It is good — it is good to be here on such a beautiful day.  Happy Labor Day, everybody.  (Applause.)  I want to say thank you to the Milwaukee Area Labor Council and all of my brothers and sisters in the AFL-CIO for inviting me to spend this day with you — (applause) — a day that belongs to the working men and women of America.

President Obama speaks at the Milwaukee Laborfest, September 6, 2010. (Photo credit: White House)

I want to acknowledge your outstanding national president, a man who knows that a strong economy needs a strong labor movement:  Rich Trumka.  (Applause.)  Thank you to the president of Wisconsin AFL-CIO Dave Newby.  (Applause.)  Our host, your area Labor Council Secretary-Treasurer Sheila Cochran.  I hear it’s Sheila’s birthday tomorrow.  Where is she?  (Applause.)  Happy birthday, Sheila.  (Applause.)  I’m proud to be here with our Secretary of Labor, a daughter of union members, Hilda Solis.  (Applause.)  And our Secretary of Transportation Ray LaHood is in the house.  (Applause.)  And I want everybody to give it up for people who are at the forefront of every fight for Wisconsin’s working men and women — Senator Herb Kohl; Congresswoman Gwen Moore.  (Applause.)  Your outstanding mayor and I believe soon to be outstanding governor Tom Barrett is in the house.  (Applause.)  And I know — I know your other great senator, Russ Feingold, was here earlier standing with you and your families just like he always has.  Now he’s in his hometown of Janesville to participate in their Labor Day parade.

So it is good to be back.  Now, of course, this isn’t my first time at Laborfest.  Some of you remember I stood right here with you two years ago when I was still a candidate for this office.  (Applause.)  And during that campaign, we talked about how, for years, the values of hard work and responsibility that had built this country had been given short shrift, and how it was slowly hollowing out our middle class.  Listen, everybody who has a chair, go ahead and sit down, because everybody’s all hollering.  (Applause.)  Just relax, I’m going to be talking for a while now.  (Applause.)  Everybody take — (applause) — got a lot of hardworking people here, you deserve to sit down for a day.  (Applause.)  You’ve been on your feet all year working hard.

But two years ago, we talked about some on Wall Street who were taking reckless risks and cutting corners to turn huge profits while working Americans were fighting harder and harder just to stay afloat.  We talked about how the decks all too often were stacked in favor of special interests and against the interests of working Americans.

And what we knew, even then, was that these years would be some of the most difficult in our history.  And then, two weeks later — two weeks after I spoke here — the bottom fell out of the economy.  And middle-class families suddenly found themselves swept up in the worst recession of our lifetimes.

So the problems facing working families, they’re nothing new.  But they are more serious than ever.  And that makes our cause more urgent than ever.  For generations, it was the great American working class, the great American middle class that made our economy the envy of the world.  It’s got to be that way again.  (Applause.)

Milwaukee, it was folks like you that built this city.  It was folks like you that built this state.  It was folks like you who forged that middle class all across the nation.

It was working men and women who made the 20th century the American century.  It was the labor movement that helped secure so much of what we take for granted today.  (Applause.)  The 40-hour work week, the minimum wage, family leave, health insurance, Social Security, Medicare, retirement plans.  The cornerstones of the middle-class security all bear the union label.  (Applause.)

And it was that greatest generation that built America into the greatest force of prosperity and opportunity and freedom that the world has ever known — Americans like my grandfather, who went off to war just boys, then returned home as men, and then they traded in one uniform and set of responsibilities for another.  And Americans like my grandmother, who rolled up her sleeves and worked in a factory on the home front.  And when the war was over, they studied under the GI Bill, and they bought a home under the FHA, and they raised families supported by good jobs that paid good wages with good benefits.

It was through my grandparents’ experience that I was brought up to believe that anything is possible in America.  (Applause.)  But, Milwaukee, they also knew the feeling when opportunity is pulled out from under you.  They grew up during the Depression, so they’d tell me about seeing their fathers or their uncles losing jobs; how it wasn’t just the loss of a paycheck that hurt so bad.  It was the blow to their dignity, their sense of self-worth.  I’ll bet a lot of us have seen people who’ve been changed after a long bout of unemployment.  It can wear you down, even if you’ve got a strong spirit.  If you’re out of work for a long time, it can wear you down.

So my grandparents taught me early on that a job is about more than just a paycheck.  A paycheck is important.  But a job is about waking up every day with a sense of purpose, and going to bed each night feeling you’ve handled your responsibilities.  (Applause.)  It’s about meeting your responsibilities to yourself and to your family and to your community.  And I carried that lesson with me all those years ago when I got my start fighting for men and women on the South Side of Chicago after their local steel plant shut down.  And I carried that lesson with me through my time as a state senator and a U.S. senator, and I carry that lesson with me today.  (Applause.)

And I know — I know that there are folks right here in this audience, folks right here in Milwaukee and all across America, who are going through these kinds of struggles.  Eight million Americans lost their jobs in this recession.  And even though we’ve had eight straight months of private sector job growth, the new jobs haven’t been coming fast enough.  Now, here’s the honest truth, the plain truth.  There’s no silver bullet.  There’s no quick fix to these problems.  I knew when I was running for office, and I certainly knew by the time I was sworn in, I knew it would take time to reverse the damage of a decade worth of policies that saw too few people being able to climb into the middle class, too many people falling behind.  (Applause.)

We all knew this.  We all knew that it would take more time than any of us want to dig ourselves out of this hole created by this economic crisis.  But on this Labor Day, there are two things I want you to know.  Number one:  I am going to keep fighting every single day, every single hour, every single minute, to turn this economy around and put people back to work and renew the American Dream, not just for your family, not just for all our families, but for future generations.  That I can guarantee you.  (Applause.)

Number two — I believe this with every fiber of my being:  America cannot have a strong, growing economy without a strong, growing middle class, and the chance for everybody, no matter how humble their beginnings, to join that middle class — (applause) — a middle class built on the idea that if you work hard, if you live up to your responsibilities, then you can get ahead; that you can enjoy some basic guarantees in life.  A good job that pays a good wage.  Health care that will be there when you get sick.  (Applause.)  A secure retirement even if you’re not rich.  (Applause.)  An education that will give your children a better life than we had.  (Applause.)  These are simple ideas.  These are American ideas.  These are union ideas.  That’s what we’re fighting for.  (Applause.)

I was thinking about this last week.  I was thinking about this last week on the day I announced the end of our combat mission in Iraq.  (Applause.)  And I spent some time, as I often do, with our soldiers and our veterans.  And this new generation of troops coming home from Iraq, they’ve earned their place alongside the greatest generation.  (Applause.)  Just like that greatest generation, they’ve got the skills, they’ve got the training, they’ve got the drive to move America’s economy forward once more.  We’ve been investing in new care and new opportunities and a new commitment to our veterans, because we’ve got to serve them just the way they served us.  (Applause.)

But, Milwaukee, they’re coming home to an economy hit by a recession deeper than anything we’ve seen since the 1930s.  So the question is, how do we create the same kinds of middle-class opportunities for this generation as my grandparents’ generation came home to?  How do we build our economy on that same strong, stable foundation for growth?

Now, anybody who thinks that we can move this economy forward with just a few folks at the top doing well, hoping that it’s going to trickle down to working people who are running faster and faster just to keep up, you’ll never see it.  (Applause.)  If that’s what you’re waiting for, you should stop waiting, because it’s never happened in our history.  That’s not how America was built.  It wasn’t built with a bunch of folks at the top doing well and everybody else scrambling.  We didn’t become the most prosperous country in the world just by rewarding greed and recklessness.  We didn’t come this far by letting the special interests run wild.  We didn’t do it just by gambling and chasing paper profits on Wall Street.  We built this country by making things, by producing goods we could sell.  We did it with sweat and effort and innovation.  (Applause.)  We did it on the assembly line and at the construction site.  (Applause.)

We did it by investing in the people who built this country from the ground up –- the workers, middle-class families, small business owners.  We out-worked folks and we out-educated folks and we out-competed everybody else.  That’s how we built America.  (Applause.)

And, Milwaukee, that’s what we’re going to do again.  That’s been at the heart what we’ve been doing over these last 20 months:  building our economy on a new foundation so that our middle class doesn’t just survive this crisis -– I want it to thrive.  I want it to be stronger than it was before.

And over the last two years, that’s meant taking on some powerful interests — some powerful interests who had been dominating the agenda in Washington for a very long time.  And they’re not always happy with me.  They talk about me like a dog.  (Applause.)  That’s not in my prepared remarks, it’s just — but it’s true.

You know, that’s why we passed financial reform to provide new accountability and tough oversight of Wall Street; stopping credit card companies from gouging you with hidden fees and unfair rate hikes.  (Applause.)  Ending taxpayer bailouts of Wall Street once and for all.  They’re not happy with it, but it was the right thing to do.  (Applause.)

That’s why we eliminated tens of billions of dollars in wasteful taxpayer subsidies, handouts to the big banks that were providing student loans.  We took that money, tens of billions of dollars, and we’re going to go to make sure that your kids and your grandkids can get student loans and grants at a cheap rate and afford a college education.  (Applause.)  They’re not happy with it, but it was the right thing to do.  (Applause.)

Yes, we’re using those savings to put a college education within reach for working families.

That’s why we passed health insurance reform to make coverage affordable.  (Applause.)  Reform that ends the indignity of insurance companies jacking up your premiums at will, denying you coverage just because you get sick; reform that gives you control, gives you the ability if your child is sick to be able to get an affordable insurance plan, making sure they can’t drop it.

That’s why we’re making it easier for workers to save for retirement, with new ways of saving your tax refunds, a simpler system for enrolling in plans like 401(k)s, and fighting to strengthen Social Security for the future.  (Applause.)   And if everybody is still talking about privatizing Social Security, they need to be clear:  It will not happen on my watch.  Not when I’m President of the United States of America.  (Applause.)

That’s why — we’ve given tax cuts — except we give them to folks who need them.  (Applause.)  We’ve given them to small business owners.  We’ve given them to clean energy companies.  We’ve cut taxes for 95 percent of working Americans, just like I promised you during the campaign.  You all got a tax cut.  (Applause.)

And instead of giving tax breaks to companies that are shipping jobs overseas, we’re cutting taxes to companies that are putting our people to work right here in the United States of America.  (Applause.)

See, we want to invest in growth industries like clean energy and manufacturing.  You’ve got leaders here in Wisconsin — Tom Barrett, Jim Doyle — they’ve been fighting to bring those jobs to Milwaukee, fighting to bring those jobs here to Wisconsin.  I don’t want to see solar panels and wind turbines and electric cars made in China.  I want them made right here in the United States of America.  (Applause.)

I don’t want to buy stuff from someplace else.  I want to grow our exports so that we’re selling to someplace else — products that say “Made in the U.S.A.”  (Applause.)

AUDIENCE:  U.S.A.!  U.S.A.!  U.S.A.!

THE PRESIDENT:  That’s right.  There are no better workers than American workers.  (Applause.)  I’ll put my money on you any day of the week.  And when the naysayers said, well, you can’t save the auto industry, just go ahead and let hundreds of thousands of jobs vanish, we said we’re going to stand by those workers.  If the management is willing to make tough choices, if everybody is willing to come together, I’m confident that the American auto industry can compete once again -– and today, that industry is on the way back.  They said no, we said yes to the American worker.  They’re coming back.  (Applause.)

Now, let me tell you, another thing we’ve done is to make long-overdue investments in upgrading our outdated, our inefficient national infrastructure.  We’re talking roads.  We’re talking bridges.  We’re talking dams, levees.  But we’re also talking a smart electric grid that can bring clean energy to new areas.  We’re talking about broadband Internet so that everybody is plugged in.  We’re talking about high-speed rail lines required to compete in a 21st century economy.  (Applause.)  I want to get down from Milwaukee down to Chicago quick.  (Applause.)  Avoid a traffic jam.

We’re talking investments in tomorrow that are creating hundreds of thousands of private sector jobs right now.

Because of these investments, and the tens of thousands of projects they spurred all across the country, the battered construction sector actually grew last month for the first time in a very long time.  (Applause.)

But, you know, the folks here in the trades know what I’m talking about — nearly one in five construction workers are unemployed.  One in five.  Nobody has been hit harder than construction workers.  And a lot of those folks, they had lost their jobs in manufacturing and went into construction; now they’ve lost their jobs again.

It doesn’t do anybody any good when so many hardworking Americans have been idled for months, even years, at a time when there is so much of America that needs rebuilding.

So, that’s why, Milwaukee, today, I am announcing a new plan for rebuilding and modernizing America’s roads and rails and runways for the long term.  (Applause.)  I want America to have the best infrastructure in the world.  We used to have the best infrastructure in the world.  We can have it again.  We are going to make it happen.  (Applause.)

Over the next six years, over the next six years, we are going to rebuild 150,000 miles of our roads -– that’s enough to circle the world six times.  That’s a lot of road.  We’re going to lay and maintain 4,000 miles of our railways –- enough to stretch coast to coast.  We’re going to restore 150 miles of runways.  And we’re going to advance a next-generation air-traffic control system to reduce travel time and delays for American travelers.  (Applause.)  I think everybody can agree on that.  Anybody want more delays in airports?

AUDIENCE:  No!

THE PRESIDENT:  No, I didn’t think so.  That’s not a Republican or a Democratic idea.  We all want to get to where we need to go.  I mean, I’ve got Air Force One now, it’s nice.  (Laughter.)  But I still remember what it was like.

This is a plan that will be fully paid for.  It will not add to the deficit over time -– we’re going to work with Congress to see to that.  We want to set up an infrastructure bank to leverage federal dollars and focus on the smartest investments.  We’re going to continue our strategy to build a national high-speed rail network that reduces congestion and travel times and reduces harmful emissions.  We want to cut waste and bureaucracy and consolidate and collapse more than 100 different programs that too often duplicate each other.  So we want to change the way Washington spends your tax dollars.  We want to reform a haphazard, patchwork way of doing business.  We want to focus on less wasteful approaches than we’ve got right now.  We want competition and innovation that gives us the best bang for the buck.

But the bottom line is this, Milwaukee — this will not only create jobs immediately, it’s also going to make our economy hum over the long haul.  It’s a plan that history tells us can and should attract bipartisan support.  It’s a plan that says even in the aftermath of the worst recession in our lifetimes, America can still shape our own destiny.  We can still move this country forward.  We can still leave our children something better.  We can still leave them something that lasts.  (Applause.)

So these are the things we’ve been working for.  These are some of the victories you guys have helped us achieve.  And we’re not finished.  We’ve got a lot more progress to make.  And I’m confident we will.

But there are some folks in Washington who see things differently.  (Boos.)  You know what I’m talking about.  (Applause.)  When it comes to just about everything we’ve done to strengthen our middle class, to rebuild our economy, almost every Republican in Congress says no.  (Boos.)  Even on things we usually agree on, they say no.  If I said the sky was blue, they say no.  (Laughter and applause.)  If I said fish live in the sea, they’d say no.  (Laughter.)  They just think it’s better to score political points before an election than to solve problems.  So they said no to help for small businesses, even when the small businesses said we desperately need this.  This used to be their key constituency, they said.  They said no.  No to middle-class tax cuts.  They say they’re for tax cuts; I say, okay, let’s give tax cuts to the middle class.  No.  (Laughter.)  No to clean energy jobs.  No to making college more affordable.  No to reforming Wall Street.  They’re saying right now, no to cutting more taxes for small business owners and helping them get financing.

You know, I heard — somebody out here was yelling “Yes we can.”  Remember that was our slogan?  Their slogan is “No we can’t.”  (Applause.)  No, no, no, no.

AUDIENCE:  Yes we can!  Yes we can!  Yes we can!

THE PRESIDENT:  I mean, I personally think “Yes we can” is more inspiring than “No we can’t.”  (Applause.)  To steal a line from our old friend Ted Kennedy:  What is it about working men and women that they find so offensive?  (Laughter.)

When we passed a bill earlier this summer to help states save jobs — the jobs of hundreds of thousands of teachers and nurses and police officers and firefighters that were about to be laid off, they said no.  (Applause.)  And the Republican who thinks he’s going to take over as Speaker — (boos) — I’m just saying that’s his opinion — (laughter) — he’s entitled to his opinion.  But when he was asked about this, he dismissed those jobs as “government jobs” that weren’t worth saving.  (Boos.)  That’s what he said, I’m quoting — “government jobs.”

Now, think about this.  These are the people who teach our children.  These are the people who keep our streets safe.  These are the people who put their lives on the line, who rush into a burning building.  Government jobs?  I don’t know about you, but I think those jobs are worth saving.  (Applause.)  I think those jobs are worth saving.  (Applause.)

By the way, this bill that we passed to save all those jobs, we made sure that bill wouldn’t add to the deficit.  You know how we paid for it?  By closing one of these ridiculous tax loopholes that actually rewarded corporations for shipping jobs and profits overseas.  (Applause.)

I mean, this — this was one of those loopholes that allowed companies to write off taxes they pay to foreign governments –- even though they weren’t paying taxes here in the United States.  So middle-class families were footing tax breaks for companies creating jobs somewhere else.  I mean, even a lot of America’s biggest corporations agreed that this loophole didn’t make sense, agreed that it needed to be closed, agreed that it wasn’t fair -– but the man who thinks he’s going to be Speaker, he wants to reopen this loophole.  (Boos.)

Look, the bottom line is this:  These guys, they just don’t want to give up on that economic philosophy that they have been peddling for most of the last decade.  You know that philosophy — you cut taxes for millionaires and billionaires; you cut all the rules and regulations for special interests; and then you just cut working folks loose — you cut them loose to fend for themselves.

You remember they called it the ownership society, but what it really boiled down to was, if you couldn’t find a job, you couldn’t afford college, you were born poor, your insurance company dropped you even though your kid was sick, that you were on your own.

Well, you know what, that philosophy didn’t work out so well for middle-class families all across America.  It didn’t work out so well for our country.  All it did was rack up record deficits and result in the worst economic crisis since the Great Depression.  I mean, think about it, we have tried what they’re peddling.  We did it for 10 years.  We ended up with the worst economy since the 1930s and record deficits to boot.  (Applause.)  It’s not like we haven’t tried what they’re trying to sell us.

Now, I’m bringing this up not because I’m trying to re-litigate the past; I’m bringing it up because I don’t want to re-live the past.  (Applause.)

It’d be one thing, Milwaukee, if Republicans in Washington had some new ideas, if they had said, you know what, we really screwed up, and we’ve learned from our mistakes; we’re going to do things differently this time.  That’s not what they’re doing.

When the leader of their campaign committee was asked on national television what Republicans would do if they took over Congress, you know what he said?  He said, we’ll do exactly the same thing we did the last time.  (Applause.)  That’s what he said.  It’s on tape.

So basically, here’s what this election comes down to.  They’re betting that between now and November, you’re going to come down with amnesia.  (Laughter.)  They figure you’re going to forget what their agenda did to this country.  They think you’ll just believe that they’ve changed.

These are the folks whose policies helped devastate our middle class.  They drove our economy into a ditch.  And we got in there and put on our boots and we pushed and we shoved.  And we were sweating and these guys were standing, watching us and sipping on a Slurpee.  (Laughter.)  And they were pointing at us saying, how come you’re not pushing harder, how come you’re not pushing faster?  And then when we finally got the car up — and it’s got a few dings and a few dents, it’s got some mud on it, we’re going to have to do some work on it — they point to everybody and say, look what these guys did to your car.  (Laughter.)  After we got it out of the ditch!  And then they got the nerve to ask for the keys back!  (Laughter and applause.)  I don’t want to give them the keys back.  They don’t know how to drive.  (Applause.)

I mean, I want everything to think about it here.  When you want to go forward in your car, what do you do?

AUDIENCE:  D!

THE PRESIDENT:  You put it in D.  They’re going to pop it in reverse.  They’d have those special interests riding shotgun, then they’d hit the gas and we’d be right back in the ditch.  (Laughter.)

Milwaukee, we are not going backwards.  That’s the choice we face this fall.  Do we want to go back?  Or do we want to go forward?  I say we want to move forward.  America always moves forward.  We keep moving forward every day.  (Applause.)

Let me say this, Milwaukee.  I know these are difficult times.  I know folks are worried.  I know there’s still a lot of hurt out here.  I hear it when I travel around the country.  I see it in the letters that I read every night from folks who are looking for a job or lost their home.  It breaks my heart, because those are the folks that I got into politics for.  You’re the reason I’m here.  (Applause.)

And when times are tough — when times are tough, I know it can be easy to give in to cynicism.  I know it can be easy to give in to fear and doubt.   And you know, it’s easy sometimes for folks to stir up stuff and turn people on each other, and it’s easy to settle for something less, to set our sights a little bit lower.

But I just want everybody here to remember, that’s not who we are.  That’s not the country I know.  We do not give up.  We do not quit.  We face down war.  We face down depression.  We face down great challenges and great threats.  We have lit the way for the rest of the world.

Whenever times have seemed at their worst, Americans have been at their best.  That’s when we roll up our sleeves.  That’s when we remember we rise or fall together –- as one nation and as one people.  (Applause.)  That’s the spirit that started the labor movement, the idea that alone, we may be weak.  Divided, we may fall.  But we are united, we are strong.  That’s why they call them unions.  That’s why we call this the United States of America.  (Applause.)

I’m going to make this case across the country between now and November.  And I am asking for your help.  And if you are willing to join me and Tom Barrett and Gwen Moore and Russ Feingold and Herb Kohl, we can strengthen our middle class and make this economy work for all Americans again and restore the American Dream and give it to our children and our grandchildren.  (Applause.)

God bless you, and God bless the United States of America.  (Applause.)

This has been a summer of homecomings. In marking the end of the American combat mission in Iraq, we have now welcomed home nearly 100,000 of our troops from that war. Across the country, family and friends have honored these returning heroes. Spouses have been reunited, and military moms and dads have held their children once again.

But while America’s combat mission in Iraq has ended, America’s commitment to our troops and their families goes on. All of us are called to an ongoing mission: to support our troops, veterans and their families, whether they are here at home, serving in Afghanistan, or supporting the Iraqi people as they forge their own future.

Stepping up

As a country, we have come a long way in how we support our veterans and military families. In our travels to base communities from Fort Bragg to Camp Pendleton, we have seen employers creating innovative programs to support military families, classrooms adopting deployed units, faith communities providing prayers and support, and countless other acts of kindness.

Yet there is still more work to be done.

Our military families are strong, resilient and proud to serve their country.

Nonetheless, they don’t always feel that the rest of the country is part of the war effort. We’ve met National Guard families who feel isolated because they are the only members of their communities experiencing the deployment of a loved one. We’ve heard from military kids who struggle in school while their parents are deployed.

Remarkably, these same families still find time to serve their communities every day. They are troops who come home from a long deployment and coach Little League or mentor a child. They are children who tutor their younger siblings, and spouses who balance their families with jobs, school, community service — or all of the above. They are wounded warriors, survivors and veterans who continue to give so much to our country.

Guided by their stories, the Obama administration has made one of the largest investments in a generation in our veterans and military families. This includes building a 21st century Department of Veterans Affairs, improving care for traumatic brain injuries and post-traumatic stress disorder, strengthening military family readiness programs, helping hundreds of thousands of veterans get a college education, and combating the tragedy of homelessness among veterans.

But government can only do so much.

That’s why we’re challenging every sector of American society to support and engage our military families. You don’t have to come from a military family, have a base in your community, or be an expert in military issues to make a difference. Every American can do something.

‘We can do this’

Businesses and organizations of all kinds can expand job opportunities and connect the work they’re already doing with the needs of military families. There are so many ways to help, and you can get started by visiting www.serve.gov to see how other Americans are helping in their communities.

One percent of our population is doing 100% of the fighting, but we need 100% of Americans working to support our troops and their families. We can do this. In every community, every day, we can find concrete ways to show our military families the respect and gratitude that each of us holds for them in our hearts. They deserve our support long after the welcome home ceremonies are over.

That’s the spirit that defines us as Americans, and it’s who we need to continue to be in the months and years ahead.

Michelle Obama is the first lady of the United States. Jill Biden is the wife of Vice President Biden.

Executives’ business optimism level remains high: 86 percent of respondents expressed at least some confidence in the growth prospects for their companies, rising slightly from 85 percent reported in the third-quarter survey. The number of executives citing recruiting challenges also rose, climbing from 42 percent in the third quarter to 47 percent.

Key Findings

• A net 6 percent of executives plan to increase hiring in professional occupations in the fourth quarter of 2010.

• Eighty-six percent of executives said they are at least somewhat confident in their organizations’ ability to grow in the fourth quarter, including 39 percent who are very confident.

• Businesses in the South Atlantic states project the most hiring activity, with a net 9 percent of executives from this region planning to add professional-level staff in the fourth quarter.

• Companies in the business services sector expect the most active hiring in the fourth quarter, with a net 16 percent of executives anticipating personnel additions.

• The legal field is again expected to see the strongest hiring, with a net 23 percent of respondents planning to increase staff levels, although this number is down from 31 percent in the third-quarter survey.

• Nearly half of executives (47 percent) said it is challenging to find skilled professionals today.

The Robert Half Professional Employment Report is the first quarterly executive survey of its size and scope to focus exclusively on professional-level hiring. The survey is based on telephone interviews with more than 4,000 executives(4) from a variety of fields throughout the United States about their hiring plans and general level of optimism regarding the upcoming quarter.

“Companies that overextended their teams are now selectively adding full-time employees,” said Max Messmer, chairman and CEO of Robert Half International. “Businesses are hiring to keep service levels high and boost morale among existing team members who have taken on extra work in the past few years.”

Messmer added, “Despite high unemployment rates, executives expressed concern about their ability to find employees with the requisite skills for open positions. An increasing number of firms are bringing in interim staff to access specific expertise for key projects and keep personnel costs variable until they can resume full-time hiring.”

Professional-Level Hiring — By Region

Survey results indicate that executives in the South Atlantic region project the most active hiring, with a net 9 percent of hiring authorities expecting to add staff. The hiring environment in the South Atlantic states is improving across a variety of industries and positions.

Professional-Level Hiring — By Industry

Executives in the business services sector anticipate the most professional-level hiring in the fourth quarter, with a net 16 percent anticipating increases in personnel levels. The projection for this sector is up seven points from the third-quarter survey, the highest quarter-over-quarter increase among all industries.

Professional-Level Hiring — By Field

For the third consecutive quarter, respondents in the legal profession forecast the strongest hiring activity of all fields, with 29 percent of lawyers projecting staff increases and 6 percent anticipating declines.

“There’s no question that 2010 has been – and continues to be – the year for litigation, bankruptcy and foreclosure firms,” noted Brett Good, a Robert Half International senior district president. “We don’t see any signs indicating a slowdown in these areas for the foreseeable future, as case backlogs, the housing market and overall unemployment rates continue to be concerns. Labor and employment and intellectual property are also seeing growth. Firms specializing in these growing practice areas are seeking staff ranging from associate attorneys and contract administrators to paralegals and legal secretaries to manage larger case loads and client requirements.”

The Consumer Confidence Survey® is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world’s largest custom research company. The cutoff date for August’s preliminary results was August 24th.

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence posted a modest gain in August, the result of an improvement in consumers’ short-term outlook. Consumers’ assessment of current conditions, however, was less favorable as employment concerns continue to weigh heavily on consumers’ attitudes. Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future. All in all, consumers are about as confident today as they were a year ago (Aug. 2009, 54.5).”

Consumers’ appraisal of current conditions continued to weaken in August. Those claiming business conditions are “good” decreased to 8.7 percent from 8.8 percent. However, those stating business conditions are “bad” declined to 41.9 percent from 43.3 percent. Consumers’ assessment of the labor market deteriorated further. Those saying jobs are “hard to get” increased to 45.7 percent from 45.1 percent, while those claiming jobs are “plentiful” declined to 3.8 percent from 4.4 percent.

Consumers’ expectations improved moderately in August, but overall, they remain pessimistic. Those anticipating an improvement in business conditions over the next six months increased to 17.0 percent from 15.8 percent, while those anticipating conditions will worsen declined to 13.4 percent from 15.3 percent.

Consumers were also slightly less pessimistic about future employment prospects. Those expecting more jobs in the months ahead increased to 14.6 percent from 14.2 percent, while those anticipating fewer jobs decreased to 19.4 percent from 20.9 percent. The proportion of consumers expecting an increase in their incomes held steady at 10.6 percent.

The new, border-wide use of the Predator aircraft, comes on the heels of the recently passed Southwest border security supplemental legislation, which will provide two additional UASs that will bolster these newly expanded operations.

These UAS efforts are just the latest steps in the historic approach—and unprecedented amount of resources directed to the southwest border since launching the Southwest Border Initiative in March 2009.  Since then, the U.S. Department of Homeland Security has doubled the number of personnel assigned to border enforcement security task forces; tripled the number of Immigration and Customs Enforcement officers working along the U.S.-Mexico border; quadrupled deployments of border liaison officers; and begun screening 100 percent of southbound rail shipments for illegal weapons, drugs, and cash.

Also, an additional 1,200 National Guard troops have been deployed to the border to provide intelligence surveillance and reconnaissance, and immediate support to counternarcotics enforcement while Customs and Border Protection recruits and trains additional officers and agents to serve on the border.

The Administration is dedicating $600 million in new funding to enhance security technology at the border, share information and support with state, local, and tribal law enforcement, and increase federal law enforcement activities at the border.  That effort will include the deployment of more agents, investigators, and prosecutors as part of a coordinated effort with states and cities to target illicit networks trafficking in people, drugs, illegal weapons, and money.

Among the progress achieved to date:

1 – Expand Unmanned Aircraft Systems operations to cover the entire Southwest Border.

Results: On Sept. 1st, CBP will expand Unmanned Aerial Systems (UAS) flight operations, covering all Southwest border states and providing critical aerial surveillance assistance to personnel on the ground.

2 – Dedicate historic levels of personnel to the Southwest border.

Results: The Border Patrol is better staffed than at any time in its 86-year history, having nearly doubled the number of agents from approximately 10,000 in 2004 to more than 20,000 today – including more “boots on the ground” in Arizona than ever before.  Immigration and Customs Enforcement (ICE) has also deployed a record number of agents to the Southwest border with more than a quarter of its personnel deployed in this region, doubling the number of agents assigned to Border Enforcement Security Task Forces and tripling the number of ICE intelligence analysts working along the U.S.-Mexico border. Further, President Obama has ordered the deployment of 1,200 National Guard troops to the Southwest border to contribute additional capabilities and capacity to assist law enforcement agencies.

3 – Deploy additional technology and complete fencing construction along the Southwest border.

Results: Over the past 17 months, CBP has deployed additional Z-Backscatter Van Units, Mobile Surveillance Systems, Remote Video Surveillance Systems, thermal imaging systems, radiation portal monitors, and license plate readers to the Southwest border. DHS has also completed 646.5 miles of fencing out of nearly 652 miles mandated by Congress, including 298.5 miles of vehicle barriers and 348 miles of pedestrian fence, with the remaining construction scheduled to be complete by the end of 2010.

4 – Increase outbound inspections to interdict illegal weapons, drugs, and cash leaving the United States.

Results: In addition to placing an increased emphasis on screening southbound vehicle traffic, CBP began screening 100 percent of southbound rail shipments for illegal weapons, drugs, and cash – for the first time ever. These enhanced outbound inspections have yielded more than $39.2 million in southbound illegal currency – an increase of more than $29.4 million compared to 2008.

5 – Increase seizures of drugs, weapons, and currency to disrupt the operations of transnational criminal organizations.

Results: In 2009, DHS seized more than $103 million in illegal currency, more than 1.7 million kilograms of drugs and more than 1,400 firearms – increases of more than $47 million, more than 450,000 kilograms of drugs and more than 300 firearms compared to 2008.

6 – Deter illegal immigration through unprecedented investments in border security

Results: Illegal border crossings have been significantly reduced, as apprehensions of illegal aliens decreased from 723,825 in FY2008 to 556,041 in FY2009, a 23 percent reduction, in part as the result of increased security along the southwest border.

7 – Increase employer audits to deter violations of employment verification laws and protect American workers.

Results: Since Jan. 2009, DHS has audited more than 2,785 employers suspected of hiring illegal labor, debarred more than 100 companies and 80 individuals, and issued more than $6.4 million in fines—more than the total amount of audits and fines issued in the entire previous administration.

8 – Deploy Secure Communities technology to all southwest border communities.

Results: The Obama Administration has expanded the Secure Communities initiative—which uses biometric information to identify criminal aliens in state prisons and local jails to expedite removal proceedings—from 14 to 567 locations, including all jurisdictions along the Southwest border. DHS expects to expand this program nationwide by 2013. As of July 31, 2010, this program had identified more than 287,500 aliens in jails and prisons who have been charged with or convicted of criminal offenses, including more than 43,000 charged with or convicted of major violent or drug offenses (level 1 offenses). Through Secure Communities, over 37,900 convicted criminal aliens have been removed from the United States, including more than 10,800 convicted of major violent or drug offenses (level 1 offenses).

9 – Target criminal aliens who pose a threat to public safety.

Results: The Obama Administration has fundamentally reformed immigration enforcement, focusing on identifying and removing criminal aliens who pose a threat to public safety. Overall, criminal removals/returns increased by almost 22,000 between FY 2008 and FY 2009, a 19 percent increase. So far this fiscal year, ICE has removed a record 170,000 criminals from the U.S. DHS will continue to increase focus on removing those convicted of crimes who pose a threat to the safety of communities.

10 – Boost funding for Southwest border infrastructure, technology, and law enforcement

Results: The recent passage and signing of Southwest border security supplemental legislation will provide critical additional capabilities to secure the Southwest border at and between our ports of entry and reduce the illicit trafficking of people, drugs, currency and weapons. This law provides $14 million for improved tactical communications systems along the Southwest border and $32 million for two additional CBP unmanned aircraft systems – in addition to $176 million for an additional 1,000 Border Patrol agents to be deployed between ports of entry; $68 million to hire 250 new Customs and Border Protection (CBP) officers at ports of entry and to maintain 270 officers currently deployed to ports of entry; and $6 million to construct two forward operating bases along the Southwest Border to improve coordination of border security activities.

DHS and the General Services Administration (GSA) are also directing more than $400 million in Recovery Act funding to the Southwest border, including funds for:

* Port and other infrastructure projects in Otay Mesa, California; Antelope Wells, New Mexico; Los Ebanos, Amistad Dam, Falcon Dam and Corpus Christi, Texas; and Nogales, Arizona.
* Non-Intrusive Inspection Equipment at Southwest border ports of entry, including both low energy and large-scale systems;
* Modernized tactical communications equipment for the El Paso and Rio Grande Valley Sectors; and
* Tested, commercially available security technology including thermal imaging devices, ultra-light detection, backscatter units, mobile radios, cameras and laptops for pursuit vehicles, and Remote Video Surveillance System enhancements.

DHS has increased the funds state and local law enforcement can use to combat border-related crime through Operation Stonegarden—a DHS grant program designed to support state, local, and tribal law enforcement efforts along our nation’s borders. Based on risk, cross-border traffic and border-related threat intelligence, nearly 83 percent of 2009 and 2010 Operation Stonegarden funds – more than 124 million dollars – went to Southwest border states, up from 59 percent in 2008.

Faced with increasing difficulty in selling the mortgage-backed securities that had been among their most lucrative products, the banks hit on a solution that preserved their quarterly earnings and huge bonuses:

They created fake demand.

A ProPublica analysis shows for the first time the extent to which banks — primarily Merrill Lynch, but also Citigroup, UBS and others — bought their own products and cranked up an assembly line that otherwise should have flagged.

The products they were buying and selling were at the heart of the 2008 meltdown — collections of mortgage bonds known as collateralized debt obligations, or CDOs.

As the housing boom began to slow in mid-2006, investors became skittish about the riskier parts of those investments. So the banks created — and ultimately provided most of the money for — new CDOs. Those new CDOs bought the hard-to-sell pieces of the original CDOs. The result was a daisy chain that solved one problem but created another: Each new CDO had its own risky pieces. Banks created yet other CDOs to buy those.

Individual instances of these questionable trades have been reported before, but ProPublica’s investigation, done in partnership with NPR’s Planet Money, shows that by late 2006 they became a common industry practice.

An analysis by research firm Thetica Systems, commissioned by ProPublica, shows that in the last years of the boom, CDOs had become the dominant purchaser of key, risky parts of other CDOs, largely replacing real investors like pension funds. By 2007, 67 percent of those slices were bought by other CDOs, up from 36 percent just three years earlier. The banks often orchestrated these purchases. In the last two years of the boom, nearly half of all CDOs sponsored by market leader Merrill Lynch bought significant portions of other Merrill CDOs.

ProPublica also found 85 instances during 2006 and 2007 in which two CDOs bought pieces of each other’s unsold inventory. These trades, which involved $107 billion worth of CDOs, underscore the extent to which the market lacked real buyers. Often the CDOs that swapped purchases closed within days of each other, the analysis shows.

There were supposed to be protections against this sort of abuse. While banks provided the blueprint for the CDOs and marketed them, they typically selected independent managers who chose the specific bonds to go inside them. The managers had a legal obligation to do what was best for the CDO. They were paid by the CDO, not the bank, and were supposed to serve as a bulwark against self-dealing by the banks, which had the fullest understanding of the complex and lightly regulated mortgage bonds.

It rarely worked out that way. The managers were beholden to the banks that sent them the business. On a billion-dollar deal, managers could earn a million dollars in fees, with little risk. Some small firms did several billion dollars of CDOs in a matter of months.

“All these banks for years were spawning trading partners,” says a former executive from Financial Guaranty Insurance Company, a major insurer of the CDO market. “You don’t have a trading partner? Create one.”

The executive, like most of the dozens of people ProPublica spoke with about the inner workings of the market at the time, asked not to be named out of fear of being sucked into ongoing investigations or because they are involved in civil litigation.

Keeping the assembly line going had a wealth of short-term advantages for the banks. Fees rolled in. A typical CDO could net the bank that created it between $5 million and $10 million — about half of which usually ended up as employee bonuses. Indeed, Wall Street awarded record bonuses in 2006, a hefty chunk of which came from the CDO business.

The self-dealing super-charged the market for CDOs, enticing some less-savvy investors to try their luck. Crucially, such deals maintained the value of mortgage bonds at a time when the lack of buyers should have driven their prices down.

But the strategy of speeding up the assembly line had devastating consequences for homeowners, the banks themselves and, ultimately, the global economy. Because of Wall Street’s machinations, more mortgages had been granted to ever-shakier borrowers. The results can now be seen in foreclosed houses across America.

The incestuous trading also made the CDOs more intertwined and thus fragile, accelerating their decline in value that began in the fall of 2007 and deepened over the next year. Most are now worth pennies on the dollar. Nearly half of the nearly trillion dollars in losses to the global banking system came from CDOs, losses ultimately absorbed by taxpayers and investors around the world. The banks’ troubles sent the world’s economies into a tailspin from which they have yet to recover.

It remains unclear whether any of this violated laws. The SEC has said that it is actively looking at as many as 50 CDO managers as part of its broad examination of the CDO business’ role in the financial crisis. In particular, the agency is focusing on the relationship between the banks and the managers. The SEC is exploring how deals were structured, if any quid pro quo arrangements existed, and whether banks pressured managers to take bad assets.

The banks declined to directly address ProPublica’s questions. Asked about its relationship with managers and the cross-ownership among its CDOs, Citibank responded with a one-sentence statement:

“It has been widely reported that there are ongoing industry-wide investigations into CDO-related matters and we do not comment on pending investigations.”

None of ProPublica’s questions had mentioned the SEC or pending investigations.

Posed a similar list of questions, Bank of America, which now owns Merrill Lynch, said:

“These are very specific questions regarding individuals who left Merrill Lynch several years ago and a CDO origination business that, due to market conditions, was discontinued by Merrill before Bank of America acquired the company.”

This is the second installment of a ProPublica series about the largely hidden history of the CDO boom and bust. Our first story looked at how one hedge fund helped create at least $40 billion in CDOs as part of a strategy to bet against the market. This story turns the focus on the banks.

Merrill Lynch Pioneers Pervert the Market

By 2004, the housing market was in full swing, and Wall Street bankers flocked to the CDO frenzy. It seemed to be the perfect money machine, and for a time everyone was happy.

Homeowners got easy mortgages. Banks and mortgage companies felt secure lending the money because they could sell the mortgages almost immediately to Wall Street and get back all their cash plus a little extra for their trouble. The investment banks charged massive fees for repackaging the mortgages into fancy financial products. Investors all around the world got to play in the then-phenomenal American housing market.

The mortgages were bundled into bonds, which were in turn combined into CDOs offering varying interest rates and levels of risk.

Investors holding the top tier of a CDO were first in line to get money coming from mortgages. By 2006, some banks often kept this layer, which credit agencies blessed with their highest rating of Triple A.

Buyers of the lower tiers took on more risk and got higher returns. They would be the first to take the hit if homeowners funding the CDO stopped paying their mortgages. (Here’s a video explaining how CDOs worked.)

Over time, these risky slices became increasingly hard to sell, posing a problem for the banks. If they remained unsold, the sketchy assets stayed on their books, like rotting inventory. That would require the banks to set aside money to cover any losses. Banks hate doing that because it means the money can’t be loaned out or put to other uses.

Being stuck with the risky portions of CDOs would ultimately lower profits and endanger the whole assembly line.

The banks, notably Merrill and Citibank, solved this problem by greatly expanding what had been a common and accepted practice: CDOs buying small pieces of other CDOs.

Architects of CDOs typically included what they called a “bucket” — which held bits of other CDOs paying higher rates of interest. The idea was to boost overall returns of deals primarily composed of safer assets. In the early days, the bucket was a small portion of an overall CDO.

One pioneer of pushing CDOs to buy CDOs was Merrill Lynch’s Chris Ricciardi, who had been brought to the firm in 2003 to take Merrill to the top of the CDO business. According to former colleagues, Ricciardi’s team cultivated managers, especially smaller firms.

Merrill exercised its leverage over the managers. A strong relationship with Merrill could be the difference between a business that thrived and one that didn’t. The more deals the banks gave a manager, the more money the manager got paid.

As the head of Merrill’s CDO business, Ricciardi also wooed managers with golf outings and dinners. One Merrill executive summed up the overall arrangement: “I’m going to make you rich. You just have to be my bitch.”

But not all managers went for it.

An executive from Trainer Wortham, a CDO manager, recalls a 2005 conversation with Ricciardi. “I wasn’t going to buy other CDOs. Chris said: ‘You don’t get it. You have got to buy other guys’ CDOs to get your deal done. That’s how it works.’” When the manager refused, Ricciardi told him, “‘That’s it. You are not going to get another deal done.’” Trainer Wortham largely withdrew from the market, concerned about the practice and the overheated prices for CDOs.

Ricciardi declined multiple requests to comment.

Merrill CDOs often bought slices of other Merrill deals. This seems to have happened more in the second half of any given year, according to ProPublica’s analysis, though the purchases were still a small portion compared to what would come later. Annual bonuses are based on the deals bankers completed by yearend.

Ricciardi left Merrill Lynch in February 2006. But the machine he put into place not only survived his departure, it became a model for competitors.

As Housing Market Wanes, Self-Dealing Takes Off

By mid-2006, the housing market was on the wane. This was particularly true for subprime mortgages, which were given to borrowers with spotty credit at higher interest rates. Subprime lenders began to fold, in what would become a mass extinction. In the first half of the year, the percentage of subprime borrowers who didn’t even make the first month’s mortgage payment tripled from the previous year.

That made CDO investors like pension funds and insurance companies increasingly nervous. If homeowners couldn’t make their mortgage payments, then the stream of cash to CDOs would dry up. Real “buyers began to shrivel and shrivel,” says Fiachra O’Driscoll, who co-ran Credit Suisse’s CDO business from 2003 to 2008.

Faced with disappearing investor demand, bankers could have wound down the lucrative business and moved on. That’s the way a market is supposed to work. Demand disappears; supply follows. But bankers were making lots of money. And they had amassed warehouses full of CDOs and other mortgage-based assets whose value was going down.

Rather than stop, bankers at Merrill, Citi, UBS and elsewhere kept making CDOs.

The question was: Who would buy them?

The top 80 percent, the less risky layers or so-called “super senior,” were held by the banks themselves. The beauty of owning that supposedly safe top portion was that it required hardly any money be held in reserve.

That left 20 percent, which the banks did not want to keep because it was riskier and required them to set aside reserves to cover any losses. Banks often sold the bottom, riskiest part to hedge funds. That left the middle layer, known on Wall Street as the “mezzanine,” which was sold to new CDOs whose top 80 percent was ultimately owned by … the banks.

“As we got further into 2006, the mezzanine was going into other CDOs,” says Credit Suisse’s O’Driscoll.

This was the daisy chain. On paper, the risky stuff was gone, held by new independent CDOs. In reality, however, the banks were buying their own otherwise unsellable assets.

How could something so seemingly short-sighted have happened?

It’s one of the great mysteries of the crash. Banks have fleets of risk managers to defend against just such reckless behavior. Top executives have maintained that while they suspected that the housing market was cooling, they never imagined the crash. For those doing the deals, the payoff was immediate. The dangers seemed abstract and remote.

The CDO managers played a crucial role. CDOs were so complex that even buyers had a hard time seeing exactly what was in them — making a neutral third party that much more essential.

“When you’re investing in a CDO you are very much putting your faith in the manager,” says Peter Nowell, a former London-based investor for the Royal Bank of Scotland. “The manager is choosing all the bonds that go into the CDO.” (RBS suffered mightily in the global financial meltdown, posting the largest loss in United Kingdom history, and was de facto nationalized by the British government.)

By persuading managers to pick the unsold slices of CDOs, the banks helped keep the market going. “It guaranteed distribution when, quite frankly, there was not a huge market for them,” says Nowell.

The counterintuitive result was that even as investors began to vanish, the mortgage CDO market more than doubled from 2005 to 2006, reaching $226 billion, according to the trade publication Asset-Backed Alert.

Citi and Merrill Hand Out Sweetheart Deals

As the CDO market grew, so did the number of CDO management firms, including many small shops that relied on a single bank for most of their business. According to Fitch, the number of CDO managers it rated rose from 89 in July 2006 to 140 in September 2007.

One CDO manager epitomized the devolution of the business, according to numerous industry insiders: a Wall Street veteran named Wing Chau.

Earlier in the decade, Chau had run the CDO department for Maxim Group, a boutique investment firm in New York. Chau had built a profitable business for Maxim based largely on his relationship with Merrill Lynch. In just a few years, Maxim had corralled more than $4 billion worth of assets under management just from Merrill CDOs.

In August 2006, Chau bolted from Maxim to start his own CDO management business, taking several colleagues with him. Chau’s departure gave Merrill, the biggest CDO producer, one more avenue for unsold inventory.

Chau named the firm Harding, after the town in New Jersey where he lived. The CDO market was starting its most profitable stretch ever, and Harding would play a big part. In an eleven-month period, ending in August 2007, Harding managed $13 billion of CDOs, including more than $5 billion from Merrill, and another nearly $5 billion from Citigroup. (Chau would later earn a measure of notoriety for a cameo appearance in Michael Lewis’ bestseller “The Big Short,” where he is depicted as a cheerfully feckless “go-to buyer” for Merrill Lynch’s CDO machine.)

Chau had a long-standing friendship with Ken Margolis, who was Merrill’s top CDO salesman under Ricciardi. When Ricciardi left Merrill in 2006, Margolis became a co-head of Merrill’s CDO group. He carried a genial, let’s-just-get-the-deal-done demeanor into his new position. An avid poker player, Margolis told a friend that in a previous job he had stood down a casino owner during a foreclosure negotiation after the owner had threatened to put a fork through his eye.

Chau’s close relationship with Merrill continued. In late 2006, Merrill sublet office space to Chau’s startup in the Merrill tower in Lower Manhattan’s financial district. A Merrill banker, David Moffitt, scheduled visits to Harding for prospective investors in the bank’s CDOs. “It was a nice office,” overlooking New York Harbor, recalls a CDO buyer. “But it did feel a little weird that it was Merrill’s building,” he said.

Moffitt did not respond to requests for comment.

Under Margolis, other small managers with meager track records were also suddenly handling CDOs valued at as much as $2 billion. Margolis declined to answer any questions about his own involvement in these matters.

A Wall Street Journal article ($) from late 2007, one of the first of its kind, described how Margolis worked with one inexperienced CDO manager called NIR on a CDO named Norma, in the spring of that year. The Long Island-based NIR made about $1.5 million a year for managing Norma, a CDO that imploded.

“NIR’s collateral management business had arisen from efforts by Merrill Lynch to assemble a stable of captive small firms to manage its CDOs that would be beholden to Merrill Lynch on account of the business it funneled to them,” alleged a lawsuit filed in New York state court against Merrill over Norma that was settled quietly after the plaintiffs received internal Merrill documents.

NIR declined to comment.

Banks had a variety of ways to influence managers’ behavior.

Some of the few outside investors remaining in the market believed that the manager would do a better job if he owned a small slice of the CDO he was managing. That way, the manager would have more incentive to manage the investment well, since he, too, was an investor. But small management firms rarely had money to invest. Some banks solved this problem by advancing money to managers such as Harding.

Chau’s group managed two Citigroup CDOs — 888 Tactical Fund and Jupiter High-Grade VII — in which the bank loaned Harding money to buy risky pieces of the deal. The loans would be paid back out of the fees the managers took from the CDO and its investors. The loans were disclosed to investors in a few sentences among the hundreds of pages of legalese accompanying the deals.

In response to ProPublica’s questions, Chau’s lawyer said, “Harding Advisory’s dealings with investment banks were proper and fully disclosed.”

Citigroup made similar deals with other managers. The bank lent money to a manager called Vanderbilt Capital Advisors for its Armitage CDO, completed in March 2007.

Vanderbilt declined to comment. It couldn’t be learned how much money Citigroup loaned or whether it was ever repaid.

Yet again banks had masked their true stakes in CDO. Banks were lending money to CDO managers so they could buy the banks’ dodgy assets. If the managers couldn’t pay the loans back — and most were thinly capitalized — the banks were on the hook for even more losses when the CDO business collapsed.

Goldman, Merrill and Others Get Tough

When the housing market deteriorated, banks took advantage of a little-used power they had over managers.

The way CDOs are put together, there is a brief period when the bonds picked by managers sit on the banks’ balance sheets. Because the value of such assets can fall, banks reserved the right to overrule managers’ selections.

According to numerous bankers, managers and investors, banks rarely wielded that veto until late 2006, after which it became common. Merrill was in the lead.

“I would go to Merrill and tell them that I wanted to buy, say, a Citi bond,” recalls a CDO manager. “They would say ‘no.’ I would suggest a UBS bond, they would say ‘no.’ Eventually, you got the joke.” Managers could choose assets to put into their CDOs but they had to come from Merrill CDOs. One rival investment banker says Merrill treated CDO managers the way Henry Ford treated his Model T customers: You can have any color you want, as long as it’s black.

Once, Merrill’s Ken Margolis pushed a manager to buy a CDO slice for a Merrill-produced CDO called Port Jackson that was completed in the beginning of 2007: “‘You don’t have to buy the deal but you are crazy if you don’t because of your business,’” an executive at the management firm recalls Margolis telling him. “‘We have a big pipeline and only so many more mandates to give you.’ You got the message.” In other words: Take our stuff and we’ll send you more business. If not, forget it.

Margolis declined to comment on the incident.

“All the managers complained about it,” recalls O’Driscoll, the former Credit Suisse banker who competed with other investment banks to put deals together and market them. But “they were indentured slaves.” O’Driscoll recalls managers grumbling that Merrill in particular told them “what to buy and when to buy it.”

Other big CDO-producing banks quickly adopted the practice.

A little-noticed document released this year during a congressional investigation into Goldman Sachs’ CDO business reveals that bank’s thinking. The firm wrote a November 2006 internal memorandum about a CDO called Timberwolf, managed by Greywolf, a small manager headed by ex-Goldman bankers. In a section headed “Reasons To Pursue,” the authors touted that “Goldman is approving every asset” that will end up in the CDO. What the bank intended to do with that approval power is clear from the memo: “We expect that a significant portion of the portfolio by closing will come from Goldman’s offerings.”

When asked to comment whether Goldman’s memo demonstrates that it had effective control over the asset selection process and that Greywolf was not in fact an independent manager, the bank responded: “Greywolf was an experienced, independent manager and made its own decisions about what reference assets to include. The securities included in Timberwolf were fully disclosed to the professional investors who invested in the transaction.”

Greywolf declined to comment. One of the investors, Basis Capital of Australia, filed a civil lawsuit in federal court in Manhattan against Goldman over the deal. The bank maintains the lawsuit is without merit.

By March 2007, the housing market’s signals were flashing red. Existing home sales plunged at the fastest rate in almost 20 years. Foreclosures were on the rise. And yet, to CDO buyer Peter Nowell’s surprise, banks continued to churn out CDOs.

“We were pulling back. We couldn’t find anything safe enough,” says Nowell. “We were amazed that April through June they were still printing deals. We thought things were over.”

Instead, the CDO machine was in overdrive. Wall Street produced $70 billion in mortgage CDOs in the first quarter of the year.

Many shareholder lawsuits battling their way through the court system today focus on this period of the CDO market. They allege that the banks were using the sales of CDOs to other CDOs to prop up prices and hide their losses.

“Citi’s CDO operations during late 2006 and 2007 functioned largely to sell CDOs to yet newer CDOs created by Citi to house them,” charges a pending shareholder lawsuit against the bank that was filed in federal court in Manhattan in February 2009. “Citigroup concocted a scheme whereby it repackaged many of these investments into other freshly-baked vehicles to avoid incurring a loss.”

Citigroup described the allegations as “irrational,” saying the bank’s executives would never knowingly take actions that would lead to “catastrophic losses.”

In the Hall of Mirrors, Myopic Rating Agencies

The portion of CDOs owned by other CDOs grew right alongside the market. What had been 5 percent of CDOs (remember the “bucket”) now came to constitute as much as 30 or 40 percent of new CDOs. (Wall Street also rolled out CDOs that were almost entirely made up of CDOs, called CDO squareds.)

The ever-expanding bucket provided new opportunities for incestuous trades.

It worked like this: A CDO would buy a piece of another CDO, which then returned the favor. The transactions moved both CDOs closer to completion, when bankers and managers would receive their fees.

ProPublica’s analysis shows that in the final two years of the business, CDOs with cross-ownership amounted to about one-fifth of the market, about $107 billion.

Here’s an example from early May 2007:

• A CDO called Jupiter VI bought a piece of a CDO called Tazlina II.
• Tazlina II bought a piece of Jupiter VI.

Both Jupiter VI and Tazlina II were created by Merrill and were completed within a week of each other. Both were managed by small firms that did significant business with Merrill: Jupiter by Wing Chau’s Harding, and Tazlina by Terwin Advisors. Chau did not respond to questions about this deal. Terwin Advisors could not reached.

Just a few weeks earlier, CDO managers completed a comparable swap between Jupiter VI and another Merrill CDO called Forge 1.

Forge has its own intriguing history. It was the only deal done by a tiny manager of the same name based in Tampa, Fla. The firm was started less than a year earlier by several former Wall Street executives with mortgage experience. It received seed money from Bryan Zwan, who in 2001 settled an SEC civil lawsuit over his company’s accounting problems in a federal court in Florida. Zwan and Forge executives didn’t respond to requests for comment.

After seemingly coming out of nowhere, Forge won the right to manage a $1.5 billion Merrill CDO. That earned Forge a visit from the rating agency Moody’s.

“We just wanted to make sure that they actually existed,” says a former Moody’s executive. The rating agency saw that the group had an office near the airport and expertise to do the job.

Rating agencies regularly did such research on managers, but failed to ask more fundamental questions. The credit ratings agencies “did heavy, heavy due diligence on managers but they were looking for the wrong things: how you processed a ticket or how your surveillance systems worked,” says an executive at a CDO manager. “They didn’t check whether you were buying good bonds.”

One Forge employee recalled in a recent interview that he was amazed Merrill had been able to find buyers so quickly. “They were able to sell all the tranches” — slices of the CDO — “in a fairly rapid period of time,” said Rod Jensen, a former research analyst for Forge.

Forge achieved this feat because Merrill sold the slices to other CDOs, many linked to Merrill.

The ProPublica analysis shows that two Merrill CDOs, Maxim II and West Trade III, each bought pieces of Forge. Small managers oversaw both deals.

Forge, in turn, was filled with detritus from Merrill. Eighty-two percent of the CDO bonds owned by Forge came from other Merrill deals.

Citigroup did its own version of the shuffle, as these three CDOs demonstrate:

• A CDO called Octonion bought some of Adams Square Funding II.
• Adams Square II bought a piece of Octonion.
• A third CDO, Class V Funding III, also bought some of Octonion.
• Octonion, in turn, bought a piece of Class V Funding III.

All of these Citi deals were completed within days of each other. Wing Chau was once again a central player. His firm managed Octonion. The other two were managed by a unit of Credit Suisse. Credit Suisse declined to comment.

Not all cross-ownership deals were consummated.

In spring 2007, Deutsche Bank was creating a CDO and found a manager that wanted to take a piece of it. The manager was overseeing a CDO that Merrill was assembling. Merrill blocked the manager from putting the Deutsche bonds into the Merrill CDO. A former Deutsche Bank banker says that when Deutsche Bank complained to Andy Phelps, a Merrill CDO executive, Phelps offered a quid pro quo: If Deutsche was willing to have the manager of its CDO buy some Merrill bonds, Merrill would stop blocking the purchase. Phelps declined to comment.

The Deutsche banker, who says its managers were independent, recalls being shocked: “We said we don’t control what people buy in their deals.” The swap didn’t happen.

The Missing Regulators and the Aftermath

In September 2007, as the market finally started to catch up with Merrill Lynch, Ken Margolis left the firm to join Wing Chau at Harding.

Chau and Margolis circulated a marketing plan for a new hedge fund to prospective investors touting their expertise in how CDOs were made and what was in them. The fund proposed to buy failed CDOs — at bargain basement prices. In the end, Margolis and Chau couldn’t make the business work and dropped the idea.

Why didn’t regulators intervene during the boom to stop the self-dealing that had permeated the CDO market?

No one agency had authority over the whole business. Since the business came and went in just a few years, it may have been too much to expect even assertive regulators to comprehend what was happening in time to stop it.

While the financial regulatory bill passed by Congress in July creates more oversight powers, it’s unclear whether regulators have sufficient tools to prevent a replay of the debacle.

In just two years, the CDO market had cut a swath of destruction. Partly because CDOs had bought so many pieces of each other, they collapsed in unison. Merrill Lynch and Citigroup, the biggest perpetrators of the self-dealing, were among the biggest losers. Merrill lost about $26 billion on mortgage CDOs and Citigroup about $34 billion.

by Jake Bernstein and Jesse Eisinger

ProPublica

Additional reporting by Kitty Bennett, Krista Kjellman Schmidt, Lisa Schwartz and Karen Weise.

Mr. Obama told his audience that while an incredible amount of progress had been made over the past five years in helping the region to recover from the worst natural disaster in the U.S’s history, there was still a lot to be done and pledged his administration’s support until the job is done.

President Obama at Xavier University, New Orleans, Louisiana, August 29, 2010 (Photo credit: White House)

“I don’t have to tell you that there are still too many vacant and overgrown lots.  There are still too many students attending classes in trailers”, Obama said. “There are still too many people unable to find work.  And there are still too many New Orleanians, folks who haven’t been able to come home.”

Obama added:

“I wanted to come here and tell the people of this city directly:  My administration is going to stand with you — and fight alongside you — until the job is done.  Until New Orleans is all the way back, all the way.”

Governor Bobby Jindal of Louisiana, reacting to Mr. Obama’s speech said he was grateful to the president for coming, as every times he comes, there is national attention on the area.  Although he was happy with what Mr. Obama said, Jindal said he wished the president had spent more time on coastal restoration and voiced a “more explicit commitment to restoring our coast.”  He also wished Mr. Obama had talked about the moratorium on deepwater oil drilling, enacted after the BP rig explosion.

Jindal said that initially there was confusion in Washington over how the moratorium would affect the region.  He said, “I hope by now they have a better understanding of what’s at stake.”

The Obama administration today announced more than $1.8 billion in federal funds to support the rebuilding of New Orleans’ schools. This money will support the city in building the excellent learning environments that the children of New Orleans deserve.

In addition, the Department of Education is preparing to award $12 million in grants from the Gulf Coast Recovery Initiative.  These grants will help districts replace instructional materials, renovate and repair schools buildings, and support after school and other initiatives to provide extended learning.

See the Full Text of President Obama’s Remarks at Xavier University, New Orleans, Below:

THE PRESIDENT:  Hello, everybody.  It is good to be back.  (Applause.)  It is good to be back.

AUDIENCE MEMBER:  It’s good to have you back!

THE PRESIDENT:  I’m glad.  (Laughter.)  And due to popular demand, I decided to bring the First Lady down here.  (Applause.)

We have just an extraordinary number of dedicated public servants who are here.  If you will be patient with me, I want to make sure that all of them are acknowledged.  First of all, you’ve got the governor of the great state of Louisiana — Bobby Jindal is here.  (Applause.)  We have the outstanding mayor of New Orleans, Mitch Landrieu.  (Applause.)  We have the better looking and younger senator from Louisiana, Mary Landrieu.  (Applause.)

I believe that Senator David Vitter is here.  David — right here.  (Applause.)  We have — hold on a second now — we’ve got Congressman Joe Cao is here.  (Applause.)  Congressman Charlie Melancon is here.  (Applause.)  Congressman Steve Scalise is here.  (Applause.)

Secretary of Housing and Urban Development, who has been working tirelessly down here in Louisiana, Shaun Donovan.  (Applause.)  We’ve got our EPA Administrator Lisa Jackson here — homegirl.  (Applause.)  Administrator of FEMA Craig Fugate is here.  (Applause.)  The person who’s heading up our community service efforts all across the country — Patrick Corvington is here.  (Applause.)  Louisiana’s own Regina Benjamin, the Surgeon General — (applause) — a Xavier grad, I might add.  (Applause.)  We are very proud to have all of these terrific public servants here.

It is wonderful to be back in New Orleans, and it is a great honor –

AUDIENCE MEMBER:  We love you!

AUDIENCE MEMBER:  We can’t see you!

THE PRESIDENT:  It is a great honor — (laughter) — you can see me now?  (Laughter.)  Okay.  It is a great honor to be back at Xavier University.  (Applause.)  And I — it’s just inspiring to spend time with people who’ve demonstrated what it means to persevere in the face of tragedy; to rebuild in the face of ruin.

I’m grateful to Jade for her introduction, and congratulate you on being crowned Miss Xavier.  (Applause.)  I hope everybody heard during the introduction she was a junior at Ben Franklin High School five years ago when the storm came.  And after Katrina, Ben Franklin High was terribly damaged by wind and water.  Millions of dollars were needed to rebuild the school.  Many feared it would take years to reopen — if it could be reopened at all.

But something remarkable happened.  Parents, teachers, students, volunteers, they all got to work making repairs.  And donations came in from across New Orleans and around the world.  And soon, those silent and darkened corridors, they were bright and they were filled with the sounds of young men and women, including Jade, who were going back to class.  And then Jade committed to Xavier, a university that likewise refused to succumb to despair.  So Jade, like so many students here at this university, embody hope.  That sense of hope in difficult times, that’s what I came to talk about today.

It’s been five years since Katrina ravaged the Gulf Coast.  There’s no need to dwell on what you experienced and what the world witnessed.  We all remember it keenly:  water pouring through broken levees; mothers holding their children above the waterline; people stranded on rooftops begging for help; bodies lying in the streets of a great American city.  It was a natural disaster but also a manmade catastrophe — a shameful breakdown in government that left countless men, and women, and children abandoned and alone.

And shortly after the storm, I came down to Houston to spend time with some of the folks who had taken shelter there.  And I’ll never forget what one woman told me.  She said, “We had nothing before the hurricane.  And now we’ve got less than nothing.”

In the years that followed, New Orleans could have remained a symbol of destruction and decay; of a storm that came and the inadequate response that followed.  It was not hard to imagine a day when we’d tell our children that a once vibrant and wonderful city had been laid low by indifference and neglect.  But that’s not what happened.  It’s not what happened at Ben Franklin.  It’s not what happened here at Xavier.  It’s not what happened across New Orleans and across the Gulf Coast.  (Applause.)  Instead this city has become a symbol of resilience and of community and of the fundamental responsibility that we have to one another.

And we see that here at Xavier.  Less than a month after the storm struck, amidst debris and flood-damaged buildings, President Francis promised that this university would reopen in a matter of months.  (Applause.)  Some said he was crazy.  Some said it couldn’t happen.  But they didn’t count on what happens when one force of nature meets another.  (Laughter.)  And by January — four months later — class was in session.  Less than a year after the storm, I had the privilege of delivering a commencement address to the largest graduating class in Xavier’s history.  That is a symbol of what New Orleans is all about.  (Applause.)

We see New Orleans in the efforts of Joycelyn Heintz, who’s here today.  Katrina left her house 14 feet underwater.  But after volunteers helped her rebuild, she joined AmeriCorps to serve the community herself — part of a wave of AmeriCorps members who’ve been critical to the rebirth of this city and the rebuilding of this region.  (Applause.)  So today, she manages a local center for mental health and wellness.

We see the symbol that this city has become in the St. Bernard Project, whose founder Liz McCartney is with us.  (Applause.)  This endeavor has drawn volunteers from across the country to rebuild hundreds of homes throughout St. Bernard Parish and the Lower Ninth Ward.

I’ve seen the sense of purpose people felt after the storm when I visited Musicians’ Village in the Ninth Ward back in 2006.  Volunteers were not only constructing houses; they were coming together to preserve the culture of music and art that’s part of the soul of this city — and the soul of this country.  And today, more than 70 homes are complete, and construction is underway on the Ellis Marsalis Center for Music.  (Applause.)

We see the dedication to the community in the efforts of Xavier grad Dr. Regina Benjamin, who mortgaged her home, maxed out her credit cards so she could reopen her Bayou la Batre clinic to care for victims of the storm — and who is now our nation’s Surgeon General.  (Applause.)

And we see resilience and hope exemplified by students at Carver High School, who have helped to raise more than a million dollars to build a new community track and football field — their “Field of Dreams” — for the Ninth Ward.  (Applause.)

So because of all of you — all the advocates, all the organizers who are here today, folks standing behind me who’ve worked so hard, who never gave up hope — you are all leading the way toward a better future for this city with innovative approaches to fight poverty and improve health care, reduce crime, and create opportunities for young people.  Because of you, New Orleans is coming back.  (Applause.)

And I just came from Parkway Bakery and Tavern.  (Applause.)  Five years ago, the storm nearly destroyed that neighborhood institution.  I saw the pictures.  Now they’re open, business is booming, and that’s some good eats.  (Laughter.)  I had the shrimp po’boy and some of the gumbo.  (Applause.)  But I skipped the bread pudding because I thought I might fall asleep while I was speaking.  (Laughter.)  But I’ve got it saved for later.  (Laughter.)

Five years ago, many questioned whether people could ever return to this city.  Today, New Orleans is one of the fastest growing cities in America, with a big new surge in small businesses.  Five years ago, the Saints had to play every game on the road because of the damage to the Superdome.  Two weeks ago, we welcomed the Saints to the White House as Super Bowl champions.  (Applause.)  There was also food associated with that.  (Laughter.)  We marked the occasion with a 30-foot po’boy made with shrimps and oysters from the Gulf.  (Applause.)  And you’ll be pleased to know there were no leftovers.  (Laughter.)

Now, I don’t have to tell you that there are still too many vacant and overgrown lots.  There are still too many students attending classes in trailers.  There are still too many people unable to find work.  And there are still too many New Orleanians, folks who haven’t been able to come home.  So while an incredible amount of progress has been made, on this fifth anniversary, I wanted to come here and tell the people of this city directly:  My administration is going to stand with you — and fight alongside you — until the job is done.  (Applause.)  Until New Orleans is all the way back, all the way.  (Applause.)

When I took office, I directed my Cabinet to redouble our efforts, to put an end to the turf wars between agencies, to cut the red tape and cut the bureaucracy.  (Applause.)  I wanted to make sure that the federal government was a partner — not an obstacle — to recovery here in the Gulf Coast.  And members of my Cabinet — including EPA administrator, Lisa Jackson, who grew up in Pontchartrain Park — (applause) — they have come down here dozens of times.  Shaun Donovan has come down here dozens of times.  This is not just to make appearances.  It’s not just to get photo ops.  They came down here to listen and to learn and make real the changes that were necessary so that government was actually working for you.

So for example, efforts to rebuild schools and hospitals, to repair damaged roads and bridges, to get people back to their homes — they were tied up for years in a tangle of disagreements and byzantine rules.  So when I took office, working with your outstanding delegation, particularly Senator Mary Landrieu, we put in place a new way of resolving disputes.  (Applause.)  We put in place a new way of resolving disputes so that funds set aside for rebuilding efforts actually went toward rebuilding efforts.  And as a result, more than 170 projects are getting underway — work on firehouses, and police stations, and roads, and sewer systems, and health clinics, and libraries, and universities.

We’re tackling the corruption and inefficiency that has long plagued the New Orleans Housing Authority.  We’re helping homeowners rebuild and making it easier for renters to find affordable options.  And we’re helping people to move out of temporary homes.  You know, when I took office, more than three years after the storm, tens of thousands of families were still stuck in disaster housing — many still living in small trailers that had been provided by FEMA.  We were spending huge sums of money on temporary shelters when we knew it would be better for families, and less costly for taxpayers, to help people get into affordable, stable, and more permanent housing.  So we’ve helped make it possible for people to find those homes, and we’ve dramatically reduced the number of families in emergency housing.

On the health care front, as a candidate for President, I pledged to make sure we were helping New Orleans recruit doctors and nurses, and rebuild medical facilities — including a new veterans hospital.  (Applause.)  Well, we have resolved a long-standing dispute — one that had tied up hundreds of millions of dollars — to fund the replacement for Charity Hospital.  And in June, Veterans Secretary Ric Shinseki came to New Orleans for the groundbreaking of that new VA hospital.

In education, we’ve made strides as well.  As you know, schools in New Orleans were falling behind long before Katrina.  But in the years since the storm, a lot of public schools opened themselves up to innovation and to reform.  And as a result, we’re actually seeing rising achievement, and New Orleans is becoming a model of innovation for the nation.  This is yet another sign that you’re not just rebuilding — you’re rebuilding stronger than before.  Just this Friday, my administration announced a final agreement on $1.8 billion dollars for Orleans Parish schools.  (Applause.)  This is money that had been locked up for years, but now it’s freed up so folks here can determine best how to restore the school system.

And in a city that’s known too much violence, that’s seen too many young people lost to drugs and criminal activity, we’ve got a Justice Department that’s committed to working with New Orleans to fight the scourge of violent crime, and to weed out corruption in the police force, and to ensure the criminal justice system works for everyone in this city.  (Applause.)  And I want everybody to hear — to know and to hear me thank Mitch Landrieu, your new mayor, for his commitment to that partnership.  (Applause.)

Now, even as we continue our recovery efforts, we’re also focusing on preparing for future threats so that there is never another disaster like Katrina.  The largest civil works project in American history is underway to build a fortified levee system.  And as I — just as I pledged as a candidate, we’re going to finish this system by next year so that this city is protected against a 100-year storm.  We should not be playing Russian roulette every hurricane season.  (Applause.)  And we’re also working to restore protective wetlands and natural barriers that were not only damaged by Katrina — were not just damaged by Katrina but had been rapidly disappearing for decades.

In Washington, we are restoring competence and accountability.  I am proud that my FEMA Director, Craig Fugate, has 25 years of experience in disaster management in Florida.  (Applause.)  He came from Florida, a state that has known its share of hurricanes.  We’ve put together a group led by Secretary Donovan and Secretary Napolitano to look at disaster recovery across the country.  We’re improving coordination on the ground, and modernizing emergency communications, helping families plan for a crisis.  And we’re putting in place reforms so that never again in America is somebody left behind in a disaster because they’re living with a disability or because they’re elderly or because they’re infirmed.  That will not happen again.  (Applause.)

Finally, even as you’ve been buffeted by Katrina and Rita, even as you’ve been impacted by the broader recession that has devastated communities across the country, in recent months the Gulf Coast has seen new hardship as a result of the BP Deepwater Horizon oil spill.  And just as we’ve sought to ensure that we are doing what it takes to recover from Katrina, my administration has worked hard to match our efforts on the spill to what you need on the ground.  And we’ve been in close consultation with your governor, your mayors, your parish presidents, your local government officials.

And from the start, I promised you two things.  One is that we would see to it that the leak was stopped.  And it has been.  The second promise I made was that we would stick with our efforts, and stay on BP, until the damage to the Gulf and to the lives of the people in this region was reversed.  And this, too, is a promise that we will keep.  We are not going to forget.  We’re going to stay on it until this area is fully recovered.  (Applause.)

That’s why we rapidly launched the largest response to an environmental disaster in American history — 47,000 people on the ground, 5,700 vessels on the water — to contain and clean up the oil.  When BP was not moving fast enough on claims, we told BP to set aside $20 billion in a fund — managed by an independent third party — to help all those whose lives have been turned upside down by the spill.

And we will continue to rely on sound science, carefully monitoring waters and coastlines as well as the health of the people along the Gulf, to deal with any long-term effects of the oil spill.  We are going to stand with you until the oil is cleaned up, until the environment is restored, until polluters are held accountable, until communities are made whole, and until this region is all the way back on its feet.  (Applause.)

So that’s how we’re helping this city, and this state, and this region to recover from the worst natural disaster in our nation’s history.  We’re cutting through the red tape that has impeded rebuilding efforts for years.  We’re making government work better and smarter, in coordination with one of the most expansive non-profit efforts in American history.  We’re helping state and local leaders to address serious problems that had been neglected for decades — problems that existed before the storm came, and have continued after the waters receded — from the levee system to the justice system, from the health care system to the education system.

And together, we are helping to make New Orleans a place that stands for what we can do in America — not just for what we can’t do.  Ultimately, that must be the legacy of Katrina:  not one of neglect, but of action; not one of indifference, but of empathy; not of abandonment, but of a community working together to meet shared challenges.  (Applause.)

The truth is, there are some wounds that have not yet healed.  And there are some losses that can’t be repaid.  And for many who lived through those harrowing days five years ago, there’s searing memories that time may not erase.  But even amid so much tragedy, we saw stirrings of a brighter day.  Five years ago we saw men and women risking their own safety to save strangers.  We saw nurses staying behind to care for the sick and the injured.  We saw families coming home to clean up and rebuild — not just their own homes, but their neighbors’ homes, as well.  And we saw music and Mardi Gras and the vibrancy, the fun of this town undiminished.  And we’ve seen many return to their beloved city with a newfound sense of appreciation and obligation to this community.

And when I came here four years ago, one thing I found striking was all the greenery that had begun to come back.  And I was reminded of a passage from the book of Job.  “There is hope for a tree if it be cut down that it will sprout again, and that its tender branch will not cease.”  The work ahead will not be easy, and there will be setbacks.  There will be challenges along the way.  But thanks to you, thanks to the great people of this great city, New Orleans is blossoming again.

Thank you, everybody.  God bless you.  And God bless the United States of America.  (Applause.)

Raed Gonzalez, an immigration attorney who was briefed on the effort by Homeland Security’s deputy chief counsel in Houston, said DHS confirmed that it’s reviewing cases nationwide, though not yet to the pace of the local office. He said the others are expected to follow suit soon. Gonzalez, the liaison between the Executive Office for Immigration Review, which administers the immigration court system, and the American Immigration Lawyers Association, said DHS now has five attorneys assigned full time to reviewing all active cases in Houston’s immigration court. Gonzalez said DHS attorneys are conducting the reviews on a case-by-case basis. However, he said they are following general guidelines that allow for the dismissal of cases for defendants who have been in the country for two or more years and have no felony convictions.

This shouldn’t come as too much of a shocker. The Obama administration and Immigration and Customs Enforcement have been up front about prioritizing the deportation of undocumented immigrants who are criminal offenders. The method, however, may be new. As The Washington Post reported last month, the administration2019s main mechanism for the prioritization of criminal illegal immigrants has been to shift away from work-site raids and toward a program called Secure Communities.

Secure Communities, as The New York Times describes it, helps authorities check an arrested person’s immigration history through a government database. It’s increasingly being implemented across the country despite the objections of immigration advocates (who say most of the program’s deportations are of immigrants who aren’t violent criminals) and immigration foes (who aren’t in favor of letting non-criminal undocumented immigrants escape deportation, period).

Even the ones who haven’t committed murder or rape or drug offenses, all of them have committed federal felonies, Mark Krikorian, executive director of the Center for Immigration Studies, a think tank that favors tighter restrictions, told the Post.

So it’s no wonder that Krikorian wasn’t too pleased at the news that deportation cases were being dismissed for non-criminal immigrants. He told the Chronicle that the administration has made clear that they have no interest in enforcing immigration laws against people who are not convicted criminals.

A quick review of Homeland Security statistics compiled by the Post, however, shows that deportations have been higher under the Obama administration than under Bush. Deportations in 2009 reached a high of nearly 390,000 and will likely be higher in 2010. Criminal deportations rose 19 percent from 2008 to 2009, and as of June 7, were about half of this year’s total deportations.

Under Obama, the backlog in immigration cases has also reached record levels, according to recent data from Syracuse University’s Transactional Records Access Clearinghouse. In mid-June, about 248,000 were pending in immigration courts. Suzy Khimm, writing for Ezra Klein’s policy blog at the Post, pointed out the backlog in a post this week. (The backlog in Houston’s immigration courts was eighth highest in the country, with 7,444 cases pending.)

Immigration attorneys told the Chronicle that these deportation case dismissals still leave their clients in legal limbo –they haven’t been expelled, but they haven’t been granted any additional rights, so it’s not “backdoor amnesty,” as critics claim.

Congress and the Obama administration recently added additional law enforcement at the border, but whether this will result in more deportations may depend on whether the backlog persists. Given that many immigration judgeships still remain vacant, as TRAC has noted, it seems quite probable, unless dismissals by Homeland Security happen to bring some relief.

by Marian Wang

ProPublica

There’s nothing in the street, Looks any different to me
And the slogans are replaced, by-the-bye
And the parting on the left, Is now the parting on the right
And the beards have all grown longer overnight
I’ll tip my hat to the new constitution, Take a bow for the new revolution
Smile and grin at the change all around me
Pick up my guitar and play, Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again
Meet the new boss, same as the old boss.

The Who

1968, President Richard Nixon was elected on a promise of ending the Vietnam War. Nixon coined the phrase Vietnamize the war meaning to turn over the responsibility of combat to the South Vietnamese, to facilitate the return of all American combat troops. Prior to making good on his campaign promises, President Nixon ordered more U.S. combat troops into Cambodia, which intensified combat further. This was also followed by increased anti-war sentiments from the already battle fatigued American public. Nixon was committed to the ideal that America must end the war honorably, which was translated to mean, winning the war. Congress then repealed the Gulf of Tonkin Resolution and halted funding for the war in Vietnam. Free elections were to be held and the Paris Accord went into effect. The U.S. agreed to remove all combat troops and they did. America’s strong arms were no longer there to protect South Vietnam’s democratic infancy and Saigon fell to the North Vietnamese. By 1975, the Army of the Republic of South Vietnam had collapsed and in the vacuum left by our withdrawal was a resentful South Vietnamese people who were then faced to defend their poorly prepared nation. Enter the Khmer Rouge, a clandestine murderous Communist backed party led by Pol Pot. After the fall of Saigon, the Khmer Rouge subjected North Vietnamese citizen into a brutally enforced agrarian-based communist society. Approximately 2 million people were tortured and murdered or starved to death in the wake of the new social engineering of Cambodian society. Those murdered were primarily the intellectual elite who may harbor ideas that were threatening to socialist ideals. Children were separated from parents, who were thought to have corrupted their children’s thinking and the Khmer Rouge killed anyone who may be involved in free-market activities. The Khmer Rouge may have exterminated as many as 7 million people in their reign from 1975 thru 1979. They have been called the most lethal regime of the 20^th century. The motto offered to the South Vietnamese people by the Khmer Rouge, “To keep you is no benefit, to destroy you is no loss.”

The murderous regime of the Khmer Rouge was definable, and they were visible. The violent actions were driven by a deep belief that if citizens did not believe as they did, their deaths would be no loss.

2008, President Barack Obama was elected, among other campaign promises, to bring U.S. combat troops home from Iraq within 16 months. President Obama said, “The best way to press Iraq’s leaders to take responsibility for their future is to make it clear that we are leaving.” Obama pledged to, “seek a new accord on Iraq’s Constitution and governance.” Recently after bringing home all but 50,000 support and training troops, Mr. Obama said, “The bottom line is this: The war is ending. Like any sovereign, independent nation, Iraq is free to chart its own course. And by the end of next year, all of our troops will be home.”

According to an August 2007 paper published by the Center for Strategic and International Studies (CSIS), the challenges faced in preparing a cohesive Iraqi Security Force (ISF) are complex and multi-dimensional. “Success depends on realism and resources. Overly optimistic conceptions of ISF development already have done much to breed a climate of distrust and fuel the pressure to withdraw. There is also a serious risk that both the US and Iraq will rely on false optimism and illusions for very different political reasons. The US increasingly wants out; the Iraqi government increasingly wants the US presence altered and reduced to support its own internal political objectives. “

Regarding the timeline set by President Obama, Iraqi national security adviser Mowaffak al Rubaie stated, “to be able to defend Iraq cannot be done overnight, or in months. It will take decades to build an air force and to build a navy. People are trying to fit or to sync the Iraqi clock to the Washington clock,” when in fact, “we need to sync the Washington clock to the Baghdad clock.”

Retired Maj. Gen. John Landry, a member of the intelligence council, said in regards to ISF preparedness, “Iraqi security forces are so plagued by sectarianism, poor logistics, and weak support capabilities that they would not be able to successfully transition control.” When asked if ISF forces were capable of providing some sort of successful closure to US involvement in Iraq, Landry stated this was “not likely” and that Iraqi military leadership and capability needed “years to develop, not months.”

Marine Commandant General James Conway commented on the problems that exist in the unification of ISF forced in the face of sectarian feelings and the potential that yesterday’s insurgents are today’s Iraqi soldiers. “There’s no doubt about that. More generally, however, many Iraqi Army and National

Police units that were actively in combat in areas like Baghdad had officers with clear ties to the Shi’ite militias and were involved or tolerated sectarian cleansing.

Kurdish units serving the central government also had their primary loyalty to Kurdish leaders, but this has been far less of a problem to date because they have not had to operate in areas with ethnic clashes between Arab and Kurd. In fact, some Iraqi Army brigades that were formally in the Kurdish areas have been among the best performing Brigades in Baghdad. The regular police were almost all more loyal to local leaders, tribes, sects, and their ethnicity than the central government.”

General David Petraeus commented, “The sectarian character of the police is a significant challenge to force development, “up to 70% of Iraqi police leaders had been replaced because they had ties to sectarian violence.” Brig. Gen. Pittard reported, “local police were still susceptible to militia infiltration, and that sectarian loyalty still needed to be actively addressed among these units

In Iraq, the American military leaders have tried to instill the Iraqis with a Nationalistic pride. The problem is however, that there is no unified Iraq to unify. When Sunni officials are empowered, Shia leaders are threatened and visa versa. There have always been sectarian beliefs in Iraq and perhaps even before the citizens of Iraq consider the unified Iraq, they must first consider ethnic tolerance. At a time when the future security of Iraq is based on the level of individual patriotism for Iraq, it remains to be seen if national patriotism can overcome sectarianism and fear.

Historically we have not seen countries respond well to the U.S backed train, fight and withdrawal playbook. Iraq will present an even greater challenge due to the presence of outside insurgency threatening and already fragile sectarian relationship. If the U.S. is indeed leaving a poorly or un-prepared Iraq, civil war is an unfortunate certainty.

When compared to the Vietnam War and ultimate civil war, Iraq has numerous complex differences. In Vietnam, the basic conflicting ideals were that of a socialist dictatorship and a democratic regime. The two-sides were distinct and defined. Peace talks could be arranged and agreements, though fragile, were at least a potential. In Iraq, there is not a clear cut “two-sided conflict.” Iraq is a predominantly tribal society and as a tribal society, Iraqi’s have deeply divided religious and sociological foundations all of which operate within the Muslim faith. Given that these sectarian views are first and foremost in the citizens belief system, it will be difficult, if not impossible to expect any unified military or police effort to progress. The Iraqi people are terrified that when the U.S. presence ends, lawlessness will once again be the rule and any nationalistic alliances forged will be the cause of extreme violence against them.

Vietnam was essentially a strategic block of land where the fights between the Soviet Union and the U.S. could occur on a smaller scale and without nuclear war occurring. South Vietnam was of no interest to anyone, with the exception of North Vietnam. Iraq however, is the third largest oil producing country in the world and access to this oil, as well as stability of the Middle East is a strategic imperative. Today our enemy is not communism, but radicalism. Al Qaeda is not a definable fighting force, but instead is a pervasive ideal that cannot be attacked with traditional weapons. There is a war for the hearts and minds of Iraqis, and as much as the U.S. has struggled to provide a positive image of democracy, we may have misjudged the images that the average Iraqi already has. If Iraq remains peaceful and free to, chart their own future,” as President Obama has said, then the perception of American involvement will be favorable. If Iraq is prepared to secure their borders and work together to maintain security and order, then the view of American involvement will be favorable. If however, insurgents apply pressure through attacks and threats of eventual ethnic retaliation, and the population begins to feel even the slightest degree of insecurity or corruption in the Iraqi government or the Iraqi Security Force, then there will be mass panic heralding in a civil war. The tragic outcome of a breakdown of this nature is that al Qaeda will be more than happy to exploit this weakness, thus resulting in greater propagation of the myth of al Qaeda and greater weakening of the already weak American self-identity.

August 19^th 2010: The last combat troops leave Iraq. August 27^th, 13 Iraqi cities are attacked by synchronized bombings. 56 people are killed and hundreds wounded. The following day, 6 Government allied fighters were ambushed and killed by insurgents. Wael Abdel-Latif, a former Iraqi judge and former lawmaker states, “The message the insurgents want to deliver to the Iraqi people and the politicians is that we exist, and we choose the time and place,” “They are carrying out such attacks when the Americans are still here, so just imagine what they can do after the Americans leave.”

At the end of Vietnam there was U.S. reparations. To accept that farmers were paid $600 for each banana tree destroyed, while families were paid $150 for a child killed, is beyond obscene. What then will be the long-term cost of the U.S. or more politically correct, the Multi-National Forces, involvement in Iraq? It would seem that money is no longer the currency needed to pay reparations, but instead there is a price far greater. The cost of abandoning the Iraqi people in the event of an actual civil war, or worse, being guilty of weakening the Iraqi’s ability to defend themselves, would lead to a shift in radical Islamic new believers that the world has never before seen. Just as Hitler was dedicated to world dominance and ethnic cleansing, al Qaeda is also dedicated to devote each and every life in the pursuit of the same goal. Pol Pot was a murderous brutal dictator and the Khmer Rouge just as dedicated to brutality. The difference was in leadership. The adage of cutting the head off the snake kills the snake, does not hold true to the current multi-headed snake that appears to become stronger and bolder with each attempt to destroy it. It is clear that if political ambition is the deciding factor for the end of combat actions in Iraq, then surely it is a battle we will revisit.

August 28, 2010:

The Islamic State of Iraq, a coordinating group for al-Qaeda militants, posted a statement taking responsibility on its Web site taking credit for attacking “the headquarters, centers, and security barriers of the apostate army and police” with assaults that were “the wings of victory sweeping again over a new day,”

Listen to Wallace Farmer talk about the loan mod process.

On a recent Friday morning, Wallace Farmer packed up and moved out of his Baltimore row house. After over a year of confusion and delays, JPMorgan Chase told Farmer that he made too much for a mortgage modification through the government’s foreclosure relief program. That made no sense to Farmer — he’d lost around $500 a month from two rental properties — but he was done fighting. He recalls finally saying, “To hell with it.”

Farmer is one of many homeowners who have given up on the government’s mortgage modification program, which tries to help struggling homeowners by reducing their monthly payments. They say they’re trapped in a bureaucratic nightmare, and even if they are offered a modification, it doesn’t help enough. They stop sending checks and instead face foreclosure.

Have you worked for a servicer in a loan modification call center? We want to hear from you.

Are you a homeowner who’s struggling to pay your mortgage? Are you seeking a loan modification through the government program? We want to hear from you.

“I have been traumatized,” says Farmer of his process trying to get help from Chase. “I couldn’t get any closure. Nobody would tell me anything. They kept saying, ‘It’s in the mail. It’s in the mail.’” Chase spokeswoman Christine Holevas says the bank was giving Farmer “assistance and advice about options” when he moved out.

Farmer’s frustration at the delays and the runaround are common among people trying to get help through the government program. More than three-quarters of the homeowners who responded to our questionnaire said they did not trust their servicers to make a good-faith effort to evaluate them for a modification. The Treasury Department has acknowledged that the stress and confusion of the process has caused some homeowners to give up.

Based on the accounts of more than 350 homeowners, University of Arizona law professor Brent White recently wrote that homeowners who make intentional decisions to stop paying their mortgages often feel “anxiety and hopelessness about their financial futures and anger at their lenders’ and the governments’ unwillingness to help.”

When these homeowners take a look at the hard numbers of their finances, many say a modification isn’t enough help. The delays can often push homeowners further into debt because unpaid principal, interest and fees accrue during trial modifications. And nationally, one in five homeowners, like Farmer, are “underwater,” meaning they owe more on their mortgages than their homes are worth. Farmer figured that, since he owes $101,000 more than the market value of his home, he’d essentially be renting for the next 20 years. “I cannot be burdened with that amount of negative equity,” he says.

Even those who successfully get permanent modifications end up owing 50 percent more, [PDF] on average, than their homes are worth, according to the Government Accountability Office.

The government program lowers monthly payments by reducing interest rates, extending the term of a mortgage, and then, if necessary, offering “principal forbearance,” which moves up to 30 percent of the amount owed to a balloon payment at the end of a loan. Around a third of permanent modifications in the program have principal forbearance [PDF].

In March, the Treasury Department announced a new program to promote not just postponing principal payments, but actually wiping away some debt for loans with balances more than 15 percent higher than the house’s value. Under the program, mortgage servicers are “encouraged” — but not required — to forgive principal.

After a year of faxing and resubmitting documents, one Florida homeowner finally threw up his hands and faxed his mortgage servicer a picture of his naked backside with a note saying, “Please see below for my updated financial information.” The homeowner says he got a modification the very next week.

ProPublica’s Paul Kiel and Olga Pierce contributed to this story.

Have you given up on getting a modification? Please use the comments section below to discuss with other homeowners. And if you haven’t already filled out our questionnaire, please tell us your story.

by Karen Weise

ProPublica