment.

Like most days since crossing the border from Kuwait, I didn't know where I was. Approaching a village, I could see some women hanging out their washing.

As they stared at our four-vehicle convoy and I tried to imagine what their lives would be like after Saddam Hussein was gone, there was a deafening roar and my vehicle was engulfed in flames. This was hell on earth.

My first thought was this ferocious attack had come from Iraqi fighters firing rocket-propelled grenades from the village.

There were thunderous explosions all around me but above the din I could hear someone screaming, 'Reverse! Reverse!' I tried to, but ended up slamming into the vehicle behind me.

My Scimitar had become a tinderbox and I knew I needed to get out fast. But first I had to grab my weapon - if only it were that simple. My rifle lay beyond the raging wall of fire behind me: I could see rounds of 30mm ammunition, machine-gun bullets and hand grenades all within licking distance of the flames. Smoke was also quickly filling the cramped compartment.

I was left with no option but to jump out without my weapon and throw my helmet - still attached to the radio - aside. Unarmed and without any means of communication, I was now a sitting duck. I didn't even have time to fasten the Velcro on my body armour.

I had a hideous feeling in my gut - I knew things could go badly wrong here.

As I hit the ground, I could see my vehicle's gunner, Lance Corporal Alan Tudball, struggling to get out of his hatch. Alan wasn't just another soldier, he was my friend and he was trapped in an inferno.

I didn't think twice about it. No one would. Although I could feel the blazing heat from yards away, knew that the vehicle was full of exploding ordnance and that we were under attack from the enemy, I ran towards it instinctively, hauling myself up on top of the Scimitar. I had to get Alan out.

I remember grabbing him and pulling him out. When we hit the ground, Alan yelled: 'Get my morphine, get my morphine.'

His leg had been shot - it was a bloody mess. I tried to stem the flow, but my mind was racing. I thought Alan was going to bleed to death.

At that point a plane came back round - and I realised we were not being shot at by the enemy. This was a 'blue-on-blue' - a friendly-fire incident - and it was coming from two American A-10 Thunderbolt aircraft screaming overhead.

Chris Finney pictured with his squadron before going to Iraq

Ready for action: Chris Finney pictured with his squadron before going to Iraq

Nicknamed Warthogs because of their ugly looks, the A-10s were carrying depleted uranium-tipped shells - and they were about to strafe our convoy for a second time. It was a terrifying realisation.

The infernal roar erupted again, a horrible, horrible noise. There wasn't even a gap between the rounds. I thought: 'I am going to die now.'

I grabbed Alan by the front of his shirt and hoped that if I could get in front of the vehicle then the rounds might pass over us. I was wrong.

We got hit. It was a shocking situation - Alan's head was a mess, his arm was shredded and there was blood everywhere. He was blacking out. Then I saw that I was bleeding, too. I hadn't felt anything, so I was surprised.

The rounds had hit me in the leg and backside. I looked over again at Alan and could see the rounds had split his skull - much later I would learn that this had caused him brain damage.

I looked to the vehicle behind ours and saw that Lance Corporal of Horse Matty Hull had been hit as he sat in his gun turret. It's a moment I will never forget.

I also noticed blood on my black boots. The Army hadn't been able to provide me with desert boots so I had gone to war in my own black Gore-Tex boots designed for Arctic exercises. My first thought was: 'S***, I've run out of boot polish, I can't clean my boots. I'm going to get in trouble.'

I lay down next to Alan and put my arms around him. He was unconscious and as far as I was aware, he was dead. I started to cry, thinking I would be following him very soon. But then another thought hit me: 'I can't just lie here. I've got to do something.'

I remembered I had left my headset at the vehicle. I ran over and screamed into it. I was told later that I sent a lucid situation report but my actual words - and I can remember every single one of them - were: 'Hello? F***ing anyone - it's Chris. Alan's dead. I've been hit. Come and get us you w*****s.'

That's not exactly radio protocol but at that point I didn't care. I just wanted to be helped.

Then I returned to Matty's vehicle. I ran on top of it but I was defeated by the flames. There was nothing I could do for my brother-in-arms. I tapped the side of Matty's Scimitar and said goodbye to him.

'My George Cross is worth thousands. But I'll never sell it.'

Years later, I saw the harrowing video taken from the cockpit of the A-10s. The first thought of one of the pilots when they realised they had killed a coalition soldier was: 'We're in jail, dude.'

They should have been jailed. A British coroner ruled that Matty's death was a 'criminal, unlawful act' tantamount to manslaughter.

I didn't know it then, but this was the beginning of the end of what I had hoped would be a fine military career.

I became the youngest British soldier ever to be awarded the George Cross for bravery - the highest civil decoration in the UK. Had I been attacked by the enemy rather than American forces, I would have won the Victoria Cross.

At my investiture, the Queen quietly told me she had not presented a GC for 'such a long time' and that it was 'a privilege' to give it to me.

But the weight of that medal became something much more than ounces of metal and ribbon. It placed upon me - a boy soldier - a burden of expectation that I could never fulfil.

My growing maturity brought an understanding of the workings of Whitehall and Downing Street and a sense of betrayal by the successive governments of Tony Blair and Gordon Brown.

I fell out of love with the Army and put in my papers. My medal says I am a hero of the Iraqi conflict, a man of extraordinary valour and strength of character. But now I work in a call centre selling insurance on a meagre salary of half my Army pay.

I am a perfect example of the confusion this country feels towards its veterans...

The Queen pins the George Cross to Chris Finney's uniform

Proudest moment: The Queen pins the George Cross to Chris Finney's uniform

I was 15 years and nine months when I signed the papers to join the Army. I can't pretend it was for Queen and country - I simply wanted a half-decent wage and to see a bit of the world. Nor do I have a family connection with the forces: my father, Jeff, works in IT and my mother, Sharon, is a housewife.

But I had been in the cadets from the age of 13 in my home town of Wimborne, Dorset, and this had given me a taste for military life. I loved it.

At first I was in the Coldstream Guards but my section commander in training was a member of the Blues and Royals, the Household Cavalry regiment (we later welcomed Princes William and Harry to our ranks) and I liked the sound of what they did, so I changed cap badge.

Aged 16, I started at the Army Foundation College in Harrogate on a year-long course for junior soldiers. I had to grow up fast. When you are living hundreds of miles away from home, you've got to figure things out for yourself.

On Valentine's Day 2003, I flew with the rest of D Squadron, the Household Cavalry, to Iraq. I was 18 but then so were a lot of the other soldiers. People think that's too young to go to war but we were old enough - and skilled enough - to do our jobs.

The horror of the blue-on-blue came six weeks later. Amid the carnage, I was rescued by a fellow soldier, who gave me a fireman's lift away from the exploding Scimitars. I was put in a Spartan ambulance and taken to hospital.

Of course, being shot in the backside is quite funny - at least it is to soldiers - and I've heard all the jokes. Still, it takes quite a while to recover. I couldn't do a lot of walking.

After being released from hospital, I went on sick leave. When I eventually rejoined my squadron I became a radio operator.

Then came the news that I was to be awarded the George Cross. I didn't really understand the magnitude of it. All I could think was: 'Don't trip up at the Palace, don't pass out in front of Her Majesty.'

In the end, the intricate protocols of the investiture proved far easier to navigate. It was the aftermath, living with the letters GC after my name, that was trickier.

The glittering career people predicted for me simply didn't happen. People expected too much of me. They thought I should be the best soldier the Army had ever had.

But when I fell short in some minor way - let's say my boots weren't quite as shiny as they should have been - people would say: 'Why didn't you do that? You've got the GC.'

Just because I went a bit crazy for a few minutes in the desert and helped my friend out, it didn't make me the ultimate soldier or the bionic man. I'm just a human being.

The pressure to live up to some unattainable ideal began to sap at my confidence. I started to worry that people were thinking: 'He's not as good as he thinks he is.' And then I began to feel that way myself.

Chris Finney prepares to cross the Iraqi border in 2003

Into battle: Chris Finney prepares to cross the Iraqi border in 2003

In January 2005, I joined the regimental information team which travels around schools and job fairs, trying to recruit teenage lads into the Army.

Yes, there was an element of me being used as a poster boy for Army recruitment but I don't feel any guilt if any soldiers - and I know of none directly - that I helped to recruit have lost their lives or have been injured in Afghanistan.

Despite the painful end to my own career I still passionately believe in the integrity of Army life. Soldiering is a brilliant job. It's just that I fell into a trap which was effectively sprung the second I ran into that inferno.

Teenagers are also dying from doing drugs or being stabbed. If you are going to say that you can't go straight to war after training then what you are really saying is the training isn't effective. You wouldn't say to a car salesman: 'You have done your training but don't worry if you don't sell anything because you are a bit young.' That's absolute nonsense.

I joined the Army because I wanted to. It was the best thing I have ever done. I absolutely loved the Army while I was there.

But in July this year, having been promoted twice and achieved the rank of Lance Corporal of Horse, I wore my soldier's uniform for the very last time.

Aged 25, I had simply fallen out of love with the Army. I wanted to quit while I was young enough to do something different, while I had all my limbs. I wanted to be able to book a summer holiday and know that I would be around to take it. I wanted to sleep in a real bed every night.

Meeting my fiancee, Liz Scorse, was also a factor. Liz, who was a nurse with the Queen Alexandra's Royal Army Nursing Corps, has also recently emerged on to civvy street. We've bought a house and are building a life together in Bournemouth.

I have found the return to civilian life humbling. My George Cross counted for little when I tried to find a job in the middle of a recession.

I took a course in fibre optics installation and secured various work placements but I couldn't get a fulltime job. Employers said: 'You're a good guy, you've done well but, sorry, we just don't have any vacancies.'

Yes, my bravery might have made military history but now I'm working in a call centre in Poole, Dorset, for less than half the wage I earned as a soldier. Some people might see me as a loser for working in a call centre.

My life has gone from one extreme to the other. Now I don't have enough responsibility, there's not enough expectation. I go into work every day and as long as I am there on time and I do the number of hours I'm supposed to and I go home on time, then people are happy.

Chris Finney and his fiancee Liz Scorse

On Civvy Street: Chris Finney and his fiancee Liz Scorse are both adjusting to life after the Army

However, I think I am worth more than that. I am not remotely challenged. I long for someone to recognise the skills I have.

The usual grumbling by soldiers at the politicians who determine their fate has for me hardened into real anger.

When I left the Army, I qualified for a resettlement allowance of just £500. In contrast, MPs who leave the Commons receive between 50 per cent and 100 per cent of their annual salary to help them 'adjust' to life outside Parliament. Where is the fairness in that?

What makes me even more furious is the demonstrable lack of respect shown by the Government to those who have paid the highest price and made the ultimate sacrifice: the war dead.

Why is there no Minister in attendance when our fallen heroes from Afghanistan are brought home to repatriation ceremonies at Wootton Bassett in Wiltshire?

'To the politicians we're no more than a number on a bit of paper. It's disgusting.'

I couldn't believe it when I read that Gordon Brown had phoned Simon Cowell to ask how Britain's Got Talent contestant Susan Boyle was when she had a breakdown.

He doesn't phone any of the bereaved military families. I thought that was absolutely disgusting, a real slap in the face for the parents of the hundreds of soldiers killed.

People like Bob Ainsworth, the Defence Secretary, go out to Afghanistan for about four hours. They probably spend their time in a nice air-conditioned tent, Army chefs put on the best meals for them, and they go away thinking it's not so bad.

I'd love to know how many MPs have family in Afghanistan. I bet it's not many.

And however much they say they've fixed the Army's kit and equipment, it's still not enough. Your average squaddie doesn't really want much - decent food, the right clothing and the tools to do the job is enough. It's not a lot to ask. I am not alone in feeling betrayed and let down by this Government.

I have lost ten friends, either in Iraq, Afghanistan or on exercise. But I won't hear a word said against the Army itself. I draw a serious distinction - and this becomes clearer almost daily as the controversy over the British mission to Afghanistan rages - between the politicians and mandarins at the Ministry of Defence and the men in uniform.

I love the Army and every single man in it. What I don't love is the men controlling it.

They don't think of soldiers as human beings. To this Government each and every soldier is nothing more than a number on a piece of paper. What they don't see are the soldiers' mothers in Doncaster or their children in Portsmouth.

Money is tight for myself and Liz, who works as an agency nurse. I've got a mortgage to think about.

I read about Marine Justin Thomas, who recently sold his Conspicuous Gallantry Cross at auction for £88,000. I have no problem with him for doing it but I could never sell my George Cross - even though it's more valuable and would ease the passage into my new life.

A-10 'tankbuster' plane

An American A-10 'tankbuster' plane like the ones that attacked Chris Finney's convoy

I always say it's just a piece of metal but it does represent Alan being alive and Matty not being here. I don't have it in me to sell it. It is supposed to represent great bravery but I know anyone would have done the same thing in my situation. All the same, I want to keep it.

It's nice for people to say I am a hero, but I don't agree with it really. I did no more than anyone else would have done. Even the girl who works at the checkout in Tesco is going to try to save her mates.

Thankfully, Alan, in spite of his incredibly serious injuries, recovered. He now lives in Spain with his wife and children and we keep in touch via Facebook.

The long citation for my medal concludes: 'During these attacks and their horrifying aftermath, Trooper Finney displayed clearheaded courage and devotion to his comrades which was out of all proportion to his age and experience. Acting with complete disregard for his own safety even when wounded, his bravery was of the highest order throughout.'

It seems a bit exaggerated to be honest. And I can't exactly put it on my CV.

However, given what happened in the desert in Iraq, I'm just thankful I'm still around. And given what's happening in Britain today, I'm very grateful to have a job. Even if it's in a call centre.

• Chris Finney was talking to Audrey Gillan

'We're in jail, dude'... the friendly fire tragedy that changed Chris Finney's world

The attack on Chris Finney's convoy, during which Matty Hull was killed, proved to be one of the most controversial incidents in the Iraq War, straining relations between Britain and America.

The complex inquiry was made more difficult by the fact that the American authorities refused to co-operate. There were accusations of a cover-up: Hull's widow Susan said that the MoD had told her that there was no cockpit video of the attack, even though it had been used as part of a British Army board of inquiry.

However, the 15-minute cockpit recording from call sign POPOV36, one of the planes involved, was leaked to a newspaper. It showed the US pilots wrongly identifying the convoy as enemy vehicles, and orange panels fitted to them - meant to denote them as friendly - as orange rockets.

The A-10s were providing close air support to destroy artillery and rocket launchers from Iraq's 6 Armour Division, 25 miles north of Basra. Here is a transcript of the exchanges when the pilots - POPOV35 is the wingman - are told by Lightning 34 and Manila 34, the controllers on the ground, that they have killed an ally.

Cockpit video showing the moment an A-10 attacked the British convoy

Fatal error: The cockpit video showing the moment an A-10 attacked the British convoy

LIGHTNING 34: Be advised that... you have friendly armour in the area. Yellow, small armoured tanks. Just be advised.

POPOV35: Ahh, man.

LIGHTNING 34: Abort your mission. You got a, looks like we might have a blue-on-blue.

MANILA 34: We are getting an initial brief that there was one killed and one wounded, over.

POPOV35: Copy. RTB [return to base].

POPOV35: I'm going to be sick.

POPOV36: Ah, f***.

POPOV35: Did you hear?

POPOV36: Yeah, this sucks.

POPOV35: We're in jail, dude.

POPOV36: Aaaahhhh. Dammit.

The Pentagon refused to let the two A-10 pilots give evidence. In March 2007, a coroner ruled that the killing of Matty Hull was a 'criminal, unlawful act' tantamount to manslaughter. The US Defence Department issued a statement after the verdict claiming the death was 'a tragic accident'.

By Chris Finney, George Cross