The slide in the labor market has become both symptom and cause of a weak economy, pulling many families into a downward spiral. Back when housing prices were still rising, Americans borrowed exuberantly against the value of their homes to finance renovations, vacations and shopping sprees. But that artery of finance has constricted considerably along with access to credit cards, forcing a reversion to the traditional limits of household finance. Millions of American families must now confine their spending to what they can bring home from work.

With job losses growing and working hours shrinking, many paychecks are eroding, prompting millions of families to cut their spending. Soaring prices for food and gasoline are overwhelming modest wage gains for most workers, leaving households with even less money to spend. All of which deprives struggling businesses of sales, prompting them to shed more workers, sending the cycle down another turn. Starbucks announced on Tuesday that it would close stores and eliminate up to 12,000 jobs, about 7 percent of its work force.

The fear of a downward spiral prompted the Bush administration to unleash $100 billion worth of tax rebates in the hopes that recipients would spend money and spur sales. The Treasury has already dispensed more than $78 billion, and the money appears to be finding its way into cash registers, with consumer spending climbing by 0.8 percent in May, according to the Commerce Department.

Economists expect the rebates will continue to help retail sales through the summer, fueling modest economic growth that spares some jobs and prevents an outright contraction.

But few expect these rebate-laced sales to expand the job market, because businesses understand that the one-time surge of money will wear off later this summer.

Many experts expect the economy to then be pulled back into the weeds by the same forces that have led the downturn — declining home prices, tighter credit and leaner paychecks.

“It’s going to be very hard to overcome those headwinds,” said Mr. Harris, the Lehman economist.

Whistle-Blower Suits Languish at Justice

By Carrie Johnson

Washington Post Staff Writer
Wednesday, July 2, 2008; Page A01

More than 900 cases alleging that government contractors and drugmakers have defrauded taxpayers out of billions of dollars are languishing in a backlog that has built up over the past decade because the Justice Department cannot keep pace with the surge in charges brought by whistle-blowers, according to lawyers involved in the disputes.

The issue is drawing renewed interest among lawmakers and nonprofit groups because many of the cases involve the wars in Iraq and Afghanistan, rising health-care payouts, and privatization of government functions -- all of which offer rich new opportunities to swindle taxpayers.

Since 2001, 300 to 400 civil cases have been filed each year by employees charging that their companies defrauded the government. But under the cumbersome process that governs these cases, Justice Department lawyers must review them under seal, and whistle-blowers routinely wait 14 months or longer just to learn whether the department will get involved. The government rejects about three-quarters of the cases it receives, saying that the vast majority have little merit.

"Even if no new cases are filed, it might take 10 years for the Department of Justice to clear its desk. Cases in the backlog represent a lot of money being left on the table," said Patrick Burns, a spokesman for Taxpayers Against Fraud, which advocates for Justice to receive more funding to support cases by whistle-blowers and their attorneys.

Supporters of federal intervention in the cases say the dividends are substantial: In recent years, verdicts and settlements have returned nearly $13 billion to the U.S. government.

At issue in most of the cases is whether companies knowingly sold defective products or overcharged federal agencies for items sold at home or offered to U.S. troops overseas. Under the Civil War-era False Claims Act, workers who file lawsuits alleging such schemes cannot discuss them or even disclose their existence until Justice decides whether to step in.

By its own account, the 75-lawyer unit in Washington that reviews the sensitive lawsuits is overloaded and understaffed. Only about 100 cases a year are investigated by the team, which works out of the commercial litigation branch of Justice's civil division.

Critics argue that the delays are at least partly the result of foot-dragging by Justice and the federal agencies whose position it represents, especially in the touchy area of suppliers that may have overbilled the government for equipment, food and other items used by troops in Iraq and Afghanistan.

Justice lawyers have rejected about 19 cases involving contractor fraud in Iraq and Afghanistan, registering five settlements that resulted in $16 million, officials said. Government officials said this week that they are considering whether to dive into 32 more whistle-blower cases involving Iraq or the Middle East.

"It's just flatly absurd for us to be five years into this war" with so few public cases, said Alan Grayson, a whistle-blower lawyer in Florida who has criticized the Justice effort and who is running for Congress as a Democrat.

Help from Justice greatly enhances the chances that a complicated fraud scheme can be unraveled, lawyers say. And department statistics show that cases Justice turns away win paltry, if any, financial recoveries.

Key lawmakers have called on Justice to make false-claims investigations a priority.

"Whistle-blowers are the key to the secrets locked in closets throughout the federal bureaucracy and government contractors," said Sen. Charles E. Grassley (R-Iowa). "These patriotic Americans stick their necks out, against all odds, to help the federal government pursue fraud and save taxpayers tens of billions of dollars that would otherwise be lost."

Last month, Deputy Assistant Attorney General Michael F. Hertz told Congress that "the number and increased complexity of the fraud schemes presented to the department, combined with the volume of cases now under review, certainly present challenges."

Among the largest false-claims cases to date are a $650 million settlement earlier this year by drugmaker Merck in connection with an alleged failure to repay Medicaid rebates; a $515 million deal with Bristol-Myers Squibb to cover illegal drug pricing and marketing; and a $98 million agreement with software maker Oracle over pricing.

Even bigger lawsuits containing potentially explosive allegations are waiting in the wings. The vast majority, more than 500 cases, involve the health-care and pharmaceutical industries and often involve Medicare and Medicaid funds.

Only a few hints of the Iraq and Afghanistan disputes have erupted publicly. One is a suit filed by two former employees of Custer Battles, a defense contracting company in Fairfax. The workers accused the company of inflating expenses on a contract it won to replace the Iraqi currency. After a three-week trial in 2006, a jury found in favor of the plaintiffs and awarded them $10 million. But U.S. District Judge T.S. Ellis III later tossed out the case, ruling that the money at issue, controlled in the early years of the Iraq conflict by the Coalition Provisional Authority, belonged to the Iraqi government, not U.S. taxpayers.

Justice declined the whistle-blowers' request to intervene before the case went to trial, plaintiffs' lawyers said. The government eventually weighed in with a court brief on behalf of the whistle-blowers when the case was appealed.

Frederick M. Morgan Jr., a Cincinnati lawyer who represents whistle-blowers, said that the numbers of lawyers willing to take on cases involving defense contractors has dwindled, in part because of Justice's slow decisions.

One of Morgan's lawsuits, against contractors hired by the Navy to build nuclear submarines and an Ohio company that manufactured submarine valves, took five years to resolve.

"The impact of a 7 1/2 -year delay in the litigation of a case is difficult to quantify but impossible to discount," Morgan said.

Whistle-blower lawyers say other factors can contribute to long delays, including the difficulty in investigating claims in war-torn areas and complications that arise when military officials contend that technology or other products at issue in the lawsuits are classified. In addition, Justice lawyers who handle civil cases often cannot proceed until authorities decide whether a case merits criminal prosecution, the lawyers said.

Even when older cases are pushed into the open, the passage of time can present courtroom challenges.

Last year, a D.C. jury awarded whistle-blower Richard Miller more than $30 million, a figure that now-Chief Judge Royce C. Lamberth tripled to $90 million. But in the dozen years since the suit was filed, witnesses' memories of events had dimmed and the U.S. Agency for International Development had tossed its investigative files.

Justice spokesman Miller said that the civil case was stalled for years because criminal proceedings in the matter took priority. He added that the whistle-blower did not object to the government's repeated entreaties for more time.

Last week, Lamberth denied defense motions for a new trial. But the verdict is likely to be appealed, according to lawyers who participated.

"I have a feeling we're some way away from resolution," said Charles S. Leeper, a lawyer for B.L. Harbert International, the main construction company involved in the case.

By Josh White

Washington Post Staff Writer
Wednesday, July 2, 2008; Page A01

Defense officials and Afghanistan experts said the toll of 28 U.S. combat deaths recorded last month demonstrates a new resurgence of the Taliban, the black-turbaned extremists who were driven from power by U.S. forces almost seven years ago. Taliban units and other insurgent fighters have reconstituted in the country's south and east, aided by easy passage from mountain redoubts in neighboring Pakistan's lawless tribal regions.

The officials and experts said the spike in troop deaths should not be the only measure of the growing conflict in Afghanistan, but they acknowledged that the Taliban's persistent attacks on military units and civilians have frustrated U.S. and international efforts to help the Afghan government secure the country.

Violence in rural areas controlled by the Taliban and in eastern provinces along the border with Pakistan has increased in recent weeks as insurgents have begun using more makeshift bombs, borrowing a tactic honed by insurgents in Iraq. According to top U.S. commanders, the number of violent incidents has risen nearly 40 percent during the first half of 2008 compared with last year.

The grim total surpassed the 27 troop fatalities in Afghanistan in June 2005. But that total included the 16 troops killed on a single day in a helicopter crash.

The 28 U.S. troops were killed by roadside bombs, small-arms fire and rocket attacks and in unspecified combat operations. The total nearly equaled the 29 announced U.S. troop deaths last month in Iraq, where violence has abated in the wake of the buildup of U.S. forces that began last year.

There have been 533 U.S. combat deaths to date in Operation Enduring Freedom, which includes Afghanistan and other areas. About 32,000 American troops are stationed in Afghanistan, along with about 30,000 from other countries. The United States has 145,000 troops in Iraq, according to the Defense Department.

British troops also experienced one of their worst months for combat fatalities since the invasion of Afghanistan, with 13 killed in June.

Although the summer traditionally brings increased fighting in Afghanistan, where mountainous terrain becomes more passable, Pentagon officials, including Defense Secretary Robert M. Gates, have called the past month a particularly difficult time.

The department's first congressionally mandated report on Afghanistan last week predicted increased violence throughout 2008. U.S. and international forces are fighting both an entrenched Taliban and extremist groups, including al-Qaeda, that are using Pakistani tribal areas to recruit and train fighters before sending them across the border.

"That has proven to be particularly problematic lately," said Geoff Morrell, the Pentagon's press secretary. As in Iraq, he added, "a military solution will not suffice. There has to be better governance, less corruption, more economic development and more vigilance paid to counternarcotics in order to ultimately bring peace and stability to Afghanistan."

Seth Jones, a Rand Corp. expert on Afghanistan, said some areas, such as Helmand province, have experienced an increase in violence because U.S. troops have moved into areas controlled by insurgents. In some rural areas, however, insurgents have moved in and are facing little or no government influence.

"As you track these numbers month by month, you do see peaks and valleys in levels of violence," Jones said. "It is not surprising to see peaks in the spring and summer. The biggest concern is the sheer levels of violence incrementally increasing since 2002. The biggest concern is that violence levels are higher than they ever have been."

Some experts, including those at the Pentagon, say that the war in Afghanistan will probably become more violent before it calms, meaning the next U.S. president could inherit an increasingly bloody conflict.

He added: "They don't expect to take over the country in the short term; they're playing for the longer term. What they have done recently is to accelerate the strategy."

Staff researcher Madonna Lebling contributed to this report.

Tue Jul 1, 2008 5:44pm EDT

By Georgina Coolidge

WASHINGTON (Reuters) - U.S. health officials are looking beyond tomatoes for the possible cause of a salmonella outbreak in the United States that has sickened 869 people and hospitalized 107 in at least 36 states.

Officials from the U.S. Food and Drug Administration said on Tuesday that they are expanding their investigation to include other types of produce that are often eaten in combination with tomatoes.

"(The FDA) is looking for all possible explanations for why this outbreak is still ongoing," said Dr. David Acheson, associate commissioner for foods for the FDA.

Officials have been faulted by some in the produce industry for the slow pace of their investigation.

Acheson would not reveal what specific produce items are being examined or where they are grown.

The U.S. Centers for Disease Control and Prevention said 179 people have become sick since June 1.

"The general issue is that cases continue to be reported that have relatively recent onsets," said Dr. Robert Tauxe, deputy director of the foodborne, bacterial, and mycotic diseases division of the CDC.

Tauxe said that several of the new cases have been clustered among people who became sick after eating at the same restaurants. The expanded investigation will look closely at these clusters, he said.

Officials have also activated the Food Emergency Response Network (FERN) to expand the number of state and local labs participating in the testing process. Acheson said the FDA is asking labs across the country to join the investigation and expand the volume and types of food they are testing.

Although officials are broadening the scope of their investigation, they said tomatoes continue to be the primary focus. Tauxe said about 80 percent of the sick people questioned in the primary investigation reported becoming ill after eating raw tomatoes.

Acheson said the FDA is also looking at its own systems for investigating the outbreak.

He acknowledged that the process has been slow and that the FDA needs to examine how to avoid similar situations in the future.

Health officials originally linked the outbreak to raw plum, Roma and round tomatoes, and said the message to consumers remains the same. A list of tomato-growing states that have been cleared by health officials is posted on the FDA website here

Salmonella Saintpaul, the strain involved in the outbreak, is rare, CDC officials said. Typically, the CDC sees only about 400 cases of Saintpaul infections in humans each year.

Salmonella can cause fever, diarrhea, nausea, vomiting, and abdominal pain, according to the FDA.

(Reporting by Georgina Coolidge; editing by Matthew Lewis)

The ruling, by Judge Joan A. Lenard of Federal District Court in Miami, is a setback for UBS, which is struggling to maintain its tradition of Swiss banking secrecy amid the rapidly unfolding investigation.

It is unclear whether UBS will turn over the names or appeal the ruling.

But the bank said in e-mailed statement Tuesday that “UBS looks forward to working with the I.R.S. to address the summons.”

Federal prosecutors have accused UBS of helping American clients hide $20 billion overseas in secret offshore accounts, evading $300 million or more in taxes.

The Internal Revenue Service and federal prosecutors want UBS to turn over the names of all American clients who had accounts from December 2002 through 2007 at the Swiss offices of UBS, its subsidiaries or affiliates — and for which UBS did not have a tax form known as a W-9.

The request covers any taxpayer with the authority to receive account statements or trade confirmations or to withdraw money from the Swiss-based accounts. And it covers accounts that were not just managed by but also maintained and monitored by UBS. Included in the request are the names of clients for whom UBS did not accurately or timely file 1099 forms, which report income earned, or taxes withheld.

“As we have noted, UBS takes this matter very seriously and is working diligently with both Swiss and U.S. government authorities, consistent with Swiss law and the legal frameworks for intergovernmental cooperation and assistance,“ the UBS statement said.