Juan Cole has more - much more - on the Bush team's apparent public burning of the al-Qaeda turncoat agent who provided the information that led to this week's wave of arrests in Pakistan and Britain. The story is already producing a bureaucratic backlash across the Atlantic.

Juan believes the scandal is spreading to the U.S. media, based on a bit of MSNBC coverage yesterday and a few remarks on a CNN talking head show today. Personally, I have my doubts. Based on an admittedly quick scan of the usual mainstream media suspects, it looks like most outlets are still captivated by the spy thriller details of the story, and dutifully lapping up the usual "you are there" details spoon fed them by the Bush PR juggernaut (which is suddenly making Richard Clarke-level anti-terrorism officials available for on-the-record interviews):

It's called the president's Daily Threat Report (PDTR), or, in bureaucratic shorthand, the Putter ... At 6:40 a.m. on Friday, July 30, Fran Townsend, the president's homeland-security adviser and counterterror chief for the national-security staff, opened up her red-striped Putter and received a jolt ...

In an interview with NEWSWEEK, Townsend recalled thinking, "This is the real deal"—a chance to crack the plot.

What they ended up cracking, however, was the operational security of one of the most successful intelligence penetrations of al-Qaeda in the organization's history. Which has some of our British allies wondering about Team Bush's priorities:

Is that really the job of a senior cabinet minister in charge of counter-terrorism? To feed the media? To increase concern? To have something to say, whatever it is, in order to satisfy the insatiable desire to hear somebody saying something?

Some questions, of course, answer themselves.

And some don't:

"The whole thing smacks of either incompetence or worse," said Tim Ripley, a security expert who writes for Jane's Defence publications.

"You have to ask: what are they doing compromising a deep mole within al Qaeda, when it's so difficult to get these guys in there in the first place?

Like Ripley, I honestly don't know whether to believe the identity of Mohammed Naeem Noor Khan (the al-Qaeda turncoat) was intentionally leaked - presumably to lend creedence to the Department of Reelection Security's weekend alert frenzy - or simply a product of the administration's usual incompetence.

It seems at least possible the leaker may not have known Khan was a Pakistani double agent. That, at least, is the story that CNN correspondent and faithful administration stenographer Wolf Blitzer was peddling today, according to Juan Cole:

Blitzer revealed that he had discussed the Khan case with US National Security Adviser Condaleeza Rice on background. He reported that she had admitted that the Bush administration had in fact revealed Khan's name to the press. She said she did not know if Khan was a double agent working for the Pakistani government... (emphasis added)

Who knows? Maybe it's true. Still, at this point, it's hard not to be impressed by the surface similarities between the Khan case and that of former CIA operative Valarie Plame. There, too, sensitive intelligence information was distributed to the news media in a way that seemed designed to help the White House solve a political problem. And there, too, after some initial hemming and hawing, the administration's defense seemed to boil down to pleading that the disclosure was not intentional - i.e., that while Scooty Libby et. al. knew Plame was a CIA employee, they didn't realize she was a covert operative.

Sheer coincidence? Well, we've certainly had a run of them lately. It appears the "July Surprise" that John Judis and Spenser Ackerman predicted in The New Republic has turned into the August Extravaganza.

That the operation was real - and the information obtained extremely valuable - seems beyond doubt. (Score one - a big one - for the much maligned U.S. intelligence community.) But the Bush administration's handling of the affair, most particularly the timing of its decision to hit the public panic button last weekend, looks increasingly dubious.

This will not, I'm sure, stop the story from being portrayed by the mainstream media as a major political victory for Bush - and, by implication - a major setback for Kerry. In fact it's already started:

He may talk tough, but Kerry still faces his biggest challenge convincing voters he'd be a better commander in the war on terror than Bush. Polls show the president holding a double-digit lead over Kerry on terrorism and homeland security.

Interestingly, though, the latest Time magazine poll shows voters are profoundly unimpressed by the latest terror scare:

After a week of al-Qaeda terrorism alerts, the dominant issue for voters remains the economy — 27% cited the economy as their decisive issue, the same as two weeks ago. Terrorism is at 18%, exactly the same as two weeks ago...

Only 21% report being "very worried" about a terrorist attack in the next few months, up only 4% from those who gave the same answer before the latest alert.

Less than 1 in 3 voters (31%) say that they follow the alert levels "very closely."

Nor, in the aftermath of the Democrats' patriotism festival in Boston, are voters inclined to view Bush as the only safe alternative when it comes to fighting terrorism:

A majority of voters would trust either Bush (61% trust, 35% not trust) or Kerry (62% trust, 32% not trust) to lead the war against terrorism. Both Bush and Kerry appear to pass the test.

So much for that "double digit lead."

Another week of media hypercoverage (until the commercial imperatives of the Olympics intervene) no doubt will move those numbers in Bush's favor somewhat. But the mess in Iraq and the collapse of the administration's "turning the corner" message on the economy are creating some powerful counterveiling currents in the campaign propaganda war.

To that extent, if the White House's PR handling of the Khan operation really was a dress rehearsal for how the Bush campaign intends to conduct the closing weeks of the campaign, it may not be the hit the show's producers were hoping for.

Which is ominious, because if al-Qaeda really means what it says - and it always has in the past - it wants to do whatever it can to defeat Kerry and keep Bush, the man who has done so much to create the conditions for al-Qaeda's success, in the White House. Or, as columnist Gwynne Dyer pointed out back in January:

It is astonishing how little this is understood in the United States. I know of no American analyst who has even made the obvious point that al-Qaida wants Bush to win next November's presidential election and continue his interventionist policies in the Middle East for another four years, and will act to save Bush from defeat if necessary.

It probably would not do so unless Bush's numbers were slipping badly, for any terrorist attack on U.S. soil carries the risk of stimulating resentment against the current administration for failing to prevent it.

Under the circumstances, that's not a scenario I like to think about. Let's just hope the administration's little PR stunt didn't keep the intelligence community from breaking up a real al-Qaeda attack plan. Because in the end, we may have more to fear from it than Bush does.

I really, really, REALLY want to make the Vote for Change show here in Philadelphia October 1 (Springsteen, Fogerty, REM and Bright Eyes - who could ask for more?) I've signed up for pre-sale tickets at Move On, but they're already warning that there may not be enough to go around.

And so, being completely without shame, I'm asking any Whiskey Bar readers out there who may have access to tickets - or who have connections, influence, pull, etc. with Move On, Americans Coming Together or the artists involved - to please put in a good word for me.

It's not like I'm asking for special treatment or anything - just a couple of tickets to the hottest show on the planet for aging political junkies like me. That's all. Any help would be hugely appreciated.

Now that I've cleared that up, I should also mention that I'm heading out of town on vacation today, so posts will be less-than-regular over the next two weeks. I will be checking in from time to time, however, so don't forget about me entirely.

OK, now I'm out of here.

It appears that in their haste to announce a major terrorism scare the weekend after the Democratic convention, Bush administration officials may have deliberately burned a Pakistani agent who had been arrested and then "turned" against al-Qaeda. Reuters has the story:

U.S. officials providing justification for anti-terrorism alerts revealed details about a Pakistani secret agent, and confirmed his name while he was working under cover in a sting operation, Pakistani sources say.

A Pakistani intelligence source told Reuters on Friday that Mohammad Naeem Noor Khan, who was arrested in Lahore secretly last month, had been actively cooperating with intelligence agents to help catch al Qaeda operatives when his name appeared in U.S. newspapers.

Apparently, Khan was the source who provided the four-year-old computer files that suggested al-Qaeda had cased the headquarters of specific financial institutions in New York and Washington prior to 9/11. These then became the ostensible reasons for the administration's pull-out-all-the-stops panic attack last weekend.

Khan was identified by name in a New York Times story on Monday, presumably because he was fingered by U.S. officials on Sunday. Reuters quotes several counterterrorism specialists who speculate the administration may have revealed Khan's identity essentially for PR purposes - in order to justify its hair trigger response to the ongoing Pakistani investigation.

Be that as it may, once the Times fingered Khan, administration officials confirmed his identity to two other news organizations on Monday morning, according to Reuters:

None of the reports mentioned that Khan was working under cover at the time, helping to catch al Qaeda suspects.

This, of course, helped to whip up media interest in Bush's Rose Garden appearance on Monday afternoon, in which he shed his earlier public misgivings and promised to adopt - more or less whole - the 9/11 commission's bureacratic reorganization ideas.

There's just one problem: Because Khan's cover had been blown, his Pakistani handlers had to bring him in from the cold. This immediately jeopardized the other sensitive operation he was working on - identifiying and penetrating an al-Qaeda cell operating in London.

This, in turn, almost cost British police their chance to reel in their big fish, at least according to Reuters:

The next day British police mounted the sweep that caught the 12 suspects. Such raids are normally carried out late at night or in the early morning, when suspects might be at home and less likely to resist.

But showing clear signs of haste, British police pounced in daylight. Some suspects were taken in shops; others were caught in a high-speed car chase.

A British anti-terrorism police source would not comment on the reason for their quick action, but confirmed the raids were carried out faster than planned: "It would be a fair assessment to say there was an urgency. Something can happen that prompts us to take action faster than we would," he told Reuters.

So in order to alarm the public about a four-year-old potential al-Qaeda plot (and, in the process, polish up Dear Leader's anti-terrorism credentials) it appears the administration knowingly endangered an on-going intelligence operation aimed at capturing a senior al-Qaeda operative and his entire cell.

And, as previously noted, all of this just by chance happened on the weekend after the Democratic convention - at a time when the Bush-Cheney campaign was determined to squash any Kerry "bounce" in the polls.

Will coincidences ever cease?

(Thanks to Feridun for the tip.)

Earlier this year, when the Bush administration was using some Enron-style arithmetic to jigger its 2004 employment growth estimates, Brad DeLong wrote a series of take-no-prisoners posts about the political disembowelment of the Council of Economic Advisors - the White House's in-house economic think tank.

Under previous presidents, both Republican and Democratic, the CEA had a certain amount of credibility for the rigor and honesty of its work - as well as a certain insulation from the partisan cronyism that infests most of the federal government these days. Paul Krugman and Larry Summers, for example, both worked at the Reagan CEA - something that would be almost unimaginable today.

Professor DeLong, on the other hand, documented, in painstaking detail, the Bush II CEA's intellectual decline into a pliable tool of the Bush-Cheney re-election campaign. Brad highlighted the willingness of the council and its chairman, Gregory Mankiw, to misrepresent their previous forecasts in order to spare Bush the embarrassment of having to admit his initial job creation target for 2004 couldn't possibly be met.

Well, today we were given another demonstration of the intellectual collapse of the CEA, and the degree to which Dr. Mankiw is willing to prostitute himself to the greater glory of the Republican Party. He may not be the biggest whore in the Texas cat house that is the Bush administration, but he's doing a hell of an imitation of the guy playing the piano in the downstairs parlor.

Briefing reporters on today's dismal payroll report for July, Mankiw apparently went to great lengths to try to sell the GOP's spin of the day, which was to stress the hefty jump in employment as measured by the so-called household survey.

(As explained in my previous post, the household survey is based on a poll of roughly 60,000 American. Payrolls - which showed virtually no growth last month - are based on a completely different survey of employers.)

Here's Mankiw, spinning like an economic ballerina:

"You can't ignore some pieces of data and pay exclusive attention to others," Mankiw said. "The truth lies in between those two estimates."

The issue is not whether the household survey is inaccurate - all economic surveys are, up to a point. But Mankiw knows perfectly well that the household survey isn't designed to tell us how many jobs the American economy creates each month. It's purpose is to tell us what percentage of the American workforce is employed - using the special definitions applied by the Bureau of Labor Statistics.

The Cleveland Federal Reserve published a very clear, non-jargony paper on this topic just a couple of months ago, if you want chapter and verse. But the short form is roughly this:

• Because the survey is based on a relatively small sample, the BLS uses a population estimate from the Census Bureau to extrapolate the survey into results for the national population. If the census estimate is wrong, the national results will be wrong, too.

• Some results, however, will be more wrong than others. Because the unemployment rate (and a related measure, the employment-to-population ratio) have the Census Bureau's population estimate on both sides of the equation (the numerator and the denominator) they're less affected by an error in the census data. The estimate of total employed individuals, however, can be thrown be wildly off..

This, as it turns out, is exactly what happened during the 2001-2003 period, when the payroll survey was showing huge job losses, while the household survey was showing moderate job gains. As the Cleveland Fed explains:

In its most recent review of the population, the U.S. Department of Census determined that it had overestimated the U.S. population for the period from 2000 to 2003 primarily because of unanticipated changes in net international migration patterns.

As a result, the BLS notes that the upward trend in the employment estimates produced by the household survey since the end of the 2001 recession is largely a function of this overestimate.

In fact, through the end of 2003, the accumulated overcount of the estimate of employment in the household survey was nearly half a million workers. (emphasis added).

The household survey, in other words, was giving a reasonably accurate reading on the unemployment rate, a reasonably accurate reading on the employment-to-population ratio, and a completely bogus reading on employment growth. And the conservative economists (or pseudo-economists, in Larry Kudlow's case) who staked their credibility on trashing the payroll survey and praising the household survey (for something it was never designed to do) were shown to be completely wrong. About as wrong as it's possible to be, in fact.

(Just as an aside, I visited the National Review's web site this evening to see what the supply-side nut cases who congregate there might have to say about this issue - or about today's employment report, for that matter. I found nothing - nada, nunca, zip, zippo. Not a word, not even in The Corner - the Review's circle jerk web log. Either the supply siders all took the day off, or they finally know what a losing argument is when they see one.)

Mankiw also knows - just as he knows the accuracy of the household survey as a job creation measure has been disavowed even by Alan Greenspan (who's also willing to put on the fishnet stockings for his political masters, but not at the cost of his own reputation). As the Great One himself told Congress last February:

“Having looked at both sets of data … it’s our judgment that as much as we would like the household data to be the more accurate, regrettably that turns out not to be the case.”

Mankiw's sin is a minor one, I suppose - at least when compared to misleading the nation into an unnecessary war, or revealing the identity of a covert CIA operative or fiddling the profit & loss statement of a major public corporation. But it demonstrates just how deeply the political rot has sunk into the intellectual muscle of the federal government. Truly, to the Mayberry Machiavellis, policy means nothing. Politics - and power - is all.

Which just might explain why they're in the jam they're in now.

The best thing that can be said about the July jobs report is that it could have been worse. The question now is whether the employment situation will get worse as a result of shock that today's numbers will have on the financial markets and the economy.

There was no shortage of credible explanations for the stock market's nasty tumble today - which indeed is probably why the fall was so nasty. From Wall Street's point of view, just about everything that could go wrong today did - with the distinct possibility that things could go even worse on Friday.

In no particular order, today's bad news included:

• Another surge in the price of oil - ostensibly triggered by the continuing troubles of the Russian oil firm Yukos, but also reflecting a growing awareness that the balance between global supply and global demand is fundamentally tight, and that even the House of Saud may not be able to do much about it, at least in the short run. Some analysts are now talking about a $50 barrel of oil before the end of the year.

• Continued signs of sluggish consumer spending, as chain store sales for July were generally disappointing. The fragility of consumer demand - due to weak-to-nonexistent income growth for the vast majority of wage-earning Americans - is something I've been talking about for many months. Now, it seems Wall Street's beginning to sense trouble, too.

• A breakdown of the fragile truce between the coalition forces and their Iraq puppet allies and the Mahdi Army of Muqtada al-Sadr. It's not clear yet whether this is a return to all-out rebellion or just another tactical maneuver by Sadr to try to win political concessions from the new Iraqi government, but the fighting (which included the downing of a Marine helicopter) just reminded the market that the quagmire in Iraq hasn't gone away, even if Paul Bremer and the Coalition Provisional Authority have..

• Bush's bad poll numbers. Of course, I don't really know how significant a factor the Fox News poll was, but I've a hunch that if the stock jockeys listen to anyone, it's Fox. And while I could sit here and type my fingers to the bone explaining why four more years of Shrub's misrule wouldn't be such good news for the stocks, it doesn't matter - the market is a staunch Republican. (It also knows who Kerry is talking about when he promises to roll back tax cuts for those making over $200 k.)

Will the news be any better on Friday? Personally, I'm not holding my breath. The July employment report is due out in the morning, and while the official consensus forecast is for a payroll increase of about 240k, the street appears to be bracing for a downside surprise. Help wanted advertising (both in print and online) fell last month, and the Institute for Supply Management reported that the jobs component of its index of business conditions in the service sector fell to 50 - the dividing line between payroll expansion and contraction.

I have my own reasons for suspecting the employment news tomorrow will be bad. Over the past six months or so, I've developed a sneaking suspicion that some key economic reports may be leaking out early.

It isn't anything I can prove - just a sense I've had several times recently that the market was uncannily prescient in anticipating numbers, particularly employment numbers, that were not in line with the consensus forecast.

Where the leaks might be coming from - if, indeed, they exist at all - I can't say. I know from my past life as an economics reporter that most of the key numbers are passed to the Federal Reserve a day or two ahead of release, and I seem to recall - though I wouldn't swear by it - that the White House's Council of Economic Advisors gets a heads up as well.

In any case, to actually move the markets in a visible way, the leak would either have to be extremely widespread (to the point of becoming general knowledge) or be available to someone with the ability to use them to direct some truly massive program trades - automated buy and sell orders involving hundreds of thousands of shares.

The SEC and the New York Stock Exchange both closely monitor daily trading to detect patterns that suggest insider trading (that's how they were able to debunk the story that there had been suspicious trading activity in the airline stocks in the days leading up to 9/11). But the stock cops are looking for patterns involving specific companies or industries. Would they suspect - or even notice - program trades designed to profit from broad, market-moving trends, like the employment report? Hedge funds make those kinds of bets all the time. Would the cops notice if one or two of them happened to be right a remarkably high percentage of the time?

I may just be letting my paranoia run away with me. But the late round of selling that hit the market this afternoon didn't seem to be connected to any particular event - except a general unwillingness on the part of somebody to be in the market when it opens tomorrow - and hour and a half after the unemployment report is released.

Now all this bad news obviously has great significance for the presidential election. Iraq is a crucial issue in and of itself - which I'll try to get around to dealing with in another post. But, given that most polls continue to show the economy is issue numero uno for most voters, it's the one that would seem to have the most potential to knock George the Younger out of the box.

Whether it will or not, of course, is less clear. I'm struck by the growing divergence between consumer demand - which has been weakened both by high energy prices and sluggish wage growth - and business demand, which seems to be reaccelerating after slowing down in June. Companies appear to be doing a lot of capital spending and inventory building, which suggests they're still confident about the health of the expansion.

Ordinarily, that confidence would be self-fulfilling. Business investment would go hand in hand in hiring, which would bring wage growth to the party, which would fuel consumer demand, which would spur more investment - the classic virtuous circle. But without the hiring and the wage growth, there would seem to be a danger the virtuous circle will be short-circuited. And when surging business investment and inventory building come up against and unexpected shortfall in demand, the virtuous circle can become a vicious one.

Nobody - well, hardly anybody - expects the economy to slide back into a recession. But a mini-cycle, one that takes GDP growth back below its long-run potential - is another story.

That's why for the past few months I've been keeping a close eye on the Economic Cycle Research Institute's leading index. It has a pretty good record of forecasting major turns in the economy, based on things like jobless claims, mortgage applications and stock prices. And since early May it's been falling at a pretty rapid clip:

This suggests that some of the conventional excuses offered for the second quarter slump in growth - like the notion that was all due to higher gas prices - are just wishful thinking. The economy does appear to be heading into a more prolonged slowdown - as the ECRI's director recently told the Financial Times:

"Our indicators clearly say that the June softness was not a pause that refreshes - they turned down in a very convincing way," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

"Yes, profits are going to slow and job growth will slow - they may even disappoint - but the economy is still going to grow. A recession is not in the cards at this point."

The problem - not least for Bush - is that the economy doesn't have to fall back into recession in order for him to lose his job. Given recent productivity trends, slower GDP growth - say in the 2-3% range - would imply much slower job creation, maybe even no job creation. Wage growth, which is already lagging inflation, would slow to a crawl.

As things stand now, Bush simply can't afford any more disappointments on the economy - just like he can't afford another Shi'a rebellion in Iraq. Shrub's already having a tough time persuading voters in places like Ohio and Michigan and Wisconsin that times are getting better. A few months of disappointing payroll numbers would, I think, pretty much sink him.

It's possible, of course, that the ECRI index is wrong - or that the slowdown it is forecasting won't really hit in earnest until after the election. Friday's jobs report may not disappoint after all. But the shadows over Bush's presidency are getting longer with each piece of bad news, and with every bad day for the Dow Jones Industrial Average.

In a way, Shrub's become a test case for Murphy's Law: When it says that everything that can go wrong will, does it really mean everything? For our 43d president, the question may be more than just theoretical.

Maybe they should call it Shrub's Law instead.

I've been resisting the impulse to join in the witless debate over whether Kerry did or did not get a "bounce" out of the Democratic convention - both because I'm trying to break my own unproductive and unhealthy fixation with the latest polls, and because I think the basic premise of the argument, at least as it's been presented in the mainstream media, is dead wrong.

The conservatives are trying to spin the story as if Kerry is the one who desperately needs to change the dynamics of the race, when in fact, it's Bush who has to figure out a way to open up a lead in the key battleground states. While it's not a given that undecided voters in those states will break towards Kerry at the end, it's definitely the smart way to bet - as even some Republican strategists have conceded.

That being the case, Kerry simply needed to use the convention to solidify his support, narrow the gap with Bush on national security, and establish his street cred has a potential commander in chief. By all accounts, he did all those things - and appears to have tangibly improved his position in several key swing states, including Pennsylvania, New Jersey, Michigan, Missouri and Arizona.

All this, however, was obscured by the freaky USA Today/CNN/Gallup poll that showed Bush, not Kerry, picking up points from the DNC. True, none of the other findings in the poll were consistent with the horse race numbers - Bush's approval fell slightly, Kerry gained ground both on the issues and on voter perceptions of his character, etc. But, as usual, the message discipline and sheer volume of the conservative echo chamber allowed it to frame the pseudo-debate.

Which is why I just can't help but point out that the latest Fox News poll shows a five-point swing towards Kerry among registered voters, and a three-point swing among Fox's definition of "likely voters," following the Democratic convention - the same one the Fox talking pinheads spent four days trying to redefine as a liberal hate rally.

Meanwhile, Bush's approval rating has dropped to 44% - a record low for the Fox poll. That's down three points from before the convention. His disapproval rating has risen to 48% - a record high - from 45% before the convention.

Clearly, there's been a glitch in the Matrix. In fact, I'd say the CPU has melted on to the motherboard.

Now ordinarily I can't stand to watch Fox News for more than about 30 seconds (it's like watching old Soviet newsreels, but with more expensive production values). Tonight, though, I think I'm going to have to tune in, just to hear the Flatulant Ones trash their own fucking poll. I fully expect to see the smoke pouring out of Bill O'Reilly's ears as he rails against those biased liberals at Fox News.

Update 6:15 PM ET: Well, I don't know what kind of weasel talk they're spouting on the air, but the spin game has already started on the Fox News web site. Here's the headline on the poll story:

Small Convention Bump for Kerry

But check out these numbers:

According to Fox, Kerry's support among men has increased by six points since the network's last poll, before the convention. He's now even with Bush among male voters. Kerry still leads among women by nine points.

Kerry has increased his support among independents by four points since the pre-convention poll.

When asked which candidate is a "stronger leader," 44% said Bush and 40% since Kerry - a 4 point advantage for Shrub. That's down from a 19 point advantage before the convention.

Bush's edge on who would do a better job of fighting terrorism went from 15 points (50% to 35%) to just 6 points (44% to 38%).

Kerry now holds a 7-point edge over Bush as being "more honest and trustworthy," versus and 11 point deficit on the trust issue in Fox's June poll.

Fox respondents also rated Kerry as more genuine (+2 points), more optimistic (+4 points) and harder working (+5).

On other hand, Bush and Kerry ranked roughly equal (40% to 39%) on the question of which man is more courageous, which I suppose just demonstrates what Ronald Reagan already taught us - that it's as politically efficacious to play a war hero as it is to actually be one.

Still, the poll is full of encouraging numbers for Kerry, most of them tied to the themes of strength, decisiveness and heroism that the Dems tried to hammer home at their convention. Based on Fox's own numbers, it looks like they succeeded about as well as could be expected, and maybe even more so.

This doesn't, of course, stop the Fox spinmeister/reporter from misrepresenting the numbers as best he can. My favorite example:

By 43 percent to 34 percent, voters think it would be bad for the United States to change presidents during a war, with 17 percent saying it would not make a difference.

That exactly reverses the significance of the responses, which show that 34% of those polled think it would be a positively good idea to swap this particular horse for another, even if it is in midstream, while another 17% don't think it makes a damn bit of difference either way.

Both those numbers, by the way, are up from the last time Fox asked the question, back in May. When you're trying to run for re-election as the reincarnation of Abraham Lincoln, that's a big problem.

Never a truer word spoken:

"Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we."

George W. Bush
Remarks by the President at the Signing of H.R. 4613
August 5, 2004

I haven't heard one that bad since Richard Nixon was in the last stages of self-immolation. As I recall, it was during his final state of the union address, in early 1974. I can't remember the precise subject (something about the budget, as I recall), but the text of his speech read:

"We must eliminate dangerous precedents."

So of course, Tricky Dick said:

"We must eliminate dangerous presidents."

Nixon immediately realized what he'd just said on nationwide television, backed up, and corrected his mistake. But the expression on his face while he was doing it was truly a classic "Why me, O Lord?" look.

Bush, on other hand, being both dyslexic and stupid to the point of brain death, naturally didn't notice his own blunder.

They say the definition of a gaffe is a politician accidentally telling the truth. And there you have it.

The Securities and Exchange Commission gave Vice President Cheney a nice campaign present yesterday, in the form of a tidy little settlement of its securities fraud charges against Halliburton - charges that might have proven extremely embarrassing to the company's former CEO if the SEC had showed the same relentless dedication to its job that former special counsel Kenneth Starr showed to his.

You may remember the case - it received a few seconds of media coverage back in the summer of 2002, when the subject of corporate crime was a little harder for the mainstream media to ignore than it is at present.

If you don't, here's a brief recap: In the spring of 1998, as Halliburton strove to consummate its ill-fated merger with Dresser Industries, the company abruptly (and secretly) altered its accounting treatment of cost overrun claims filed by its Kellog, Brown and Root subsidiary.

It seems a KBR unit (Brown and Root Energy Services) had hit a serious gusher of red ink while working on several huge fixed-fee construction contracts to build oil and gas installations in the Middle East. The projects were running way over budget, so KBR did was any enterprising, resourceful corporation would do in a similar situation - it demanded a bail out.

In essence, KBR demanded that its customers cover some of those cost overruns, arguing they were responsible for the problems gobbling up KBR's profit margins. (Now do you see why Halliburton likes to do business with the Pentagon?)

In the past, Halliburton only booked these overrun claims as revenue when they were accepted and paid - which seems wise, given the, ah, contingencies involved. However, generally accepted accounting principles, in their wisdom, also give companies the flexibility to book the revenue when such claims are filed (on the assumption, I guess, that there's a sucker born every minute.)

This Halliburton proceeded to do, resulting in an $88 million dollar addition to pre-tax income in fiscal 1998 - a 46% increase over what earnings would have been without the accounting change.

Indeed, according to the SEC, the switch transformed a year-over-year earning decline of 4.5% in Halliburton's Energy Services Group into a 24% increase - which was then hawked in a company press release and at its quarterly conference call with Wall Street analysts.

The problem (at least from the SEC's point of view) is that while GAAP allows companies to alter their accounting for contigent claims, it also requires them to disclose the switch - something Halliburton's auditors, our old friends at Arthur Anderson, must have neglected to mention to their clients.

Now the SEC really doesn't like it when companies conceal materially significant changes in their accounting standards - especially when they're offering securities to the public at the same time, as Halliburton did when it filed to sell up to $1.2 billion in bonds in the fall of 1998. (The bond deal was actually the least of the deceptions, as we'll see in a moment.)

What's more when - after six quarters of deceptive silence - Halliburton finally disclosed its accounting dodge in the spring of 2000, it again misled investors about the size of the backlog of unpaid claims it had been counting as revenue:

This omission flattened the ascending curve of unapproved claims recognized by the company and instead of reporting $132 million in unapproved claims in 1999, the company reported $98 million – a $9 million, as opposed to $43 million increase over the 1998 figure.

So who did the SEC choose to blame for these shabby dealings? Well, it filed a civil suit against the company - which agreed to pay a $7.5 million penalty and sign a consent decree promising never to do it again. And it sued Halliburton's former controller, who agreed to cough up a $50,000 fine. And it went after the former chief financial officer, who so far hasn't agreed to settle.

Halliburton's former CEO, however, apparently is the SEC's version of Lord Voldamort - i.e. "He Who Must Not Be Named." Cheney shows up in neither the complaint nor the cease and desist order. Neither does Cheney's deputy, the firm's current CEO, David Lesar - most recently seen waging PR warfare in defense of Halliburton's Iraq rackets.

However, Cheney does rate a mention in the SEC's press release, which praises the Veep for actually agreeing to cooperate with the commission's investigation (which, given Cheney's track record, is admittedly an improvement):

The company's former Chief Executive Officer, Vice President Richard B. Cheney, provided sworn testimony and cooperated willingly and fully in the investigation conducted by the Commission's career staff.

Apparently, we're expected to believe that Halliburton's CEO was completely ignorant of an accounting change so significant it turned a loss in one of the company's two main operating division into a gain - even though, as we shall see, the switch also may have played a crucial role in Cheney's most important business achievement (if that's the right word), the merger with Dresser.

This variation on the Ken Lay defense is pretty far-fetched to begin with, but it becomes even more laughable when you read the complaint, which tries to pin the guilt on the gray flannel shoulders of Halliburton's former CFO by noting that his signature was on a variety of misleading documents, such as the firm's annual report, that were filed with the SEC.

Which is true enough. There is, however, one signature above the CFO's on the company's 1998 report:

But there's an even stronger reason to suspect Cheney must have had some awareness that Halliburton's earnings were being "managed," so to speak. And that's the Dresser merger, which was to be the capstone of his career at Halliburton.

Actually, as it turned out, the deal would almost be Halliburton's undoing, once the enormous potential liabilities associated with Dresser's backlog of asbestos litigation became clear. (In his undue diligence, Cheney had hopelessly underestimated these risks.) As a result, Halliburton was almost forced into bankruptcy.

At the time, however, the merger was hailed by Cheney as a chance to reap the usual corporate "synergies" and restructuring opportunities - not to mention restore a little oligopolistic pricing power in the badly depressed market for oil field services.

The transaction was structured a straight stock swap - one Halliburton share for one Dresser share. At the time the merger was announced, in February 1998, Halliburton was selling for about $43 a share, while Dresser was going for about $38. Not such a bad deal - particularly for an "old economy" relic with a lot of legal problems in the closet.

By spring, Halliburton stock had rallied (along with the market as a whole), pushing it above $50 a share. But late in the second quarter, the price began to fall. Dresser's stock, which was now tied to Halliburton's like the chain on an anchor, also fell. So did the broad market, but not nearly as much.

Result: By the time Dresser shareholders voted on the deal in late June, Halliburton was down 5% from the announcement of the merger, while the S&P; 500 was up 7%. The good deal didn't look quite as good.

Obviously, the last thing Cheney and Halliburton would have wanted at that delicate moment was an unexpected hit to earnings in one of the company's most important business lines. Wall Street analysts, not unreasonably, would have expected advance guidance about such a setback ahead of the company's second quarter earnings report - which was due out after the Dresser vote but before the merger was actually consummated.

But a sudden, further decline in Halliburton's stock price wouldn't have sat very well with Dresser shareholders, some of whom were already getting ready to sue the Dresser board for agreeing to the deal. On the other hand, springing an earnings surprise on Wall Street after the deal was approved would have raised some extremely tricky questions about what Cheney et. al. knew and when they knew it.

Conincidentally or not, the secret change in Halliburton's accounting standards was made sometime during that period - the second quarter of 1998.

In some ways, preserving the illusion of healthy earnings became even more important for Halliburton after the Dresser merger. In the fall of 1998, the Asian financial crisis worsened and Russia defaulted on its debts, sending the stock market into a tailspin. In that environment, companies reporting disappointing earnings news received the Wall Street equivalent of being lined up against a wall and shot.

And once you start fudging the books, it becomes progressively more difficult to come clean, not least because the required restatements to previous years' earnings keep getting larger and larger. So, even as Halliburton's stock price recovered in 1999, the company continued its secret accounting dodge, adding another $19 million to earnings in quarter one, $10 million in quarter two, and $11 million in quarter three. By the end of the year, however, it must have become apparent to someone that they couldn't keep up the charade forever. The company decided to come (partially) clean.

It's impossible to tell what role Cheney played in all of this (although I would love to see the transcript of all that "sworn testimony.") But, while we may not know whether Cheney himself helped rig the roulette wheel, we do know the game proved exceedingly lucrative for him.

According to Halliburton's 1999 proxy statement, Cheney was given a special $1.1 million bonus for bringing off the Dresser merger, even though the company failed - despite the accounting dodge - to hit the 1998 performance numbers that ordinarily would have been required for him to earn an incentive bonus. Likewise, Cheney was awarded a special grant of 50,000 Halliburton shares shortly after the merger closed - an award which was also not justified under the company's allegedly performance-based compensation policy.

As usual, though the real action was in Cheney's options - which gave him the right, but not the obligation, to purchase Halliburton stock from the company at a pre-set price, which varied depending on when the options were granted.

During the '90s, of course, options became the CEO wealth accumulation tool of choice - in part because of the phenominal gains achievable in a raging bull market, but also because options grants, unlike every other form of compensation, don't have to be expensed on the company's profit & loss statement. They were, and still are, the closest thing to free money corporate America has yet produced, and a lot of unfree money has been spread around Congress to keep it that way.

According to the proxy statement, as of the end of 1998 Cheney held options on 960,000 shares of Halliburton stock, of which 673,334 were immediately exercisable, meaning Cheney could exchange them any time he liked for shares at the pre-set prices. These exercisable options had a total value of $3.8 million - or an average of a bit less than $6 per share - which represents the profit Cheney could have made by exchanging them for stock and then selling the shares in the open market.

The important thing to note is that this arrangement left Cheney tremendously leveraged to Halliburton's stock price. Every $1 rise in the stock price would have increased the value of each of his options by that same amount - assuming that they were all "in the money," meaning the market price on the underlying shares was already higher than what Cheney would have had to pay Halliburton for them.

Consider the math: If Cheney's options were worth an average $6 each, then a $1 rise in Halliburton's stock price would have equalled a 16% profit; a $2 rise a 32% gain, a $3 rise 50%, and so on. Ditto, of course, on the down side, which means even a modest decline in the stock price would have eradicated a major part of the future veep's paper wealth.

This is what the corporate propagandists are talking about when they argue that option grants "align management's interest with the shareholders." What they really mean is that options tend to focus management's obsessive attention on every blip in the stock price - giving it a powerful incentive to manipulate the quarterly earnings numbers.

I'd like to know how many options Cheney owned, and what they were worth, at the end of 1997 - before the Dresser merger and the secret accounting change. But for some strange reason, Halliburton's 1998 proxy statement seems to be missing from the SEC's on-line data base. Go figure.

In the end, Cheney's return to politics proved particularly well timed. He exercised his vested options shortly after leaving Halliburton and then sold his shares - at an extremely favorable price - walking away with more than $30 million. A few months later, with the truth about the company's inherited asbestos problems becoming clear, Halliburton's stock had plummeted more than 60%. It's still selling for about 30% less than what Cheney sold it for.

And Cheney's remaining Halliburton options? Well, they became a bit of a PR problem last year when it was revealed he hadn't divested himself of them - even though the veep publicly claimed to have severed all financial ties with the company. Supposedly, the options were placed in a charitable trust. It would be interesting to read the trust instrument - just to see just how irrevokable that grant really was. To my knowledge, it's never been made public.

Of course, I'd also like to know how Halliburton managed to escape a more serious legal slap on the wrist - despite what the SEC vaguely described as "lapses in the company’s conduct during the course of the Commission investigation." Maybe I'm too cynical, but I'm guessing those "lapses" systematically shredded any evidence that might have even remotely tied Cheney to the secret switch in accounting standards.

An e-mail release sent out by the SEC press office yesterday provides another possible clue to Halliburton's (and Cheney's) narrow escape. It includes the names of the attorneys representing the company in the accounting case - a list which includes one James Doty, of the Houston firm of Baker Botts.

The name may ring a bell: Doty was the SEC's General Counsel when it briefly opened (and then closed) an investigation into George W. Bush's curiously timed sale of his holdings in Harken Energy. Doty went on to help Bush and his partners negotiate their purchase of the Texas Rangers baseball team. Baker Botts, of course, is the law firm of James Baker, the Bush family consiglieri and a former cabinet colleague of Cheney.

Truly, a heartwarming study in fraternal solidarity - not to mention a illustrative look at the Texas business community in action.

Now, if the SEC's "career staff" can just reach a suitable token settlement with the remaining defendant (Halliburton's former CFO) the whole messy business can be put to bed, with months to spare before the election. And Cheney can return to the grim business of trying to con the American voters into awarding him and his sidekick a second term - secure in the knowledge that political fraud, unlike the financial kind, is well beyond the reach of the SEC.

So on the day John Kerry gave the most important speech of his career - his acceptance speech at the Democratic National Convention - the Pakistanis announced the capture of a "high value" Al Qaeda target, keeping precisely to the schedule predicted beforehand by John Judis and Spencer Ackerman in The New Republic:

But according to this ISI official, a White House aide told ul-Haq last spring that "it would be best if the arrest or killing of [any] HVT were announced on twenty-six, twenty-seven, or twenty-eight July"--the first three days of the Democratic National Convention in Boston.

(Granted, according to the TNR, the Bushies asked for Osama, and instead only got a semi-celebrity terrorist. But when you're an incumbent president who can't crack 50% approval in the polls, you take what you can get.)

Then, right after Kerry's speech - and right as the Bush-Cheney campaign swung into its post-convention counterattack - we got the by-now familiar threat warning - but this time with enough scary specifics to cut through the by-now customary bored response from the press and the public.

And then, on Sunday, Department of Reelection Security Secretary Tom Ridge emerged - just in time to make the evening news shows - to tell us that Al Qaeda is (note the use of the present tense) looking at a number of "high-value targets" of its own in New York and Washington:

As of now, this is what we know: Reports indicate that al-Qaida is targeting several specific buildings, including the International Monetary Fund and World Bank in the District of Columbia, Prudential Financial in northern New Jersey, and Citigroup buildings and the New York Stock Exchange in New York.

The fact that our crack intelligence agencies have such real-time information in their capable hands, Ridge assured us, is "the result of the president's leadership in the war against terror."

This, in turn, set up Commander Codpiece's press conference today, in which he vowed to enact - more or less verbatim - the recommendations of the 9/11 investigating commission, that being the same commission he tried for months to block, and then to shut down prematurely (with a devious assist from Denny Hastert).

We are told, however (and I have Holy Joe Lieberman's word on this), that this sudden flurry of activity has absolutely nothing to do with polls showing John Kerry narrowing the gap with Bush on the question of who would do a better job of fighting terrorism. Or with the fact that the latest ABC/Washington Post poll actually shows Kerry outranking ex-Lt. Shrub on the question of who is more qualified to be the nation's commander in chief.

That's why I was startled to read tonight that the intelligence information that triggered the latest threat scare - and which Ridge breathlessly described as as evidence of imminent danger - actually dates from before 9/11:

Pre-9/11 Acts Led To Alerts
Officials Unsure Spying On Buildings Continued

Most of the al Qaeda surveillance of five financial institutions that led to a new terrorism alert Sunday was conducted before the Sept. 11, 2001, attacks and authorities are not sure whether the casing of the buildings has continued since then, numerous intelligence and law enforcement officials said yesterday...

"There is nothing right now that we're hearing that is new," said one senior law enforcement official who was briefed on the alert. "Why did we go to this level? . . . I still don't know that."

Ordinarily, that kind of talk would make me wonder whether the Bush administration isn't shamelessly manipulating dubious intelligence data in order to score a few political points and stampede the voters into supporting the GOP agenda.

But of course, we know this administration never does things like that. I mean, if you can't take Holy Joe's word, who can you trust? Certainly not that old screamer Howard Dean:

In an interview on CNN's "Late Edition," Dean said he was "concerned that every time something happens that's not good for President Bush, he plays this trump card, which is terrorism."

"His whole campaign is based on the notion that 'I can keep you safe, therefore, in times of difficulty in America, stick with me,' " Dean said.

"It's just impossible to know how much of this is real and how much of this is politics, and I suspect there's some of both."

Didn't Ho Ho get the talking points? Doesn't he know that all patriotic Americans trust the Department of Reelection Security? Why, just ask the Kerry campaign:

"We would not want to say there is any political motivation," Kerry campaign manager Mary Beth Cahill said Monday. "We take the president at his word."

Considering what we know about Bush's word, I suppose you could interpret Cahill's comment more than one way. But Team Kerry obviously knows better than to leap for that particular bait. Better to let the surrogates take a crack at it. (In other words, Dean probably did get the talking points, they just weren't the same as John Kerry's.)

Now this is smart politics, because the corporate media appears primed to crucify anyone who dares question the administration's motives as it was in the runup to the Iraq invasion. In that sense, not much seems to have changed since the winter of 2003, despite the WMD snipe hunt. It appears that like the Bourbons, the corporate media learns nothing - and forgets nothing.

A classic example: Channel surfing this evening, I came across Tweety (aka Chris Mathews) on MSNBC, doing some sort of idiotic dog and pony show on location with Tad Devine from the Kerry campaign, Matt Dowd from the Bush campaign. Behind Tweety and his guests were dueling claques of Kerry and Bush supporters (like the doofuses who stand outside the window on the Today show set every morning, except really up close and personal). Every now and then Tweety would yell over his shoulder and ask the claques what they thought about this or that, and then, on cue, one side would cheer and the other would boo.

There came a point, however, when one of the guests on the video feed (Rep. Loretta Sanchez of OC, "the Dornan slayer") actually dared make a few of the same points as Dean. Tweety quickly cut her off, then yelled for the peanut gallery to call out its views - like a trainer putting his seals through their paces.

At that point, the camera immediately panned in on the Bush-Cheney faction, so we could get a good look at their shouted denials. The Kerry-Edwards folks, meanwhile, could have been singing the Internationale for all us viewers at home might have known. I mean they were completely shut out of the picture.

After about a 20-second sound bite of this, the camera cut back to Tweety, who definitively announced (words to the effect of): "You see, nobody believes that stuff, and we've got people from both sides here!"

Hey, case closed.

I think this is what Nom Chomsky was talking about when he wrote Manufacturing Consent. I'm just glad Kerry didn't get a bigger bounce in the polls from the convention, or the White House would have taken us to Defcon 1 by now.