The White House said last month that President Bush "has no recollection" of hearing about the tapes or their destruction before he was briefed about the matter in early December.
CIA Director Gen. Michael V. Hayden has said that the tapes were destroyed because the agency feared that the identities of the officers would become public and that they would become targets of al Qaeda.
But former officers familiar with the events have offered a different explanation, saying Mr. Rodriguez had long been concerned that the CIA lacked a long-term plan for handling interrogations. He also worried -- given the response to Abu Ghraib prison in Baghdad -- that lower-level officers would take the fall if the videos became public, they said.
One former official said interrogators' faces were visible on at least one video, as were those of more senior officers who happened to be visiting. He said Mr. Rodriguez was concerned that "they were carrying out the direction from higher-ups in the administration" but that the people who would end up in trouble would be lower-level officials in the bureaucracy. Another former senior intelligence official said, "Jose was concerned about how all this would end. He wasn't getting instructions from anybody."
Mr. Rodriguez's attorney, Robert S. Bennett, had no comment on today's announcement.
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It’s probably the happiest root canal ever: Molecular archaeologists reported last January that they had drilled into a 10,300-year-old human tooth discovered in Alaska and extracted genetic gold. The molar, recovered from skeletal remains found in 1996 in On Your Knees Cave, located on Prince of Wales Island off southern Alaska, holds the oldest genetic sample ever recovered in the Americas. That sample supports the theory that humans first arrived here about 15,000 years ago and then migrated down the continent’s western coastline.
Brian Kemp, a molecular anthropologist at Washington State University who led the study, found that out of 3,500 Native Americans examined from a genetic database, 1.5 percent showed the same genetic pattern in their mitochondrial DNA as that found in the ancient tooth. “What’s interesting is that the distribution is almost entirely down the west coast of the Americas, all the way down to Tierra del Fuego,” says Kemp. That, says Theodore –Schurr, an anthropologist at the University of Pennsylvania, “lends credence to the reemerging hypothesis that the first modern human populations to arrive in North America and then populate the rest of the Americas used a coastal route to actually get there.”
Kemp also compared the ancient DNA with its related modern DNA to see how fast it mutated over time. This “molecular clock” of mutation rates can be used to calculate when the ancestors of today’s Native Americans first arrived on these shores. Previous estimates pegged their appearance as far back as 40,000 years ago, but Kemp’s newly calibrated clock speeds up the scenario. “Within the last 15,000 years is my bet,” he says.
In the traditional view of photosynthesis, the energy carried by photons streaming from the sun is transferred by bouncing from one chlorophyll molecule to the next, a process that ultimately builds simple carbohydrates from water and carbon dioxide. But last spring, a team led by Graham Fleming, deputy director of the Lawrence Berkeley National Laboratory, reported that the process is much more interesting than that.
Using ultrafast lasers, they found that the interaction between the sun’s energy and the chlorophyll molecules in a bacterium relies on a piece of quantum mechanical weirdness known as superposition, where a single photon’s energy can temporarily be in many different states at once. This allows photosynthesis to probe all the possible reaction pathways within the various chlorophyll molecules. The most efficient pathway is selected and energy is transferred through the bacterium as the superposition collapses.
“This is similar to quantum computing in some sense,” says Greg Engel, a member of Fleming’s team. “This is how quantum computing realizes its incredible efficiency and its ability to solve very complex problems, because it can evaluate many solutions at once.” http://louis-j-sheehan.com
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It may seem like simple compassion to give the terminally ill access to experimental drugs not yet approved by the FDA, but some argue it may also jeopardize the effectiveness of clinical trials and leave patients open to exploitation. In August, the U.S. Court of Appeals for the District of Columbia upheld (pdf) the power of the FDA to control patients’ access to unapproved drugs. The court stated that patients do not have a fundamental right to drugs that have not been proven safe.
The Abigail Alliance for Better Access to Developmental Drugs and the Washington Legal Foundation had filed the suit against the FDA. “What we argue in our lawsuit is that the decision should be a patient’s with their doctor,” says Frank Burroughs of the Abigail Alliance. He founded the organization in 2001 after his 21-year-old daughter Abigail died from head and neck cancer. She had been denied access to the experimental drug Erbitux, which was later approved by the FDA. Burroughs says the groups are planning an appeal to the U.S. Supreme Court.
Many legal experts and ethicists argue that access to unapproved drugs would undermine the scientific process that determines which drugs are effective as well as the FDA’s ability to determine drug safety. Only 8 percent of cancer drugs that enter clinical trials earn FDA approval. The bulk are rejected as ineffective or unsafe. “The very, very sick are open to exploitation,” says Arthur Caplan, chairman of medical ethics at the University of Pennsylvania. He also notes that patients may not join clinical trials if they can get the drugs otherwise, which could impair the development of new drugs.
“I think the court got it right,” says Peter Jacobson of the –University of Michigan School of Public Health. Jacobson views the FDA’s efforts to extend the compassionate use policy as the better way to handle the issue. “Then you’re able to distribute some of these drugs under some kind of scientific protocol without compromising clinical trials that are needed for long-term –understanding.”
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The CDC's vaccine advisory panel voted to make shingles vaccination routine for all Americans 60 and older.
Shingles is a painful disease caused by reactivation of dormant varicella zoster virus, or VZV. Best known as the virus that causes chickenpoxchickenpox, VZV is a herpesherpes virus that can come back with a vengeance when a person's immunity wanes with age, disease, or immunity-suppressing drugs.
Without vaccination, about 20% of people who have had chickenpox eventually will get shingles. A person who lives to be 85 has a 50% chance of getting shingles.
Shingles is a bad enough disease to be a good reason to get vaccinated.
But in about a third of cases, shingles turns into an excruciatingly painful disease called postherpetic neuralgia, or PHN. A smaller percentage will get a painful, blinding disease called ophthalmic zoster.
The new vaccine, Merck's Zostavax, won FDA approval last May.
Now the main U.S. vaccine advisory panel -- the Advisory Committee on Immunization Practices (ACIP) -- officially recommends routine use of the vaccine for everyone 60 and older.
The committee voted not to make shingles vaccination routine for people under 60, citing a lack of clinical data on vaccination in that age group.
Similarly, the panel said there was too little data for it to recommend that doctors offer the vaccine for people about to undergo immunity-suppressing treatments.
Good Vaccine, Terrible Disease
A major clinical trial shows the vaccine is more than 60% effective in reducing shingles symptoms. Perhaps most importantly, it reduces painful PHN by at least two-thirds.
"Reducing PHN is the motivation for most of us working on this clinical trial," Michael N. Oxman, MD, of the University of California, San Diego, said in a presentation to the ACIP. "For people with severe PHN, their lives are blighted and the lives of their families are blighted."
PHN pain can last for years. Sudden, lancing pain can quite literally bring patients to their knees. Each year, there are more suicides due to PHN pain than due to cancercancer pain.
And PHN isn't the only bad complication of shingles. Some 15% of shingles patients get ophthalmic zoster -- shingles that affects one or both eyes.
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In a public comment, Herbert Kauffman, MD, former chairman of ophthalmology at Louisiana State University, offered the ACIP a graphic description: "This is not going blind in peace and quiet," Kauffman told the ACIP. "This is an all-consuming pain patients live with every moment of every day for years."
The ACIP recommendation means insurers will be more likely to pay for shingles vaccination in 60-and-over patients.
In one of the first studies to detect cancer using RNA in saliva, researchers were able to differentiate patients with head and neck cancer from healthy subjects based on biomarkers found in their saliva, according to an article in the Dec. 15 issue of the journal Clinical Cancer Research.
Researchers at the University of California Los Angeles’ Jonsson Comprehensive Cancer Center reported in the March 2004 issue of Journal of Dental Research that people have about 3,000 clinically distinct types of RNA in their saliva. This discovery led to a novel clinical approach called salivary transcriptome diagnostics.
In a study to evaluate this diagnostic approach’s value, researchers collected unstimulated saliva from 32 subjects with cancers of the mouth, tongue, larynx and pharynx and 32 matched control subjects. When they extracted RNA from the saliva samples, they discovered that 1,679 genes were expressed at significantly different levels in the test subjects’ saliva than in the control subjects’ saliva.
Study results also showed that a combination of four RNA biomarkers provided a detectable signature for head and neck cancer. Researchers conducted a blinded second saliva screening and identified the signature in test subjects with 91 percent sensitivity and specificity.
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"We will follow up with a larger cohort of about 200 patients in the near future," said senior author David Wong, D.M.D., D.M.Sc. "This study will hopefully allow us to distinguish in saliva between the various stages of the cancer and ultimately push our accuracy up to as close to 100 percent as possible."
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This is intended as a hopefully helpful, but somewhat lighthearted look at ancient philosophical beliefs that would make five fine New Year's resolutions for today. They are meant as a counter to typical New Year's resolutions, like these:
1. Lose Weight
2. Pay Off Debt
3. Save Money
4. Get a Better Job
5. Get Fit
6. Eat Right
7. Get a Better Education
8. Drink Less Alcohol
9. Quit Smoking Now
10. Reduce Stress Overall
11. Reduce Stress at Work
12. Take a Trip
13. Volunteer to Help Others
Source: U.S. Government site
Have you written a list of New year's Resolutions? Does it include something geared to making you more like a Hollywood ideal? Something like losing weight? We start each new year with a clean slate, but as soon as we break down and eat that tempting cream-filled puff pastry, we think we've failed and give up. Might as well have a couple of beers and a a pizza. Oops! By February the scale has moved in the wrong direction. One question we should ask before coming up with the duly anguished-over creative list of new resolutions is whether or not they're the result of social pressure. It may seem easier fitting into someone else's list of shoulds than changing our own attitudes, but if you've ever tried to quit smoking because your family begs you to, you probably know that's not enough.
People compile New Year's Resolutions in an effort to improve specific aspects of themselves, thinking behavior elicited by the resolutions will make them better people. If they volunteer one day a month (making them better in the brotherly-love department) and exercise three times a week (back to conforming to social pressure mode), including a yoga class (eliminating stress one minute at a time), and if they put 10% into a money market account (for retirement, as the news media drums into our heads each December), life will magically improve. Even if it did work, this seems like a piecemeal approach in need of a master plan. And therein lies the beauty of ancient philosophy.
Masterplan: Emulate the Stoics
This list of 5 resolutions includes passages from the writing of leading Roman Stoics, Epictetus (really a Greek, but he lived in Rome), Marcus Aurelius, and Seneca, with applications or parallels in the modern (or at least post-classical) world. The Stoics have had a profound influence on Christianity and modern philosophy, so the ideas may seem very familiar. There are even sayings and modern song lyrics reflecting the Stoic philosophy. One problem of the Stoics for our contemporary, secular world is the ongoing references to god. This god is really more like reason, nature, or logos, but may still cause trouble for non-theists. To avoid this, I have attempted to minimize the god-context in my selections.
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The Stoics believed in one basic behavior: being good. People do this by, among other things,
1. living according to nature,
2. helping others,
3. commitment to self-improvement routines,
4. being dutiful, which may include attempting to persuade others of one's beliefs, and
5. central to all else, maintaining a proper attitude.
The good person is not evil. He also happens to be a philosopher. This may be another sticking point for moderns, but the self-help books so popular today are like philosophy, so if the idea of being a philosopher is too profound, consider these suggestions as well-testified popular psychology instead of philosophy.
1. Live According to Nature: To Everything There Is a Season
Stoicism comes from the Hellenistic period of ancient Greece, which began around 300 B.C. There was no electricity. There were no in vitro pregnancies. Most people used their own feet for transportation. People followed the natural cycles of day, night, and the seasons. Everything took time. We've been spoiled by artificial light, microwave ovens, airplanes, and other conveniences, so we no longer have to worry much about natural cycles. Instead, we impatient multi-taskers try to cram everything in. This means that however much the ancient Stoics might have had to struggle to try to live according to nature, we've got to work even harder.
No great thing is created suddenly, any more than a bunch of grapes or a fig. If you tell me that you desire a fig, I answer you that there must be time. Let it first blossom, then bear fruit, then ripen.
- Epictetus: Discourses Chap. xv.
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Stoics believed in the idea of one universal human family. Just as it is contrary to nature to cut off your nose to spite your face, so it is contrary to nature to hurt members of your family, even if accepting people without being annoyed by them requires patience.
For we are made for co-operation, like feet, like hands, like eyelids, like the rows of the upper and lower teeth. To act against one another then is contrary to nature; and it is acting against one another to be vexed and to turn away.
- Marcus Aurelius: Meditations Book II
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2. Help Your Fellow Man: Do Unto Others
We are all members of the human family. In recent years we've heard that it takes a village to raise a child and many of the countries of Europe joined together into the European Union. In these and many other ways, we see that we are all in it together. The Stoics wrote about it, and in 1624, so did John Donne (Meditation XVII):
No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if promontory were, as well as if a manor of thy friend's or of thine own were. Any man's death diminishes me, because I am involved in mankind; and therefore never send to know for whom the bell tolls; it tolls for thee.
Because we are all part of one "family," we should work to its good and not try to separate ourselves.
As thou thyself, whoever thou art, were made for the perfection and consummation, being a member of it, of a common society; so must every action of thine tend to the perfection and consummation of a life that is truly sociable. What action soever of thine therefore that either immediately or afar off, hath not reference to the common good, that is an exorbitant and disorderly action; yea it is seditious; as one among the people who from such and such a consent and unity, should factiously divide and separate himself.
- Marcus Aurelius: Meditations XXI
Labour not as one to whom it is appointed to be wretched, nor as one that either would be pitied, or admired; but let this be thine only care and desire; so always and in all things to prosecute or to forbear, as the law of charity, or mutual society doth require.
- Marcus Aurelius: Meditations 9.X
Helping others is acting according to nature, but it also has beneficial personal repercussions.
Wouldst thou have men speak good of thee? speak good of them. And when thou hast learned to speak good of them, try to do good unto them, and thus thou wilt reap in return their speaking good of thee.
- Epictetus: Golden Sayings L
3. Develop Good Habits: Practice Makes Perfect
Many modern resolutions fall under this heading. You should not set impossible standards, but you should constantly work on getting better:
Practise yourself, for heaven's sake, in little things; and thence proceed to greater.
- Epictetus: Discourses Chap xviii.
Whatever you would make habitual, practise it; and if you would not make a thing habitual, do not practise it, but habituate yourself to something else.
- Epictetus: How the Semblances of Things Are to Be Combated. Chap. xviii.
What makes the Stoic habit-development different is that the causes championed by repetition make you a better person. The Stoics even envisioned breaking of a bad habit by repetition. No going cold turkey for anger management here:
Reckon the days in which you have not been angry. I used to be angry every day; now every other day; then every third and fourth day; and if you miss it so long as thirty days, offer a sacrifice of thanksgiving to God.
- Epictetus: How the Semblances of Things Are to Be Combated. Chap. xviii.
If you don't know which habits you should develop, the Stoics have a list, albeit somewhat generic and obscure. You should develop the habit of avoiding evil, getting experience in your strengths, making wise decisions, and, appropriately enough, forming careful resolutions:
Shall I show you the muscular training of a philosopher? "What muscles are those?" -- A will undisappointed; evils avoided; powers daily exercised; careful resolutions; unerring decisions.
- Epictetus: Wherein consists the Essence of Good. Chap. viii.
4. Do Your Duty
Winston Churchill said, "All the great things are simple, and many can be expressed in a single word: freedom; justice; honor; duty; mercy; hope." Being part of the universe means you have duty. The sun has the duty to shine. The earth has the duty to rotate on its axis and make a yearly circuit of the sun. The bee has a duty to make honey. And humans have the duty to act so as to be good.
As it is the duty of the universe to maintain the round of the seasons, as it is the duty of the sun to vary the points of his rising and setting, and to do all these things by which we profit, without any reward, so is it the duty of man, amongst other things, to bestow benefits. Wherefore then does he give? He gives for fear that he should not give, lest he might lose an opportunity of doing a good action.
- Seneca: On Benefits 4.12
We also have the duty to keep our promises, all other things remaining equal. We should not, however, fret over reneging should we learn that our promise breaks the law or means going out when we have a fever.
When I promise to bestow a benefit, I promise it, unless something occurs which makes it my duty not to do so. What if, for example, my country orders me to give to her what I had promised to my friend? .... I shall be treacherous, and hear myself blamed for inconsistency, only if I do not fulfil, my promise when all conditions remain the same as when I made it; otherwise, any change makes me free to reconsider the entire case, and absolves me from my promise.
- Seneca: On Benefits 4.35
The Stoics have, not too surprisingly, rather a lot to say in the area of encouraging people to do their duty, since duty is, after all, not the fun stuff. Duty varies. Sometimes duty requires helping others with money; at other times, advice.
Do not grow weary, perform your duty, and act as becomes a good man. Help one man with money, another with credit, another with your favour; this man with good advice, that one with sound maxims.
- Seneca: On Benefits I.2
Men must be taught to be willing to give, willing to receive, willing to return; and to place before themselves the high aim, not merely of equalling, but even of surpassing those to whom they are indebted, both in good offices and in good feeling; because the man whose duty it is to repay, can never do so unless he out-does his benefactor;
- Seneca: On Benefits I.4
5. Adjust Your Attitude: You Get What You Need
You can't always get what you want, but you can change your attitude so you no longer want it. If for instance, you are robbed, you are likely to feel that you are the aggrieved party, but there is, actually another way to look at it. You lost your wallet, but what did the thief lose?
The reason why I lost my lamp was that the thief was superior to me in vigilance. He paid however this price for the lamp, that in exchange for it he consented to become a thief: in exchange for it, to become faithless.
- Epictetus: Golden Sayings XII
This is the area where we have the greatest control. If we do as the Stoics encourage, do nothing to hurt the community, act with deliberation, kindness
Let this be thy only joy, and thy only comfort, from one sociable kind action without intermission to pass unto another,
- Marcus Aurelius: Meditations 6.6
and care, and show true humility
Do nothing against thy will, nor contrary to the community, nor without due examination, nor with reluctancy. Affect not to set out thy thoughts with curious neat language. Be neither a great talker, nor a great undertaker.
- Marcus Aurelius: Meditations III. 5
we just might find we get what we need.
When we are invited to a banquet, we take what is set before us; and were one to call upon his host to set fish upon the table or sweet things, he would be deemed absurd. Yet in a word, we ask the Gods for what they do not give; and that, although they have given us so many things!
- Epictetus: Golden Sayings XXXV
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Mukasey Opens Criminal Probe
Into Destruction of CIA Tapes
By EVAN PEREZ
January 2, 2008 5:02 p.m.
The Justice Department opened a criminal investigation into the Central Intelligence Agency's destruction of videos showing detainee interrogations of top al Qaeda suspects and appointed an outside prosecutor to handle the probe.
Attorney General Michael Mukasey said that a joint preliminary inquiry opened Dec. 8 by his department's National Security Division and the CIA's inspector general determined "there is a basis for initiating a criminal investigation of this matter."
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[Michael Mukasey]
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Born: June 23, 1892 - Lemberg (Lvov), Poland
Died: May 22, 1993 - Philadelphia, PA, USA
The Polish-born pianist, Mieczyslaw Horszowski, was taught to play the piano by his mother, a student of one of Chopin's students, and his main teacher, Theodor Leschetizky, was a protégé of Carl Czerny. Horszowski was playing (and transposing) Bach inventions at age five; at eight he was presented to the public as a prodigy, and at ten he began his formal career. He played for Fauré and perhaps Camille Saint-Saëns in 1905 and made his USA debut, at Carnegie Hall, the following year. It was also during 1906 that he met the youthful Pablo Casals and Arturo Toscanini, who became lifelong friends and collaborators. Horszowski was especially noted as a chamber music pianist and became a fixture of Casals' Prades Festival for many years.
Interrupting his high-flying career to pursue a humanities degree at the Sorbonne in Paris from 1911 to 1913, Mieczyslaw Horszowski moved to Milan during the war and remained there until 1939, touring internationally. As World War II broke out he was appearing in Brazil, and instead of returning to Europe he headed for the USA, where he remained for the rest of his life. He quickly found performing opportunities with Toscanini's NBC Symphony Orchestra, and he began teaching at Philadelphia's Curtis Institute in 1942. He was a fixture of New York's recital scene, performing complete cycles of Beethoven's piano works and Mozart sonatas and concertos, and he appeared at the White House in 1961 and 1978. Horszowski was the first person to record while playing the first known piano constructed, an instrument built in 1720 by Bartolomeo Cristofori and housed in the collection of the Metropolitan Museum of Art in New York.
In 1981, at age 89, Mieczyslaw Horszowski married for the first time; his wife was Italian pianist Beatrice Costa. His eyesight declined, which put an end to his concerto and chamber music performances, but he continued his solo recital career, performing from memory. He performed his last recital at age 99, slightly more than a year before his death in 1993. At the Curtis Institute he taught an impressive roster of students, including Anton Kuerti, Murray Perahia, and Richard Goode.
Mieczyslaw Horszowski played a range of music but focused on Bach, Beethoven, and Chopin, and even in his last years he essayed difficult works like Beethoven's Diabelli Variations. Although his recording career only goes back to 1936, the traditions of playing he represented are much older than that, dating back to the early Romantic era.
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Horszowski was born in Lemberg Austria-Hungary (now Lviv, Ukraine) and was initially taught by his mother, a pupil of Karol Mikuli (himself a pupil of Chopin). He became a pupil of Teodor Leszetycki in Vienna at the age of seven; Leszetycki had studied with Beethoven's pupil Carl Czerny.
In 1901 he gave a performance of Beethoven's Piano Concerto No. 1 in Warsaw and soon after toured Europe and the Americas as a child prodigy. In 1905 the young Horszowski played to Gabriel Fauré and met Camille Saint-Saëns in Nice. In 1911 Horszowski put his performing career on hold in order to devote himself to literature, philosophy and art history in Paris.
Having returned to the concert stage with the encouragement of Pablo Casals, he settled in Milan after the First World War. After the Second World War he frequently gave recitals with artists such as Casals, Alexander Schneider, Joseph Szigeti and the Budapest Quartet. He often appeared at the Prades Festival and the Marlboro Festival. From 1940 he lived in New York City. In 1957 Horszowski gave a memorable cycle of Beethoven's entire solo works in New York, and in 1960 of Mozart's piano sonatas. His very diverse and extensive repertoire also embraced such composers as Honegger, d'Indy, Martinů, Stravinsky, Szymanowski and Villa-Lobos.
Horszowski was widely recorded, and can be heard on the HMV, Columbia, RCA, Deutsche Grammophon, Nonesuch, and other labels. He also taught at the Curtis Institute in Philadelphia, counting among his pupils Richard Goode, Anton Kuerti, Murray Perahia, Peter Serkin, and Steven DeGroote.
Horszowski, who had the longest career in the history of the performing arts, continued performing until shortly before his death, which occurred in Philadelphia one month before his 101st birthday.
Whilst Mieczysław Horszowski's family was of Jewish origin (which made him a fugitive from Europe in the 1930s), he was himself an early convert to Roman Catholicism, and a very devout one. As the French critic André Tubeuf has written (in his notes to the EMI re-issue of Horszowski's 1930s-era recordings of the Beethoven cello sonatas with Pablo Casals), "Horszowski was both very Jewish and very Catholic, in both cases as only a Pole could have been."
In 1981, the 89-year-old Horszowski married Bice Costa, an Italian pianist. Bice later edited Horszowski's memoirs and a volume of his mother's correspondence about Horszowski's early years. She also recovered and recorded some songs composed by Horszowski on French texts ca. 1913-1914.
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Hjalmar Horace Greeley Schacht (22 January 1877 – 3 June 1970): Currency Commissioner and President of the Reichsbank under the Weimar Republic, and President of the Reichsbank under the Nazi regime between 1933 and 1939. Schacht was one of the primary drivers of Germany's policy of redevelopment, reindustrialization and rearmament, and was a fierce critic of his country's post-WW1 reparation obligations. Released from effective service to the Nazi government in 1939, Schacht ended WW2 in a concentration camp, and was tried and acquitted at Nuremberg for his role in Germany's war economy.
Gustave Gilbert, an American Army psychologist, was allowed to examine the Nazi leaders who were tried at Nuremberg for war crimes. Among other tests, a German version of the Wechsler-Bellevue IQ test was administered. Hjalmar Schacht scored 143, the highest among the Nazi leaders tested, albeit adjusted upwards to take account of his age.
Schacht was born in Tingleff, Imperial Germany (now in Denmark) to William Leonhard Ludwig Maximillian Schacht and Danish baroness Constanze Justine Sophie von Eggers. His parents, who had spent years in the United States, originally decided on the name Horace Greeley Schacht, in honor of the American journalist Horace Greeley. However, they yielded to the insistence of the Schacht family grandmother, who firmly believed the child's given name should be Danish. Schacht studied medicine, philology and political science before earning a doctorate in economics in 1899 — his thesis was on mercantilism.
He joined the Dresdner Bank in 1903, where he became deputy director from 1908 to 1915. He was then a member of the committee of direction of the German National Bank for the next seven years, until 1922, and after its merger with the Darmstädter und Nationalbank (Danatbank), a member of the Danatbank's committee of direction. In 1905, while on a business trip to the United States with board members of the Dresdner Bank, Schacht met the famous American banker J. P. Morgan, as well as U.S. President Theodore Roosevelt.
During the First World War, Schacht was tasked to serve on the staff of General von Lumm, the Banking Commissioner for Occupied Belgium. Schacht was responsible for organizing the financing of Germany's purchasing policy within the country, and was summarily dismissed by General von Lumm when it was discovered that he had used his previous employer, the Dresdner Bank, to channel the note remittances for nearly 500 million francs of Belgian national bonds destined to pay for the requisitions.
Subsequent to Schacht's dismissal from the public service, he resumed a brief stint at the Dresdner Bank, before moving on to various positions within rival establishments. In 1923, Schacht applied and was rejected for the position of head of the Reichsbank, largely as a result of his dismissal from von Lumm's service.
Despite the small blemish on his record, in November 1923, Schacht became currency commissioner for the Weimar Republic and participated in the introduction of the Rentenmark, a new currency the value of which was based on a mortgage on all of the properties in Germany. After his economic policies helped reduce German inflation and stabilize the German mark (Helferich Plan), Schacht was appointed president of the Reichsbank at the requests of President Friedrich Ebert and Chancellor Gustav Stresemann. He collaborated with other prominent economists to form the 1929 Young Plan to modify the way that war reparations were paid after Germany's economy was destabilizing under the Dawes Plan. In December 1929, he caused the fall of the Finance Minister Rudolf Hilferding by imposing upon the government his conditions for the obtention of a loan. After modifications by Hermann Müller's government to the Young Plan during the Second Conference of The Hague (January 1930), he stepped down from the position of Reichsbank Chairman on March 7, 1930. During 1930, Schacht campaigned against the war reparations requirement in the United States.
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By 1926, Schacht had left the small German Democratic Party, which he had helped found, and was increasingly lending his support to the Nazi Party, to which he became closer between 1930 and 1932 (although he never officially became a member of the party). Close for a short time to Heinrich Brüning's government, Schacht shifted to the right by entering the Harzburg Front in October 1931.
Schacht's disillusionment with the existing Weimar government did not indicate a particular shift in his overall philosophy, but rather arose primarily out two issues: first, out of his objection to the inclusion of Socialist Party elements in the government, and the effect of their various construction and make-work projects on public expenditures and borrowings (and the consequent undermining of the government's anti-inflation efforts)[4]; second, on his fundamentally unwavering desire to see Germany retake its place on the international stage, and his recognition that "as the powers became more involved in their own economic problems in 1931 and 1932 . . . a strong government based on a broad national movement could use the existing conditions to regain Germany's sovereignty and equality as a world power."[5] Schacht was convinced that if the German government were ever to commence a wholesale reindustrialization and rearmament in spite the restrictions imposed by Germany's treaty obligations, it would have to be during a period lacking clear international consensus among the Great Powers
After the July 1932 elections, which saw the Nazis obtain more than a third of the seats, he helped the Nazi Wilhelm Kepler to organize a petition of industrial leaders requesting that President Hindenburg nominate Adolf Hitler as Chancellor of Germany. He returned as Reichsbanck Chairman on March 17, 1933 after Hitler's rise to power.
Though never a member of the Nazi Party, Schacht helped to raise funds for the party after meeting with Adolf Hitler. In August 1934 Hitler appointed Schacht as his Minister of Economics. Schacht supported public works programs, most notably the construction of autobahns (highways) to attempt to alleviate unemployment - policies which had been instituted in Germany under legislation drawn up by Kurt von Schleicher's government in late 1932, and had in turn influenced Roosevelt's policies. He also introduced the 'New Plan', Germany's autarchic attempt to distance itself from foreign entanglements in its economy, in September 1934. Germany had accrued a massive foreign currency deficit during the Great Depression, and it continued into the early years of the Nazis' reign. Schacht negotiated several trade agreements with countries in South America, and South-East Europe, ensuring that Germany would continue to receive raw materials from those countries, but that they would be paid in Reichsmarks; thus ensuring that the deficit would not get any worse; whilst allowing the Nazis to deal with the gap which had already developed. Schacht also found an innovative solution to the problem of the government deficit by using mefo bills. He was appointed General Plenipotentiary for the War Economy in May 1934 and was awarded honorary membership of the Nazi Party and the Golden Swastika in January 1937.
Though a anti-Semitic, Schacht disagreed with what he called "unlawful activities" against Germany's Jewish minority and in August 1935 made a speech denouncing Julius Streicher and the articles he had been writing in Der Stürmer.
Schacht began to lose power after the implementation of the Four Year Plan in 1936 by Hermann Göring. He resigned as Minister of Economics and General Plenipotentiary in November 1937 at the request of the Minister of Economics, Göring, due to disagreements with Hitler and Göring over military spending, which he believed would cause inflation. He was re-appointed President of the Reichsbank until Hitler dismissed him from his position in January 1939. After this Schacht held the title of Minister without Portfolio, mainly an honorific title, and received the same salary that he did as President of the Reichsbank until he was fully dismissed in January 1943.
To greater and lesser degrees, Schacht was involved in numerous attempted coups in the years between his dismissal from the Reichsbank and his imprisonment. Indeed, Schacht was one of the main driving forces behind the 1938 planned coup. At Schacht’s denazification trial (subsequent to his acquittal at Nuremberg) it was declared by a judge that “None of the civilians in the resistance did more or could have done more than Schacht actually did.”.
As a result of the various putsch attempts between 1938 and 1941, Schacht was arrested on 23 July 1944, accused of having participated in the July 20 Plot to assassinate Hitler [1]. He was sent to Ravensbrück and Flossenburg and finally to Dachau, where he remained until his liberation and subsequent re-imprisonment by Allied army in April 1945. He was arrested by the Allies and accused of war crimes at the Nuremberg Trials, but was acquitted and released in 1946. He was again arrested by Germans, tried in a denazification court and sentenced to eight years in a work camp, but was released early in September 1948. He formed the Düsseldorfer Außenhandelsbank Schacht & Co. after his release and became an economic and financial advisor for developing countries, in particular Non-Aligned heads of state, often also anti-Zionists. Schacht died in Munich, Germany on 3 June 1970.
Schacht was tried for crimes against peace in Nuremberg in 1946. His defence was that he was only a banker and economist, even though evidence showed that he participated in meetings that directly helped bring the Nazis to power, and that he admitted to breaking the Treaty of Versailles. He had created schemes to regiment the German workforce and gut the union movement, even before the election of Hitler.
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Schacht was one of the first at Nuremberg to offer to turn state’s evidence against his co-defendants, using letters to approach one of the Generals overseeing the trial with the offer of cooperation. Schacht’s move towards a plea bargain, although eventually quashed by Justice Jackson, led Goring to make a similar overture towards the prosecutors.
The judges were split on his case due to a lack of evidence against Schacht during the war years, with the British judges favoring acquittal and the Russian judges particularly opposed.
Robert Jackson, a member of the prosecution team and an Associate Justice of the United States, was so outraged at the trial result that he lashed out at Schacht as "the most dangerous and reprehensible type of all opportunists, someone who would use a Hitler for his own ends, and then claim, after Hitler was defeated, to have been against him all the time. He was part of a movement that he knew was wrong, but was in it just because he saw it was winning."
However, in its final decision (barely) vindicating Schacht, the tribunal declared that “rearmament of itself is not criminal under the Charter . . . To be a crime against Peace under Article 6 of the Charter it must be shown that Schacht carried out his rearmament as part of the Nazi plans to wage aggressive wars”. The judges went on to note that as a result of Schacht’s dismissal from the presidency of the Reichsbank in 1939, the case hung on entirely on whether Schacht had been cognizant of the plans of the government prior to his dismissal from the presidency of the Reichsbank. The trial judges asserted that insufficient evidence has been presented to justify such a conclusion, and Schacht was acquitted – one of only three defendants at Nuremberg to be so released[. Significant factors in establishing Schacht's innocence included the fact that he had lost all of his important posts before the war, had kept in close contact with dissidents such as Hans Bernd Gisevius throughout the war, and had spent most of the last year of the war as a concentration camp prisoner himself. His defenders argued that he was just a patriot, who was trying to make the German economy great. Furthermore, it was argued that when he saw what atrocities Hitler was committing the evidence suggests he did not approve[citation needed], and that fundamentally he was not a Nazi party member and shared very little of their ideology.
Schacht wrote 26 books during his lifetime, of which at least four have been translated in English:
* The End of Reparations, published in 1931
* Account Settled, published in 1949 after his acquittal at the Nuremberg Trials
* Confessions of the Old Wizard, an autobiography published in 1953
* The Magic Of Money, published in 1967
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In May 2004, the White House dispatched the U.S. ambassador in Germany to pay an unusual visit to that country's interior minister. Ambassador Daniel R. Coats carried instructions from the State Department transmitted via the CIA's Berlin station because they were too sensitive and highly classified for regular diplomatic channels, according to several people with knowledge of the conversation.
Coats informed the German minister that the CIA had wrongfully imprisoned one of its citizens, Khaled Masri, for five months, and would soon release him, the sources said. There was also a request: that the German government not disclose what it had been told even if Masri went public. The U.S. officials feared exposure of a covert action program designed to capture terrorism suspects abroad and transfer them among countries, and possible legal challenges to the CIA from Masri and others with similar allegations.
The Masri case, with new details gleaned from interviews with current and former intelligence and diplomatic officials, offers a rare study of how pressure on the CIA to apprehend al Qaeda members after the Sept. 11, 2001, attacks has led in some instances to detention based on thin or speculative evidence. The case also shows how complicated it can be to correct errors in a system built and operated in secret.
The CIA, working with other intelligence agencies, has captured an estimated 3,000 people, including several key leaders of al Qaeda, in its campaign to dismantle terrorist networks. It is impossible to know, however, how many mistakes the CIA and its foreign partners have made.
Unlike the military's prison for terrorist suspects at Guantanamo Bay, Cuba -- where 180 prisoners have been freed after a review of their cases -- there is no tribunal or judge to check the evidence against those picked up by the CIA. The same bureaucracy that decides to capture and transfer a suspect for interrogation-- a process called "rendition" -- is also responsible for policing itself for errors.
The CIA inspector general is investigating a growing number of what it calls "erroneous renditions," according to several former and current intelligence officials.
One official said about three dozen names fall in that category; others believe it is fewer. The list includes several people whose identities were offered by al Qaeda figures during CIA interrogations, officials said. One turned out to be an innocent college professor who had given the al Qaeda member a bad grade, one official said.
"They picked up the wrong people, who had no information. In many, many cases there was only some vague association" with terrorism, one CIA officer said.
While the CIA admitted to Germany's then-Interior Minister Otto Schily that it had made a mistake, it has labored to keep the specifics of Masri's case from becoming public. As a German prosecutor works to verify or debunk Masri's claims of kidnapping and torture, the part of the German government that was informed of his ordeal has remained publicly silent. Masri's attorneys say they intend to file a lawsuit in U.S. courts this week.
Masri was held for five months largely because the head of the CIA's Counterterrorist Center's al Qaeda unit "believed he was someone else," one former CIA official said. "She didn't really know. She just had a hunch."
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The CIA declined to comment for this article, as did Coats and a spokesman at the German Embassy in Washington. Schily did not respond to several requests for comment last week.
CIA officials stress that apprehensions and renditions are among the most sure-fire ways to take potential terrorists out of circulation quickly. In 2000, then-CIA Director George J. Tenet said that "renditions have shattered terrorist cells and networks, thwarted terrorist plans, and in some cases even prevented attacks from occurring."
The Counterterrorist Center
After the September 2001 attacks, pressure to locate and nab potential terrorists, even in the most obscure parts of the world, bore down hard on one CIA office in particular, the Counterterrorist Center, or CTC, located until recently in the basement of one of the older buildings on the agency's sprawling headquarters compound. With operations officers and analysts sitting side by side, the idea was to act on tips and leads with dramatic speed.
The possibility of missing another attack loomed large. "Their logic was: If one of them gets loose and someone dies, we'll be held responsible," said one CIA officer, who, like others interviewed for this article, would speak only anonymously because of the secretive nature of the subject.
To carry out its mission, the CTC relies on its Rendition Group, made up of case officers, paramilitaries, analysts and psychologists. Their job is to figure out how to snatch someone off a city street, or a remote hillside, or a secluded corner of an airport where local authorities wait.
Members of the Rendition Group follow a simple but standard procedure: Dressed head to toe in black, including masks, they blindfold and cut the clothes off their new captives, then administer an enema and sleeping drugs. They outfit detainees in a diaper and jumpsuit for what can be a day-long trip. Their destinations: either a detention facility operated by cooperative countries in the Middle East and Central Asia, including Afghanistan, or one of the CIA's own covert prisons -- referred to in classified documents as "black sites," which at various times have been operated in eight countries, including several in Eastern Europe.
In the months after the Sept. 11 attacks, the CTC was the place to be for CIA officers wanting in on the fight. The staff ballooned from 300 to 1,200 nearly overnight.
"It was the Camelot of counterterrorism," a former counterterrorism official said. "We didn't have to mess with others -- and it was fun."
Thousands of tips and allegations about potential threats poured in after the attacks. Stung by the failure to detect the plot, CIA officers passed along every tidbit. The process of vetting and evaluating information suffered greatly, former and current intelligence officials said. "Whatever quality control mechanisms were in play on September 10th were eliminated on September 11th," a former senior intelligence official said.
J. Cofer Black, a professorial former spy who spent years chasing Osama bin Laden, was the CTC's director. With a flair for melodrama, Black had earned special access to the White House after he briefed President Bush on the CIA's war plan for Afghanistan.
Colleagues recall that he would return from the White House inspired and talking in missionary terms. Black, now in the private security business, declined to comment.
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Some colleagues said his fervor was in line with the responsibility Bush bestowed on the CIA when he signed a top secret presidential finding six days after the 9/11 attacks. It authorized an unprecedented range of covert action, including lethal measures and renditions, disinformation campaigns and cyber attacks against the al Qaeda enemy, according to current and former intelligence officials. Black's attitude was exactly what some CIA officers believed was needed to get the job done.
Others criticized Black's CTC for embracing a "Hollywood model" of operations, as one former longtime CIA veteran called it, eschewing the hard work of recruiting agents and penetrating terrorist networks. Instead, the new approach was similar to the flashier paramilitary operations that had worked so well in Afghanistan, and played well at the White House, where the president was keeping a scorecard of captured or killed terrorists.
The person most often in the middle of arguments over whether to dispatch a rendition team was a former Soviet analyst with spiked hair that matched her in-your-face personality who heads the CTC's al Qaeda unit, according to a half-dozen CIA veterans who know her. Her name is being withheld because she is under cover.
She earned a reputation for being aggressive and confident, just the right quality, some colleagues thought, for a commander in the CIA's global war on terrorism. Others criticized her for being overzealous and too quick to order paramilitary action.
The CIA and Guantanamo Bay
One way the CIA has dealt with detainees it no longer wants to hold is to transfer them to the custody of the U.S. military at Guantanamo Bay, where defense authorities decide whether to keep or release them after a review.
About a dozen men have been transferred by the CIA to Guantanamo Bay, according to a Washington Post review of military tribunal testimony and other records. Some CIA officials have argued that the facility has become, as one former senior official put it, "a dumping ground" for CIA mistakes.
But several former intelligence officials dispute that and defend the transfer of CIA detainees to military custody. They acknowledged that some of those sent to Guantanamo Bay are prisoners who, after interrogation and review, turned out to have less valuable information than originally suspected. Still, they said, such prisoners are dangerous and would attack if given the chance.
Among those released from Guantanamo is Mamdouh Habib, an Egyptian-born Australian citizen, apprehended by a CIA team in Pakistan in October 2001, then sent to Egypt for interrogation, according to court papers. He has alleged that he was burned by cigarettes, given electric shocks and beaten by Egyptian captors. After six months, he was flown to Guantanamo Bay and let go earlier this year without being charged.
Another CIA former captive, according to declassified testimony from military tribunals and other records, is Mohamedou Oulad Slahi, a Mauritanian and former Canada resident, who says he turned himself in to the Mauritanian police 18 days after the 9/11 attacks because he heard the Americans were looking for him. The CIA took him to Jordan, where he spent eight months undergoing interrogation, according to his testimony, before being taken to Guantanamo Bay.
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Another is Muhammad Saad Iqbal Madni, an Egyptian imprisoned by Indonesia authorities in January 2002 after he was heard talking -- he says jokingly -- about a new shoe bomb technology. He was flown to Egypt for interrogation and returned to CIA hands four months later, according to one former intelligence official. After being held for 13 months in Afghanistan, he was taken to Guantanamo Bay, according to his testimony.
The Masri Case
Khaled Masri came to the attention of Macedonian authorities on New Year's Eve 2003. Masri, an unemployed father of five living in Ulm, Germany, said he had gone by bus to Macedonia to blow off steam after a spat with his wife. He was taken off a bus at the Tabanovce border crossing by police because his name was similar to that of an associate of a 9/11 hijacker. The police drove him to Skopje, the capital, and put him in a motel room with darkened windows, he said in a recent telephone interview from Germany.
The police treated Masri firmly but cordially, asking about his passport, which they insisted was forged, about al Qaeda and about his hometown mosque, he said. When he pressed them to let him go, they displayed their pistols.
Unbeknown to Masri, the Macedonians had contacted the CIA station in Skopje. The station chief was on holiday. But the deputy chief, a junior officer, was excited about the catch and about being able to contribute to the counterterrorism fight, current and former intelligence officials familiar with the case said.
"The Skopje station really wanted a scalp because everyone wanted a part of the game," a CIA officer said. Because the European Division chief at headquarters was also on vacation, the deputy dealt directly with the CTC and the head of its al Qaeda unit.
In the first weeks of 2004, an argument arose over whether the CIA should take Masri from local authorities and remove him from the country for interrogation, a classic rendition operation.
The director of the al Qaeda unit supported that approach. She insisted he was probably a terrorist, and should be imprisoned and interrogated immediately.
Others were doubtful. They wanted to wait to see whether the passport was proved fraudulent. Beyond that, there was no evidence Masri was not who he claimed to be -- a German citizen of Arab descent traveling after a disagreement with his wife.
The unit's director won the argument. She ordered Masri captured and flown to a CIA prison in Afghanistan.
On the 23rd day of his motel captivity, the police videotaped Masri, then bundled him, handcuffed and blindfolded, into a van and drove to a closed-off building at the airport, Masri said. There, in silence, someone cut off his clothes. As they changed his blindfold, "I saw seven or eight men with black clothing and wearing masks," he later said in an interview. He said he was drugged to sleep for a long plane ride.
Afghanistan
Masri said his cell in Afghanistan was cold, dirty and in a cellar, with no light and one dirty cover for warmth. The first night he said he was kicked and beaten and warned by an interrogator: "You are here in a country where no one knows about you, in a country where there is no law. If you die, we will bury you, and no one will know."
Masri was guarded during the day by Afghans, he said. At night, men who sounded as if they spoke American-accented English showed up for the interrogation. Sometimes a man he believed was a doctor in a mask came to take photos, draw blood and collect a urine sample.
Back at the CTC, Masri's passport was given to the Office of Technical Services to analyze. By March, OTS had concluded the passport was genuine. The CIA had imprisoned the wrong man.
At the CIA, the question was: Now what? Some officials wanted to go directly to the German government; others did not. Someone suggested a reverse rendition: Return Masri to Macedonia and release him. "There wouldn't be a trace. No airplane tickets. Nothing. No one would believe him," one former official said. "There would be a bump in the press, but then it would be over."
Once the mistake reached Tenet, he laid out the options to his counterparts, including the idea of not telling the Germans. Condoleezza Rice, then Bush's national security adviser, and Deputy Secretary of State Richard L. Armitage argued they had to be told, a position Tenet took, according to one former intelligence official.
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"You couldn't have the president lying to the German chancellor" should the issue come up, a government official involved in the matter said.
Senior State Department officials decided to approach Interior Minister Schily, who had been a steadfast Bush supporter even when differences over the Iraq war strained ties between the two countries. Ambassador Coats had excellent rapport with Schily.
The CIA argued for minimal disclosure of information. The State Department insisted on a truthful, complete statement. The two agencies quibbled over whether it should include an apology, according to officials.
Meanwhile, Masri was growing desperate. There were rumors that a prisoner had died under torture. Masri could not answer most questions put to him. He said he steadied himself by talking with other prisoners and reading the Koran.
A week before his release in late May 2004, Masri said he was visited in prison by a German man with a goatee who called himself Sam. Masri said he asked him if he were from the German government and whether the government knew he was there. Sam said he could not answer either question.
"Does my wife at least know I'm here?" Masri asked.
"No, she does not," Sam replied, according to Masri.
Sam told Masri he was going to be released soon but that he would not receive any documents or papers confirming his ordeal. The Americans would never admit they had taken him prisoner, Sam added, according to Masri.
On the day of his release, the prison's director, who Masri believed was an American, told Masri that he had been held because he "had a suspicious name," Masri said in an interview.
Several intelligence and diplomatic officials said Macedonia did not want the CIA to bring Masri back inside the country, so the agency arranged for him to be flown to Albania. Masri said he was taken to a narrow country road at dusk. When they let him off, "They asked me not to look back when I started walking," Masri said. "I was afraid they would shoot me in the back."
He said he was quickly met by three armed men. They drove all night, arriving in the morning at Mother Teresa Airport in Tirana. Masri said he was escorted onto the plane, past all the security checkpoints, by an Albanian.
Masri has been reunited with his children and wife, who had moved the family to Lebanon because she did not know where her husband was. Unemployed and lonely, Masri says neither his German nor Arab friends dare associate with him because of the publicity.
Meanwhile, a German prosecutor continues to work Masri's case. A Macedonia bus driver has confirmed that Masri was taken away by border guards on the date he gave investigators. A forensic analysis of Masri's hair showed he was malnourished during the period he says he was in the prison. Flight logs show a plane registered to a CIA front company flew out of Macedonia on the day Masri says he went to Afghanistan.
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Masri can find few words to explain his ordeal. "I have very bad feelings" about the United States, he said. "I think it's just like in the Arab countries: arresting people, treating them inhumanly and less than that, and with no rights and no laws."
Published on Monday, March 20, 2000 in the San Francisco Bay Guardian
Art Attack: Gene Stilp Uses Props And A Wicked Sense Of Humor To Focus Media Attention On Public Policy Issues
by Ralph Nader
Imagine a public interest artist using the town square as a canvas. Now comes Gene Stilp, a 49-year-old lawyer with a keen advocacy sense, a nose for news, and the creativity and skills to communicate a complicated public policy initiative with a prop that's guaranteed to generate media coverage and capture hearts and minds. Gene is more at home in the workshop than the courtroom.
Stilp's gallery includes some unusual works:
A 30-foot ear of corn. This mutant vegetable greeted the participants at a Food and Drug Administration hearing on genetically modified foods in Washington, D.C. in late 1999. With about $400, Stilp and his activist associates assembled the enormous ear of corn out of chicken wire, 1,000 recycled milk cartons, and twine. The prop was featured in The New York Times, USA Today, and a myriad of electronic and print sources throughout the country
A 24-foot SUV. Stilp supplied the Public Interest Research Group with a 24-foot-long, 14-foot-high, 10-foot-wide inflatable SUV to help the group call attention to the gas-guzzling SUVs that are crowding the nations' highways. The SUV prop is hard for the media to avoid and it helps jolt the public into thinking about the consequences of wasting energy on oversized vehicles
The Peco burnt-toast toaster. In 1998 the Pennsylvania state legislature debated electric deregulation. In order to call attention to a proposed bailout of the nuclear industry, Stilp refashioned a 1963 Airstream Trailer into a 20-foot-long, 12-foot-high toaster. Two 10-foot-long, 4-foot-high pieces of blackened toast were popping out. With the flick of a remote switch, smoke poured out of the top of the toaster to replicate burning toast. Signs adorning the toaster proclaimed, "Don't Get Burned By PECO."
Stilp has been a an outspoken activist for more than two decades on issues ranging from hunger to nuclear safety. He is always ready to help concerned citizens make their voices heard in the corridors of power.
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Stilp's motivation to build props stems from his desire to help groups that can't afford to buy television time or newspaper ads. Most Stilp creations start with a creative impulse followed by a quick trip to the hardware store or junkyard. With bailing wire and two-by-fours, he begins the job of making an issue move from the mimeograph machines of local and national activists to daily newspapers and evening news shows.
Capitalizing on the national attention generated every February by Groundhog Day, Stilp used Feb. 2 to launch the first official Global Warming Forecasting Ground Hog. With the U.S. Capitol as a backdrop, "Globbie," a small, but effective, groundhog sculpture, predicted adverse climate changes for the coming year.
The corrupting influence special-interest money has on politics is an important matter. Stilp's approach to this issue prompted him to spend about $200 to build a full-scale replica of the Lincoln Bed. (The Lincoln Bedroom was made notorious as a result of President Clinton's campaign contributors being offered a chance to sleep in the real Lincoln Bedroom in the White House.)
As the U.S. Congress gathered in Hershey, Pennsylvania for a "civility retreat" in 1997, they were greeted by the prop – with an attached meter that recorded donations for time spent in the bed. This prop focused attention on campaign finance reform and the congressional and presidential campaign finance abuse investigations, and resulted in national media coverage of the need for campaign finance reform.
Stilp was interviewed by a host of national correspondents while he lounged in the "Lincoln Bed." In the coming year, Stilp hopes to transform his lifelong passion for building props for causes into an enduring institution called the National Prop Shop. This nonprofit enterprise will help public interest groups make use of creative props and incorporate props into their campaign efforts. Stilp wants the activist community to use the National Prop Shop, but ultimately he would like to see every community have the ability to assemble local talent to build the props they might need to dramatize local issues.
People interested in contributing ideas, materials, or funds for this unique public institution should contact Stilp at The Prop Shop, 1550 FVCR, Harrisburg, PA 17112.
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The Insurance Hoax
Property insurers use secret tactics to cheat customers out of payments--as profits break records.
By David Dietz and Darrell Preston
Bloomberg Markets September 2007
Julie Tunnell remembers standing in her debris-strewn driveway when the tall man in blue jeans approached. Her northern San Diego tudor-style home had been incinerated a week earlier in the largest wildfire in California history. The blaze in October and November 2003 swept across an area 19 times the size of Manhattan, destroying 2,232 homes and killing 15 people. Now came another blow.
A representative of State Farm Mutual Automobile Insurance Co., the largest home insurer in the U.S., came to the charred remnants of Tunnell's home to tell her the company would pay just $220,000 of the estimated $306,000 cost of rebuilding the house.
"It was devastating; I stood there and cried," says Tunnell, 42, who teaches accounting at San Diego City College. "I felt absolutely abandoned."
Tunnell joined thousands of people in the U.S. who already knew a secret about the insurance industry: When there's a disaster, the companies homeowners count on to protect them from financial ruin routinely pay less than what policies promise. Insurers often pay 30-60 percent of the cost of rebuilding a damaged home--even when carriers assure homeowners they're fully covered, thousands of complaints with state insurance departments and civil court cases show.
Paying out less to victims of catastrophes has helped produce record profits. In the past 12 years, insurance company net income has soared--even in the wake of Hurricane Katrina, the worst natural disaster in U.S. history. Property- casualty insurers, which cover damage to homes and cars, reported their highest- ever profit of $73 billion last year, up 49 percent from $49 billion in 2005, according to Highline Data LLC, a Cambridge, Massachusetts-based firm that compiles insurance industry data.
The 60 million U.S. homeowners who pay more than $50 billion a year in insurance premiums are often disappointed when they discover insurers won't pay the full cost of rebuilding their damaged or destroyed homes. Property insurers systematically deny and reduce their policyholders' claims, according to court records in California, Florida, Illinois, Mississippi, New Hampshire and Tennessee. The insurance companies routinely refuse to pay market prices for homes and replacement contents, they use computer programs to cut payouts, they change policy coverage with no clear explanation, they ignore or alter engineering reports, and they sometimes ask their adjusters to lie to customers, court records and interviews with former employees and state regulators show. As Mississippi Republican U.S. Senator Trent Lott and thousands of other homeowners have found, insurers make low offers--or refuse to pay at all--and then dare people to fight back.
"It's despicable not to make good-faith offers to everybody," says Robert Hunter, who was Texas insurance commissioner from 1993 to '95 and is now insurance director at the Washington-based Consumer Federation of America. "Money managers have taken over this whole industry. Their eyes are not on people who are hurt but on the bottom line for the next quarter."
The industry's drive for profit has overwhelmed its obligation to policyholders, says California Lieutenant Governor John Garamendi, a Democrat. As California's insurance commissioner from 2002 to '06, Garamendi imposed $18.4 million in fines against carriers for mistreating customers. "There's a fundamental economic conflict between the customer and the company," he says. "That is, the company doesn't want to pay. The first commandment of insurance is, 'Thou shalt pay as little and as late as possible.'"
Although the tension between insurers and their customers has long existed, it was in the 1990s that the industry began systematically looking for ways to increase profits by streamlining claims handling. Hurricane Hugo was a major catalyst. The 1989 storm, which battered North and South Carolina, left the industry reeling from $4.2 billion in claims. In September 1992, Allstate Corp., the second-largest U.S. home insurer, sought advice on improved efficiency from McKinsey & Co., a New York-based consulting firm that has advised many of the world's biggest corporations, according to records in at least six civil court cases.
State Farm, based in Bloomington, Illinois, and Los Angeles-based Farmers Group Inc., the third-largest home insurer in the U.S., also hired McKinsey as a consultant, court records show.
McKinsey produced about 13,000 pages of documents, including PowerPoint slides, in the 1990s, for Northbrook, Illinois-based Allstate. The consulting firm developed methods for the company to become more profitable by paying out less in claims, according to videotaped evidence presented in Fayette Circuit Court in Lexington, Kentucky, in a civil case involving a 1997 car accident.
One slide McKinsey prepared for Allstate was entitled "Good Hands or Boxing Gloves," the tape of the Kentucky court hearing shows. For 57 years, Allstate has advertised its employees as the "Good Hands People," telling customers they will be well cared for in times of need. The McKinsey slides had a new twist on that slogan. When a policyholder files a claim, first make a low offer, McKinsey advised Allstate. If a client accepts the low amount, Allstate should treat the person with good hands, McKinsey said. If the customer protests or hires a lawyer, Allstate should fight back.
"If you don't take the pittance they offer, they're going to put on the boxing gloves and they're going to batter injured victims," plaintiffs attorney J. Dale Golden told Judge Thomas Clark at the May 12, 2005, hearing in which the lawyer introduced the McKinsey slides.
One McKinsey slide displayed at the Kentucky hearing featured an alligator with the caption "Sit and Wait." The slide says Allstate can discourage claimants by delaying settlements and stalling court proceedings. By postponing payments, insurance companies can hold money longer and make more on their investments-- and often wear down clients to the point of dropping a challenge. "An alligator sits and waits," Golden told the judge, as they looked at the slide describing a reptile.
McKinsey's advice helped spark a turnaround in Allstate's finances. The company's profit rose 140 percent to $4.99 billion in 2006, up from $2.08 billion in 1996. Allstate lifted its income partly by paying less to its policyholders. Allstate spent 58 percent of its premium income in 2006 for claim payouts and the costs of the process compared with 79 percent in 1996, according to filings with the U.S. Securities and Exchange Commission. The payout expense, called a loss ratio, changes each year based on events such as natural disasters; overall, it's been decreasing since Allstate hired McKinsey.
Investors have noticed. Allstate's stock price jumped fourfold to $60.95 on July 11 from its closing price on June 3, 1993, the day of its initial public offering. During the same period, the Standard & Poor's 500 Index rose threefold. State Farm's profits have doubled since 1996 to $4.8 billion in 2006. Because State Farm is a mutual company, meaning it's owned by its policyholders, it doesn't have shares that trade publicly.
"This is about as good a stretch as I've seen," says Michael Chren, who manages $1.5 billion at Allegiant Asset Management Co. in Palm Beach Gardens, Florida, and has followed the property-casualty industry for 20 years. The industry's performance during the past five years has been superb, even with payouts for Katrina, he says. "All the stars have been in alignment. There has been decent pricing of products and an extremely attractive and very low loss ratio."
Reducing payouts is just one way the industry has improved profits. Carriers have also raised premiums and withdrawn from storm-plagued areas such as the Gulf Coast of the U.S. and parts of Long Island, New York--to lower costs and increase income, says Amy Bach, executive director of United Policyholders, a San Francisco-based group that advises consumers on insurance claims. "What this says is that the industry has been raking in spectacular profits while they're getting more and more audacious in their tactics," she says.
Allstate spokesman Michael Siemienas says the company won't comment on what role McKinsey played in lowering the insurer's loss ratio and boosting its profits. Allstate did change the way it handles homeowners' insurance claims, he says. "In the early 1990s, Allstate redesigned its claims practices to more efficiently and effectively handle claims and better serve our customers," he says.
"Allstate's goal remains the same: to investigate, evaluate and promptly resolve each claim based on its merits," Siemienas says. "Allstate believes its claim processes support this goal and are absolutely sound."
McKinsey doesn't discuss any of its work for clients, spokesman Mark Garrett says.
Jerry Choate, Allstate's chief executive officer from 1995 to '98, said at a news conference in New York in 1997 that the company's new claims-handling process had reduced payments and increased profit, according to a report in a March 1997 edition of National Underwriter magazine. Insurers can't make significantly more money just from cutting sales costs, he told reporters. "The leverage is really on the claims side," Choate said. "If you don't win there, I don't care what you do on the front end. You're not going to win."
The more cash insurers can keep from premiums, the more they can invest. This pool of assets--most of which the companies invest in government and corporate bonds--is known as float.
"Simply put, float is money we hold that is not ours but which we get to invest," billionaire Warren Buffett, CEO of Berkshire Hathaway Inc., wrote in his annual letter to shareholders this year. "When an insurer earns an underwriting profit, float is better than free," he wrote in 2006. Omaha, Nebraska-based Berkshire Hathaway generated 51 percent of its $11 billion profit in 2006 from insurance.
Claims payouts for the entire property-casualty industry have decreased in the past decade. In 2006, carriers paid out 55 percent of the $435.8 billion in premiums collected, according to the Insurance Information Institute, a trade group in New York. That compares with a 64 percent payout ratio on $267.6 billion in premium revenue in 1996. As companies pay less to policyholders, their investment gains are growing, according to the trade group and research firm A.M. Best Co. in Oldwick, New Jersey. The industry has increased profits by an annual average of 46 percent since 1994, Institute data show. In 2006, carriers invested $1.2 trillion and recorded a net gain of $52.3 billion, up from $713.5 billion invested for a gain of $39.1 billion in 1994.
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Insurance companies are no longer following their mandate to take care of policyholders' money and then pay it out when needed, says Douglas Heller, executive director of the nonprofit Foundation for Taxpayer and Consumer Rights in Santa Monica, California. "The whole purpose of insurance is evaporating before our eyes as we continue to send checks to the companies," Heller says. "Insurers are looking to shed their purpose as a risk bearer and become financial institutions."
That kind of criticism is unwarranted, says Robert Hartwig, chief economist at the Insurance Information Institute. He says about 1 percent of policyholders contest what they're offered. "The insurance industry can be justifiably proud of its performance," Hartwig says. "It's in the insurance industry's best interests to settle claims as fairly and as rapidly as possible."
Companies have sharpened the use of technology in the past 20 years to help tighten claims payouts. Insurers following McKinsey's advice on claims processing have adopted computer programs with names such as Colossus and Xactimate. Colossus, made by El Segundo, California-based Computer Sciences Corp., calculates the cost of treating people injured in auto accidents, including the degree of pain and suffering they'll endure and any permanent impairment they may have, according to Computer Sciences' Web site. Xactimate, made by Xactware Solutions Inc. of Orem, Utah, is a program that estimates the cost of rebuilding a home.
Insurers sometimes manipulate these programs to pay out as little as possible, lawsuits have asserted. "Programs like Colossus are designed to systematically underpay policyholders without adequately examining the validity of each individual claim," former Texas insurance commissioner Hunter told the U.S. Senate Committee on Commerce, Science and Transportation on April 11. He also criticized Xactimate. "If you don't accept their offer, which is a low ball, you end up in court," Hunter said. "And that was the recommendation of McKinsey." Computer Sciences and Xactware declined to comment.
Farmers Group, a subsidiary of Zurich Financial Services AG, agreed in 2005 to stop using Colossus to evaluate claims filed by policyholders who have accidents with uninsured or underinsured drivers. The move was part of a $40 million settlement in a class-action lawsuit in Pottawatomie County District Court in Oklahoma in which the plaintiffs claimed the company had repeatedly and wrongly failed to pay enough for crash injuries.
An internal e-mail introduced in the Farmers lawsuit shows the company had pressured its adjusters, whom it calls claims representatives, or CRs, to pay out smaller amounts--and rewarded them when they did.
"As you know, we have been creeping up in settlements," David Harding, a Farmers claims manager, wrote in an e-mail to employees on Nov. 20, 2001. "Our CRs must resist the temptation of paying more just to move this type file. Teach them to say, 'Sorry, no more,' with a toothy grin and mean it." Harding praised a worker for making low settlements. "It can be done as Darren consistently does," he wrote. "If he keeps this up during 2002, we will pay him accordingly."
Farmers said in court papers that it didn't seek to pay less than customers were due. "The e-mail speaks for itself," Farmers wrote. "Plaintiff's characterization of it is denied."
Edward Rust Jr., CEO of State Farm, testified in a 2006 civil case that his company revamped its claims handling through a project called ACE, or Advanced Claims Excellence. McKinsey suggested the use of ACE, according to evidence presented in the district court of Grady County, Oklahoma.
"Technology has allowed us to really streamline our claim organization to be more efficient and responsive," Rust testified. He said the company wanted to cut expenses for claims. In the Oklahoma case, Bridget and Donald Watkins, whose Grady County house was destroyed during a tornado in 1999, accused State Farm of misrepresenting the damage from the storm and won a $12.9 million judgment in May 2006. Watkins and State Farm agreed to an undisclosed settlement after the judgment.
Hunter, who also headed the federal flood insurance program under Presidents Gerald Ford and Jimmy Carter, told Congress that Allstate, with McKinsey's guidance, gave the name Claim Core Process Redesign to its strategy to change payout practices.
As pervasive as computers have become in insurance, the key actor in settling claims is still the adjuster, the person who talks to policyholders and decides how much they should be paid. Allstate has asked adjusters to deceive customers, says Jo Ann Katzman, who worked as a claims adjuster for Allstate in 2002 and '03. She says managers regularly came to her office in Farmington Hills, Michigan, to give pep talks on keeping claim payments down. They awarded prizes such as portable refrigerators to adjusters who tried to deny claims by blaming fires on arson without justification, she says. "We were told to lie by our supervisors," says Katzman, 49, who quit by taking a company buyout in 2003. "It's tough to look at people and know you're lying."
Katzman says an adjuster at Allstate, on orders from a supervisor, told an 89- year-old Detroit fire victim that Allstate wouldn't replace cabinets in her home even though the insurance policy said they were covered. In another case, Katzman says Allstate wouldn't replace a fire-damaged refrigerator--an appliance she says was covered. Katzman now runs Accurate Estimating Services, an independent adjusting company in Bloomfield Hills, Michigan. Allstate's Siemienas declined to comment on Katzman's statements.
Insurers sometimes order employees to offer replacement cost settlements that have no connection to actual prices of home contents, according to testimony in a civil trial. A jury in November 2005 awarded Larry Stone and Linda Della Pelle $5.2 million in punitive damages and $616,000 to construct a new house after finding that Fidelity National Insurance Co. of Jacksonville, Florida, had underpaid the couple by $183,000 when it offered them $433,000 to rebuild their two-story Claremont, California, residence.
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During the trial in Los Angeles Superior Court, Ricardo Echeverria, the couple's attorney, questioned Kenneth Drake, president of Canyon Country, California- based RJG Construction Inc., who had been hired by Fidelity's lawyers to evaluate damage estimates.
"Are you telling us that sometimes, because the insurance carriers dictate what amounts they are willing to allow for unit costs, estimators then have to comply with that?" asked Echeverria, according to the court transcript.
"That's absolutely true," Drake said.
"Do you think that's fair?" Echeverria asked.
"Fair or not, it's the name of our business," Drake said.
Drake declined to comment on his testimony. Fidelity is appealing the award.
A New Hampshire case involving a home destroyed in a fire exposed another insurance company tactic: changing a policy retroactively. In April 2003, the Rockingham county attorney in Kingston, New Hampshire, found that a unit of Hartford Financial Services Group Inc. had deleted the replacement cost portion of the homeowner's policy of Terry Bennett after his five-bedroom house burned to the ground in 1993. Bennett, a physician, sued Twin City Fire Insurance Co., claiming his home and its contents--including antiques and fine art--were worth $20 million, not the $1.7 million the insurer paid him. After an 11-year battle, he settled with Hartford in 2004 for an undisclosed amount. "Fighting an insurance company is like staring down the wrong end of a cannon," Bennett says.
An unprecedented number of people stared down that cannon after Hurricane Katrina. The August 2005 storm killed more than 1,600 people in Louisiana and Mississippi, left 500,000 people homeless and cost insurers $41.1 billion. More than 1,000 homeowners sued their insurers in the wake of the storm--the largest- ever number of insurance lawsuits stemming from a U.S. natural disaster.
For insurers, the multibillion-dollar question regarding Katrina was how much of the destruction was caused by wind and how much by water. Property insurance policies don't cover damage caused by flooding; homeowners have to purchase separate insurance administered by the U.S. government. The wind/water issue has spurred allegations that insurers manipulated the findings of adjusters and engineers.
Ken Overstreet, an engineer based in Diamondhead, Mississippi, who examined destroyed Gulf Coast residences, says someone altered his findings on the cause of the damage to at least four homes. "We were working for insurance companies, and they wanted certain results," says Overstreet, who has been a licensed civil engineer since 1981. "They wanted to get a desired outcome, and that's what they did."
Overstreet, who was working for Houston-based Rimkus Consulting Group Inc., prepared a report on the Gulfport, Mississippi, home of Hubert and Joyce Smith for Meritplan Insurance Co. The engineer found that both wind and water had damaged the house. "The winds out of the east would have racked the entire structure to the west and simply lifted the footings up," he wrote.
Meritplan declined to pay anything to the Smiths, telling them that all of the damage was caused by water. The company sent the Smiths what it said was Overstreet's engineering report. "Due to the extent of the structural damage to the residence, the storm surge accounted for the damage," the report they got said. The Smiths called Overstreet and asked him to look at what Meritplan had sent them. Overstreet says he looked at both reports side by side and then told the couple that someone had changed his conclusion after his inspection.
"If they defrauded me, how many more did they defraud?" asks Hubert Smith, 88, a retired chiropractor. "There's a lot of crap going on."
Six lawsuits against Rimkus allege the company altered engineering reports. "Those allegations are absolutely false," says Arch Currid, a Rimkus spokesman. "There's no fact to those claims. We're going to vigorously defend ourselves in court, and we're confident we will prevail."
Ed Essa, a spokesman for Calabasas, California-based Countrywide Financial Corp., the parent of Meritplan, says the company confidentially settled a lawsuit with the Smiths in March.
Another engineer involved in Katrina, Bob Kochan, CEO of Forensic Analysis & Engineering Corp., says State Farm asked him to redo his reports because the insurer disagreed with the engineers' conclusions. Kochan sent an Oct. 17, 2005, e-mail to his staff saying State Farm executive Alexis "Lecky" King asked for the changes. "Lecky told me that she is experiencing this same concern with other engineering companies," Kochan wrote. "In her words, 'They are all too emotionally involved and working too hard to find justifications to call it wind damage.'"
Kochan says he complied so State Farm didn't cut its contract with his company. "They didn't like our conclusions," he says. "We agreed to re-evaluate each of our assignments."
Randy Down, an engineer at Raleigh, North Carolina-based Forensic, wrote this Oct. 18, 2005, e-mail response to Kochan: "I have a serious concern about the ethics of this whole matter. I really question the ethics of someone who wants to fire us simply because our conclusions don't match theirs." The e-mails were made public in a civil case against State Farm in Jackson, Mississippi.
State Farm spokesman Phil Supple says Kochan's e-mail comments are out of context. He says sometimes information in engineering reports doesn't support the conclusions.
One State Farm policyholder in Mississippi was Senator Lott, who lost his home in Katrina. He sued State Farm for fraud in U.S. District Court in Jackson, after the insurer ruled that his home had been damaged by water and refused to pay him anything. "It's long overdue for this industry to be held accountable," Lott, 65, says. Lott and State Farm agreed to a confidential settlement in April.
Lott has introduced legislation to have insurers regulated by the federal government. That would supplant a patchwork system of regulation by states. Insurance has no body analogous to the SEC, which can refer cases to the Justice Department for criminal prosecution. That doesn't happen with insurers. The most that state insurance departments typically do is impose civil fines when companies mistreat customers. Such sanctions are weak and infrequent, says Hunter, the former Texas insurance commissioner. Before Katrina, no state or federal prosecutor had ever investigated a nationally known property-casualty company for criminal mistreatment of policyholders. Mississippi Attorney General Jim Hood says a federal grand jury is probing insurance company claims handling after the hurricane.
There was no criminal investigation after State Farm offered just 15 percent of replacement costs to Michele and Tim Ray, whose house was wrecked by a tornado in April 2006. A contractor estimated the cost to rebuild the Hendersonville, Tennessee, home at $254,000. State Farm made three inspections of the property, Ray says, and sent the Rays a check for $36,000, which the couple returned. A year after the twister, the couple remained in the damaged home, with their tattered roof covered by tarpaulins. In April, after Bloomberg News submitted questions to State Farm about the Ray case, the company inspected the house again. This time, it gave the Rays $302,000. "We decided to call it a total loss and agreed to pay the policy limits after deciding the damage was caused by the storm," State Farm spokesman Shawn Johnson says.
State Farm won't discuss what role McKinsey played in helping the insurer shape its approach toward customers. Similarly, no official at any insurer that hired McKinsey is willing to talk about the consulting firm.
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Privately held McKinsey, which has 14,000 employees in 40 countries, has worked for many of the largest companies in the world, according to its Web site. "We take pride in doing what is right rather than what is right for the profitability of our firm," Managing Director Ian Davis says in a quote posted on the site.
McKinsey pioneered the overhaul of the property casualty industry at Allstate. The company hired McKinsey in 1992 after the insurer was spun off from what's now Sears Holdings Corp. of Hoffman Estates, Illinois, says David Berardinelli, a Santa Fe, New Mexico, lawyer who won access to view the McKinsey documents for a limited time during a lawsuit involving an auto accident. McKinsey advised the insurer to pay claims quickly at low amounts while delaying payments for as long as possible for those who wanted large settlements, Berardinelli says. "They're capitalizing on the vulnerability of people," he says.
Berardinelli says McKinsey suggested that Allstate hold so-called town hall meetings with claims adjusters to urge them to pay less to customers.
Shannon Kmatz, a former Allstate claims adjuster, says she attended some of those sessions. She says managers told employees to keep claim payouts as low as possible. "The leaders of those town hall meetings were always concerned that we were doing our part to help the stock price by keeping claims down," says Kmatz, 34, who worked for Allstate for three years in New Mexico in the late 1990s and is now a police officer. "It was obvious from the get-go that all they were concerned about was the bottom line."
Just once, at the May 2005 hearing in Lexington, Kentucky, the PowerPoint slides McKinsey prepared for Allstate were made public. William Hager and his wife, Geneva, who suffered neck and back injuries after the family's car was rear- ended in a 1997 accident in Lexington, sued the insurer, claiming the company failed to cover her medical expenses. The case is scheduled to go to trial in October.
One McKinsey slide prepared for Allstate was called "Zero-Sum Economic Game," a videotape of the court hearing shows. The slide explains that there are winners and losers, and the insurance company can win by paying out small amounts. "There is a finite pool of money," Golden, the plaintiffs attorney, told the judge at the hearing. "Either it goes to the injured victim or it goes to Allstate's pocket as surplus."
Allstate's attorney at the hearing, Mindy Barfield of Lexington, didn't say anything about the McKinsey slides. She didn't return phone calls seeking her comments.
Former federal flood insurance commissioner Hunter says the McKinsey approach exploits policyholders. "McKinsey presented it as a zero-sum game in which the winners would be Allstate and the losers would be the claimants," Hunter says. "I don't think a claims system should be viewed in that light. It's against any principles on how you should settle insurance claims. They should be settled on their merits."
Allstate convinced the judge to seal the McKinsey slides before and after the Lexington hearing. The insurer has resisted attempts to make the consulting firm's work public in courts across the U.S., arguing it contains trade secrets. In 2004, the company was sanctioned by the Bartholomew Circuit Court in Indiana and fined $10,000 for refusing to turn over the records to attorney Richard Enyon, representing an auto accident victim. Allstate held on to the documents and appealed the punishment. The 7th Circuit Court of Appeals upheld the sanction. Allstate then appealed to the Indiana Supreme Court, which hasn't yet made a decision.
Lawsuits in California, Florida and Texas have asserted that McKinsey's work for Allstate helped the insurer cheat claimants. Records show that through the company's Claim Core Process Redesign project, Allstate encouraged policyholders to accept small settlements on the spot.
The redesign also became a blueprint for fighting more claims in court as Allstate increased its legal staff, according to a 1997 company newsletter obtained by David Poore, a Petaluma, California, attorney who has represented homeowners in lawsuits against carriers. "The bottom line is that Allstate is trying more cases than ever before," the newsletter said. "If the offer is not accepted, Allstate will go to court, if necessary, to prove the evaluation process is sound."
McKinsey-style tactics have spread to insurers large and small--as homeowners discovered after three wildfires ravaged Southern California in 2003, including the one that hit northern San Diego. While Katrina struck thousands of low- income families in New Orleans, the San Diego fire affected mostly affluent homeowners, who fared no better with their insurance companies.
The fire obliterated large sections of Scripps Ranch, a community of 30,000 that sits atop a sagebrush and eucalyptus mesa, where homes can cost more than $1 million. After flames swept through the area on winds of up to 50 miles per hour, residents say they expected their insurance companies to live up to coverage promises and pay the full cost to rebuild. The Southern California fires led to 676 formal complaints to the state saying insurers offered payouts that fell far short of actual costs and delayed on paying claims.
One of the Scripps Ranch houses that went up in flames, a four-bedroom, gray- stucco home on a sloping cul-de-sac, belonged to J.P. Lapeyre, a division director at JDS Uniphase Corp., a Milpitas, California, maker of telecommunications equipment.
Lapeyre, 41, who is married and has two children, says he had no inkling as he viewed the remains of his house that his insurance would leave him $280,000 short of what he would need to rebuild. Representatives of Pacific Specialty Insurance Co. of Menlo Park, California, told him the most the firm would pay out was $168,075, not even half of the estimated reconstruction cost of $448,000.
The Pacific Specialty representative told Lapeyre in November 2003 that the insurer would pay $75 a square foot (0.09 square meter) to rebuild his 2,241- square-foot house. "What frustration," Lapeyre says. "I had to try to prove to them that it would cost $200 a square foot." That figure came separately
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